On September 7, 2013, the federal election in Australia saw the incumbent Labor Party deposed in fairly categorical terms and replaced by the “born-to-rule” conservative coalition (Liberal and Nationals). The Labor Party had been in power for two terms since 2007 after defeating the conservatives even more categorically, who had, in turn, been in power for 11 years. The Labor Party stormed to office in the 2007 federal election, taking 22 seats of coalition (and a further 1 from an independent) to hold 83 seats (primary vote 43.38 per cent, and two-party preferred 52.70 per cent). The conservative coalition was reduced to 65 seats (in the 150 seat lower house). The conservative Prime Minister lost his own seat so great was the rout. Between 2007 and 2013, the Australian Labor Party squandered that lead and in the process we had three Prime Ministers (2 different) as the Party factions conducted an internecene war. After last Saturday’s defeat, one of the Labor Prime Ministers (who had been deposed in June 2013 as a result of her total failure to win electoral appeal) wrote her assessment of the state of Labor as a result of the electoral defeat. The article – Julia Gillard writes on power, purpose and Labor’s future – is an extraordinary exercise in self-denial, despite much of it providing an assessment that I would agree with. But in the big issue – of economic credibility, Ms Gillard demonstrates why her Party was unfit to govern and why the conservatives are back in power and beginning yet another period where the rights and outcomes of workers will be attacked and dragged down. But this has only happened because of the monumental failure of the Labor Party to present a progressive alternative at a time when they had the Australian voters eating out of their hands.

There was an interesting article in the Washington Post over the weekend (September 7, 2013) – Why Keynes wouldn’t have too rosy a view of our economic future – written by – Mike Konczal. It broaches the topic of self-adjustment in capitalist monetary economies and the divide within the economics profession with respect to that topic. It also introduces the issue that the long-run trajectory of the economy is dependent on the short-run path taken (the so-called hysteresis hypothesis), which is largely ignored by those who advocated fiscal austerity. What is typically denied is that the costs of fiscal austerity are more than a temporary increase in unemployment and lost income. The intergenerational consequences and the impact on the capacity of the economy are likely to be massive.

Australia is in the midst of a federal election campaign (the election is September 7, 2013), which while short by, say US standards, is no less asinine. The sophistication of economic commentary from both sides of politics is non-existent even though every day there is a mountain of such commentary. It is a very trying period and I have been trying to avoid engaging with it as much as possible bar the almost daily press interviews about the latest announcement of release. Here are a few examples of what a sane economist like me has to put up with. The problem, of-course, is not that my sensibilities are being upset. Precious me! The real problem is that the public are continually being confronted by economics editors, professors and others who provide misleading and/or incorrect economic analysis, which distorts the way in which peope (who vote) think and act. We are really in flat earth territory at the moment and the future generations will not think of us very kindly for both our ignorance and the damage we leave for them.

The debates that are played out in the parliaments around the world at present about the state of public finances are not new. The debates, which are amplified by the media who typically do not understand the issues involved yet mostly take a conservative position because they can sell more products (papers, on-line access etc) that way, appear to be pressing and all sorts of emergency language is used. The characters who write these doomsday scenarios mustn’t ever reflect on what they say from one day to another relative to the historical record. Their arguments against the use of budget deficits and invoking doomsday scenarios regarding public debt reduction are not new. Given many of these conservatives are also into the bible (pushing evangelical diatribe) they might have reflected on – Ecclesiastes 1:9 – which noted that “What has been will be again, what has been done will be done again; there is nothing new under the sun”. Indeed not. One character in history with a penchant for religion (Mormonism) however had some insights in the operations of government budgets and public debt. He was also a long-time former Chairman of the Board of Governors of the US Federal Reserve System.

The Fairfax press published the latest opinion piece from one of its economics editors (Ross Gittins) over the weekend (July 20, 2013) – The budget facts that Canberra isn’t telling you. If the stated facts are what Mr Gittins thinks apply to a sovereign economy such as Australia, then it is fortunate that Canberra is staying quiet. He claims that the fiscally prudent position is for governments to run a balanced budget on average every decade. He also says that the government doesn’t really have to do anything other than let the automatic stabilisers achieve that outcome once the structural settings are in place. The problem is that these sort of mindless fiscal rules are rarely going to achieve appropriate outcomes, when the latter is expressed in terms of full employment objectives and other real outcomes. In the current context, where there are major private sector balance sheet risks and an ongoing external deficit of around 3.5 per cent, the pursuit of a balanced budget would be an act of vandalism. Further, given the non-government spending dynamics, it is likely that continuous budget deficits will be required into the indefinite future.