Today I am travelling to Kioloa which is on the South Coast of NSW. I am to be part of a three-day “dialogue” on The Land Restoration Imperative in Australia. The immediate past Governor-General of Australia Major General Michael Jeffery has invited me to be part of a Task Force he is forming to pursue this issue. This is what it is about.

Today the retail sales data came out in Australia and showed a 1.0 per cent fall in the month of July and the beginnings of a declining trend (2 negative months in a row). Many economists are seeing this as a sign that the impacts of the fiscal stimulus packages have come to a screaming halt and all we have left for our troubles is a public debt burden that will kill our kids and pets. While the fall-off in retail activity is a problem I don’t think we are about to follow the US path into temporary oblivion. Further, debates about retail sales allow me to extend my Austrian theme. Attack dogs on the ready!

It is clear that next year’s federal election will be based on the deficit-debt-waste agenda, if the mounting calls for the federal government to cut back net spending now to avoid us drowning in a mountain of debt are any guide. However, the political rhetoric is at odds with the major forecasts (such as the OECD and IMF) which confirm that the stimulus packages must not be wound back. The fact that the IMF and OECD are saying that is some endorsement given their neo-liberal credentials. Today, I thought I would do some digging to construct some of my own scenarios. This is what I came up.

In today’s Sydney Morning Herald, the Opposition Shadow Treasurer revealed two things. First, he doesn’t know a thing about economics and would be dangerous in that position should he ever get the chance. Second, he is prepared to say anything to undermine the government whether he understands it or not. What it tells me is that this is a pretty good reason for the current government to stay in power! Spare that thought.

Mostly, financial markets (the wealth shuffling casino) and the real economy (where people live and work) run as parallel universes. But occasionally as in the case of the GFC morphing into a full-blown real crisis with massive income and job losses the two merge. In many cases the merger is driven by a poor understanding of the way the fiat monetary system operates. As a consequence we get decisions taking by the gamblers (they prefer to be called speculators – it sounds better) based on faulty analysis of how the econmy works, pushing asset prices up (or down) which in turn affect the way governments are reacting to the “real crisis”. The surge in gold prices in the last few days might be an example of that.

On July 8, 2009 a world first occurred in Sweden when the Swedish Riksbank (its central bank) made announced that its deposit interest rate would be set at minus 0.25. While this has set the cat among the pidgeons around the financial markets, it is a classic example of “central banking gone crazy” or more politely “quantitative easing on steroids”. The only problem is that performance enhancing drugs seem to make athletes ride or run faster. This move will do very little to make the Swedish economy increase output or employ more people. For a background to my analysis on this event in central banking history you might like to read my blog – Quantitative Easing 101.

So today’s National Accounts data offers us a rear-vision mirror view of where the Australian was between April and June of this year. To some extent events have overtaken the relevance of this information. More recent news in the past week indicates that right now we are even further advanced in recovery than the June National Accounts data is indicating. But be warned. Not everything is what it seems to be.

I saw the latest Government Finance Statistics released by the ABS today just after I read the Financial Times where there was an article by former Cambridge Professor of Modern History, Peter Clarke entitled This is no time to throw away the crutches. There was a symbiosis in time. Then I read all the geeing up that is going on about rising manufacturing output in China and Japan and the News Limited themes that we have to get interest rates up sooner rather than later or the inflation genie will escape and I remembered the real world.

I have been intrigued with Japan for many years. It probably started with the post-war hostility towards them by the soldiers who saw the worst of them. The Anzac tradition was very unkind to Japan and its modern generations. It always puzzled me how we could hate them so much yet rely on them for our Post-World War II boom. I also thought we owed them something for being part of the political axis that dropped the first and only nuclear weapon on defenceless citizens when the war was over anyway. Whatever, I have long studied the nation and its economy. So yesterday’s election outcome certainly exercises the mind. Will it be a paradigm shift or a frustrating period where an ostensibly social democratic government runs up against the neo-liberal machine? I put these thoughts together about while travelling to and from Sydney on the train today.

In today’s Australian newspaper ex Federal Treasury official Tony Makin writes that We keep repeating Keynes’s mistakes. Do we now? The story is a litany of half-truths and basic conceptual errors. He is now a professor of economics. Bad luck for his students. The article, one of a regular contribution he makes to the increasingly squawking right-wing News Limited daily, is a classic example of how to deceive the public with spurious economic reasoning – that the author knows most of the public will just accept without question.

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.

There is a lot of speculation in the financial press about the shape and timing of the recovery. As one article implied there is a veritable alphabet soup out there. Tied in with this speculation is the disagreement about whether governments have provided enough fiscal stimulus. The conservatives are mounting a vigorous campaign to choke off any more fiscal expansion. However, given how poorly the labour markets are functioning and the fact that they trail behind the output side of the economy by some quarters, there is a strong case to be made for more fiscal stimulus to be applied. I definitely see this as being required in Australia – a third package aimed directly at employment rather than consumption. Not many will agree with me though.

Someone wrote to me today and said they had been reading Paul Krugman’s 1999 book Peddling Prosperity, where he presents the now-famous baby-sitting model. You can read a shortened version of the model HERE. The reader asked me whether the model had any relevance to modern monetary theory. The short answer: yes but not necessarily in the way Krugman thinks (he is still locked into gold standard thinking).

I am catching up on the mountains of things I have to read. It is a pointless task – the pile rises faster than my eyes can process it. But I try. There was an article in the June 25, 2009 edition of The Economist entitled A slow-burning fuse, which carried the by-line “Age is creeping up on the world, and any moment now it will begin to show. The consequences will be scary”. It definitely might be scary getting old but the discussion that needs to be had is nothing remotely like the discussion that dominates the current policy debate about the ageing society.

This blog is based on some research on Japan I have been doing as a precursor to a book contract I am working on which will be about developing a progressive macroeconomic narrative – a sort of cookbook for progressives to enable them to challenge the major myths that are perpetuated by neo-liberals. These myths lead to the imposition of voluntary constraints on the government capacity to achieve and sustain full employment. Some of the underlying dynamics of the system which expose these constraints for what they are – an ideological distaste for fiscal intervention – are still not well understood though. Here is some more on that theme.

Today I am a keynote speaker at the LHMU National Conference in Canberra. I am talking about the challenges of underemployment and low wages and the need for the union movement to broaden out their activism from narrow concerns about wages and conditions for their members to development and pursuit of a full-scale attack on neo-liberalism. In much the same way that the neo-liberal think tanks boosted the saturation of those ideas. I will report back when I get back – much later this evening.