Today I have been working in the Australia’s national capital Canberra. I have been discussing the work I am doing to develop a new geography for Australia based around the concept of functional economic regions with the Australian Bureau of Statistics which is currently seeking to revise their own geography along similar lines. You can find out about this work if you are interested via the CoffEE Functional Regions homepage. It will provide you with quite a different perspective on my other research interests beyond macroeconomics. Anyway, on the plane I was reading some monetary analysis and recalling a blog from the weekend by our favourite (not!) macroeconomics textbook writer. I started humming Take the power back to myself as I considered the damage this sort of textbook is doing to the minds of our students and the future policy makers.

Today I am travelling to the Baltic States of Estonia and Latvian, both of which are mired in a very deep recession bordering on depression. What you see in these economies is a demonstration of right-wing neo-liberal ideology at its crudest … and the damage it causes … at its magnified worst. Both economies are an indictment of the economics profession and the multi-lateral agencies like the IMF and the European governments. It is hard to come to terms with national governments who could easily enjoy currency sovereignty – voluntarily choosing to do otherwise for ideological reasons and then using what policy space they have left to inflict harsh pro-cyclical cutbacks on the economies they are meant to be nurturing. It is surreal at best and sometime in the future there will be retrospective consensus that this era we are living in was dominated by cruel and tyrannical policy makers.

In sub-Saharan Africa alone some 15,000 children die every day from poverty-related diseases. Yet still the governments are required to pay out some $US30 million every day to the World Bank, IMF, and rich creditor nations. Every $US1 that’s given to that region in aid, $US1.50 goes out to cover debt repayments (source: The Debt Threat: How Debt is Destroying the Developing World). I have been thinking about that in the light of the current situation in Haiti, the poorest nation in the western hemisphere and a nation that has been burdened with debt since the time it escaped the chains of slavery. This blog looks into these sorts of issues.

Today we examine two propositions: (a) 100-percent reserve banking; and (b) national government spending without taxation and debt issuance. Believe it or not the two propositions have been related in the debates over many years. Modern monetary theory (MMT) is agnostic to the first proposition although individuals within the paradigm have diverging views. However in the case of the second proposition it is central to MMT that a currency-issuing government has no revenue-constraint and should not issue debt to match net spending. Further, taxation is an effective tool for attenuating overall agggregate demand rather than raising revenue for a government that can spend regardless.

Today the Australian Bureau of Statistics released the November Retail Sales data, which is being seen as a likely signal as to whether the RBA will increase interest rates when it meets next in February. The data shows that retail sales are holding up as the fiscal stimulus targetted at consumption gives away to a focus on public infrastructure investment. However, there are other signs that the Australian economy is not yet out of the danger zone.

What do you do when your government is selling you out? Get the titular head (president) to intervene. That is what seems to be happening in Iceland at the moment. While the president is being accused of being an old political hack who longs to be back in the limelight, the more accurate interpretation is that he is reflecting the mood of the population which have been abandoned by a government intent on big-noting itself on the world stage by pushing for EMU admission. The sources of the problems in Iceland mirror those that have been at work globally to undermine the stability of the financial system and plunge real economies into deep recession – a religious belief in the efficacy of unregulated markets and the efficiency of entrepreneurial zeal. Both beliefs are now in shatters along with many economies not the least being Iceland. It is time that Iceland invoked its status as a modern monetary economy whose government has sovereign status in its own currency and started showing leadership to advance public purpose.

In a sea of conservative media, two articles stood out this weekend which captures a debate that should be raging but will be quickly buried under the re-emerging neo-liberal hubris unless significant new alliances are formed. In recent weeks, as different economies are showing some signs of recovery, some key players within mainstream economics have been coming out in defence of the profession. They have been accusing critics of misunderstanding what economics is all about and saying that economists have actually saved the world. I covered some of this sort of positioning in Friday’s blog. In this blog I continue that theme but from a different angle. The conclusion is that if we want real change then “one should become more radical as one grows older”. We will see what that means as we go.

