I read the headline – Aussies don’t understand deficits: MP – in the Canberra Times with interest and after reading the article I returned to the on-going conversation I have with myself – why have we all been so stupid to have been so duped by the neo-liberal agenda? Almost all the public debate about the Federal Budget tomorrow is a total non sequitur. It bears no relation to the important questions that the Budget process has to deal with. Somehow, we are all sidelined by a rhetoric and a focus that conveniently diverts us away from these real issues and, instead, transfixes us on a piece of fiction. But a convenient fiction which maintains the relative power elites and perpetuates disadvantage. I understand all of that … but I still can’t get my head around why we have allowed ourselves to be so conned.

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.

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).

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.

Today I am in Melbourne (my home town) presenting a workshop on skills development for the new green jobs economy which is a joint Victorian Government/Brotherhood of St Laurence show. But that is not what I am writing about here. Regular readers of billy blog will know that when I talk about budget deficits I typically stress two points: (a) that the Government is not financially constrained and therefore all the hoopla about debt and future tax burdens are just a waste of time. But just because the Government can buy whatever is for sale by crediting relevant bank accounts doesn’t mean they should not place limits on the size of the deficit; and so (b) given the federal deficit “finances” private saving, it should therefore be aim to “fill” the spending gap left by the private desire to save. If the Government does that then it can maintain full employment and price stability and move towards a more equitable society. So it is of importance that we have some idea of the size of this spending (or output) gap.

Lat night’s ABC 7.30 Report had a segment titled Australian economy resilient in tough times. It was so bad I was prompted to write to the ABC complaining of their neo-liberal bias. All the commentators were the usual coterie of investment bankers and private consultants all of who have particular vested interests which are not disclosed when they are held out by the ABC as so-called experts! Not one independent researcher was included in the segment. In another world, this might have been the way the show evolved.

Australian Prime Minister Kevin Rudd has written an essay extolling the virtues of a new era in public policy which he calls “social capitalism” which is based on a strong guiding role for government and an abandonment of self-regulation by corporate interests which was the hallmark of the neo-liberal era. He sources the current global economic meltdown to the neo-liberal takeover which began more or less in the mid 1970s after the first OPEC oil price rise. The problem is that his new vision is still tainted with the worst elements of the neo-liberal era.