Another intergenerational report – another waste of time

Today I have had the misfortune of reading the latest Australian Government Intergenerational Report, which is really a confection of lies, half-truths interspersed with irrelevancies and sometimes some interesting facts. Why an educated nation tolerates this rubbish is beyond me. The media has been making a meal of the latest report and all the doom merchants – those deficit terrorists – a claiming we have to get into surplus as soon as possible. They seem to be ignoring that we are still embroiled in a major economic crisis requiring on-going fiscal support. But more importantly, they haven’t a clue what their policy proposals actually would mean in a modern monetary economy where external deficits are typical and the private sector overall is desiring to increase their saving. Anyway, read on … its all downhill.

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Do not learn economics from a newspaper

Last weekend, the senior economics writer for the Sydney Morning Herald became a salesman. He has been seemingly recruited voluntarily into the marketing campaign for Mankiw’s economics textbooks which dominate the world supply. In his textbook the Principles of Economics, which is just palpable indoctrination, students are introduced at the outset to the 10 Principles of Economics. These principles resemble the hard sell you get from a salesperson who knows their product will not stand scrutiny but wants the commission nonetheless. But Gittins, knowing his power to influence the economic thinking among his readership, presents the principles as if they are all you need to know to understand economics. What a total con that is.

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Building bank reserves will not expand credit

In his latest New York Times article (December 10, 2009) – Bernanke’s Unfinished Mission – Paul Krugman reveals that he doesn’t really understand much about macroeconomics. Sometimes you read a columnist and try to find extra meaning that is not in the words to give them the benefit of the doubt. At times, Krugman like other columnists sounds positively reasonable and advances arguments that are consistent with modern monetary theory (MMT). But then there is always a give-away article that appears eventually that makes it clear – this analyst really doesn’t get it. In Krugman’s case, he doesn’t seem to have learned from his disastrous foray into Japan’s “lost decade” policy debate.

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Employment guarantees in vogue – well not really

Two related articles in The Economist last week (November 7, 2009) caught my attention. The first article – Battling joblessness – Has Europe got the answer – was about how the Continent may be a guide to all of us in tackling unemployment. The second article – Faring well – was extolling the virtues of India’s National Rural Employment Guarantee Act (NREGA). They provide a further basis for discussing employment guarantees.

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Social entrepreneurship … another neo-liberal denial

UK Tory leader David Cameron is back in print in the Guardian (November 10, 2009) with his claim that Big society can fight poverty. Big government just fuels it. In the same edition of the Guardian, regular commentator Polly Toynbee provided a critical analysis to the Cameron line in her article – David Cameron, social policy butterfly. However, sadly, neither writer understands the principles of modern monetary theory (MMT) which means that neither has the slightest inkling of how the monetary system that they live in works. If they did understand that system and the opportunities that it provides a sensible national government then they would probably not write what they did.

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Being objective … and lying rodents

Today there were two feature articles in the Australian press which attracted attention. The first article was an interview with the former Australian prime minister (Howard), who (by the way) was called a “lying rodent” by one of his own colleagues during his time in office. The second article was by the Sydney Morning Herald’s political editor who claims the Time has come for Rudd to face the big test. Both articles carry the same messages which are relevant to the macroeconomic debate in all nations (so this is not a parochial Australian discussion). They also nonsensical pieces of fiction when you consider them from the perspective of modern monetary theory (MMT). They show the power of the mainstream macroeconomics “textbook straitjacket” which has the world debate in a vice-like grip.

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Being careful not to swear in Dubai

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?

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One good reason for the government to remain in office

In today’s Sydney Morning Herald, the Opposition Shadow Treasurer revealed two things. First, he doesn’t know a thing about economics and would be dangerous in that position should he ever get the chance. Second, he is prepared to say anything to undermine the government whether he understands it or not. What it tells me is that this is a pretty good reason for the current government to stay in power! Spare that thought.

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Our PM’s second essay – 1/10 (being generous)

The Australian Prime Minister released his second essay over the weekend, in which he outlines his vision for a modern Australia steered towards new levels of prosperity and equity by his government. Well my reading of the 6098 words is that far from presenting an acceptable vision for the future, they rather, outline how his Federal Government has chosen to continue the abandonment of full employment and impose huge costs from the cyclical downturn on the most disadvantaged workers and their families in our communities for years to come.

