Yearly Archives: 2014

Low interest rates are a killer

Posted on by
Reply

Part of the Keynesian disease, a big part, is the fetish for low rates of interest. Not everyone now necessarily thinks so. This is from the Bank for International Settlements:

The international body representing central banks is warning its members that record low interest rates are generating conditions for another global financial crisis that may be worse than the first.

In its annual report, the Swiss-based Bank for International Settlements (BIS) expressed serious concern that global share markets had reached new highs and the interest rate premium for many risky loans had fallen.

“Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally,” the bank wrote.

The BIS says the disconnect is largely due to continued monetary stimulus in the form of money printing and record low interest rates by many developed economy central banks.

Why interest rates too low are a problem is hardly obvious and is hardly taught. Very clear from reading the pre-Keynesian literature but who reads any of that now. But the BIS is sending out the clearest possible warning but is it even possible that anyone at the heights of our political establishment would either understand or act on this advice.

With thanks to Julie for sending the link along.

Let’s do the time warp, again

Posted on by
Reply

I don’t know if this has been news in Canada but the front page of the Globe and Mail on Friday read, “Historic Ruling Upholds Land Rights”. The subheading was “Supreme Court decision recongnizes existence of aboriginal title, opening a new era in native relations with government.

The National Post was a bit more to the point: Supreme Court B.C. land-claim ruling has staggering implications for Canadian resource projects. All this will be familiar back home, but from the story:

Written by Chief Justice Beverley McLachlin, the unanimous ruling says that aboriginal title “flows from occupation in the sense of regular and exclusive use of land … Occupation sufficient to ground aboriginal title is not confined to specific sites of settlement, but extends to tracts of land that were regularly used for hunting, fishing or otherwise exploiting resources and over which the group exercised effective control at the time of assertion of European sovereignty.”

It means that economic development proposed by non-aboriginals — such as resource extraction and pipeline activity — requires explicit consent from host First Nations on land where the Supreme Court’s expanded concept of land title is established.

Let justice be done, as they say, though the heavens may fall.

US GDP contracts at a rate of 2.9%

Posted on by
Reply

Not exactly news but quite incredible all the same:

The Commerce Department said on Wednesday gross domestic product fell at a 2.9 percent annual rate, the economy’s worst performance in five years, instead of the 1.0 percent pace it had reported last month.

I especially like the bit about the worst in five years. It has now contracted during a supposed recovery at the same rate as it did at the height of the GFC. And for those few remaining fans of a demand stimulus, let me just add this:

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 1.0 percent rate.

Usual Keynesian ignorance about the two-thirds of economic activity. But however much it contributes, the economy went backwards even though consumption grew.

Getting Say’s Law exactly right

Posted on by
Reply

It is so rare for anyone to get Say’s Law exactly right that you must forgive me if I quote at length, specially since he quotes me. This is from an article by Steve H. Hanke, Professor of Applied Economics at the Johns Hopkins University in Baltimore, and titled, “GO: J.M. Keynes versus J.-B. Say”. It is found in the publication, Global Asia:

The French economist J.-B. Say (1767-1832) was a highly regarded member of the Classical School. To this day, he is best known for Say’s Law of markets. In the popular lexicon – courtesy of John Maynard Keynes – this law simply states that “supply creates its own demand.” But, according to Steven Kates, one of the world’s leading experts on Say, Keynes’ rendition of Say’s Law distorts its true meaning and leaves its main message on the cutting room floor.

Say’s message was clear: a demand failure could not cause an economic slump. This message was accepted by virtually every major economist, prior to the publication of Keynes’ General Theory in 1936. So, before the General Theory, even though most economists thought business cycles were in the cards, demand failure was not listed as one of the causes of an economic downturn.

All this was overturned by Keynes. Kates argues convincingly that Keynes had to set Say up as a sort of straw man so that he could remove Say’s ideas from the economists’ discourse and the public’s thinking. Keynes had to do this because his entire theory was based on the analysis of demand failure, and his prescription for putting life back into aggregate demand – namely, a fiscal stimulus (read: lower taxes and/or higher government spending).

The rest of the article deals with the new statistic that has just been released by the Bureau of Economic Analysis in the United States which has largely been undertaken because at the instigation of the great Austrian economist, Mark Skousen. The notion that consumption drives an economy is so nonsensical since consumer demand is the end of all forms of production, from mining coal to generating electricity and so to focus on consumer demand is focusing on nothing at all other than the end of the production process. But if we are looking at value added, as we ought to be, only about 5% of economic activity is directed at selling directly to consumers. The new supply side statistic that has been developed, which at long last gets this balance right, will make a great difference in how the economy is perceived, which should also make a difference in how it is managed, or at least it is to be hoped. Let me finish with one further quote from Professor Hanke:

Even though the always clever Keynes temporarily buried J.-B. Say, the great Say is back. With that, the relative importance of consumption and government expenditures withers away. And, yes, the alleged importance of fiscal policy withers away, too.

