Monthly Archives: November 2013

Life on earth may have begun in Australia

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Life on earth began in Australia or so it may be:

Scientists have discovered possibly the earliest signs of life on Earth – remains of bacteria that are almost three-and-a-half billion years old – in a remote region of north-west Australia.

Evidence of the complex microbial ecosystem was found in sedimentary rocks in the remote Pilbara region in Western Australia, an area which contains some of the world’s oldest rock formations.

One of the researchers, David Wacey, from the University of Western Australia, said the newly-discovered evidence of bacteria ‘was possibly the oldest signs of life on Earth’.

‘There was plenty of life from the 3.4 and 3.43 billion-year-old mark – this is pushing it further back,’ he told The Telegraph.

‘There are slightly older claims of life in rocks in Greenland – but the rocks there have been so deformed that it is very difficult to tell if what you are seeing was actually there in the first place. With these microbial systems in the Pilbara, you can see these things in the field and under the microscope. You can see how the bacteria were interacting with the sediment they were living on.’

And they’re off

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Question time of the first Parliament of the new government. From The Australian:

TONY Abbott and his ministers used their first question time in government to bludgeon the opposition over its carbon tax, its management of the economy and its record on asylum-boat arrivals.

The opposition sought to highlight the government’s moves to hike the debt limit, lift the deficit, and “hinder” Australia’s relationship with Indonesia.

But, with a solid majority behind him and his chosen speaker in the chair, the Prime Minister said he was doing exactly as he’d promised at the September 7 election.

For myself, I wish they would do more bludgeoning outside Parliament as well. Our locals here in Victoria never made enough of Labor’s massive spending disasters, the MYKI card which they had mates put together for something like more than a million billion and the desalination plant which may never be used for a single day, and may eventually cost three to four billion forged in unbreakable contracts. And now Labor is ahead and it is possibly too late.

I hope the Feds learn from our locals.

The lying world championships

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This is everywhere on right-side websites and it is incredible, hilarious, stunning and a worry. Not a worry for us, of course, but if you are a citizen of the US, pay your taxes, want health insurance and are concerned about where their country is heading, then this is all of the above and more.

Navigators are the people who are supposed to guide you into Obamacare. The video was done by James O’Keefe who has done others of the same kind before. It’s ten minutes long but mesmerizing. In the lying world championships these are the quarter-finalists since Obama already has been given the gold medal.

Spending does not make an economy grow

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A note by Karen Maley in the AFR today brings enlightenment following my post on True Confessions yesterday. There she wrote:

Dalio and his team at Bridgewater, the world’s largest and most successful hedge fund, which manages about $150 billion in global investments, argue in a note to clients this week that in the old days, central banks used to cut interest rates to stimulate the economy. But that all changed when interest rates fell to zero per cent. At that point, central banks instead adopted quantitative easing (QE), or printing money and buying financial assets such as bonds. This pushed up the price of financial assets, and central banks hoped those who owned these assets would feel wealthier and would spend more, and this would, in turn, trickle down to stimulate economic activity. [My bolding]

I do not know what to make of this Keynesian dreck any more. If this is the actual dinkum basis for the quantitative easing we have been having, then this is worse than insane, assuming financial suicide is a form of peak insanity.

Spending does not make an economy grow. I’ll say it again. Spending does not make an economy grow. Putting in place real productive assets makes an economy grow. Can you see the difference? Apparently there are folks in powerful positions in every major central bank in the world, and probably in every Treasury as well, that can’t see the difference. But the difference is in having low growth economies that never seem to budge and high growth economies where the largest problem is a shortage of labour.

The Keynesian walking dead

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keynesian walking dead

Megan McArdle has an article on Bloomberg they’ve titled, Why It’s So Hard to Kill Keynesianism. And in spite of the arguments you find in the article which are from a rather diverse crew of supposedly anti-Keynesian economists, it’s straightforward why Keynesian theory continues to lurch forward.

  • It is taught in virtually every introductory economics textbook in the world.
  • No economist would even consider giving up on aggregate demand as the driver of economic activity.

So we have John Cochrane quoted as saying:

Since about 1980, if you send a paper with this model to any half respectable journal, they will reject it instantly.

