Let’s suppose we had what we need: some form of balanced budget amendment. What would the Government then do? Labor left the hole in the revenue stream relative to the expenditures it chose. So this government is going to fix it if it can and subject to the detail, I’m all for it. From The Australian, Joe Hockey to swing axe on public sector:
MORE than 200 spending programs will be slashed in next week’s federal budget as Joe Hockey vows to shrink the size of government in a “big, structural change” to save billions of dollars.
Agencies will be closed and thousands of staff retrenched over the coming months in a drastic overhaul that will start with the loss of 3000 positions in the Treasurer’s own portfolio.
The axe will fall in major portfolios including environment, transport, industry, agriculture and indigenous affairs.
Mr Hockey told The Australian that spending cuts would do the “heavy lifting” in fixing the deficit, despite growing criticism of looming tax hikes including a lift in fuel excise.
“Revenue is not doing the heavy lifting in this budget,” Mr Hockey said.
The question will end up being whether there is a constituency for a government that lives within its means. Watching Anna “I’m a Socialist” Burke the other night on Q&A was too much of a reminder of the kinds of idiocy we are up against. Labor has not learned a thing from the problems it created. If anything, it is more proud of itself than ever for its waste and misdirection. What we are going to find out over the next few months, it seems, is whether there is or is not a constituency for a genuinely smaller, more efficient government. And since it is impossible to rid ourselves of the NBN and everyone is signed up for the NDIS, the rest is now a process of going through the books program by program. I only wish they did the politics better.
I am very happy to say that the best paper I have ever written was just yesterday accepted for publication. It’s on John Stuart Mill’s Fourth Proposition on Capital which he published as part of his Principles of Political Economy in 1848. In his own lifetime it was never challenged. Leslie Stephen (who incidentally was Virginia Wolf’s father) described it in 1876 as “the best test of a sound economist”. And yet by 1890 and ever since, although some of the great minds of economics have had a go at it, no one has been able to make straightforward sense of what Mill had meant. And when I say some of the great minds of economics, I am including Alfred Marshall, Friedrich Hayek and Allyn Young.
I should also add that understanding Mill may be amongst the most important issues of our time. Keynesian economic theory, which argues the exact opposite of what Mill had written, has had a devastating effect on every economy in which a Keynesian policy has been applied. Our economies are sinking under the weight of useless public spending and misdirected expenditures under the delusion that such spending will actually do us some good. Mill and every one of his classical contemporaries perfectly well understood that wasteful non-value-adding spending would not only do no good, it would actually do positive harm.
So what was this Fourth Proposition. It may not look all that formidable but in it there lies a truth that may yet save our economies. What Mill wrote was this: “Demand for commodities is not demand for labour.” Or restated using the jargon of today: an increase in aggregate demand will not lead to an increase in employment. The principle stated here is the classical pre-Keynesian meaning of Say’s Law, which has vanished from amongst economists and been replaced by the Keynesian theory which had been specifically designed to refute Say.
For me, the disastrous outcome of the application of Keynesian policies was a certainty. It was beyond any doubt in my mind that the stimulus would not just fail but bring ruin in its wake. I put my views into print in February 2009 just as the stimulus programs were being put into place and my five-year review was published in March this year. In 2009 it was mostly just theory although there had been plenty of Keynesian failures before that. By 2014, the evidence has become so overwhelming that there should no longer be the slightest doubt that a Keynesian stimulus will sink your economy into a coma and leave it that way for years on end. If you want to know why, you can read Mill, or if you find a thousand pages of mid-nineteenth century prose a bit on the heavy duty side, you can read this instead.
Now here’s a story, from Michael Ledeen. It’s called The Chinese and the Jews. This is how it starts:
Over the past couple of decades the Chinese have become more interested in the Jews. Of late the Chinese regime has been bringing Jewish scholars and theologians to the People’s Republic to discuss Torah, Talmud, Mishnah and even some of the more mystical tracts.
