Entrepreneurship in one lesson

This is from a French soldier’s view of US soldiers in Afghanistan. Unexpectedly entirely positive. Here I only put up this passage to explain what entrepreneurship looks like.

And combat? If you have seen Rambo you have seen it all — always coming to the rescue when one of our teams gets in trouble, and always in the shortest delay. That is one of their tricks: they switch from T-shirt and sandals to combat ready in three minutes. Arriving in contact with the enemy, the way they fight is simple and disconcerting: they just charge! They disembark and assault in stride, they bomb first and ask questions later — which cuts any pussyfooting short.

It is the only managerial style that works. Of course, it won’t work in areas which are funded by the public sector, where profitability and adding value are never a consideration. But in the private sector, if a business is left alone to get on with its business, this is how it is done.

Keynesian economics is guaranteed to make an economy’s problems worse

This is Judy Sloan stating as clear as you like: Time to get the budget in surplus and pay off debt. What it is really about is how disastrous Keynesian economics is and always has been. I am a month away from finishing my book on how the idiocies of Keynesian economics replaced classical theory that had created the world of wealth we have now all become not just used to, but have come to believe it is all just automatic. It was for a while, but with Keynesian economics at the heart of policy making, we are potentially heading for a very large fall in living standards. The following are Judy’s comments about Keynesian theory and policy from her column today.

I’ve been reading Paul Tilley’s Changing Fortunes: A History of the Australian Treasury and a theme that emerges is the advent after World War II of unquestioned Keynesian thinking among senior officials.

Having seen the economic damage and human suffering the Depression caused — although Australia was less affected than many other economies and recovered more rapidly — consensus emerged that the federal government must seek to manage demand actively to maintain full employment.

There was little questioning whether this approach would work or what any adverse consequences might be. Rather, the politicians of the day meekly accepted Treasury’s advice that monetary and fiscal policy should be used to boost employment when needed and to quell inflationary pressures when required….

The Keynesian salad days came to an abrupt end during the Whitlam years when the stable relationships on which the theory was based — in particular, the inverse relationship between unemployment and inflation — fell apart. In its place, a prolonged period of stagflation ensued in which unemployment rose in the context of high inflation….

Today we observe Treasury as a much diminished institution with plenty of Keynesian devotees still occupying positions at various levels….

In the context of today’s debate about appropriate action to deal with a soft economy, many of the debates of yesteryear are there in the background. The simplistic Keynesian response is that the government must spend more immediately, even though experience says this is costly and largely ineffective….

And let us not forget that the government has been running a budget deficit for more than a decade — a long-running Keynesian experiment — yet we still find ourselves in a relative economic slump.

It’s time to get the budget back into surplus and start repaying the accumulated debt.

Keynesian economic policy has NEVER worked, not a single time, not anywhere, not ever. Let me take you to my own: The Dangerous Persistence of Keynesian Economics where all of this is spelled out in more detail. And I cannot refrain from adding this quote at the front of the article.

Why have the IMF, the OECD, the ILO, the treasuries of every advanced economy, the Treasury in Australia, the business economists around the world, why have they got it so wrong and yet you in your ivory tower at RMIT have got it so right?

—Question to Steven Kates from Senator Doug Cameron, Senate Economic References Committee, September 21, 2009

Lowe as it gets

From Saturday’s Age, two stories opposite each other on pages 6 and 7. The top one is a continuation from the front page about the RBA and the Prime Minister taking a different view on economic policy. It begins:

Reserve Bank governor Philip Lowe has called for more infrastructure spending across Australia in direct opposition to the views of the Prime Minister Scott Morrison.

When you follow the story to its continuation on Page 6 we find that while the RBA Governor disagrees with the PM on the need for a stimulus, he does agree with The Greens.

He really should just keep his views to himself. Unbelievably out of his depth. Even in the one area he is supposed to know something about – monetary policy – he is lowering rates and threatens to continue to lower rates. No idea about the damage he is doing. You don’t expect more from the Greens, and now that I mention it, I don’t really expect more from a modern economist either. We’ve had ten years of stimulus and look where it’s got us, and now they want more!

A classic case of economic ignorance

I am in the midst of finishing off a book on classical economic theory from which, and only from which, you can discover just how fatal to economic health modern economic theory is. The Australian economy is not far from disaster, real growth is falling as are real wages. But this we find at the top of the front page of The Oz.


Here are the opening paras.

Surging federal and state government spending has insulated the economy from a dramatic plunge in growth, as business investment and household spending shrank, raising questions about the health of the economy.

The latest national accounts show annual economic growth fell to 1.4 per cent — the slowest since 2009 — as rapid increases in public spending and global demand for the nation’s coal, LNG and iron ore papered over weak or falling household spending and business investment.

That it is the public spending that is taking the economy to death’s door occurs to no one. Let me therefore take you to a bit from the introduction to my forthcoming book.

The chapter goes to some length in discussing the advent of Keynesian theory, which was summarised by Paul Krugman in his introduction to The General Theory which was published in 2006, seventy years after Keynes’s original publication in 1936.

