Totally contrived opportunistic sensationalism

That’s global warming we’re talking about. The people who peddle these kinds of scams take no responsibility for the immense harm they cause. I just went by the Trades Hall Council building and there was a sign outside advertising “Solidarity with Venezuela – Chavez Photo Exhibition”. Do they know Venezuela post-Chavez is a wreck? Of course they do, but they seem as callous and indifferent so far as other people’s lives are concerned as they wander off to the next problem their solutions will only make worse. As the video points out, if we actually got rid of carbon-based fuels, there would not be a tree left on earth as they were all pulled down to provide heat and fuel.

Obama seeks to follow in Whitlam’s steps

It does strike me that Obama would like nothing better than for the Republicans to try to impeach him, not just because it would create a great crusade to keep him President, but mainly just to distract from how colossally bad he has been as president. Narcissistic though he is, even he knows somewhere that he will be remembered as a failure as president and will leave office even more discredited than George Bush. He is in this like Gough Whitlam, for whom the dismissal was the best thing that ever happened to him. It wiped from the collective memory of the nation just how awful his government had been. I have an article at Quadrant Online that compares Obama’s desire for impeachment to Whitlam’s salvation through the dismissal The article begins:

It has always seemed plausible that Gough Whitlam sought his own dismissal in 1975. Overseeing a government that, by then and in virtually every respect, was making an absolute shambles of the economy – rapidly rising unemployment combined with rapidly rising inflation – while being caught up in the preposterous Khemlani Loans Affair, Whitlam’s was a government certain to enter history as amongst the worst, if not the worst, in Australia’s history. Having been dismissed by Governor-General Sir John Kerr and gone before the press to declare, “Well may we say ‘God Save the Queen’, because nothing will save the Governor-General”, he then went home and had a hearty lunch, reportedly in the best possible spirits.

The rest of the article is about Obama and his desire for redemption by following in Whitlam’s steps. The article is found here.

A political economy unconcerned with the facts of the real world

These were a sequence of posts on the History of Economics discussion thread.

An economics professor told my daughter, whose B.A. was in economics, that grad school in economics was essentially mathematics.

Your daughter’s professor was and is surely correct. Indeed, it is
probably not an exaggeration to argue that a mathematics undergraduate has
an easier time of it at economics graduate level than their economics
counterpart. This is why we need more history of thought – and I don’t
mean history of mathematics!

I would go further:

Some argue that the culture of mathematics departments has overtaken graduate economics to the extent that realism is of lesser concern than elegance. I saw this culture first hand and when I took graduate mathematics classes as part of my graduate education.


I wonder how long it will be before economics ‘departments’ are housed in
the mathematics faculty. Perhaps it has already happened somewhere.

“I am appalled … by the extent to which there has been a tendency for economics to become a purely abstract branch of mathematics, no longer to be a political economy concerned with the facts of the real world but an intellectual exercise” (Milton Friedman 1985).

You must not encourage governments to believe they can pick winners

The front page story in the AFR today is Sims asks BCA to please explain picking winners and the first line of the story, before it goes behind the paywall is, “ACCC chairman Rod Sims has asked to meet with Business Council of Australia president ­Catherine Livingstone to explain governments that ‘pick winners’ from industry usually fail.” I mean, seriously, would any self-respecting economy really want their political leaders to shift massive amounts of taxpayer funds in particular directions because politicians think that’s where economic activity will now be heading. I don’t say governments never get it right, but their return on funds invested is massively negative, ten cents in the dollar.

Governments are clueless about where the next major advance in economic output is going to come from. In fact, so too is the business community in general. No one has any idea of the sectors in which Australian economic growth in 2016 and beyond will be based on. Anyone in the private sector, who thinks they do know, is welcome to put their own money up since the return on such certain knowledge would be very high. Governments never should since their track records are so poor. They will only lower our standard of living, not raise it by blowing our productivity on useless projects that pay less than they cost.

And even when introducing an industry policy, governments should never do anything business- or industry-specific. What governments should do is ensure to the greatest extent they can that an economy can adjust as rapidly as possible to take advantage of new opportunities. They should, for example, do what they can to ensure that the education and training structures of the economy are responsive to such adjustments and that industrial relations mechanisms allow new projects to get off the ground quickly and efficiently. But nothing governments ever do should be designed with any specific firm or industry in mind.

