As a researcher one learns to be circumspect in what one says until the results are firm and have been subjected to some serious stress testing (whatever shape that takes). This is especially the case in econometric analysis where the results can be sensitive to the variables used (data etc), the form of the estimating equation(s) deployed (called the functional form), the estimation technique used and more. If one sees the results varying significantly when variations in the research design then it is best to conduct further analysis before making any definitive statements. The IMF clearly don’t follow this rule of good professional practice. They inflict their will on nations – via bullying and cash blackmail – waving long-winded “Outlooks” or “Memorandums” with all sorts of modelling and graphs to give their ideological demands a sense of (unchallengeable) authority before they are even sure of the validity of the underlying results they use to justify their conclusions. And when they are wrong – which in this case means that millions more might be unemployed or impoverished – or more children might have died – they produce further analysis to say they were wrong but we just need to do more work. So who is going to answer for their culpability?

It is a public holiday in NSW today – Labour Day – to celebrate the 8-hour day although for many workers that victory is now a thing of the past as labour market deregulation bites harder on the hard-won conditions that workers enjoyed during the full employment period. I am also ailing (with “the bug” that is “going around”) and I have two major pieces of work to finish (one completed this morning). There is also a birthday in my immediate family and so I am partying tonight (in relative terms). So all that means a shortish blog. I was giving a talk in Perth last week about the absurdity of state (non-currency issuing) governments running down public infrastructure because they refuse to borrow all in the name of preserving their AAA credit rating from the corrupt ratings agencies. The obvious question seems to evade people – why have AAA credit rating if you refuse to borrow. The ridiculousness of the ratings game raised its head again last week when one of the ratings agencies threatened to downgrade the British Government’s rating. It is clear that the agency is probably needing a revenue boost so tried to attract some publicity. If I was the Chancellor I would have told them to buzz off and to stress how irrelevant they really are. But the reaction was typical – angst and worry. For what? Nothing. The only thing it demonstrated was how mislead the public are and how mindless this “dark age” that we are living through at present really is.

I am in Perth today speaking at a public service employees union congress. The talk is based on a major report we have just finished tracking the implications of public spending cutbacks in Australia on the volume and quality of public service delivery. We did several case studies – one of which was child protection – and the cutbacks will lead to increased child abuse in Australia without doubt. The story is pretty grim and I will write about it once the Report is made public by the commissioning party. But with travel (Perth is a long flight from anywhere and I have to get back to Newcastle tonight – 6 hours) and commitments I haven’t much time to wax lyrical on my blog. But I have been meaning to write about the upcoming Scottish referendum on independence from Britain and it fits a nice theme with yesterday’s blog – The demise of social democratic parties – they are all neo-liberals now – where I argued that good intentions come to naught if the economic policy paradigm used is erroneous. I would recommend the Scots vote yes at the 2014 referendum. But only if they introduce their own unpegged, floating currency and avoid any talk of joining the Eurozone. Further, the yes vote should be conditional on the government committing itself to achieving full employment on the back of their newly created currency sovereignty. Then the yes vote will improve welfare for the Scottish people. If they continue to use the British pound – then nothing will be gained.

It will be a relatively short blog today as I am off travelling again. Yes, I was home one day! Real GDP gaps, which measure the extent to which economies are producing below their potential (indicated by full employment of labour and existing capital resources), remain large across many of the large advanced economies. That means one thing – current output growth is not strong enough given the real resources available to these nations. It means another thing – that potential growth will start to fall as investments in productive capital and human capital falters as a result of the lack of demand for current output. Given current capacity (labour and capital), the utilisation of it depends on spending and spending alone. That means another thing. Policies that deliberately undermine the current demand for output will not help economies to exit this crisis. So the only debate worth having is how to stimulate spending and that leaves all the discussions about the need for fiscal austerity on the sidelines of irrelevance. At what point will the economists supporting austerity realise that?

Today’s article from the relics (my office clear out continues) is actually two articles. One by Arthur Okun and the other by fellow US macroeconomist Gardner Ackley. Both economists are now dead but during their careers were aware of the role of government in a monetary economy. They were antagonistic to the conservative views of economists that wanted to push fiscal rules such as balanced budgets. They understood that these views not only undermined democracy but also made it impossible for governments to pursue their legitimate goals of promoting public purpose. In the current environment, if they were still alive they would be castigating those who seek to impose pro-cyclical fiscal austerity. Their insights remain relevant today. Just think about yesterday’s public finance data release in Britain. The debt reduction forecasts from the British government are in tatters because tax revenue is collapsing further and welfare spending is rising. The operation of the automatic stabilisers is signalling that the British government has more than adequately demonstrated its incompetence.