Australia is in the final stages of a federal election campaign and it is likely that the conservatives will be returned to power after being out of office for eight years. The current government, allegedly non-conservative, is so close in most respects to the conservatives that it is hard to distinguish between the two. One significant point of difference over the last several years relates to the effectiveness of the fiscal stimulus that the current government introduced in late 2008 to attenuate the consequences of the global financial crisis. The conservative opposition claimed they would not have allowed the budget to move back into deficit during this period. Given the scale of the crisis, they would have had no choice anyone because the cyclical impacts via lost tax revenue would have been sufficient to drive the budget into deficit irrespective of the discretionary stimulus packages that were introduced in stages by the current government. Both major parties are obsessed with pursuing budget surpluses without the slightest recognition that in current circumstances such a policy orientation is destructive to growth and employment. I was examining some data relating to the construction industry today for another project, which demonstrates why the introduction of the 2008-09 fiscal stimulus packages were extremely effective in reducing the output and employment losses that might otherwise have occurred. The future under a surplus-obsessed conservative government for workers looks rather bleak. Here is some evidence.

There were two interesting articles I read (among others) in recent days that attack mainstream economic analysis in different ways. The first, published August 18, 2013 – Removing deadweight loss from economic discourse on income taxation and public spending – is by Northwestern Economics Professor Charles F. Manski. He wants our profession to dump all its negative welfare analysis about the impacts of taxation (as “deadweight losses”) and, instead, focus on the benefits that come from government spending, in particular, highly productive infrastructure provision. So, an attack from the inside! The second article was a Bloomberg Op Ed (August 21, 2013) – Economists Need to Admit When They’re Wrong – by the theoretical physicist, Mark Buchanan, who has taken a set against my profession in recent years. Not without justification and with some panache, one should add. They both add up to the same conclusion – mainstream economics is defunct and we should decommission teaching programs throughout the world and introduce new progressive approaches to the discipline that will produce a new bread of useful Phd graduates, rather than the moribund graduate classes that get rubber-stamped out of our higher education institutions, ad nauseum, at present.

Japanese economist Richard Koo recently (July 9, 2013) published his latest report on the world economy – Japan, US, and Europe face different issues – which updates some of the latest data available from the economies listed in the title. I am sorry that I cannot link to the Report as it is a subscription service (thanks to Antoine for my copy). I discussed some of Richard Koo’s ideas and how they sat with Modern Monetary Theory (MMT) concepts in this 2009 blog – Balance sheet recessions and democracy. While the basic concept of a balance sheet recession is important to grasp and the policy prescriptions that flow from it clearly point to the need for more fiscal stimulus, once you dig a little deeper into Koo’s conceptual framework you realise that he is very mainstream – more insightful than the average mainstream economist, who typically fails to even grasp the reality of the current situation, but mainstream nonetheless. And that means there are some things in his theoretical framework that are plain wrong when applied to a modern monetary economy

I wrote about the way the recent neo-liberal narrative in the UK, that constructs the unemployed as gaming the income support system and about how they need to be weeded out by harsher activity tests etc, is a theme Australians will be familiar with in this blog – The victims become the perpetrators – the neo-liberal smokescreen. The discussion touched on the way we abstract from the human suffering that accompanies mass unemployment and how the dominant paradigm seeks to construct the unemployed as an “Other” different to ourselves and accountable for their own state. Unemployment is not seen as a violent act deliberately perpetrated by us (through the agency we give our governments – the “mandate”) but rather as a chosen outcome, a rational end of an informed choice. Perhaps not one we would take ourselves but rational nonetheless and therefore of no further concern. I have been reading some relatively oblique philosophical literature lately centred on conceptions of ethics and the way historical temporality forces us to take a moral perspective whether we like it or not – that is, denial of past action is a particular moral perspective. It bears on some work I am doing in remote Indigenous communities in the Northern Territory at the moment as well as broader debates that exist in society. Here are some notes and thoughts that arise from this sort of reading and reflection.

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.