In a sea of conservative media, two articles stood out this weekend which captures a debate that should be raging but will be quickly buried under the re-emerging neo-liberal hubris unless significant new alliances are formed. In recent weeks, as different economies are showing some signs of recovery, some key players within mainstream economics have been coming out in defence of the profession. They have been accusing critics of misunderstanding what economics is all about and saying that economists have actually saved the world. I covered some of this sort of positioning in Friday’s blog. In this blog I continue that theme but from a different angle. The conclusion is that if we want real change then “one should become more radical as one grows older”. We will see what that means as we go.

Welcome to 2010. Today, in the overcast summer that we are enduring here, in between other things I am finishing off, I was in my office reading about how mainstream economics actually saved us from a major depression over the last 2 years. Far from having to hang their heads in shame, the article indicated we had all embraced Keynes and glory be the day. I also read a counter to that which outlined what further needed to be done. I concluded neither writer really had grasped what has been going on and both would benefit from exposure to modern monetary theory. Not a lot has changed overnight. Happy new year!

The year and the decade are rapidly closing out (early evening Thursday AEST). It is been an incredible year to be an economist with some of the swings in aggregates not seen before in most of our lifetimes. The degree to which nation’s have gone backwards has been staggering. For a researcher like me it has opened up so many new lines of enquiry. I always worry that my major research angle – the study of unemployment – gives me a job as long as there are others without them. But someone has to keep the topic at the top of the agenda and that is what I have devoted my academic and public career to doing. I have also been staggered this year by the sheer audacity of the mainstream economists who went to ground when the crisis emerged because their theories were shamefully wrong – but who are now popping up again – in all their arrogance – leading the charge of the deficit terrorists and undermining the capacity of governments to fight the crisis effectively. They should have just stayed in their slime. Anyway, my final post for the year has some sad things to say … and then …

What do you get when a bunch of former politicians who have an inflated sense of self-importance and cannot stay out of the public glare? Well one answer is nonsense. The related answer is the so-called Pew-Peterson Commission report Red Ink Rising, which was released in December 2009 with the by-line “A Call to Action to Stem the Mounting Federal Debt”. And with the Copenhagen climate change talks being the big public interest story of the week it was only a matter of time before soon goon started mapping the public debt-hysteria debate into the climate change debate to bring home the message to all of us that we are doomed unless we do something drastic. Its been quite a day down here!

It’s Friday and today has been very hot (nigh on 40 Celsius). One could also easily get hot (under the collar) just engaging in one’s daily reading given the amount of misinformation and sheer terrorist journalism and public commentary there is at present. The IMF released its latest Economic Outlook calling for a general return to surpluses. Why have we fallen prey to this insidious notion that government surpluses are normal and deficits are for fighting fires? In fact, the latter is more the truth. Surpluses are only required if the external sector is so strong that the economy will overheat if the government doesn’t drain private purchasing power. Anyway, I just stay calm through it all … like any good modern monetary theory (MMT) soldier. There is a war going on out there in ideas land and cool heads are needed.

Today, the Cabinet Office in Tokyo issued the third-quarter Japanese national accounts data which showed that the economy has posted positive growth for the second consecutive quarter and is now motoring along at an annualised rate of 4.8 per cent (1.2 per cent in the September quarter). In the June quarter growth resumed at 0.7 per cent (2.8 per cent annualised) and so the recovery is getting stronger. Given they did not allow labour underutilisation of labour to rise very much (a large increase by Japanese standards but relatively small compared to countries such as the UK and the US, they should be able to absorb the jobless fairly quickly. But this will only strengthen the growing call for the government to cut back net spending. It is a case of denying what is staring you the face.

Today, I have read a number of different reports from various organisations (IMF, Bank of England, US mortgage brokers, etc.) keeping up to date with what it going on. It all adds up to a bleak way to spend the day although that is the lot I bear (violins out!) as an economist. Imagine being a dentist though (apologies Martin!). Then you would be really working in confined spaces. My confined spaces are the claustrophobic world of mainstream economics. The economic crisis has really demonstrated how stupid (and evil) this body of theory (and policy) is. Anyway, today’s blog reports on what I have been reading and writing about today – all from a modern monetary theory (MMT) perspective – which is the free-range and sunny world that all economists should migrate too!

