In the hands of thieves and loonies

Economic ignorance beyond the superhuman. These people are certifiably insane but we elected them. You just have to see the numbers: Victoria’s budget John Cain/Joan Kirner to a new dimension.

Victoria’s debt bill will skyrocket to $154.8bn over the next four years even as the Andrews government bets that it can avoid a third wave of COVID-19 and kickstart a rapid economic recovery. Tim Pallas’s sixth state budget reveals the sea of red caused by the coronavirus crisis, with Victoria a whopping $23.3bn in deficit as the economy shrinks by 4 per cent this year after almost three decades of uninterrupted economic growth.

They must have already sold the State to the Chinese because there is zero means for these people to fix the books and pay these debts. And do let me add this:

The budget papers also reveal Victoria’s public service wages bill has soared almost 10 per cent this year – and will blow out by $6bn over the next four years. Mr Pallas defended the massive increase in borrowing, saying it had been recommended by the Reserve Bank and the federal government, and that interest charges – averaging 4.4 per cent of revenue a year – were manageable.

I want every Victorian politician’s retirement super to be discounted by five percent a year until the deficit is gone. And if this has been endorsed by Morrison, I want to hear him say so. None of them know a thing about managing an economy.

Stealing from the poor to give to the rich

The data above is from the United States. Real wages are rising which is as good a reason for the Deep State to get rid of a president as I have ever heard. Imagine letting workers earn more which is taking money right out of the hands of the people who run projects funded by the public sector.

Government spending is in part hiring the useless to do unproductive jobs plus creating programs that soak up billions of dollars supposedly to create jobs.

And keeping interest rates as low as possible is all part of the process. The role of interest rates is to allow the market to determine which projects are the most likely to have a positive return. Near-zero interest rates allow governments to compete physical capital away from private entrepreneurs at the lowest possible cost to Treasury. This was from the RBA Governor on the fifth of November: Statement by Philip Lowe, Governor: Monetary Policy Decision. There was a time a discussion such as this would cause a first year student to fail the course. Now it is the highest good sense in economic policy.

Wages growth remains subdued and is expected to remain at around its current rate for some time yet. A further gradual lift in wages growth would be a welcome development and is needed for inflation to be sustainably within the 2–3 per cent target range. Taken together, recent outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.

The virtue in having higher wages growth, you see, is so it might raise the inflation rate towards its target range. Not so that wage earners might earn a higher income, but so that inflation might rise which means that any wage increase projected will come without productivity growth. Otherwise, if productivity were also rising there would be no inflation.

Moronic doesn’t quite capture it.

What my book on classical economics is actually about

This was the start of the review of my book on Classical Economic Theory and the Modern Economy provided by EH.Net to the Societies for the History of Economics online list:

This book is about how little Steven Kates thinks of the “modern economy,” an umbrella term for all variants of Keynesian economics. Bold and pretentious statements abound. “Just about the whole of modern economic theory is perniciously wrong … there is virtually nothing useful one can learn from a modern economics text in how to manage an economy” (p. 1). “Economists know nothing whatsoever about the analytical depth of the classical economists” (p. 16). Kates aims “to explain why classical economics is vastly superior” (p. 17). Kates wants to convince us that he is “almost uniquely placed” to do so, though he acknowledges “how obscure [he is] within the world of economics” and notes that “virtually no one sees things as [he does]” (p. 17). This does not prevent him from boasting about how, as chief economist of Australia’s national employers’ association, he “never made a single wrong call on the economy or the effects of public policy” (p. 20). Unfortunately, the book is filled with errors. Relevant quotes and texts are omitted or distorted for the sole purpose of justifying his anti-Keynesian narrative.

As you may see, not a positive review. He describes my discussion of  my record of accurately predicting the harmful consequences of using Keynesian policies as “boastful”, but at least it’s accurate which you would think would count for something. Because economists are so convinced that their theories are right, they never, and I mean never, go back for a post mortem to see what went wrong. And what I point to is not just failures, but also to the phenomenal success of Peter Costello’s economic management from 1996 onwards where the economy ripped along not only with zero deficits year after year but also zero debt! Anyway, I have written my book and this chap speaks for almost the entire profession in his review. At least writing for an Australian audience here at Catallaxy, there will be at least some memory of much of what I write. Also, you should go to the article at Quadrant if you would like to see not just what I wrote but also how I wrote. The difficulty in cutting through their arrogant ignorance is just how it is.

