Yearly Archives: 2014

Post-Crash Economics

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The secret is getting out. And what secret might that be? That modern economic theory is next to useless, or at least useless if your interest is either to understand what’s going on or to manage the economy in a productive way with high employment and low inflation. This is from the introduction to The Report which has been issued by the Post-Crash Economics Society in the UK, organised round a group of students at Manchester University:

Economics education is monopolised by a single school of thought commonly referred to as neoclassical economics. Crucially, very few economists working within this mainstream predicted the Financial Crisis. Afterwards many concluded that the best predictions came from those economists that had been marginalised by the mainstream. Despite this alternative perspectives are still close to non-existent in undergraduate programmes. We demonstrate this through a detailed analysis of Manchester’s syllabus, which itself is representative of economics syllabuses around the UK. 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.

I have just the book for them, the second edition to be co-published in July by the Institute of Economic Affairs in London. In fact I have two books since The Report makes a point of stressing how important studying the history of economic thought is to understanding economics.

There is a write up of all this in an article, Bank of Englands’s Haldane Backs Broader Economics, found in the Wall Street Journal. Economics must change and I am extraordinarily pleased to see the revolution is finally about to begin.

UPDATE: Some further comment of my own based on the thread at Catallaxy:

For me there are a few issues of comfort in spite of some sense of pessimism.
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First, I am just happy to see the logjam of modern neoclassical economics finally broken. This is the first step in a much needed process even to have a declaration of disquiet about the way economics is taught. I cannot think it could get any worse than it is. They may not call themselves socialists but economic theory as currently taught is for all practical purposes a form of centralised economic management, with the level of G the most important driver.
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Second, that the coming Chief Economist of the Bank of England and Steve Davies of the Institute of Economic Affairs are willing to buy in on this gives me some sense that this is not some Marxist thought based around expropriating the expropriators. But whatever the basis of the theory, the issue is to force the mainstream to defend their theory and its practical value.
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Third, and very oddly, Post-Keynesian economic theory, so far as the business cycle is concerned, is almost identical to the classical theory of the cycle. Very odd to me to find this but I have even begun to write a paper on this very issue. I’m not sure they even are aware of the difference it makes, but in much that is written, they substitute effective demand for aggregate demand which means they are actually restoring Say’s Law since Say’s Law was the core of the explanation behind what made demand effective. It is no longer just a total but in this way becomes a theory of economic activity.
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Fourth, bringing back the history of economics and economic history can only be positive. The attempts to shut these out are attempts to shut down various forms of debate.
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Fifth, we shall see.

The media as teenage groupies

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obama cartoon naked foreign policy

The American media is just now beginning to point out what a useless incompetent Barack Obama is. A disaster at every turn and in relation to every policy, yet the media really have no one to blame for the breakdown in the system other than themselves. Here’s why:

By giving the president the benefit of the doubt at every turn, by making excuses to explain away fiascos, by ignoring corruption, by buying the White House line that his critics were motivated by pure politics or racism, the Times and other organizations played the role of bartender to a man on a bender.

Even worse, they joined the party, forgetting the lessons of history as well as their own responsibilities to put a check on power. A purpose of a free press is to hold government accountable, but there is no fallback when the watchdog voluntarily chooses to be a lapdog.

With hardly an ounce of character and sense, they bought the whole idiocy of Obama, from the “smartest man in the room” to “we are the change we have been waiting for”. The media has always been a sell out to the left and always will be, but this time they sold their soul and their birthright to a buffoon who holds them in the same low contempt he holds everyone else. Only now is the media just getting an inkling of why the rest of us think they are fools, utterly unworthy of the responsibility they had been entrusted with.

Pre-budget nerves – my list of dos and don’ts

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I am getting a bit nervous about the budget that’s brewing, no longer behind the scenes but with a few strategic leaks breaking into the news. As you may know, I am no Keynesian but I went back and took a look at my own Free Market Economics text since I could not remember whether I even mention the word “deficit”. The index has it listed once, three pages from the end on page 332.

Here are my thoughts on things. Why they left a Labor-supporting Keynesian to manage Treasury in the single most important budget they will ever introduce is beyond me. Anyway, here are my thoughts.

It’s not the deficit per se that matter but the level of public spending.

If you want to fix the economy, resources must migrate from being under the direction of the public sector and into the hands of the private sector. Therefore, the focus should be on cuts to non-value-adding forms of public spending. If it doesn’t show a positive return within a reasonable period of time, cut it off. This, by the way, is not an anti-welfare message although welfare too must be affordable. I am talking about infrastructure and the many forms of waste and mis-regulation that are found at every turn.

The economy will grow, employment will grow, real wages will grow if and only if economic activity is directed by private sector entrepreneurs. It will shrivel under the direction of government. Do not even imagine anything much beyond the first 10 percent of what you are already spending will create economic growth. Cutting public spending will create growth, not maintaining existing levels.

