Monthly Archives: October 2014

Overseas money and domestic property

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chinese house purchasing

This is already an old story, from the SMH on October 11. It’s heading is quite straightforward, Chinese investors are pushing into Melbourne and Sydney. And the text of the article is also pretty clear:

Chinese investors are aggressively lifting their Australian residential and commercial real estate investment.

And then there was this on October 15, Foreign buyers snap up one in six new Aussie homes:

Foreign buyers are flocking to buy Australian property, snapping up one out of every six new homes – and that number is set to get higher.

Foreign demand for new homes surged in the September quarter and is tipped to rise further next year, according to the National Australia Bank’s latest residential property survey.

Overseas buyers accounted for almost 17 percent of total demand for new properties and in Victoria, they accounted for almost 25 percent, or one in four new homes, the report said.

Foreign buyers were also more active in the established property market last quarter, accounting for eight percent of demand.

Again, Victoria led the way, with foreigners accounting for a record high 11.5 percent of established property demand, the report said.

If you are of the opinion that none of this is pushing house prices up and keeping people like my sons out of the market, then you need to brush up a bit on supply and demand. But what has added to my dismay at all of this you may find in this story from The Age on Monday, Corrupt Chinese in AFP sting. Here’s the bit that matters:

The manager of the AFP’s operations in Asia has confirmed Australia has agreed to assist China in the extradition of and seizure of assets of corrupt officials who have fled to Australia with illicit funds running into the hundreds of millions of dollars. . . .

“As time goes on, they start to put [their funds] into legitimate assets such as houses and property”. . . .

The sums of money believed to have been spirited out from China are staggering. The Washing-based Global Financial Integrity Group, which analyses illicit finalcial flows, estimates that $US3 trillion left China illegally between 2005 and 2011.

Some of that money is coming here and it doesn’t take much of a slice of all of that to make an impact on our housing market. It is ridiculous that we haven’t done something ourselves before now, but with the Chinese now seeking to get their money back there may at least be a start.

Gough Whitlam – his last dismissal

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gough

I was in my first year in Australia and in transition from left to right at the moment Gough was dismissed by the Governor-General. Not long before I had been astonished at my own lack of enthusiasm for the fall of Saigon to the North Vietnamese which was something I thought I had cared about and wished to see. Instead, it left me feeling hollow and uncertain. It was also the year that I came upon Hayek’s Road to Serfdom in the College library at Bendigo and G.L.S. Shackle as well. Nevertheless, I thought Bill Hayden’s budget was very good, being still Keynesian in my outlook. And as a Canadian who had been brought up on the principles of the King-Bing affair, which meant governors-general did not dismiss Prime Ministers, I thought Kerr’s decision was fundamentally wrong, and indeed, in the light of history could never happen again. If a PM has control of the House, the PM remains the PM. But he was nevertheless a bad Prime Minister who has left a bad legacy behind, and it is only the blurring of the years that may have created the impression that Rudd and Gillard were worse. This was put up at Catallaxy by Sinclair and it really does tell a story.

Whitlam-Legacy

And the only thing that saved Medibank from becoming as disastrous as the English or Canadian systems is that Malcolm Fraser found he couldn’t get rid of it so he merely legislated so that everyone could use their Medibank levy to buy private insurance instead if they preferred. It is why we have the best system in the world because you can be in the public system and get reasonable care or you can pay your own way and get better care, with the dual form of funding attracting more resources into the health care system in total than either on their own would do.

De mortuis nil nisi bonum. OK. I will therefore say he was not worse than Rudd-Gillard which his friends will think of as all right and my friends will know perfectly well what I mean. The cartoon, by the way, is from The Guardian. It apparently is intended to be respectful so I think I can have it here as well. But “to show us what was possible” as an encomium to Gough is about as clueless a line about a failed politician as you are ever likely to see.

Free Market Economics and Say’s Law

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This post is the second of a series I am writing on the second edition of my Free Market Economics that has been published in association with the Institute of Economic Affairs in London. This post focuses on the single most important principle in economics which now goes under the name Say’s Law. But it is a principle that was deliberately eliminated from within mainstream economic theory by Keynes in his General Theory and has disappeared from virtually all economic discourse since that time.

The book was itself written because there is literally no economics text of any kind anywhere that discusses Say’s Law. Yet it was this principle that made it perfectly obvious that the stimulus being applied across the world from the end of 2008 would lead to an economic stagnation that would last years on end. That is why I immediately began to write the book then and there, but it is also why I had published in February 2009, just as the stimulus was getting under way, an article with the title, “The Dangerous Return to Keynesian Economics”. The article specifically discussed the crucial disappearance of Say’s Law and included this forecast:

“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.”

