As one dead-end traps the mainstream deficit terrorists’ relentless “hyperinflation is coming”, “the deficits are large and unsustainable” campaign another road is opened. New ways are found of pushing the same boring message. I read several papers and article today that all try to come up with a new tack – a new way of scaring the bjesus out of us and steer our minds towards what they assert is misguided government policy. They actually just don’t like any government claim on real resources because they think there is less for them then. Even when they don’t want to create jobs for the unemployed they resent government employing these people because it would just be a “waste of resources”. Its got worse as I read on. I tell you keeping up with all this stuff is surely going to be “a hard road till I die”.

Today I have been working on a new book and have been deeply emeshed in paradigmic debates. The practical relevance, other than the work gives me another day’s pay to maintain my part in keeping aggregate demand growth moving, is that two Nobel prize winners (Phelps and Krugman) have had a recent paradigmic dispute about similar themes. One attack was implicit (Phelps on Keynesians), the other very direct and personal (Krugman on Phelps). Neither understand modern monetary theory (MMT) although Krugman is closer than Phelps. Phelps’s work, in my view, has been used by neo-liberals for years to undermine the employment prospects of millions of workers. It is also a primary IMF tool for keep less developing countries poor. Sounds like a topic to be discussed.

In the Financial Times this morning there was a thought provoking article by Mort Zuckerman entitled The free market is not up to the job of creating work which is in stark contrast to another article – Goodbye, Macroeconomics, which appeared last week in the FT and was written by Eli Noam. The former seems to understand the depth of the problem and has the right priorities but doesn’t come up with the right policies. The latter raises some interesting points but just misunderstands the nature of macroeconomics.

Earlier this week my professional association (which I decline to join) – the Economics Society (ACT Branch) awarded its inaugural Enemy of the State/Friend of the People award to a microeconomist for advocacy in defence of economics and its application to public policy. The stunt reflects the major historical revisionism that is now a daily occurrence and appears worse than anything that occurred in the communist states. Those who think they have an entitlement to make huge profits (helped by government guarantees) yet return to behaviour that brought the world economy unstuck are now in attack mode. There is denial, outright deception, constant hectoring. To redress this issue, I am now calling for nominations for the Modern Monetary Theory’s (MMT) Friend of the state, Friend of the people award. It will be awarded to all persons (we believe in collectives) who understand how our monetary system operates and how it can be managed via fiscal policy to serve public purpose and advance the welfare of the most disadvantaged.

Household saving ratios (saving as a percentage of disposable income) have risen significantly in most countries since the onset of the recession. In many countries this has come after a period of increasing indebtedness as national governments pursued budget surpluses. As a result, the macroeconomic concept of the paradox of thrift has been resurrected in the popular press as a discussion point. There are fears that the end of the “consumer boom” will lead to stagnancy. A recently published IMF paper addresses this point but just cannot let themselves address the elephant in the room. They present a new way version of deficit hysteria.

The public debate is constantly distorted by claims that cannot be substantiated. One such claim is that the current period of budget deficits is building a stock of future claims on the well-being of the future generation – our kids. Accordingly, the neo-liberal deficit terrorists claim that the best thing we can do for the future generation is to avoid running deficits. My view is that we have been imposing a huge future burden on our children but this would be larger if we tried to run surpluses now. In fact, the years of surpluses exacted a huge toll on our children’s prospects that they will have to endure for years to come.

A regular reader sent me a recent financial market report written by Tokyo-based economist Richard Koo which raises some interesting issues about the association between prolonged recessions and democracy. Koo has achieved some notoriety in the last decade or more by coining the term “balance sheet recession” to describe what happened to Japan during its so-called “lost decade”. He also applies the analysis to the present global economic crisis. While he is not a modern monetary theorist, he recognises the need for considerable fiscal intervention and the futility of quantitative easing. So this blog is about all of that.

The Australian Government has now released its so-called Social inclusion principles which are apparently intended “to guide individuals, business and community organisations, and government on how to take a socially inclusive approach to their activities”. I couldn’t find a commitment to full employment among the principles. Pity about that. Another strategy that is rich in rhetoric but squibs the essential nature of the problem. My advice: scrap the plan and start again.

