Progressives who comment on macroeconomic matters invariably invoke the ghost of John Maynard Keynes as a motivating influence presumably because the popular perception – albeit shallow – is that Keynes supported generalised fiscal expansion in times of high unemployment. A striking example of this “association” is the recent Australian Fabian Society essay (April 11, 2011) by the Australian Treasurer Wayne Swan – Keynesians in the recovery.

Over the weekend, Iceland once again showed some pluck and rejected an onerous agreement to repay debts incurred by the failed private banks to the British and Dutch governments. The Icelandic government has been trying to lumber the population with these debts largely because the politicians aspire to join the Eurozone and they have been willing to sacrifice the welfare of their own population in pursuit of that misguided goal. According to Iceland Statistics there are (as at January 1, 2011) – 318,452 people living in Iceland with 23,596 between the age of 0-4 years; 21,194 in the 5-9 years cohort and 21,802 10-14 year olds. That is 66,592 children that the people of Iceland have decided not to burden with debt obligations.

Today I catch up on a number of threads that have been in the media in the last week or so. It is all bad. The focus is on Alan Greenspan’s extraordinary intervention into the policy debate declaring the financial sector unable to be effectively regulated. I have a solution for that! But as I read the data trends every day and listen to the politicians outlining their legislative ambitions I realise that there have not been many lessons learned at all. The neo-liberals are back in charge – unshamed – when they should have been driven out of every town in every land. Their leading lights are coming out of their rat holes and are once again lecturing us on how self-regulated markets are best and how we have to tolerate the occasional crisis as part of the wealth maximisation process. It beggars belief how this all is represented as credible policy input. It is time to get angry.

I am all done writing letters – at least for today. I forgot to send both. I noted someone mentioned that he had never read any admissions of error from me. True enough. Over the course of my academic career I have made many predictions and none have turned out to be qualitatively wrong (sometimes the quantum us shaky but the direction is correct). But I am not trying to sell tickets for myself. Economists like me who comment regularly on current affairs are always subject to empirical scrutiny. So I am regularly putting my neck on the line – in written word (blog, Op-Eds etc) and speech (presentations, media interviews etc). So far so good. I note that a correct empirical observation doesn’t mean the underlying theoretical explanation which might have motivated the prediction is correct. But it is a lot better than missing the empirical boat altogether and suggests that there is some worth in the theoretical framework being employed. From a personal perspective the current period of economic policy is very shattering (if you share my values about the dignity of work etc). But from an intellectual perspective, as an economic researcher, the current period is very interesting. It is providing us with real world data which directly relates to theoretical statements made by economic schools of thought. So I am keeping a running tally of how the laboratory rats are going? You can judge which theoretical structure you consider useful yourself when thinking about what is happening at present.

I am travelling today and have commitments which will take me into the night. So I have limited blog time. But there is always something to say and while I might say the same thing often I figure that there are thousands of commentators to my one who all say the same (different) thing every day. Anyway today you will learn that the Japanese government can call on the central bank to buy its bonds whenever it wants. You will also learn how crazy the British government is and how obsessive compulsive behaviour locks a nation into slow growth and entrenched unemployment. We’re sticking to our strict fiscal rules – no matter what! Simple conclusion for today – the budget madness continues.

So I guess it is time to build those very large bon-fires and burn all the mainstream macroeconomics textbooks that have poisoned the minds of millions of students for years. Mankiw, Blanchard, Barro to name a few. Burn them all. I also think it is time to delete all the computer code that supports mainstream economics models. My long-held belief that these actions would be educative and liberating have been ratified by a recent IMF conference that seems to have concluded that “the macroeconomic models that had been relied upon in the past and had informed major aspects of monetary and macro-policy had failed”. So all the supporting literature needs to be deleted. I am now advocating biblioclasm …

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.

I have very little time again today so to the point! Sometimes you are reading an article or column and you nod along saying – yeh, that is correct, this writer understands it … and then crunch … the brick wall appears – one word, one phrase, one sentence, one paragraph and all that bonhomie evaporates and you realise that the writer isn’t as cognisant of the way the macroeconomy works as you first thought. It is a case of so near but so far.

