Today I catch up on a number of threads that have been in the media in the last week or so. It is all bad. The focus is on Alan Greenspan’s extraordinary intervention into the policy debate declaring the financial sector unable to be effectively regulated. I have a solution for that! But as I read the data trends every day and listen to the politicians outlining their legislative ambitions I realise that there have not been many lessons learned at all. The neo-liberals are back in charge – unshamed – when they should have been driven out of every town in every land. Their leading lights are coming out of their rat holes and are once again lecturing us on how self-regulated markets are best and how we have to tolerate the occasional crisis as part of the wealth maximisation process. It beggars belief how this all is represented as credible policy input. It is time to get angry.

I gave an interview on the national broadcaster ABC about the latest talk in Australia to ramp up the pernicious Work for the Dole program. I noted that the unemployment problem in Australia at present reflects a systematic failure to produce enough jobs rather than the personal failures of the unemployed themselves. Standard stuff. The interview got me thinking of about make work schemes and unproductive labour and boondoggling! and leaf-raking. My mind turned, immediately, to the IMF which runs one of the largest make work programs in the world and employs thousands of workers on good pay to do nothing constructive at all. The IMF is the exemplar of leaf-raking. You only have to read their working paper series – where multiple authors attach their name to senseless reports about nothing. These papers are always “Authorized for distribution by x” – that is, some higher-up leaf-raker who spent years learning the craft of being occupied doing nothing. All IMF economists aspire to be the person who sits in the office and authorises for distribution the papers that all the peons pump out which provide nothing useful to anyone. At least aggregate demand is being maintained via the workers’ wages. Pity the IMF couldn’t find something more productive for their workforce to do. Perhaps they are not skilled enough though. Anyway, life in the IMF fantasy world!

The morning news headlines today (April 1, 2011) were all touting our Prime Minister’s tough talk last night while giving the Inaugural Gough Whitlam Oration. She outlined a plan to introduce harsh spending cuts in the upcoming May Federal Budget to preserve the strength of the economy. This is an economy that is barely growing and has 12.2 per cent of its available labour (at least) idle! Her speech was a frightening display of how far the public debate on macroeconomics has moved away from being based on an understanding of how things work to being driven by conservative fears about budget deficits based on a series of lies. Depressingly, which ever way one turns over here you have to conclude that the neo-liberals rule in Australia and seek to undermine our prosperity. At the same time, ironically, our prosperity is being saved by some communists .

So I guess it is time to build those very large bon-fires and burn all the mainstream macroeconomics textbooks that have poisoned the minds of millions of students for years. Mankiw, Blanchard, Barro to name a few. Burn them all. I also think it is time to delete all the computer code that supports mainstream economics models. My long-held belief that these actions would be educative and liberating have been ratified by a recent IMF conference that seems to have concluded that “the macroeconomic models that had been relied upon in the past and had informed major aspects of monetary and macro-policy had failed”. So all the supporting literature needs to be deleted. I am now advocating biblioclasm …

I am working on our textbook today and writing a chapter about one of my favourite topics – the Phillips curve – which describes a relationship between some measure of inflation (wage, price) and some measure of excess supply of labour (usually the unemployment rate). I wrote my PhD about the Phillips curve developing models which demonstrated the inadequacy of the mainstream macroeconomics take on the subject. Today I read a strange tale in the UK Guardian – ONS inflation slip-up leaves millions out of pocket – which has some relevance to the chapter I am working on at present. The point is that if you believe the mainstream neo-liberal economic theories that are forced onto students in our universities around the world then you might expect a massive drop in the UK unemployment rate right now. Why? Read on.

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.

Whenever I hear some empirical proposition used by a politician my curiosity is immediately aroused and I go searching for evidence to support or refute the statement. That is the nature of my professional life as a researcher. I often find that politicians twist the facts to suit and when put in context the argument becomes more nuanced to say the least. I also often find out that the politician has just made things up which in other words is referred to as lying. The fiscal austerity push in the US and elsewhere is being justified by a number of erroneous propositions but one of the worst claims is that public workers are so well paid that they are bankrupting governments all over the world. That is a claim that needs investigating and fortunately some credible researchers in the US have done the hard yards and come up with some definitive results. They all show the claims by the austerity proponents to be lies, to say the least. Progressives should focus on these lies and construct simple messages to drown the public in – like – US public sector workers are paid less than their private counterparts! Then we can progress and discuss what deficits mean etc.

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.

