Who can we find to deal with political parties that pander to grievance?

In comparison with the ditherer-in-chief, we have this: Tony Abbott speech warns on lack of power to reform. The article begins:

Tony Abbott has backed Scott Morrison’s warning about the number of Australian households that do not pay tax, in a major speech that steps up the case for budget and economic reform despite the challenges of the new parliament.

The former prime minister rebuked Labor for its “relentless negativity” and urged Malcolm Turnbull to fight for the Liberal Party’s core beliefs rather than giving up on spending cuts.

Mr Abbott defended his legacy, including his firm line on business welfare when Qantas sought a commonwealth guarantee, given the airline announced a bumper profit this week without the help of government aid.

He also warned of a lack of government power to enact reform, given that Julia Gillard’s administration was about to legislate 90 per cent of its bills with its alliance with the Greens but that this fell to 80 per cent in the next parliament when Labor and the Senate crossbench blocked the Abbott government’s plans.

“In other words, it was not the hung parliament that suffered from ‘relentless negativity’,” Mr Abbott said.

“This will also be a challenging parliament for reformers because every difficult change will have to run the gauntlet of political parties that pander to grievance.”

And his final word:

“Our challenge is not to move closer to Labor in the hope of being a smaller target,” he said.

“It’s to make the differences crystal clear so that voters can choose a party that puts its faith in empowered citizens rather than empowered officials.”

There are a few of us out here who might agree with this from the comments:

Tony Abbott is still the predominant voice in politics which speaks with the most clarity of purpose.

Now that voters have had a year of Turnbull, his waffling, meandering policy, his lost sense of purpose and his lack of performance … surely there is no one left who would still prefer Turnbull over a return to Abbott as the national leader.

Well, other than Niki Savva, there is probably no one left like that at all.

Stuck in the slow lane

It is a wonder that people who write about interest rate policy don’t bother to actually read what they have written. This is from All eyes on Yellen interest rate dilemma in today’s AFR.

When US Federal Reserve chair Janet Yellen speaks at the Fed’s annual Jackson Hole central banking conference on Friday, investors and economists will want to know how low she thinks interest rates should be set in this brave new world of lacklustre economic growth, weak productivity and soft inflation.

All this with interest rates as low as possible. Whatever low rates have or have not done, they most clearly have not set the economy on fire. So we then have this three paras later:

Policymakers worry that with rates stuck not far above zero in the US, at record lows in Australia and in negative territory in Europe and Japan, central bankers will have little firepower up their sleeves to stimulate the economy in a future economic downturn or crisis.

It was once understood that low interest rates actually cause an economy to stall. And even if you didn’t know this, you think that someone might just begin to consider that low rates do not provide much “firepower” at all. I would actually go further and argue that low interest rates make the economy perform far worse than it otherwise would.

It’s like public spending. If you don’t understand the economic dynamic, increased spending, like lower rates, sounds just like what the economy needs. Both make things worse, but who is ever going to go through the pain of adjustment that cutting spending and raising rates would require? Since no one will, it’s hard to see a genuine recovery any time soon.

Is national saving a stock or a flow?

I gave my presentation on Tuesday which, as anything related to the history of economics, remained at the low end of interest. Even the promise to explain for the first time in eighty years how classical economists looked at the operation of an economy had only a few takers. But I am happy that four of those were Catallaxians who made it a much more festive occasion for me. But numbers aside, it was a very useful presentation for the presenter who learned quite a lot from the conversation.

1. There is a pile of context that must go into any such presentation. It is not just that I am presenting some contraption from a far distant past, but that this contraption of mine has been able to pick every turning point in the economy since 1982. My favourite example before this the latest catastrophe post-GFC, was to argue that Peter Costello’s massive cuts to spending in 1996 would lift the economy into recovery. Definitely not textbook economics, and I can say that hardly anyone anywhere thought it would work. But as the Chief Economist of the Australian Chamber of Commerce and Industry, I wrote the press release in the lock up, and we ended up the only organisation in the country that backed the spending cuts to the hilt, which is something that Treasury itself never did. My virtual certainty that the cuts in ’96 and ’97 would succeed was followed by the explosive growth we had in 1998, even the midst of the Asian Financial Crisis. After it had all worked out, I heard no end of explanations for what had happened from people who really then, or now, have no idea whatsoever. Go on, you Keynesians, tell us how massive cuts to spending in the middle of an international recession will turn an economy around. And if it worked then, why don’t we try it now?

