Today’s blog is a little different to most, although don’t worry, I will get onto familiar themes soon enough. Today I am considering the latest broadside from controversial German philosopher Peter Sloterdijk, who Jurgen Habermas referred to as a fascist. Sloterdijk responded to that criticism by labelling Habermas, in turn, a fascist. That debate was about bi-genetics and Sloterdijk’s implicit support for a “master race”. It was an interesting debate in itself and goes to the fundamental discomfort that exists in Germany about their past. But today I am considering his views on freedom and governments who he labels fiscal thieves and suggests that modern democracies have conspired to allow ever increasing numbers to live of the toil of others courtesy of state intervention.

When I read the financial and economic news every day I sense a global madness has emerged. Global political processes are becoming distorted by the types of debates that the conservative media companies and the mainstream economists are driving. Every day a new whacko proposition is suggested or entertained by governments. Old hatreds are also resurfacing as our economies labour on (or not labour to be more accurate!) in the face of a major private spending collapse accompanied by inadequate government fiscal responses. The collateral damage of the deficit terrorism is increasing and spreading and still the major political parties in most countries slug it out as to which one will deliver the most fiscal austerity. Would someone please put something in the water supply so that we can refocus this debate onto what is important. That was the plan in the late 1960s to chill everyone out and distinguish the meaningful from the nonsense. Something has to restore our sense of priorities. The longer this madness goes on the worse it is going to get. There is no sensible solution that will come from following the present path.

I am now back in my normal office after a few days experimenting with a mobile office by the sea. Back in Newcastle I am still only a couple of minutes from the beach but somehow it was different being holed up in a little cabin. Anyway, on the way back down the coast this morning I was bemoaning the idiocy of the human race … again. Or rather cursing the vicarious way the elites exploit the lack of understanding in the community about economic matters to further their own ends. That is a better way of constructing the dilemma. Even some good intentioned souls are proposing “solutions” to non-problems which will worsen the actual problem. Other devious characters are continuing to reinvent themselves in the public sphere – presumably to get access to more personal largesse. Then whole blocks of nations are imposing penury on their citizens to make the “markets” happy while another national government has actually forgotten it is a currency-issuing government. All in a day’s work!

For some years now we have been reading about how the UK has benefitted from the Thatcher reforms which involved extensive deregulation of the labour market and retrenchment of significant sections of the state. The falling unemployment rate and strong employment growth prior to the crisis were cited as evidence of the claims. Even at the height of the crisis, mainstream (neo-liberal) commentators have asserted that the UK would bounce back quickly on the back of its labour market flexibility. It turns out that new evidence released recently provides a different view of the employment creation and provides an even stronger case for avoiding cut backs in net public spending than was already obvious to those who understand how the monetary system operates. Sadly, the politics in the UK will likely blind the policy makers to the realities.

UK Tory leader David Cameron is back in print in the Guardian (November 10, 2009) with his claim that Big society can fight poverty. Big government just fuels it. In the same edition of the Guardian, regular commentator Polly Toynbee provided a critical analysis to the Cameron line in her article – David Cameron, social policy butterfly. However, sadly, neither writer understands the principles of modern monetary theory (MMT) which means that neither has the slightest inkling of how the monetary system that they live in works. If they did understand that system and the opportunities that it provides a sensible national government then they would probably not write what they did.

Today there were two feature articles in the Australian press which attracted attention. The first article was an interview with the former Australian prime minister (Howard), who (by the way) was called a “lying rodent” by one of his own colleagues during his time in office. The second article was by the Sydney Morning Herald’s political editor who claims the Time has come for Rudd to face the big test. Both articles carry the same messages which are relevant to the macroeconomic debate in all nations (so this is not a parochial Australian discussion). They also nonsensical pieces of fiction when you consider them from the perspective of modern monetary theory (MMT). They show the power of the mainstream macroeconomics “textbook straitjacket” which has the world debate in a vice-like grip.

The previous conservative Australian government ran budget surpluses for 10 out 11 years between 1997 and 2007 and lauded them as the exemplar of fiscal prudence. Of-course, from a modern monetary theory (MMT) perspective it was clear that the fiscal drag embodied in this strategy undermined the capacity of the domestic private sector to save (given the current account deficits) and forced growth to be dependent on the increased indebtedness of the household sector. It was an unsustainable strategy. It also coincided with the government destroying significant components of private wealth as they paid out government bonds and slowed the issue of new debt to a trickle. The previous treasurer talked relentlessly about getting the public debt monkey of our backs. Well apart from it never being on our backs in the first place, we are now seeing some hidden manifestations of this squeeze on private wealth.