Now why would that be? Again some answers:
Back when the country’s greatest modern man, Deng Xiaoping, converted the PRC economy to capitalism, Chinese “social scientists” went to work trying to figure out what makes capitalists tick. They were quickly baffled. They kept running into problems; that “knack” we’ve got somehow eluded their new system. After a while, they figured out that the capitalists’ success couldn’t be entirely explained by the nuts and bolts of the marketplace, or by institutions like private property, important though they were. Yes, it would have been easier just to read Michael Novak’s magnum opus, but they got to his end place: religion is an essential part of successful capitalism.
In their amazing way of organizing most anything, the Chinese launched churches, and of course millions upon millions of them attended Christian (mostly Catholic) services. To be sure, the Party kept a suspicious eye wide open, and some of the churches were deemed too dangerous, even in the cause of Communism. But on they went, convinced they were on the right path. If anyone doubted it, they had mountains of research and even Tocqueville to justify the turn to religion.
After a couple of decades of this, there were still problems, and their social scientists took another look. This time around, they found–surprise!–lots of Jews involved in capitalist enterprises, from banks to stock exchanges to corporations. Indeed, the Jews had a history of doing it. Maybe the Jews knew something the others didn’t? Well, look at Israel…or New York…
And so they’re talking to Jews, not about capitalism but about Judaism. State radio now broadcasts in Hebrew. The Jewish experts who are brought to China find themselves speaking Hebrew with their Chinese interlocutors. Chinese students can now learn Hebrew, and immerse themselves in Jewish studies.
For these three weeks of sexual kamikaze, antechinus males are concerned with nothing–absolutely nothing–other than mating with as many females as they possibly can. Ecologist Andrew Baker of Australia’s Queensland University of Technology, who studies these critters’ astonishing habits, has even picked up a copulating pair, who ignored him entirely and went about their business in his hands. “It’s pretty frenzied,” said Baker. “There’s no courtship or anything like that. The males basically just grab the females and go for it.”
Former U.S. President George H.W. Bush showed courage in breaking his “read my lips: no new taxes” campaign pledge to broker a 1990 budget compromise that may have cost him re-election two years later, the John F. Kennedy Library Foundation said on Sunday.
The organization honored the 41st U.S. president with its 2014 Profile in Courage Award, praising the Republican leader’s “decision to put country above party and political prospects” in the deal with congressional Democrats.
“America’s gain was President Bush’s loss,” Jack Schlossberg, grandson of former president John F. Kennedy and a member of the award committee, said during a ceremony at the library in Boston. . . .
In September 1990, two years into George H.W. Bush’s first term, the United States was saddled with a $200 billion budget deficit. Months of partisan wrangling over possible tax increases and spending cuts had ended in a stalemate.
Despite the potential political backlash, Bush announced a compromise with congressional Democrats that would cut $500 billion from the deficit in five years, in part by raising “luxury taxes” on items including yachts and pricey cars, among other tax hikes.
“The time for politics and posturing is over,” Bush said in an October 1990 speech. “The time to come together is now.”
The budget passed, but Bush’s concession on a tax increase rankled members of his party and stood at odds with his “no new taxes” campaign promise. He lost re-election to Democrat Bill Clinton in 1992.
Watching Q&A was more than usually entertaining. The real surprise to me was not that it happened but that it had never happened before. A live broadcast ought to have been a very tempting target. Yet for all their idiocies, it was the people on the panel who were the one’s that spooked me, specially Anna Burke who could not have been more out to lunch had she been scripted for it. I now think the Coalition will win the next election. Just get people like Burke back before a camera mouthing off the usual platitudes and the Libs will win in a walk.
In its own way what I found so pathetic about the protestors is how old time they are. We were doing the same ourselves back in the 1960s when it was new and fresh. Pathetic and disgusting but new and fresh. The left in both its tactics and ideas seems to be locked into a mould that ought to have died on the vine thirty years ago. But for all their empty rhetoric and curiously vacant ideas, these people are a high level danger to the social order. It reminded me of a recent post by Stacy McCain talking about American universities:
Scarcely a day goes by that we don’t hear some report of the increasing turn toward totalitarianism by the campus Left. Progressive hegemony on university faculties, a humanities curriculum heavily influenced by crypto-Marxist “theory,” and the radicalization of students through an identity-group Culture of Grievance, all contribute to this growing climate of intolerance. Administrators, when not actually in sympathy with the radicals, abdicate authority in the face of intimidation tactics employed by the militant Left at universities and colleges.
