Textbooks get out of date and need revision in the light of recent data or events. Some textbooks are exposed as being just plain wrong and should be re-written completely. Obviously authors in the latter category are reluctant to admit that their textbook is not an adequate description of the way – for example, the economy works – and so they not only resist updating their offering but they also defend it against all the evidence. Anyway, after reading Paul Krugman’s most recent attempt to come to grips with Modern Monetary Theory (MMT) I concluded that it was way past the date that he should be rewriting his macroeconomics textbook. Otherwise he is misleading the students who are forced to use it in their studies. So Paul, its time to update your textbook.

There has been a lot of “opinion” expressed over the last few days about the causes of the British riots. If I had a meter to assess the ideological biases given breath in the press over this issue to date it would be swinging out there in the right-wing of opinion – “cultural problem”, “lawless lazy youth fed by the welfare state”, “criminality”, “intolerable monsters” all words I have read or heard in the media recently. Anyway who has my view is labelled a “left-wing cynic” who want to “makes excuses for thugs”. Opinion is after all just that so it is always of benefit to temper it with research evidence. Anyway, the short conclusion – supported by the research evidence – is that I blame the British government for the riots.

In the last few days I have read more misinformation and downright lies from financial and economic commentators in the media than I have for the last year. The decision by the irrelevant S&P to get some attention for their corporate profit-making activities by downgrading US government debt has sparked a frenzy of nonsensical “analysis” which is as ridiculous as was the S&P decision. The fact is that the S&P decision is irrelevant as long as the US government makes it so. The danger is that the Government will think there is something to be addressed and the US economy will suffer as a result. As long as the US government realises who calls the shots the S&P decision will be irrelevant.

Last night we were watching the ABC news on TV and there was a story about American airports not being able to afford to pay security staff because the federal body who pay the bills had run out of money. I have been reading regional newspapers in the US which report on things like street lights being rationed not on environmental grounds but because the local authorities are starved of funds. Police beats are being trashed as rapes rise in the darkened, unpatrolled streets. Schools are being closed. People will die this coming northern winter because the governments have cut heating subsidies to the poor. Workers who saved all their lives then became unemployed in 2008 are still unemployed and have exhausted their life savings and are staring at poverty. And all of this is because the conservatives and the dullard progressives who have fallen into line lock-step have convinced us that our governments – which issue the currency we use – have run out of money. The people who are being most damaged by the fiscal austerity are the front-line troops in the conservative army attacking governments. It doesn’t make sense at all. For all the human achievements we are really a very dull lot. Governments have all the capacity to maintain adequate levels of spending and employment growth to allow the private sector to sort out their debt issues. This is a totally confected crisis which doesn’t mean that it isn’t real nor incredibly damaging.

I was looking at yields today and you cannot help noticing that bond markets are become more attracted to government debt each day. So much for the arguments we have been hearing ad nauseum over the last few years that governments were about to feel the cold hand of the markets who would punish them by dumping their debt unless they imposed harsh austerity. The problem is that the attraction of government debt does not signify that markets are rewarding governments for their fiscal austerity efforts. In fact, it is exactly the opposite. The markets are realising that austerity is now undermining economic growth and the claims by politicians and economists that we would enjoy a “fiscal contraction expansion” if only the government got off the backs of the private sector are now being revealed as lies. The world economy is tanking. Day by day the evidence mounts. The safest place to be when the economy heads south is in cash or government bonds.

Everywhere I walked in Melbourne last Saturday there were sales. Signs emblazoned all over the front of shops advertising 30 per cent, 50 per cent and 70 per cent discounts. The only problem is that I see those signs all the time now whenever I go retail precincts. The annual sale concept is now a continuous effort to rid stores of excess stock as consumers go on strike. So what is going on? The Australian Bureau of Statistics (ABS) released the June 2011 – Retail Trade data today and in showing that retail sales have contracted for the second consecutive month they confirmed what we already knew from the empty shops and sale signs – the retail sector is now in recession and things are getting worse.

I guess I had to write something about the “compromise” aka cave-in yesterday in the US capital. You can only conclude that the US President wanted this agenda and needed a smokescreen (mad Republicans) to put it in place. There is a lot of evidence that Obama wanted to attack pension and medical entitlements. Now he can. Not for long though – he is a one-term president in the making. When you put all the elements together sometimes compromise is the worst thing.

