Most of my blogs are about advanced nations. Many of these nations are being plunged back in time by misguided applications of fiscal austerity and even when growth returns they will take a decade or more to get back to the per capita income levels that prevailed prior to the crisis. Many children and teenagers in these nations will be denied essential education, training and workplace experience by the deliberate choice by their governments to entrench long-term unemployment and to starve their economies of jobs growth. But it remains that these nations are not poor in general and while people are losing houses and other items on credit only a small proportion will starve. Not so the poorer nations that I rarely write about. These are the nations where a high proportion of the citizens live below or around the poverty line. These are the nations that are at the behest of the IMF and suffer the most from their erroneous policy interventions. Today I reflect on how those nations have been going during this crisis. The bottom line is that the way the Fund reinvented itself and reimposed itself on the poorer nations after the collapse of Bretton Woods in 1971 has damaged their growth prospects and ensured that millions of people around the world have remained locked in poverty. Along the way … children have died or have failed to receive the levels of public education that any child anywhere deserves. There is no positive role for the IMF in its current guise.

Sometimes ex-IMF officials shed the burden of having been associated with that institution and make a creative contribution to the public debate. More often they do not and continue to perpetuate the errors that underpin almost all of the IMF’s output. If there was ever an institution that has passed its use-by date it is the IMF. Today, ex-IMF Chief Economist Simon Johnson (now at MIT) claimed that the way to assess fiscal sustainability is “whether a country has the political will to raise taxes or cut spending when under pressure from the financial markets”. You can imagine what I thought of that criterion! Not much but it is too late in the year to get really flustered and I have been listening to some pretty good music this afternoon. So for all those readers who have written in saying “doesn’t Johnson have credibility” and “therefore is what he is saying sensible” I have three words – No and No.

There was an interesting conference in Tokyo last week which featured academic Eisuke Sakakibara, the former Japanese government vice minister of finance who is characteristically known as “Mr Yen” given his knowledge of banking and world financial markets. Sakakibara predicted a prolonged recession lasting until 2015 because fiscal deficits are being deliberately withdrawn by misguided governments. The neo-liberals are claiming that public debt ratios have to be cut to reduce the “future tax burden on our children”. The reality is that intergenerational burdens work in exactly the opposite way in a fiat monetary system to what the mainstream neo-liberal claim. The misguided fiscal policy direction the neo-liberals are pushing will impose real burdens on our children. They will be less educated, less skilled, less experienced, and have lower income as a whole as a result of the fiscal austerity. Their future possibilities will be reduced as a consequence. In fact, the whole anti-budget deficit argument is just a ploy to seek ways whereby the elites can get more real income now and more real income later for their own enjoyment. Spreading the real output more widely through fiscal interventions frustrates that aspiration. Significantly, our children never hand real output back in time to pay for the public debt incurred at a previous time.

I was pleasantly surprised this week when I received a telephone call from a reader wanting to chat about the current state of policy in Australia and the available options. We discussed a range of options and agreed that it didn’t make much sense to cruel the emerging economic growth in Australia while there were 12.1 per cent of available labour resources currently idle (either unemployed or underemployed). With world demand for our exports strong it seemed a perfect opportunity to really eliminate the pool of idle labour and return to full employment – a state that Australia has not been close to since the mid-1970s. The period since that time has been dominated by neo-liberal policy makers who have abandoned the responsibility that was previously vested in our macroeconomic policy arms (RBA and Treasury) to achieve and maintain full employment. We agreed that deliberately restricting growth just as it was gathering pace was a very restricted vision of national potential. The upshot of our discussion was that we agreed that fiscal policy could be targeted to redistribute the growth (to avoid specific sectors from overheating yet maintaining a growth stimulus to other sectors) and that monetary policy was too blunt an instrument to manage this process. But with growth emerging it is a case that policy makers should recite a daily mantra – when you are on a good thing, stick to it – rather than cutting it off at its knees before the benefits have spread widely throughout our nation and its people.

I often get asked by people I have consulted for to write justifications for their existence (that is, the organisation and its charter). Sometimes it is a trade union, another times a government department and on. In each case you have to think out what the essential interactions are between the organisation in question and the rest of the world and articulate some sense of value to those interactions. These calibrations may not necessarily be quantitative but often it is useful if they are because bean-counting economists around the place who read the analysis I provide in this part of my professional life rarely think more broadly and spare the thought – can probably not even spell “social benefit” much less conceive of it. In the current economic crisis the only problems that should be receiving daily scrutiny in the debate are unemployment, real income loss, and the resulting poverty. We rarely see those items headlined. Instead, we are barraged with a virulent confection of bile about things that do not matter – public deficit to GDP ratios etc. And this anti-government campaign is succeeding in part because people believe the rhetoric that government is wasteful and doesn’t do anything. Well I am here to tell you ….

