The catch-all category for my blogs reflecting my professional expertise as a full professor of economics.

A lying government pushing economy towards recession and greater inequality

It is highly surreal listening to radio/TV commentators talking about government financial affairs (fiscal balance etc). These so-called experts are paraded before the nation and the script is generally the same. The interviewer who knows virtually nothing but has the key triggers on hand (‘budget repair’, ‘ratings downgrade’, etc ad nauseum) asks the ‘well respected expert’ about the state of affairs and the answers are always the same – fictional. This charade plays out almost daily but reaches a hysterical fever pitch at the time the Government releases its annual fiscal statement (May) or its Mid-Year Economic and Fiscal Outlook (December). The Government plays along with the charade releasing what it deems to be cleverly crafted documents, shifting revenue and spending across year lines to give one impression or another of the state of affairs. None of the charade is based on any fundamental economic understanding. None of it means anything other than a demonstration of a national scam to hide the truth from the ordinary citizen who for one reason or another relies on experts to summarise technical detail into meaningful sound bites. The nation then goes about its business in this cloud of ignorance, while the elites continue to suppress wages and living standards and march of with increasing shares of national income. They know what is going on and it is in their interests to keep the rest of us from having the same information. It is the same the world over. Well, here is what is going on with a framework that allows the reader to cut through the lies …

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Austerity is the enemy of our grandchildren as public infrastructure degrades

The Australian economics media is awash with claims that Australia will likely lose its AAA government bond credit rating next week in the wake of last week’s disastrous GDP figures (negative growth recorded in the September-quarter 2016) and the widening fiscal deficit at the federal level as tax revenue slumped 15.3 per cent in the September-quarter and the trade account deficit widened. This is a non-news story really. I was asked by a journalist to comment on it the other day and I told him that he would be better-off sorting his socks in his drawer than wasting any time on this topic. A real problem, which, in part is being created by this obsession with ratings, is the massive and growing shortfall in public infrastructure in Australia and other nations as governments cut back public investment in an attempt to reduce fiscal deficits. The reality is this: What the credit rating agencies do is irrelevant to the Australian government. What is not irrelevant is the growth in public infrastructure. It is our legacy to our grandchildren. With populations getting older and dependency ratios rising, the next generations will have to be more productive than the current generation if standards of living are to be maintained, much less, increased. That will require better public infrastructure. Our stupid austerity mindset – justified by on-going lies about the government running out of money and being degraded by the rating agencies – is undermining the very strategies and actions that we require to benefit our children, their children and ourselves as we age. We are a really stupid nation.

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The ‘post-truth’ era – nothing new in mainstream economics

The dictionary says Post Truth is the “fact or state of being post-truth; a time period or situation in which facts have become less important than emotional persuasion”. But I prefer to be direct – not to mince words – Post Truth is lying, plain and simple. It is making stuff up that is untrue, in denial of the facts, and, in cases where volition drives the lying, using strategic and well-thought out tools of psychological persuasion, fear, threats etc to make it look as though the statements are factual rather than lies. The interesting thing for me at the moment in this respect is that we are increasingly being told we are now in this Post Truth era. That social media has created this Post Truth era and that something should be done about it. Oxford English Dictionary announced recently that the Word of the Year 2016 is…, you got it, “post-truth” which they claim is a “concept … [which] … has been in existence for the past decade”. Its use has apparently “spiked in frequency this year” as a result of the Brexit referendum and the US election. Two things then are worth noting. First, there is nothing new about the idea of lying to influence public opinion. Indeed, as I will explain (briefly) the whole edifice of mainstream economics, including New Keynesian economics has been ‘post-truth’ since its inception. Second, the fact that it is getting attention now is because the establishment are starting to feel the pinch – their usual media power is losing traction with the democratising influences of the Internet – and their cosy worlds of influence are under threat from a rabble. And this applies to so-called progressive Left (the socialist politicians in Europe, the Labour politicians in Australia, Britain and elsewhere) who have so bought into the neo-liberal myth machine that they cannot understand why they are now losing support from their traditional sources (working class people). The ‘post-truth’ era is apparently upon us. But the reality is that there is nothing new about lying in mainstream economics. It is built upon a lie. It is just that the lying that is spreading on the Internet (‘fake news sites’) are damaging the establishment. That is why they are now complaining. They have never complained about the incessant lying from the economics profession.

