Letter to an old friend

Sent the following letter to a friend of mine who had last written that he was about to be made redundant. Having not heard from him in a while I sent him this:

Writing for no particular reason other than to see how you are and what’s new in your life. Last you wrote you were on the edge of redundancy which I can only hope has not come to pass, or if it did that you have found your way to something new and better. Our lives are getting so chancy and difficult. Today I went on strike for the first time in my life. Would not have had to except that the union called for a two-hour stoppage right in the middle of my class time so out I went. It was a funny business but in the end and what swayed me to join the strike was the memory of my Father, organiser for the Electrical Trades Union of Canada and a left winger till his last day. More pragmatically, there is no point in joining a union and expecting its help if you cross the picket line when they ask you to take action. I’m not particularly militant since I worry that the claim will do no good for employment prospects generally and mine in particular, but having duly voted against the strike and found the strike was overwhelmingly supported the die was cast.

The other oddity was that I ran into the oldest person in the department whose age I didn’t actually know but white haired he is and clearly of something like my vintage. So I said to him – which I had picked up on the grapevine – that I’d heard he was retiring and why was that? Oh, he said, he’d always intended to retire when he turned 60! Holy mackerel. There must now be at least a decade between me and whoever comes next after him. Where do they go and why do they do it? I’m going to write my own version of Father William, I think, that will begin:

You are young Father William, the old man said.
So what that your hair has turned grey?
There are still many years before you are dead.
Why retire when you can still stay?

A bit morbid perhaps, but the rhyme scheme is all. About half the people I know are still working, and the rest play golf. I don’t play golf so what would I do? I hope you aren’t able to fill me in on that.

Anyway, be well. Hope things are good.

Kind regards.

Hubble bubble toil and trouble

Really I have no one else to blame for this but it was suggested to me that I reply to an article at The Drum which has now got me looking at the site and reading some of the articles. One has in particular caught my eye, “Our wealth has only grown since the carbon tax”, written by Stephen Koukoulas. Now whatever else might have happened in the world, the notion that introducing a carbon tax has made us a more prosperous community has got to be one of the least plausible possibilities imaginable. But there it is in the title and there it is again in the text. So naturally my curiosity got the better of me and so I looked to see what possible evidence there could be for such a thought, and here it is:

The half a trillion dollar lift in the stock market and house prices reflects a 23 per cent lift in the ASX since 1 July 2012 which had added approximately $275 billion to the value of stocks, while a 5.1 per cent rise in house prices has added approximately $235 billion to the value of housing over the same timeframe.

This is hardly the stuff of an economic wrecking ball or outcomes that are ripping the heart out of businesses and families. On the contrary, it is a stunning boost.

The very ingredients of a bubble economy is being provided as proof that the economy has taken off since the introduction of the carbon tax. Well the Fed is looking for a new Chairman and we will be looking for a new Governor for the RBA in a few months’ time. If quantitative easing and asset inflation are your thing, we have just the name for the shortlist, that is for sure.

Evolutionary economics

An evolutionary theorist has an answer for economic theory and I especially like his incorporation of history into the theoretical story:

Evolutionists have a conceptual toolkit that can be applied to the study of any aspect of any organism. This includes asking four questions in parallel, concerning the function, history, physical mechanism, and development of the trait. For example, species that live in the desert are typically sandy-coloured. How do we go about explaining this fact? First they are sandy-coloured to avoid detection by their predators and prey (a functional explanation). Second, the sandy colouration is achieved by various physical mechanisms, depending upon the species — fur in mammals, chitin in insects, feathers in birds (a physical explanation). What is more, the particular mechanism is based in part on the lineage of the species (an historical explanation) and develops during the lifetime of the organism by a variety of pathways (a developmental explanation). Answering these four questions results in a fully rounded understanding of colouration in desert species. All branches of biology are unified by this approach. . . .

And yet, evolutionary theory does lead to a viable concept of the invisible hand, albeit one that is different from the received economic version. Indeed, the biological world has its own version of the invisible hand. Cells, multicellular organisms, and social insect colonies are all higher-level social units that function with exquisite precision without the lower-level units having the welfare of the higher-level units in mind. In most cases, the lower-level units don’t even have minds in the human sense of the word. These miracles of spontaneous organisation exist because selection operating on the higher-level units has winnowed down the small fraction of traits in the lower-level units that contribute to the good of the group. If the invisible hand operates in human groups, it is due to a similar history of selection, first at the level of small-scale groups during our genetic evolution, and then at the level of larger-scale groups during our cultural evolution.