While virtually the whole of the economics profession remains flummoxed by what has happened since the stimulus, neither my students nor myself have been in any doubt. It has been as obvious as the noonday sun, but invisible to anyone brought up on modern macroeconomics which has embedded the theory of aggregate demand, Keynes’s disastrous contribution to economic theory.

Say’s Law specifically stated that demand deficiency, that is, a deficiency of aggregate demand, could never be the cause of a recession (or in the archaic language of the classics, “there is no such thing as a general glut”). It then specifically told governments that while some additional public expenditure during recessions might do some small good, such a stimulus would never restore an economy to robust health but would, instead, do serious damage, and the larger the stimulus the more damage it would do.

The book explains the nature of Keynesian economics but also explains why a stimulus could not possibly have returned our economies to rapid rates of growth and low unemployment. The experience of the past six years ought to have made all this supremely evident in practice. But without an understanding of Say’s Law, there is not a chance in the world anyone will understand why the stimulus has been the colossal failure it has been.

Although named Say’s Law after the early nineteenth century French economist J.-B. Say, it was a principle that was part of the bedrock foundation of economic theory right up until 1936. But what will never be told to you by any Keynesian economist (in large part because they don’t even know themselves) is that the term Say’s Law was invented in the twentieth century by an American economist who thought it was absolutely essential for clear thinking in economics and brought into active use only in the 1920s.

If for no other reason, I commend my book to you because it is the only place where one can have Say’s Law explained in a way that makes you understand what economic theory has lost. It will also explain why the stimulus did not work and what must be done instead, reasons enough to buy the book I would hope. But there are also others which I will come back to in later posts.

My favourite movies

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Having written that Crimes and Misdemeanors is my favourite film of all time, I thought I would try writing down my all time list of favourites. Here it is, which has a number of notable features, the first one being that I don’t think I have seen any of these more recently than 1999. And no matter how much I like a film, I never see them twice (although I did see Topsy-Turvy twice within the week so that I could bring my children to see it as well). We go to the films a lot, and see near everything, so either I have become jaded or they don’t make ’em like they used to. [OK, The Concert was from 2009]. I can also see that I don’t necessarily have the most sophisticated tastes. I also do not believe one ever learns anything by watching a movie although documentaries are different. Unlike with reading, you only take back out of the theatre what you first brought in. Movies are just for entertainment. No particular ordering here other than the order in which they occurred to me.

Crimes and Misdemeanors
The Graduate
The Terminator (the first one)
Star Wars (the first one again)
Planet of the Apes (and once again the first one)
Raiders of the Lost Ark
Casablanca
Ben Hur
The General
Barry MacKenzie (the second one)
The Gold Rush
Topsy-Turvy
Tom Jones
War and Peace (the Russian version)
The Godfather
Annie Hall
Singing in the Rain
Amadeus
The Good, the Bad and the Ugly
A Clockwork Orange
Fantasia
The Manchurian Candidate
From Russia with Love
The Concert
The Ten Commandments

I will stop with this now that I’ve reached 25. The thing about each of the films, and some I saw fifty years ago or more, is that I remember not just the film but where I saw it and who I was with.

An instructive parallel

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There is, for some reason, a desire on the right to continuously play into the hands of the left on Joe McCarthy. Joe Biden’s son was brought into the army at age 43 and then, within a month, has been booted out because he has tested positive for cocaine. Obviously a minor scandal for this administration and representative of the moral laxity of the left. Not so fast. This is from The Weekly Standard and comes with the title, Biden Cocaine Scandal Mirrors Joe McCarthy Scandal just so you cannot miss the core point that the story is absolutely not about Biden but McCarthy. The final paras bring up this supposed parallel from the 1950s.

A more instructive parallel, however, might be to Sen. Joseph McCarthy, of all people. When one of McCarthy’s Senate aides, G. David Schine, was drafted into the Army and sent to basic training at Ft. Monmouth, N.J., Roy Cohn, another McCarthy aide and reputedly Schine’s lover, intervened persistently to obtain an officer’s commission for Schine. When the Army protested about repeated threats and interference from the senator’s office, McCarthy charged that the Army was attempting to retaliate against his investigations into communist subversion in the armed forces. The televised hearings that were held during April-June 1954 to investigate the matter — the famous Army-McCarthy hearings — not only revealed that McCarthy and his staff had repeatedly wielded their influence on behalf of Schine, but had done so despite Schine’s complete lack of qualifications for an officer’s commission.

