I was in Sydney today doing various things (see below). It was an interesting day but this morning’s activity gave me some hope that there are community leaders out there who want to fight back and jettison the neo-liberal garbage that is constraining their ability to deliver social equity and job security for their members. My input to the discussion was to tie this in to the macroeconomic debate. These macroeconomic matters – which I write hundreds of thousands of words every year about – really lie at the heart of the problems facing low wage workers and the unemployed. Unless we successfully counter the orthodoxy then tinkering around the edges will be all that we can do. I realise the macroeconomic concepts are difficult to talk about in an accessible way. I also realise that the neo-liberal orthodoxy has been incredibly successful in inculcating notions that the Federal budget is akin to a household budget. Readers of this blog will know it can never be that way. So the challenge for our community leaders is to develop a macro narrative which can permeate the public debate and slowly redefine how we see government; what goals we want the government to pursue (full employment) and how they do business with employers. That is an interesting challenge and I like things like that.

Tonight is federal budget night – which presents the most comprehensive picture of where the Government is going with fiscal policy and the Treasury’s estimate of how the economy is travelling. So for a macroeconomist like me it is a biggest night in the annual calendar. But I am more interested in parrots and spotted owls at the moment. What? Yes, I guess it is escapism … to avoid the hysterical public debate that has surrounded this budget. The economic falsehoods, the outright lies, the duplicity and the all of that. But I cannot escape it because I have a newspaper opinion piece to write on the Budget by 20:00 tonight. So, given that, here is my take on the budget and then …. I can get back to the birds!

Continuing the developing country theme of Friday and in response to a comment from a reader I decided to write a short blog on the applicability of employment guarantees to poorer nations. They have particular issues which means that a Job Guarantee scheme has to be carefully designed. But with the experience of several countries and extensive research and evaluation of these schemes, I conclude that the employment guarantee approach to income security is broadly applicable. Most of the arguments against providing a buffer stock of jobs to insulate the workers against the fluctuations of the private economy are based on false neo-liberal arguments about national government budget constraints. Once you get over that sort of fallacious reasoning, then there are real issues left to confront and overcome. This is now an important part of my academic work and a very interesting part to say the least.

Today I have been working on a project for the Asian Development Bank concerning regional development and macroeconomic risk management in the Central Asian countries (all the “stans” plus a few others). I have also been reading a lot of the development economics literature lately, which is generally a place that the neo-liberal troglodytes really run amok. It certainly focuses one’s attention. In the advanced countries the media focuses on our own losses. In Australia, a lot is written about superannuation losses. And journalists, who largely ignored the fact that during the boom we still had around 10 per cent of our willing workers without enough work – wasted and excluded, are once again talking about unemployment. But overall, the public debate is not at all focused on how the current economic crisis is damaging the weakest of the weak in far off lands and killing people.

Today’s ABS retail turnover data is very interesting considering the meltdown that is occuring elsewhere in the world. The summary result that retail turnover grew by 2.2 per cent in the month of March suggests that the Australian economy is still alive – at least in the consumer markets. This figure was a surprise to all those who were in denial of the usefulness of budget deficits – both the discretionary components (the “stimulus packages”) and the automatic stabiliser components.

In the 1980s, as high unemployment persisted following the 1975 OPEC oil shock and the stagflation that accompanied it and then the 1982 recession and its aftermath, neo-liberals started to seek new ways of justifying the lack of government action in restoring full employment. Being very clever, they came up with an ingenious solution – redefine what full employment means. So as the unemployment rate rose they claimed that the so-called “equilibrium unemployment rate” had also risen which meant that attempts to reduce it by expansionary policy would be inflationary. They claimed the only way the government could act was to initiate “structural reforms” aka privatisation, labour market deregulation, anti-union legislation and harsh welfare measures. Why should we be so surprised that they are at it again? The truth is that recessions cause structural imbalances which are corrected again if economic growth is strong enough in the post recession phase.

The discussion about the relative merits of monetary policy and fiscal policy is on-going. A regular billy blog reader has asked me to give some thought to this discussion, specifically in terms of whether monetary policy is a useful counter-stabilisation option. My view is that if one takes a modern monetary perspective then it is clear that the current reliance on monetary policy (accompanied by the budget deficit phobia) will always fail to deliver full employment and relies on the impoverishment of the disadvantaged for its ability to achieve low inflation. Accordingly, it would be far better for the government to set the short-term interest rate at zero and achieve full employment through appropriate levels of net spending (fiscal deficits).

As the Federal budget week approaches the various commentators and interest groups are whipping themselves into a lather about what choices the Government might have or not have. A recurring theme is whether the Government should honour its election commitment in 2007 to cut income taxes from July 2009. The debate is being constructed along the lines of whether the nation can now “afford these cuts” given the “rising debt” and the “shocking state” of the budget deficit. This debate demonstrates perfectly how bad policy can be made when the Government fails to understand its options as a monopoly issuer of a non-convertible currency.

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.

In the last few weeks gardening has entered the macroeconomic discourse again. All over the place – apparently – little green shoots are emerging which bode well for the future. But are there any actual signs? Recent data releases from the US and today’s Index of Economic Activity in Australia suggest that the green shoots are still somewhat subterrainean in inclination. The latest data confirms the message that last week’s Labour Force data sent very loudly – the product and labour markets are now starting to align in a very ugly way and much more fertiliser (organic) is needed in the form of government stimulus …. sorry to repeat it, but, preferably in the form of direct job creation.

I did a radio interview on the ABC Drive program this afternoon about different attitudes that Europeans and Americans have to dealing with recession, specifically in terms of the decision to offer shorter hours or use layoffs to trim the labour force as sales decline. While the solidaristic European model is preferred, both call into question what the national government should be doing.