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Our affect is driving us back to a need for continuous fiscal deficits

The field of psychology is usually ignored by mainstream economists, which, in its typically arrogant and closed practice, adopts a series of a priori assumptions about human behaviour – the so-called Homo economicus – where were are always rational and self-interested and, as a result, always make choices that maximise our present and future well-being based on available market signals. Real world forces that condition actual human behaviour, such as cognitive biases and irrationality, in general, as well as cooperative and collective behaviour is ignored by mainstream neo-classical (free market) economic theory, because admitting its dominance in human decision-making would void the entire edifice of that theory and scuttle the authority that is given to the on-going narratives about deregulation, small government, privatisation, pernicious cutting of income support, and the rest of the economic policies that have defined this dysfunctional neo-liberal era. But humans do not behave in the way economists suggest. We are a complex mass of irrationality, custom, habit, and affect. We certainly use cognitive processes in our decision making but often we take shortcuts based on affect. These tendencies are pushing our behaviour back to what was normal before the credit binge that led to the GFC. This shift in our behaviour is associated with stagnation and entrenched mass unemployment. But the reason for these parlous outcomes is not that we have returned to more normal spending behaviour but, rather, because governments have not realised that they had to return to more normal behaviour as well. Instead of promoting the benefits of austerity (in the face of all evidence to the contrary), governments should have been promoting the benefits of continuous fiscal deficits to support non-government saving desires and maintain better employment outcomes and stronger income growth. The malaise advanced nations are stuck in at present is directly the result of ideologically-motivated choices made by governments to use to use fiscal policy properly. Neo-liberal ideology remains dominant but citizens are rebelling and something has to give.

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Poor fiction from the OECD – the organisation should be abolished

In assessing the role of the multilateral international institutions such as the IMF, the World Bank, and the OECD, one has to have an idea of what their purpose is. The IMF was created to provide funding support to nations under the Bretton Woods system of fixed exchange rates when their trading accounts endangered their capacity to sustain the agreed parities. After the system collapsed in August 1971 (effectively), the IMF had no further purpose. It reinvented itself as a neo-liberal attack dog on government intervention, and, as such, has no progressive (productive) role to play and should be scrapped. Similarly, the World Bank. The OECD was created (as the Organisation for European Economic Co-operation (OEEC)) to manage the Marshall Plan funds that Canada and the US provided to reconstruct Europe at the end of World War II. It has similarly outlived its productive purpose and is now a major source of disinformation. Even in the realm of fiction, there are much better fiction writers than exist within the bowels of the OECD in Paris. Its latest entreaty, specifically – Using the fiscal levers to escape the low-growth trap – from the exemplifies the way in which the OECD chooses to perpetuate myths about government policy options, even when its message might appear reasonable to progressive eyes and ears. That is the problem really, by buying into the neo-liberal scam that mainstream economists have been running for the last 3 or 4 decades, progressive politicians and their apparatchiks have no room to move and will applaud the OECD’s current message, not realising how destructive that complicity becomes. That has been the problem all along and Trump, Brexit and the rising extremism in Europe is the outcome. Reap what you sow!

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When New is Old and just another exercise in denial

There is now a so-called “New View of fiscal policy”, which, in fact, is not all that different to the “Old View” although the proponents are hell-bent on convincing us (and presumably themselves) otherwise. The iterative bumbling along of mainstream economists, dammed by reality but steeped in denial, continues. The latest iteration comes from the Chairman of the US Council of Economic Advisors, one Jason Furman, who was supervised in his doctoral studies by Greg Mankiw at Harvard. He is also “closely linked to Robert Rubin” a classic “Wall Street insider” who was Treasury secretary under Bill Clinton and a gung-ho deregulator with a seedy past (in January 2009, he was named by Marketwatch as one of the “10 most unethical people in business”). Please see – Being shamed and disgraced is not enough – for more on Rubin. Furman’s lineage is thus not good. Furman supports free trade, social security private accounts and Wal-Mart’s labour practices which allows it to offer such low prices (for junk!) (Source). Furman is part of the core ‘Democrat neo-liberal establishment’, which received its comeuppance in last week’s Presidential election. His views on fiscal policy should come as no surprise then.