The differences between Joseph McCarthy and Joseph Biden are self-evident, of course. But just as the effort to make G. David Schine an Army officer taught the country something about Senator McCarthy, so the brief, inglorious naval career of Hunter Biden tells us something about Vice President Biden — and the culture of entitlement in political Washington that has tarnished the Navy.

And why did I find it? Because it is one of the picks on Powerline who must themselves think this is one of the major issues of our time to give it such prominence. They don’t get it, do they? The lessons McCarthy should have taught us is how easy it is for our enemies to penetrate to the highest ranks of an Administration, which you can read about in Diana West’s American Betrayal. Harry Hopkins (who?) ought to be a lesson we can learn from but apparently the only lesson is that McCarthy may or may not have used influence to get one of his assistants an officer’s commission.

If we are looking for instructive parallels today, what McCarthy did sixty years ago would be the last last place you should look but with some people it’s never a bad time to kick a good man when he’s down.

My favourite Woody Allen film is 25 years old

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Crimes and Misdemeanors was released a quarter of a century ago. The link tells the story right through so if you haven’t seen the film don’t read the review until you have watched it yourself. But the quote from Allen at the start of the article is worth thinking about and gets to the essence of the film’s storyline:

I firmly believe . . . that life is meaningless. I’m not alone in thinking this – there have been many great minds far, far superior to mine, that have come to that conclusion. And unless somebody can come up with some proof or some example where it’s not, I think it is. I think it’s just a lot of sound and fury, signifying nothing. I’m not saying that one should opt to kill oneself. But the truth of the matter is, when you think of it, every 100 years, there’s a big flush, and everybody in the world is gone. And there’s a new group of people. And this goes on interminably towards no particular end, no rhyme or reason. And the universe, as you know from the best of physicists, is coming apart, and eventually there will be nothing, absolutely nothing. All the great works of Shakespeare, and Beethoven, and Da Vinci, all that will be gone. Now, not for a long time, but shorter than you think because the sun is going to burn out much earlier than the universe vanishes . . . So all these plays and these symphonies, the height of human achievement, will be gone completely. There’ll be no time, no space, nothing at all, just zero.

All plausible, but the universe we live in seems too perfectly structured to have just been randomly constructed by a series of molecules that happened to cohere in particular ways that led to life. The moment that does shine through to me is the Seder scene (which the non-Jewish reviewer saw as a dinner party!) where Woody Allen’s movie grandfather sees morality in the universe because he chooses to. It is difficult to believe with any kind of certainty that there is, with ISIS running around who also believe they represent justice at its highest level. I believe I share Allen’s own perspective which makes everything possible with a blank empty universe of pain and suffering as likely as anything else. He would like evidence that it isn’t so, but you can see that even if he doesn’t believe there is more because he is unable to prove it to himself, there is that spark of hope that makes him keep looking. And being my favourite Woody Allen film, it is also my favourite film of all time.

The Obola virus

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obama ebola response team

The notion of an Obola virus just popped into my head as I was walking home just now but I thought that before I tried to claim originality I would just google it to see if anyone else had thought of it. Well, not only is it across the net and all over the place, it has apparently already been branded as racist. Well, that’s the end of that. I therefore think I should let the people at Quadrant know since they have already posted an article, President Obola’s Panic Attack. It’s by a former citizen of the Soviet Union, so what else can you expect. But at least he is aware of his own peculiarities and is already prepared to self-ostracise himself and so he should. As he writes:

I have given up on myself. Since everyone I know accepts that my views are to the right of Gengis Khan, I no longer have to make the pretense of drinking soy milk or eating tofu and pretending to enjoy it. I am what I am and happy to be that way, even if my children’s faces go red when I open my mouth in polite company. They look pleadingly at others present, trying telepathically, I think, to transmit the thought that every family has its own dotty uncle who, in their case, happens to be their own, beloved and sometimes moderately useful, but very barmy, two-cans-short-of-a six-pack dad.

I know that look of theirs very well indeed. It says, ‘What do you expect? Dad remembers those weird days when steam engines were used to pull trains, people were paid only for working, kids ran around playgrounds largely unsupervised, and men could grow older, and little more portly, without attracting universal ostracism.

Well, being portly and dotty has its compensations, let me tell you. Nobody is surprised when you ask stupid questions or say things that are sooo politically incorrect they would be beyond the pale for everyone except yours truly. This is fun – looking at the same pictures on the TV screen as everyone else and seeing things differently.

