News Limited is still (mis)leading the way on the deficit-debt attacks. In another appalling piece of misrepresentation and erroneous reasoning, The Australian ran a story from its economics chief, Michael Stutchbury today entitled Now comes time to pay the piper. This newspaper has really excelled in recent months in the lengths it has gone to mislead and lie to its readers on matters relating to the macroeconomy and the conduct of fiscal policy. There will be a piper to pay – that I agree – but it will be because the federal budget deficit is not large enough right now rather than because it is too high.

I wrote the following piece this morning for tomorrow’s local Fairfax newspaper. While some of the content is definitely of local interest there might be some things of interest to the broader debate. Also it is written to fit a column so it doesn’t allow for much elaboration.

This weekend I am quite busy presenting modern monetary economics to two Greens events. You can see the details below. If you are interested in coming along I am sure you will be welcome.

The world seems to be going more insane every time I check. I have this naive belief that we bother to elect governments because we understand they can do things (as a collective) that we cannot do very easily (as individuals). I also assume we all think our elected governments will broadly use their fiscal powers to pursue an agenda that will advance public purpose – that is, seek ways to improve our standard of living and ensure all citizens participate in the bounty that the economic system generates (including sharing the losses when it doesn’t so generate). Of-course, I know that our polities basically govern to keep themselves in power. But there is the occasional election. Anyway, recent events suggest that governments seem to be able to construct popularity by taking actions that do us harm.

In an article in yesterday’s WSJ The Fed’s Exit Strategy, federal Reserve Chairman Ben Bernanke provides an account of some of the operations of the monetary system that I write about in billy blog. While he doesn’t say it explicitly, he confirms that debt is issued to support interest rates (not fund net government spending) and that debt is not necessary at all if the central bank pays a “competitive” rate on overnight bank reserves held at the central bank. He also confirms that inflation is not an inevitable aspect of an expansionary package but it could be. All fundamental propositions of a modern monetary view of macroeconomics. So in one week, a Nobel Prize winner and now the Chairman of the Fed are stumbling around logic that confirms the neo-liberal driven deficit-debt-inflation-higher-taxation hysteria is without foundation.

In Deficits saved the world you read that a Nobel Prize winner not previously associated with Modern Monetary Theory (MMT) is starting to come round. The article by Paul Krugman highlights some of the basic elements of the sort of macroeconomics that I have been writing about for years and which forms the basis of this blog. It shows definitively the point I make about the macro balances – that a government surplus will squeeze the non-government sector into deficit and vice versa. It also addresses the current policy debate which is getting swamped a bit by idiots who are saying that fiscal policy is not working and should be constrained to get the government budget back into surplus.

There were two related stories this week from either side of the Pacific Ocean. From the east coast came – Rollout of jobs scheme ‘a sham’ and from the west coast – Stimulus Is Bankrupt Antidote to Failed Stimulus. While the US-based article is a polemic from the right-wing American Enterprise Institute and the second is a journalist’s reporting on Australian political trivia, they both raise interesting issues regarding the way fiscal policy is conducted. The issues raised provide further justification for employment guarantee schemes as a sophisticated addition to the automatic stabilisation capacity that is inherent in fiscal policy and makes it superior to monetary policy.

I read the headline in the UK press this morning – UK can’t afford another fiscal rescue – as a sure sign that all current and future keyboard operators within the UK Government had resolutely decided to refuse to enter a number in any government spending account from now on. This clearly would make it hard for the Government to continue spending given that a sovereign government like in the UK just spends by crediting private bank accounts and only a typist or two is needed to make that happen any time the government desires. I wondered what the Government had done to their operational staff that they would take such drastic action. So I started out to investigate what seemed to be a major yet fascinating industrial relations dispute between a government and its typists.

I had to double-check over the weekend whether I had actually read an article in the Fairfax press – Alarming debt bomb is ticking – given that my flu-ridden state was playing havoc with the clarity of my eyesight. Upon checking today, I concluded that I had read it. It is one of those articles that uninformed readers will consider erudite given the technical language it uses but which in fact is so misinformed at a theoretical level that it is has to be considered pure propaganda. It is sad that this sort of techno-mumbo-jumbo nonsense gets any space in our leading daily newspapers. I would rather more cartoons or brain teasers if they are struggling to fill their pages. Even an advertisement about the latest skin cream that not only eliminates wrinkles but also increases the reliability of the left-hander at Nobby’s would be better (Nobby’s = surf break)!