The Australian government is digging a hole for itself at present. In the May Budget it talked (neo-liberal) tough to demonstrate what it claimed was “Responsible Economic Management” – and this meant it entered a battle with the Opposition about who would deliver the biggest budget surplus. This became one of the comical (in a tragic way) features of the August federal election campaign. The respective treasury boof-heads from the Government and Opposition boasting about the size of their future budget surpluses. They also tried to win the battle of who would get there the quickest. The whole discussion was definitely mindless. Now with the Australian dollar appreciating fairly strongly the Government has realised the reduced economic activity that seems to be occurring is reducing its tax revenue prospects and therefore undermining its surplus projections. So what do they do next? Answer: announce they will cut spending by even more than originally planned. They are going to deliberately undermine employment growth and force even more people to lose their jobs at a time that labour underutilisation sits at the obscene level of 12.5 per cent and inflation is moderating. It is sadly a case of the fiscal vandals chasing a dream. The dream however is a nightmare.

I am sick of reading or hearing how brilliant such and such economist is and how they should be regarded as oracles because of this “brilliance”. In all these cases, the reality is usually that these characters have left a trail of destruction as a result of applying their brilliant minds. The terminology is always invoked by financial commentators and the like to elicit some authority in the ideas of the person. Apparently, if someone is deemed brilliant we should take heed of their words and judgements. How could we ever question them? In this neo-liberal era, many such “brilliant” minds have been placed in positions of authority and their influence has shaped the lives of millions of people. The financial and then economic crisis has shown categorically that their mainstream macroeconomic insights are not knowledge at all but religious beliefs that bear no relation to real world monetary systems. But still these characters strut the policy stages – shameless – and, in doing so, continue to destroy the prospects for many. It would be good it they were truly brilliant and could see the destructive consequences of their religious zealotry. Oh to be truly brilliant.

Yesterday, two public statements were made which caught my roving eye. First, the British Government claimed they were going to cut harder than planned to weed out the unemployed who took income support payments to support their “lifestyles”. That was the approach the previous conservative government took in Australia between 1996 and 2007 and so we have experience with it. It failed dismally to achieve anything remotely positive. Second, the OECD released their Interim Assessments to update the May Economic Outlook publication. It showed that the GDP growth forecasts for 2010 and beyond were being revised sharply downwards. The OECD now claims there are many negative indicators and that governments should not push ahead with their austerity plans if the world economy is really slowing. The British government has used the earlier May EO forecasts (which were overly optimistic) as authority to justify their proposed cutbacks. Well now that authority is gone. However, their proposal to further cut back public spending would seem to be in denial of what is now obvious to even the right-wing hacks at the OECD. It is time for George to admit his austerity push is purely ideological in motivation.

Yesterday, I indicated that I would provide some commentary on the latest Morgan Stanley briefing (August 25, 2010) – Sovereign Subjects – which received a lot of press coverage in the last few days and roused the interest of many of my readers. I cannot link to it as it is copyrighted. But the MS document is another example of how you can spread nonsense by ignoring the elephant that is sitting in the corner of the room. The MS briefing is essentially a self-aggrandising rant which perpetuates the standard neo-liberal myths and offers nothing new. I sincerely hope that the author’s company and all of their clients take his advice and lose significant amounts of their investment funds. The more losses are made in this respect the more quickly people will see through the cant that is served up by these clowns.

I read a brief report from the US Tax Policy Center – The Debate over Expiring Tax Cuts: What about the Deficit? – last week which raises broader questions than those it was addressing. I also note that Paul Krugman references them in his current New York Times column (published August 22, 2010) – Now That’s Rich. The point of my interest in these narratives is that I have been researching the distributional impacts of recession for a book I am writing. The issue also bears on the design of fiscal policy and how to maximise the benefits of a stimulus package.

Today I am catching up on things I read last week. Each year, there are various publications provided to high school students telling them about all the programs that are on offer at Universities. The prospective students use these publications to help them decide which program they want to pursue after high school and at which university or other higher educational establishment they might want to pursue it at. There is a lot of lobbying by institutions to get favourable reviews. But there is never a catalogue published which advises students where not to study. So today I am noting three economics departments which should be on the blacklist of any student who is considering undertaking the studies in that discipline. They are on my blacklist because of the questionable competency of at least some of their staff members. I will expand this list over time!