After yesterday’s shock admission that our Federal Finance Minister Lindsay Tanner was losing sleep because he was worried about the Federal debt buildup, there he was on the ABCs 7.30 Report last night giving us more cause for concern that his sleeplessness is having a negative effect on his ability to conduct reasonable dialogue on economic matters.

Senior journalists often do more harm than good when they write about technical issues that they clearly do not understand. In many cases, they rely on the technical knowledge of their favourite economist or the flavour of the month economist and they are not skilled enough to know when their “economist” is also talking rubbish.

The long-awaited National Account data was released today by the ABS and shows that the Australian economy is now sliding along the zero line. The headline result was that the measure of overall economic activity, Gross Domestic Product (GDP) decreased by 0.5 per cent in the December quarter. This is the first negative result since December 2000. So one more negative quarter and we will all cry recession. For the 12 months December 2008, the economy grew by the very modest 0.3 per cent but this was driven by agriculture. Non-farm GDP did not grow at all over that same period. What are the signs for employment and what is the government doing? Here are some of my thoughts …

Lat night’s ABC 7.30 Report had a segment titled Australian economy resilient in tough times. It was so bad I was prompted to write to the ABC complaining of their neo-liberal bias. All the commentators were the usual coterie of investment bankers and private consultants all of who have particular vested interests which are not disclosed when they are held out by the ABC as so-called experts! Not one independent researcher was included in the segment. In another world, this might have been the way the show evolved.

The US Bureau of Labor Statistics released underemployment data for the US overnight. The results are disturbing and follow the same trend that is now common in Anglo countries – these economies, even in good times are increasingly generating marginal employment with low pay and job security, and, most importantly, deficient hours of work relative to the preferences of the workforce. But underemployment presents an added danger as we enter this current downturn.

A good way to understand the origins of the current economic crisis in Australia is to examine the historical behaviour of key macroeconomic aggregates. The previous Federal Government claimed they were responsibly managing the fiscal and monetary parameters and creating a resilient competitive economy. This was a spurious claim they were in fact setting Australia up for crisis. The reality is that the previous government created an economy which was always going to crash badly.

Sydney Morning Herald journalist Adele Horin article in the SMH today – Here’s a stimulating idea: create jobs – challenges the Federal Government to get it priorities right. She writes:

If employment is the primary concern, there are surer, more direct ways than cash payments to ensure bosses hire rather than fire. If not now, a debate on the hoary old topic of direct job creation may be just around the corner.

Opposition leader Turnbull has decided to go to the wall in opposing the $42 billion package. In particular, they want tax cuts rather than the $12.7 billion in cash handouts. He said they will not be provide economic stimulus and that December’s $10.4 billion in handouts had not worked. Soon after Turnbull provided these conclusions the ABS released the latest retail trade figures which showed that consumer spending shot up by 3.8 per cent in December, the highest monthly increase since August 2000 (since the GST came in).

Yesterday the Government announced its latest fiscal response to the rapidly worsening economic situation. They will spend $42 billion (mostly in 2009 and into 2010 to shore up aggregate demand. They estimate this will underwrite 90,000 jobs in the economy. That is not new jobs but existing jobs. They also estimate that the unemployment rate will rise to 7 per cent over the coming year which is around 300,000 people extra who will be without work. That will take unemployment towards 850,000 and underemployment will certainly rise in lock-step (already around 600,000) so you see the scale of the deterioration.

However, while I think the package is a step in the right direction, the Government has failed to really target jobs. If the Government had have introduced a Job Guarantee and paid the workers the current national minimum wage (with holiday pay etc) it could have hired 557,000 full-time equivalent workers for around $8.3 billion per year. Where does this figure come from?

Various estimates about the size of the federal budget deficit are starting to emerge. The Government has acknowledged that the data shows that tax receipts have fallen dramatically and now their budget is in deficit. For me that is a time of national rejoicing … finally … the federal government is doing what it should … resuming its crucial role in financing non-government (in this case) domestic private savings. Finally, there is a net injection of financial assets coming from the excess spending over receipts. Finally, the drain on private wealth that the creation of budget surpluses requires is at an end.

Australian Prime Minister Kevin Rudd has written an essay extolling the virtues of a new era in public policy which he calls “social capitalism” which is based on a strong guiding role for government and an abandonment of self-regulation by corporate interests which was the hallmark of the neo-liberal era. He sources the current global economic meltdown to the neo-liberal takeover which began more or less in the mid 1970s after the first OPEC oil price rise. The problem is that his new vision is still tainted with the worst elements of the neo-liberal era.

Today in the Fairfax press, economics writer Ross Gittins in an article entitled No good reason to feel depression claims that we should not be too worried about the looming recession because after all things aren’t likely to be that bad. Well from my perspective recessions are episodes that wreak havoc on the most disadvantaged citizens in our society and should never occur.

The Sydney Morning Herald is running a series at present looking at the labour market prospects in the coming year. It is a welcome return of emphasis to the massive labour wastage that this country endures given that the major media has up until now largely bought the erroneous “we are at full employment” rhetoric pumped out by the previous federal government.

The story entitled Statistics point to hard time on job front, written by Andrew West and Jessica Irvine and published today (January 24, 2009) began with:

AS MANY as 2 million Australians could be jobless or working fewer hours than they would like by the next federal election – the highest rate of “labour wastage” in a generation …

An analysis by a leading labour economist, Professor Bill Mitchell of the University of Newcastle, predicts the total rate of labour wastage could rise to about 20 per cent of the workforce by mid-2010.

The extraordinary events in world financial markets which have undermined the basis of capitalism have led to equally amazing Government responses – massive injections of public spending, nationalisations of banks and bailouts of huge financial institutions with little regard for the relevant shareholder interests.

A major paradigm shift is occurring in economic thinking away from the free market deregulation era that has dominated since the 1970s. All the logic that justified government cut backs; the run down of public infrastructure; the harsh treatment of welfare recipients; the wasteful privatisations, and the rest of the neo-liberal litany that served to transfer wealth from poor to rich and create an disadvantaged underclass has been destroyed by these events.

How bad is it when the Treasurer of the nation fails a test in basic national accounts (the material that is covered in Macroeconomics 101)? And how bad is it when he also reveals a fundamental ignorance of the basic operations of the monetary system? When the Senate moved to block the luxury car tax yesterday, the Treasurer Wayne Swan was quoted (see http://www.abc.net.au/news/stories/2008/09/04/2354836.htm) as follows: “If the surplus is raided to a significant extent that will be on the head of Mr Turnbull and the Liberal Party, who are clearly saying that into the future, they prefer a higher level of interest rates than we otherwise might have”. In fact, if he had even the remotest understanding of the way the modern monetary economy works he would know that surpluses put upward pressure on interest rates, other thing equal, while deficits put downward pressure.