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Using welfare systems to hide the problem of deindustrialisation

There have been lots of E-mail requests overnight for commentary on the US election result. I think that space is pretty crowded at present – with Clinton supporters trying to reconstruct events to defray their responsibility (a denial strategy), in a similar vein to the Remainers in Britain in the early days after the Brexit vote. I expect to read learned columns in the New York Times and other establishment newspapers in the weeks ahead outlining, with all the gravity that is possible in the written word, how millions of Americans who voted for Trump are now regretting it. Same as in the UK. I expect to read a lot about racism and misogyny and various numbers wheeled out to show who voted for whom to prove this or that. The twitterverse has already gone crazy with this sort of ‘analysis’. Maybe later when I have had a chance to reflect on the actual data I might write something. But what part of “the people are sick of the establishment even though they don’t quite know what they are going to do about it and given the choices support those who will do little about it” is hard to understand. The neo-liberal lust has created a monster that they now cannot control. The highly concentrated mainstream media doesn’t call the shots as much as it did. The academic economists who preach fear of change but who people know from the GFC are a depreciated cohort without much insight at all are now ignored. That is how I am seeing it. A great chance for a new progressive element but also space for the worst of the right-wing to fill. A big contest is now there for ideas to play out. The only problem is that the mainstream ‘progressive’ forces (like the Democrats, British Labour Party, Socialist Parties, etc) have been so captured by the establishment that they have become the establishment – neo-liberal to the core. But today, I will write a bit about the abuse of Disability Support Pension schemes to hide unemployment and make austerity look less worse than it is.

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ECB – every which way but to the point

Eurostat released the latest national accounts data for the Eurozone yesterday (October 31, 2016) – Preliminary flash estimate for the third quarter of 2016 – which showed that real GDP grew by 0.3 per cent in the third-quarter 2016, unchanged from the second quarter and below the previous two quarters by 0.2 per cent. In this context, there was an interesting article in the latest ECB Research Bulletin (October 28, 2016) – The recovery of investment in the euro area in the aftermath of the great recession: how does it compare historically? – written by Philip Vermeulen, a senior economist at the central bank. I say interesting for two reasons: (a) the subject matter is inherently of interest; (b) the manner in which the article dodges around the obvious is a reflection of the institutional intellectual capture of the bank, even though the disclaimer is that the views expressed “do not necessarily represent the views of the European Central Bank and the Eurosystem”.

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A Job Guarantee ensures there is always a job for the unskilled

Economists often use the so-called Unemployment-Vacancy (UV) ratio, which is the number of official unemployed divided by the number of unfilled vacancies at any point in time, to measure the strength of the labour market. The latest data from the Australian Bureau of Statistics (ABS) shows that the UV ratio in Australia is currently at 4. This means that there are four unemployed workers per unfilled vacancy – a sign of a relatively weak labour market. However, a new Report from Anglicare researchers in Australia, which was released yesterday, shows that when we disaggregate the analysis and examine a match of vacancies by worker in each skill level, the UV ratios for the most disadvantaged workers is much higher. The obvious solution for the federal government is to introduce a Job Guarantee, which effectively ensures the UV ratio for the most disadvantaged workers would be equal to unity. In other words, there would always be a job opportunity available that would suit the most unskilled worker in the nation. That is what today’s blog is about.

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The case against free trade – Part 1

Like many aspects of mainstream economic theory – free trade – is one of the concepts that sounds okay at first but the gloss quickly fades once you understand the basis of the theory and how it derives its seemingly ideal results. In practice, the textbook ‘model’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. Further, even within the mainstream approach the terrain has moved. The old perfectly competitive ‘models’ of free trade, which go back to the Classical economist David Ricardo and were embodied in the so-called Heckscher-Ohlin and were used to disabuse notions of government intervention (protection, tariffs, import duties etc), have been surpassed in the literature. This blog is Part 1 in a two-part (might be three) series on why progressives should oppose moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. This segment fits into Part 3 which focuses on ‘what is to be done’.

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