I don’t know what “this model” consists of but if he is saying that employing aggregate demand is instant death for any article, I would have my doubts. But it’s not the articles supporting Keynes that interest me. Where are the ones that point out that Keynesian theory and policy are nonsense? Articles along those lines would be a radical departure but where are they? And let me add, as a personal experience, that it is not all that easy to get them published if you write them.

But then, what would be the exact point of these articles so far as policy is concerned? As McArdle says herself:

New Keynesian models do predict stimulative effects from government spending. But they do so through a completely different channel from the old Keynesian models that are still popular with most of the public intellectuals who support stimulus.

No one at the political level, trying to work out what to do as recession comes crashing through the wall, is going to be interested in the channels that cause a stimulus to work. They just want an answer, and if the answer is a stimulus then off they go. And off they did go. They have now spent in haste and are repenting in leisure but it was some variant version of Keynesian theory that drove them to take the actions that they took. But where are the post mortems on what went wrong? Plenty on what caused the Global Financial Crisis. Almost nothing on why the stimulus that followed has been such a disaster.

And for McArdle to say that Keynesian theory represents “an economic model with zero percent mindshare among professional macroeconomists” just cannot be true. The reality is that economists know virtually nothing else. I have scoured the article for the alternative theory the people she spoke to have in mind and can find nothing. The most you hear is that we should abandon macro and leave everything to micro which is as nonsensical an idea as the Keynesian theory it would replace. I would merely point out that The Wealth of Nations was entirely macro, classical macro. That is where the action is and the answers begin. Economic theory around 1916 say, would be something like the high point and a good place to start over from.

McArdle does, however, go into “supply side economics” but restricts it to the notion of tax cuts. She unfortunately goes nowhere near the underlying theory or discusses any of the wider implications. And there is nothing on the absolute necessity found within supply-side theory which explicitly requires starting over from classical presuppositions and a return to Say’s Law.

And while the efficient market hypothesis is fine as far as it goes, what it does not do and cannot do is rule out recessions. In my view, there is nothing in the EMH that is not fully discussed in classical business cycle theory (and who amongst the entire history-deprived economics profession could tell me whether I am right or wrong on this). Just because you believe that information gets fully used as soon as it is available is no reason to think recessions cannot happen. There are the known unknowns and the unknown unknowns that will get you every time. Even the known knowns can sometimes put an economy into recession. No one can prepare for everything.

The Keynesian walking dead are anyone who uses aggregate demand to explain how an economy works. If that’s not 100% of the profession, it’s near enough.

[My thanks to I.D. for bringing this article to my attention.]

True confessions

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This is the wildest story yet about American economic management that if you understand it will terrify you. It is from the Wall Street Journal and is titled, “Confessions of a Quantitative Easer”:

Having been at the Fed for seven years, until early 2008, I was working on Wall Street in spring 2009 when I got an unexpected phone call. Would I come back to work on the Fed’s trading floor? The job: managing what was at the heart of QE’s bond-buying spree—a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history.

You and I have, of course, never heard of this guy till now but he has quite a story to tell. If you are interested in knowing how the economic world you live in is “managed” this is one port of call you might make. This is just included as a teaser:

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

As he says:

We were working feverishly to preserve the impression that the Fed knew what it was doing.

What they are doing is riding on the back of a tiger. Those idiots who voted for Obama to help the poor and the disadvantaged, what a bad joke that is. If Goldman Sachs is your favourite charity then maybe you’re onto something. Otherwise, if you are dumb enough to work you can help repay this debt while they drive off to the Hamptons.

[Picked up from Powerline.]

Explaining Hayek’s logic

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This was posted today on the Societies for the History of Economics (SHOE) website:

Can someone explain Hayek’s (1978) logic:

“I have just published an article in the London Times on the effect of trade unions generally. It contains a short paragraph just pointing out that one of the effects of high wages leading to unemployment is that it forces capitalists to use their capital in a form where they will employ little labor. I now see from the reaction that it’s still a completely new argument to most of the people. [laughter]”

In further explanation of his puzzlement, he pointed out that this makes no sense using marginal productivity theory since everything else will re-adjust to create full employment so what was Hayek trying to say. I therefore gave my explanation which followed behind another explanation given by James Ahiakpor, the only other modern day relentlessly anti-Keynesian economist I know of, but this is from me:

In Australia where I was involved in our National Wage Cases on behalf of employers, there was an argument we continually had to deal with which came from the bench and not the unions. It was that raising wages would be good for the economy since it would force businesses to become more capital intensive. The assumption here was that the higher productivity forced on employers would lead to increases in the economy’s ability to finance the higher real wage being imposed.

