One of the world’s great entrepreneurs, possibly the greatest media person of our generation, discusses the free market.
One of the world’s great entrepreneurs, possibly the greatest media person of our generation, discusses the free market.
Margaret Thatcher had more impact on the world than any woman ruler since Catherine the Great of Russia. Not only did she turn around—decisively—the British economy in the 1980s, she also saw her methods copied in more than 50 countries. ‘Thatcherism’ was the most popular and successful way of running a country in the last quarter of the 20th century and into the 21st.
There are, alas, for people such as myself no permanent victories. There are also supposedly no permanent defeats, but while this is occasionally stated, this never strikes me as true. But she held back the tide of corruption and decay at least for a while.
Bank accounts in Cyprus were raided by the government because it had run out of money. Our superannuation accounts in Australia are being raided because the government has run out of money. I see a parallel here myself, but others apparently do not. This is from Sunday’s Insiders which has been culled from The Australian‘s “Cut & Paste”. They are talking about Tony Abbott having said that the government’s raid on super was “shades of Cyprus” which the Prime Minister, in her own quiet, understated way, had described as “crazy talk”.
FRAN Kelly: Crazy and dangerous.
Lenore Taylor: And she also went on to call him an economic simpleton, just to, you know, hammer home the point. I do think . . .
Kelly: Normally leaders do try to pull back a bit the domestic . . .
Taylor: No sign of that but I do think saying that the super changes had shades of Cyprus about them was an ill-informed thing to say. There is no shade of Cyprus here. There is no raid on anybody’s nest egg here. If there was any shade of Cyprus going on do we really think the superannuation industry would have called off their ad campaign?
Kelly: Shades of Cyprus? A bridge too far?
George Megalogenis: . . . as for the rhetoric, you don’t really want me to take that literally. Look, it’s close to crazy talk.
Kelly: Thank you. Does the Opposition Leader need to be a little bit more careful?
Michael Stutchbury: . . . this is clearly hyperbole which clearly goes too far.
My only point here is that this is an election not yet won. The incredible incompetence of the government plus the certain barracking for the ALP of virtually the entire journalist brigade in Australia will make this a very tough election.
John Papola – the producer of the Keynes-Hayek Rap – has posted a further article on Say’s Law at the PBS website. You should read the lot, but this at the start gets right to the heart of the matter:
Ironically, none of the foundational greats in the history of economic thought could get into Harvard University’s Ph.D. economics program today.
This is not because of radical advances in our understanding of economics. To paraphrase Milton Friedman, we have only advanced one step beyond David Hume in our understanding of economics. Rather than advance real understanding, the economics profession, bewitched by a century-long envy of the physical sciences, has collapsed into an esoteric and pointlessly hyper-mathematized maze of confusion. The result is an economic mainstream so disconnected from reality that we must resurrect 1800s debates over whether consumption, which by definition uses up our wealth, can somehow increase society’s supply of wealth as a result.
We are living in a dark age of economic understanding.
It does get me down to listen to this new proto-Labor meme how Simon Crean is now the defacto leader of the opposition. Simon Crean was one of the architects of the Superannuation Guarantee and so finally drew a line in the sand over this one issue. It may well be true that he cannot stand Julia Gillard but so what. He still votes with her in every Parliamentary division and how he would act if she and the ALP were ahead in the polls you may be sure would be an entirely different matter. As a “leader” of anything he is a washout. His aim in this instance was to save Gillard from a monster level political error that would have dragged Labor even more deeply into the mud. The result on superannuation is an outcome that Labor can take to the election. Had Gillard and Swan’s original intentions been fulfilled, even the densest of Labor supporters would have seen (however dimly) the problems it would have caused (and is still causing) and a few more of them might have drifted away. Instead, disaster averted, they live on to fight another day.
And for Crean, Kelty and Ferguson to go on about Gillard indulging in class war is so ludicrous that it is pathetic that anyone pays the slightest attention to it. Does no one remember the past farther back than the day before yesterday? These are class warriors from the most ancient of days. Unless there has been some kind of conversion, these three former leaders of the ACTU have no love for business other than as a recognised means to wring more money from. It is “the workers”, and only “the workers”, they have ever shown the slightest interest in, however much most of the things they have done make the life of most workers worse than if they had just done nothing at all.
