When recessions become prolonged and long-term unemployment rises, the conservative denial machinery always scapegoats the most disadvantaged by recommending cuts to welfare to make people more desperate. This is dressed up in terms that attempt to make this sort of policy sound reasonable – like we should all be adventurous and entrepreneurial. The facts are that mass unemployment represents a macroeconomic failure that can be addressed by expansionary fiscal and/or monetary policy. It has nothing to do with the provision of the miserly amounts that are given to the unemployed via income support arrangements. Cutting those benefits will not cure involuntary unemployment. In all likelihood, cutting benefits will make the aggregate demand shortfall that caused the unemployment to worsen. The result is that the cuts will only make the lives of the unemployed more desperate than they already are. It is time that the conservatives learned about macroeconomic constraints.

Australia is in the grip of a group of mining oligarchs, who are spending enormous amounts of monety to shape the economic debate to suit their own very narrow interests. They are opposed to the mining tax (a resource rent tax) and have in the past denied the state (on behalf of all of us) owns the resources that they plunder for private profit. They have also sponsored national tours of leading climate-change deniers (such as Lord Monckton) who are known to trade on distortions of the truth. Overall, there personal resources guarantee them access to the daily media and they use it relentlessly. They also write books which get national coverage and have a record of suing peope who criticise their views. The result is that there is very little critical scrutiny of the propositions they advance to justify their claims. Some of the propositions are pure fantasy yet they have gained traction with the public who have been too easily duped by the promotional onslaught. Here is a little sojourn into the fantasy world on one such oligarch.

The British Prime Minister gave a – Speech – to the Confederation of British Industry Conference on November 19, 2012, where he outlined how tough his government had been in terms of imposing fiscal austerity. In other words, he was taking responsibility for Britain’s appalling dive back into (double-dip) recession, although it is hard to find that confession in his actual words. Over the English Channel, the EU is busily preparing the champagne and fine foods for its upcoming summit on the 2014-2020 EU Budget. The EU leadership is talking tough and proposing large cuts in EU-level spending not the least being harsh cuts in the Overseas Development Aid (ODA) budget. The cuts are, of-course, based on false premises – that the economies are broke and have to live within their means – even though millions of workers lie idle. The idiocy is exemplified though in the failure to understand that ODA, while perhaps provided for ethical reasons, actually improves the outcomes of the donor nation. So these so-called free marketeers cannot even identify self-interest when it is staring them in the face. So they busily go about cutting their noses off!

Sometimes there is serendipity in a researcher’s life. Usually not. But sometimes. The last few months I have been investigating the question of how to effectively design fiscal policy interventions. It is an important issue because there are multiple goals that need to be satisfied. Two clear goals can be identified to simplify matters. First, fiscal policy has to be designed and implemented in a way that ensures there is sufficient aggregate demand in the economy relative to its real productive capacity so that full employment is achieved and sustained. Second, it should be designed and implement so as to reduce inequality. The two goals are interdependent despite the myths that economics students learn about the trade-off between efficiency and equity. It is now clear that rising inequality harms the prospects for sustainable economic growth. The evidence is now starting to come in that during the neo-liberal era, fiscal policy was actively used to reduce its redistributive capacity and its capacity to reduce market-generated inequality was severely compromised. Not eliminated but substantially reduced. That is what this blog is about.

In his – Introductory Statement – at the Press Conference last week (November 8, 2012) announcing the decision of the ECB Governing Council, ECB Boss Mario Draghi provided us with all the evidence we need that the conduct of macroeconomic policy is being based on false premises, which makes it unsurprising that the world economy is enduring slow to negative growth and millions are unemployed. The ECB decision was to keep interest rates unchanged. But that isn’t the point of this blog. We all look to monetary policy to solve the crisis when it is ill-equipped to do so. The reliance on monetary policy and the hostility towards fiscal policy is all part of the same ideological baggage that caused the crisis in the first place. Dr Draghi’s promise that the ECB would buy unlimited quantities of government bonds was held out as part of the solution but in fact only confines the central bank to maintaining solvency, which is intrinsic to any currency-issuing government anyway. But the main Eurozone problem is a lack of aggregate demand. The ECBs action do nothing to resolve that problem. Similarly, the Federal Reserve, the Bank of England, the Bank of Japan and all the rest of the central banks do not have the tools to ensure that the main problem is addressed. The crisis has confirmed that yet so deep has been the indoctrination that we (the collective) still hang on to the idea that fiscal policy is bad and monetary policy has to carry the counter-cyclical weight. The fact is that it cannot.

Regular readers and those who hear me in the media regularly will know I talk and write a lot about unemployment. I do so because it is a principle cause of poverty and disadvantage. It is also the tip of an iceberg of lost economic, social and personal opportunities. But we should not forget about trends in employment especially the rising incidence of the working poor. I raise this issue today because on Sunday the British celebrated the start of the – Living Wage Week – which runs from November 4-10. There are celebrations in all the major British cities and both sides of the labour market – workers and employers – are urged to embrace the notion that paying a living wage is not only ethical but also good for worker productivity and morale, and, hence good for private businesses.

With the natural disaster in the US now in its clean up stage the discussions have turned, in a predictable way, to “how will the US pay for this especially when it has huge deficits and debts and has to fall off a fiscal cliff anyway to stop the sky from falling in” – and narratives like that. Remember when Hurricane Irene struck in 2011? The resurgent Republicans tried to push through bills, which would have required matching cuts in other federal spending. The other Sandy reminder is that when the chips are down who do we all turn to? Government. What do you think would have been the current state, if the Republican contender was President and followed through on his promise to scrap FEMA and put emergency relief in the hands of the private sector, which apparently does things better? Chaos at best is the answer. The fact is that the federal government will be able to provide whatever financial assistance is required beyond private insurance payments. The only constraint that might hamper the recovery is the availability of real resources, which can be brought to bear. Further, it seems that the whole fiscal crisis beat up, even with the terms of the mainstream paradigm, is a beat-up, courtesy of some spurious work done by the Congressional Budget Office, that much-quoted, but seemingly, errant organisation.