Various estimates about the size of the federal budget deficit are starting to emerge. The Government has acknowledged that the data shows that tax receipts have fallen dramatically and now their budget is in deficit. For me that is a time of national rejoicing … finally … the federal government is doing what it should … resuming its crucial role in financing non-government (in this case) domestic private savings. Finally, there is a net injection of financial assets coming from the excess spending over receipts. Finally, the drain on private wealth that the creation of budget surpluses requires is at an end.

Australian Prime Minister Kevin Rudd has written an essay extolling the virtues of a new era in public policy which he calls “social capitalism” which is based on a strong guiding role for government and an abandonment of self-regulation by corporate interests which was the hallmark of the neo-liberal era. He sources the current global economic meltdown to the neo-liberal takeover which began more or less in the mid 1970s after the first OPEC oil price rise. The problem is that his new vision is still tainted with the worst elements of the neo-liberal era.

The government (Department of Education, Employment and Workplace Relations) released the January Vacancy report today which provides some information about the demand-side of the labour market. The Skilled Vacancy Index (SVI) is published monthly by the DEEWR and is based on the number of skilled vacancy advertisements in major newspapers . I have written a fair bit about the so-called skills shortage and have concluded that the SVI data does not support a case that a large skills gap has developed in aggregate terms in the last several years as the boom peaked. There has not been a sharp rise in the demand for skills in Australia in the last several years. The latest data is particularly alarming though.

Today in the Fairfax press, economics writer Ross Gittins in an article entitled No good reason to feel depression claims that we should not be too worried about the looming recession because after all things aren’t likely to be that bad. Well from my perspective recessions are episodes that wreak havoc on the most disadvantaged citizens in our society and should never occur.

The Sydney Morning Herald is running a series at present looking at the labour market prospects in the coming year. It is a welcome return of emphasis to the massive labour wastage that this country endures given that the major media has up until now largely bought the erroneous “we are at full employment” rhetoric pumped out by the previous federal government.

The story entitled Statistics point to hard time on job front, written by Andrew West and Jessica Irvine and published today (January 24, 2009) began with:

AS MANY as 2 million Australians could be jobless or working fewer hours than they would like by the next federal election – the highest rate of “labour wastage” in a generation …

An analysis by a leading labour economist, Professor Bill Mitchell of the University of Newcastle, predicts the total rate of labour wastage could rise to about 20 per cent of the workforce by mid-2010.

The extraordinary events in world financial markets which have undermined the basis of capitalism have led to equally amazing Government responses – massive injections of public spending, nationalisations of banks and bailouts of huge financial institutions with little regard for the relevant shareholder interests.

A major paradigm shift is occurring in economic thinking away from the free market deregulation era that has dominated since the 1970s. All the logic that justified government cut backs; the run down of public infrastructure; the harsh treatment of welfare recipients; the wasteful privatisations, and the rest of the neo-liberal litany that served to transfer wealth from poor to rich and create an disadvantaged underclass has been destroyed by these events.

How bad is it when the Treasurer of the nation fails a test in basic national accounts (the material that is covered in Macroeconomics 101)? And how bad is it when he also reveals a fundamental ignorance of the basic operations of the monetary system? When the Senate moved to block the luxury car tax yesterday, the Treasurer Wayne Swan was quoted (see http://www.abc.net.au/news/stories/2008/09/04/2354836.htm) as follows: “If the surplus is raided to a significant extent that will be on the head of Mr Turnbull and the Liberal Party, who are clearly saying that into the future, they prefer a higher level of interest rates than we otherwise might have”. In fact, if he had even the remotest understanding of the way the modern monetary economy works he would know that surpluses put upward pressure on interest rates, other thing equal, while deficits put downward pressure.