There is currently an international cacophony being created by economists, politicians, political commentators and any-one else that thinks they have something to say which goes like this: China’s export orientation and its “manipulation” of the renminbi to stop it appreciating is damaging World demand and plunging the Western world into unsustainable debt levels and persistent unemployment. The simple retort is: the commentators have it all backwards and are ignoring the policy options that the Western world has but which policy makers will not fully utilise. But it is an interesting debate and the institutional attachment to the debate is not necessarily predictable as you will see.

The title of the blog is a little misleading but was too good not to use. I get to that five-year forecast (2010-2015) later in the blog but the first part is material that sets the scene. Yes, I am writing about deficits and debts … again! But new nuances come out in the public debate which need to be addressed. The conservative assault on government support for their economies at present is multi-dimensioned and is being pushed along by two main journalistic approaches. The manic Fox new-type approach which I realise is influential but is so patent and ridiculous that I don’t care to comment on it often. Then we have the approach adopted by journalists in so-called credible media outlets such as the UK Guardian. They dress their deficit terrorism up in arguments that the middle classes, who think they are far above Fox new rabble intellectually, will find convincing. But when you bring both approaches down to basics – rubbish = rubbish.

Today started out well – early good waves at nearby Nobby’s Reef which kept things interesting. After that things progressively went down hill at least in terms of the things I read from the popular press. We had the EMU-rest of the world conflation to deal with. Then the public and private debt conflation. Then the austerity is good for us hypothesis. And by then I decided to read other things that were more interesting – like mysql technical manuals. Anyway, here is a report of my descent into gloom today.

I can now safely call my blog – ibilly blog or billy iblog thanks to a court ruling preventing Apple from monopolising the i construction. But then I would have to change the logo and I don’t have time to do that so I won’t take advantage of the court ruling just yet. But on more substantive matters, today I have been thinking about how much momentum the conservative lobby has at present and that history is being continually re-written to give these characters the oxygen they need to warp public opinion. We are now in danger of an even greater shift to the right in the coming years than was represented by the “neo-liberal” era. It is an ugly thought. But the macroeconomics is clear – if these ideas really take over the policy making process – then we will be facing a lengthy period of economic malaise.

Whichever way the dice tumbles, the deficit terrorists are ready to rehearse their diatribes. In many countries, they couldn’t even wait for growth to return before they started calling for “credible exit plans” and “austerity measures” to “get the ballooning deficits and dangerous debt spirals under control”. The lexicon of doom terminology expanded over the course of 2009 and continues to grow into the new year. Cutting back a fiscal stimulus when the rest of the economy is going backwards is the advice that only a person who has no appreciation of macroeconomics would give. But they have also been at it in Australia which surfed the downturn thanks to an early and significant fiscal stimulus. Here the talk is now along the lines of the “mother of all booms coming”, “overheated housing markets”, “white hot labour markets” and pressure is mounting for a tough May budget and further rises in interest rates. Over-inflated predictions one day are continually shown to be without credibility by the data releases the next day, but by this time the so-called experts have moved on to the next impending data release predicting all manner of catastrophe unless austerity plans are implemented. They have no shame and probably were not brought up very nicely!

As the danger of a global depression recedes, the themes I am picking up regularly now from commentators, politicians etc are all pointing back to the mainstream status quo version of the way the economy works, in particular, for the purposes of this blog the labour market. I expect to increasingly hear and read the rhetoric that dominated the public debates prior to the crisis – that unemployment is essentially a supply-side phenomenon reflecting choices made by individuals in the context of government welfare policy that distorts these choices in favour of not working. In this context, the simple act of extending unemployment benefits in the US has been controversial. This takes us back to the dominant debates over the last 20 years which saw governments all around the World pursuing policies that were antithetical to full employment and pernicious in their impact on the victims of their policy failures. Stay tuned – 2011 – the mainstream will be in full attack mode again – conveniently forgetting where we have been over the last 3 or so years.

When I read the financial and economic news every day I sense a global madness has emerged. Global political processes are becoming distorted by the types of debates that the conservative media companies and the mainstream economists are driving. Every day a new whacko proposition is suggested or entertained by governments. Old hatreds are also resurfacing as our economies labour on (or not labour to be more accurate!) in the face of a major private spending collapse accompanied by inadequate government fiscal responses. The collateral damage of the deficit terrorism is increasing and spreading and still the major political parties in most countries slug it out as to which one will deliver the most fiscal austerity. Would someone please put something in the water supply so that we can refocus this debate onto what is important. That was the plan in the late 1960s to chill everyone out and distinguish the meaningful from the nonsense. Something has to restore our sense of priorities. The longer this madness goes on the worse it is going to get. There is no sensible solution that will come from following the present path.