_____________My reply to the review is found below

Suppose I believe, as I do believe, that economic theory reached its highest level of analytical power in the economic theory of the mid-to-late-nineteenth century, and especially with the economic theory presented by John Stuart Mill in his Principles of Political Economy first published in 1848, how would I go about saying so? Suppose going further, I had come to believe, based on having reached this conclusion, that virtually the whole of modern economic theory is vastly inferior to economic theory of the mid-to-late nineteenth century, how exactly should I go about trying to explain what I think to others? Suppose, as in fact is actually how things have turned out, that I had concluded that a student of modern economics, who studies modern macro and micro, is by that very fact, unable to read a nineteenth century economics text and understand what it says, how should I have tried to express those thoughts to others? This was the dilemma I faced and Classical Economic Theory and the Modern Economy is how I went about trying to resolve these problems.

The sad but for me not surprising part is that it would be very difficult for a modern economist to make sense of what I am saying, as Guy Numa in the review of my book has so clearly shown. Perhaps I should not be surprised to find such a negative review of my book, but none the less I find it very disappointing. But at least I can be grateful for his undertaking the review which has highlighted a number of important points although he has has missed the central point the book was trying to make. If you would like to understand what the book is about, I can only suggest you read this brief article of mine that was published at the start of this month, by the Australian magazine Quadrant, which is titled: “What Classical Economists Knew that Modern Economists Do Not”. If you go to the link, this is how the passage from my book starts:

“# My aim in writing this book is to explain why classical economics is vastly superior to modern economic theory. And in attempting to demonstrate that this is so, I will explain how a classical economist understood the operation of the economy. But in outlining the classical approach to economic analysis, I begin with the recognition that anyone who has already been taught modern economics will be virtually incapable of understanding classical economic theory.

“# I will therefore start with a personal explanation of why I believe I am almost uniquely placed to explain classical economic theory and why it is important that we do so. It will be argued that the disappearance of classical economic theory has led to an enormous loss in our ability to understand what needs to be understood if we are to make sense of how an economy works.

“# Modern economic theory is a labyrinth. Perhaps all theory is like that. Once one enters into its precincts it becomes virtually impossible to escape other than by accident. I will therefore explain how I accidentally found my way out as a possible way to assist others to attempt to do the same.

“# And even as I begin, I will acknowledge how obscure I am within the world of economics. I have published papers and books. I have attended conferences and meetings of economic societies around the world. And in all this time, I have come across virtually no one who sees things as I do. There are a handful of others, but our numbers are trivially small. So to my story.”

Guy describes my approach as “boastful”. I think of my attitude as exasperated, since if you go to the link, you will find the lengths that I have gone to in an attempt to get these points across in the past. There have been others who have tried to do this before me, with Henry Hazlitt and W.H. Hutt the most notable. In criticising Keynesian macro, I would not describe their attitude as “boastful”. I am merely following in their tradition.

I will just emphasise that the book is not about Say’s Law although Say’s Law naturally does come into it. It is about the classical economic theory that was the core of the profession between the 1840s and its complete disappearance with the publication of The General Theory in 1936. But the following discovery of mine is for the first time acknowledged by someone else and it is important where Numa wrote: “It is true that Taylor invented the term ‘Say’s Law.’” That is, it was the American economist Fred Taylor who invented the term “Say’s Law” in the twentieth century where it became a much discussed issue mostly in the US during the 1920s and 1930s. It is Taylor’s understanding of Say’s Law that ends up being refuted in The General Theory. J.B. Say’s Law of Markets, first stated in 1803, has virtually nothing to do with Say’s Law and to bring J.B. Say into it obscures the core issues. That too is discussed in my book, along with the also unknown fact that the phrase “supply creates its own demand” is also twentieth century American having been first stated by the American economist, Harlan McCracken in 1933. The origins of The General Theory cannot in my view be properly discussed without knowing these facts.

