Yearly Archives: 2014

The academic equivalent to foreign travel

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Back in April I noted the birth of what is known as Post Crash Economics. You can read this previous post but basically there is a concern that modern economics, in the way it is taught, is too narrow and shuts out alternative perspectives. As stated in the initial Report that was initiated at the University of Manchester:

This lack of competing thought stifles innovation, damages creativity and suppresses the constructive criticisms that are so vital for economic understanding and advancement. There is also a distinct lack of real-world application of economic ideas, with the focus being on abstract modelling that often seems devoid from reality. Finally, the study of ethics, politics and history are almost completely absent from the syllabus. We propose that economics cannot be properly understood with all these aspects excluded.

Well I agree with all of that, but with me it was Pre-Crash Economics as well. There is a need for wider vistas and a recognition that the various heterodox schools within economics ought to be actively engaged within mainstream discussion of economic issues. With a Deputy Governor of the Bank of England and the endorsement of the Institute of Economic Affairs, there is at least a possibility that the PCE movement may not simply become another leftist rant of no consequence.

The first meeting of the Australian PCE Society was held today at the University of Melbourne and I went along. The chap who spoke, who had come all the way from Manchester to discuss what they had in mind. And while there were various moments when his own underlying agenda was all-too-obvious as a long-ago member of the left, his final slide had the words “It’s time to challenge the orthodoxy” and showed a woman with a “power to the people” fist in the air.

I therefore asked the first of the questions from the floor which was more of a comment than a question. And what I said was something like this:

If you would like to set up a group that widens the study of economics and introduces the full range of the various schools of thought to the education of economics students, then I am with you all the way. But if you are going to just use this grouping as another version of the ratbag left, then you will do nothing other than just create one more meaningless structure which someone such as myself will have nothing to do with. Your presentation was not neutral. You are without any doubt a person of the left. But you will only succeed if what you do really is neutral between all of the various groups that find neo-classical economics wrong in important respects. Economics, however, is not an easy subject that someone without formal training can choose amongst theoretical perspectives without serious study. If this is just one more anti-capitalist rant, then you can forget it. You cannot “democratise” the study of economics as some kind of all-in enterprise where everyone’s opinion counts for one and no one’s counts for more than one. But if you are genuinely interested in broadening the perspectives students receive, then, but only then, will you have the support of those of us from a more market-oriented perspective.

Unfortunately, Robert Conquest’s second law of politics seems destined to be repeated: “Any organisation not explicitly right-wing sooner or later becomes left-wing”. Given what I saw today, it will be sooner rather than later but I shall continue coming along at least for a while.

But let me stress this. The Australians who have done the organisation here are trying to make this work as it is intended to work. I was specifically invited and while only belatedly asked to bring along others, the invitation was sincere. If there is a proper spirit of inquiry – very rare but not unknown – then this could be a useful and interesting forum. There is never any doubt that those of a leftist persuasion will turn out. More difficult will be to find those of a free-market bent. Everyone who comes along does, of course, have their own agenda. But sometimes, as might be possible in this case, the mutual agendas will be reinforcing where each of us can get something of interest. And anyway, I like talking to others about economics and listening to what they have to say.

Which brings me to the lunch that followed the seminar. There I discovered one more reason to study the history of economic thought, one that had not occurred to me before. In studying HET, what you have to be able to do is make logical sense of what someone else has said. You have to be able to understand another person’s argument and make it coherent. You are not, of course, asked to accept this other argument but you have to be able to see why someone else might have thought it was true, and the circumstances that allowed them to think it is true. I don’t say it is easy but I do say it is a valuable skill. It is the academic equivalent to foreign travel. Some people go to other countries and learn not a thing other than how weird other people are and come back unchanged. And then some people go to other countries and find out how others live so that they can learn something about themselves by learning about these different cultures.

How to stop greenies in their tracks

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I went to hear a quite entertaining presentation by the former comedian, Rod Quantock today, speaking on global warming. Well, we are all doomed and he has a pitch that is well honed and nicely presented. And myself now being ready to believe that we are past peak oil and may well be heading into very rocky terrain no matter whether the planet is warming, cooling or doing nothing at all, I asked what he thinks we should do. So he said, as a joke I suppose, that what we should be doing is starting twenty years ago. Since in his view we are anyway locked into massive heating with water and oil running out in the reasonably near future, and since there is nothing that can now be done about it, I cannot see why he believes it’s his duty to go around terrifying young children about a world with no Tim Tams (well I guess it’s a living). I am a bit on the aged side so most of this when it happens will be well past my bedtime (and his as well since we were born in the same year, apparently), so I might as well keep flying and enjoying life, along with Al Gore and the American President. No self restraint of mine today will make the slightest difference so why bother trying?

