There has been a bit of fun in the last week, with the IMF accusing our previous conservative government (10 increasing surpluses out of 11 years in power – 1996-2007) of being the only period of profligate fiscal policy over the last 50 years. That is hysterical really because the government in question held themselves out as the exemplars of fiscal prudence and responsibility. They were, in fact, one of the most irresponsible managers of macroeconomic policy in our history, but not for the reasons that the IMF would identify. All this shows how far fetched the research that the IMF is spending millions of public dollars (donated by member governments) has become. One week they are admitting how wrong their forecasts are with millions losing their jobs as a result and the next week they are handing out medals for fiscal prudence and backhanders for wasteful spending. I was going to analyse the underlying IMF paper today because it is illustrative of why the IMF keeps making these fundamental errors. But I was sidetracked and got lost in some data and some other things. So the IMF tomorrow (maybe) and today a little walk through some trends which confirm why the IMF has a problem recruiting good economists. It all starts with their miseducation in our universities. The point is a casual look at the data shows that the mainstream of my profession hasn’t been even remotely correct in its statements over the last 4-5 years.

Being a researcher is interesting and frustrating. But it almost always takes one on a ride that is unpredictable, which is part of the fun. Sometimes, you hit a dead-end (often = frustrating). Other times, you end up somewhere that you never planned but which is instructive in itself (= interesting). Yesterday, my blog was about financial market criminals that seem to escape prosecution. The insulation from prosecution of white collar criminals is not confined to the financial markets. Today, the basic message is that if a nation engenders growth the budget deficit will likely fall and the benefits of the growth will be higher employment, higher national income and improved material living standards. The opposite is the case when a nation contracts. The irony is that the nation will still probably have a budget deficit, but in this case it will be accompanied by stagnation. The first deficit is good and virtuous the second bad and irresponsible (from the perspective of the government fiscal policy stance). So even if you are obsessed with reducing deficits, the best way is to engender growth. The dumbest thing a government can do if it wants a lower deficit is to impose fiscal austerity. There are a lot of dumb governments out there. The problem is they are aided and abetted by criminal types who know full well it is dumb to cut net public spending but pressure governments to do so as long as the space for spending on them expands.

The Sydney Morning Herald carried an AFP story today (November 14, 2012) – US deficit hits $120b as fiscal cliff nears – which reported the latest US Treasury Department figures which showed that “the US budget deficit rose 22 per cent in October from a year ago, to $US120 billion ($A115.56 billion), as spending far outpaced revenue”. At which point I thought – how lucky the American people are that the Government deficit is still expanding and supporting growth unlike the expanding deficits in Europe which are expanding because of a lack of growth. It is an astounding achievement for the US people. Unfortunately all the signs are that the American polity doesn’t actually understand that their in-fighting, which has allowed the deficits to continue growing, has been good for the nation. Had they actually cut the deficits or failed to pass the debt limit extension, the US economy would be in the doldrums just like Europe. The problem now is that the political debate will reach some conclusion pretty soon and the harbingers of doom are growing stronger. But for the time being with the US budget deficit expanding and supporting growth and private saving it is a win-win.

Its late Sunday afternoon in London as I write this (but already early morning in Australia) – so this is Monday’s blog – I have a busy work day tomorrow. I have been reading about an interesting debate in network theory over the last few days. I was familiar with the debate when it surfaced and have been following it off and on since. It provides a classic example of how the brightest minds can be so dumb in particular circumstances. It also provides a way of understanding how my own profession functions and might also clarify for regular readers of my blog the way I consider my colleagues. Gaining a PhD generally takes some advanced intelligence (not to mention application). But that intelligence can be so specific and not preclude attempts to apply the knowledge too broadly and most importantly to areas where applicability is impossible. Counting how many angels on a pin head is a highly complicated and sophisticated area of analysis but it has no resonance in the real world. Anyone who thinks it does is dumb.