I will close by using the same quotes from my book used in the review by Numa since these do accurately describe what the book is about: “Just about the whole of modern economic theory is perniciously wrong … there is virtually nothing useful one can learn from a modern economics text in how to manage an economy” (p. 1) and “Economists know nothing whatsoever about the analytical depth of the classical economists” (p. 16). Both of these statements, so far as I am concerned, are absolutely true. If you want to know why I think so and why it matters, you really should read the book.

US GDP growth 33.1%

AN UNSURPRISING UPDATE:

GDP Explodes 33.1% — Media Bury The Story

A few weeks ago we noted that the third-quarter GDP number was likely to be a stunner, defying the endless claims by the press that the economy will struggle to emerge from the COVID-19 lockdowns. We also warned that voters wouldn’t get the news through the mainstream press. Well, we were right on both counts.

__ Original story is below the line

It’s the sort of thing that only really interests economists since it has no personal meaning for anyone. Nevertheless, better this than the opposite. In its own way the Democrat decision not to provide a “stimulus” helped things out a bit, not that they would have known. Discussed here: U.S. GDP booms at 33.1% rate in Q3, better than expected.

Increased consumption along with sold gains in business and residential investment as well as exports fueled the third-quarter rebound. Decreases in government spending following the expiration of the CARES Act rescue funding subtracted from GDP.

It no doubt did subtract from GDP but it also added to growth. These Keynesian measures are such misleading indicators.

In academia who would self-report anything else?

I have just received a note from a journal that my article will not be included in a forthcoming overview of one of the world’s great economists (now sadly deceased).

I am sorry to inform you that your proposal has not been selected for inclusion in the special issue. There were many excellent proposals, including some with significant overlap with yours. We have decided to go with a few more historically oriented pieces by young scholars.

The probability that someone else will be writing on Say’s Law approaches nil, but I suspect this is a form-letter sent out to everyone whose proposals were rejected. Nothing new here for me. I mention it really only to draw attention to the above chart. Economics is in the blue columns on the right, but they’re all more or less the same no matter what the discipline (although economics is a bit better than the others). These are the social sciences where you would expect this kind of outcome, but I wonder how different it would look for physics and chemistry.

The chart is from THE GEEK IN PICTURES at Powerline which has a number of equally interesting charts about the world we inhabit.

How do we come out of this alive?

The wages shortfall has been replaced by benefits and then some. Picture: Supplied.

Taken from JobSeeker, JobKeeper ending will reveal massive recession crisis.

The core concept of Jobkeeper was all right, to make sure no one was deprived of the ability to buy because they had lost their income. The data in the graph are however insane. Does no one any longer have a sense of proportion, and can no one any longer look forward for more than a day at a time? And it comes with this, also at the link:

How much the recession will cost you

It comes from the Commonwealth Bank of Australia and it shows how much more money Australians are making than the year before. It’s a lot. We’re flying.

The black line is now at 16 per cent, which means we’re making 16 per cent more money in 2020 than last year.

Think about it like this: Australians who were banking $1000 per week last year are banking on average $1160 now. That’s a lot of extra money each week.

Where is the cash is coming from? Up until the start of the pandemic, the black line was being held up by the blue bars: earnings from work, i.e. salary and wages. We were 4 or 5 per cent richer than the year before, because more wages were being paid.

Then the COVID-19 pandemic starts. The blue bars turn slightly negative – wages and salaries went down (they would have gone down even more if not for JobKeeper!). But the red bars shoot up. That’s Treasurer Josh Frydenberg turning on the money taps.

JobSeeker is the big one, and the two $750 payments that went to pensioners.

We’re paying out 16% more in incomes while productive output must have fallen along with business profitability by some massive percent! If these numbers are anywhere correct we are heading for the rocks.

I will add that if the government, any government, still believes that the level of demand is what keeps the economy moving ahead or adds to job numbers, they are about to find out once again just how wrong that is. Not that they will learn, because they are too stupid, but they will find out all the same.

Belt up, Dan, and hit the road, you communist fool

Every so often you come across something so revealing that there is little more to add once you have seen it. In yesterday’s Herald-Sun there was an article titled, “China Backs Dan deal”. Of course it does, but this is how the story opens:

Daniel Andrews has questioned Scott Morrison’s priorities and demanded the Prime Minister come up with new trade markets for Victoria if his Belt and Road deal with China is cancelled.