Contrary to what the standard textbooks have taught us and what that pundits repeat ad nauseam, consumption is not the big elephant in the room. The elephant is business expenditures.

If you really want to stimulate the economy, it is business at every stage of production you have to go through and not the consumer. How different that kind of economic policy would need to be, but at least it will have the merit of actually producing positive results.

The end of days

Posted on by
Reply

The thing is that travelling first through the United States and now arriving in Canada, the dangerous terminal illnesses of our civilisation are not mentioned, so far as I can tell, in the press or on the news. This story is titled, The Decline of Western Civilization in a Few Paragraphs and this is how it ends. You will need to read the whole thing to see how he got to here from where he began:

A sign of a sick society is its cheap empathy and caring for the present, and its utter indifference to the past and future. We never much cared about the havoc that Ms. Vasquez did in the past and did not worry about the obvious trajectory of her future — so a judge lectured, a prosecutor dropped a case, and others let her out shortly before she did the same thing that she always had done. . . .

Anyone in law enforcement or the criminal justice bureaucracy could have long ago predicted Ms. Vazquez’s rendezvous with Mr. Winslow. He remains a forgotten victim that the state spent not a dime on, and who is now mute while Ms. Vazquez and her lawyer lecture us about “T-boning,” “addictions” and “stepfathers” — and slamming into and sending a Jeep down an embankment as proof of not being murderous.

Via Instapundit

HET Montreal 2014

Posted on by
Reply

The History of Economic Thought conference in Montreal has just ended and, as always, it was wall-to-wall interesting. I have already given a background report on the paper I gave before it was given and I can now report how nicely it went. Even in HET where historical change is our line of work, there is that dreamworld notion that everything stays as it is without effort so my warning that the history of economics has enemies who would drive it as far as they can from economic theory seems remote and incomprehensible. But the people who would move it are still in executive positions, but now it’s for a new generation to deal with.

The most remarkable aspect of the conference was that there was not a single paper on Keynes. Two, three, four years ago, such conferences were crawling with “Keynes, return of the master” sorts of things. Now, not a one. It’s not that the Keynesians have gone anywhere since it is still impossible to think about macro without aggregate demand. Instead, there is confusion and uncertainty about how to go forward, but try to find a textbook that talks about the national economy without mention of C+I+G. It can’t go away unless economists begin to understand Say’s Law and that’s not happening soon. So it is a sullen quiet resentment that hovers over economics with the vultures ready to pick at the bones of economies that fail to recover due to perceived failures of the various austerity programs. I think the Chinese are more likely to try a market-based solution before the Americans but that really means no one is likely to try one any time soon.

And as a bonus, Montreal is lovely, more similar to Melbourne, as I’d been previously told, than it is to Sydney. But the many “a louer” signs everywhere shows a city down on its luck. But aside from six months of winter with ten foot snow drifts, this seems a very liveable place to be.

Why economics needs the history of economic thought

Posted on by
Reply

My reason for being on the road and in Montreal is to attend the American History of Economic Society meetings. I wrote my Defending the History of Economic Thought in response to attempts to remove HET from within the economics classification and place it in some remote category as far from economics itself as they could arrange. In Australia (2007) it was to be, “History, Archaeology, Religion and Philosophy” while it Europe (2011) it would have been, “The Study of the Human Past: Archaeology, History of Memory”. If you had therefore been studying HET, you would not have been studying economics. Your papers also would not have been HET. As near death as HET already is, over the precipice it would have gone.

For HET has enemies everywhere. For the makers of the Classification Codes at the OECD, because the history of economic thought was “history”, neatness demanded HET be included as part of the humanities with other types of history, not with economics in the social sciences. But the more I became involved, the more it turned out that the mainstream of the profession wants HET out of economics because, so far as they are concerned, it gives legitimacy to alternative approaches to economic theory, approaches such as my own, which is seen as part of the “heterodox” tradition rather than the orthodox, orthodox like Y=C+I+G. For the mainstream, this is one way to get rid of the competition. Competition may be fine in theory, but not so much in practice.

