I’m sitting here at the airport typing away while the morning TV news in the background is showing the Australian Treasurer acknowledging that the economy is slowing and undermining his obsessive desire to achieve a budget surplus next year. Tax revenue continues to decline as activity stalls. Why? Because the Government withdrew the fiscal stimulus too early which caused real GDP growth to stall. Not to be beaten though the resolute Treasurer is now exploring further spending cuts to get the budget “back on track to surplus”. Its high comedy in one sense but high tragedy in the real sense – that unemployment is rising and employment growth falling. But the Treasurer is running with the rest of the G-20 Finance ministers and they are all tripping over their ideological shoe laces

It seems my attempt to escape the Lands of Austerity last week unscathed was a pipe dream. I have been slowed over the last days by a European flu of some sort. So I have less energy than usual which doesn’t tell you very much but might explain why I might write less today than on other days. I am also behind in my reading. But I did read a little over the weekend, especially the documents and statements pertaining to the IMF annual meetings, which had the effect of worsening my condition. I also dug out an old 1933 document which helped restore my equanimity. It allows us to frame today’s leadership failure in history.

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.

The US Bureau of Labor Statistics published the latest labour force data on Friday and the results can be summarised in one word – shocking. Meanwhile the so-called US political leadership met at the White House to determine how they could make sure the US labour market deteriorated even faster than the latest BLS data shows it is. Other senior White House officials appeared on American TV networks engaging in what can only be related to early teenage male behaviour – ours will be bigger than our opponents. The ours being the trillions they plan to cut from the US federal deficit. With the US labour market in clear decline and the top level talks being about trillions of cuts in public spending you can only conclude one thing – the US leadership has gone missing.

I checked my calendar today thinking I must be a few months out. Upon checking I determined that it wasn’t April 1. So what the hell is going on? I refer to the announcement of a senior appointment at the World Bank. They have just appointed to the role of Vice President and Treasurer the former Lehman Brothers Global Head of Risk Policy who then was Lehman’s Global Head of Market Risk Management as they sailed into bankruptcy. Hilarious. As the Twitter-verse noted – Did they also interview Bernie Madoff? Anyway, I saw this news piece come in as I was studying the 81st Annual Report 2010/11 of the Bank of International Settlements – the central bank of the central banks – which was released yesterday (June 26, 2011). My conclusion: BIS = BS – the I is gone and used to stand for integrity

I am travelling today and so have to steal time to write this blog between other commitments. Later this week I am presenting a paper at a workshop on stock-flow consistent macroeconomics and I was thinking over the weekend just gone what I would do with the time I have for the presentation (1 hour). I started putting together a database of IMF forecasts out to 2016 for various nations and simulating the implications for the sectoral balances. Then I thought I would discuss the internal inconsistencies of those forecasts from a stock-flow perspective and the implications of those inconsistencies. I will write a blog later in the week on that once I have finalised the presentation. But the preliminary thinking led to today’s blog. In policy you have to wish for the possible.

Some years ago – I did not have sexual relations with that woman – were the famous words that seemed to redefine everything we had come to think of sexual relations between two consenting partners. Suddenly we could have sexual relations without having them. The same person has come up with a new conclusion – the US never ran “permanent structural deficits of any size before 1981”. Hmm, you mean that for 84 per cent of those years from 1930 when the US federal government ran deficits they were just cyclical events indicating deteriorating economic conditions? Maybe the former president might say a structural deficit equivalent to 3 per cent of GDP was not of “any size”. My conclusion is different – that this statement like the previous one was another case of a former US president making things up.

In his recent New York Times column (April 21, 2011) – What Are Taxes For? – continues to engage with Modern Monetary Theory (MMT) but trips up because his mainstream view (dressed up as a progressive) reveals serious flaws in reasoning about the way a fiat currency system operates viz-a-viz the former monetary system based on convertibility via some commodity standard. In this blog I correct some of the analytical mistakes that appear in that article. Krugman concludes by claiming that he is really disturbed by those who don’t get mainstream logic – and is especially upset by “a lot of people with Ph.D.s in economics who can throw around a lot of jargon, but when push comes to shove, have no coherent picture whatsoever of how the pieces fit together”. My only response is to look in a mirror Paul or in the words of Bob Marley ask “who the cap fits”.

I gave an interview on the national broadcaster ABC about the latest talk in Australia to ramp up the pernicious Work for the Dole program. I noted that the unemployment problem in Australia at present reflects a systematic failure to produce enough jobs rather than the personal failures of the unemployed themselves. Standard stuff. The interview got me thinking of about make work schemes and unproductive labour and boondoggling! and leaf-raking. My mind turned, immediately, to the IMF which runs one of the largest make work programs in the world and employs thousands of workers on good pay to do nothing constructive at all. The IMF is the exemplar of leaf-raking. You only have to read their working paper series – where multiple authors attach their name to senseless reports about nothing. These papers are always “Authorized for distribution by x” – that is, some higher-up leaf-raker who spent years learning the craft of being occupied doing nothing. All IMF economists aspire to be the person who sits in the office and authorises for distribution the papers that all the peons pump out which provide nothing useful to anyone. At least aggregate demand is being maintained via the workers’ wages. Pity the IMF couldn’t find something more productive for their workforce to do. Perhaps they are not skilled enough though. Anyway, life in the IMF fantasy world!