On a university campus few will stand up, often because administrators sympathise with those who protest. But to have taken their national socialist tactics into the greater world beyond the campus gates was a mistake. The usual Trot approach is the worse the better. The worse the establishment comes down on their heads, the better conditions will become in getting us to the revolution. They are likely to end up all the worse for what they did. Whether that leads to better as they define it, of this I have very great doubts.
I have just gone through a large section of Simon Newcomb’s Principles of Political Economy published in 1886 just as I was reading The Economist and The Financial Times 2013 book of the year, When the Money Runs Out: The End of Western Affluence. The difference in substance and depth is so profound it leaves me in despair.
But I want to focus on one particular aspect of what really is a book of junk ideas and simplistic formulations. Lots of dross gets published but only one book per annum is rated the best of the year. If this is what economic journalism sees as the finest flowering of contemporary thought, there cannot be all that much economic thought in contemporary journalism.
The author is Stephen D. King who is Chief Economist for a bank, HSBC in particular. He is therefore fixated on the monetary side of economics with the actual productive side having a mere shadowy existence somewhere deep in the background. No evident consideration of value added and production, just shifts in aggregates, most of which are financial.
But let me leave all that to the side along with his smugness and self-satisfaction. No admirer of contemporary economic thought myself, his bizarrely superficial economic recommendations that rest on his support for nominal GDP targeting show him to be about as deep as anyone could be who never thinks in terms of the entrepreneur and value adding activity. That is not, however, why I have bothered to bring his book up.
You see, he blames my poor generation, we baby boomers, for our economic problems today. And while I also think of my generation as the beginning of the rot, I don’t think of things in quite the same sort of way. If anything, where I feel we baby boomers may be most at fault is producing the generations that have come after. So with this in mind, let me take you to what he has to say (all quotes taken from page 243) about our current economic problems in relation to my generation:
“The boomers’ preferences have dominated society’s choices since they first reached adulthood in the 1960s and 1970s. In their twenties and thirties they accepted higher inflation; their mortgages were, in effect, partially written off even as pensioners saw their savings destroyed.”
In 1970, as the Great Inflation was getting under way, even the oldest of the baby boomers was no more than 25 and most were under twenty. We didn’t cause the inflation and I would hardly say we had accepted the acceleration in prices given that we did what we could to end it. If you want causes, you have to go back to the generation before. But if you want solutions, who were our political leaders that we first voted for and put into office? In the US it was Ronald Reagan and in the UK, Margaret Thatcher. Where are your equivalents today? There is not a ghost of a chance that his generation would ever put either of these into office. They were giants compared with the pygmies who have come since. He goes on about my generation, here in a continuation of the above quote:
“Now in their fifties, sixties and seventies, they insist on low inflation, fearing the erosion of their lifetime savings as they head into retirement. The boomers have had their cake and made sure they could eat it.”
You really do have to help me out here, Stephen. We didn’t cause the inflation of the 1970s since we were not in political charge but have worked hard ever since to make sure inflation does not take off again. Was this the wrong call? Should we have had more inflation? Do we need more inflation now? What’s your point? Well here are his thoughts about how to deal with this baby boomer generation for whom he has a name of his own.
“One answer would simply be to wait for the selfish generation to expire. By that stage, however, the damage may have been done: their gains will have been the rest of society’s losses.” [My bolding]
Yes, we could wait for us all to die off, but that’s such a slow process, he thinks. So what to do? In a continuation from the previous sentence and in the same para he therefore suggests this.
“Another would be to recognise the futile nature of the large amounts of medical expenditure for those approaching the final curtain, a use of resources for which the returns are, sadly, lacking [!!!]. It seems unlikely [!!!], however, that society is yet [!!!] willing to embrace voluntary euthanasia – let alone the involuntary kind – any time soon [!!!], or to become indifferent to death, whatever the age.”
This is not written as a joke in “a modest proposal” sort of way. You can quite clearly see that even if he’s not game to say it, his actual real answer is to leave us all to die off as quickly as possible. If we are no longer productive, we should no longer be allowed to absorb resources.
