Several readers have asked me to comment on the recent New York Times Op Ed by Paul Krugman (October 30, 2011) – Bombs, Bridges and Jobs – which outlined the double standards among many conservatives who argue that “government does not create jobs” unless it engaged in military spending but still argued that such spending would be good for jobs and an increase would be welcome. It comes at a time when the new Haitian president is proposing to spend large sums of aid money on restablishing a military force in the nation despite not being able to offer basic housing, sanitation, education or health care. The appeal by the “military-industrial complex” that military spending is good for the economy is long standing and rarely refuted. After all, spending equals income and output which creates employment. But is expanding the military budget or insulating it from cuts the best way to create employment? Should we welcome, as Paul Krugman does, more military spending? The answer is that military spending has positive employment effects which are dwarfed by those pertaining to public spending on education, personal care services and other forms of public infrastructure. Haiti should build houses and schools and forget about the army.

I have very little free time today (to write my blog) but several readers have E-mailed me over night suggesting that the British National Accounts data release from the Office of National Statistics indicates that the fiscal austerity is not having as bad an effect on the British economy as I might have suggested. It is a fair question (challenge) and so I will use my limited time to respond to it while the data is fresh. The short answer is this – while the results might have surprised the so-called pundits – the underlying forward-looking message is not optimistic. The data shows that the British economy was growing (3 months ago) but that growth was slowing dramatically and the impacts of the government spending cutbacks were not being felt. All the current indicators are poor. Feeling pleased about the National Accounts data release yesterday seems to be a case of low being considered high. I suppose pleasure should always be taken from small mercies. But I suspect that pleasure will turn sour in the months ahead.

I had a meeting today with well-known personnel management professional who is keen to fund some research on skills development. It is a topic that my research group has concentrated on for many years now. It is an interesting topic because it bridges the technical and the political. There is a pattern emerging, as it always does when we have recession, which seeks to deflect attention to what is really going in favour of promoting “faux” issues. The “skills shortage” claim by business lobby groups and peak bodies is one of the perennial examples of the way the elites deny that the system is failing to produce enough jobs and helps them deflect the blame onto individuals – the victims – the unemployed. The ruse is used then to pressure governments into further undermining the rights of workers and conditions of work (and reducing welfare benefits) which serve the interests of the elites. So the constraints on growth become constructed in terms of the laziness of the unemployed workers to invest in themselves. This narrative then diverts our attention from the real causes of stagnation and unemployment – not enough spending and not enough jobs. We fall for it every time.

US Presidential candidate Ron Paul released his – Plan to Restore America – yesterday, saying that it will deliver a balanced budget within three years – cutting public spending by $1 trillion in year one, slash “regulations” and “reign in the Federal Reserve and get inflation under control”. The 11 -page document has lots of tables and graphs and says that “America is the greatest nation in human history” (plaudits) but if you search for some theoretical framework or some evidential-basis for the numbers presented you will be very disappointed. You will read that Americans have a “respect for individual liberty, free markets, and limited constitutional government” and that returning (public) spending (mostly) to 2006 (nominal) levels is somehow good. Cutting federal employment by 10 per cent is also good. Cutting all regulations is also good. But that is about as far as the textual rendition goes before you hit the tables and graphs. When I read the document I couldn’t help thinking that someone had run wild with an Excel spreadsheet.

Today we learned that – China posts slowest GDP growth in two years – yes, the annual rate of growth has dropped to 9.1 per cent which was 0.4 per cent lower than the second-quarter and 0.2 per cent lower than the estimate provided by the Bloomberg News survey of 22 economists. The reason given for the “slowdown” was “monetary tightening and weaker export demand”. The anticipation of a slowdown over the last week has fuelled a host of doomsday projections about how the Chinese investment boom will crash and how it will cripple the rest of the world. My view is different. I consider the Chinese government to be totally on top of managing their economy, which sets them apart from the leaders in the advanced world. They will not let a major economic crisis occurring within their own borders. They have so much more scope to expand although all of us will rue the environment impacts of that expansion. Their problems are going to political – taming an increasingly rowdy middle class. For the rest of us, China provides an economic example – when all other sources of expenditure fail, turn on public spending and do it quickly and don’t err on the conservative side.

I did an interview in August with the Harvard International Review (published by Harvard University). It was finally published yesterday (October 16, 2011) – Debt, Deficits, and Modern Monetary Theory. I consider the principles that are outlined in that interview to provide a sound organising framework for progressive movements aiming to make changes to the current failed systems. I think Modern Monetary Theory (MMT) does provide insights to the general population that are not only obscured by the mainstream media but which if they are broadly understand will empower the 99% to demand governments redefine their roles with respect to the non-government sector. Part of that re-negotiation has to be to reduce unemployment and redistribute national income more equally. We will also be better placed to have a sensible discussion about the human footprint on the planet. The three goals – full employment, reduced inequality and environmental harmony – should be central to the current civic protests (such as OWS). But we also have understand that government has to be involved in the pursuit and maintenance of those goals. The problem is not government but the politicians we elect and the coalition between them and the corporate elites. An understanding of MMT can energise the progressive fight back.

I didn’t comment earlier this week on the recent decision to award the (not)Nobel Prize in Economics to Thomas Sargent. My thoughts were otherwise occupied but it is worth recording that Sargent has been at the centre of the mainstream macroeconomics literature which has been used to justify the claims that government fiscal interventions are ultimately futile and only generate accelerating inflation. His ideas helped my profession to claim authority in its campaign to pressure governments in deregulation, privatisation, inflation targetting and abandoning full employment as a primary policy target. The upshot has been three decades of policy development which really laid the foundations of the current crisis. If Sargent and his cohort had not been so influential the world economy might not have been in the mess that it finds itself in. And … millions might still have their life savings and be gainfully employed. The so-called Nobel Prize in Economics continues to reward those who are culpable.

Sometimes, not often, I read some economic analysis that is sound. In the constant barrage of mainstream economics telling us that budget deficits are causing the crisis to linger; that interest rates are about to rise sharply because there is too much public debt; that inflation is about to go hyper because bank reserves have risen; that taxes will soon sky-rocket to pay back the debt; and all the rest of the lies that students are forced by lecturers around the world to rote learn, to find a well-reasoned piece of analysis is very refreshing. My attack dog propensities subside and I am able to think about what is being written – seeing where I agree and disagree and even learn some things. Such was my experience this morning when I read a new Report from the US-based The Way Forward Moving From the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness. It will not be a case of common sense prevailing because the forces against this type of clear thinking are many and powerful. But it is evidence that views that are not incompatible with Modern Monetary Theory (MMT) are being developed and thrown into the public debate. In this case, the authors also have some public profile. The ideas in this Report would provide a Way Forward.