Well the conservatives are scrapping between themselves, which is just as well because it might derail their drivel campaign about the trillion (whatever!) dollar debt wave that we are about to drown under. Me, I will surf it out with my longboard and enjoy the experience! Anyway, seems Mike wants to end our little engagement which is fine because tomorrow I will be talking about “R we or R we not”. National Accounts are out at 11.30. So this blog summarises where I think we are at. Remember that it started with the blog – Neoliberals invade The Greens! and the space theme continued with Mike conjuring up the Mitchell Strikes Back and today The return of Mitchell. Whatever, it is more clear than ever that the conservative macroeconomics has The Greens in its grip – sadly.

I was going to write about retail sales and company profits data today but the short story is that retail sales continue to defy the predictions (stimulus packages work). I ran a regression model today to generate a (reasonable) forecasting model of retail sales behaviour up to the point the stimulus packages were announced (November 2008) and then projected out to April 2009 and compared the dynamic trend with the actual data. Every data point since November 2008 is above the trend (which is why the ABS has abandoned its trend series for the time being). But it does tell you that the Australian economy is withstanding the world downturn. We will know more on Wednesday, when the national accounts (GDP) data comes out. Anyway, there has been more engagement with the “other side” or should I say “another side” today and I guess I should respond to that. And so the saga continues for another day.

In the days following my blog – Neo-liberals invade The Greens – I have had some interesting responses. Mostly they have been negative and personal but some have been positive and constructively trying to develop the debate. My blog was not an attack on green values – far from it. But it did pinpoint major macroeconomic failings with the current official policy of The Australian Greens which I consider need to be remedied in order to render the other excellent components of their platform viable. I would also note that it is very dangerous to start critiquing a theoretical argument if you really do not understand the basis of the argument. Here is some thoughts in this regard.

The Australian Government has now released its so-called Social inclusion principles which are apparently intended “to guide individuals, business and community organisations, and government on how to take a socially inclusive approach to their activities”. I couldn’t find a commitment to full employment among the principles. Pity about that. Another strategy that is rich in rhetoric but squibs the essential nature of the problem. My advice: scrap the plan and start again.

Some readers have asked me to comment on the economic policy of The Australian Greens and how it sits with the other major political parties. I base this assessment on what appears to be the policy statement which was current as at November 2008. There is not a single reference to employment, unemployment or full employment as key economic goals. Moreover, there is as much neo-liberal macroeconomics in the document as you would find in the papers espousing the approach of the main parties. And worse still … if The Greens actually tried to implement some of their macroeconomics principles then they would undermine most of their other major policy goals. So there is no joy to be found in this place for a progressive who understands how the modern monetary system operates.

I was in Sydney today doing various things (see below). It was an interesting day but this morning’s activity gave me some hope that there are community leaders out there who want to fight back and jettison the neo-liberal garbage that is constraining their ability to deliver social equity and job security for their members. My input to the discussion was to tie this in to the macroeconomic debate. These macroeconomic matters – which I write hundreds of thousands of words every year about – really lie at the heart of the problems facing low wage workers and the unemployed. Unless we successfully counter the orthodoxy then tinkering around the edges will be all that we can do. I realise the macroeconomic concepts are difficult to talk about in an accessible way. I also realise that the neo-liberal orthodoxy has been incredibly successful in inculcating notions that the Federal budget is akin to a household budget. Readers of this blog will know it can never be that way. So the challenge for our community leaders is to develop a macro narrative which can permeate the public debate and slowly redefine how we see government; what goals we want the government to pursue (full employment) and how they do business with employers. That is an interesting challenge and I like things like that.

I must have just woken from a bad dream. Did I read this week that the Australian Government will record a deficit of $A58 billion or 4.9 per cent of GDP but are forecasting unemployment will rise from its present parlous level of 5.4 per cent to 8.5 per cent by the middle of 2012? It must be a joke. If it is serious then this lot deserve to be a one-term government not that I have any hope that the alternative (conservative or green) would do any better. They are all caught up in this neo-liberal straitjacket which has been increasingly tightened over the last 30 years and now ensures that our national government will not use its economic policy capacity responsibly. Our current Federal Government not only continues to abandon full employment but is also abandoning the unemployed. What a place!

Imagine the time when it was the mainstream view that the Earth was flat, representing an infinite plane. The view largely died at around 3 BC but there are still some characters out there who worry about falling off the South Pole. After all the Nile River runs for thousands of kilometres and drops barely a few feet over that distance which doesn’t fit well with convexity does it?