All very micro unfortunately. The big questions, however, are about the overall trend of the entire structure which can only be answered in ways that biologists have little to offer.

Sent to The Drum

Blind to the Damage Caused by Government Spending

The Global Financial Crisis began some time during the second half of 2008 and ended sometime before the middle of 2009. The collapse of Lehman Brothers is seen as the start of the true panic with the implementation of the Troubled Assets Relief Program (TARP) under George Bush Jr more or less the ending of it. You would find hardly a single economy anywhere that was still in a state of rapid decline after the middle of 2009. Were there any?

There was, of course, an immense amount of hysteria. The kinds of over-the-top scaremongering that was common foresaw the world’s economies plunging back into the kinds of depths last experienced during the Great Depression, which would have required unemployment rates of over 20%. Given this “chicken without a head” reaction, the cry went out for a stimulus which duly arrived in one country after another. The fact that unemployment rates, rather than rising by around 15 percentage points rose only around two, is now attributed to the rapid response of Treasuries all over the world.

Kevin Rudd is amongst those who believe we should be grateful to him for saving the Australian economy in the same way, I suppose, that Barack Obama would like the American people to thank him for his own stimulus. And sure enough, all of those economists mis-educated on Keynesian models may feel some kind of vindication since their worst case scenarios never occurred. But then again, neither did recovery.

Because, you see, the problems currently facing our economies has virtually nothing to do with the financial crisis itself but are, instead, due to the effects of the stimulus that came after.

The fact of the matter is that economic theory is in a dreadful state. Keynesian economics has utterly failed to achieve recovery in any single economy anywhere it has been applied. So when I read this, as published by Tim Harcourt on The Drum on Monday, it fills me with that kind of despair because it is pretty obvious that economists are not yet prepared to give away these models whose policy advice has only made things worse. What Tim wrote was this:

In case you missed it, Australia, unlike many other industrialised countries, avoided the worst economic crisis that has bedevilled the global economy since the Great Depression (note the term they use in the USA – ‘the Great Recession’ – rather than the more technical and even benign-sounding ‘GFC’ that we use in Australia).

I’m not sure what missing this crisis means but from the unemployment rate of 4.1% in March 2008 we went to an unemployment rate of 5.8% in June a year later. There was then a drift downwards so that by June 2011 the rate had fallen to 5.0%. But since then it has all gone backwards so that the latest number is 5.7%, it will soon pass the worst number achieved at the height of the GFC and we will be into six-point-something not long after that. And it’s not in spite of the stimulus that this will happen but because of it.

Let me quote myself in an article of mine that was published in Quadrant in March 2009.

There have been few periods in which so many forms of financial and economic uncertainty would have confronted the average business at one and the same moment. That business confidence has evaporated and an economic downturn has gained momentum is a matter of no surprise to anyone. The fact of recession is a certainty; only the depth to which it will descend remains in question.

But just as the causes of this downturn cannot be charted through a Keynesian demand-deficiency model, neither can the solution. The world’s economies are not suffering from a lack of demand, and the right policy response is not a demand stimulus. Increased public sector spending will only add to the market confusions that already exist.

What is potentially catastrophic would be to try to spend our way to recovery. The recession that will follow will be deep, prolonged and potentially take years to overcome.

And that is exactly where we are right now. We have tried to spend our way to recovery and as a result are in the midst of a deteriorating economy, that is we are in the midst of a recession that will be deep, prolonged and potentially take years to overcome. It has certainly not been overcome as yet.

As for the reasons that the downturn here was not as bad as it has been elsewhere, there are four parts to the explanation that I can see.

There is firstly the extraordinary fiscal situation the government inherited. We not only had no deficit, we actually had no debt. Australia was the only country in the world not to have any public debt whatsoever, a situation that it is almost impossible to imagine returning any time soon.

There was then the mining boom built on the back of the Chinese stimulus. That has gone, in large part because the Chinese must now themselves deal with the problems that their own stimulus created in their own economy. But we have added to our own slowdown in mining through a series of policies that have made miners more reluctant to invest in Australia.

Third, our banking system was almost entirely untouched by the financial crisis which spread internationally due to the ownership of various toxic assets generated in the US financial system. Our banks were fine so Australia had no problems of this kind to overcome.

And lastly – but this will make little sense to most people – the RBA kept interest rates up rather than pulling them down. No quantitative easing in these parts with the result that the national savings we generated were used more productively than elsewhere. You can’t stop governments from squandering what they squander, but at least the private sector was kept on the straight and narrow.

