I am travelling today and so have to steal time to write this blog between other commitments. Later this week I am presenting a paper at a workshop on stock-flow consistent macroeconomics and I was thinking over the weekend just gone what I would do with the time I have for the presentation (1 hour). I started putting together a database of IMF forecasts out to 2016 for various nations and simulating the implications for the sectoral balances. Then I thought I would discuss the internal inconsistencies of those forecasts from a stock-flow perspective and the implications of those inconsistencies. I will write a blog later in the week on that once I have finalised the presentation. But the preliminary thinking led to today’s blog. In policy you have to wish for the possible.

I have been travelling the last few days and while sitting at the airport on my way home I have been catching up on all the snippets of text and links I accumulate each day. While the current generations are living through the “digital revolution” we should not forget that 50 odd years ago humans went to the Moon – which at the time was an ingenious demonstration of our capacity for technological marvel. The motives for this feat which were tied up in the Cold War paranoia were clearly suspect but I recall at the time as a young high school student, as all the classrooms were mustered in a TV viewing room to watch the landing, that we are a clever lot. I no longer think that.

I am still away from my office and have had a full-day of meetings today – so very little time to write. But earlier today I read another one of those articles from a senior US academic economist about the need to cut aged pensions in the US because the government is running out of money. Martin Feldstein – a Harvard professor – has been found to have engaged in highly questionable conduct (to say the least) by investigations into the causes of the financial crisis. Feldstein must surely know that the government cannot run out of money. Which brings into question his motivation for providing misleading interventions into the policy debate. He has demonstrated over a long period his willingness to hide behind the “authority” of economic theory in order to pursue an ideological obsession with privatisation and deregulation. When writing what seemed to be academic papers or opinion pieces supporting financial deregulation, for example, he didn’t at the same time declare that he was personally gaining from such a policy push. His subsequent track record as a board member of companies, some of which collapsed in the crisis (AIG) or triggered the collapse has been appalling. Feldstein is not the sort of person anyone should take advice from much less pay for it.

I am travelling over the next few days and have limited time to write my blog. Today though I am writing about the latest US National Accounts data which I had the chance to examine carefully over the last couple of days. Clearly the news that real GDP growth has falling sharply in the first three months of 2011 is evidence that the current policy mix with an emphasis on public spending cuts is not working. At the same time the political debate is about to consider the public debt limit which expires in a few weeks. The conservatives are once again threatening not to extend this limit. One notable commentator said the failure of the US Congress to extend the limit would be the “most asinine act’ ever by them. I think that was an understatement. When you put the debate in the context of what is happening in the real economy (real growth down, jobless claims up) you have to conclude that the current behaviour of the US political leadership is worse than asinine.

In his recent New York Times column (April 21, 2011) – What Are Taxes For? – continues to engage with Modern Monetary Theory (MMT) but trips up because his mainstream view (dressed up as a progressive) reveals serious flaws in reasoning about the way a fiat currency system operates viz-a-viz the former monetary system based on convertibility via some commodity standard. In this blog I correct some of the analytical mistakes that appear in that article. Krugman concludes by claiming that he is really disturbed by those who don’t get mainstream logic – and is especially upset by “a lot of people with Ph.D.s in economics who can throw around a lot of jargon, but when push comes to shove, have no coherent picture whatsoever of how the pieces fit together”. My only response is to look in a mirror Paul or in the words of Bob Marley ask “who the cap fits”.

I imagine it goes like this. Your driving along listening to the radio and the Australia Treasurer comes on and is saying that we need a budget surplus because we have a once-in-a-hundred years mining boom and are near full capacity but given the government tax take is seriously below the forward estimates because growth is slowing, the government has to have even more drastic cuts in spending in the upcoming May budget than first thought. Why? To achieve the budget surplus! Then the Opposition spokesperson for matters economic says we are running out of money. And us ordinary citizens take it all in because it is headline news this lunchtime and we become entrapped by the logic of the situation as set out by the journalist who fuels the discussion along these lines. The only problem is that I am not an ordinary citizen in this context. The problem lies in the starting premise – the blind pursuit of the budget surplus. All the rest of the nonsense follows from that ill-conceived goal. It is getting ridiculous though.

In a blog last week – These were not Keynesian stimulus packages – I considered the trend among faux-progressives to invoke Keynes as their mentor as they advocated or were cutting back public deficits in a pro-cyclical manner. That is, they were proposing to cut back deficits just when they should be providing strong support for aggregate demand in the context of weak demand. The specific discussion was focused on a recent Australian Fabian Society essay (April 11, 2011) by the Australian Treasurer Wayne Swan – Keynesians in the recovery. There are two points I want to revisit in regard to this paper – one specific and one general. Both points demonstrate that the fiscal strategy of the Australian government is based on a false premise and that they are selling that strategy by distorting the historical evidence.

Over the weekend, Iceland once again showed some pluck and rejected an onerous agreement to repay debts incurred by the failed private banks to the British and Dutch governments. The Icelandic government has been trying to lumber the population with these debts largely because the politicians aspire to join the Eurozone and they have been willing to sacrifice the welfare of their own population in pursuit of that misguided goal. According to Iceland Statistics there are (as at January 1, 2011) – 318,452 people living in Iceland with 23,596 between the age of 0-4 years; 21,194 in the 5-9 years cohort and 21,802 10-14 year olds. That is 66,592 children that the people of Iceland have decided not to burden with debt obligations.