2. The other bit of context, and possibly more important in the present, is that I knew right from the beginning without any hesitation that the stimulus following the GFC would end up a disaster. You can say that lots of people opposed the stimulus but they did it on general principles in backing small government. What you didn’t hear then is that the “stimulus” would ruin our economies, just as you do not hear even now anyone blaming the dismal growth across the world on the public spending program. We discuss debt and deficits, as if that is the nature of the problem, but that’s not it at all. Here I will only remind you of what I wrote in February 2009 in an article published in Quadrant under the heading: The Dangerous Return to Keynesian Economics:

“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.”

We can quibble about the definition of “recession” if you like, but I am old school and think of it as an extended period of subdued rates of growth coupled with high unemployment [a depression is an out and out plunge in activity with large-scale increases in unemployment]. This is seven years later and there has not been an upturn of any serious kind in any economy anywhere in the world. We are definitely into the territory of deep and prolonged, and there is no longer any question that whatever has gone wrong will “potentially take years to overcome” since we are already many years into this recession with no recovery in sight. And if there are many out there who have been explaining this as a result of the stimulus based on non-value-adding expenditures, I have managed to miss it. In my view, it is only if you have an entirely classically-based supply-side model of the economy that you can see what has been happening.

3. No one knows what Keynes wrote. Everyone thinks economic theory has transcended Keynes. The General Theory has gone beyond being a classic. Literally no economist reads it. Partly because it is so embarrassing. Partly because there is nothing there to learn. And partly because in economics, if it’s more than a decade old, the assumption is that everything of value has been absorbed into the general run of ideas so there is not much point in going back. Yet, as I pointed out, the very words “aggregate demand” were introduced into economic theory at the same time as economics universally rejected “Say’s Law” on Keynes’s say so. Say’s Law, of course, was specifically designed to explain why demand deficiency never caused recessions: in the words of the classics, “there is no such thing as a general glut”, an excess supply of everything at once. But for me, it is still astonishing how easy it is to refute this bit of Keynesian rhetoric:

We must now define the third category of unemployment, namely ‘involuntary’ unemployment in the strict sense, the possibility of which the classical theory does not admit. [GT: 15]

Those classical blockheads! According to Keynes, every economist before him, the untold tens of thousands of economic writers and observers, who had lived through generations of recessions and catastrophic periods of job loss, nevertheless did not actually accept the existence of mass unemployment, that people were unemployed involuntarily. It is pretty easy to show this is either ignorance or deceit. But whichever it is, few any longer seem to know that is what Keynes had argued and how important it was to get his theory established. Since I had been “educated” in Keynesian theory, the entire story of how Keynes had single-handedly overturned Say’s Law, and had shown that involuntary unemployment was possible in the face of the opposition of his predecessors, remains a living part of what I was expected to know. So when I see how obviously untrue it is, I remain to this day amazed at how he was able to insert this into our view of the world. But does anyone else of a younger generation know or care? They don’t, not at all. And of course it really doesn’t matter since it never occurs to anyone that perhaps the pre-Keynesian knew something they don’t that would be worth knowing today.

4. But possibly the most important thing I learned is how difficult it is to understand classical theory. If I have you in class for a semester, you have a chance to understand it. If I have you for an hour, there is just too much. Even though it seems crystal clear to me, I have been wrestling with it for 35 years. Even if I can synthesise it into a few diagrams, it is just not possible. If you think in terms of aggregate demand, you cannot just let it fall away. If you think of saving as the difference between income and consumption, you are never going to make instant sense of John Stuart Mill. In a sense, what I was saying was to take everything you understand about how economies work and then forget it and adopt something else instead.