But the odd part turned out to be that the elite of the HET establishment were also actively seeking this change. Because so much of HET is made up of people who think the mainstream is useless – uninteresting questions, badly answered – there is a push at the very top of the HET executive (its current president, for one) to turn HET into the history and philosophy of science. No more of these Austrians, or post-Keynesians, or Institutionalists, or Sraffians, or John Stuart Mill classicals. Out with the lot and HET can be a study of the sociology of knowledge. The American Society is at the centre of this attempted shift, and my efforts to preserve HET within economics and then write a book about it is resented in a way you would not believe, or at least I would not have. Just think of them as the equivalent of global warmists and you will get some sense of what they think about what I wrote. If you think my sweet little book on defending HET has had a series of lovely reviews within HET journals, you would not be right. Astonishing for me. I suppose I should not have been surprised but I have been.

So today I will present in defence of my book. Will let you know how it went later.

Why didn’t I see this anywhere else?

Posted on by
Reply

June 19 was the hundredth anniversary of the assassination of Archduke Franz Ferdinand, the event that started World War I.

The world has never been the same.

More astonishing than anything I can think of is the absence of news on this. But as I am on the road and in North America, maybe it’s everywhere but I just didn’t see.

This is what they do with their prisoners of war

Posted on by
Reply

taliban prisoners of war

We just send ours back.

To describe Obama as out of his depth is to suggest any depth at all. A perfect embodiment of the left, filled with shallow sentimentality but with no idea how the world works. Here’s the text that comes with the pictures and with more pictures if you can stand it:

Sunni Islamist militants claimed on Sunday that they had massacred hundreds of captive Shiite members of Iraq’s security forces, posting grisly pictures of a mass execution in Tikrit as evidence and warning of more killing to come…

The group’s announcement was made in a series of gruesome photographs uploaded to an ISIS Twitter feed and on websites late on Saturday night. Some showed insurgents, many wearing black masks, lining up at the edges of what looked like shallow mass graves and apparently firing their weapons into young men who had their hands bound behind their backs and were packed closely together in large groups.

The photographs showed what appeared to be seven massacre sites, although several of them may have been different views of the same sites…

The militants’ captions seemed tailor-made to ignite anger and fear among Shiites. “The filthy Shiites are killed in the hundreds,” one read.

Disproving Keynesian economics once and for all

Posted on by
Reply

I don’t allow comments on this blog mainly because I am not up to policing what other people say. But I read them and this today, from Rob, was stunning. Referring to my little rant on the uselessness of economic theory today, he wrote:

But at least it has advanced enough to tell us that for more growth, we need …. more broken windows:

The Lack of Major Wars May Be Hurting Economic Growth

Tyler Cowen is a professor of economics at George Mason University

I mean, what would a dead white male like Frederic Bastiat know anyway?

Tyler Cowen is, of course, a live white male, but given there are such things as negative knowledge – things that if you believe them make you dumber than if you knew nothing at all – it is possible for him to know less than Frederic Bastiat, dead though he may be. Let me quote from the opening of that column:

The continuing slowness of economic growth in high-income economies has prompted soul-searching among economists. They have looked to weak demand, rising inequality, Chinese competition, over-regulation, inadequate infrastructure and an exhaustion of new technological ideas as possible culprits.

An additional explanation of slow growth is now receiving attention, however. It is the persistence and expectation of peace.

Let me put it this way. There is bad economics, there is unbelievably stupid economics, and there is the belief that growth has slowed because there are no wars.

It is neither here nor there that there’s not all that much peace around anyway. But let me remind you of the greatest disproof of Keynesian economic policy in history. Everyone always points out that one Keynesian data point which is the so-called boom that came at the start of World War II. Not a boom at all since what most people remember about the home front was rationing and controls of every kind, and if you are thinking about the labour shortages, merely recall that around half the labour force under thirty was drafted into the army. But that’s not that point either, although it should put quite a dent into such Keynesian thought.

It is the coming of peace in 1945 that is the grand refutation of Keynesian economics. At the end of the war, within a year millions who had been overseas fighting, or had been part of the war effort at home, were suddenly in the labour market looking for work. Many women who had taken jobs while the men were overseas also remained in the workforce. The Keynesians were continually badgering Truman to maintain war-time deficits since, they said, if he did not the US would go straight back into the depression. Truman, however, having had a business background, hated deficits and the US virtually balanced its budget in a single year. No deficits, no stimulus, no nothing. The US slashed its expenditures and in so doing set off the greatest economic boom in world history, a boom that lasted straight through until ground into the dust by the war on poverty, and dare I say it, the unfunded, deficit-financed war in Vietnam.

Thinking about economic issues from the demand side is the single biggest mistake anyone can make in economics. In fact, if you do think that way, you aren’t even an economist since Say’s Law was once considered the best test of a sound economist. Not many of them around any more, I fear.

Here is the message. An economy is driven only by real value adding supply. Nothing else. This is the message of Say’s Law, supposedly discredited by Keynes but as accurate a statement of economic principle as there has ever been.