tooth fairy delivers some sixpences to help ailing family finances – problem is that the children will run out of teeth, unlike the government who can never run out of money.

I am working on our textbook today and writing a chapter about one of my favourite topics – the Phillips curve – which describes a relationship between some measure of inflation (wage, price) and some measure of excess supply of labour (usually the unemployment rate). I wrote my PhD about the Phillips curve developing models which demonstrated the inadequacy of the mainstream macroeconomics take on the subject. Today I read a strange tale in the UK Guardian – ONS inflation slip-up leaves millions out of pocket – which has some relevance to the chapter I am working on at present. The point is that if you believe the mainstream neo-liberal economic theories that are forced onto students in our universities around the world then you might expect a massive drop in the UK unemployment rate right now. Why? Read on.

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.

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.

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).

Today is the first day of the 12th Path to Full Employment Conference/17th National Unemployment Conference in Newcastle, hosted by my research centre. As host I am tied up in the event but here are some snippets. All of the presentations in the parallel sessions have been very interesting. I also note some economic news out from the Australian Bureau of Statistics today for October 2010 which provide more news that the Australian economy is growing only modestly. More tomorrow. UPDATE: Audio file now available.

The UK is still in the grip of a serious slowdown and the British government has begun its fiscal austerity program which will savage net public spending and cause wide spread job losses. But the Chancellor is still boasting that Plan A – scorch the economy – will be maintained and he has sought legitimacy for his position in the release by the UK Office for Budget Responsibility (OBR) of its Economic and Fiscal Outlook November 2010 yesterday (November 29, 2010). When one examines the OBR document in detail one could be excused for thinking it was a “colouring-in” exercise with a difference – you know, draw nice colourful bar charts to tell the story that you want based on assumptions that will not survive empirical scrutiny in coming months and years. The problem for Britain is that there does not appear to be a Plan B. It is all or nothing and while the “lab rat” nature of the policy experiment is intellectually interesting for researchers such as myself I don’t want to glean enjoyment from what will be the increased suffering of millions. Plan A will fail because the assumptions and projections are unrealistic. When you haven’t got a Plan B then that failure will be very costly.

I have noted in recent weeks a periodic reference to long-run neutrality of money. Several readers have written to me to explain this evidently jargon-laden concept that has pervaded mainstream economics for two centuries and has been used throughout that history, in different ways, to justify the case against policy-activism by government in the face of mass unemployment. It is once again being invoked by the deficit terrorists to justify fiscal austerity despite the millions of productive workers who remain unemployed. I have been working on a new book over the last few days which includes some of the theoretical debates that accompany the notion of neutrality. There will also be a chapter in the macroeconomics text book that Randy Wray and I are working on at present on this topic. Essentially, it involves an understanding of what has been called the “classical dichotomy”. It is a highly technical literature and that makes it easy to follow if you are good at mathematical reasoning. It is harder to explain it in words but here goes. I have tried to write this as technically low-brow as I can. The bottom line takeaway – the assertion that money is neutral in the long-run is a nonsensical contrivance that the mainstream invoke to advance their ideological agenda against government intervention. It is theoretically bereft and empirical irrelevant. That conclusion should interest you! But be warned – this is just an introduction to a very complex literature that spans 200 years or so.

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 ….

1 + 1 equals 2. The world is not flat. Night follows day (usually). You are born and then you die. Spending equals income. The mid-term elections in the US proved that religious zealots target positions of high office in our democracies. They are emboldened by a righteousness brought on by their faith. In the context of economic policy this religious fervour violates the most simple facts. The most simple story in macroeconomics that every student should have ingrained in them in the first two weeks of study is that spending equals income. It is as basic to macroeconomics as 1 + 1 equals 2 is to arithmetic. The mainstream economists know this but because it implies a role for net government spending that insults their religious passions they invent all sorts of elaborate lies and myths which purport to show that cutting spending increases it. These “proofs” are equivalent to those which try to show that 1 + 1 does not equal 2?. They are logical bereft and empirically vacant. The problem is that everyone citizen who forms the same view and votes accordingly increases the chance that their job will be next to go. Meanwhile the religious persecution of those without jobs continues.

I have been working on the macroeconomics textbook today that Randy Wray and I are hoping to publish sometime next year. We have a publisher and now just have to complete the text which is progressing well. Also today I have been wondering why UK business firms are not horrified at the latest damaging policy announcement by the new conservative British government. My thoughts generalise to any government at present in terms of the obvious need to expand fiscal policy. I brought those two things together today – the practical need for continued fiscal support for private sector activity and the development of our textbook – by considering the macroeconomic origins of profits. It is an interesting story that very few people really understand because they think micro all the time when it comes to the understanding the profits of business firms whereas you have to start thinking from a macroeconomics perspective to really understand this. It also helps you understand the relationship between the government and non-government sector more fully – a relationship which is at the heart of Modern Monetary Theory (MMT). So read on and see if you have thought about this before.