This man is an absolute caricature, a Monty Python version of a merchant banker.
And while he has a chapter he titles, “Dystopia”, these answers are in the following chapter, the one he titles, “Avoiding Dystopia” where he has put all of his suggested remedies. And while Charles Moore in The Daily Telegraph may believe, as it says on the cover of the book, that “it is alarmingly difficult not to disagree with Stephen King”, if he really believes that, I think he might have had the wrong Stephen King in mind.
The century is only a little over fourteen years and we began it in 2000 which isn’t technically correct but these are the iconic photos that best represent the century so far. They are in chronological order so that you can see the way the century has so far progressed. It also reminds you of how much we seem to have forgotten.
Yet its progressive left agenda is best represented by the absence of a photo of a plane being flown into the World Trade Center. Such imagery is verboten since it conjures up the wrong kind of thoughts in people about the menaces we face today. It reminds me more about what’s wrong and I fear it will only get worse.
Who today could this be referring to? From Stacy McCain talking about American universities:
Scarcely a day goes by that we don’t hear some report of the increasing turn toward totalitarianism by the campus Left. Progressive hegemony on university faculties, a humanities curriculum heavily influenced by crypto-Marxist “theory,” and the radicalization of students through an identity-group Culture of Grievance, all contribute to this growing climate of intolerance. Administrators, when not actually in sympathy with the radicals, abdicate authority in the face of intimidation tactics employed by the militant Left at universities and colleges.
Well, here we are heading for the fiscal falls. The Government has locked in their strategy, not one I would have chosen but they have made the decision so over the falls we will go.
Let us try to be positive. First and foremost, it is better than anything that Labor might have done. For all their maunderings about balancing the budget and getting their house in order, there was never the slightest chance they would. The Swan-Wong team of economic managers had no will at all to stop the fiscal rot. The spending ministers overwhelmed those who thought about prudential outcomes, assuming any thought that way at all.
Second, the budget will be a tough sell but it can be done. Abbott has credibility. No one will be in any doubt that the fiscal horrors left by Labor are an Augean stable that were not the Coalition’s doing. I don’t think they have set this narrative up anyway near well enough but even at this late stage they might be able to convince the country (or at least 50.1%) that these are steps that must with absolute necessity be taken.
Third, the steps to be taken are decided by cabinet so no point in dwelling on what I would have done. That’s a lot of people amongst whom the right compromises must be found. No doubt the PM and Treasurer are leading the way, neither of whom is an economist but there have been other hands on the tiller as well. Everyone in the Ministry is frightened by the size of the deficit they must deal with and are thinking about how this is to be done. They cannot see economic growth as the road to balance, and in fact, don’t really seem to have much idea about how to generate that growth. This must be looked at as a distant second best solution but with Treasury a dead zone for economic thinking, maybe that’s all that can be done. I imagine very few in Cabinet think that a program of cuts to public spending, pulling down regulation, and freeing up industrial relations would do the trick. So this is the way they have chosen to go forward.
Fourth, the major issue is the politics. If there weren’t an election to come in 2016, for which these decisions will be anthrax and strychnine for a large proportion of the voting public, it would not be all that hard to accept that this is how it will have to be. Since this seems to me like a poor approach to the economics and a very dangerous approach to the politics these decisions fill me with dread. If they lose office on the back of these decisions, they will be deposited in the very lowest depths of our political inferno. To have misjudged the politics will be unforgivable. Three and out would repel me and anyone who seeks good governance into the long term. If it brings Labor back to office after three years and not six or nine, there is nothing they can do or will have done that would be anywhere near fair compensation. All they will have done is hand over a more solid foundation for future Labor Party waste. Bill Shorten is far and away the strongest supporter of these policies in the country.
Nevertheless, this is their call and they may pull it out. Economic policy is not the only thing that affects the direction of an economy so there might really be a strong economy leading into the next election. Even more impressively, the country might even appreciate someone taking responsibility for the horrors that the ALP left behind. There may be a constituency for people saying that we must pull together for the national good. The media won’t help them but the Government does have its friends. The die is obviously cast so there’s no point in going on about it. So for me, I will hope things work out for the best.
Law of Markets 