Australia is in the final stages of a federal election campaign and it is likely that the conservatives will be returned to power after being out of office for eight years. The current government, allegedly non-conservative, is so close in most respects to the conservatives that it is hard to distinguish between the two. One significant point of difference over the last several years relates to the effectiveness of the fiscal stimulus that the current government introduced in late 2008 to attenuate the consequences of the global financial crisis. The conservative opposition claimed they would not have allowed the budget to move back into deficit during this period. Given the scale of the crisis, they would have had no choice anyone because the cyclical impacts via lost tax revenue would have been sufficient to drive the budget into deficit irrespective of the discretionary stimulus packages that were introduced in stages by the current government. Both major parties are obsessed with pursuing budget surpluses without the slightest recognition that in current circumstances such a policy orientation is destructive to growth and employment. I was examining some data relating to the construction industry today for another project, which demonstrates why the introduction of the 2008-09 fiscal stimulus packages were extremely effective in reducing the output and employment losses that might otherwise have occurred. The future under a surplus-obsessed conservative government for workers looks rather bleak. Here is some evidence.

There were two interesting articles I read (among others) in recent days that attack mainstream economic analysis in different ways. The first, published August 18, 2013 – Removing deadweight loss from economic discourse on income taxation and public spending – is by Northwestern Economics Professor Charles F. Manski. He wants our profession to dump all its negative welfare analysis about the impacts of taxation (as “deadweight losses”) and, instead, focus on the benefits that come from government spending, in particular, highly productive infrastructure provision. So, an attack from the inside! The second article was a Bloomberg Op Ed (August 21, 2013) – Economists Need to Admit When They’re Wrong – by the theoretical physicist, Mark Buchanan, who has taken a set against my profession in recent years. Not without justification and with some panache, one should add. They both add up to the same conclusion – mainstream economics is defunct and we should decommission teaching programs throughout the world and introduce new progressive approaches to the discipline that will produce a new bread of useful Phd graduates, rather than the moribund graduate classes that get rubber-stamped out of our higher education institutions, ad nauseum, at present.

The Australian Bureau of Statistics released the – Household Wealth and Wealth Distribution, Australia, 2011-12 – today, which is drawn from the bi-annual Survey of Income and Housing (SIH),first published in for 2003-04. My interest is in how the distributions changed during the period of the crisis and the fiscal stimulus. We are currently working on an update to our – Employment Vulnerability Index – which we hope to release sometime next week. The preliminary results suggest that the fiscal stimulus significantly reduced the risk of job loss in the period after the crisis. But more on that when we have analysed our results more carefully. Today’s data shows that wealth inequality is rising slowly in Australia but will accelerate if the proposals to further demolish the income support system and increase tax breaks for the wealthy are introduced after the next election.

Japanese economist Richard Koo recently (July 9, 2013) published his latest report on the world economy – Japan, US, and Europe face different issues – which updates some of the latest data available from the economies listed in the title. I am sorry that I cannot link to the Report as it is a subscription service (thanks to Antoine for my copy). I discussed some of Richard Koo’s ideas and how they sat with Modern Monetary Theory (MMT) concepts in this 2009 blog – Balance sheet recessions and democracy. While the basic concept of a balance sheet recession is important to grasp and the policy prescriptions that flow from it clearly point to the need for more fiscal stimulus, once you dig a little deeper into Koo’s conceptual framework you realise that he is very mainstream – more insightful than the average mainstream economist, who typically fails to even grasp the reality of the current situation, but mainstream nonetheless. And that means there are some things in his theoretical framework that are plain wrong when applied to a modern monetary economy

I wrote about the way the recent neo-liberal narrative in the UK, that constructs the unemployed as gaming the income support system and about how they need to be weeded out by harsher activity tests etc, is a theme Australians will be familiar with in this blog – The victims become the perpetrators – the neo-liberal smokescreen. The discussion touched on the way we abstract from the human suffering that accompanies mass unemployment and how the dominant paradigm seeks to construct the unemployed as an “Other” different to ourselves and accountable for their own state. Unemployment is not seen as a violent act deliberately perpetrated by us (through the agency we give our governments – the “mandate”) but rather as a chosen outcome, a rational end of an informed choice. Perhaps not one we would take ourselves but rational nonetheless and therefore of no further concern. I have been reading some relatively oblique philosophical literature lately centred on conceptions of ethics and the way historical temporality forces us to take a moral perspective whether we like it or not – that is, denial of past action is a particular moral perspective. It bears on some work I am doing in remote Indigenous communities in the Northern Territory at the moment as well as broader debates that exist in society. Here are some notes and thoughts that arise from this sort of reading and reflection.

Australia is in the midst of a federal election campaign (the election is September 7, 2013), which while short by, say US standards, is no less asinine. The sophistication of economic commentary from both sides of politics is non-existent even though every day there is a mountain of such commentary. It is a very trying period and I have been trying to avoid engaging with it as much as possible bar the almost daily press interviews about the latest announcement of release. Here are a few examples of what a sane economist like me has to put up with. The problem, of-course, is not that my sensibilities are being upset. Precious me! The real problem is that the public are continually being confronted by economics editors, professors and others who provide misleading and/or incorrect economic analysis, which distorts the way in which peope (who vote) think and act. We are really in flat earth territory at the moment and the future generations will not think of us very kindly for both our ignorance and the damage we leave for them.

Last week, the Australian government issued an – Economic Statement – which provided updated estimates from Treasury (since the May 2013 Budget) of the state of the economy and the budget position. The good news is that the Government is allowing the deficit to rise after a year of contraction as part of its obsessive and impossible pursuit of a budget surplus this year. The bad news is that the Government is not allowing the deficit to rise enough and as a result unemployment is forecast to rise significantly above its already high levels. The reason? It is still trapped in its obsessive budget surplus mania even though the reality is forcing them to postpone when they claim they will deliver that outcome. The conclusion? The Treasury clearly is reeling from its massive forecasting errors (revenue is $Axx billion down of what they forecast in the May 2012 Budget and $AxX billion down on what they forecast in the May 2013 Budget). It is also realising that they cannot fight against a significant private sector spending slowdown.