Since last week’s Federal Budget was released there has been an hysterical response from the Opposition, the media and the Government in reply. Claims of forecast errors, forecast manipulation and more have been in our faces every day. The temporary Opposition Leader even suggested that we need a new independent body – the Parliamentary Budget Office (PBO) to discipline government and stop it lying about the medium term forecasts and its economic policies. The comical side of this very sad week has been provided by the Shadow Treasurer’s struggle with averages. It was so hilarious that I am actually enjoying his attempts to sound as if he knows anything about macroeconomics. He doesn’t but that doesn’t stop him. But overall, once again I think the debate reflects a poor understanding of how the economy works.

Today the ABS published its Average Weekly Earnings, Australia data which gives us some information about how workers are faring in the recession from the perspective of their wage returns. It also allows us to compare the trajectory of wage movements over this downturn (so far) against the 1991 downturn. Some interesting results emerge from that comparison.

Yesterday we had the rather unusual situation of the Treasury Head presenting a robust defence of his Department’s work after various commentators have suggested the forward estimates were flaky to say the least. Overall, it is an amazing exercise given that the issue is about how quickly the federal budget balance will return to surplus. So instead of a robust debate about why the Government is allowing unemployment to blow out and long-term unemployment to become entrenched again, all the hot air is about how quickly the federal government can start trashing the saving capacity of the private sector again. You get some feel for how low brow the debate actually is out there in expert media commentary and interview land by reading the ABC 7.30 Report transcript from last night when the presenter tried to question the Opposition Treasury spokesperson. It was as bad as it gets.

Some readers have written in and asked about whether Norway behaves like a modern monetary economy after they read the New York Times article titled Thriving Norway Provides an Economics Lesson. The short answer is yes but this is a case that raises interesting issues about the way the government and non-government sectors interact and how sustained economic growth and high employment can be accompanied by a budget surplus. Yes, it is possible but atypical. In this blog I provide the explanation. We also encounter some very dodgy manipulation of data to push an ideological line! Not good.

I was in Sydney today doing various things (see below). It was an interesting day but this morning’s activity gave me some hope that there are community leaders out there who want to fight back and jettison the neo-liberal garbage that is constraining their ability to deliver social equity and job security for their members. My input to the discussion was to tie this in to the macroeconomic debate. These macroeconomic matters – which I write hundreds of thousands of words every year about – really lie at the heart of the problems facing low wage workers and the unemployed. Unless we successfully counter the orthodoxy then tinkering around the edges will be all that we can do. I realise the macroeconomic concepts are difficult to talk about in an accessible way. I also realise that the neo-liberal orthodoxy has been incredibly successful in inculcating notions that the Federal budget is akin to a household budget. Readers of this blog will know it can never be that way. So the challenge for our community leaders is to develop a macro narrative which can permeate the public debate and slowly redefine how we see government; what goals we want the government to pursue (full employment) and how they do business with employers. That is an interesting challenge and I like things like that.

I must have just woken from a bad dream. Did I read this week that the Australian Government will record a deficit of $A58 billion or 4.9 per cent of GDP but are forecasting unemployment will rise from its present parlous level of 5.4 per cent to 8.5 per cent by the middle of 2012? It must be a joke. If it is serious then this lot deserve to be a one-term government not that I have any hope that the alternative (conservative or green) would do any better. They are all caught up in this neo-liberal straitjacket which has been increasingly tightened over the last 30 years and now ensures that our national government will not use its economic policy capacity responsibly. Our current Federal Government not only continues to abandon full employment but is also abandoning the unemployed. What a place!

The ABC News Online business reporter Michael Janda ran this Opinion piece – Economists tackle the deficit and debt debate today. He interviews three economists – myself, Steve Keen (University of Western Sydney) and Stephen Kirchner (Centre of Independent Studies). The discussion is interesting because it demonstrates how the journalists modify what you say to mean something slightly different (no accusation here that it was designed to skew meaning though) and generates the statistic that two out of three economists do not understand how the modern monetary economy works.

Imagine the time when it was the mainstream view that the Earth was flat, representing an infinite plane. The view largely died at around 3 BC but there are still some characters out there who worry about falling off the South Pole. After all the Nile River runs for thousands of kilometres and drops barely a few feet over that distance which doesn’t fit well with convexity does it?

The current budget period seems to have revitalised the theory – albeit in a different form but just as ingenious. Flat Earth Theory (FET) … say it out aloud! … has morphed into DET. This new branch of FET is now dominating the media. Overnight Generation Y are Generation DET. Young children are now viewing their parents differently – wondering why their greedy, selfish and profligate elders are going to destroy their futures. Experts are coming and going on our national TV and radio warning that we are about to fall over the edge! Well I am staying grounded! Here is the reason why.