Late last year (December 2016), an interesting academic research paper was released by the National Bureau of Economic Research – The Fading American Dream: Trends in Absolute Income Mobility Since 1940 – which provides stark evidence of the way in which this neo-liberal era is panning out and suppressing the opportunities for the least advantaged. One of the constantly repeating claims made by conservatives is that if governments run deficits they are really undermining the future for their children and their children. The claim is that while the current generation is living it up (deficits are tantamount in this narrative to living a profligate existence), the next generations will have to pay for it via higher taxes and reduced services.It is a bizarre argument given that each generation chooses its own tax burden and we cannot transfer real resources through time. There is truth in the argument that if the current generation imposes terminal damage to our natural environment then we are diminishing the prospects for the future. But that is not the point that the neo-liberals make. Indeed, there is a strong positive relationship between conservative views of fiscal policy (deficits) and the propensity to engage in climate change denial. Recently released research is now showing that around 50 per cent of American children born in 1980 have incomes higher than their parents compared to 90 per cent born in 1940. The so-called ‘American Dream’ is looking like a nightmare. Other research has shown that the bottom 50 per cent of the US income distribution have not enjoyed any of the growth since 1980 and that the top-end-of-town has increased its share of income from 12 per cent in 1980s to 20 per cent in 2014. These shifts are the result of deliberate policy changes and inaction by governments, increasingly co-opted by the rich to serve their interests at the expense of the broader societal well-being. Revolutions have occurred for less.

There was an Op Ed last week from an Australian academic who attacked Modern Monetary Theory (MMT) along the lines that its proponents are “a bunch of cranks” and practice “charlatanism”. He also considers us to be sellers of “snake oil” and other nasty things. It was an extraordinary public intervention given that the argument was based on assertions drawn from an intermediate mainstream macroeconomics textbook, bereft of historical understanding and bereft of any real knowledge of the way the monetary system and the institutions within it (government, central bank, commercial banks) actually work. The MMT critique went like this: (a) misrepresent MMT through attributing claims to its proponents that are not remotely to be found in the literature; (b) claim you are not misrepresenting the MMT literature by selective quotes that are not actually consistent with the misrepresentations; (c) bring in one liners from textbooks that have been demonstrated to have no real world application and are patently wrong in many key elements of the banking system and the way bond markets operate; (d) call us fools for not knowing any of this. Well, it doesn’t take long into the article to realise who the fool is. The other point is that MMT is now clearly at the stage of development where the mainstream think they have to attack us and put us down. That is the next stage in our development (following years of being totally ignored). Progress is being made.

Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.

At the heart of economic policy making, particularly central bank forecasting are so-called Dynamic Stochastic General Equilibrium (DSGE) models of the economy, which are a blight on the world and are the most evolved form of the nonsense that economics students are exposed to in their undergraduate studies. Paul Romer recently published an article on his blog (September 14, 2016) – The Trouble With Macroeconomics – which received a fair amount of attention in the media, given that it represented a rather scathing, and at times, personalised (he ‘names names’) attack on the mainstream of my profession. Paul Romer describes mainstream macroeconomics as being in a state of “intellectual regress” for “three decades” culminating in the latest fad of New Keynesian models where the DSGE framework present a chimera of authority. His attack on mainstream macroeconomics is worth considering and linking with other evidence that the dominant approach in macroeconomics is essentially a fraud.

The Australian Federal Department of Foreign Affairs and Trade (DFAT), which oversees the Overseas Development Assistance (ODA) our nation extends to those less fortunate nations released new data last week in the wake of the Mid-Year Economic and Fiscal Outlook that the Treasurer launched on December 18, 2016. The data allows us to ascertain the shifts in ODA that will occur as the federal government continues its obsessive pursuit of a fiscal surplus. The austerity is not only killing growth in Australia (recall that September-quarter real GDP growth was negative) and increasing the national poverty rate but is also revealing how mean we are as a nation. As one of the wealthiest nations in the world (currently we are ranked 2nd behind Switzerland for per capita wealth), we are now cutting into the resources we extend to poorer nations in our region as part of a mindless quest for surplus. The problem is not only the economic idiocy that underpins these cuts. The other, perhaps larger problem, of which the first is a symptom is that, as a nation, Australia is losing its moral compass. In this neo-liberal era, we have become an increasingly ugly nation – lacking in generosity to each other and to outsiders. We engage in criminal behaviour (indefinitely detaining refugees in prisons on remote islands; engaging in illegal invasions of foreign nations, etc) and punish poverty rather than do everything we can to reduce it and provide the equal opportunities to all that we so often congratulate ourselves as being champions of. We are a mean-spirited nation these days and an international pariah. There is no pride in holding an Australian passport. It is easy to live here if you have money. The climate is good, the beaches great, plenty of open terrain, great sport – but our national spirit is disappearing.

On Monday (December 19, 2016), my blog – US central bank decision to raise interest rates doesn’t make much sense – examined the recent interest rate hike in the US and made a case that it didn’t appear, on the basis of the evidence at hand, to be a well-reasoned policy decision. In researching the case I was struck by how far public gross capital formation has fallen in the US, particularly at the State/Local level as mindless austerity takes its toll. Governments find it easier to cut capital spending than recurrent spending because the ‘costs’ of the those spending cuts are not immediately obvious to the population and, typically, do not manifest until after the political cycle exhausts. Cutting pensions, school outlays, and other recurrent targets usually brings an immediate political outcry because the impacts are immediate. But it takes time for public infrastructure to degrade from lack of maintenance and replacement. Eventually it does degrade and in some cases becomes unusable. Then the costs of repair/replacement are usually higher than if the resource had have been maintained and replaced according to reasonable engineering schedules. The US Bureau of Economic Analysis (BEA) publishes a very interesting data series that allows us to examine the ageing of the capital assets (public and private) on an annual basis back to 1925. I thought I would explore that dataset to inform the proposition that neo-liberalism has been associated with degraded public infrastructure and the loss of service (to the non-government sector) that accompanies such degradation. The results of my enquiry are fairly stark.