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)!

The title of today’s blog comes from an interesting article I read today in the UK Guardian (February 14, 2011) – The revenge of trickle-down economics – by retired American economist Richard Wolff. It is worth reading. As Wolff noted the persistently high unemployment, loss of income and output and increased poverty in the US and elsewhere is “an irrational economic absurdity”. The problem is simple to solve from an economic perspective. The US government has all the capacity it needs to offer jobs to all those who want them but are unemployed. The wages they paid would flow back into the spending system and stimulate further job creation. Before long, investment would strengthen and firms would be bobbing up from all over to get a share of the action. All it needs is a kick-start and the government is the only sector that can provide it. The alternative is a slow, muddling recovery with millions left behind jobless and penniless in the process. That is no place to be and is just an irrational economic absurdity.

A Reuters market analyst (John Kemp) has created a stir by effectively declaring that the global economy is governed by some global NAIRU – a non-accelerating rate inflation rate of unemployment – such that the advanced economies cannot reduce their unemployment rates by expansionary fiscal policy and major structural reforms are needed. In a recent article – Mind the global output gap – he argues that “(e)scalating food and fuel prices are a sign the global economy is approaching full resource utilisation and the limits of sustainable output”. He claims that the “high unemployment and idle factories” in the advanced economies are not a sign of a “cyclical lack of demand’ but rather reflect “structural shifts”. From a policy perspective this is natural rate theory on a global scale and effectively denies that sovereign governments can influence domestic demand and real output (within their own policy boundaries) through aggregate demand management. This is the ultimate neo-liberal denial of the effectiveness of fiscal policy. It doesn’t stand scrutiny as you might expect.

If you watch the 1937 cartoon – I Wanna Be a Sailor – it doesn’t take much imagination to think of the first two young parrots on the perch who are being taught their “skills” by a somewhat vexed mother parrot to be mainstream economists and the financial commentators who parrot these economists. Repeat after me: Polly wants a cracker – the Budget deficit is on an unsustainable trajectory – Polly wants a cracker – there is a mountain of public debt that threatens America’s future – Polly wants a cracker. If only these economists would take the lead of the third little parrot being coached by his mother. When he is exhorted to recite the mindless mantra that is expected of him he says “I don’t want a cracker see, I wanna be a sailor like my pop … see” … we need more commentators who will ask the right questions – challenge the politicians and their lackeys to explain what they mean rather than talk as if it is too complex for us to comprehend. It is not complex at all – spending equals income – if the private sector goes on holiday the public sector better be around town. If the private sector stays on holidays – the public deficit will persist. Otherwise – recession occurs and unemployment increases. The problem is that the mainstream commentators and the economists that provide them with the copy haven’t got off the perch yet and recite the same mindless stuff day-in, day-out. Polly wants a cracker.

Today the Australian government demonstrated how poor their grasp of macroeconomics is and how badly they are managing our economy. In response to the very destructive floods that have ravaged the most populated states on the east coast (Queensland, NSW and Victoria) and wiped out billions in income-generating assets and businesses, they decided to increase taxes to “pay” for the reconstruction relief. This is at at time when the economy is slowing, inflation is moderating and the banks cannot get enough treasury debt to satisfy their prudential requirements. Further, it is at a time when there are 12.5 per cent of willing labour resources lying idle and long-term unemployment is rising. I noted in yesterday’s blog – Its grim on both sides of the Atlantic – that things are really bleak in the UK (now contracting again courtesy of its government policies) and in the US (about to contract courtesy of its government’s mismanagement). In both cases, the malaise is being caused by a dysfunctional ideology being imposed by policy makers onto very fragile economies. Well it seems that the madness along the coastlines of the Atlantic has crossed the Pacific. The imposition of a flood levy is a nonsensical and destructive policy act.

I am currently writing a piece for the US weekly The Nation which is focusing my mind on issues relating to what a social democratic narrative should look like and in what way does it have to change from that which dominated government policy and the relationship the state had with its citizens in the Post WWII period up until the neo-liberal resurgence in the mid-1970s. It is an interesting topic and my deadline looms. Serendipitously, while I was driving back from the airport the other day I was listening to a repeat of an ABC radio program Big Ideas (thank god for our public broadcaster) which was a repeat of a lecture – What is Living and What is Dead in Social Democracy? – given by the late Tony Judt as the 2009 Remarque Lecture at New York University on October 19, 2009. The lecture nicely dovetailed into my current thoughts and challenged the “left” to wake up to themselves and revive the collective narrative and to get angry about what we have lost over the last 30 years. There are many memorable lines in this speech and the title – imagine if we treated “humiliation itself as a cost” is just one of them (more about which later).

