I suppose I had to respond to this atrocious piece of deception pedalled by the New York Times (March 5, 2011) as an “Economic View”. The article – It’s Time to Face the Fiscal Illusion – is not economics. It is a religious diatribe with strays into lies and deception. The reality is that mainstream economics has learned nothing from the crisis that has left their key intellectual propositions being exposed as vacuous nonsense. The inability of my profession to move on and embrace the challenge that an alternative theoretical structure is more relevant is sad. Instead the same old mantra based on theories that have no empirical basis are being wheeled out – the same theories that pressured policy makers to create the conditions which ended in the crisis. In relation to today’s blog we should understand that government deficits are the norm and they generally never pay back their debt (overall).

I have been travelling today and so haven’t had much time outside of my commitments. But I did read some truly astounding articles today. As the conservatives take control of the political processes in the advanced nations they are revising history faster than we can read about it. Meanwhile they use the TINA claim to implement policies that damage the well-being of the average citizen and set up dynamics that will manifest as the next crisis. And we say we like it – because we have been bluffed into the TINA lie. The fact that the public believe all the conservative dogma and go along with it astounds me. Economics is not that hard. If no one is spending then output will fall and unemployment will rise. But somehow the public believes the opposite. They have been conditioned to believe that a rising (large!) budget deficit is bad and a falling (small!) deficit is good. The reality is that there are no better or worse deficits.

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.

Back in warm and sunny Newcastle. It is quite amazing how strident the attack on government deficits has become. There is very little recognition of the scale of the economic disaster that still plagues our economies. Even relatively unscathed economies like Australia is carrying 12.5 per cent labour underutilisation rates. That is bad enough. The majority of nations are in much worse shape. The scale of this disaster is so great that you might wonder who is going to be made to pay – given that the crisis was brought on by human folly. Why are those responsible being brought to account? The reality is that the criminals who led us into this disaster have done very well out of the bailout packages that they now oppose. You would have to indict the majority of my profession to achieve justice. So we might want a “national reconciliation” process to allow us to move on and forgive those that caused this. The problem is that the perpetrators are not humble in their failing. Far from it – they are now leading the charge attacking budget deficits using the same economic theories that caused the crisis. How the hell does anyone think these characters have anything to say any more? They were wrong before … so what’s changed?

I got of a plane this afternoon and learned about the devastation in Christchurch. I am feeling for my NZ colleagues today. I suppose some conservative idiots will claim the NZ government doesn’t have the money to do what is necessary to provide some relief. There is also strife in the Middle East as poverty and unemployment finally combine with a sense that governments in nations in that region are working against people rather than for them. In the UK and the US the governments are no longer working in the best interests of their citizens and public displays of anger are emerging (for example, Wisconsin). While the agenda of the oppressive regimes in the Middle East has always been clear the narratives of the conservatives in the advanced nations has always been hidden by a web of lies often supported by well-paid economists who urge us to accept austerity and deregulation because it will make us all wealthier. They tell us that the textbooks show that. The crisis has demonstrated to all that the textbooks are incapable of saying anything useful about the way the monetary system operates and the policy choices that a government running a fiat currency system has available to them. But as the conservatives are regaining control of the political processes after being shocked into silence in the early days of the crisis, it is clear they are overstepping themselves. They are continually claiming there is a fiscal crisis. But the reality is that their agenda – to crush unions and redistribute real income to capital – is becoming more transparent. That should be exposed by progressives and popular rebellions encouraged.

I have been travelling the last two days and have disrupted work patterns. But I did manage to read a few things in between other things today which made my hair stand on end and suggest that the austerity debate has moved ground. So desperately lacking is the real evidence which might support the economic claims the conservatives have been using to justify their manic desire to savage public spending when there is 10 per cent unemployment (and worse) – that the deficit terrorists are now appealing to morality – that public deficits and debt are immoral. It makes you wonder why these characters just don’t become stand-up comedians. But given how dangerous they are as a result of their positions in government it is clearly not a laughing matter. I would seek to try these characters for crimes against humanity when it becomes obvious to everyone how wrongful their actions are. It is interesting though – the descent into “moral” arguments means that you can conclude that even the conservatives know that the bevy of economic arguments that they use to justify their damaging policies are nonsense. But there is a new emerging problem. As I write today the entrenched unemployment that the deficit terrorists are now acknowledging they will cause to worsen is giving rise to employers discriminating against the most disadvantaged workers that are seeking work. What this tells us is that the employers have too much power.