Yet in the conversations afterwards although not with him, I trotted out my global cooling story which really is a great pleasure for me in such moments. Because if you really do think we are at peak oil, and who is to say we are not, and we don’t switch pronto to some form of nuclear power, there is no story so pessimistic that it may not fit the facts of the world as it will unfold if oil really does become scarce. I don’t know and you don’t know what is happening. But David Archibald, who teaches strategic energy policy in Washington, wrote this in his Twilight of Abundance:

The logistic decline plot of world oil production shows that the year of peak output arrived in 2005. The oil market began tightening slightly earlier, in June 2004. The oil price today is three times what it was in that year, but oil output has not increased in response to that price signal. The reason it has not is because it cannot. Almost all of the world’s oilfields are producing as fast as their owners can make them. There is only a little spare capacity on the planet. Global production of conventional oil has been flat since 2005. The logistic decline plot tells us that the world’s supply of conventional oil will fall away soon, and rapidly.

There are seven billion on the planet. If we run out of oil without a cheap replacement a very large number of us will not survive into old age. We have the technology to build safe nuclear power but those, too, are off every green agenda. So just for fun, next time you are in such a conversation, do what I did:

Agree that we are running out of oil, in fact insist on it

Point out there are no cheap substitutes for oil

Say you think hundreds of millions if not more may die and relatively soon if some cheap source of energy is not found

Point out that neither wind nor solar are cheap and reliable and cannot be used as a replacement

Ask what should we do?

You will by doing this outdo any green-leftist on the planet with your pessimism. You will leave them as the optimists in the room and you as the only stone cold sober realist. The only problem then comes when you start to wonder yourself whether you might in fact be right. Because what if you are?

What fools we are

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If you read M. Stanton Evan’s historical investigation into Joe McCarthy, Blacklisted by History, you will come away recognising how one of the bravest men in our history was taken down by the left and his name turned into the very essence of political wickedness. Which is worse in our day and age: McCarthyist tactics or Stalinist tactics? At best they might come out equal to anyone – left or right – who thinks about politics today, but of the two – again whether left of right – there would be a fair proportion who would think McCarthy did more damage. And what are the lessons that McCarthy has for us today? It is to keep one’s head down and under no circumstances try to take on the left because they will use every technique under the sun to do you in.

I have no answer to the question why McCarthy remains the villain he is portrayed as having been by the right. That the left villifies him is par for the course. They will never stop since it is a supposed weak point for the conservative side of politics so long as McCarthyism remains the epitome of political evil. But on the right there ought to be, you would think, some effort made to resurrect his memory, especially since virtually everything he said proved not only to be true, but largely understated. I wrote about the latest episode of the right using McCarthy once again as the arch villain here. Now, Diana West, who has also found herself on the outside looking in for writing the most extraordinary book on communist infiltration of the Roosevelt White House, American Betrayal, has taken up this theme by looking at the post I wrote.

She has written The Problem Isn’t “McCarthyism,” It’s McCarthymania. When I looked at the original article in the Weekly Standard attacking McCarthy for having used his influence to have one of his assistants receive a commission (which he didn’t get, by the way) as a parallel instance of Joe Biden’s son being thrown out of the army for cocaine use having received his own commission in the first place because his father is Vice President, I could say no more than this is not an issue that should be used as a form of self-flagellation on the right. Why allow this minor scandal to be shared in such a stupid way, to write as if we are just as bad as them, and to use McCarthy as the vehicle? But the fact is, I didn’t know any of the details of this particular instance, but Diana West does. And when you read these details, the supposed equivalence is more obtuse than you could possibly imagine. Here is what I found to be the crucial point:

Ironically, at one point in the proceedings, as Evans relates in his definitive McCarthy study, Blacklisted by History, famed Army lawyer Welch, thinking to discredit Cohn, moved to introduce into the record one of the many Army-transcribed conversations on the matter, in this case between Army Secretary Stevens and Sen. McCarthy. It was a conversation “in which McCarthy downplayed the importance of Schine [as an investigator on his staff], said he didn’t want any favors for him, and said Cohn was `completely unreasonable’ on the topic.”

There is no parallel. McCarthy once again comes across as a man of exemplary character. Others may then wish to toss this around, and do the left’s work for them by contesting West and Stanton Evans, but to what end? If they are the enemy what is Obama? My greater question is, where is our McCarthy today, someone who can take the fight up to the left who are ruining our civilisation in so many ways that it is almost impossible to see how this can ever be turned round. The institutions have been marched through to such an extent that even when you find someone like Diana West who writes a book that exposes the perfidy of the left, it is our side that does the trouncing while the left merely stands by and laughs at what fools we are.

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.