My university office is far from clean so next week when I get back there I suspect I will find some more old insightful articles in the boxes remaining to be sorted to comment on. I haven’t much time today as I am in transit. But there are two interesting developments in Australia that are worth commenting on while the iron is hot. The first is that one of Australia’s fat cat banksters, fresh from enjoying the benefits of the federal government’s loan guarantees is now advocating cuts in the unemployment benefits to make the unemployed more desperate for work. The benefit is already well below Australia’s poverty line and there are 3.6 odd unemployed for every vacancy not to mention the 8 per cent of workers who are underemployed. The bankster thinks that by pushing them further into poverty they might up house, pack their cars and travel across the other side of the continent to work in the mining sector. Little does he know. The second piece of news was that two major mining projects have been shelved by BHP as the outlook for the sector deteriorates.

Crazy ideas have a habit of re-entering the public policy debate even if they have been comprehensively rejected in theoretical and/or empirical terms. In fact, the whole edifice of neo-liberal thinking, which dominates the public debate now, was discredited by Keynes and others during the Great Depression and fell into irrelevance for most of the Post World War 2 growth period which delivered full employment. There are sub-sets of crazy ideas within the neo-liberal narrative that are in a similar position. In the early 1980s, we started to be barraged with what is known as supply-side economics, which amounted to a categorical rejection of demand-side measures (active fiscal policy intervention). One of the major claims of the supply-side approach was that deregulation and large tax cuts for the high income earners and companies would generate massive increases in real GDP growth (and national income) which would trickle down to the low-income earners. To fit this into the neo-liberal rejection of budget deficits they also had to come up with the claim that the tax cuts would actually generate offsets in tax revenue and improve the budget balance. This was the comedy that became known as the Laffer Curve. The economist who was pushing that line in the 1980s has also maintained an intense opposition to any use of fiscal policy to stimulate real GDP growth. He claims that the recent history shows that fiscal policy expansion damages growth. But when you dig into his argument you realise that the comedian is still trying to make us laugh. The only problem is that he isn’t very funny.

Everyday the major financial newspapers and magazines provide Op Ed space to so-called leading economists. For the majority of the public, it is these Op Ed articles that provide their interaction with my profession. It is a pity. The majority of the reasoning presented by these characters, most who occupied senior positions in US academic departments, is spurious to say the least. The public is thus being poorly educated (to put it mildly) on a daily basis and this represents a major problem for our democracies. Voting in elections is one thing. But when citizens are voting based on faulty understandings that they have derived from these economists, then what is the value of a free vote? Today I consider the views of leading Princeton economist Alan Blinder – who is another macroeconomist who is blind to the way the economy works.