Early in the crisis I wrote this blog – The origins of the economic crisis – which set out some of the underlying dynamics of the neo-liberal era that had combined to establish the preconditions for the resulting collapse of the financial system. There was an interesting article in the UK Guardian on Tuesday (January 18, 2011) – The myth of ‘American exceptionalism’ implodes – by US academic Richard Wolff that bears on the themes I regularly discuss in my blog. The importance of the article is that it clearly outlines why the crisis emerged and further that the game is up – we cannot go back to where we were prior to the crisis. The reality is that a paradigm change is required and it is just a matter of which way things will go now. The signs are ominous that a conservative backlash is coming that will make the neo-liberal period look like a Sunday School picnic. But there is also scope for progressives to seize the moment. The problem is that there isn’t much going on in progressive land. The starting point should be a credible attack on the dominant macroeconomics – that is my little part of the story. Helpers needed.

I am currently writing a piece for the US weekly The Nation which is focusing my mind on issues relating to what a social democratic narrative should look like and in what way does it have to change from that which dominated government policy and the relationship the state had with its citizens in the Post WWII period up until the neo-liberal resurgence in the mid-1970s. It is an interesting topic and my deadline looms. Serendipitously, while I was driving back from the airport the other day I was listening to a repeat of an ABC radio program Big Ideas (thank god for our public broadcaster) which was a repeat of a lecture – What is Living and What is Dead in Social Democracy? – given by the late Tony Judt as the 2009 Remarque Lecture at New York University on October 19, 2009. The lecture nicely dovetailed into my current thoughts and challenged the “left” to wake up to themselves and revive the collective narrative and to get angry about what we have lost over the last 30 years. There are many memorable lines in this speech and the title – imagine if we treated “humiliation itself as a cost” is just one of them (more about which later).

The title of today’s blog comes from a speech given on January 12, 2011 by Richard W. Fisher, boss of the Federal Reserve Bank of Dallas – The Limits of Monetary Policy – which carried the sub-title – Monetary Policy Responsibility Cannot Substitute for Government Irresponsibility. It is a speech littered with ideological assertions parading as sensible public commentary. It will resonate with the deficit terrorists and reinforce the policy agenda that will only make the situation in the US worse not better. The ideas were echoed elsewhere in the world in the last week. Japan is considering hiking tax rates “because they want more private growth and less public net spending”. The (un)truth brigade have thus been out in force in recent days – spreading a litany of lies and falsehoods which only aim to perpetuate their irrational obsession that government economic activity is bad. I only wish they would just speak the truth.

In yesterday’s blog – Our children never hand real output back in time – I canvassed the recent speech by Japanese financial market expert Eisuke Sakakibara who emphasised that the world recession will be protracted (until 2015 at least) because governments are refusing to support output and income generation with appropriately scaled fiscal interventions. It was a timely warning I think. But organisations like the OECD are pressuring governments to do exactly the opposite. They want governments to accelerate their pro-cyclical fiscal austerity plans – that is, withdraw public spending while private spending languishes. It is a purely ideological demand – and will worsen the recovery prospects of any country that follows that course – Ireland is our beacon! What is required at present are very costly fiscal programs – programs that utilise as many real resources as are idle. Such a strategy would be the exemplar of responsible fiscal policy management.

There was an interesting conference in Tokyo last week which featured academic Eisuke Sakakibara, the former Japanese government vice minister of finance who is characteristically known as “Mr Yen” given his knowledge of banking and world financial markets. Sakakibara predicted a prolonged recession lasting until 2015 because fiscal deficits are being deliberately withdrawn by misguided governments. The neo-liberals are claiming that public debt ratios have to be cut to reduce the “future tax burden on our children”. The reality is that intergenerational burdens work in exactly the opposite way in a fiat monetary system to what the mainstream neo-liberal claim. The misguided fiscal policy direction the neo-liberals are pushing will impose real burdens on our children. They will be less educated, less skilled, less experienced, and have lower income as a whole as a result of the fiscal austerity. Their future possibilities will be reduced as a consequence. In fact, the whole anti-budget deficit argument is just a ploy to seek ways whereby the elites can get more real income now and more real income later for their own enjoyment. Spreading the real output more widely through fiscal interventions frustrates that aspiration. Significantly, our children never hand real output back in time to pay for the public debt incurred at a previous time.

It was the last day of the 12th Path to Full Employment Conference/17th National Unemployment Conference in Newcastle, which I host. The papers were interesting all day and I will report on some of them another day. But overnight, the big news was that the US Senate has finally succeeded in forcing the US Federal Reserve Bank to release details of more than 21,000 transactions it made as a reaction to the rapidly escalating global financial crisis. The lending rose to $US3.3 trillion at its peak and dwarfs the volumes involved in QE1 and QE2 amounts. This is relevant to a debate in the banking literature about the separation of monetary policy functions (setting interest rates) and the broader monetary interventions we have been witnessing in this crisis, which bear close similarity to fiscal policy functions. The question is which macroeconomic policy functions should be accountable to the ballot box. My view is all of them!

Yesterday, parachute gangs from the ECB and the IMF were being dropped into various EMU nations whose only problem is that they are members of an unworkable monetary system and happened to get hit by a major demand shock. Today the IMF cavalry are apparently heading to Dublin for a “short, focused consultation”. Conclusion: Ireland is being invaded by hostile forces. I also read rumours overnight that Germans are refusing Euro notes not printed in the Bundesland. It is probably an outright lie of a similar quality to the many being spread by the deficit terrorists seeking to regain their “credibility” (an impossible mission) any way they can. In this context I get many E-mails from people each week telling me that I do not understand that the latest decision by the US Federal Reserve Bank “to flood the world with printed money” is putting it on the brink of insolvency! I also read that in a Bloomberg Business Week feature article today. And people believe this stuff. It is as much a lie as the fallacious stories recently about the US President’s Asian travel costs which the right-wing in the US (Beck, Limbaugh, Savage etc) perpetuated without scrutiny (see this analysis to see how this lie began). Anyway, rest easy … the US Federal Reserve cannot go broke!

I often get asked by people I have consulted for to write justifications for their existence (that is, the organisation and its charter). Sometimes it is a trade union, another times a government department and on. In each case you have to think out what the essential interactions are between the organisation in question and the rest of the world and articulate some sense of value to those interactions. These calibrations may not necessarily be quantitative but often it is useful if they are because bean-counting economists around the place who read the analysis I provide in this part of my professional life rarely think more broadly and spare the thought – can probably not even spell “social benefit” much less conceive of it. In the current economic crisis the only problems that should be receiving daily scrutiny in the debate are unemployment, real income loss, and the resulting poverty. We rarely see those items headlined. Instead, we are barraged with a virulent confection of bile about things that do not matter – public deficit to GDP ratios etc. And this anti-government campaign is succeeding in part because people believe the rhetoric that government is wasteful and doesn’t do anything. Well I am here to tell you ….