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Debt is not debt

Some economists who are pushing the so-called de-leveraging story to explain the current downturn consider that the only sustainable basis for economic recovery requires that overall debt levels in the economy decline dramatically. They rightly argue that this requires a significant reduction in private debt. But they also argue that the public debt increases associated with the net public spending (the stimulus packages) – they erroneously use the term “to fund” the net spending – is self-defeating. In other words, they claim we are just substituting public debt for private debt and creating a new form of vulnerability (public insolvency – higher inflation etc) as we eliminate the private leverage. Apart from the failure of this story to link the private debt explosion with the pursuit of budget surpluses in the past, the major error that this camp makes is of the “oranges and apples” variety. That is, debt is not debt!

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The problem of being a macro economist

Saturday morning traditions … a long early ride on my bike (70 odd kms), then off to the local cafe for a cup of tea. Yes, time to read an actual paper paper. Time to talk about the state of the swell and wind direction (off-shore and pumping at present). The big match (Saints v Geelong, both unbeaten after 13 rounds – note no rugby here!). Perhaps some local gossip (who paid off who to get what development up!) … that sort of thing. Probably some politics. But no, before anything interesting could be raised by the assembled regulars … someone (a non-economist who claims he is just interested) had to begin proceedings with “Bill, why does the federal government borrow when you say it does not have too?” Can you put a sock in it, please! What about the surf? But why if they don’t have too? Saturday morning … the problem of being a macro economist. Things started getting ugly at this point.

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Lucky he’s not Treasurer anymore

In today’s Melbourne Age we learn very clearly that the previous Federal Treasurer didn’t have much idea at all about how the economy actually works. While he continues to promote his years in office as the great period of fiscal rectitude, the reality is that after 11 years at the wheel he still failed to create full employment. His Treasury years, in fact, will be remembered for his Government’s wilful neglect of the disadvantaged and the on-going and incredible waste of human potential that this disregard created. Now, as he sits at the back of our Parliament smouldering about his lost chance to rule, he thinks he has something to say about the monetary systems. Its a shame he isn’t clever enough to know how little he knows.

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A Koala Notes currency?

Can a city or state become a sovereign nation? We know what a sovereign nation is – one that has the capacity to issue its own currency and oblige its residents to pay their taxes in that currency. We also know that a state or city is thus not a sovereign nation because it uses the currency of the sovereign nation it “lives within”. So a state or a city is financially constrained in much the same way as a household. In that context, spending has to be financed either from higher taxes or debt issues which clearly places some limits on what programs a city or state can pursue. Further, a city can go bankrupt (become insolvent) in the local currency whereas a sovereign government cannot. So how might cities solve their infrastructure and social needs when they are so constrained?

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National budgets are not constrained!

I received a call from a journalist at the Financial Review today asking how the Federal government could afford to run labour market programs given that it might suffer a substantial revenue loss if it cuts back net migration. I told him that irrespective of what happens to net migration and any losses to tax revenue that that might bring (should they cut it back), the Government will always be able to fund any labour market program if it thought that was the best use of its funds. It brings to mind a new theme in this period of turmoil – how can the government keep its programs going while at the same time bailing out all and sundry? Answer: easy, just keep funding them. The national government is not financially constrained and the size of its budget is nothing that can be determined independent of the shortfall of aggregate demand.

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Commentary on Moody’s downgrade gives the game away – finally

We sometimes encounter commentary that blows away the smoke that provides cover for important myths in the world of economics and finance. Whether that commentary knows the import of its message is questionable but it certainly has the effect of casting aside a myriad of fictions and redefines the sort of questions that one can ask. Such was the case last week following the decision by the ratings agency Moody’s on May 16, 2025 to ‘downgrade’ US government debt ratings from Aaa to Aa1. While many commentators acted in Pavlovian fashion and crafted the ratings downgrade as signifying that the US government was “more likely to default on their sovereign debt”, one influential opinion from the mainstream came out with the conclusion that “there is next to zero chance the government won’t be able to pay its creditors”. Which really game the game away and exposed these ratings agencies as political attack dogs representing sectional interests that want less government money going to welfare and more to them – among other things.

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Britain and its fiscal rule death wish

Governments that adhere to the mainstream macroeconomic mantras about fiscal rules and appeasing the amorphous financial markets have a habit of undermining their own political viability. As Australia approaches a federal election (by May 2025), the incumbent Labor government, which slaughtered the Conservative opposition in the last election, is now facing outright loss to a Trump-style Opposition leader if the latest polls are to be believed. That government has shed its political appeal as it pursued fiscal surpluses while the non-government sector, particularly the households, endured cost-of-living pressures, in no small part due to the relentless profit gouging from key corporations (energy, transport, retailing, etc). The government has not been riven with scandals or leadership instability. But its amazingly fast loss of voting support is down to its unwillingness to take on the gouging corporations and also to claim virtue in the fiscal surpluses, while the purchasing power loss among households has been significant. The same sort of death wish is arising now in the UK, although the British Labour government is at the other end of its electoral cycle which gives it some space to learn from its already mounting list of economic mistakes. The British government situation is more restrictive than the case of the Australian Labor government because the former has agreed to voluntarily constrain itself via an arbitrary fiscal rule.

