A bit of a different blog today. I was rummaging through some boxes of papers today in search of some “non-digitised” notes which I wanted to consult as part of the development of our macroeconomic textbook, which Randy Wray and I hope to get out sometime next year. I came across some old drafts of papers I wrote in the early 1990s which had handwritten annotations etc. The old way of doing things. I thought it was interesting to compare the final published version of one such paper with the unpublished draft. That is what this blog is about – looking back to an article I wrote in 1993 (“Demystifying the Deficit”). A little journey back in time – but with alarming overlaps with what is going on today.

I have been following the Occupy Wall Street developments with interest because ultimately I consider the only reasonable way entrenched elites become unseated is if there is mass action by citizens. I do not think military coups are a very sound way to lay the groundwork for grassroots democracy. I also like the idea of a “leaderless resistance movement with people of many colors, genders and political persuasions” although politics doesn’t take long to creep in and steer movements like these in particular ways. In the last day or so I have become aware that there is some notion among the “occupiers” that the evil they are opposing is fiat currency rather than corporate power particularly that of the financial monoliths. While power does lie in the monetary system the only way of ensuring that this power is democratised is if the currency-issuing entity is freely elected and accountable to us. That is a necessary but not sufficient condition for the advancement of economic development. My input to the OWS movement is by understanding Modern Monetary Theory (MMT) we can appreciate how governments are necessary for the development process and that we have to concentrate on making the fiat currency system work for us and prevent it from being hi-jacked by the so-called 1 per cent.

Last night, I was listening to the ABC Current Affairs program PM and they were running a segment – ‘Occupy Wall Street’ protest growing and they were interviewing American journalist Jeff Madrick. At one point in the interview he said: “I hope the American establishment has the courage to ask one fundamental question; what is Wall Street for? What are they supposed to do?” The answer to those questions are in order: not much that is worth anything; and not what it was created to do.

When the Liberal Democrats went into coalition with the British Tories I was surprised how readily and brazenly their leadership was prepared to compromise the underlying principles of the party for power. While the Party Constitution claims they stand for – “a fair, free and open society” balancing “the fundamental values of liberty, equality and community, and in which no-one shall be enslaved by poverty, ignorance or conformity” and “that the role of the state is to enable all citizens to attain these ideals, to contribute fully to their communities and to take part in the decisions which affect their lives” it is clear that they have become partners in a policy regime that is the anathema of those ideals. By entering the coalition they have allowed a pernicious regime to be inflicted on the British people – one which is driving unemployment up and incomes down. The Liberal Democrats are having their Annual Conference this weekend in Birmingham and it is clear if the utterances of some of their members are anything to go by that the Party is struggling with their identity. The Deputy Leader for example said (September 17, 2011) that the job of the Liberal Democrats was “to rein in the ruthless Tories”. The reality is that it is the government that is ruthless and the Liberal Democrats are part of that government and give it the air it needs. I was unfortunate to listen to a BBC interview today with Liberal Democrats leader Nick Clegg and it left me with the impression that there is little to distinguish the coalition partners on the main economic issues. Both parties are infested with neo-liberalism and both fail to understand basic macroeconomics – that spending creates income.

Earlier this year I reported on what a wonderful Xmas all the Ricardian agents (consumers and firms) had enjoyed in the UK as a result of the government austerity program. Please read my blog – Ricardians in UK have a wonderful Xmas. It seems those “agents” just cannot get enough of it. Now, more than 15 months into the austerity program and with the cuts about to really bite, the British economy continues to go backwards. Our real world laboratory is providing priceless data upon which we can assess basic propositions that mainstream macroeconomics provides and which Modern Monetary Theory (MMT) contests. A nation cannot have a fiscal contraction expansion when all other spending is flat or going backwards. Britain is up against an impossible equation.