I read the latest “fiscal stimulus has not made a jot of difference” Op Ed from Harvard’s Robert Barro as a classic example of how mainstream economists manipulate data that few understand well to support a case that is the opposite of the facts. nd wondered why he bothers. My profession are experts at either denying that facts are facts (the “when all else fails” strategy – that is, if the facts are inconsistent with the theory then the facts are wrong) or using data selectively when they know most people interpret economic data in a superficial and intuitive manner that often leads to wrong conclusions. The Wall Street Journal article (May 9, 2012) – Stimulus Spending Keeps Failing – which carried sub-title challenge “If austerity is so terrible, how come Germany and Sweden have done so well?” was typical Barro. I realise he cannot perform a detailed data analysis in a standard Op Ed (which is one of the great advantages of blogs). But with the sparse word-limit available in an Op Ed, the writer should also stick to the facts and draw relevant rather than spurious conclusions from the facts presented.

I have been reading the latest report from the International Labour Organization (ILO) – World of Work Report 2012 – which documents the disastrous trends in employment that are expected as fiscal austerity grinds economies into the ground. The ILOs Social Unrest Index has risen in 57 out of 106 nations and negatively related to employment fortunes. The ILO also found that “deregulation policies … fail to boost growth and employment” and “there is no clear link between labour market reforms and employment levels”. They conclude that the “austerity trap” is destroying jobs and that concerted effort is needed to ensure that “wages grow in line with productivity” and that there should be a “coordinated increase in the minimum wage”. I will analyse this report in more detail another day because it is schizophrenic in approach reflecting the struggle within the ILO between the neo-liberal influences that have grown over the last few decades and the more balanced labour market understandings that come from a thorough understanding of the importance of labour market institutions and government oversight and a keen appreciation of the empirical dimensions. But today I am going to briefly reflect on an extraordinary interview – Former Reserve Bank Governor bemoans state of politics and inequity – on the ABC current affairs program – 7.30 – last night, where the former RBA governor let fly at budget surplus obsessions and demanded more expansionary fiscal and monetary policy interventions at a time when demand is faltering and growth falling. And some other snippets appear afterwards.

It seems that the fiscal austerity agenda is morphing into what is probably the real underlying strategy – to demolish or seriously compromise government welfare spending and income security provisions where it benefits individuals. In a Bloomberg Op Ed today (April , 2012) – To Thrive, Euro Countries Must Cut Welfare State – we learn that Europe is “overspending on social welfare” and that benefit programs have to far less generous into the future. This resonates with the foolish intervention overnight from the Australian conservative Treasury spokesperson (one Joe Hockey) who claimed that when they regain power next year (which they will given how hopeless the Labor government has been) they will dismantle our income support system to save the government from running out of money. On the one hand, the level of ignorance about macroeconomic matters displayed by these commentators is stunning. On the other hand, one could easily assume they know exactly what the story is but are choosing to mislead their audiences because if they disclosed their true agenda they might not get the same support. Either way, the attack on the welfare state is misguided and will only worsen the long-run prospects of us all.

The voice from the parallel universe announced that “The euro as a currency is a great success indeed … it is backed by remarkable fundamentals” and harsh fiscal austerity is “the best way to get sustainable growth and job creation”. The only problem is that the voice was none other than the retiring ECB boss Jean-Claude Trichet as he prepared to retire from his post in October 2011. During his term, Trichet was constantly preaching how the introduction of the Euro was a “success”. The only problem is that it is hard to reconcile that conclusion with an examination of the actual data. The Eurozone has failed and an orderly dismantling of the entire monetary system with a return to floating sovereign currencies is the only way that any semblance of prosperity will return.

There was a Wall Street Journal article (March 14, 2012) – Default and the Nature of Government – which demonstrates how a recall to history can be misused if key additional (contextual) information is left out of the discussion. The article in fact tells us nothing meaningful about the likelihood of sovereign debt default. The sub-title relates to the latest news from the Netherlands which suggests that the strident rhetoric of their leadership about the failure of the “southern” states to meet their obligations to the Eurozone might now be coming back to haunt them. If they are not, then they should. If the Dutch are to be consistent then massive and destructive penalties should now be imposed on them by Brussels. They won’t be – but that just tells you how dysfunctional the Eurozone is!