If there is money to be made in running a business in Australia, governments are the last people to know in advance where those opportunities are. No individual firm or industry should be directly assisted by governments. And more importantly governments should never be encouraged to think that they can make these decisions. They will only misdirect our resources and lower our potential growth rate.

Balanced budgets make economies stronger – the latest episode

A story on how balanced budgets have caused the Canadian economy to boom. From which this:

We have a lot of cases available to us to test the proposition that we will increasingly be hearing that balancing the books is over-rated. If the all-stimulus-all-the-time Keynesians are correct, for example, France should be the strong man of Europe, for its Socialist president came to power rejecting “austerity” and preaching the virtues of stimulus. Britain, which pursued a course of fiscal discipline under the coalition government of David Cameron, should be in steep decline.

Instead the head of the International Monetary Fund, Christine Lagarde, recently had to apologise to Britain’s Chancellor of the Exchequer for having wrongly warned that his austerity policies would provoke disaster, as Britain turns in one of the strongest economic performances in the EU. Overtaxed and tapped out France, by contrast, continues to be the sick man of Europe. Interviewed on British television Ms Lagarde acknowledged that Britain’s growth seems “pretty sustainable” because it depends on private sector investment and consumer spending.

Economic theory of the Y=C+I+G variety has a lot to answer for. Balanced budgets accompanied by limited growth in public spending are the key to prosperity. The opposite can be seen everywhere in the misery and harm that are caused (see the US for exhibit A). Canada and the UK are now examples of how private sector growth along with what others choose to call “austerity” actually do create the foundations for economic growth.

Economic definitions

I start the 2nd ed. of my Free Market Economics with a set of definitions of the common words that are brought across into economics and then used as technical terms. But while technical in economics (e.g. neither “demand” nor “supply” are, for example, specific amounts) their slithery meanings create an imprecision that makes discussion sometimes difficult. The book therefore starts with a set of definitions that try to nail down what each term means in the context in which they are used. But the definitions are also ordered so that they present the entire argument of the book, which is an explanation of why only a market-based economy can create economic prosperity. And here a market based economy is defined as one in which private entrepreneurs, who are unknown and unrelated to anyone in government (except by chance), make most of the economic decisions in an economy and personally carry the responsibility for the success or failure of the enterprises they run.

Each term should therefore be seen as itself carrying part of the weight of the argument. They are each discussed because they provide an important part of the story. You cannot understand how an economy works unless you understand supply and demand in a particular way, which you are very unlikely to have thought of unless you have formally studied economics.

But it is also necessary to fit each of these concepts into a larger framework representing the economy as a whole. The parts are then seen in relation to some fuller context. In this I am following Aristotle as discussed by Mary Midgley* who was looking at biology when she wrote:

[Aristotle] starts from the basic, primitive question about each particular, “What’s this for?” and proceeds by looking for whatever outcomes can, in the particular context, be intelligibly seen as advantages. By doing this systematically it begins to understand these various functions as parts of larger wholes, systems within which the relations between the various parts continually makes better sense of them.

The productive apparatus of a community, the aspects that contribute to the production and distribution of both goods and services and of incomes, works in some way. These definitions are the words necessary to understand both how these outcomes are explained as well as being able to follow the theories that are used. Theory is a representation of reality. These words used as they are properly defined are the necessary elements in making sense of the theory. And I might add, it is necessary to understand the theories to make sense of the words as they are used. The fusion of the words within properly specified theories is what an education in economics is about.

* Mary Midgley. 2014. Are You an Illusion? Durham UK. Acumen.

When it comes to the capital stock size matters

A third world economy is not one in which everyone is poor, only most of the people with the elites still managing to do all right. The US is not there yet, but it is trying. This is an astonishing story, from The New York Times even, titled, The Typical Household, Now Worth a Third Less.

Economic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.

To understand all this, you need to understand the nature of economies from a classical perspective. A modern textbook will leave you almost incapable of seeing what’s happening, in the same way that knowing one economy had 6% growth and another had 3% will tell you nothing about the relative standards of living.

But this much is clear. The US is heading into an astonishing level of poverty across a wide expanse of what had not that long ago been the world’s most productive nation.