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?

Last week, the Federal Reserve chairman Ben Bernanke received endorsement for a further term from the US Senate Committee on Banking, Housing and Urban Affairs (popularly known as the US Senate Banking Committee). There is much controversy about this re-nomination along the lines that he was Chairman as the crisis unfolded and he did nothing about it until it was too late. There is also angst about his refusal to provide Congress with specific information about institutions that the Federal Reserve bailed out. These issues are not unimportant. But the strongest reason why he should be dispensed with is that his public statements leads any informed analyst to conclude that he doesn’t really understand the monetary system. From a modern monetary theory (MMT) perspective his comments on the monetary system are as sophisticated as the most flawed mainstream macroeconomics textbook.

Today I continue my theme from yesterday which focused on how retired politicians and bureaucrats in the US are massing using resources from rich conservative interests to undermine the capacity of the US government to fulfill its legitimate responsibility to increase employment and raise living standards. In today’s blog I reflect on an excellent US PBS Frontline program which looks back at the days when the neo-liberals led by Alan Greenspan and his gang were ruling the world. The current crisis that has undermined the employment and income prospects for millions around the world is directly attributable to their ideological zealotry. The unfortunate thing is that the gang members are either still in power or reinventing themselves as credible commentators. It doesn’t augur well.

Over the course of this economic crisis, I have seen a lot of erroneous analysis based on the conflation of things that are not commensurate. It is getting worse as the debt hysteria mounts. These conflations are examples of category errors, which are common in monetary and macroeconomic analysis. Most of the theoretical development in macroeconomics text books used by universities fall foul of this type of error. The one thing that follows is that when you detect this type of error you should be deeply suspicious of the arguments being presented.

It is on days like today that you see how far away from the mainstream economic opinion my macroeconomic thinking is. Why today? For overseas readers, the central bank (RBA) started hiking its official cash rate target by 0.25 basis points to 3.25 per cent. What is wrong with this? There is around 14 per cent of available labour resources currently underutilised and rising. Last month full-time employment continued its collapse. The only signs of activity in the labour market are some casualised, low-skill, low-paid jobs being created. My conclusion: neo-liberal paradigm remains intact. Stay tuned for the next crisis.

The debate seems to be slowing down which means this might be my last response although we will see. But in general the debate has raised a lot of interesting perspectives and I hope it has stimulated interested parties to read more of our work. I also think that while (as in any debate) “battle lines” appear to be drawn, I repeat my initial point some days ago. Steve and I saw this as a chance to focus on the common enemy – the mainstream (neoclassical) macroeconomics. That (failed) paradigm has nothing to say about the world we live in. The work of Steve and the modern monetary theory I work on both have lots to say and should not be seen as being mutually exclusive. Indeed, Steve operates in what we call the horizontal dimension of modern money.

In yesterday’s (August 23 2009) Financial Times, so-called financial markets expert Nouriel Roubini wrote that The risk of a double-dip recession is rising. The American academic was recently in Australia as a speaker at the Diggers & Dealers Forum which is an annual mining conference. The problem is that Roubini is an influential advisor to the US Government and so will have a hand in determining the direction of fiscal policy. He continually demonstrates, however, that he does not understand how the fiat monetary system operates and in that context becomes part of the problem.

I saw this story in the Melbourne Age today World’s best airport named. I knew it wouldn’t be Sydney or Melbourne where I am often in and out of much to my displeasure. So I scanned the list. Sure enough a whole lot of airports some of which I regularly fly and know to be excellent in terms of ease of use, charges and available facilities. Anyway, I had intended to write a blog today about trends in world foreign exchange markets (see digression below) but the airport rankings attracted my interest because I am also thinking about infrastructure provision at present.

Since last week’s Federal Budget was released there has been an hysterical response from the Opposition, the media and the Government in reply. Claims of forecast errors, forecast manipulation and more have been in our faces every day. The temporary Opposition Leader even suggested that we need a new independent body – the Parliamentary Budget Office (PBO) to discipline government and stop it lying about the medium term forecasts and its economic policies. The comical side of this very sad week has been provided by the Shadow Treasurer’s struggle with averages. It was so hilarious that I am actually enjoying his attempts to sound as if he knows anything about macroeconomics. He doesn’t but that doesn’t stop him. But overall, once again I think the debate reflects a poor understanding of how the economy works.

Today, the right-wing media that we are blessed with have wheeled out another one of their favourite little hobby-horses which they repeatedly use to promote the deregulation of the wages system. They are attacking the Government’s roll-back of Work Choices, which is aimed at restoring appropriate wages and conditions for non-standard work. In this specific case, two opinion columnists from the two major publishing houses are claiming that the Government is undermining the future employment prospects of our youth. Well if they had anything new to add by way of evidence it would be good for debate. As it is they both merely recite the dogma from the latest OECD report Jobs for Youth: Australia – and I don’t need to remind readers that that organisation has form. Its reputation in the area of labour market research is somewhat dubious after a series of recants over the last few years when confronted with solid evidence to the contrary. Anyway, here we go again.