Today (December 19, 2012), the economics editor for the Sydney Morning Herald (Ross Gittins) wrote an Op Ed piece – It’s the weak recovery that worries, not surplus – which urged his readers to reorient their thinking about the Federal government’s obsession with achieving a budget surplus in the coming year. In that sense, it was welcome article from an influential journalist. But closer reading demonstrates that the writer is straddling the line between comprehension and myth-perpetuation. Many readers have asked me to pin-point the strengths and weaknesses of the article for their own edification. So lets proceed. The key point is that the budgets of currency-issuing national governments bear no relation to household budgets. If we do not jettison that myth then very little progress can be made on the more complex parts of the narrative that leads to the conclusion that such a government can never run out of money and all the negative consequences that are alleged to necessarily follow the use of budget deficits (higher interest rates, inflation, eventual insolvency) are lies, which aim to perpetuate a dominant paradigm rather than advance the welfare of all of us.

I am researching a project at the moment on the role of humanities (and social sciences) in enhancing standards of living and rendering societies open, empathetic (to the disadvantaged) and dynamic. It is in the face of trends within Universities to concentrate funding and attention on the so-called STEM disciplines (Science, Technology, Engineering and Mathematics) and contract funding for the humanities (and social science). The funding cuts undermine the viability of these areas and whole departments have been closed – having been declared by the bean counters – as being uneconomic. This is reinforced by conservative neo-liberal political diatribes which seek to construct the humanities/social sciences as bastions of “left-wing” radicalism and post-modernist degradation (for example, eschewing studies in sexuality, gender, ethnicity etc). There is strong evidence available to show that studying the humanities is a socially transformative endeavour (for example, the Clemente program). But like all “individual” initiatives, there is a danger that the reasoning used to justify them will fall foul of compositional fallacies. We have to defend the humanities to enrich individuals. But we also have to use that empowerment to challenge the elites on the macroeconomics battleground. The two motivations are self-reinforcing. The former is not a sufficient condition for social transformation.

Last week (December 10, 2012), the Bank of International Settlements released a working paper – The financial cycle and macroeconomics: What have we learnt? – which not only recognised that the accepted mainstream macroeconomic theory is critically deficient but also implied that the response to that failure in the context of the global financial crisis is not likely to be satisfactory. Faced with a major credibility crisis at the onset of the GFC, there has been a mad rush by mainstream economists to add financial sector to their models. It might surprise you that the major models used to teach students and motivate research in macroeconomics didn’t even have financial sectors included, among other glaring deficiencies. Now there is a flurry of work to address that deficiency. The problem is that all this effort, which will produce countless papers at academic conferences, will not address the fundamental issue – the mainstream macroeconomics framework is rotten to the core. The BIS paper provides some insights into that issue. When it comes down to the fundamental question: What have we learn’t? If the we is referring to the dominant body of macroeconomists that teach in universities, publish research in the journals and occupy key positions in policy-making bureaucracies, then the answer is simple: Nothing! (thanks Roger). But we have also learn’t that Modern Monetary Theory (MMT) has demonstrated itself to be a credible framework.

Last week the former RBA governor, Bernie Fraser said that Australia was suffering from the “stupidity of government” by pursuing a budget surplus in present circumstances. He described our fiscal policy approach as being “just plain dumb”. It seems that the politicians are reflecting the standards that are now apparent in our educational system. The nation was shocked today with the news that we are not as smart as we like to make out. This Sydney Morning Herald story (December 12, 2012) – Australia’s disaster in education – is representative of many articles and discussions across today’s media offerings. The reports said that our children achieved “disastrous results in the latest international reading, maths and science tests”. The shock that the nation is experiencing is large today, about as large as the collective indifference to the damage that two decades or more of poor fiscal policy practice has been. We have allowed our governments to run down public infrastructure in pursuit of budget surpluses. We have let them deliberately reduce the capacity of our schooling system so that we can no longer keep pace with international standards. We have believed that this strategy exemplified responsible fiscal policy. It just shows how dumb our society has become. It also reveals, once again, the failure of the neo-liberal policy regime that dominates.

Yesterday, I indicated that I would comment on an article that was published in the Melbourne Age (December 3, 2012) – Dimming of the light on the hill – which documented the Federal government’s abandonment of any commitment to achieving full employment. The by-line of the article read that “(o)nce it was a political mantra for the Labor Party, but the goal of full employment has dwindled to a distant memory”. This article is one of the first I have seen in years that tackles this question. It is a topic that most regular readers will realise is one that I have spent most of my career promoting for discussion. My Phd is about it. Many of my published articles and books is about it in one way or another. Modern Monetary Theory (MMT) is about it. But the mainstream media avoids discussing it and, instead, accepts the line peddled by the government and its crony economists that a lie is the truth. That 12.5 per cent labour underutilisation rates are in some way consistent with full employment. Our grasp of history is poor in this nation and this article serves to remind us of what was once a truth. It also reminds us that the abandonment of full employment as a policy objective by our Federal government ranks up there with the other (many) national disgraces, including, for example, our treatment of indigenous Australians and our treatment of refugees. Why do we gain succour from (unnecessarily) treating the most disadvantaged among us so poorly?

Australia is in the grip of a group of mining oligarchs, who are spending enormous amounts of monety to shape the economic debate to suit their own very narrow interests. They are opposed to the mining tax (a resource rent tax) and have in the past denied the state (on behalf of all of us) owns the resources that they plunder for private profit. They have also sponsored national tours of leading climate-change deniers (such as Lord Monckton) who are known to trade on distortions of the truth. Overall, there personal resources guarantee them access to the daily media and they use it relentlessly. They also write books which get national coverage and have a record of suing peope who criticise their views. The result is that there is very little critical scrutiny of the propositions they advance to justify their claims. Some of the propositions are pure fantasy yet they have gained traction with the public who have been too easily duped by the promotional onslaught. Here is a little sojourn into the fantasy world on one such oligarch.

The British Prime Minister gave a – Speech – to the Confederation of British Industry Conference on November 19, 2012, where he outlined how tough his government had been in terms of imposing fiscal austerity. In other words, he was taking responsibility for Britain’s appalling dive back into (double-dip) recession, although it is hard to find that confession in his actual words. Over the English Channel, the EU is busily preparing the champagne and fine foods for its upcoming summit on the 2014-2020 EU Budget. The EU leadership is talking tough and proposing large cuts in EU-level spending not the least being harsh cuts in the Overseas Development Aid (ODA) budget. The cuts are, of-course, based on false premises – that the economies are broke and have to live within their means – even though millions of workers lie idle. The idiocy is exemplified though in the failure to understand that ODA, while perhaps provided for ethical reasons, actually improves the outcomes of the donor nation. So these so-called free marketeers cannot even identify self-interest when it is staring them in the face. So they busily go about cutting their noses off!