Raising taxes to fund public spending is a deadly mistake and wrong twice over:

. Higher taxes will allow you to maintain the level of public sector direction of our scarce economic resources.

. Higher taxes will reduce activity in the private sector.

The core aim must be to encourage entrepreneurial activity. There is no budget problem that cannot be fixed by:

. Reducing the level of unproductive public spending

. Fostering private sector growth (where unproductive spending has its own very brutal cure).

If the strategy is to balance the budget in ways that will diminish private sector investment and entrepreneurial activity, it will make things worse, not better. Economic conditions have been improving since the change of government with nothing much at all having been done. Leaving things alone is better than introducing new programs or raising taxes to fund existing forms of waste. Step back, get out of the way, cut your own take up of resources. But for heaven’s sake, don’t apply some bizarre Keynesian budget-surplus strategy by funding the existing level of public spending at the expense of the private sector.

Same old same old

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According to today’s Oz, the Leader of the Opposition has joined the rest of us in seeing that the R-G-R government was a hopeless mess.

BILL Shorten has attacked the governments of Kevin Rudd and Julia Gillard, highlighting their flaws, mistakes and misjudgments, arguing that he has learned the lessons of Labor’s election defeat and declaring the party must accept them too.

That’s a start, but where to from there? Will it be balanced budgets, no more wasted money, no longer jumping onto every PC bandwagon such as global warming. Will it be pulling unions off the back of business, reducing regulation, telling the truth before elections and then doing what you said you’d do? Well actually, nothing as specific as that. This is the list of six vapid principles, as content free as it is possible to imagine.

The first is to “treat people with courtesy and respect”.

The second is not to “launch a thousand ships, a thousand ideas (and) a thousand thought bubbles”.

The third is to focus on policy implementation.

The fourth lesson is to build a good relationship with business..

Fifth is to be a “no surprises” government.

The final lesson was to communicate with voters more effectively. “You have got to explain what you’re solving. Don’t go straight to the solution.”

And then there’s a seventh:

“Having a formal relationship with unions” which he said “is a strength, not a weakness.”

In other words, nothing new. Just hoping that the present government irritates just enough voters in doing what needs to be done to get Labor back over the line at the next election. A Shorten-Palmer Government should be quite an experience.

The ANZAC tradition gone west

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I have been following Mark Steyn’s writings since the days when his only book was about American musicals and his only columns were movie reviews in the English Spectator. From such a background who would have expected him to become the finest and clearest writer on foreign policy issues in the world, which from a Western point of view means he writes the most depressing analysis of what’s going on to found found anywhere. Today’s post, befitting Anzac Day, is All Quiescent on the Western Front which dwells on the downfall of Western civilisation led by – well not really “led by”, more like hastened by – the election of the most incompetent fool ever to lead a Western nation. Still, having said all those nice things about Mr. Steyn, I am merely going to repeat something he had picked up from someone else, in an article by John Hulsman with the title, It’s time to read the writing on the wall: Why the West no longer exists. This is the bit quoted by Steyn:

The greatest global political risk can’t be found in Kiev, eastern Ukraine or any of the other hotspots that get the media so excited. It lies in the perception of Western weakness among those countries that find themselves dissatisfied with the current global establishment. For them, the enfeebled state of the West, as laid bare in Ukraine, means the possibility of expansion…

As seen from Moscow, Beijing, Pyongyang, Damascus and Tehran, this is the inspiring, hopeful narrative of Western decline. These countries know they must be careful not to miscalculate, not to press too hard as the lessons of this calamity for the West slowly dawn. But in the medium term, it looks like Iran’s nuclear programme is safe, that Assad can soon pop the corks in Damascus, that for North Korea, torturing Seoul at the edges looks like a no brainer, and as for China, well, the disputed Senkaku/Diaoyu Islands await. With time, and after Putin’s groundbreaking efforts, the way history is moving couldn’t be clearer. The West simply doesn’t exist anymore.

Wars do matter. Defending yourself makes a difference. As we head out to ANZAC Cove, it’s worth recalling the fateful consequences of how a single battle in 1453 changed everything about the world ever since. In looking at the current American president, I am reminded of his predecessor who in 1984 pointed out that “history teaches that wars begin when governments believe the price of aggression is cheap.” Obama not only makes aggression appear cheap, he makes it look to others as if there are virtually no costs at all.

FURTHER THOUGHTS: The ANZAC tradition is, of course, still pretty good in Australia. But there is also plenty of this, picked up at Andrew Bolt:

Tasmania’s Governor has used his Anzac Day speech to urge Australia to spend less time paying homage to the Anzac legend and more time examining the causes of war and Australia’s involvement in conflicts.

Peter Underwood spoke about the cost of conflict while addressing the crowd at Hobart cenotaph.