I get a lot of hate E-mail. The hate used to be expressed in handwritten tomes from those with old typewriters and too much time on their hands. Sometimes there would the anonymous phone call telling me that if I kept advocating the closure of say the coal industry (my region has the largest coal export port in the world) I wouldn’t see the week out. More often these days the spleen comes via E-mail from rather odd addresses (made up hotmail etc) telling me that I am a waste of space because I support active fiscal intervention to restore full employment. “How can I care so much for the unemployed … they are the dregs of the earth and would be better shot … like you” is a typical turn of phrase. Anyway, I notice that the right-wing always gets personal when evidence against their claims is produced. Then they slink back to their desks and determine that the facts before them are not facts at all (because they violate their ideological precepts) and precede to reinvent history. This exercise is otherwise known as making stuff up. I think in these situations interaction is less productive than action. Accordingly I regularly sing to myself as I work – “We gonna smash their brains in – Cause they ain’t got nofink in ’em” (curious? see later)!

The title of today’s blog comes from an interesting article I read today in the UK Guardian (February 14, 2011) – The revenge of trickle-down economics – by retired American economist Richard Wolff. It is worth reading. As Wolff noted the persistently high unemployment, loss of income and output and increased poverty in the US and elsewhere is “an irrational economic absurdity”. The problem is simple to solve from an economic perspective. The US government has all the capacity it needs to offer jobs to all those who want them but are unemployed. The wages they paid would flow back into the spending system and stimulate further job creation. Before long, investment would strengthen and firms would be bobbing up from all over to get a share of the action. All it needs is a kick-start and the government is the only sector that can provide it. The alternative is a slow, muddling recovery with millions left behind jobless and penniless in the process. That is no place to be and is just an irrational economic absurdity.

On February 11, 2011, the IMF’s independent evaluation unit – Independent Evaluation Office (IEO) – released a report – IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004-07 – which presents a scathing attack on the Washington-based institution. It concluded that the Fund was poorly managed, was full of like-minded ideologues and employed poorly conceived models. In a previous report the IEO had demonstrated how inaccurate the IMF modelling has been. But the IMF is an organisation that goes into the poorest nations and bullies them into harsh policy agendas which the IEO has now found to be based on poor theory and inadequate model implementation. That makes the IMF more than an incompetent and biased organisation. In my view it makes them culpable. Who is going to pay?

In recent weeks I have received many curious E-mails about Japan all asking the same question – if net exports are positive and households saving are in decline, how come the budget deficit is so big? It is a good question and the answer relates to developing a good understanding of the components of the National Accounts and the way they interact. As I explain here, the private domestic sector is increasing its saving in Japan but it is all down to the corporations sitting on huge piles of retained earnings and reducing their investment. What these trends tell anyone who appreciates the way in which the macro sectors interact is that sustained budget deficits are required in Japan and any move to austerity would be disastrous.

A Reuters market analyst (John Kemp) has created a stir by effectively declaring that the global economy is governed by some global NAIRU – a non-accelerating rate inflation rate of unemployment – such that the advanced economies cannot reduce their unemployment rates by expansionary fiscal policy and major structural reforms are needed. In a recent article – Mind the global output gap – he argues that “(e)scalating food and fuel prices are a sign the global economy is approaching full resource utilisation and the limits of sustainable output”. He claims that the “high unemployment and idle factories” in the advanced economies are not a sign of a “cyclical lack of demand’ but rather reflect “structural shifts”. From a policy perspective this is natural rate theory on a global scale and effectively denies that sovereign governments can influence domestic demand and real output (within their own policy boundaries) through aggregate demand management. This is the ultimate neo-liberal denial of the effectiveness of fiscal policy. It doesn’t stand scrutiny as you might expect.

If you watch the 1937 cartoon – I Wanna Be a Sailor – it doesn’t take much imagination to think of the first two young parrots on the perch who are being taught their “skills” by a somewhat vexed mother parrot to be mainstream economists and the financial commentators who parrot these economists. Repeat after me: Polly wants a cracker – the Budget deficit is on an unsustainable trajectory – Polly wants a cracker – there is a mountain of public debt that threatens America’s future – Polly wants a cracker. If only these economists would take the lead of the third little parrot being coached by his mother. When he is exhorted to recite the mindless mantra that is expected of him he says “I don’t want a cracker see, I wanna be a sailor like my pop … see” … we need more commentators who will ask the right questions – challenge the politicians and their lackeys to explain what they mean rather than talk as if it is too complex for us to comprehend. It is not complex at all – spending equals income – if the private sector goes on holiday the public sector better be around town. If the private sector stays on holidays – the public deficit will persist. Otherwise – recession occurs and unemployment increases. The problem is that the mainstream commentators and the economists that provide them with the copy haven’t got off the perch yet and recite the same mindless stuff day-in, day-out. Polly wants a cracker.