I got of a plane this afternoon and learned about the devastation in Christchurch. I am feeling for my NZ colleagues today. I suppose some conservative idiots will claim the NZ government doesn’t have the money to do what is necessary to provide some relief. There is also strife in the Middle East as poverty and unemployment finally combine with a sense that governments in nations in that region are working against people rather than for them. In the UK and the US the governments are no longer working in the best interests of their citizens and public displays of anger are emerging (for example, Wisconsin). While the agenda of the oppressive regimes in the Middle East has always been clear the narratives of the conservatives in the advanced nations has always been hidden by a web of lies often supported by well-paid economists who urge us to accept austerity and deregulation because it will make us all wealthier. They tell us that the textbooks show that. The crisis has demonstrated to all that the textbooks are incapable of saying anything useful about the way the monetary system operates and the policy choices that a government running a fiat currency system has available to them. But as the conservatives are regaining control of the political processes after being shocked into silence in the early days of the crisis, it is clear they are overstepping themselves. They are continually claiming there is a fiscal crisis. But the reality is that their agenda – to crush unions and redistribute real income to capital – is becoming more transparent. That should be exposed by progressives and popular rebellions encouraged.

I have been travelling the last two days and have disrupted work patterns. But I did manage to read a few things in between other things today which made my hair stand on end and suggest that the austerity debate has moved ground. So desperately lacking is the real evidence which might support the economic claims the conservatives have been using to justify their manic desire to savage public spending when there is 10 per cent unemployment (and worse) – that the deficit terrorists are now appealing to morality – that public deficits and debt are immoral. It makes you wonder why these characters just don’t become stand-up comedians. But given how dangerous they are as a result of their positions in government it is clearly not a laughing matter. I would seek to try these characters for crimes against humanity when it becomes obvious to everyone how wrongful their actions are. It is interesting though – the descent into “moral” arguments means that you can conclude that even the conservatives know that the bevy of economic arguments that they use to justify their damaging policies are nonsense. But there is a new emerging problem. As I write today the entrenched unemployment that the deficit terrorists are now acknowledging they will cause to worsen is giving rise to employers discriminating against the most disadvantaged workers that are seeking work. What this tells us is that the employers have too much power.

I get a lot of hate E-mail. The hate used to be expressed in handwritten tomes from those with old typewriters and too much time on their hands. Sometimes there would the anonymous phone call telling me that if I kept advocating the closure of say the coal industry (my region has the largest coal export port in the world) I wouldn’t see the week out. More often these days the spleen comes via E-mail from rather odd addresses (made up hotmail etc) telling me that I am a waste of space because I support active fiscal intervention to restore full employment. “How can I care so much for the unemployed … they are the dregs of the earth and would be better shot … like you” is a typical turn of phrase. Anyway, I notice that the right-wing always gets personal when evidence against their claims is produced. Then they slink back to their desks and determine that the facts before them are not facts at all (because they violate their ideological precepts) and precede to reinvent history. This exercise is otherwise known as making stuff up. I think in these situations interaction is less productive than action. Accordingly I regularly sing to myself as I work – “We gonna smash their brains in – Cause they ain’t got nofink in ’em” (curious? see later)!

As an outsider, I am always perplexed by American attitudes. Some of the great writers have come from the US so their schooling system must have something going for it. Some of the great musicians have come from the US so there is creativity there. I could go on. But then you think back to the 1950s, when a whole nation was whipped up in the great propaganda traditions that would have made the Reich’s Ministry of Propaganda under Joseph Goebbels proud. Except this was America, alleged land of the free, unless you happen to take that seriously and find out that in fact the place is a repressive society bound to torture people and use martial force to suppress minority viewpoints. I refer here, specifically, of-course, to the McCarthy purges. Remember the Nazis hated the communists too. But today I read a speech from a governor of one US state who has identified a continuing red menace that will eat up the freedom of all US citizens and is the work of a sneaky but determined group of left-wing zealots (with Chinese overtones). If it wasn’t so serious it would be comical and all we would have to do is send the men in the white coats out to the governor’s office to take him away for treatment. The problem is that this is the third great US “reds under the bed” scare and like the previous scares this one is damaging millions.

Today I got around to reading a report – Australia’s Productivity Challenge – which was released last week (February , 2011) from the Grattan Institute, a new research organisation in Australia that aims to provide evidence-based insights into social and economic issues in Australia. The Report is interesting because it exposes some of the bigger lies that are abroad about how well the Australian economy is faring. I have consistently been arguing (over the last 15 odd years) that the neo-liberal policy onslaught that has aimed to erode the power of workers viz capital and create a desperation among the unemployed (making income support harder to get) have created a dumbed down economy – racing to the bottom. One manifestation of this prediction was that productivity would fall as the impact of the budget surpluses (reduced public investment) and legislative changes too their toll. The Report shows that this future is upon us – we are living a delusion – being propped up by China. That is not a sustainable future.

In recent weeks I have received many curious E-mails about Japan all asking the same question – if net exports are positive and households saving are in decline, how come the budget deficit is so big? It is a good question and the answer relates to developing a good understanding of the components of the National Accounts and the way they interact. As I explain here, the private domestic sector is increasing its saving in Japan but it is all down to the corporations sitting on huge piles of retained earnings and reducing their investment. What these trends tell anyone who appreciates the way in which the macro sectors interact is that sustained budget deficits are required in Japan and any move to austerity would be disastrous.