This Report – The “Jobless and Wageless” Recovery from the Great Recession of 2007-2009 – published by the Center for Labor Market Studies of Northeastern University (thanks Stephan) should have received headline attention from all the American media outlets instead of the disgusting venting of religious zealotry that goes under the name “debt ceiling debate” which has dominated media space. The Report was published in May 2011 and seeks to examine the way in which the recovering real output in US is being distributed to beneficiaries – workers, firms etc. It shows that the so-called economic recovery in the US has not delivered any tangible benefits to the vast majority of citizens and has rather, concentrated real gains among the top-end-of-town. Given that the recovery has floated on the fiscal stimulus the findings reinforce the biased nature of policy in the US. That indicates poor fiscal design by an incompetent and corrupt government not that fiscal policy is inherently unsuitable for advancing public purpose.

The Sydney Morning Herald disgraced itself today (July 28, 2011) with two very poor articles about the current debt debate in the US. The ratio of articles on the “conservative-do-not-know-what-the-economics-is-about” side of the debate to the alternative is infinite. There is no progressive commentary at all. Two articles today – Clever money haunts the US and Drowning in red ink – reveal how easy it is to call yourself an expert and get people to listen to you. They are full of misrepresentations, misunderstandings and plain factual errors.

I watched the US President speaking live today from the White House. I wish I hadn’t. The local media (here) characterised him as talking tough. What I heard was a leader who doesn’t know what he is talking about. But he isn’t alone out there in the “debt ceiling” debate land. I have noted before that when the crisis really hit I thought it would spell the end of the stranglehold that mainstream macroeconomics had on public policy. That body of theory had led the world into the crisis by endorsing policies that set the financial system up to collapse. As it was becoming obvious (as far back as 15 years ago) that a major crisis was approaching mainstream economists were in denial and claimed that the “business cycle” was dead. I was wrong in assuming (more hoping) that the mainstream paradigm would be wiped out by the travesty. And as the months pass, their erroneous theories seem to be getting more credibility not less. The debt ceiling debate has reached proportions of madness that I didn’t think were possible in a broadly educated country (at least to primary school level). What must the Martians be thinking of us now. Anyway, certain practical matters not counted on by the ideologues suggest that 3 million Americans or so may find out the truth.

I am sitting at Melbourne airport today reading IMF working papers and typing this blog. You might speculate on what sort of life that is. Par for the course. The IMF recently released a new working paper – Is Fiscal Policy Procyclical in Developing Oil-Producing Countries? – which though reasonable in the context of the paradigm that the IMF works within (that is, that governments are revenue-constrained and bond markets are crucial to their functioning) – provides a classic example of why most of mainstream macroeconomics needs to be abandoned and replaced by an understanding of Modern Monetary Theory (MMT). The errors of logic and assumption that the paper makes permeates through the entire public debate and if the public only knew the real story the politics would change instantly and dramatically.

I have very little blog time today (less than usual). I had a major piece to finish today and an Op Ed to write and some PhD drafts to read and I am floating around outside my office. But the Internet has allowed most nearly anyone (in the advanced employed world) to become a publisher and an owner of a site. It is not a very discriminating vehicle for quality control and in some sense that is probably a good thing because quality is often just an ideological construct. But there are some truly bizarre sites that breathe life courtesy of the Internet. One of the most bizarre is the Cut Cap and Balance Act home page with if I didn’t know otherwise I would assume was a parody on everything that is nonsensical about conservative free market economic thinking. The problem is that the site is deadly serious and that is truly scary. Cut, Cap and Balance is the new catch-cry. It is high farce but the proposers are actual legislators and they are dealing with real people. They should just retire and watch the Thunderbirds or something. Because all I can see in the CCB is Cut, cap and demolish – where prosperity and peoples’ life chances are the demolition target.

My time is short today so an early post. I am catching up on my reading and had time to study the evidence given by Simon Johnson to the Joint Economic Committee of the US Senate on June 21, 2011. There are many such committees within any national government and at present they are being bombarded with analysis from so-called experts who assume a non-problem, call it THE problem, then propose various solutions to the problem (that is, non-problem) which all in various ways would make the real problem even worse. That is the state of the public debate.