The unemployed cannot find jobs that are not there! I have written about that topic extensively. So today I have been examining what vacancy data is telling us about the labour market. The relationship between unfilled job vacancies and unemployment (the so-called UV ratio) is well entrenched in economics. The UV ratio is a good indicator of the state of the labour market because it tells us (approximately) how many people there are for each unfilled job. Of-course, it understates the degree of slack because it fails to include underemployment. Anyway, you can also determine whether there are significant supply-side issues going on which would require supply-side policies. As you will see in the following graphs – it is all demand side! Which tells us, yet again, that job creation is required.

The Australian government will release the Fourth Intergenerational Report today with much fanfare, scaremongering and lies. Our boofhead Treasurer has been doing the rounds of the media outlets giving his evangelical sales pitch on how scary the future is unless we cut the fiscal deficit now and get the balance back in surplus as soon as possible. These intergenerational reports are really a confection of lies, half-truths interspersed with irrelevancies and sometimes some interesting facts. There is very little economics in these reports. What parades as economic analysis is just the usual neo-liberal mainstream nonsense that currency-issuing governments have run out of money and fiscal deficits are dangerous. The Treasurer is selling the Report on the grounds of “intergenerational theft” (the classic anti-fiscal deficit argument about mortgaging our future grand children’s future). Apparently, this justifies large cuts to the fiscal deficit now in order to turn it into a surplus so that our future generations are left with no debt. The real intergenerational theft though is embodied in a current fiscal strategy that leaves around 45 per cent of our teenagers unemployed, underemployed or NEET (Not in Education, Employment or Training) and hacks into public infrastructure provision as a strategy to create fiscal surpluses now. With private spending subdued at present and the external sector also draining expenditure from the economy relative to its income, trying to impose fiscal austerity now in the name of defending future prosperity is a grand lie and will ensure that the future prosperity is undermined.

Last week (June 11, 2014), the Australian Treasurer gave a speech at the right-wing Sydney Institute entitled – A Budget For Opportunity. The Treasurer was attempting to spin the impossible – that the May Fiscal Statement was fair (equitable) in that all Australians would be contributing to the deficit reduction. That is patently false. It is clear that the largest burden arising from the fiscal reduction will be borne by those with least income, including those reliant on public income support to scratch out the barest of existences. But in trying to make this impossible case, Hockey also invoked the classic divide and conquer strategy that conservatives use to segment and coopt certain sections of the population into agreeing with policy changes that will not only undermine their own prosperity but devastate the prosperity of other ‘segments’ who they manage to vilify. And while that is going on, the high income earners and wealthy, who are more likely to support the conservative political parties sit back sipping on their gins laughing their smug heads off. What a world it is.

The St Louis branch of the Federal Reserve Bank offers – FRED2 – which is an excellent repository of US statistics as well as a nifty graphical analysis tool. I use it regularly and even though it is just a collection of data available elsewhere it is very convenient. The same organisation also publishes what it calls its – PAGE ONE Economics Newsletter – (the so-called “back story on front page economics”) which is designed to be used by students as a means of educating them in economics. Any reasonable assessment of the material presented in these newsletter is that they are unadulterated nonsense. The most recent edition (published January 13, 2012) – “Choices Are Everywhere: Why Can’t We Just Have It All? – exemplifies how these major institutions choose to mislead those they seek to elucidate.

In his – Introductory Statement – at the Press Conference last week (November 8, 2012) announcing the decision of the ECB Governing Council, ECB Boss Mario Draghi provided us with all the evidence we need that the conduct of macroeconomic policy is being based on false premises, which makes it unsurprising that the world economy is enduring slow to negative growth and millions are unemployed. The ECB decision was to keep interest rates unchanged. But that isn’t the point of this blog. We all look to monetary policy to solve the crisis when it is ill-equipped to do so. The reliance on monetary policy and the hostility towards fiscal policy is all part of the same ideological baggage that caused the crisis in the first place. Dr Draghi’s promise that the ECB would buy unlimited quantities of government bonds was held out as part of the solution but in fact only confines the central bank to maintaining solvency, which is intrinsic to any currency-issuing government anyway. But the main Eurozone problem is a lack of aggregate demand. The ECBs action do nothing to resolve that problem. Similarly, the Federal Reserve, the Bank of England, the Bank of Japan and all the rest of the central banks do not have the tools to ensure that the main problem is addressed. The crisis has confirmed that yet so deep has been the indoctrination that we (the collective) still hang on to the idea that fiscal policy is bad and monetary policy has to carry the counter-cyclical weight. The fact is that it cannot.