“We should spend less time studying Simpson’s donkey and more time looking at why we were fighting in Iraq and Afghanistan for so long,” he said.

Andrew thinks he should be sacked, and perhaps he should, but as I say, there’s plenty of that around. And when it comes to the American president, there’s this on a posting called, Obama’s Staggering Record of Failure:

It’s not simply that Mr. Obama has fallen short of what he promised; it’s that he has been, in so many respects, a failure. Choose your metrics. Better yet, choose Mr. Obama’s metrics: Job creation. Economic growth. Improving our health-care system. Reducing the debt. Reducing poverty. Reducing income inequality. Slowing the rise of the oceans. Healing the planet. Repairing the world. The Russian “reset.” Peace in the Middle East. Red lines in Syria. Renewed focus on Afghanistan. A new beginning with the Arab world. Better relations with our allies. Depolarizing our politics. Putting an end to the type of politics that “breeds division and conflict and cynicism.” Working with the other party. Transparency. No lobbyists working in his administration. His commitment to seek public financing in the general election. The list goes on and on.

And the list does indeed go on. That he is a profound failure on every parameter that matters is not in question. The only issue is whether it is high incompetence or deliberate.

And with the headline at Drudge today, we really do see where we are now at, UKRAINE OFFICIAL SAYS HE FEARS RUSSIAN INVASION:

Ukraine’s deputy foreign minister said Friday he fears an imminent Russian invasion.

“We have the information we are in danger,” Danylo Lubkivsky told reporters at the United Nations.

He spoke as an official in Ukraine confirmed that pro-Russian forces had detained a team of military observers with the Organization for Security and Cooperation in Europe. The official said the team would be released after further investigation.

So which camp are you in? It will never happen, or it doesn’t matter? Because if it does happen it will matter a very great deal.

The Basic Axioms and Principles of a Free Market Economy

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I didn’t even know this existed until today but have just come across it. It is a presentation I gave at the IEA in London in 2011 just as my Free Market Economics was being published. The sound is not that good but the points are a good deal less fluffy than the kinds of things you usually hear in such lists. This is not a homily about how economic activity involves trade offs or that incentives are important. This is about how the world is filled with uncertainty and that governments are hopeless at directing our resources in a productive way. This is about do’s and don’ts which is what a good economics book needs to set out.

Art and culture 30,000 years ago

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An interesting article by an anthropologist by name of Collin Cleary, The Stones Cry Out: Cave Art & the Origin of the Human Spirit. Mostly about the sudden emergence of an artistic ability in Europe 30,000 to 40,000 years ago. This was an ability found nowhere else on the planet at the time.

In truth, we are not just talking about the origins of representational art. During the same period, in Europe, we find stone tools that are not only far more advanced in their utility and functionality than what we find in earlier periods, they are also aesthetically more advanced, some decorated with elaborate and beautiful carvings. We also find elaborate burials. In one case, found at Sungir in Russia and dated to 32,000 years ago, two adolescents, a boy and girl, were found buried with strands made up of thousands of beads, a belt decorated with canine teeth from polar foxes (63 of which would have been required to supply all the teeth), an ivory statuette of a mammoth, an ivory lance carved out of a mammoth tusk, and other items.[11]

This find is suggestive for several reasons. As others have pointed out, it may very well show the emergence of belief in an afterlife. Thus, such graves may be indications of the coming of religion.

Of course it’s not political

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If it were political it would mean that the United States was a borderline totalitarian state. We are here talking about whether there were any political considerations in the over-the-top prosecution of Dinesh D’Souza for an illegal campaign contribution. Mr. Brafman is D’Souza’s lawyer and he has filed an application to have this prosecution stopped.

In his filing, Mr. Brafman argued there was “good reason for concern” that Mr. D’Souza, the author of the best-selling 2010 book “The Roots of Obama’s Rage,” was “selectively targeted for felony prosecution because of his outspoken, vigorous and politically controversial criticism and condemnation” of the president and his administration.

Mr. Brafman said that a review of similar campaign finance violation cases shows many were typically not referred for felony prosecution and where they were, it often took several years. “The speed with which the authorities responded to the conduct in this case is virtually unprecedented,” he wrote.

The above report is from The New York Times so they only refer to his book and not to his documentary 2016: Obama’s America which was released in the middle of the last U.S. presidential election in 2012. Because if they mentioned the documentary you might come to the conclusion that there is the possibility – very slight, but still a possibility – that D’Souza really was targeted for his outspoken views.

Here is a more straightforward report, Pundit Dinesh D’Souza says his illegal campaign finance charges may be retribution for criticizing President Obama.

The prosecutors say this claim of political bias is “entirely without merit” and so it must be. Because if there were any merit in this claim, the U.S. really would be a borderline totalitarian state where the rule of law has been replaced by the rule of personal revenge.