I often get E-mails from readers – some hostile others more reasonable – telling me that I should stop arguing for more economic growth. The reasoning is relatively straightforward – the Earth is buckling under the rapacious resources demands of the capitalist system and not only is that process likely to be finite, notwithstanding substitution via technological advances, but also in the process of exhaustion the amenity declines. The argument juxtaposes ecological claims with other claims relating to the desirability of the current neo-liberal dominated system which relies, seemingly, on creating more inequality, a reduction in government oversight and allows the worst aspects of the capitalist system to run amok. However, somewhere along the way, the 99% or whatever percentage it is (I think it is substantially lower than 99) miss the boat. The current crisis is used to demonstrate that conjecture. I haven’t time to reply to all the E-mails and I try to provide “collective” replies (which should tell you something in itself) via my blog posts. So today I am addressing that issue. The message is simple – I am very sympathetic to localised, new economy-type collective ways of organising social and economic activities. I support egalitarianism and co-operative solutions rather than competitive, dog-eats-dog approaches. I don’t mind working and giving my surplus to aid those who are unable for whatever reason to achieve the same material outcomes by their own hand. I am happy with consolidation rather than growth. But despite the romantic appeal of all this – as the solution – we have to understand that there is still something called a monetary system and a currency to deal with. Localised solutions are still constrained by the sovereign state they are located in and their fortunes are determined in no small way by the way the currency-issuing government conducts its fiscal policy. There is no escape from that.

The head of the IMF gave an extraordinary interview to the UK Guardian (May 25, 2012) – Christine Lagarde: can the head of the IMF save the euro?. It is extraordinary because of the language used by the IMF boss and the almost shameless increase in the intensity of Troika bullying of Greece at its prepares for another round of national elections to attempt to resolve the impasse that was left after the last election. The Troika know full well that the majority of people in Greece hate austerity and support an alternative growth-oriented policy agenda. The Troika also knows that its spin that austerity means growth is not resonating with European voters who can read the newspapers and understand the blatant untruth of the fiscal contraction expansion narrative. So they are exploiting the irrational view held by the majority of Greeks that they are better off staying with the Euro. By making out that the issue is about membership of the Euro, the Troika are introducing fear into the voting process to reinforce the TINA line that austerity is the only show in town. The Greek voters will succumb to that fear because they do not appreciate that membership of the Euro is austerity under current arrangements.

The International Labour Organization (ILO) released its Global Employment Trends for Youth 2012 report today (May 22, 2012). It is harrowing reading and I will consider it later in the week. It tells us that youth unemployment is rising and will be unlikely to see any improvement until at least 2016. The ILO recommend a raft of government initiatives which would require budget deficits to expand. But, of-course, the dominant political narrative is to cut deficits in the false belief that this will engender growth. Exactly the opposite is happening and for good reason. I came across an article from 1982 today which tells us why austerity is dangerous and damaging. It also conditions us to understand that budget deficits are neither good nor bad but policy choices can be.

Last night’s Federal Budget in Australia proved once again how dominant the macroeconomic myths are in policy development. You can read my pre-Budget comments – Budget 2012: a recipe for disaster – and apart from the 2011-12 deficit being larger than the Government planned as a result of the slowing economy undermining its estimated tax revenue (in other words, the Government was overly optimistic in its forecasts last year) I would not have written much different after seeing all the Budget documents. It remains the largest fiscal consolidation attempted in one fiscal year (equivalent to 3 per cent of GDP) at a time that GDP is growing around 2.5 per cent.and I cannot see private spending growth picking up to fill the gap. Outcome – a movement towards recession. Conclusion – poor fiscal management. But the Budget Papers that the Government releases are always interesting reading and one day I plan to trace the evolution of the shifts in macroeconomic ideology through the way the papers are presented (format, tables, and narratives). There you learn what the economists in Treasury think and the ideas espoused are generally applicable to the international debate given that the tentacles of the dominant paradigm of the day spread widely. In Budget Paper No 1, Statement 4 – Building Resilience Through National Saving we are provided with a demonstration lesson of how a fiat monetary system does not work and a classic depiction of the way the mainstream narrative deceives the citizens.

Today has been a busy pre-Budget night day (the Treasurer delivers the 2012-13 Budget tomorrow night). I was invited to write an Op Ed for the ABC’s The Drum – a site which explores news and analysis in more detail than the usual 750 word newspaper column. The Drum column is reproduced below. I have also been wondering about the implications for Europe and beyond of the election outcomes in France and Greece. I suspect the latter will be more interesting given Hollande will be unlikely to rock the boat too much. But I need to read more of the French literature that has emerged in the last 24 hours to really get a feel for what is likely to happen there. I will have more to say about the Australian federal budget when it is actually unveiled tomorrow night but it looks like being the case that Australian government is about to deliver a 5000-odd word suicide note.