5. But also of interest was the argument that was brought up that everything I am saying is said by Austrian economists. So at least to that extent what I said has some kind of validity, except that it is all said by others already. Except that it’s not. The Austrians are notable for their role in the Marginal Revolution in the 1870s, which created the break with the classical tradition. Their focus then, and still largely today, was on Marxists and the Labour Theory of Value. I am well aware of how similar to the classicals Austrians are when you put them against a background of the current mainstream, but there are wide differences that really matter. The most important, as I look at it, is the Austrian emphasis on marginal utility, which focuses the theory of value onto the demand side of the economy. Demand drives Austrian theory, which already makes an economist less stridently opposed to Keynesian demand-side macro. Except that Austrian theory is also relentlessly microeconomic, so that the essentially macro approach of classical theory almost entirely disappears. And going further, Austrians retain, sort of, the role of the entrepreneur, but even here it is mostly for innovation, and not just to explain how a bakery keeps running year after year in spite of the many upheavals going on around it on almost a daily basis for which there is a constant need for decisions to be made.

6. Classical theory is a different world. If you are to understand why the stimulus has been a disaster, or why Venezuelans are now living in poverty, it is to classical theory – supply-side economics – you must go. This post is titled, “Is National Saving a Stock or a Flow?” In modern theory, it is a flow. In classical, it is a stock. It is all the difference in the world whether it is seen as one or the other. And that is only where the differences between classical and modern theory starts. But at least I now have more clarity about what I need to do to explain classical theory to others.

In praise of a tasteless, publicity‐seeking, coarse, billionaire, reality TV star

coulter in trump we trust

There has always been one trouble for me with the books Ann Coulter writes. No sooner do I start one than I have reached the last page. No one, and I do mean no one, writes like her. And while there may have been, now and then, something she has written I didn’t quite agree with, nothing of that kind comes to mind at the moment. Her latest is In Trump We Trust: E Pluribus Awesome! from which you can find an excerpt here. This section of the book, I’m afraid, truly made me laugh. Go to the link but I will put up the premise she begins with and then you can see what she does.

If we were in the laboratory, designing the perfect presidential candidate, it’s unlikely we would have produced a tasteless, publicity‐seeking, coarse, billionaire, reality TV star.

Ha! Look at how wrong we were. It turns out, that is exactly what we needed.

Now go and read it all, and if you still want to vote for Hillary after that, then do your worst you sour misbegotten fool. I’ll let you know what I thought of the whole book when I finally have had it in my hands plus the one additional day I will need to read it.

Why do people believe what reporters say?

Here is Ann Coulter discussing the distortions and lies of the journalistic profession in a column titled, How the media work. It is, as always, an interesting column that gets to the point, but this is I think particularly true. She is discussing the reporting that surrounds Donald Trump, but she could mean anyone on the right who actually gets political traction. The actual example she gives is about herself, but the general principle is the point.

Even sensible people can’t think straight in the middle of one of these [media] hate campaigns.

It can be very difficult for people to overcome whatever meaning the press superimposes on what someone has said, no matter how psychotic. Throw in incessant repetition and uniform agreement among the pundits (Hillary cheerleaders versus Never Trumpers), and completely deranged interpretations become historical facts.

We treat media corruption and its cultural Marxism like bad weather, as just the way things are. But the vile misrepresentation of the world they are reporting on is one of the most important of the entrenched problems we face. The Western world – our way of life – is in mortal danger because the media wilfully distort the world they describe. It is not that they do not know any better. The know exactly what they are doing, which is unmistakeable given what they consistently leave out and what they do say about what they decide to discuss. There is nothing haphazard or accidental about it. Here is Donald Trump discussing the problem as part of a more comprehensive speech he gave last week. What makes Trump so unique is that he will raise this at all. Who else does? Not another politician I have ever seen. And every word of the following is unarguably true.

The establishment media doesn’t cover what really matters in this country, or what’s really going on in people’s lives. They will take words of mine out of context and spend a week obsessing over every single syllable, and then pretend to discover some hidden meaning in what I said.

Just imagine for a second if the media spent this energy holding the politicians accountable who got innocent Americans like Kate Steinle killed – she was gunned down by an illegal immigrant who had been deported five times.

Just imagine if the media spent this much time investigating the poverty and joblessness in our inner cities.

Just think about how much different things would be if the media in this country sent their cameras to our border, or to our closing factories, or to our failing schools. Or if the media focused on what dark secrets must be hidden in the 33,000 emails Hillary Clinton deleted.

Instead, every story is told from the perspective of the insiders. It’s the narrative of the people who rigged the system, never the voice of the people it’s been rigged against.