I am now back in my normal office after a few days experimenting with a mobile office by the sea. Back in Newcastle I am still only a couple of minutes from the beach but somehow it was different being holed up in a little cabin. Anyway, on the way back down the coast this morning I was bemoaning the idiocy of the human race … again. Or rather cursing the vicarious way the elites exploit the lack of understanding in the community about economic matters to further their own ends. That is a better way of constructing the dilemma. Even some good intentioned souls are proposing “solutions” to non-problems which will worsen the actual problem. Other devious characters are continuing to reinvent themselves in the public sphere – presumably to get access to more personal largesse. Then whole blocks of nations are imposing penury on their citizens to make the “markets” happy while another national government has actually forgotten it is a currency-issuing government. All in a day’s work!

Today’s blog comes to you from beautiful Boomerang Beach, on the mid-North Coast of NSW and within the Booti Booti National Park. I am experimenting with the concept of a mobile office – well a cabin by the beach. Armed with my USB turbo mobile broadband and my portable computer, some files and books (not to mention a guitar and a couple of surfboards) I decided I can work nearly anywhere these days. Connectivity is no longer a problem. So I decided to head north for a couple of days to see how the concept works. Maybe it will begin a gypsy research life although I know one person who won’t allow that to happen! Anyway, it is a lovely setting and I can walk about 200 metres to the surf through the sand dunes. The perfect antidote to the sort of hysteria I covered in yesterday’s blog. Today I am considering corporate welfare among other topics and you definitely need a peaceful and soothing location to delve into that topic in any depth.

Its been a big weekend for hyperbole which in this context is a polite term for outright hysterical lies. Today’s blog reviews a few of the choice selections from a weekend’s reading. It amazes me how people can even mis-represent their own research when they know the audience hasn’t even read it in detail. It also is interesting to follow the way the media commentators are trying to out-do each other in use of superlatives – how much catastrophic can a catastrophy get – sort of thing. The analogies, the adjectives … are all designed to transport uninformed readers into a particular ideological space where the conservative forces can garner more of the national pie than otherwise might be the case. Anyway, that is what today’s blog is about.

The latest economic news from the UK and the US is hardly inspiring. Further, detailed examination of the sectoral balances in the OECD nations reveals a massive drop in private demand since 2007. The mirror image of that spending collapse has been the increase in public deficits via the automatic stabilisers (discretionary stimulus packages aside). These swings are just signs that economies are adjusting back to more normal relations (private saving, public deficits). The sharpness of the swings reflects the atypical period that preceded the crisis where growth was fuelled by private debt in the face of fiscal contraction. It will take some years for the adjustment to be completed and the danger is that ideological attacks on the fiscal deficits will derail the process. But when the sectoral balances return to more normal levels in relation to GDP then guess what? We will still have budget deficits and we all better get used to it.

There is a growing number of commentaries by mainstream academic economists which I consider to be revisionist efforts to deny that fiscal policy has had any positive impacts. Some of the more manic offerings assert that the government intervention has actually worsened the recession and will reduce growth in the future because all the debt has to be paid back. These characters never give up trying to assert their twisted notion of self-importance. Some of the notable revisionists come out every recession and say the same thing. They cannot get over the fact that their approach to economics,which has dominated in the last 35 years and finally delivered the World to a state of near Depression, is now without any credibility. They hate the fact that the only way out was of the crisis was to reject their nonsensical policy suggestions – that the market would work it out – and return to fiscal activism. Anyway, today, I consider a notable example of this denial.

What do you do when you read strongly worded opinion pieces in national media outlets from people who hold themselves out to the public as experts in the area of interest and which reveal the writers are deliberately choosing to mislead their readers and/or haven’t a clue about the subject matter they are pontificating about? Answer: you write a blog and allow your frustrations to emanate into the ether! That’s what! Usually, mainstream economics commentators and macroeconomic textbooks hold out the analogy that the government budget is just like a household budget. So eventually the government has to pay the piper if they consume beyond its means and that means we all end up paying. Today, we had a new analogy enter the fray – the fiscal stimulus is like a box of chocolates. Yummy at first then you get fat! Lets proceed.

Today I reflect on my weekend of media reading. Within the never ending media assault on budget deficits which is now being regularly elevated to “the fiscal crisis of the state” I read a few stories which actually took a different tack. One said that several national leaders were going to prioritise jobs over the wishes of the financial markets while the other said that the so-called “debt moralists” (aka deficit terrorists) are not on sound economic grounds. Amidst the continual conservative onslaught at present, both articles reflect some movement at the station!

Yesterday, the British government announced that they had actually recorded a deficit in January which is rare given they normally get a big revenue boost in that month. The reaction to the news has been hysterical and calls to invoke fiscal austerity measures in the lead up to their national election are gathering pace. You can imagine that these calls are suggesting exactly the opposite of what I think the British government should be doing. Given that they risk locking a generation of their youth into a lifetime of disadvantage, job creation programs are required now which will require further stimulus. That is the only responsible course of action. The bond markets disagree. But if the governments around the world really represented the interests of their citizens they would use their capacities to render all these vandals irrelevant. Most people, however, do not understand what that capacity is and how the government could use it. Anyway, now to the news …