Welcome to 2010. Today, in the overcast summer that we are enduring here, in between other things I am finishing off, I was in my office reading about how mainstream economics actually saved us from a major depression over the last 2 years. Far from having to hang their heads in shame, the article indicated we had all embraced Keynes and glory be the day. I also read a counter to that which outlined what further needed to be done. I concluded neither writer really had grasped what has been going on and both would benefit from exposure to modern monetary theory. Not a lot has changed overnight. Happy new year!

The year and the decade are rapidly closing out (early evening Thursday AEST). It is been an incredible year to be an economist with some of the swings in aggregates not seen before in most of our lifetimes. The degree to which nation’s have gone backwards has been staggering. For a researcher like me it has opened up so many new lines of enquiry. I always worry that my major research angle – the study of unemployment – gives me a job as long as there are others without them. But someone has to keep the topic at the top of the agenda and that is what I have devoted my academic and public career to doing. I have also been staggered this year by the sheer audacity of the mainstream economists who went to ground when the crisis emerged because their theories were shamefully wrong – but who are now popping up again – in all their arrogance – leading the charge of the deficit terrorists and undermining the capacity of governments to fight the crisis effectively. They should have just stayed in their slime. Anyway, my final post for the year has some sad things to say … and then …

Last weekend, the senior economics writer for the Sydney Morning Herald became a salesman. He has been seemingly recruited voluntarily into the marketing campaign for Mankiw’s economics textbooks which dominate the world supply. In his textbook the Principles of Economics, which is just palpable indoctrination, students are introduced at the outset to the 10 Principles of Economics. These principles resemble the hard sell you get from a salesperson who knows their product will not stand scrutiny but wants the commission nonetheless. But Gittins, knowing his power to influence the economic thinking among his readership, presents the principles as if they are all you need to know to understand economics. What a total con that is.

Several readers have E-mailed about the concept of a multiplier in macroeconomics particularly in light of comments I made yesterday about the current debate as to whether the deficits will be expansionary and whether it would be better to cut taxes rather than increase spending. There appears to be a lot of confusion about the most basic concepts involved so this blog seeks to address some of those issues. It is not a comprehensive literature review.

Tonight we consider the tale of two countries with some other snippets of good taste included for interest. In the last few days the Japanese government has announced the largest fiscal stimulus in its modern era (since records have been kept) while Ireland announced its 2010 budget which has been characterised as the harshest in the republic’s history. Both countries are mired in recession with only the most modest signs of any recovery. So on the face of it this is one hell of a juxtaposition. What gives?

It is interesting how one’s ideology screens out options and alters the way we examine a problem. I was reminded of this when I read two articles in the Times the other day (December 23, 2009) – Thrifty families accused of prolonging the recession and – No evidence Britons can save the day which both focused on movements in the savings ratio. The claim is that with UK households now saving more to reduce their exposure to debt, the UK economy is facing a double dip recession. The ideological screening arises because they seem to think it is inevitable that rising savings will lead to a deepening recession. In doing so they fail to realise that the moves by the British government to “reign in the deficit” are the what will make this inevitable. If their world view was less tainted both articles would have focused on the spurious nature of the deficit terrorism rather than the desirable trend towards rising saving ratios in Britain (and elsewhere).

Today I have been reflecting on minimum wages and employment. As the Australian economy slides slowly along the bottom (close to zero growth), the conservative forces are mobilising to attack the changes that the current federal government made to the industrial relations laws when they won the last election. Ex-liberal party hack (advisor) and now Director of the conservative Sydney Institute and regular Sydney Morning Herald columnist Gerard Henderson is one person who is leading the charge. While the first of the changes will not come into effect until next month, employers who have revelled in the massive redistribution of national income that the deregulation the labour market delivered to them are already enraged and looking to commentators such as Henderson for succour. The problem is that there is no argument they can make that is defensible. This will become a new battlefront for unions who seek to defend the interests of the most disadvantaged workers in the land.