When the early neo-liberal governments in Britain, Australia and New Zealand wanted to craft the public debate so that we wouldn’t realise that privatisation was just selling wealth that we already owned collectively to enrich a few of us as well as all the parasitic lawyers and brokers who managed the sales, they pushed the idea that we were all shareholders now. The old idea of capitalists versus workers was dead because we were all basically capitalists and the wealth would grow accordingly. What a disaster that initial experience with the neo-liberal myth has been. Now, that governments are deliberately creating unemployment and undermining paid-work opportunities with fiscal austerity, the public debate is being bombarded with a variation on that same theme. Now we are being told that it is so passe to think in terms of workers and bosses because in reality we are all basically entrepreneurs. Even the most lowly-paid casualised worker who is unfortunate enough to have to eke out an existence via labour hire companies is cast gloriously as a profit-seeking entrepreneur. The rot is seeping into our educational institutions as well.

When recessions become prolonged and long-term unemployment rises, the conservative denial machinery always scapegoats the most disadvantaged by recommending cuts to welfare to make people more desperate. This is dressed up in terms that attempt to make this sort of policy sound reasonable – like we should all be adventurous and entrepreneurial. The facts are that mass unemployment represents a macroeconomic failure that can be addressed by expansionary fiscal and/or monetary policy. It has nothing to do with the provision of the miserly amounts that are given to the unemployed via income support arrangements. Cutting those benefits will not cure involuntary unemployment. In all likelihood, cutting benefits will make the aggregate demand shortfall that caused the unemployment to worsen. The result is that the cuts will only make the lives of the unemployed more desperate than they already are. It is time that the conservatives learned about macroeconomic constraints.

As more people become aware of Modern Monetary Theory (MMT), extreme reactions emerge to basic concepts that, in any reasonable sense, should evade such reactions. For example, when the concept of the Job Guarantee (JG) is explained the reactions include hysterical comments such as “This is Socialism”; “MMT advocates the government employing everyone – they are stealth Communists”; “MMT is Communism in disguise”; and the rest. I get several E-mails along these lines per week – all which go into the trash immediately – so why bother sending them! I also get many (polite) E-mails suggesting that we (MMTers) should adopt a compromise line and embrace the ideas of those, who while clearly holding ideas that are inconsistent with MMT, do advocate government-led stimulus in the present context. Apparently we should also use terminology that is consistent with the mainstream to minimise the chasm that has to be be crossed to jettison that orthodoxy and accept MMT. These tactical suggestions have resonated once again in the current little dispute about whether various economists, who operate in the New Keynesian paradigm are channeling Minskian ideas. The suggestion is that, while they might not have foreseen the crisis and hold to various theoretical concepts that are inconsistent with MMT development, we should, as a matter of strategy, form alliances with these economists because they are now advocating policy more or less similar to that proposed by MMTers. So our common purpose should be prioritised over our theoretical differences. I disagree. History shows us that it is very dangerous to develop a new approach by minimising the differences between it and the dominant, but erroneous paradigm just to make it easier for adherents of the latter to embrace the former.

I wrote recently about Eugene Fama, a Chicago economist who basically denied that a breakdown in the financial markets had caused the current crisis. Please see – Yesterday austerity, today growth – but leopards don’t change their spots – for further discussion. Last week (February 17, 2012), one of Fama’s colleagues wrote a Bloomberg Op Ed – How 3 Myths Drive Europe’s Response to Debt Crisis. The article by one Harald Uhlig, from the Department of Economics at the University of Chicago demonstrates the way that the Chicago School likes to obfuscate issues. He develops a model, which purports to show that the imposition of fiscal austerity and zero impact on the standard of living of the population. The only problem is that the model not only makes some false conclusion, within its own logic, but is also inapplicable as a vehicle for explicating problems that might arise in a modern monetary economy. This is typical Chicago economics – a stylised but irrelevant analytical framework.

