A lot of readers write to me questioning why I consider economic growth to be important. It is a complex topic and beyond a single blog – especially one that I am writing late this Friday afternoon. The short response is that I am not pro-growth. I am pro-employment and pro maximising human potential. In some circumstances economic growth is a necessary condition to achieve these goals – for example, when material standards of living are very low. In other situations, populations can still prosper with little or no growth. I do not advocate growth at the expense of environmental sustainability. But even with slow growth economies, fiscal policy is an important consideration and governments may have to expand budget deficits as a proportion of GDP to keep their economies from falling further backwards. That is the case in Japan at this present time – a nation that has all but stopped growing over the last twenty years.

More rate rises on the way: economists – where various “leading” bank economists were interviewed about the release of the minutes from the last month’s Monetary Policy Meeting of the Reserve Bank Board and the pending release of today’s wage cost data from the Australian Bureau of Statistics. I heard that we are facing rising wage pressures which would force the RBA to hike interest rates soon and that increased fiscal rectitude was required to ease inflationary pressures. I checked the station to make sure I wasn’t receiving some short-wave radio station from an unknown planet somewhere. As it turned out I disagreed with everything my bank colleagues said which is no surprise. But I decided then to call today’s blog – “They will print low” – which was part a reflection of the opaque jargon these bank economists use to convince themselves that they have something important to say and partly my forecast for today’s wage data.

Individuals often carry history on their shoulders by virtue of the positions they hold and the actions they take. When these individuals hold views about the economy that are not remotely in accord with the way the system operates yet can influence economic policy by disregarding evidence then things become problematic. It is no surprise that my principle concern when it comes to economics is how we can keep unemployment and underemployment low. That was the reason I became an economist in the late 1970s, when unemployment sky-rocketed in Australia and has been relatively high ever since. So when I read commentary which I know would worsen unemployment (levels or duration) if the opinion was influential I feel the need to contest it. That has been my motivation in economics all my career. A daily contest given that the mainstream of my profession is biased to keeping unemployment and underemployment higher than it otherwise has to be. Today I present a simple reality check for the austerians.

Der Spiegel carried the story (May 6, 2011) – Greece Considers Exit from Euro Zone. I thought that if the story was true then Greek leadership must finally be coming to their senses. The reality is that the EMU bosses have once again stalled the judgement day and provided some soft relief for an economy that continues to deteriorate. Everyone knows what the problem is – the EMU doesn’t work and without a federal fiscal redistribution mechanism it will never be able to deliver prosperity. Every time an asymmetric demand shock hits the Eurozone, the weaker nations will fail. Trying to impose fiscal rules and austerity onto the EMU monetary system just makes matters worse. Greece should definitely leave the Eurozone. Life will be difficult then but the adjustment mechanisms that would then be available to the government (floating exchange rate and currency monopoly) are more people-friendly (capable of increasing jobs and income) than the way they are currently pursuing the problem (internal devaluation and demand contraction). Europe continues to demonstrate it has no answers worth considering.