Sometimes ex-IMF officials shed the burden of having been associated with that institution and make a creative contribution to the public debate. More often they do not and continue to perpetuate the errors that underpin almost all of the IMF’s output. If there was ever an institution that has passed its use-by date it is the IMF. Today, ex-IMF Chief Economist Simon Johnson (now at MIT) claimed that the way to assess fiscal sustainability is “whether a country has the political will to raise taxes or cut spending when under pressure from the financial markets”. You can imagine what I thought of that criterion! Not much but it is too late in the year to get really flustered and I have been listening to some pretty good music this afternoon. So for all those readers who have written in saying “doesn’t Johnson have credibility” and “therefore is what he is saying sensible” I have three words – No and No.

You know something is wrong when the unemployment rate in major holiday destinations persist at high levels. Typically, these areas have what economists refer to as seasonal unemployment – so that during the off-season (when the holiday makers are back home) there is very little labour market activity but once the vacation period begins there are many jobs and people. I have lived in various surf locations for many years and one such location had a steady-state population of 1000 or so residents and on Boxing Day this swelled to 25,000 and that new population endured for the ensuing holiday period (until the Australia Day weekend – January 26). Many of the surf crew and musicians would take jobs during this period and work very long hours (the surf was typically bad during the summer anyway) and use the savings to eke out an existence for the rest of the year – sometimes also accessing unemployment benefits sometimes not. The US Bureau of Labor Statistics published a bulletin (September 7, 2010) for the Cape Cod area which is one such major holiday region in the US. The situation there is dire and requires an immediate policy response from the US government. Unfortunately, this issue appears to be off the policy agenda. Well, until this week at least. A Democrat from Ohio has introduced a “full employment bill” which aims to eliminate the US central bank (good) and restore the US government’s currency sovereignty for keeps. The problem is that it goes down some dead-ends and avoids facing up to the real issues. So it is a well-motivated full employment bill – sort of!

I imagine a doctor when confronted with a set of symptoms being presented by a patient carefully goes through each one and draws on his/her bank of knowledge, understanding and experience to arrive at an interpretation. A patient that has been sick for some time and is in the early stages of recovery may still exhibit signs of stress and the doctor appreciates that and doesn’t ring any alarm bells. It seems that the same doesn’t apply to my profession. Members of my profession seem to jump on any bandwagon that arrives and which triggers their favourite narratives about excessive government spending and borrowing and all that sort of public misinformation. The most recent example of this came yesterday (December 21, 2010) when the UK Office of National Statistics released the latest data for Public Sector Finances (as at November 2010) which showed that British government spending continues to grow and tax revenue is still lagging. The press reaction and that of my colleagues was expected and as is typically the case way off beam. We can summarise the problem by stating that there is no such thing as a “weak” budget outcome. An economy can be weak but it makes no sense to say a budget outcome is weak unless you have an ideological bias towards some particular outcome.