The IMF released a working paper recently (January 2012) – Macroeconomic and Welfare Costs of U.S. Fiscal Imbalances – which purports to estimate the losses that the US economy will incur if the US government delays a major fiscal consolidation. The paper attracted a Bloomberg news headline (February 3, 2012) – How Reducing the Deficit Can Make Us Richer: The Ticker – which, in its own way provides an example of a dishonest piece of reporting. What has the IMF paper have to say about real world issues like real GDP growth, unemployment, underemployment etc? Answer: virtually nothing. It is an example of GIGO (Garbage In, Garbage Out) and confirms that my profession has learned very little (if anything) from its total failure to see the crisis coming or offer valid solutions. It also confirms that while the IMF leadership might be going around lately trying to sound reasonable (warning against austerity) the engine room of the IMF hasn’t changed direction at all. It is still pumping out indefensible rubbish, which then garner headlines and influence the policy debate to the detriment of the unemployed everywhere. The IMF consider humans to be a “continuum of infinitely lived agents normalized to one”. Which means this paper becomes Part 3 of my GIGO series.

The British economy is clearly declining and the Government has moved from denying the decline (it initially spent months talking up its claims that austerity would promote growth) to admitting the decline but diverting the blame to others. The others in this case – are the hopeless Europeans who move from one disaster to another. So now the narrative that is emerging in Britain is that its export-led recovery plans are being damaged by the failure of the Europeans to do something about the crisis there. There are two ways of thinking about that. If Europe was such a problem then it has been a problem for nearly 4 years and so it was misguided to deliberately damage domestic growth (via austerity). The other way to look at it is to note that the British economy has resumed growth under the support of the fiscal stimulus (introduced by the previous government) and then started to experience declining growth virtually from the day the current British government announced its scorched earth policy cutbacks. The recent Euro crisis has really nothing to do with that. It is clear that the British government is moving from denial to blame shifting.

A number of readers have written to me asking me to explain why the US government (and any sovereign government) should not learn the lesson of the inflation that was caused by the spending policies of the Confederacy during the 1860s in the US. They have tied this query variously in with the rising budget deficits, the quantitative easing policies of the Bank of England and the US Federal Reserve Bank, and more recently the “injection of liquidity” by the Bank of Japan as a reaction to their devastating crisis. The proposition presented is simple – the Confederacy funded their War effort increasingly by printing paper notes (and ratifying counterfeit notes from the North) and saw runaway inflation as a result. This blog examines that point. What you will learn is that the experience of the Confederate states during the Civil War does not provide an case against the use of fiscal policy or the proposition that sovereign governments should run deficits without issuing debt. The fact is that “printing paper notes” does not cause inflation per se. It might under certain circumstances. Those circumstances were in evidence in the Civil Wars years in America.

I get a lot of hate E-mail. The hate used to be expressed in handwritten tomes from those with old typewriters and too much time on their hands. Sometimes there would the anonymous phone call telling me that if I kept advocating the closure of say the coal industry (my region has the largest coal export port in the world) I wouldn’t see the week out. More often these days the spleen comes via E-mail from rather odd addresses (made up hotmail etc) telling me that I am a waste of space because I support active fiscal intervention to restore full employment. “How can I care so much for the unemployed … they are the dregs of the earth and would be better shot … like you” is a typical turn of phrase. Anyway, I notice that the right-wing always gets personal when evidence against their claims is produced. Then they slink back to their desks and determine that the facts before them are not facts at all (because they violate their ideological precepts) and precede to reinvent history. This exercise is otherwise known as making stuff up. I think in these situations interaction is less productive than action. Accordingly I regularly sing to myself as I work – “We gonna smash their brains in – Cause they ain’t got nofink in ’em” (curious? see later)!

On February 11, 2011, the IMF’s independent evaluation unit – Independent Evaluation Office (IEO) – released a report – IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004-07 – which presents a scathing attack on the Washington-based institution. It concluded that the Fund was poorly managed, was full of like-minded ideologues and employed poorly conceived models. In a previous report the IEO had demonstrated how inaccurate the IMF modelling has been. But the IMF is an organisation that goes into the poorest nations and bullies them into harsh policy agendas which the IEO has now found to be based on poor theory and inadequate model implementation. That makes the IMF more than an incompetent and biased organisation. In my view it makes them culpable. Who is going to pay?