There are some people who are non-Keynesian because they are something else, an Institutionalist for example. Or they advocate small government so that Keynesian economics promotes what they oppose and are therefore against public spending irrespective of what good it might do in recession. But some – and these are very few in number – believe that Keynesian economics is just plain bad economics, can only do harm and can never do an economy any good.
Now speaking of Bad Economics, that is the title of a book by my long time friend Peter Smith. He has written his book in the same way I have written mine, which was in a fit of disgust at the stimulus in 2009 and the way it is driving our economies into the ground. And while we are on the subject of bad economics, I have just been looking at a story in today’s Age by Tim Colebatch on the investment situation in Australia, “Non-mining investment plummets”. The story begins:
BUSINESS investment in the non-mining economy has shrunk to its lowest share of gross domestic product for almost 40 years . . . and appears set to fall lower still.
The Bureau of Statistics estimates that in the nine months to March, business investment in manufacturing and services such as finance, retailing and IT fell to 4.95 per cent of GDP, its lowest level since 1972-73.
The bureau’s quarterly survey, taken in April and May, found companies plan to invest even less in 2012-13. Manufacturers’ investment plans were 11 per cent lower than at the same stage last year, while service companies’ plans were down 4 per cent.
Even if these plans are upgraded as usual over the year ahead, the survey implied that non-mining business investment would shrink, to about 4.5 per cent of GDP.
That would take it back to levels last seen 60 years ago, in the savage bust that followed the Korean War boom.
The bit I left out is Tim’s conjecture that the death of investment is due to the high dollar. No doubt some of it is, but really we are dealing with an economy so badly managed that it is hard to know where to start. A high dollar does not alone cause the collapse of non-mining investment in such a comprehensive way.
But this is mere preamble. Tomorrow I am launching Peter Smith’s Bad Economics (Connor Court: $29.95) at a Quadrant dinner in Sydney. And what is so notable about his book is its relentless anti-Keynesian theme. A very rare species even in our day and age when you would think such books would be dime a dozen. The reality: I hardly know of any other besides his and mine. Peter will speak on his book and on how he sees economic theory and policy. It should be a very entertaining night.
And then I am back in Melbourne on Friday doing a presentation to our School to which any Catallaxy readers who happens to be close by are welcome to come. Here is the School notice:
Location: Swanston Academic Building (445 Swanston Street – Level 11)
Schedule: There will be a light lunch served at 12.30pm and the presentation will run from 1.00pm to 2.00pm, including question time. Please be aware that although lunch will be served in the presentation room, attendees are required to dispose of their own plates / cups / litter / etc following the presentation .
Presenter: Dr Steven Kates (RMIT)
Title: Classical Macro: What You Should have been Taught but Weren’t
Abstract: The classical theory of the cycle was the macroeconomics of the mid-nineteenth century. Embedded within this theory was a theory of employment that is the antithesis of the Keynesian theory that remains at the core of economic policy to this day. The classical theory was summarised by John Stuart Mill in his fourth proposition on capital which stated that the demand for commodities was not demand for labour; that is, you could not generate growth from the demand side of the economy. [This, let me emphasise, is Mill and not Kates!] Demand for labour was, instead, created by capital. Employment and the real wage varied directly with the amount of capital an economy possessed. An understanding of Mill and classical macroeconomics would not only explain why the stimulus failed to stimulate economic growth and a return to full employment, but would also help explain what measures would be effective to achieve these ends.
The seminar presents a model of the economy that explains in simple terms how economies function.
These are presentations, both mine and Peter’s, by charter members of the Australian School of Economics. More on this anon.