You know something is wrong when the unemployment rate in major holiday destinations persist at high levels. Typically, these areas have what economists refer to as seasonal unemployment – so that during the off-season (when the holiday makers are back home) there is very little labour market activity but once the vacation period begins there are many jobs and people. I have lived in various surf locations for many years and one such location had a steady-state population of 1000 or so residents and on Boxing Day this swelled to 25,000 and that new population endured for the ensuing holiday period (until the Australia Day weekend – January 26). Many of the surf crew and musicians would take jobs during this period and work very long hours (the surf was typically bad during the summer anyway) and use the savings to eke out an existence for the rest of the year – sometimes also accessing unemployment benefits sometimes not. The US Bureau of Labor Statistics published a bulletin (September 7, 2010) for the Cape Cod area which is one such major holiday region in the US. The situation there is dire and requires an immediate policy response from the US government. Unfortunately, this issue appears to be off the policy agenda. Well, until this week at least. A Democrat from Ohio has introduced a “full employment bill” which aims to eliminate the US central bank (good) and restore the US government’s currency sovereignty for keeps. The problem is that it goes down some dead-ends and avoids facing up to the real issues. So it is a well-motivated full employment bill – sort of!

I was pleasantly surprised this week when I received a telephone call from a reader wanting to chat about the current state of policy in Australia and the available options. We discussed a range of options and agreed that it didn’t make much sense to cruel the emerging economic growth in Australia while there were 12.1 per cent of available labour resources currently idle (either unemployed or underemployed). With world demand for our exports strong it seemed a perfect opportunity to really eliminate the pool of idle labour and return to full employment – a state that Australia has not been close to since the mid-1970s. The period since that time has been dominated by neo-liberal policy makers who have abandoned the responsibility that was previously vested in our macroeconomic policy arms (RBA and Treasury) to achieve and maintain full employment. We agreed that deliberately restricting growth just as it was gathering pace was a very restricted vision of national potential. The upshot of our discussion was that we agreed that fiscal policy could be targeted to redistribute the growth (to avoid specific sectors from overheating yet maintaining a growth stimulus to other sectors) and that monetary policy was too blunt an instrument to manage this process. But with growth emerging it is a case that policy makers should recite a daily mantra – when you are on a good thing, stick to it – rather than cutting it off at its knees before the benefits have spread widely throughout our nation and its people.

I have given some further consideration to the Co-Chairs Draft Proposal from the US National Commission on Fiscal Responsibility and Reform, which was released on Wednesday (November 11, 2010). This was in the context of reading an article over the weekend that said the the co-chairs’ report reads like a document from Mars. I can’t say I know much about Mars but I thought this description was a bit unkind to any life forms that might exist there. Does the author of that comment have any insights about Mars that we do not have? Given my propensity to be hopeful rather than assume the worst I prefer to think of the unknown Mars as being occupied by nice, thoughtful, smart, considered and above all realistic people. They would never produce such a silly document as the co-chairs have had the audacity to inflict on the public policy debate. Martians are (probably) better than this.

I often get asked by people I have consulted for to write justifications for their existence (that is, the organisation and its charter). Sometimes it is a trade union, another times a government department and on. In each case you have to think out what the essential interactions are between the organisation in question and the rest of the world and articulate some sense of value to those interactions. These calibrations may not necessarily be quantitative but often it is useful if they are because bean-counting economists around the place who read the analysis I provide in this part of my professional life rarely think more broadly and spare the thought – can probably not even spell “social benefit” much less conceive of it. In the current economic crisis the only problems that should be receiving daily scrutiny in the debate are unemployment, real income loss, and the resulting poverty. We rarely see those items headlined. Instead, we are barraged with a virulent confection of bile about things that do not matter – public deficit to GDP ratios etc. And this anti-government campaign is succeeding in part because people believe the rhetoric that government is wasteful and doesn’t do anything. Well I am here to tell you ….

I suddenly realised what has been going on all this time. They have been smoking some doobies – some real strong doobies and their heads are not what they used to be. How cool is that conclusion? It explains everything – why they typically miss the point of everything; why they say really dumb things most of the time; why they usually look half asleep; why they think down is up or up is down; why they continually think that what is good for them is bad for them and vice versa and all of that funk. I am so relaxed now – I actually thought there was a problem. But a bit of weed is doing it. I guess it is time for them to ease up on their intake though or their lack of concentration and awareness of reality will become entrenched. We need all the citizens we have thinking clearly and working together.