And here is one more article that discusses this same problem where the sub-head reads: Honest Reporting Died Long Ago. Yet even if you know it, how many are capable of suspending judgement on things they see in the press? And just to pile a bit more on, there is now also this from The New York Post: American journalism is collapsing before our eyes. On the off chance you need a bit more reminding, there is then this, although I’m not sure I quite agree with the first sentence:

The shameful display of naked partisanship by the elite media is unlike anything seen in modern America.

The largest broadcast networks — CBS, NBC and ABC — and major newspapers like The New York Times and Washington Post have jettisoned all pretense of fair play. Their fierce determination to keep Trump out of the Oval Office has no precedent.

Indeed, no foreign enemy, no terror group, no native criminal gang, suffers the daily beating that Trump does. The mad mullahs of Iran, who call America the Great Satan and vow to wipe Israel off the map, are treated gently by comparison.

By torching its remaining credibility in service of Clinton, the mainstream media’s reputations will likely never recover, nor will the standards. No future producer, editor, reporter or anchor can be expected to meet a test of fairness when that standard has been trashed in such willful and blatant fashion.

It’s not simply that they do it that is the worry, but that they are so ignorant that in acting this way they believe they are doing good.

Ever wondered what supply-side economics is?

In a sense you could say I have spent thirty years writing this paper which will be given twice in Shanghai the following week. The proper understanding of supply-side economics is found in late classical economic theory which I date from 1848-1936, that is, from the publication of Mill’s Principles until the publication of Keynes’s General Theory. If you would like to come, please email Dr Sveta Angelopoulos on sveta.angelopoulos@rmit.edu.au to let her know. These are the details:

You are warmly invited to attend the School of EFM Brown Bag Seminar Series presentation by Associate Professor Steven Kates: Classical Economics Explained: Understanding Economic Theory Before Keynes.

Abstract: Since the publication of The General Theory, pre-Keynesian economics has been labelled “classical,” but what that classical economics actually consisted of is now virtually an unknown. There is, instead, a straw-man caricature most economists absorb through a form of academic osmosis but which is never specifically taught, not even as part of a course in the history of economics. The paper outlines the crucial features that differentiate classical theory from modern macroeconomics. Based on the differences outlined, a model of classical economic theory is presented which explains how pre-Keynesian economists understood the operation of the economy, the causes of recession and why a public-spending stimulus was universally rejected by mainstream economists before 1936. The classical model presented is an amalgam of John Stuart Mill’s 1848 Principles and Henry Clay’s 1916 first edition Economics: an Introduction for the General Reader, a text which was itself built from the economics of Mill.

RMIT Building 80
Level 10 Room 44 & 45
445 Swanston Street

Date: Tuesday 23rd August

Time: 1.00 – 2.00pm

Tolerance and apathy

I think we are at the stage where those of us at a certain age reckon we will get our three score and ten in before the deluge. I am not particularly tolerant, but the will to fight does dissipate as time goes by. I cannot see current trends ending well since far too few any longer understand the virtues of the social arrangements that have been inherited from the past – which had required tremendous battles along the way – but which are now taken as the way things are and can never change. We are, alas, all too soon going to find out how not true that is, and the Dark Age that is descending may last a very long time. This is the sentiment that got me to think about these things:

tolerance and apothy

I came across the quote above first which may seem a bit cryptic, but not if seen in the context of this one which was close by. Caring about such matters requires a philosophy of freedom which is disappearing into a blur of licensed self-absorption.

tolerance is the virtue of

The previous two were accompanied by this which is relevant to the previous two. Bit by bit we are losing everything that has made our civilisation what it is.

orwell threats to freedom

Ages of high technology are well known for being culturally barren.

“Turnbull has to be relentless and show he is the one in charge”

Were it not for Andrew Bolt, I would have no idea that Nikki Savva is still going on about Malcolm, but there she is: As the real game begins, Malcolm Turnbull needs quick runs. You would think she would finally get the point why anyone who had previously seen Malcolm in action could not possibly have supported him. And to tell the truth, though I tried, I could not get through her column, but I did manage her hilarious first para:

As he approaches his first anniversary as Prime Minister, the number of items on Malcolm Turnbull’s to-do list continues to multiply. His singular achievement so far has been to win the election, if only by a whisker, but it would help his standing inside and outside the government if he could score a few more runs and quickly.