I was going to write about manufacturing today in the light the Campaign for America’s Future staging of Building the New Economy conference in Washington DC today. I started investigating what it was about. It raises a lot of issues what a progressive position should constitute. However, I got way laid by other things which were also interesting and will leave my blog about the demise of manufacturing for another day. But what this conference demonstrates to me is that we have a long way to go before we get a united progressive understanding of the way the modern monetary system works. And until we have that understanding, no real progress will be made reforming the economy. We will always be trading off tax cuts for spending increases and all that sort of mainstream mumbleconomics and feeling defensive any time a deficit arises. And then today, I started reading the latest report from the IMF …

Today’s blog is short. I returned home today to a mountain of things to do and missing luggage. In this day of computer networks and claimed security I fail to see how airlines cannot match every person who has a seat with a bag in the hold. They claim they take bags off when there is a no show so why do they lose bags? Anyway, all my papers from last week’s meetings are in the bag and my favourite coat so I am hoping it turns up. On the blog front, several readers have written to me in the last few days asking me about the rising risk of sovereign defaults that financial markets are apparently “pricing in”. In particular, so-called influential traders are now claiming that the US and Japan are approaching situations reminiscent of “countries on the verge of a sovereign debt default”. Sounds dire. We better investigate – but only for a short bit because I am tired from my journeys.

At present I am in transit in Dubai waiting to fly home to Sydney after a week or more away in Central Asia. I am definitely being careful to avoid any public swearing, which means I am not reading any economics or business reports in public spaces. With the worry that I might swear out aloud and get stuck here, I judiciously completed all my reading in the privacy (assumed) of my hotel room at the airport. Lucky. Imagine what would have happened if I had been reading this article – David Cameron’s tonic to snap us out of recession – out on the concourse?

Ah Sunday. I don’t go to my office at the University. I ride lots of kms on my bike. I mix working at home on my research with digging in my food production system (garden). And … if I am stupid, I read the financial press and study the data trends. At that point, any sun that is around becomes a dark cloud and I sink into a malaise and wonder why modern monetary theory (MMT) ….

Earlier this week my professional association (which I decline to join) – the Economics Society (ACT Branch) awarded its inaugural Enemy of the State/Friend of the People award to a microeconomist for advocacy in defence of economics and its application to public policy. The stunt reflects the major historical revisionism that is now a daily occurrence and appears worse than anything that occurred in the communist states. Those who think they have an entitlement to make huge profits (helped by government guarantees) yet return to behaviour that brought the world economy unstuck are now in attack mode. There is denial, outright deception, constant hectoring. To redress this issue, I am now calling for nominations for the Modern Monetary Theory’s (MMT) Friend of the state, Friend of the people award. It will be awarded to all persons (we believe in collectives) who understand how our monetary system operates and how it can be managed via fiscal policy to serve public purpose and advance the welfare of the most disadvantaged.

The debate seems to be slowing down which means this might be my last response although we will see. But in general the debate has raised a lot of interesting perspectives and I hope it has stimulated interested parties to read more of our work. I also think that while (as in any debate) “battle lines” appear to be drawn, I repeat my initial point some days ago. Steve and I saw this as a chance to focus on the common enemy – the mainstream (neoclassical) macroeconomics. That (failed) paradigm has nothing to say about the world we live in. The work of Steve and the modern monetary theory I work on both have lots to say and should not be seen as being mutually exclusive. Indeed, Steve operates in what we call the horizontal dimension of modern money.

This week’s Economist Magazine (print edition) is running a story Making fiscal policy credible – Bind games, continues the mounting conservative push for governments to return fiscal conduct back to the days before the crisis. The conservatives (except the really loopy ones) are begrudgingly being forced to recognise that the fiscal stimulus packages have saved the World economy from a total disaster. But after taking a deep breath they get back on track with the “debt is bad” “surplus is good” mantra that got us into this mess in the first place.