The current budget period seems to have revitalised the theory – albeit in a different form but just as ingenious. Flat Earth Theory (FET) … say it out aloud! … has morphed into DET. This new branch of FET is now dominating the media. Overnight Generation Y are Generation DET. Young children are now viewing their parents differently – wondering why their greedy, selfish and profligate elders are going to destroy their futures. Experts are coming and going on our national TV and radio warning that we are about to fall over the edge! Well I am staying grounded! Here is the reason why.

Tonight is federal budget night – which presents the most comprehensive picture of where the Government is going with fiscal policy and the Treasury’s estimate of how the economy is travelling. So for a macroeconomist like me it is a biggest night in the annual calendar. But I am more interested in parrots and spotted owls at the moment. What? Yes, I guess it is escapism … to avoid the hysterical public debate that has surrounded this budget. The economic falsehoods, the outright lies, the duplicity and the all of that. But I cannot escape it because I have a newspaper opinion piece to write on the Budget by 20:00 tonight. So, given that, here is my take on the budget and then …. I can get back to the birds!

In the 1980s, as high unemployment persisted following the 1975 OPEC oil shock and the stagflation that accompanied it and then the 1982 recession and its aftermath, neo-liberals started to seek new ways of justifying the lack of government action in restoring full employment. Being very clever, they came up with an ingenious solution – redefine what full employment means. So as the unemployment rate rose they claimed that the so-called “equilibrium unemployment rate” had also risen which meant that attempts to reduce it by expansionary policy would be inflationary. They claimed the only way the government could act was to initiate “structural reforms” aka privatisation, labour market deregulation, anti-union legislation and harsh welfare measures. Why should we be so surprised that they are at it again? The truth is that recessions cause structural imbalances which are corrected again if economic growth is strong enough in the post recession phase.

The discussion about the relative merits of monetary policy and fiscal policy is on-going. A regular billy blog reader has asked me to give some thought to this discussion, specifically in terms of whether monetary policy is a useful counter-stabilisation option. My view is that if one takes a modern monetary perspective then it is clear that the current reliance on monetary policy (accompanied by the budget deficit phobia) will always fail to deliver full employment and relies on the impoverishment of the disadvantaged for its ability to achieve low inflation. Accordingly, it would be far better for the government to set the short-term interest rate at zero and achieve full employment through appropriate levels of net spending (fiscal deficits).

As the Federal budget week approaches the various commentators and interest groups are whipping themselves into a lather about what choices the Government might have or not have. A recurring theme is whether the Government should honour its election commitment in 2007 to cut income taxes from July 2009. The debate is being constructed along the lines of whether the nation can now “afford these cuts” given the “rising debt” and the “shocking state” of the budget deficit. This debate demonstrates perfectly how bad policy can be made when the Government fails to understand its options as a monopoly issuer of a non-convertible currency.

Today, I was investigating pay structures and then became interested in the emerging public debate about Members of Parliament pay, after the Remuneration Tribunal has recommended that Electoral allowances go up 17 per cent per year to $32,000. Every time the pay of parliamentarians is increased there is a hue and cry from the media. In this case, even the Green’s Leader and an independent MP have also rejected their “own self interest” to oppose the pay rises. However, the Government will not stop the rises going through even though last year the PM froze the base rate pay to lead the wage restraint path in these difficult economic times. This raises two questions: (a) Are our pollies just lining their own nest? and (b) Should wages growth be restrained in times of recession? My spare moments today were filled with those issues.

Today I am in Melbourne (my home town) presenting a workshop on skills development for the new green jobs economy which is a joint Victorian Government/Brotherhood of St Laurence show. But that is not what I am writing about here. Regular readers of billy blog will know that when I talk about budget deficits I typically stress two points: (a) that the Government is not financially constrained and therefore all the hoopla about debt and future tax burdens are just a waste of time. But just because the Government can buy whatever is for sale by crediting relevant bank accounts doesn’t mean they should not place limits on the size of the deficit; and so (b) given the federal deficit “finances” private saving, it should therefore be aim to “fill” the spending gap left by the private desire to save. If the Government does that then it can maintain full employment and price stability and move towards a more equitable society. So it is of importance that we have some idea of the size of this spending (or output) gap.

I did a radio interview on the ABC Drive program this afternoon about different attitudes that Europeans and Americans have to dealing with recession, specifically in terms of the decision to offer shorter hours or use layoffs to trim the labour force as sales decline. While the solidaristic European model is preferred, both call into question what the national government should be doing.