“Stripped down, the conclusions of The General Theory might be expressed as four bullet points:

1. Economies can and often do suffer from an overall lack of demand, which leads to involuntary unemployment
2. The economy’s automatic tendency to correct shortfalls in demand, if it exists at all, operates slowly and painfully
3. Government policies to increase demand, by contrast, can reduce unemployment quickly
4. Sometimes increasing the money supply won’t be enough to persuade the private sector to spend more, and government spending must step into the breach.

“To a modern practitioner of economic policy, none of this – except, possibly, the last point – sounds startling or even especially controversial. But these ideas weren’t just radical when Keynes proposed them; they were very nearly unthinkable. And the great achievement of The General Theory was precisely to make them thinkable.”

There is no question that Keynes did indeed make each of these more than just thinkable. He was able to turn these propositions into the mainstream where they have been accepted by virtually every economist ever since. It is classical economic theory that has now become unthinkable. The result of the Keynesian Revolution has left things so that the classical alternative is not just no longer contemplated by anyone within the mainstream of economic theory, but that no one within the mainstream even knows what that alternative is.

I stumbled onto classical theory by accident but it has been so accurate in allowing me to understand what’s going on that I can never understand why others don’t sicken of this Keynesian trash. It has never ever in a single instance brought an economy from recession into recovery. It’s all set out in my Free Market Economics. How we ended up in this dismal place we are now in is what my next book will go into chapter and verse.

A strange duly neglected crank

The ‘Strange, Unduly Neglected Prophet’ was the description given by Keynes to Silvio Gesell, the author of the notion of “stamped money” which is discussed at the link. There are cranks all over economics, but there have always been more of these in monetary theory than anywhere else. They have now even risen to the ranks of central bank governors all across the world.

Gesell has always remained famous among economists because he is one amongst Keynes’s “brave army of heretics” whom he discusses in Chapter 24 of The General Theory. Apparently Gesell has now risen to a new prominence and taken on a strange new respectability. Some idea of how far we have gone is provided in the penultimate para of the article.

In our technological age, a Gesellian system of unhoardable cash wouldn’t actually have to involve stamping paper bills for a fee. It could involve high-tech physical cash, such as magnetic strips that allow the government to impose a “Gesell tax” on holding cash, as one economist proposed some years ago. Harvard University’s Kenneth Rogoff has been advocating we get rid of paper money altogether and move almost completely to a system of electronic cash. He believes it could give central banks the power to impose negative interest rates deep enough to rescue our economy from future recessions. In all of this, Gesell was a pioneer.

The nonsensical notion that recessions occur because people don’t spend their money, or their income, or hoard their savings, or whatever might be stopping people from spending, is the core belief of economic cranks everywhere. Just because it is now mainstream economic theory shouldn’t lead you to thinking that just because these once understood fallacies are today taught to everyone around the world that they actually make any sense whatsoever. They have been ruining economies and destroying our wealth for centuries. Why should anything change now?

Leaving it to the market plus the rule of law

A quite interesting article that adds to our understanding of why China is in such a hurry to shut down Hong Kong: Why People in Hong Kong Have Incomes 5x Higher Than People in China’s Richest Province. It’s not long, but will give you quite an understanding of what has made the difference. But I particularly wanted to point out the principles that lie behind its success.

  1. Business Efficiency – The Hong Kong government established simple procedures for individuals to start their own enterprises. Entrepreneurs fill out a single page form and pay $25. That’s it. Businesses can open that very day.
  2. Small Government, Big Market– Per-capita spending on government in Hong Kong is less than half of what the average New Yorker spends to support the various levels of government.
  3. Open Trading Systems– Hong Kong has the world’s 10th largest trading economy, with no trade barriers or tariffs imposed on other countries.
  4. Low Taxes – A typical New Yorker loses about half his income to taxes. In Hong Kong, the government claims just 15 percent.
  5. Sound Money– As the U.S. undermines the dollar with dollar printing and years of quantitative easing, raising government debt to never before seen levels, Hong Kong maintains low debt and sound money. It carries a debt to GDP ratio of 38.67 percent compared to 104.17 percent in the U.S.
  6. Few Government Regs – While the U.S. has reactionary regulation with many business crushing consequences, Hong Kong has an environment of permissionless innovation that embraces the benefit of “innovation allowed,” which switches the burden of proof to those who favor preemptive regulation and requires them to explain why ongoing trial and error experimentation with new technologies or business models should be disallowed.
  7. Rule of Law–  The British, during their long rule over Hong Kong enforced, the “Rule of Law.” People who stole or killed were jailed, which left the people to flourish in a free law-abiding marketplace.

Most of it is about governments keeping out of the way, which was how we used to run our economies until modern macro rotted the minds of economic policy makers everywhere. Leaving it to the market plus the rule of law works wonders.

Idlers and good-for-nothings

I’m in the midst of a book on the coming of Keynesian economics into the world and the disappearance of classical theory. I have just now finished a section discussing the first Keynesian textbook ever written, Lorie Tarshis’s The Elements of Economics, which I thought I might share a bit of which with you.

