Yesterday I read an article by Noam Chomsky – Rustbelt rage – which documents the decline of the American dream and extends the malaise to Chinese workers. The hypothesis is that the workers in each country signed up for what they thought was a social contract where if they worked hard they would enjoy secure retirements. Then the meltdown undermines their jobs and they are forced to live on pitiful pensions. And while they watch the top-end-of-town enjoying the benefits of billions of bailout money from government the beneficiaries of these bailouts are leading the charge to take the pensions of the workers and turn them into “financial products” (privatised social security). This raises the concept of doublethink (a term coined by George Orwell) – which “means the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them”. That was what interested me today (in blog terms).

Well last night’s Australian federal budget was a total disgrace. Which means I am either crazy or the most of the rest of the commentators are because they are all hailing it as wonderful piece of policy. Lately, I have increasingly been reading this claim that governments have to conduct “fully-funded spending” as some sort of icon of fiscal responsibility. The Australian treasurer said it repeatedly in his speech and in his following press interviews. Whenever I read or hear that idea I say quietly: What part of accounting don’t they get?

Tonight the Federal Treasurer delivered his third budget and it was a disappointing effort. The worst line in his speech was “Best of all, the unemployment rate is expected to fall further from 5.3 per cent today to 4¾ per cent by mid-2012, around the level consistent with full employment”. So their aspirations are that low. There was also nonsensical statements about the government not being able to afford to “invest in skills, infrastructure, renewable energy and hospitals” unless new tax measures were found. There is also some stupid fiscal rules introduced which will not stand scrutiny if Europe melts down and a new crisis emerges. The following is a 550-word Op Ed commentary I wrote for the local Fairfax press. The word limit and the audience constrain what I have to say and how I said it.

I followed the attacks on pro-Israeli New York Times war monger Thomas Friedman some years ago, which centred on his support for the invasion of Iraq and his repeated prognosis that it would only take 6 months to decide the fate of the conflict. The six months never really materialised and by 2007 he was arguing, just as vehemently as he argued for war, for US disengagement because the strategy had failed. He was imbued with the WMD mania that was used by the US, Australian and UK governments to “justify” the unjustifiable despite them knowing there were no such dangers. So he is a guy who obviously knows what he is talking about! In his latest column he tries his hand at economics with a similar intellectual arrogance and lack of judgement that he brought to the Iraq issue.

Yesterday, I was walking over to the library and I ran into an old colleague who has been dragooned back into teaching macroeconomics on a casual basis. The person was telling me that they were dreading taking the class next week because the topic was banking and the relationship between reserves and the money supply. Accordingly, the person said the chapter in the textbook specified by the lecturer-in-charge was about the money multiplier. The person I met is familiar and sympathetic to Modern Monetary Theory (MMT) and posed the question “how can I do it?”. My answer was that students deserved better and that the lecture should develop the multiplier from a critical perspective so that students know about it but realise how far-fetched it is as a depiction of how the banking system actually operates.

I have returned from the US after participating at the Fiscal Sustainability Teach-In and Counter Conference held in Washington D.C. last week. It was a good event and has stimulated a host of follow-up blogs from the activists who promoted the event. On the way home, I read the most recent report from Citi Group (who were saved from bankruptcy by public funds – they were among the first to have their hands out) which is predicting major sovereign defaults. It was clear that Citi Group was advocating very harsh fiscal austerity measures. How often have you heard the statement that the current economic crisis is evidence that “we are living beyond our means” and that the policy austerity that has to be introduced to “pay back the debt” is an inevitable consequence of our proliflacy – both individual and national?

The Fiscal Sustainability Teach-In and Counter-Conference was held at George Washington University in Washington D.C. today (Wednesday US time that is – April 28, 2010). It was a grass roots exercised designed to counter the conference organised by the arch deficit-terrorists at the Peter G. Peterson Foundation, which was also held today in Washington D.C. While that event will also talk about “fiscal sustainability”, the reality is that it will merely rehearse the standard and erroneous neo-liberal objections to government activity in the economy. The objections are underpinned by religious-moral constructions dressed up as economic reasoning.

Given I am currently in Washington DC, I thought a local story would be appropriate for today’s blog. In February 2010, the IMF published a Staff Paper which reversed its long-standing position on capital controls. Staring at the hard evidence that nations, which had imposed constraints on surging capital inflows to attenuate the negative economic impacts, fared better in the recent global financial crisis, the IMF has acknowledged that their previous position based on free trade back by total liberalisation of cross-border financial flows was unsustainable. They now argue that controls on capital inflows can be effective if well designed and safeguard an economy from the costs of speculative attacks. Some progressives are calling this a revolution. I am less convinced. From a Modern Monetary Theory (MMT) perspective, I would solve the problem by placing total bans on speculative flows that do not back real production (for example, that reduce foreign exchange exposure in cross-border trade). But this is another example of the zealous position that has been long-advocated and implemented by the IMF has failed to safeguard national economies from the destructive forces released by the increasing financialisation of the global economy.