Last week (June 11, 2014), the Australian Treasurer gave a speech at the right-wing Sydney Institute entitled – A Budget For Opportunity. The Treasurer was attempting to spin the impossible – that the May Fiscal Statement was fair (equitable) in that all Australians would be contributing to the deficit reduction. That is patently false. It is clear that the largest burden arising from the fiscal reduction will be borne by those with least income, including those reliant on public income support to scratch out the barest of existences. But in trying to make this impossible case, Hockey also invoked the classic divide and conquer strategy that conservatives use to segment and coopt certain sections of the population into agreeing with policy changes that will not only undermine their own prosperity but devastate the prosperity of other ‘segments’ who they manage to vilify. And while that is going on, the high income earners and wealthy, who are more likely to support the conservative political parties sit back sipping on their gins laughing their smug heads off. What a world it is.

Today is a public holiday in Australia where we go to the football or do other things all in the name of the Queen’s Birthday – the Queen of England that is. It remains an expression of our colonial yoke and our lack of confidence as a nation, which continues to harm us, none more than our indigenous population. Anyway, the workers get to have a day off, which can’t be a bad thing. One of the more amazing frauds that the population is exposed to from our political leaders is the claim that if you impose fiscal austerity growth will spring forth as consumers and firms start spending again because they don’t have to save up to pay for higher taxes in the future. It is a crazy theory without an evidential standing. More evidence from Australia since the release of the Government’s May Fiscal Statement (aka Budget) is very conclusive that consumers and firms do not like announcements of major fiscal cutbacks.

Already this morning I have received several E-mails asking me to comment on the latest article in the Sydney Morning Herald (February 3, 2014) – Budget a matter of timing and nerve – by its economics editor Ross Gittins. I prefer not to write a full blog about this because it will distract me from my Eurozone book that is running to a tight deadline before publishing. But I will make a short comment on what I see as symptomatic among financial and economics journalists – a laxity in their terminology, which either deliberately supports or involuntarily plays into the hands of those who seek to redefine full employment as something that allows austerity to look acceptable.

The Governor of the RBA appeared before the House of Representatives Standing Committee on Economics yesterday (December 18, 2013). He told the Committee that the economic growth that we experienced leading up to the crisis in 2008 was unlikely to be repeated but his assessment was largely ideological in nature – in the sense that he implicitly eschewed a fundamental re-appraisal of the policy structures in the economy and the way in which national income is distributed. He thus rejected (tacitly) a return to fiscal activism claiming the public “debt dynamic” militated against that. He admitted the limits of monetary policy as an expansionary force. And he implicitly ignored the fact that the on-going failure of real wages to keep track of productivity growth meant that if household consumption expenditure was to grow it would see a return to increasing private debt to unsustainable levels, as occurred in the decade leading up to the crisis. He acknowledged that households were much more cautious now given the heavy debt levels they were carrying but didn’t acknowledge that this meant that the fiscal surpluses of that era were also unsustainable and that deficits were needed to offset the drain from the external deficits and the cautiousness of the private domestic sector. The journalists thus published all the wrong headlines and stories and the public is none the wiser. We remain locked into a neo-liberal option set that will deliver sub-trend growth and rising unemployment. The Governor even had the audacity to say that the unemployment rate (at 5.8 per cent) was low by historical standards, which in itself is false (depending on where history starts) and ignores the fact that our broad labour wastage exceeds 15 per cent of the willing labour force at present.

The new Australian federal government released its – Mid-Year Economic and Fiscal Outlook – today and this gave the media something to salivate about and led to sensationalist headlines and presenters oohing and aahing about impending meltdowns and unsustainable government spending and the rest of it. But in terms of actual detail all it really told us was that the government deficit is higher than expected. The issue of focus should have been the expectation rather than the reality – why did the Treasury expect it to be lower given they had overseen an unprecedented fiscal contraction in 2012-13 which reduced economic growth and undermined their tax base? Why didn’t the press focus on that and ask the new Treasurer how cutting government spending now, as the economy is slowing and unemployment is rising is in any way responsible or good economics. Not a word. The message the citizens get is that Australia has a dire government deficit emergency that will undermine our welfare for years to come. The truth is that the deficit is undermining our welfare because it is too low. That is my headline.

In July 2013, the Australian Labor Party (the then Federal Government) humiliated itself when it created the – Parliamentary Budget Office. It was a case of “me too” “catch-up” neo-liberalism because the morons who dreamt up this plan felt left out because the US had its Congressional Budget Office and the Brits had a Office for Budget Responsibility and other advanced nations similar. The now conservative Federal government humiliated itself in September 2013 when it declined the sensible path which would have scrapped this ridiculous waste of public funds. The PBO humiliated itself yesterday when it released its first report – Australian Government spending Part 1: Historical trends from 2002-03 to 2012-13 – which contains spurious analysis, to say the least. And last not least, several leading economics journalists in Australia humiliated themselves this morning when they wrote up the PBOs press release as if it was something that mattered and refused to elicit a single critical word of the PBO report. Their creativity was to get some quotes from various “bank” economists who considered the report was tantamount to the sky falling in. What a sorry mess this all is. And it will be the poor, the unemployed and underemployed who will bear the brunt of the policy response.

I got on a plane on Monday and flew many hours. I was in search of the public debt overhang. I read and read many articles during my journey to the other side of the planet (where these overhangs are apparently sighted on a daily basis). But in the cold (very) early (very) hours of today, I concluded my mission was a failure. The rumours of a public debt overhang, whatever that might be, remain just that – the mumbling gossip that passes for truth once the public start spreading it. In the world of facts, such an overhang eludes specification. In January 2013, at the annual American Economic Association meeting (January 4-6, 2013) in San Diego, there was a panel session with a number of allegedly “leading” economists. Their deliberations were apparently public endorsement of the claim that government debt had reached a dangerous overhang and would undermine growth prospects for the future. The policy options were limited and all involved harsh fiscal austerity – or in IMF speak “growth friendly fiscal consolidation” (which is my nomination for the joke phrase of 2013). The problem was that a few months later the IMF released a major update (October WEO) where they appeared to deny the presence of a “tipping point” – some dangerous threshold that public debt should not exceed (R&R-style). So here is how it all unfolded …