Restoring Fiscal Sanity in the United States: A Way Forward. Essentially, the article is a non-article but a sign-up page to access a speech of the same title by David M. Walker, former top public accountant in the US (Comptroller General) which apparently makes him qualified to speak about monetary systems. The speech is full of nonsense but it gave me some insights into what seems to be unfolding in the national capital over there in America. While I was at the airport today I heard some very sensational news – Navy SEALs stake out US building! Perhaps I am the first to blog about this development. Twitter universe – where are you?

I am still away from my office and have had a full-day of meetings today – so very little time to write. But earlier today I read another one of those articles from a senior US academic economist about the need to cut aged pensions in the US because the government is running out of money. Martin Feldstein – a Harvard professor – has been found to have engaged in highly questionable conduct (to say the least) by investigations into the causes of the financial crisis. Feldstein must surely know that the government cannot run out of money. Which brings into question his motivation for providing misleading interventions into the policy debate. He has demonstrated over a long period his willingness to hide behind the “authority” of economic theory in order to pursue an ideological obsession with privatisation and deregulation. When writing what seemed to be academic papers or opinion pieces supporting financial deregulation, for example, he didn’t at the same time declare that he was personally gaining from such a policy push. His subsequent track record as a board member of companies, some of which collapsed in the crisis (AIG) or triggered the collapse has been appalling. Feldstein is not the sort of person anyone should take advice from much less pay for it.

I am travelling over the next few days and have limited time to write my blog. Today though I am writing about the latest US National Accounts data which I had the chance to examine carefully over the last couple of days. Clearly the news that real GDP growth has falling sharply in the first three months of 2011 is evidence that the current policy mix with an emphasis on public spending cuts is not working. At the same time the political debate is about to consider the public debt limit which expires in a few weeks. The conservatives are once again threatening not to extend this limit. One notable commentator said the failure of the US Congress to extend the limit would be the “most asinine act’ ever by them. I think that was an understatement. When you put the debate in the context of what is happening in the real economy (real growth down, jobless claims up) you have to conclude that the current behaviour of the US political leadership is worse than asinine.

Having heard the “historic” Press Conference held by Ben Bernanke, the Chairman of the US Federal Reserve Bank (April 27, 2011), I confirm the advice I gave on December 20, 2009 that – Bernanke should quit or be sacked. During that conference he chose to wade into the fiscal policy debate claiming that the priority of the US government was to reduce its budget deficit by cutting spending. He gave no justification for those statements and there is no supporting research paper available which might give us a clue as to the rationale for this extraordinary intervention into the policy debate. The fact is that Bernanke is another mainstream macroeconomics stooge who in my view has chosen to abuse his position of power to misinform and distort the policy debate. It is clear that the US Federal Reserve chairman has lost his independence and even mainstream economists who put the concept of independence on a pedestal of virtue should be calling for his resignation.

It is the Easter holidays and I am not writing as much today. But there have been some stunning examples of how mad the world has become with respect to matters economic. I present three vignettes of such madness which highlight the way in which lies and outright lies are dominating the policy agendas of governments at the expense of workers and their families. It is also raining outside and getting cooler so good weather for sitting down and writing – holiday notwithstanding.

In his recent New York Times column (April 21, 2011) – What Are Taxes For? – continues to engage with Modern Monetary Theory (MMT) but trips up because his mainstream view (dressed up as a progressive) reveals serious flaws in reasoning about the way a fiat currency system operates viz-a-viz the former monetary system based on convertibility via some commodity standard. In this blog I correct some of the analytical mistakes that appear in that article. Krugman concludes by claiming that he is really disturbed by those who don’t get mainstream logic – and is especially upset by “a lot of people with Ph.D.s in economics who can throw around a lot of jargon, but when push comes to shove, have no coherent picture whatsoever of how the pieces fit together”. My only response is to look in a mirror Paul or in the words of Bob Marley ask “who the cap fits”.

I imagine it goes like this. Your driving along listening to the radio and the Australia Treasurer comes on and is saying that we need a budget surplus because we have a once-in-a-hundred years mining boom and are near full capacity but given the government tax take is seriously below the forward estimates because growth is slowing, the government has to have even more drastic cuts in spending in the upcoming May budget than first thought. Why? To achieve the budget surplus! Then the Opposition spokesperson for matters economic says we are running out of money. And us ordinary citizens take it all in because it is headline news this lunchtime and we become entrapped by the logic of the situation as set out by the journalist who fuels the discussion along these lines. The only problem is that I am not an ordinary citizen in this context. The problem lies in the starting premise – the blind pursuit of the budget surplus. All the rest of the nonsense follows from that ill-conceived goal. It is getting ridiculous though.

In a blog last week – These were not Keynesian stimulus packages – I considered the trend among faux-progressives to invoke Keynes as their mentor as they advocated or were cutting back public deficits in a pro-cyclical manner. That is, they were proposing to cut back deficits just when they should be providing strong support for aggregate demand in the context of weak demand. The specific discussion was focused on a recent Australian Fabian Society essay (April 11, 2011) by the Australian Treasurer Wayne Swan – Keynesians in the recovery. There are two points I want to revisit in regard to this paper – one specific and one general. Both points demonstrate that the fiscal strategy of the Australian government is based on a false premise and that they are selling that strategy by distorting the historical evidence.

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.