You realise how misguided the economic debate is in the West when you read that the British Opposition has been telling the British people that governance is about to break down and the IMF are poised to take over the country – that is, unless they vote for their austerity plans – and on the same day the UK Office for National Statistics releases the latest unemployment data which shows that unemployment has risen to a 15-year high. And while the British election debate appears to be all about who can cut public net spending the most, the IMF releases its latest World Economic Outlook (WEO), which is far from optimistic about the future and is warning against withdrawing the fiscal support for the very fragile demand conditions around the world. Then you read the Financial Times and see that former Clinton deputy treasury secretary Roger Altman is predicting a debt explosion. The general conclusion: our education systems have failed – and have been pumping out a population that mindlessly believes all this stuff while the elites run us over in their rush to bank the wealth they are harvesting.

Today I have reading a swag of literature which attempts to explain cross-country differences in change in unemployment and average duration of unemployment in the current recession. This issue has been topical in the US recently as the US Senate debates whether to extend unemployment benefits. The mainstream economics view is that the previous assistance caused the unemployment problem and a decision to extend the assistance will worsen it. However, you have to wonder what planet the proponents of these views are on. The overwhelming evidence is that the longer the recession the higher average duration of unemployment becomes and the larger the pool of long-term unemployed. The solution is always to stimulate employment growth. That simple truth is always lost on the mainstream. As you will see, among the proponents of the erroneous view that benefit provision has caused the worsening of the unemployment situation are researchers at JP Morgans. I would like to think that if the US government hadn’t bailed those bums out then these researchers might have been unemployed themselves. They could certainly use a dose of harsh reality.

Today I am writing about the sectoral balances which are derived from the national accounts. A recent article in the Financial Times uses these balances to demonstrate that attempts to reduce the UK public deficit can only be successfully achieved by engineering growth in non-government spending. That is an insight that is core to Modern Monetary Theory (MMT) but typically escapes the understanding of most commentators. The article is interesting because it shows how the sectoral balances – which are accounting statements and thus true by definition – can be interpreted in different ways and influence different policy strategies. But the fundamental understanding you gain from knowledge of these balances is that at present public deficits are here to stay … and if you don’t like them … you better get used to it!

Today’s blog is a little different to most, although don’t worry, I will get onto familiar themes soon enough. Today I am considering the latest broadside from controversial German philosopher Peter Sloterdijk, who Jurgen Habermas referred to as a fascist. Sloterdijk responded to that criticism by labelling Habermas, in turn, a fascist. That debate was about bi-genetics and Sloterdijk’s implicit support for a “master race”. It was an interesting debate in itself and goes to the fundamental discomfort that exists in Germany about their past. But today I am considering his views on freedom and governments who he labels fiscal thieves and suggests that modern democracies have conspired to allow ever increasing numbers to live of the toil of others courtesy of state intervention.

I have been resisting writing about the US health care fiasco because frankly the whole debate is a fiasco and demonstrates the ability of mainstream economics to obscure a widespread understanding of how the monetary system operates and the opportunities that system provides a currency-issuing government. But I have had more E-mails on this topic over the last few weeks than most other issues (bar EMU). Most readers want some analysis from a Modern Monetary Theory (MMT) perspective and so here it is. If only to stop the E-mails.

There is currently an international cacophony being created by economists, politicians, political commentators and any-one else that thinks they have something to say which goes like this: China’s export orientation and its “manipulation” of the renminbi to stop it appreciating is damaging World demand and plunging the Western world into unsustainable debt levels and persistent unemployment. The simple retort is: the commentators have it all backwards and are ignoring the policy options that the Western world has but which policy makers will not fully utilise. But it is an interesting debate and the institutional attachment to the debate is not necessarily predictable as you will see.

The title of the blog is a little misleading but was too good not to use. I get to that five-year forecast (2010-2015) later in the blog but the first part is material that sets the scene. Yes, I am writing about deficits and debts … again! But new nuances come out in the public debate which need to be addressed. The conservative assault on government support for their economies at present is multi-dimensioned and is being pushed along by two main journalistic approaches. The manic Fox new-type approach which I realise is influential but is so patent and ridiculous that I don’t care to comment on it often. Then we have the approach adopted by journalists in so-called credible media outlets such as the UK Guardian. They dress their deficit terrorism up in arguments that the middle classes, who think they are far above Fox new rabble intellectually, will find convincing. But when you bring both approaches down to basics – rubbish = rubbish.

I am currently doing some work on the superannuation industry. It will become part of a larger project with some European colleagues in the coming month. But it is also part of work I am doing on the design of a new financial system based on the application of Modern Monetary Theory (MMT) principles which will ensure that nations can pursue full employment and equity without severe disruptions caused by wayward financial markets. While this analysis is about Australia, the general principles are universally applicable and should be part of the reformed financial system that is adopted by all nations. Today I am concentrating on reforms to the way we structure and manage retirement incomes. But as one commentator noted last week, the sort of suggestions I have take us into “the realm of pure fantasy” given the vested interests that would have to be combatted. But ideas are worth something and as a research academic they are about all I have to offer.

Today started out well – early good waves at nearby Nobby’s Reef which kept things interesting. After that things progressively went down hill at least in terms of the things I read from the popular press. We had the EMU-rest of the world conflation to deal with. Then the public and private debt conflation. Then the austerity is good for us hypothesis. And by then I decided to read other things that were more interesting – like mysql technical manuals. Anyway, here is a report of my descent into gloom today.