The term Arab Spring is now entrenched in the lexicon although what it actually refers to – liberty or more oppression – is now a question in its own right. There is another Spring occurring – smaller, more obscure perhaps, but with significant potential to change the way academic research is disseminated and the way funding agencies treat universities. In the case of the economics discipline it offers significant scope to break down some of the barriers that allow the mainstream economics paradigm to retain dominance despite it being largely bereft of empirical support. I am talking about the Academic Spring, which is a grass roots revolt that is gathering pace. You can find out how to join this revolt at the end of the blog.

The NSW Bureau of Crime Statistics and Research (BOCSAR) released an interesting study yesterday (March 13, 2012) – The effect of arrest and imprisonment on crime – which might be a strange topic for a Modern Monetary Theory blog to highlight. On the contrary, this type of research provides an invaluable reality check against those who think that entrenched unemployment during a recession is more efficient than fiscal initiatives that aim to directly generate public sector employment. We already know that that the daily real GDP losses that arise from an economy operating at less than full employment are massive. The BOSCAR report adds another loss in the form of higher crime rates. It confirms long-standing research findings that shows that unemployment causes higher property and violent crime rates.

I’ve been travelling for most of today (now back in Newcastle) which has cut the time available to write anything. So this will be a relatively short blog and focuses on the way in which my profession is always trying to reconstruct economic issues when they find some policy proposition uncomfortable. The vehicle to demonstrate this phenomenon is an article published by Bloomberg (February 10, 2012) – Sachs Says Krugman Is ‘Crude Keynesian’. It summarised the radio interview (mp3 link – running for nearly 15 minutes) with Columbia University’s Jeffrey Sachs. The latter is well-known for providing advice to the old Soviet economies, which led to the massive transfer of public wealth to the private oligarchs via privatisation. Under Sachs’ guidance, the so-called “shock therapy”, hastily imposed deregulation, privatisation and the abandonment of price controls (on rent etc) on the previously planned economies – with disastrous consequences. In the Bloomberg interview, Sachs is highly critical of “macro” interpretations of the current problems – claiming that the major challenges are all micro in origin.

Most of the failed political leaders and their corporate mates are in Switzerland at the moment, presumably wining and dining in fine style and pontificating about what the rest of this need to do next. The sheer preposterousness of the World Economic Forum in Davos is astounding. There remains a denial by the leaders of what has to be done. They seem insistent that the failed neo-liberal paradigm should remain intact. Apparently, calls for reforms just reflect an unrealistic nostalgia for the past. It is apparently nostalgic (meaning nonsensical) for us to long for the days when nations delivered full employment, real wages growth in line with productivity, and declining inequality. This accusation of nostalgic longing is the way the elites are avoiding facing the facts that their economic model based upon self-regulating markets has failed and will never deliver on its promises. We need a new approach that recognises the capacities and options available to a currency-issuing national government. This is not a nostalgic longing for an unchanged world. Rather it is a realisation that the macroeconomic fundamentals of a currency-issuing national state have not changed, notwithstanding the challenges that globalisation presents.

Underlining the current obsession with fiscal austerity is an equally long-standing obsession with so-called structural reform. The argument goes that growth can be engendered by deregulating the labour market to remove inefficiencies that create bottlenecks for growth even when fiscal austerity is slashing aggregate demand and killing growth. The 1994 OECD Jobs Study the provides the framework for this policy approach. The only problem is that it failed even before the crisis emerged. But with policymakers intent on slashing aggregate demand, which they know will kill growth, they have to offer something that they can pretend will generate growth. The structural reform agenda has zero credibility in the same way that fiscal austerity has zero credibility.

It is a public holiday in Australia today and I am not working a full day. But I have been collecting some items from the past five or so years which I am weaving into the text book that Randy Wray and I hope to have out in the coming year. When academics or others comment on public affairs it is clear that our commentary is to a certain extent time-dependent. The language we use, the topics we focus on and the conclusions we draw. So some things that are written sound quaint when we go back to them after some years. I hoard information and occasionally I access my databases to see who said what in some year and compare it to what might have happened in the interim and then what the same person might be saying in retrospect. It is an interesting exercise and when applied to my own profession reveals some amazingly nonsensical predictions or assessments. The global crisis has provided a major event to test many of the assessments made prior to the crisis. The most surprising thing is that the same sort of assessments made prior to the crisis that were demonstrated to be entirely false are still being made and still influencing policy design. But the most robust assessments have withstood the crisis and remain relevant today. I include the developments in Modern Monetary Theory (MMT) in this latter category. Mainstream macroeconomics was largely wrong before the crisis and is wrong now (for the same reasons) and should be disregarded.