He thinks of the panic as just one more way to get other scandals off the front page, but oddly, if this is actually a non-scandal in reality, it is the one that may finally bite. People win Nobel Prizes in economics for pointing out that remote possibilities are seen as far more probable than they really are while the more likely dangers are ignored as just part of life.

But since Obola/Ebama did nothing in the face of this danger of unknown consequence, and he would be the absolute last person to know one way or the other, his uselessness as a chief executive is being recognised by people who prefer not to die a horrible death even if he gives them free phones. So at least there is this, whatever else may happen next.

UPDATE: A similar kind of outrage from Andy McCarthy, Incompetence Meets Mendacity in Obama Administration’s Ebola Response. From the article:

You can only abide politics as soap opera for so long because politics is actually about real life and real stakes. Reality cannot be scripted. Therefore, politics cannot forever be stage-managed as a “narrative” with “optics,” a daily show focused on how the lead character is affected by the latest crisis.

At a certain point, the reality of the crises hits us, and hits close to home. Am I threatened? Am I going to get sick? If I do get sick, am I going to have health coverage and the doctor I trust? Is the government doing its best to make sure I am not infected? Or shot? Or bombed? Or beheaded?

Where do we get the answers to these questions? From the government we’ve grown to depend on. And now the answers are so purposely, patently, and pervasively false, it suddenly seems as if nothing can be trusted — as if, even as our perils intensify, our government erects another house in its Potemkin village.

And then he lists the lies that are more than lies but a form of deceit that in each instance makes people worse off for no compensating advantage other than to those who are lying:

Of course you can keep your health coverage, and your doctor. And we’ll cover everyone while your premiums plummet. Meanwhile, al-Qaeda is “decimated” and these Islamic State guys are just the jayvee team. In fact (fact?), they’re not even Islamic — although they may not be quite as “secular” as the Muslim Brotherhood. Just extremists. (Extreme about what? Don’t ask.) Jihad is just a “purification of the self” . . . or, at most, “workplace violence.” Benghazi? A spontaneous “protest” incited by a video. The president was not told it was a terrorist attack . . . except by the secretary of defense right after it started — long before he responded by . . . going to Vegas, where he promptly announced al-Qaeda was “on the path to defeat.” Still, rest assured that the State Department’s top priority is the safety of American personnel . . . although we did reduce security in Benghazi after our facility was bombed. And rest assured that the Justice Department would never ever let guns walk . . . except for the thousands its Fast and Furious program transferred to violent gangs — who’ve used them in who knows how many crimes, including the murder of a Border Patrol agent. Still, at least there’s “not a smidgen of corruption” at the IRS, where citizens are harassed, evidence keeps disappearing, and the official at the center of it all takes the Fifth to avoid giving incriminating testimony. No matter. Just take heart that Ebola is not coming to the United States . . . um, well, if it does come there will be no outbreak . . . but, er, if there is an outbreak, we have careful protocols and health-care professionals fully trained to deal with it . . . and even if the protocols don’t work and the professionals don’t have adequate training, we’ll have a rigorous monitoring program for anyone who is exposed . . . or maybe a self-monitoring program for people who will isolate themselves . . . unless, of course, we tell them to go ahead and hop on a plane. Well, look, at least we can promise there won’t be a “serious” outbreak.

It’s Obama, of course, but it’s also the American media. No one can trust either as the world goes from one disaster to the next.

The economics of John Stuart Mill

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I have just sent this note off to a publisher about a book I would like to edit. I recently wrote a rejection for an article on John Stuart Mill that was sent back to me three times after which they asked me to write a reply since they were going to publish it anyway. I was coincidentally also refereeing another article at the time for a different journal which has come back for a second time since I think the other referee must have liked it and they will publish notwithstanding anything I might say which is also about Mill. It was then with the two of them together that I finally worked out that no one knows what Mill wrote or what he means. I very strangely fell into Mill’s economics as just part of my reading things that seemed interesting and was immediately captured by his logic and good sense. I didn’t read it the way most academics do, as a kind of deciphering exercise with modern economics as the standard of excellence. I instead read it with an open mind just for interest. My Free Market text is almost literally an amalgam of Mill, Henry Clay and a smattering of more modern gadgetry. So this is the note I wrote:

