The Governor of the RBA appeared before the House of Representatives Standing Committee on Economics yesterday (December 18, 2013). He told the Committee that the economic growth that we experienced leading up to the crisis in 2008 was unlikely to be repeated but his assessment was largely ideological in nature – in the sense that he implicitly eschewed a fundamental re-appraisal of the policy structures in the economy and the way in which national income is distributed. He thus rejected (tacitly) a return to fiscal activism claiming the public “debt dynamic” militated against that. He admitted the limits of monetary policy as an expansionary force. And he implicitly ignored the fact that the on-going failure of real wages to keep track of productivity growth meant that if household consumption expenditure was to grow it would see a return to increasing private debt to unsustainable levels, as occurred in the decade leading up to the crisis. He acknowledged that households were much more cautious now given the heavy debt levels they were carrying but didn’t acknowledge that this meant that the fiscal surpluses of that era were also unsustainable and that deficits were needed to offset the drain from the external deficits and the cautiousness of the private domestic sector. The journalists thus published all the wrong headlines and stories and the public is none the wiser. We remain locked into a neo-liberal option set that will deliver sub-trend growth and rising unemployment. The Governor even had the audacity to say that the unemployment rate (at 5.8 per cent) was low by historical standards, which in itself is false (depending on where history starts) and ignores the fact that our broad labour wastage exceeds 15 per cent of the willing labour force at present.

The new Australian federal government released its – Mid-Year Economic and Fiscal Outlook – today and this gave the media something to salivate about and led to sensationalist headlines and presenters oohing and aahing about impending meltdowns and unsustainable government spending and the rest of it. But in terms of actual detail all it really told us was that the government deficit is higher than expected. The issue of focus should have been the expectation rather than the reality – why did the Treasury expect it to be lower given they had overseen an unprecedented fiscal contraction in 2012-13 which reduced economic growth and undermined their tax base? Why didn’t the press focus on that and ask the new Treasurer how cutting government spending now, as the economy is slowing and unemployment is rising is in any way responsible or good economics. Not a word. The message the citizens get is that Australia has a dire government deficit emergency that will undermine our welfare for years to come. The truth is that the deficit is undermining our welfare because it is too low. That is my headline.

I have very little time today to write, first a very long flight and then preparation for a major release tomorrow of our latest Employment Vulnerability Index (EVI), which measures the risk of localised communities in Australia of unemployment as the economy slows. We have a very neat mapping tool and I will write about that tomorrow once the press launch occurs (first thing). But I am also working on various other papers and, as usual, have become immersed in the Phillips curve. I remember when I first started by PhD at the University of Manchester in the early 1980s, my then supervisor said to me on the first day that once I started modelling inflation and unemployment (the Phillips curve) I would never stop. Among other truths he uttered during my time in that dank part of the world that statement was spot on. Every now and then I return to the topic and update, revise, re-create and (sometimes) even innovate. So today’s blog is just a collection of snippets of the more accessible things I have been working on over the last few days. It starts with a graph that appeared in the IMF’s World Economic Outlook in April 2013. Then follow the graphs. Conclusion: The NAIRU as estimated is a very dangerous concept for the well-being of ordinary people.

The opening paragraph read “National debt will continue to balloon throughout the first term of the Coalition government, despite harsh spending cuts to be identified by a Commission of Audit, a crackdown on public service jobs, and a promise that government would be smaller”. Of-course, the journalist meant to say “because of” rather than “despite” but his neo-liberal keyboard thwarted his better understanding. The article was about the debate now in full swing about our debt ceiling. That’s right, suddenly, Australia has a debt ceiling debate. As if the nonsense in the US wasn’t enough. We had to show the world how stupid we are as a nation by having our own ceiling and then spawning a debate about, which then sees salivating journalists chasing politicians around asking them all sorts of questions about increasing it etc. None of the above has any foundation in economics yet will lead to poor policy choices being taken which will undermine social and economic prosperity. What a vacuous world politics and the industry that is fed by it really is!