Let me say that so far the Prime Minister has performed miles beyond my hopes with every instinct, especially on foreign policy, near perfect. Belt and Road must go. But that wasn’t what caught my eye. This was such pure economic ignorance – that he had demanded the Prime Minister come up with new trade markets for Victoria – yet I imagine it is a view largely supported by his equally ignorant supporters.

It is how these socialist think, that it is up to governments to find overseas markets. Of course Andrews has no idea how a market economy works. Obviously this is the way he thinks, that it is up to the government to sell our produce to foreigners and to create jobs for workers. A complete klunk, but the kind of ignorance that leads to economic collapse of the kind found in Venezuela right now.

Was it worth it? How many lives did we save?

Letters from friends.

Of the first one, I can see how that might be true if things are looked at from within the United States. Looking at things from within Victoria, it doesn’t stand up, mostly because I think Daniel Andrews is too stupid to get to that conclusion. And I mean really dumb, not just that he is a fool. There are plenty of fools everywhere. The universities are filled with people who are high-IQ morons. They can reason and read. They can research and write. They can do a crossword and a sudoku. That is the kind of conclusion one of them might reach. But not DA. He is a union thug who just likes to push people around. He never discusses. He never debates. He never explains. And I think it’s because he works on some low-grade principle of capitalists-bad, workers-good. Lockdowns simply reflect his nature and intellect. Force is something he understands.

I will, however, say now that he has postponed the results of his Inquiry to November 6, I am beginning to see some reason to believe what you see below may be true, since the results of the Inquiry will be released following the end of the election in the United States. After that, according to this note, what happens to the Corona Virus will no longer matter. Almost certainly just a coincidence.

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Speaking for myself, from very early on I have entirely thought of the Covid-19 “pandemic” as a hoax that has been seized upon by the left in the United States as a means to engineer the Democrats to a win in the election in November. The origins were in China and occurred either by chance or design, but once it had occurred, the dangers were seized on and amplified by the left to create the panic we now see. Everything else the left has tried had come up a bust, the American economy has performed better than possibly at any time in anyone’s memory, the Deep State and its media cohort have been exposed, and at long last there has been some kind of border protection put in place. Trump was in an unloseable position whereas now it is no better than 50-50.

As for conspiracy theories, that is all there are in politics. Every political strategy requires all kinds of people to do their part with no scripting or instructions required. Every so often there are lone players, such as Lee Harvey Oswald. The rest of the time, however, there is a general theme that is played out where everyone on both sides understand the agenda, with those promoting the agenda all making up their own means of contributing towards its fulfilment, and those on the other side doing what they can to push back. So the theme on the left was – We must do everything we can to limit the spread of death and destruction from this deadly virus. For Trump, there was no serious choice but to take this hysteria seriously, and whatever he may have personally believed, to do all he could to limit the spread of the virus. So he stopped the borders, supported lockdowns and put Dr Fauci out in front to call the shots. The rest of the world, either because they too had no choice but to play along, which in all cases required them to do something, or because they were on the left and understood the game in play, amplified the horrors by working out their own response to highlight how bad things were and how Donald Trump had screwed up the response. Meanwhile in Democrat states, everything was done to make the pandemic appear as dangerous as possible. The actions taken in New York by Andrew Cuomo were not errors of judgement but undertaken to raise as much concern as possible.

In Australia, for whatever reason, nothing happened. No major pandemic, no deaths beyond the normal seasonal total for the flu, and no real contribution to add to the hysteria other than to suggest there was no need for it.

Which brings me to Daniel Andrews who has not for nothing been called the Andrew Cuomo of Australia. It’s not as if he blundered. Everything he has done has been deliberately aimed at creating as much media-driven alarm as possible in the midst of absolutely nothing statistically of significance. But the media are also playing along to the fullest extent they can as one would expect so you would think we were back to the Spanish flu once again.

I cannot therefore promise you that you will survive the Covid panic without some kind of damage to yourselves or families, but that is far far more likely than that you or anyone you know should come to any serious harm. The harm you should worry about, and this is much more serious than anything else that might happen, is that Joe Biden should become President. That you have had the possibility you might die within the next twelve months raised by 0.005% is hardly worthy of a moment’s thought.