I copied you in on an earlier email in which I mentioned an idea I had proposed to you quite some time ago. As I noted, John Stuart Mill’s Principles of Political Economy is the least accessible economics text from amongst the whole of the economics literature. It is not just that it is long-winded, but it contains so much that is completely foreign to a modern economist that it is straightforwardly impenetrable. It also delves into vast oceans of explanation that exhaust even the most patient reader. And there are chapters one after another that deal with issues that might have been current in 1848-1871 but which are of no relevance today. My wish is to put together a more compact Mill that is directed at people who would like to understand what Mill was saying that is relevant today but do not have any idea where to start. And to tell the truth, I think there is hardly anyone else alive who could do it. I will attach an article of mine on Mill’s “Fourth Proposition on Capital” which I have described as economic theory’s version of Fermat’s Last Theorem. No one has been able to make sense of it since 1876 although many have tried, including Marshall, Pigou, Taussig, Keynes and Hayek, not to mention modern commentators such as Harry Johnson and Sam Hollander. No one can even make it make sense, whereas I just included it in my Free Market Economics and teach it to my students who find it perfectly straightforward. They wouldn’t even know there’s a controversy or why it’s controversial since really, it makes perfect sense. Therefore in editing Mill, each of the chapters that I would want to include would also require some kind of introduction so that someone could get past the 150-word sentences and see the point. It is, of course, hard for me to judge whether this would be a commercial proposition for you but for me it would represent an important contribution to the economics literature and for that reason may also sell.

What has made this seem more urgent than before was a paper I recently refereed which I rejected three times before being told that based on the other referee they had decided to publish but invited me to write a response which I have now done. You will see the kinds of things in the article that are found in Mill but which are incomprehensible today. Even scholars who write on these issues are unable to comprehend what classical authors believed and why it might be relevant today. But the thing is, Mill is the comprehensive answer to so much of what is wrong with economic theory today. I just find myself surprised to discover that I am one of the few people around who can explain what Mill wrote. I read others who write on Mill and almost no one seems to read Mill directly but only in second-hand form, much the same as with Adam Smith. Anyway, this would interest me to put together and I would like to think of this as my next major project.

What gets me is that if you merely apply Mill to current economic events and policies, the outcomes are perfectly obvious.

The way of the future?

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This is from Sultan Knish. Is he wrong about the future, our future? There is only one way to find out and that is by acting as if he is obviously wrong and thus do nothing at all. Or we could do something and never know for sure what would have happened if we had done nothing. Anyway, it looks like we will do nothing much at all, so we are going to find out sooner or later whether he was right. And this is what he might yet prove to be right about.

The Grand Mufti of Saudi Arabia ruled that ten year old girls can be married off, because in his words, “Good upbringing makes a girl ready to perform all marital duties at that age.”

The Mufti, who also called for destroying churches in the Arabian Peninsula, is descended from Mohammed Wahhab who gave birth to Wahhabism and whose descendants have controlled the Saudi religious establishment, and through it Islam around the world.

However for all his power and influence, the Mufti is blind and hasn’t seen a thing in the last half century years; an apt metaphor for his entire religion.

Saudi Arabia, the heartland of Islam, still tries and executes witches. What sort of religion can come out of a place that marries off ten year old girls and murders old women on charges of witchcraft? The sort that flies planes into skyscrapers, murders teenage girls for using Facebook and bases its entire society on a ladder with Muslim men at the top, Muslim women a few rungs below and everyone else somewhere at the bottom.

The Saudis are not an aberration, they are Islam in its purest and truest form. That is why Al Qaeda was founded by a Saudi and why Saudis, the wealthy citizens of a wealthy kingdom, are its best recruits. It is not poverty or oppression that moves them to kill, but wealth and privilege. . . .

The endgame of the Arab Spring and the immigration Hegira is to reduce the entire world to the level of Saudi Arabia. And that means eliminating outside influences in a long march to purification. Islamists know that they cannot enjoy complete cultural dominance over their own people until their rivals in the West are obliterated. To turn Egypt and Malaysia into Saudi Arabia, and to purify Saudi Arabia, the infidels must be brought down, their religions subjugated and their nations replaced with proper Islamic states.

Islamic leaders are under no illusion that religion is a spiritual matter, they know that it is a numbers game. Wage enough wars, terrorize enough nations, marry enough barely post-pubescent girls and use them to crank out an endless supply of babies, intimidate or trick enough infidels into joining up and you win. That was how Islam took over so much territory and spread around the world, that is how it is doing it again now. . . .

Islam is savage, intolerant, cruel and expansionistic, not due to a misunderstanding, but an understanding of the worst aspects of human nature. It is what it is and no amount of wishing will make it otherwise. We have opened the door to the desert and a hot wind blows through into the northern climes. Either we shut the door or get used to living in the Saudi desert.

And while you’re thinking about these things, and after you have read the whole article, you can then watch the video above.