The weekend’s Sydney Morning Herald carried a syndicated article from the UK Telegraph – Why the economy needs to stress creation over distribution – which bears on the recent discussion about financial market profits and executive packages. If we were to follow this remuneration pattern then things would be very different in the world. Probably for the better. It also shows how the explanations for earnings provided by mainstream economics textbooks are ridiculous in the extreme. Another reason to stay clear of those courses at University.

The debate seems to be slowing down which means this might be my last response although we will see. But in general the debate has raised a lot of interesting perspectives and I hope it has stimulated interested parties to read more of our work. I also think that while (as in any debate) “battle lines” appear to be drawn, I repeat my initial point some days ago. Steve and I saw this as a chance to focus on the common enemy – the mainstream (neoclassical) macroeconomics. That (failed) paradigm has nothing to say about the world we live in. The work of Steve and the modern monetary theory I work on both have lots to say and should not be seen as being mutually exclusive. Indeed, Steve operates in what we call the horizontal dimension of modern money.

It continues to amaze me how humans lock themselves into constrained debating positions on almost every topic imaginable. In doing so we stand in denial of our history and therefore operate in a sort of “current ignorance”. But also we deny ourselves the adventure of thinking laterally about how new ways of proceeding might help us solve our problems. So we are neither backward or forward looking but churn our debates around and around within a tight set of ideas which we presumably think is safe. In macroeconomics, the problem is that most of these “safe” ideas are based on false premises and actually expose us to on-going danger of the type we are witnessing in this current global recession. I was reminded of this again today when I was reading the latest New York Times debate about Saving the World, Without U.S. Consumers.

Some readers have been picking up on various statements I have made about the decline in public employment in Australia over the last thirty or so years and what it means for the trajectory of unemployment. I am on the public record as saying that if the persistence of unemployment in Australia is largely to do with the failure of the public sector employment to maintain growth in line with labour force growth. If it had have achieved this then we would have had very low levels of unemployment during the growth period following the 1991 recession. The 1991 recession was much worse because the public sector cut its employment growth. Further, while neo-liberals hold the US out as a model for us to follow, the fact remains that US government employment growth has more or less maintained pace with US labour force growth. The resulting unemployment dynamics are in stark contrast to those found in Australia.

In November last year, during a visit to the LSE, the Queen of England (and Australia to our eternal shame) asked some pointy heads why “if these things were so large, how come everyone missed them?” in relation to the apparent inability of the mainstream economics profession to foresee the crisis. Apparently, the Royal Academy then called a special workshop to discuss this and came up with an answer which they then relayed post haste … as “Your Majesty’s most humble and obedient servants” to Liz. The whole affair represents the standard massive denial that defines mainstream macroeconomics. There are no saving graces. It would be useful if they just desisted for a while and went and played gin rummy.

I saw this story in the Melbourne Age today World’s best airport named. I knew it wouldn’t be Sydney or Melbourne where I am often in and out of much to my displeasure. So I scanned the list. Sure enough a whole lot of airports some of which I regularly fly and know to be excellent in terms of ease of use, charges and available facilities. Anyway, I had intended to write a blog today about trends in world foreign exchange markets (see digression below) but the airport rankings attracted my interest because I am also thinking about infrastructure provision at present.

Today, the right-wing media that we are blessed with have wheeled out another one of their favourite little hobby-horses which they repeatedly use to promote the deregulation of the wages system. They are attacking the Government’s roll-back of Work Choices, which is aimed at restoring appropriate wages and conditions for non-standard work. In this specific case, two opinion columnists from the two major publishing houses are claiming that the Government is undermining the future employment prospects of our youth. Well if they had anything new to add by way of evidence it would be good for debate. As it is they both merely recite the dogma from the latest OECD report Jobs for Youth: Australia – and I don’t need to remind readers that that organisation has form. Its reputation in the area of labour market research is somewhat dubious after a series of recants over the last few years when confronted with solid evidence to the contrary. Anyway, here we go again.