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.

This blog is about right-wing distortion of evidence and how opinion formation in the US appears to be, as expected, inconsistent and ill-informed. The US President brought down his 2012 Budget yesterday and as expected he promised very large public spending cuts at a time when the US economy cannot afford them. In doing so, the President was bowing to the extremist conservative views that get all the airplay and column inches in the mainstream media in the US. Fox News pumps this extremism out all day every day. But if you sought to understand what the “main street” American actually thought about deficits you might be surprised. The New York Times and CBS sponsor a regular poll and recently they delved into the issue of budget deficits. One right-wing journalist actually had the audacity to use this Poll as a vehicle for her claim that even larger cuts are required to balance the budget. It is easy to show how she misused this public information.

As an outsider, I am always perplexed by American attitudes. Some of the great writers have come from the US so their schooling system must have something going for it. Some of the great musicians have come from the US so there is creativity there. I could go on. But then you think back to the 1950s, when a whole nation was whipped up in the great propaganda traditions that would have made the Reich’s Ministry of Propaganda under Joseph Goebbels proud. Except this was America, alleged land of the free, unless you happen to take that seriously and find out that in fact the place is a repressive society bound to torture people and use martial force to suppress minority viewpoints. I refer here, specifically, of-course, to the McCarthy purges. Remember the Nazis hated the communists too. But today I read a speech from a governor of one US state who has identified a continuing red menace that will eat up the freedom of all US citizens and is the work of a sneaky but determined group of left-wing zealots (with Chinese overtones). If it wasn’t so serious it would be comical and all we would have to do is send the men in the white coats out to the governor’s office to take him away for treatment. The problem is that this is the third great US “reds under the bed” scare and like the previous scares this one is damaging millions.

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?

As a service to humanity, I decided to rip off the title for today’s blog from an article that was published on Monday (February 7, 2011) in the Washington Times – Destructive economic myths. My blog is highly rated by Google so if some innocent bystanders happen to go searching for that article they might also bring up my blog, get confused, click my link instead of the Washington Times and learn some facts that will help them oppose the political nonsense that both sides of politics in the US is engaged in at present – as the vote to change the debt ceiling approaches (March 1, 2011). I might be too late but it is worth a try*. Anyway, the austerity push is being justified by recourse to the same misinformation and lies that was used to deregulate the world economy (particularly the financial system) which led to the financial and then economic crisis that still endures. Talk about destructive economic myths!

Today I got around to reading a report – Australia’s Productivity Challenge – which was released last week (February , 2011) from the Grattan Institute, a new research organisation in Australia that aims to provide evidence-based insights into social and economic issues in Australia. The Report is interesting because it exposes some of the bigger lies that are abroad about how well the Australian economy is faring. I have consistently been arguing (over the last 15 odd years) that the neo-liberal policy onslaught that has aimed to erode the power of workers viz capital and create a desperation among the unemployed (making income support harder to get) have created a dumbed down economy – racing to the bottom. One manifestation of this prediction was that productivity would fall as the impact of the budget surpluses (reduced public investment) and legislative changes too their toll. The Report shows that this future is upon us – we are living a delusion – being propped up by China. That is not a sustainable future.

In recent weeks I have received many curious E-mails about Japan all asking the same question – if net exports are positive and households saving are in decline, how come the budget deficit is so big? It is a good question and the answer relates to developing a good understanding of the components of the National Accounts and the way they interact. As I explain here, the private domestic sector is increasing its saving in Japan but it is all down to the corporations sitting on huge piles of retained earnings and reducing their investment. What these trends tell anyone who appreciates the way in which the macro sectors interact is that sustained budget deficits are required in Japan and any move to austerity would be disastrous.