I read two articles in the last few days which tell me that the bond market traders generally do not understand the intrinsic characteristics of the monetary system and that IMF economists have even less of a clue. The bond traders attribute to themselves an air of importance that it not a reflection of their real role in the monetary system. However, my own profession continues to disgrace itself and is nothing more than a propaganda machine. The mainstream economists are too stupid to realise that their models and frameworks do not explain anything that we are interested in. But such is their position of dominance in the policy space that their neo-liberal grandstanding is given credit. It is embarrassing but worse it is dangerous. Anyway, sometimes a journalist comes to the correct conclusion but for the wrong reasons. While the conclusion is correct, the erroneous reasoning does as much damage by way of misinformation than if the overall conclusion was also wrong. It is a case of being right for wrong reason equals wrong.

I suppose I had to respond to this atrocious piece of deception pedalled by the New York Times (March 5, 2011) as an “Economic View”. The article – It’s Time to Face the Fiscal Illusion – is not economics. It is a religious diatribe with strays into lies and deception. The reality is that mainstream economics has learned nothing from the crisis that has left their key intellectual propositions being exposed as vacuous nonsense. The inability of my profession to move on and embrace the challenge that an alternative theoretical structure is more relevant is sad. Instead the same old mantra based on theories that have no empirical basis are being wheeled out – the same theories that pressured policy makers to create the conditions which ended in the crisis. In relation to today’s blog we should understand that government deficits are the norm and they generally never pay back their debt (overall).

I have been travelling today and so haven’t had much time outside of my commitments. But I did read some truly astounding articles today. As the conservatives take control of the political processes in the advanced nations they are revising history faster than we can read about it. Meanwhile they use the TINA claim to implement policies that damage the well-being of the average citizen and set up dynamics that will manifest as the next crisis. And we say we like it – because we have been bluffed into the TINA lie. The fact that the public believe all the conservative dogma and go along with it astounds me. Economics is not that hard. If no one is spending then output will fall and unemployment will rise. But somehow the public believes the opposite. They have been conditioned to believe that a rising (large!) budget deficit is bad and a falling (small!) deficit is good. The reality is that there are no better or worse deficits.

It is funny being part of a profession which doesn’t deserve to exist in its current form. The fact is that I might have better helped the world if I was an anthropologist or perhaps just stayed being a professional musician. My profession is a total disgrace and our arrogance leaves us blind to reality. The latest survey by the National Association for Business Economics reinforces how far removed from reality my profession is. They think the most pressing problem in the US at the moment is the deficit and the public debt and downplay the importance of the entrenched unemployment. When pressed to explain this crazy set of priorities they invent a fantastic (as in fantasy) narrative about the dangers of deficits (which are?) and emphasise that unemployment is largely a voluntary choice by the individuals involved. The academic members of the profession teach their students this nonsense. They talk about the virtues of efficiency but ignore the huge losses that arise from unemployment. The reality is that the economics profession is a disgrace.

Whenever I hear some empirical proposition used by a politician my curiosity is immediately aroused and I go searching for evidence to support or refute the statement. That is the nature of my professional life as a researcher. I often find that politicians twist the facts to suit and when put in context the argument becomes more nuanced to say the least. I also often find out that the politician has just made things up which in other words is referred to as lying. The fiscal austerity push in the US and elsewhere is being justified by a number of erroneous propositions but one of the worst claims is that public workers are so well paid that they are bankrupting governments all over the world. That is a claim that needs investigating and fortunately some credible researchers in the US have done the hard yards and come up with some definitive results. They all show the claims by the austerity proponents to be lies, to say the least. Progressives should focus on these lies and construct simple messages to drown the public in – like – US public sector workers are paid less than their private counterparts! Then we can progress and discuss what deficits mean etc.

I am travelling today and then have commitments at the other end. So very little time to write. But I did read some interesting papers over the weekend which bear on the question of whether fiscal policy in the US was effective or not. The neo-liberals (mainstream macroeconomists) claim that fiscal policy is not effective. The extremists among them invoke – Ricardian Equivalence – which claims that private households and firms fear that the rising deficits will require higher tax rates and so they save more now – which means that for every dollar of new government spending there is a dollar less of private spending – so no effect. All the evidence contradicts the extreme view. There is also mounting evidence that the recent fiscal interventions have been very effective. A study I read yesterday went a step further and analysis the impact of targetting low income groups. They found that type of public spending was very expansionary. Their results support my contention that a Job Guarantee would be a very effective (and cheap) fiscal solution (as a first step) to a private spending collapse. But for all the naysayers – sorry, the evidence is mounting that fiscal policy saved the world.

I have said it before that when the facts get in the way of mainstream economic theory – which is just about always – the professors (my peers) tell their students that the facts are wrong. They have a pathological obsession with hanging on to their theories. Apart from the arrogance that accompanies this I have never really been able to work it out. As a tenured professor I could overnight become an adherent of the Austrian School or whatever and my job wouldn’t be threatened. A tradesperson who loses his/her skills has a problem. But academic life is different. We can explore new ideas any time we choose and take time to develop the news skills commensurate with these ideas. That, in part, is what research is all about. So it is more about their unwillingness to let go of what are essentially religious beliefs that leads the mainstream economists to constantly pump out rubbish and lie when they are found out (by the facts). The overwhelming fact is that the push for austerity is not based on any evidence-based understanding of how the system works. It is driven by stylised economic models that bear no relation to the real world and fail when confronted with data from the real world. As the clock ticks by – tick tock tick tock – the evidence mounts that nations that introduce austerity fare poorly.

Back in warm and sunny Newcastle. It is quite amazing how strident the attack on government deficits has become. There is very little recognition of the scale of the economic disaster that still plagues our economies. Even relatively unscathed economies like Australia is carrying 12.5 per cent labour underutilisation rates. That is bad enough. The majority of nations are in much worse shape. The scale of this disaster is so great that you might wonder who is going to be made to pay – given that the crisis was brought on by human folly. Why are those responsible being brought to account? The reality is that the criminals who led us into this disaster have done very well out of the bailout packages that they now oppose. You would have to indict the majority of my profession to achieve justice. So we might want a “national reconciliation” process to allow us to move on and forgive those that caused this. The problem is that the perpetrators are not humble in their failing. Far from it – they are now leading the charge attacking budget deficits using the same economic theories that caused the crisis. How the hell does anyone think these characters have anything to say any more? They were wrong before … so what’s changed?