If that is all he has done, he has done less than nothing, his contribution has been entirely negative. He won only because of Tony, but his almost losing the lot was entirely due to his own incompetence. I eventually skipped to the end of her column where there was this exhortation:

Individual ministers have to drive their issues, but they can do it only if the Prime Minister is in the forefront. A year into the job, and almost two months since the election, he needs to pick up the pace. He cannot give eloquent speeches (unfortunately marred by protesters) or drop ideas, then vacate the field for a few days before reappearing.

He has to be a persistent as well as persuasive advocate using all media, particularly radio and from the office, not home, so that there are visuals as well as audio. He needs to convince the public, then, having convinced them, use that to exert pressure on parliament. It is circular and never-ending.

Turnbull has to be relentless and show he is the one in charge, not Abbott, not Shorten, not Xenophon, not even Barnaby Joyce.

By now, Malcolm is completely gun shy since he has shown time and again that his own ideas are poison for most of those who vote for the Coalition. Every time he opens his mouth, three-quarters of the back bench roll their eyes. He’s in the wrong party, should not even be on the back bench, never mind its leader.

Glenn Stevens – the best central banker in the world

Australia is about to lose the world’s greatest central banker and it will make a difference. Others may have watched him in action over the years, but unless they have understood things properly, they cannot have seen what he’s been doing. We may have some of the worst fiscal policy found anywhere, but our monetary and interest rate policies have been second to none. Where else can you get such good sense as this?

“Australia wants to be open to foreign capital. That’s our national philosophy. I think in that discussion it would be helpful to think about the kind of foreign capital we want.

“Foreign capital that builds new assets — like some of the capital that funded the mining boom — that’s one thing. Foreign capital that buys up the existing assets, I’m not saying that we should be closed to that, but that’s not ­creating new capital for the country. That’s just altering the allocation of who owns the capital that’s here now.

“When we all talk about ‘we want capital inflow’, we can probably have a bit of nuance and subtlety over what kind of inflow we mean and ask ourselves ­whether we’re attractive enough to the kind of capital that actually builds new assets.”

The distinction he makes is between capital in the form of money and capital in the form of things. It’s a distinction that was once at the core of economic theory but has absolutely disappeared from view. Stevens is one of the few remaining who would even understand the difference and why it matters. But there are shifts going on in central banking orthodoxies since what is crystal clear is that the low interest rate policies of the last few years have been disastrous. This is from The AFR today: .

A new economic reality calls for a new approach to central banking. . . . In the new low-natural rate environment, the Fed’s policy of targeting low inflation will no longer make sense, he said.

It actually never made sense, but they are only just beginning to figure it out. And what has also not made sense is lowering interest rates to zero (and even into negative territory). With such low rates of interest we are actually riding a tiger and I have no idea how we will ever escape this dilemma without a serious “economic restructuring”. But unless we are going to continue down this path of low productivity and sinking real incomes, interest rates at some stage are going to have to rise.

Will talking sense work?

This is Donald Trump talking directly to America’s black communities:

Republican Donald Trump made his most direct appeal yet Tuesday for black voters in the presidential race, pushing forward an agenda to restore law and order and revitalize inner-city neighborhoods that he said suffer from years of misguided Democratic policies.

In a speech delivered not far from Milwaukee neighborhoods rocked by anti-police riots, Mr. Trump laid the blame for urban despair and conflict between police and minorities at the feet of Democratic nominee Hillary Clinton.

“I am running to offer you a much better future,” Mr. Trump said in a speech in West Bend, Wisconsin. “Crime and violence is an attack on the poor and it will never be accepted in a Trump administration.”

He said the policies holding back minority neighborhoods were part of the “rigged system” led by Mrs. Clinton, who he said pandered to black voters but didn’t really care about their suffering.

“The political class that Mrs. Clinton has been a part of for 30 years has abandoned the people of this county. They only care about themselves,” he said. “I am going to give the people their voice back.”

And there’s more at the link. There is also no doubt he means it. What has disappeared into history is that the entire Ku Klux Klan was Democrat. This really does look like America’s last chance, but it’s a genuine one.

Meanwhile, there is only +/-2% in it. And Hillary is not a well woman.