I am flying today so do not have that much time. But I thought I might share with you a rough rule of thumb I use when it comes to PDF reports that I read. The rule: the larger the file (scaled to page numbers) the worse the report. A large file size (in mbs) usually indicates lots of colour and fancy graphics and usually very little substance. I am sometimes wrong when I apply that rule of thumb but not often. My rule of thumb served me well when I read this report – USA Inc – published by from some self-styled “brains trust”. I have received many E-mails asking me to analyse this Report. I read it and I wish I hadn’t. It was an appalling misuse of time. But moreover it perpetuates the standard conservative lies about the capacity of the US government (and any sovereign government by implication) to pursue appropriate fiscal policy. It gives more fuel to the austerity proponents. So someone has to provide some counter to the the narrative being presented. So here it is … USA Inc – what a lie.

I am travelling today and haven’t much time to write and I have a day of library document searches ahead. But the input from economists over the weekend in relation to the devastating earthquake and tsunami in Japan last week has been nothing short of a total disgrace. Even as the news was unfolding the mainstream neo-liberal ideologues were out in force preaching that the Japanese government was now facing a major fiscal crisis and its capacity to deal with this event was severely limited. Imagine the reactions of the people in shock after the event to hear the news bulletins telling them that their government was crippled and unable to help. The reality is that the claims by the macroeconomists were not ground in any credible theory. It is bad enough they provide this mis-information and lies when unemployment is rising. But when thousands of people are feared dead it is nothing short of being obscene. Earthquake lies – all courtesy of our neo-liberal economist brethren.

Apparently, the US government has just announced that their budget deficit is the largest in absolute terms. Given that the US makes a net gain of one person every 16 seconds, I guess they recorded a record population today as well. Nine records were also set yesterday by junior athletes at the annual sport’s carnival held by the Charlestown Secondary School (Nevis, US). The latter are certainly more interesting and have more relevance for the health of the community. The fact is that the budget outcome is like a score at a sport’s game. Imagine if the cricket authorities decided to place a limit of how many runs a team could score in the current World Cup. You wouldn’t have much of a game. And then they decided to become austere about it and cut the available runs! Just like the runs on the scoreboard, the budget numbers (dollars) can be whatever it takes. The record deficit is not going to stop any game. The fact is that with the extent of idle capacity that you witness in the US, the record needs breaking again very soon!

I read two articles in the last few days which tell me that the bond market traders generally do not understand the intrinsic characteristics of the monetary system and that IMF economists have even less of a clue. The bond traders attribute to themselves an air of importance that it not a reflection of their real role in the monetary system. However, my own profession continues to disgrace itself and is nothing more than a propaganda machine. The mainstream economists are too stupid to realise that their models and frameworks do not explain anything that we are interested in. But such is their position of dominance in the policy space that their neo-liberal grandstanding is given credit. It is embarrassing but worse it is dangerous. Anyway, sometimes a journalist comes to the correct conclusion but for the wrong reasons. While the conclusion is correct, the erroneous reasoning does as much damage by way of misinformation than if the overall conclusion was also wrong. It is a case of being right for wrong reason equals wrong.

It is funny being part of a profession which doesn’t deserve to exist in its current form. The fact is that I might have better helped the world if I was an anthropologist or perhaps just stayed being a professional musician. My profession is a total disgrace and our arrogance leaves us blind to reality. The latest survey by the National Association for Business Economics reinforces how far removed from reality my profession is. They think the most pressing problem in the US at the moment is the deficit and the public debt and downplay the importance of the entrenched unemployment. When pressed to explain this crazy set of priorities they invent a fantastic (as in fantasy) narrative about the dangers of deficits (which are?) and emphasise that unemployment is largely a voluntary choice by the individuals involved. The academic members of the profession teach their students this nonsense. They talk about the virtues of efficiency but ignore the huge losses that arise from unemployment. The reality is that the economics profession is a disgrace.