I checked my calendar today thinking I must be a few months out. Upon checking I determined that it wasn’t April 1. So what the hell is going on? I refer to the announcement of a senior appointment at the World Bank. They have just appointed to the role of Vice President and Treasurer the former Lehman Brothers Global Head of Risk Policy who then was Lehman’s Global Head of Market Risk Management as they sailed into bankruptcy. Hilarious. As the Twitter-verse noted – Did they also interview Bernie Madoff? Anyway, I saw this news piece come in as I was studying the 81st Annual Report 2010/11 of the Bank of International Settlements – the central bank of the central banks – which was released yesterday (June 26, 2011). My conclusion: BIS = BS – the I is gone and used to stand for integrity

I am flying today so do not have that much time. But I thought I might share with you a rough rule of thumb I use when it comes to PDF reports that I read. The rule: the larger the file (scaled to page numbers) the worse the report. A large file size (in mbs) usually indicates lots of colour and fancy graphics and usually very little substance. I am sometimes wrong when I apply that rule of thumb but not often. My rule of thumb served me well when I read this report – USA Inc – published by from some self-styled “brains trust”. I have received many E-mails asking me to analyse this Report. I read it and I wish I hadn’t. It was an appalling misuse of time. But moreover it perpetuates the standard conservative lies about the capacity of the US government (and any sovereign government by implication) to pursue appropriate fiscal policy. It gives more fuel to the austerity proponents. So someone has to provide some counter to the the narrative being presented. So here it is … USA Inc – what a lie.

I read two articles in the last few days which tell me that the bond market traders generally do not understand the intrinsic characteristics of the monetary system and that IMF economists have even less of a clue. The bond traders attribute to themselves an air of importance that it not a reflection of their real role in the monetary system. However, my own profession continues to disgrace itself and is nothing more than a propaganda machine. The mainstream economists are too stupid to realise that their models and frameworks do not explain anything that we are interested in. But such is their position of dominance in the policy space that their neo-liberal grandstanding is given credit. It is embarrassing but worse it is dangerous. Anyway, sometimes a journalist comes to the correct conclusion but for the wrong reasons. While the conclusion is correct, the erroneous reasoning does as much damage by way of misinformation than if the overall conclusion was also wrong. It is a case of being right for wrong reason equals wrong.

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 am travelling today and then have commitments at the other end. So very little time to write. But I did read some interesting papers over the weekend which bear on the question of whether fiscal policy in the US was effective or not. The neo-liberals (mainstream macroeconomists) claim that fiscal policy is not effective. The extremists among them invoke – Ricardian Equivalence – which claims that private households and firms fear that the rising deficits will require higher tax rates and so they save more now – which means that for every dollar of new government spending there is a dollar less of private spending – so no effect. All the evidence contradicts the extreme view. There is also mounting evidence that the recent fiscal interventions have been very effective. A study I read yesterday went a step further and analysis the impact of targetting low income groups. They found that type of public spending was very expansionary. Their results support my contention that a Job Guarantee would be a very effective (and cheap) fiscal solution (as a first step) to a private spending collapse. But for all the naysayers – sorry, the evidence is mounting that fiscal policy saved the world.

Happy new year to everyone! It is starting out pretty poorly despite the nice weather and personal fun. On the last day of last year, the British Government released its Giving Green Paper, which apparently provides some detail about how it sees its Big Society concept working. As one commentator said it reads like it was written by a bunch of amateurs. But what it tells me is that the conservatives haven’t really evolved much since Maggie Thatcher declared there was no such thing as society. The Big Society is just a reprise of that concept with some mention of mobile phone apps and ATMs to match the historical period of technology that the latest attack on the welfare of the citizens is occurring. The Big Society is a blatant relinquishment of essential government roles and in that sense is a politically cynical attempt to cover up the impossibility of individual action relaxing systemic spending gaps. My training as a macroeconomists tells me that individuals cannot ease such macroeconomic constraints. Only the national government via appropriately sized budget deficits can do that. Which is exactly the responsibility the British government is recoiling from. The Big Society aka BS. More the fool anyone who believes in it.

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.

This week is a big week for the banks in Australia being the annual reporting time when they are forced to disclose the remuneration packages that they pay out to their management. The banks have been under attack – again – for gouging their customers with spurious arguments about rising costs and falling margins. While some of their costs may have risen from the rock-bottom levels before the crisis, the evidence does not support the narrative that the banks are now presenting to the public as a precursor to further gouging. The big debate though – which is simmering – is about the purpose of banking in a monetary economy. Essentially, banks are public institutions given they are guaranteed by the government. But there is a tension between their public nature and the fact that the management of the banks claim their loyalty lies to their shareholders (and their own salaries). This tension has led to the global financial crisis and its very destructive aftermath. However, while the real economy still languishes in various states of decay, the financial sector has bounced back under the safety net of the government’s socialisation of their losses. How long will all of us citizens tolerate this? The solution to the tension is to socialise both the gains and losses of the banking sector. In that sense, nationalisation of the banking system is a sound principle to aim for. This would eliminate the dysfunctional, anti-social pursuit of private profit and ensure these special “public” institutions serve public purpose at all times.

I happened to re-read an article from the 1960s today – The paranoid style in American politics – written by Richard Hofstadter which was published in the November 1964 edition of Harper’s Magazine. It is one of those articles you should re-read from time to time to remind yourself that not a lot changes. What we call the deficit terrorists now were alive and well then and predicted that anything government amounted to a descent into communism with accompanying mayhem. The facts are clear. The US and most of the world enjoyed positive contribution from government net spending (budget deficits) for most of the post Second World War period and managed to avoid becoming communist (although they might have been better off if they had!). Today, the same paranoia is evident in the interventions into the policy debate from the deficit terrorists. They are so anxious. But underlying their alleged anxiety is a visceral hatred of anything government (except when the handouts are in their favour). None of the calls for fiscal consolidation are based on any firm understanding of how the monetary system works.

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.

I am writing this on late Friday afternoon European time. Today has been very busy and so I don’t have a lot of time to write this blog. I had a birthday in my immediate family to deal with and so some special celebrations were in order. Then I had meetings with two government officials – one from the Flemish government and the other from the Dutch government – they travelled down to Maastricht for consultations. The topic was the Job Guarantee and how they could implement such a buffer stock employment scheme into their own policy thinking. I will write up some thoughts about this meeting next week. Then I had to wade through a new International Labour Organization (ILO) report – World of Work Report 2010 – which has estimated that high unemployment will persist for much longer than they had previously forecast. The talk is that the “product market” (real output) recession is now becoming an entrenched labour market recession. Meanwhile, I also read the latest IMF World Economic Outlook report and noticed they were advocating changes to macroeconomic policy positions across the advanced world that would by their own reckoning increase unemployment and prolong recovery. They are still appealing to the nonsensical idea that fiscal austerity is good for a nation. Their view now is nuanced but still a disgraceful mis-use of econometric modelling. So only a relatively short tour through this work today.