I suddenly realised what has been going on all this time. They have been smoking some doobies – some real strong doobies and their heads are not what they used to be. How cool is that conclusion? It explains everything – why they typically miss the point of everything; why they say really dumb things most of the time; why they usually look half asleep; why they think down is up or up is down; why they continually think that what is good for them is bad for them and vice versa and all of that funk. I am so relaxed now – I actually thought there was a problem. But a bit of weed is doing it. I guess it is time for them to ease up on their intake though or their lack of concentration and awareness of reality will become entrenched. We need all the citizens we have thinking clearly and working together.

I have been working on the macroeconomics textbook today that Randy Wray and I are hoping to publish sometime next year. We have a publisher and now just have to complete the text which is progressing well. Also today I have been wondering why UK business firms are not horrified at the latest damaging policy announcement by the new conservative British government. My thoughts generalise to any government at present in terms of the obvious need to expand fiscal policy. I brought those two things together today – the practical need for continued fiscal support for private sector activity and the development of our textbook – by considering the macroeconomic origins of profits. It is an interesting story that very few people really understand because they think micro all the time when it comes to the understanding the profits of business firms whereas you have to start thinking from a macroeconomics perspective to really understand this. It also helps you understand the relationship between the government and non-government sector more fully – a relationship which is at the heart of Modern Monetary Theory (MMT). So read on and see if you have thought about this before.

Answer: out towards the far right. Today’s blog adds to my previous posts where I consider so-called progressive interventions in the policy debate and show that they are really nothing more than attenuated forms of neo-liberalism. The evidence is that what goes for progressive input these days bears no resemblance to what we used to consider represented progressive thinking. The way the population has been inveigled into accepting policy positions and justification that are represented as “centrist” but are, in fact, what we used to call right-wing positions is one of the success stories of the neo-liberal era. The tendency of so-called progressive organisations to mimic the language and concepts of the right is one of the main constraints on advancing a solid attack on the conservative orthodoxy that created and perpetuated the crisis and which is setting nations up for a repeat in the coming years.

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.

Today I am heading into the lands of austerity – those scorched, barren places where people with increasingly hollowed out faces are being forced by their misguided polities to forego wages and conditions and pensions and their happiness because some neo-liberal told them that government deficits were bad and all that. I am off to London this afternoon (I am typing this on the train to Sydney) and then to Maastricht University where visit each year and my colleague Joan Muysken is located. I have been thinking about various efforts that have emerged in the recent period suggesting that a new progressive agenda (narrative) is required to reverse the onslaught of neo-liberalism. This is clearly a topic close to my own heart. I have been thinking about the development of an alternative economic paradigm for my whole academic career. So whenever I see some progressive efforts I am always interested. This blog considers that question. So now a long flight then I will report on how hollow those faces are becoming.

Many readers have written to me asking me to explain the British Treasury view during the Great Depression. This view was really the product of several decades of literature which culminated in the political process during the 1929 British election where the number one issue of the day was mass unemployment. The Treasury View was thoroughly discredited in the immediate period after it was articulated and comprised one side of the famous Keynes versus the Classics debate. When propositions – such as the Earth was flat – are shown to be incorrect constructions of reality the ideas cease to be knowledge and instead become historical curiosities which allow us to benchmark how far our education systems have taken us. However, the same cannot be said for my profession.

In the last few days I have read some really loony stuff. One article from an esteemed investment advisor (which I will not dignify by a link) was arguing that the build up of public debt is signalling the death knell for democracy and that capitalism will survive but our freedoms will be gone. I asked some basic questions – which freedoms are they exactly? – and – Why should a rise in private wealth lead to constitutional change or revolution that would deprive us of a vote? But the trend in policy is becoming very clear. Fiscal policy makers are succumbing to the relentless attacks from the deficit terrorists and withdrawing the essential stimulus that has been propping up growth. Most economies are starting to slow again as a result. The response is to seek solace in monetary policy – as if it is effective. The point is that the neo-liberal years have seen the promotion of monetary policy as the principle counter-stabilisation tool – driven by the obsession with inflation. This ceding of macroeconomic policy responsibility to unelected officials in central banks was a major erosion of our democratic rights. Moreover, it has been a failed policy strategy. It is neither an effective inflation control nor does it promote growth. So we are just heading back to where the crisis started. Pity the unemployed.

When I give public lectures about economic policy I often pose the question – how should we judge the effectiveness of public policy? I pose a simple rule of thumb! I judge whether social and economic policy is effective not by how rich it makes society in general but how rich it makes the poor! I see richness in broad terms which embrace both economic and social valuations. Applying this rule of thumb has led me to conclude that the majority of nations in the advanced world are now failed states with run-down and corrupted public institutions. The conclusion is more stark when applied to less developed nations suffering under the neo-liberal yoke imposed on them by institutions like the IMF and the strong donor nations. But the rising poverty in the advanced world as a result of the extended current crisis is making it clear that our economic systems and the policy regimes that are being imposed on them by the neo-liberals are no longer delivering satisfactory outcomes. There needs to paradigm change – urgently.

I read the headline in the UK Guardian from yesterday (September 15, 2010) – Unemployment claimant count rises unexpectedly which apparently confounded forecasts. The hopes for an export-led recovery as the expectations of the forthcoming public austerity damage private spending plans took a further hammering with the data release showing the “highest balance of trade deficit on record” in Britain and “surveys of the services and construction sectors showing employer sentiment deteriorating sharply”. Why is this surprising? The fact that the so-called analysts and the press are surprised only tells me that they do not understand the way the macroeconomic system works. When there are already severe aggregate demand constraints and the government announces that soon enough they will brutalise public spending what would you expect but a further decline in economic activity? When the rest of the world is easing the fiscal stimulus under the concerted attack by the deficit terrorists why would you expect the balance of payments to dramatically improve? None of this surprises me at all. It is exactly what an understanding of the monetary system would lead one to predict.The reality is that to lower unemployment you need to spend more. There are no surprises in that.

The Economist feature column Economics by invitation where they ask some commentators to share their thoughts on some topical issue is running with household debt this week (September 11, 2010). The topic – How far along the process of deleveraging are we? – is examining the extent to which the record levels of private indebtedness are being run down and household balance sheets reconstructed. I also noted in the discussions that have been on-going about trade and deficits on my blog that someone said that there is no evidence that budget surpluses have caused the “sky to fall in”. In this blog I explain how budget surpluses are intrinsically related to the rising indebtedness of the private sector and hence under most conditions are destabilising.