My worry remains that even though the evidence that the stimulus did no good continues to mount, the economics profession refuses even to examine the theoretical basis for the policy advice it offers. But there will come a reckoning at some stage since it is the advice of economists which is largely at fault.

In the meantime, the Prime Minister likes to congratulate himself on his rapid fiscal response to the downturn in 2009. What he is doing is taking credit for creating economic conditions which will keep our living standards depressed for a very long time to come.

Rising poverty and modern economic theory

This is the beginning of a story from the Associated Press which is also discussed here:

Four out of 5 U.S. adults struggle with joblessness, near poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.

Survey data exclusive to The Associated Press points to an increasingly globalized U.S. economy, the widening gap between rich and poor and loss of good-paying manufacturing jobs as reasons for the trend.

These are not “reasons” for the trend, they are evidence of the trend. The reasons for the trend are the galloping socialism of the United States, and indeed of the entire previously free market oriented economies of the West. The continuous undermining of the independent, growth oriented entrepreneurial managed economies that have been the cause of our prosperity in the name of equality and no end of other junk social concerns have created a wreckage that will be very hard to reverse.

And amongst the many reasons it will be hard to reverse is that a large part of the problem is the Keynesian theory that is supposed to be the reason that we are able to withstand economic contraction and maintain strong rates of growth. The more economies are driven by public spending with the supposed intend of keeping them strong and unemployment low the worse the economies will behave and the higher that unemployment will be. Almost as a finger to the eye of common sense, the second of the articles cited ends with this:

This past week, Obama pledged anew to help manufacturers bring jobs back to America and to create jobs in the energy sectors of wind, solar and natural gas.

Well there’s the answer to their problems if ever there was one. Does he pursue these ends because he really believes it or is he intentionally malevolent with the express purpose of doing down the US while pretending he is trying to do it good? And I can only think he is pursuing jobs in “natural” gas because he is unaware that it is a form of carbon-based energy and not a green technology at all.

The Romney might have been presidency

The Economist has finally noticed how different the past few months would have been had there been a Romney presidency rather than the continuation of the low grade Obama disaster zone. Here is what is no doubt only a partial list of what would have been taking place right now instead of the scandal-ridden vast under-performance of the present administration:

Team Romney’s 200-day plans included immediate, 5% cuts to public spending excluding security and social payments (though more money for defence), a weakening of the rules that Republicans say favour trade unions, a squeeze on public-sector jobs and pay, and a global push for free trade. Mr Romney would also have proposed lower income- and corporate-tax rates, offset by closing loopholes. Abolishing the Environmental Protection Agency, a conservative dream, was not on the cards. But “personnel is policy”, notes Glenn Hubbard, Mr Romney’s chief economic adviser. Those chosen to regulate energy and tackle climate change would have weighed costs against benefits minutely. A long-term squeeze on welfare and health spending was a priority: wholesale immigration reform was not.

Noted by Instapundit since the article begins with the Glenn Reynolds “the told me if I voted for Obama” meme without giving the credit where credit is due.

Sarah Palin on Obama

From the interview:

SARAH PALIN: We show what happened, back in 2008, I believe that’s when it started, when the media decided to just go along to get along with Obama, ingratiating themselves with him and vice versa. What we saw was these attempts to destroy these whistleblowers, those who were telling the truth, even in the campaign. Those who were bringing up the name Jeremiah Wright and the racist church he leads that Obama was a member of for over 20 years.

Though I was during the campaign running for VP, I was banned from talking about Jeremiah Wright and Obama’s friend, Bill Ayers, the character that he befriended and kicked off his political campaign in the guy’s living room. Couldn’t talk about that. Couldn’t talk about Obama’s lack of knowledge and job experience and the things that he said like America had 57 states, things like that.

In the campaign, Greta, this is important for Americans to understand. I was not allowed to talk about things like that because those elitists, those who are the brainiacs in the GOP machine running John McCain’s campaign at the time said that the media would eat us alive if we brought up these things. So what did that get us? That got us this kind of complacency and self-censoring of a campaign where we weren’t allowed to tell the truth about who this kind candidate was, Barack Obama. What it got us was a list of these scandals. This is kind of a redneck version of one of those elitist tactics of Karl Rove, how he uses his white board. This a redneck version of a whiteboard. And on this list, the scandals that are destroying America, Greta.

Also reported here.