I was given a copy of John Kenneth Galbraith’s 1975 junk science treatise which goes by the name of Money: Whence it Came, Where it Went. And there on pages 218-19 we find this:
Until Keynes, Say’s Law had ruled in economics for more than a century. And the rule was no casual thing; to a remarkable degree acceptance of Say’s Law was the test by which reputable economists were distinguished from the crackpots. Until late in the ’30s no candidate for a Ph.D. at a major American university who spoke seriously about a shortage of purchasing power as a cause of recession could be passed. He saw only the surface of things, was unworthy of the company of scholars. Say’s Law stands as the most distinguished example of the stability of economic ideas, including when they are wrong.
Well let me say three things about this. The first is that the initial statement is absolutely right. Before the Keynesian Revolution, denial of the validity of Say’s Law placed an economist amongst the crackpots, people with no idea whatsoever about how an economy works. That the vast majority of the economics profession today would have been classified as crackpots in the 1930s and before is just how it is.
Second, Galbraith not only doesn’t understand the meaning of Say’s Law, he doesn’t even understand Keynes. The one thing that both the classical side and Keynes agreed on was that a shortage of purchasing power is never the cause of recession. It is not whether people have the purchasing power that is at issue, but whether they spend it. That is why saving is such a major issue in the Keynesian model. People could spend their money but choose not to. It is never argued that they never had the money in the first place which was not the issue of Say’s Law either. How disgraceful it is that one of the leading Keynesians has no idea of one of the fundamental ideas behind The General Theory.
Third, if we are looking for some crackpot notion that stands as a truly distinguished example of the stability of economic ideas, including when they are wrong, there is virtually nothing in the history of ideas quite as incredible as Keynesian economics itself. Inane to the point of vacuity, destructive of prosperity on every occasion it has been applied, utterly useless as a guide to policy, Keynesian economics is the ultimate in crackpot ideas that stay long past their welcome in spite of every form of evidence that it is entirely mistaken about how an economy works and what needs to be done when recessions occur.
[My thanks to Peter S for Galbraith’s tome.]
This business with superannuation is a further derivative of Keynesian economics. There was a time that economists actively understood that the only way to increase an economy’s standard of living was to raise investment, and that the only way to raise investment was to encourage more saving.
With the arrival of Keynesian economics, saving went from being a positive to a negative. It was spending and not saving that drove an economy. My Free Market Economics, classical to its back teeth, harangues about the need for more saving to raise living standards. In contrast, this is the sole statement in the fifth edition of Bernanke’s Macroeconomics that discusses the role of saving:
How is private saving in an economy put to use? Private saving is used to fund new capital investment, provide the resources the government needs to finance its budget deficits, and acquire assets from or lend to foreigners.
This is an absolute scandal yet this is economics at the highest level and it really could not be more low grade if it tried. No notion whatsoever that an economy is driven forward through saving. That it is the saving that flows into private sector investment that funds our growth. We live in a time of immense economic ignorance when people like Bernanke and Krugman are able to call the economic shots.
This conception then flows into government policy, to the low grade intellects who bribe voters with their own money at the expense of the better standard of living they are being prevented from having. So far as Gillard and her ilk are concerned, our own personal savings are a slush fund for the government to use as it sees fit. Our hard earned savings are there to be channeled into whatever program the government decides to encourage however little value adding those programs may achieve.
It will ultimately be the common sense of the community that will stop them because nothing else can. Eventually the stupidity of following macroeconomic textbook theory will be seen to be the disaster that it is. In the meantime, however, we leave ourselves open to be plundered by whichever politician can convince us that they have the best way to waste our money.
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.
Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.
Obama pledged in his State of the Union address to do more to make sure more Americans can enjoy the benefits of the housing recovery, but critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars.
‘If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,’ said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae.
Did you get that? “Critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars.” These critics! Why are they always so negative. Just never willing to give Obama a chance to show just how much smarter than the rest of us he really is.
Could it be? I hardly know anyone who votes Lib but then I work at a university and many of my friends are upper middle class. We are still, however, what we are and not quite over the edge. Let it be just like this unless it tilts this way even more.
What does depress me, however, is how quickly the gap does close after widening to what ought to be an unbridgeable chasm. And if the chart is anything to go by, a cut in interest rates is all it takes. So I will be happier when it happens and she and they are gone for good (or for at least six years and maybe nine).
And this should be the message. The Australian community is not an ALP slush fund. But the only way to drive this home is to drive them from office with the must crushing defeat in Commonwealth history.