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ECB should take over and repay all the joint debt held by the European Commission after the pandemic

There are repeating episodes in world macroeconomics that demonstrate the absurdity of the mainstream way of thinking. One, obviously is the recurring debt ceiling charade in the US, where over a period of months, the various parties make threats and pretend they will close the government down by failing to pass the bill. Others think up what they think are ingenious solutions (like the so-called trillion dollar coin), which just gives the stupidity oxygen. Another example is the European Union ‘budget’ deliberations which involve excruciating, drawn out negotiations, which are now in train in Europe. One of the controversial bargaining aspects as the Member States negotiate a new 7-year deal is the rather significant quantity of joint EU debt that was issued during the pandemic to help nations through the crisis. How that is repaid is causing grief and leading to rather ridiculous suggestions of further austerity cuts and more. My suggestion to cut through all this nonsense is that the ECB takes over the debt and insulates the Member States from repayment. After all, the debt wasn’t issued because the Member States were pursuing irresponsible and profligate fiscal strategies.

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The Case of the Missing Report – Part 2

Today, we solve the ‘Case of the Missing Report’. Recall from – The Case of the Missing Report – Part 1 – that the Asian Development Bank published a report I had written (with Randy Wray and Jesus Felipe) – A Reinterpretation of Pakistan’s ‘economic crisis’ and options for policymakers (draft version) – in June 2009 as part of work I was undertaking for the Bank at the time on economic development in Central Asia. The report was published on June 1, 2009 as an official ADB Economics Working Paper No. 163 after our presentations were enthusiastically received at the Bank during seminars we gave. The Report was indexed by the major bibliographic and indexing services and evidence of that report still exists today. For example, the Asian Regional Integration Center provides a link to some 30 records covering – Pakistan – including our ADB paper with the official publication date. The ‘official’ link to the publication – https://www.adb.org/Documents/Working-Papers/2009/Economics-WP163.pdf – however, now returns a ‘Page not Found’ error. Then, if you search for ADB Economics Working Paper No. 163 on the ADB WWW Site you will find another paper – The Optimal Structure of Technology Adoption and Creation: Basic Research vs. Development in the Presence of Distance to Frontier – which somehow became Working Paper No 163 and was also published in June 2009. So what gives? How did our ADB Economics Working Paper No. 163 disappear from the face of the Earth to be replaced by another ADB Working Paper No. 163, all in the space of a day or so? In this Part 2 of the ‘Case of the Missing Report’, I provide the solution to the mystery.

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The Case of the Missing Report – Part 1

This blog post is a long time in gestation and I could have written in 2009 which is the relevant year of the events that I will document in this two-part series. My conversations with government officials during my working trip to the Philippines last week highlighted several things, including their sheer terror of IMF intervention and the ratings agency. I will write separately about that in a later post. But the IMF watches these types of nations like a hawk and is ready to pounce to enforce their authority at the slightest departure from the neoliberal macroeconomic policy line. As long as these types of nations concede to the IMF bullying they have very little hope of developing towards being advanced states. And IMF bullying is what this blog post is about. This is Part 1 of a two-part story that might be summarised as the ‘Case of the Missing Report’. I will solve the mystery in Part 2, which will be published on Thursday of this week.

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Classic deception from the Australian Treasurer

There is a pattern. Start with an aim which usually involves advancing the interests of some powerful lobby group. It is known that if the citizens realise that there is special pleading going on they will not be supportive. The solution – create some metaphorical language that will help convince us that the aim is worthwhile and legitimate. Then add a dose of ‘technical’ sounding language and some ‘scientific’ sounding concepts (for example, NAIRU), which ensures that only the metaphors, which have common parlance, resonate and the ‘detail’ is not challenged. Especially exploit the fact that most people are too embarrassed to question so-called ‘experts’ for fear of being humiliated for displaying ‘ignorance’. That is how fictional macroeconomics becomes mainstream and that is how we all become passive agents in spreading the fiction. The Australian Treasurer was at it again over the weekend after he had been rubbing shoulders with other Finance Ministers, Chancellors, and Treasurers in Washington D.C. at the annual IMF/World Bank meetings, which are akin to those evangelistic religious festivals where everyone is geedup – with a sense of self-importance and sanctimonious zeal.

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