Last week (February 10, 2010), the ever-louder irrational rantings of Niall Ferguson about debt got another airing in the Financial Times in his article – A Greek crisis is coming to America. My two word reaction – which might be better than writing a whole blog was – Oh really! But the article demonstrates how desperate conservative academic commentary is becoming. The inflated self-importance of these characters quite obviously craves for ever increasing attention. However, not only does Ferguson demonstrate a poor attention to detail; a confusion about which monetary system is which; and a denial of history – but he also discloses such a vivid imagination that he might productively turn his hand to writing children’s fairy tales. Except then he would have to lighten up a bit or the kid’s would be having nightmares. As for the rest of us, we should be getting the lifeboats out if he is right. For me, I am staying on dry land except in the mornings when I chase those waves!

On Friday (February 12, 2010) as Eurostats released the flash estimates of fourth quarter GDP for the EU (see below), the IMF released a new staff position note entitled – Rethinking Macroeconomic Policy. The bad news is the Europe is looking more like a region that is heading for a double dip recession. The even worse news is that that cretins at the IMF are claiming they know why they messed up in the past and how to address their failure. Stay tuned for a modified version of the same. The fact is that the IMF Report reveals they are as ignorant as ever of the workings of the modern monetary economy. So this revisionist exercise doesn’t signal a major paradigm stage.

In this recent blog – Who is in charge? – I outlined the case that all the so-called “financing” arrangements that government deploy which are held out to us as being required to allow them to spend are in fact voluntary and reflect deep-seated ideological anti-government positions. I wanted to make the point that it is governments not amorphous “bond markets” that ultimately in command of the destiny of their nations and that citizens are being grossly mislead by lies and half-truths into believing that governments have to introduce harsh austerity packages to appease the markets because if they do not the latter will “close them down”. I continue with that theme today and address some issues raised in the comments that accompanied that blog.

Today started off as a usual Sunday – a long-ride on my bike interrupted by two punctures (why do they come in waves). Anyway, then some other things like a visit to the community garden where I have a plot. Then it was down to work and as I read news stories and academic articles I was continually confronted with the tide of hysteria surrounding the impending sovereign defaults (as we are led to believe). My principle conclusion was that these journalists etc have a pretty good job. They get paid for knowing nothing about the topics they purport to be experts about and instead just make stuff up and intersperse it with some mainstream economic ideology taken straight from Mankiw’s macroeconomic textbook. It would be an easy way to make a living. Get the text book out … turn to the chapter on debt this week (last week inflation) and start of with some “large” numbers which are “without precedent” and you are done. Easy pie! Problem is that it influences the readers who do not know these commentators are charlatans.

By invitation, I wrote the following Op-Ed article for publication in one of the dailies tomorrow morning. I had 500 words so couldn’t say much. The good thing about today is how wrong the market economists were. The bookies even closed the book because they claimed it was a 100 per cent probability that the RBA would put up rates. Anyway, they didn’t which is good but they will which is bad.

Today I have had the misfortune of reading the latest Australian Government Intergenerational Report, which is really a confection of lies, half-truths interspersed with irrelevancies and sometimes some interesting facts. Why an educated nation tolerates this rubbish is beyond me. The media has been making a meal of the latest report and all the doom merchants – those deficit terrorists – a claiming we have to get into surplus as soon as possible. They seem to be ignoring that we are still embroiled in a major economic crisis requiring on-going fiscal support. But more importantly, they haven’t a clue what their policy proposals actually would mean in a modern monetary economy where external deficits are typical and the private sector overall is desiring to increase their saving. Anyway, read on … its all downhill.

For some years now we have been reading about how the UK has benefitted from the Thatcher reforms which involved extensive deregulation of the labour market and retrenchment of significant sections of the state. The falling unemployment rate and strong employment growth prior to the crisis were cited as evidence of the claims. Even at the height of the crisis, mainstream (neo-liberal) commentators have asserted that the UK would bounce back quickly on the back of its labour market flexibility. It turns out that new evidence released recently provides a different view of the employment creation and provides an even stronger case for avoiding cut backs in net public spending than was already obvious to those who understand how the monetary system operates. Sadly, the politics in the UK will likely blind the policy makers to the realities.

Tonight’s blog title L’horreur Economique is taken from one of my favourite (though depressing) books by a French writer (Viviane Forrester). I will discuss the book a bit at the end of the blog. But I was thinking about it (and re-reading it) today when I reflected on the US President’s most recent Radio address on the reining in budget deficits. We – collectively – have allowed the most grotesque set of lies, half-truths and irrelevancies to become the centrepiece of the public debate on the economy. The crisis exposed the lack of credibility that mainstream economics has and should have dispatched the ideas to the rubbish bin forever. Instead, as unemployment and poverty rates continues to rise the mainstream ideas are now taking centre-stage again. And the policies that result will be to our collective misfortune. It really is “L’horreur economique”.

Three happenings in the last 24 hours confirm to me that neo-liberalism is alive and well in the US and the rest of the World. The first of those happenings is the almost grotesque statements coming out of the EMU about Greece. The second is the 70/30 vote supporting the re-appointment of Ben Bernanke as the US central bank boss; and the third is the US President’s State of the Union speech. I wonder how the millions of unemployed around the World would feel about any of those happenings?

Today I delve into the world of financial advice by E-mail. There are a growing number of subscription lists that people are exhorted to join to receive the latest in analysis from so-called experts. Most of it would qualify as spam. They seem to follow a formula – stir the emotions, offer great deals (which appear to be the motive – to make money), and spread dangerous half-truths and total fallacies. I get a lot of E-mails myself from readers asking me to comment on some of the claims that they have been reading in these “products”. So today I thought I would meet those requests by focusing on a particular newsletter that is broadly representative of the genre. My advice is to avoid wasting your time on these lists and read billy blog instead!

Ahh … the Great Moderation – now wasn’t that a laugh. Today I have been examining data in preparation for a new project I am beginning on inflation response functions. Thinking about the data made me recall the sheer arrogance of my profession. And an article in the Melbourne Age prompted this further by way of coincidence. The idea that the economics profession had solved the business cycle by implementing inflation targetting-type policies and pursuing fiscal austerity was the flavour of the late 1990s and early 2000s. I was even told several times in the last decade that I was mad running a research centre which focused on unemployment because that problem had been solved too. Economists of my persuasion were regularly ridiculed at conferences and meetings. And then … the crisis struck confirming everything that us “idiots” had been saying for more than a decade. And yet, the chief proponents of the Great Moderation lie still aspire to top public office.

I am going to start a public campaign to help our friends in the financial markets. I would like all caring citizens to start donating comics and other light material and send it to the business houses so that the workers can actually read something productive during there time in the offices rather than the usual stuff that circulates. Unfortunately the usual so-called analysis spreads out into the wider research world – which means I read it too. Today we consider a classic case of manipulation to make a case. A denial of the empirical reality, a spurious claim to an historical relationship, and an assertion of an authority – the “bond markets” – that ultimately doesn’t exist. Classic propaganda but some lessons to learn as well.