And this is the second letter. This is about the cost and benefits of the efforts made to contain the CV-19. Was it worth it? he asks. How will we even be able to tell and by what date can we know? Lives interrupted everywhere.

Most of the decline in output from COVID is from shutting down the economy, not from the disease itself. What would have been the economic impact of C0VID if governments had not shut down our economies? Well, we have to make some simplifying assumptions – lets try …

  • With no government shutdowns, half the population gets covid over a period of about a year, half of those are asymptomatic. I’ve seen the asymptomatic ratio ranging from 40% to 80%.
  • Of the symptomatic quarter of the population, assume mortality is 5% (Worldometer.info estimates New York State mortality rate from verified and estimated infection is only about 1.4%. It was higher in Europe).
  • Of those deaths, most occur in the elderly cohorts. So labour force mortality (18-65 years) is less, lets say 2.5% (18-65 years). (New York State estimate would make labour force mortality under 2%). Impact on labour input is 50% infection rate x 2.5%mortality = 1.3%.
  • The symptomatic but recovered portion of the labour force, is off work for a month on average, worth 1/12 x 50% infection rate x 50% symptomatic ratio = 2.1%  of labour input.
  • So total reduction in labour input is only about 2.1 +1.3 = 3.4% for a year (assuming full employment).
  • There would be some substitution of capital for labour – about 0.5 elasticity in the long run (Knoblach et al, Oxford 2019) and less but still positive in the short run. Also some overtime and informal work accommodation.
  • On a micro/sectorial level, high mortality among the elderly would generate actuarial gains for defined benefit pension funds and actuarial losses for life insurance companies. For health plans there would be short-term losses and long term gains. Hard to say what the overall impact would be. There would be stress (even higher output) on health systems.
  • Another imponderable would be the impact on risk premia and liquidity in financial markets if there was a pandemic panic.

Bottom line: its hard to see an impact on global GDP of more than about -3% from the disease itself (-3.4% labour input with some capital and technology offsets). The forecast decline in world GDP of –5.2% this year (World Bank) means a total gap of about 8.5% (+3.3% potential growth less WB’s –5.2% forecast 2020). The global GDP decline is mostly the result of shutting down much of the global economy. Was it worth it? How many lives did we save?

The political consequences of CV-1984

From These Two Charts Should Land Dr. Fauci in Prison. And if that doesn’t, this definitely should if it’s even remotely true: In New Interview Bobby Kennedy Jr. Claims Dr. Fauci will Make Millions on Coronavirus Vaccine and Owns Half the Patent. Not to mention this as well: CDC director acknowledges hospitals have a monetary incentive to overcount coronavirus deaths.

But it is this bit of common sense that really does get to me: from Rush Limbaugh.

I’ll tell you there’s something else. There is something else about this, folks. The people who are telling you what you have to do to shut down your business, to not send your kid back to school, to not go back to work, these are people that have not lost a paycheck during this crisis. Have you noticed? There’s not a single [Victorian] worker that’s been fired. Not a single one. This is crucially important. The people that have not lost a paycheck are the ones telling you that you need to give up your livelihood, shut down your business, don’t go back to your job.

This used to be an issue when this began, but has for some reason gone away. This is the socialist ideal; income security exists only in the public sector. But after a while, and it does take a while, the money you get will buy you only a fraction of what it used to buy as the economy caves inwards. And at the same time your personal freedom and independence disappears in ways you never dreamed might happen. This is from The Wall Street Journal which is as mainstream as it is possible to be: The Pandemic Is a Dress Rehearsal. This is what you can see before the story cuts out:

Eight months after the novel coronavirus burst out of Wuhan, China, it has created unprecedented economic and social disruption, with economies cratering across the globe and more destruction to come. Tens of millions have lost their jobs, and millions more have seen their life savings disappear as governments forced restaurants, bars and other small businesses to shut their doors.

Wealthy societies are able, for now, to print and pump money in hope of limiting the social and economic damage, but such measures cannot be extended…

And then, eventually, what happens after that?