Today I was reading the latest labour force data released by the UK Office of National Statistics which shows that the British labour market is now contracting as the public sector job cuts begin. The British government continues to claim that to reduce unemployment you have to deliberately create unemployment. They believe that by reducing public involvement in the economy (which means in a macroeconomic sense – withdrawing spending which generates both public and private employment) the private sector will spontaneously erupt in a surge of growth. They are in total denial of the obvious fact that spending equals income and public servants spend in exactly the same way as private employees – by handing over dollars to shopkeepers around the land. When have anyone of you been asked by a cashier whether you are working in a government or private sector job before they accept your cash? Never! As the public jobs are scrapped in the hundreds of thousands, the loss of spending will damage the private sector who will react by reducing their demand for labour and postponing their investment plans. The only hope is that exports will save them but that is highly unlikely. When do the people rise up against these ideological zealots? But the fact that when spending is cut unemployment rises – is no surprise to me. It is a basic macroeconomic reality. The problem is the neo-liberals never let basic facts get in the road of their religious convictions (or bald-faced power grabs).

In yesterday’s blog – Our children never hand real output back in time – I canvassed the recent speech by Japanese financial market expert Eisuke Sakakibara who emphasised that the world recession will be protracted (until 2015 at least) because governments are refusing to support output and income generation with appropriately scaled fiscal interventions. It was a timely warning I think. But organisations like the OECD are pressuring governments to do exactly the opposite. They want governments to accelerate their pro-cyclical fiscal austerity plans – that is, withdraw public spending while private spending languishes. It is a purely ideological demand – and will worsen the recovery prospects of any country that follows that course – Ireland is our beacon! What is required at present are very costly fiscal programs – programs that utilise as many real resources as are idle. Such a strategy would be the exemplar of responsible fiscal policy management.

There was an interesting conference in Tokyo last week which featured academic Eisuke Sakakibara, the former Japanese government vice minister of finance who is characteristically known as “Mr Yen” given his knowledge of banking and world financial markets. Sakakibara predicted a prolonged recession lasting until 2015 because fiscal deficits are being deliberately withdrawn by misguided governments. The neo-liberals are claiming that public debt ratios have to be cut to reduce the “future tax burden on our children”. The reality is that intergenerational burdens work in exactly the opposite way in a fiat monetary system to what the mainstream neo-liberal claim. The misguided fiscal policy direction the neo-liberals are pushing will impose real burdens on our children. They will be less educated, less skilled, less experienced, and have lower income as a whole as a result of the fiscal austerity. Their future possibilities will be reduced as a consequence. In fact, the whole anti-budget deficit argument is just a ploy to seek ways whereby the elites can get more real income now and more real income later for their own enjoyment. Spreading the real output more widely through fiscal interventions frustrates that aspiration. Significantly, our children never hand real output back in time to pay for the public debt incurred at a previous time.

I was pleasantly surprised this week when I received a telephone call from a reader wanting to chat about the current state of policy in Australia and the available options. We discussed a range of options and agreed that it didn’t make much sense to cruel the emerging economic growth in Australia while there were 12.1 per cent of available labour resources currently idle (either unemployed or underemployed). With world demand for our exports strong it seemed a perfect opportunity to really eliminate the pool of idle labour and return to full employment – a state that Australia has not been close to since the mid-1970s. The period since that time has been dominated by neo-liberal policy makers who have abandoned the responsibility that was previously vested in our macroeconomic policy arms (RBA and Treasury) to achieve and maintain full employment. We agreed that deliberately restricting growth just as it was gathering pace was a very restricted vision of national potential. The upshot of our discussion was that we agreed that fiscal policy could be targeted to redistribute the growth (to avoid specific sectors from overheating yet maintaining a growth stimulus to other sectors) and that monetary policy was too blunt an instrument to manage this process. But with growth emerging it is a case that policy makers should recite a daily mantra – when you are on a good thing, stick to it – rather than cutting it off at its knees before the benefits have spread widely throughout our nation and its people.