Marginal productivity theory is part of micro and will tell you what an individual firm will do in the face of higher real labour costs. It does not, however, tell you what will happen across the economy. Forcing real wages higher than the underlying productivity of the economy will support will drive some people out of work. This seems to me so obvious that both then and now it leaves me nonplussed to see it even mentioned, but then I, like James, think about these questions using classical forms of analysis. Unfortunately, like Hayek said, it still seems to be a completely new argument to most people.

The only difference between myself and James is that I would send you to Mill rather than Ricardo.

It’s the carbon emissions, stupid

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From a story in the Wall Street Journal:

Something is up with the sun.

Scientists say that solar activity is stranger than in a century or more, with the sun producing barely half the number of sunspots as expected and its magnetic poles oddly out of sync.

Mini-ice and the Maunder minimum on the way. But even if we might freeze for a century or two, the soot, grime and grit already in the atmosphere will get us in the end. See the whole story just in case you thought these climate fundamentalists were about to give up.

Being in government is hard

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Whatever else Tony Abbott may or may not do over the next three years, I doubt that he will go back on any of the promises he made. Politics is politics and running an economy is something else. So where Maurice Newman has written in today’s AFR how the Prime Minister must attend to various economic issues, I fear they will fall on deaf ears. They will fall on deaf ears in part because of what the PM said before the election, and they will fall on deaf ears because aside from paid maternity leave, every one of the policies he took up from the ALP would arrive back in spades if the Labor Party should happen to be returned.

Nevertheless, Newman does have a point:

The federal government’s top business adviser has criticised the cost of the National Disability Insurance Scheme and the school funding reforms, slammed wages as too high and industrial relations as being too rigid, and urged the government to push the envelope in order to ‘repair’ the economy.

In a fiery speech on Monday night, Maurice Newman, the head of the Prime Minister’s Business Advisory Council, lamented as ‘hasty’ Tony Abbott’s pre-election promises to quarantine such areas as health and defence from budget cuts and suggested the Prime Minister ‘disturb the comfort zones of many’ to pay down debt and cut the deficit as soon as possible.

Vowing to furnish Mr Abbott with ‘dependable and fearless advice’, Mr Newman said the economy was ‘running on empty’ and, without reforms and fiscal discipline, it was ‘facing the prospect of growth with a zero in front of it’.

‘That will feel like hitting a brick wall,’ he said.

That GDP growth will decline for around a year is just how it is if there is to be a redeployment of resources to where they might actually be used productively. And I wish there was more explicit recognition that the only way for a recovery ever to occur will be if it is driven by the private sector.

But almost everyone only likes market outcomes when it suits them. I can only hope that the politics doesn’t overwhelm economic reform.

One-one millionth of a nanosecond or shorter

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A blog post by Pejman (picture supplied) on Obamacare who writes something I often think but haven’t gotten around to writing myself. Happily he has, which is that everyone is perfectly capable of withstanding the pain felt by others. The one-one millionth of a nanosecond is an absolutely correct estimate based on my previous life amongst the left.

pejman blogging

I am willing to bet dollars to doughnuts that there are a lot of people out there who are only pretending to be utilitarians about this entire calamity, and who would drop their faux-utilitarianism in one-one millionth of a nanosecond if it were their lives and fortunes being affected by a bad policy, and if the bad policy in question were being pushed by a president and a party they disapproved of.

I am further willing to bet dollars to doughnuts that the real motivation of the faux-utilitarians is to shut people up, to keep them from complaining and dissenting, to shame them into accepting a deal that is plainly against their interests, a deal that hurts them right in the pocketbook and right when they need quality healthcare the most.

It is their allegiance to the left that comes first and foremost and they could not care less about the harm it does to others if the harm has been inflicted in the name of some variant of the socialist nightmare.