Tarshis’s text made Samuelson and other economic writers more cautious in how they discussed Keynesian theory. A passage such as the following would never again enter a Keynesian text, as accurate a reflection of the theory though it may actually have been.

“To put it bluntly, employment and income, in money terms, can be expended to respond equally whether the government sponsors useful public works like highway construction, or completely useless ones like digging ditches and filling them up again. In either case, because the income of the newly employed would be higher than before, they would increase their spending, so that the output of consumers’ good would be expanded and the upward swing begun. Naturally we should prefer projects which directly add to our real wealth. Flood-control projects, highways, parks, school buildings, research projects, housing, and so on are better than leaf-raking and useless excavations. But the latter are better than nothing, for even though the projects are useless, carrying them out leads to an increased output of consumers’ goods. And even though the men responsible for the increased demand were idlers and good-for-nothings, their dollars, in our economy, are as powerful as any others in increasing consumption, income, and employment.” (Tarshis 1947: 518)

Possibly the most revealing passage in the entirety of Keynesian literature.

It was overrun the following year by the first edition of Samuelson’s Economics, in part because Samuelson’s was a much better book, but also because he was a bit more candid about what Keynesian theory meant in practice.

If they can bring on a recession to sink Donald Trump they will

Let me start with this sage piece of advice from Henry in the previous post:

No sensible purpose is served by the facile criticism of the administration that increasingly pervades the Australian media, and the equally facile ­questioning of the alliance that ­invariably accompanies it. For these issues are deadly serious; unless they are treated seriously, the consequences will be deadly too.

And then there’s this from Instapundit to bear in mind.

ADHERING TO LENIN’S “THE WORSE, THE BETTER” DICTUM: Recession Warnings Music to the Ears of Democrats. 

66Posted at 2:13 pm by Stephen Green

And today from the front page of The Australian: Global recession warnings as sharemarkets sink.

Which follows on this from The Economist: Markets in an Age of Anxiety, which begins:

Financial markets are often accused of complacency. However, the mood just now is not complacency but anxiety. And it is deepening by the day. In Germany interest rates are negative all the way from overnight deposits to 30-year bonds. In Switzerland negative yields extend right up to 50-year bonds. In America, meanwhile, interest rates on ten-year bonds are lower than on three-month bills—a harbinger of recession. Angst is evident elsewhere, too. The safe-haven dollar is up against many other currencies. Gold is at a six-year high. Copper prices, a proxy for industrial health, are down sharply. Despite Iran’s seizure of oil tankers in the Gulf, oil prices have sunk to below $60 a barrel. Plenty of people fear that these strange signals portend a global recession. Yet a recession is so far a fear, not a reality. The true problem is that firms and markets are struggling to get to grips with uncertainty. And that is the result of the trade war between America and China.

Artificially low interest rates are as sure a way to cause an economy to stall as I can think of. That along with vast oceans of unproductive public spending.

JUST FOUND THIS TO ADD TO THE ABOVE: Drive-By Media Hell-Bent on Talking Us Into a Recession. It’s from Rush Limbaugh.

MEANWHILE: Starts about 15 minutes in.

An idiotic idea so bizarrely stupid it defies sense

From this morning’s Oz a story I have just gotten round to now:

The Reserve Bank governor is calling for 3 per cent wages growth across the public sector, apparently to help the rest of us. Ratcheting up public sector pay would damage the economy far more than help it, undermini­ng economic growth, productivity, increasing inequality and further eroding respect for government.

Adam Creighton calls it “a bad idea”, but that is only because he is polite. It is actually an idiotic idea that is so bizarrely stupid that it demands that he explain how it could possibly provide any positive assistance to the economy whatsoever.

How does someone with so little understanding of how an economy works get to make such decisions? But you have to get to the last line of the story to find out why he wants the least productive people in the economy to absorb even more of our productive capabilities:

The Reserve Bank wants higher­ wage growth to boost inflation, which has hovered below its 2-3 per cent target for almost five years. Meeting an arbitrary inflation target is hardly justification to damage the economy and increase inequality further.

He wants the most securely employed people in the country, with the lowest contribution to output, to receive large increases in wages so that the inflation rate can rise even further. It really is infuriating.

Economic mis-management continues

As it happens I’m sitting at the airport at the Qantas terminal waiting on my flight when there is an article atop the paper about “Qantas boss warns climate hysteria threatens air travel”. Seems he’s not always as politically correct as he is at other times. However, what interested me here was the data on air traffic in Australia:

Business and consumer confidence is weak and there are no capacity increases likely in the near future.”

Unfortunately, with the present crew of economic mandarins on the job, both in Treasury and the RBA, nothing is going to change any time soon, because there on the lower left hand side of the page is another front-page story: “Rate cut likely after shock NZ move”. Here’s the first line:

“The prospect of negative official interest rates is hanging over the economy.”

That they are clueless about why the economy is growing so slowly is clear. Eventually they will be forced to start doing the right kinds of things, but it may take a long, long time and we will go through quite a bit of pain before they’re through. But it does make me ill to watch these people in action.