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.
Steve, OT but this deserves wider notice:
http://www.weeklystandard.com/blogs/cut-ad-clinton-cos-ryan-guy-amazing_649942.html
C.L.
15 Aug 12 at 1:59 am
My copy of Bad Economics just arrived here in Uzbekistan.
Abu Chowdah
15 Aug 12 at 3:14 am
Speaking as a non-economist, I have had a sneaking suspicion that the wonderful figures recently trumpeted re inflation and unemployment are hiding an economy which I’d simplistically call the Wiley Coyote economy.
It’s run out beyond the cliff but remains suspended in mid air, and is contemplating the valley floor way below.
Blogstrop
15 Aug 12 at 6:26 am
My copy of Bad Economics arrived a few weeks ago but I have just started reading it. Even just two chapters in, I’m developing the sneaking suspicion that Smith reckons Keynes was full of shit. Just a suspicion, mind you.
Catfeesh?
15 Aug 12 at 7:07 am
One day soon a government will have to go through those people on the disability pension and review which are really valid people who should be there and which are the long-term unemployed whose numbers the government are hiding.
Token
15 Aug 12 at 8:07 am
Steve, thank you for writing this, sorry to be missing both events.
Token, the disability industry in outback Australia was hidden by the CDEP industry. I am not sure if I have read a paper on that aspect. There was some 6 or so years ago, a research project proposal seeking ‘evidence’ of remote disability. Presumably to base further funding for the development of extensive disabled care facilities on country. And diversifying of the endless funding streams and ideas. Perhaps the new OPAL fuel will supplement all the workers needed to be flown in to manage and work the facilities. Renal dialysis ‘on country’ is another aspect of the vast array of disabilities treated. Remote
Australia has some of the highest rates of renal disease in the world? Costs?
Jessie
15 Aug 12 at 9:29 am
Gold, Blogstrop. Whither to now though? The magic of pulling back onto the cliff backpedalling fast, or drop and crash? How to do the former now, or is it too late?
Bad Economics sounds like a must read if we want any real sort of answer.
Elizabeth (Lizzie) B.
15 Aug 12 at 10:26 am
This article says the Keynsian economics doesnt work.
dianeh
15 Aug 12 at 12:33 pm
I had a link in there to the Business Spectator but it doesnt appear to have worked, even using the link button.
The article is called
“A radical exit from global financial crisis” By Oliver Marc Hartwich
dianeh
15 Aug 12 at 12:35 pm
dianeh, do you mean this article.
trax
15 Aug 12 at 12:52 pm
I recall certain people claiming the Baltic State economies would be ruined because they implemented austerity, rather than stimulus policies.
Here are the latest annualised GDP figures released by Eurostats for the June Q 2012:
Estonia: +2.5%
Lithuania: +2.7%
Latvia: +4.3%
By contrast:
Spain: -1.0%
Portugal: -3.3%
Italy: -2.5%
Greece: -6.2%
Capitalist Piggy
15 Aug 12 at 1:46 pm
Do Nothing But Hope; Stimulus/Porkulus; or Restrain Spending.
The third option is always left to the incoming conservatives to undertake, whereupon much of the media chorus, having spent the past term or three, or four, extolling the virtues of the leftists or at least omitting any hard commentary on their wayward management style, launch straight into the “cruel and heartless” conservatives who are trying to right the ship by the only method that actually works. I’m surprised that article refers to Australia as “low spending”.
Border protection likewise has no easy, sensitive solution.
Climate Change, for all the warmy glow and attractiveness of the rhetoric, has spawned a self-destructive syndrome while diverting thoughts and efforts away from real pollution.
All of these errors belong to the left.
blogstrop
15 Aug 12 at 1:54 pm
Yes Trax, thanks for that.
I assume that Australia is considered ‘low spending’ when you compare us to other western economies, over the last decade or so.
But why are we running deficits during a mining boom? Surely we should be running surpluses. If you cant run a surplus during a boom, when can you run one. Obviously the answer is, “If Labor, then never”.
dianeh
15 Aug 12 at 2:34 pm
I got my copy a month or so ago. It was refreshing to see someone else recognising that in a boom/bust cycle, it is the boom which is the problem – the recession is just the necessary medicine. It also helped to bring into perspective some of the problems I have with Austrian economics, such as the gold standard. I also like that it is written as a polemic, this makes it easier for me to recommend to friends who find most economics too “dry” to be interesting.
Recently, the Olympic ticketing “fiasco” has re-proved the superiority of the price system as opposed to central planning. So many in the commentariat complained of websites crashing, empty seats, etc. when the IOC could have solved all of these problems at very little cost by simply putting every available ticket on eBay.co.uk, and allowing resale. Everyone would then have had the ability to buy their tickets at the price they were willing to pay, and there would have been no empty seats.
Hopefully Steve and Peter’s presentations will be put online soon. Steve: is there any way you can get your classes included in the Open University? They currently use Adelaide Uni for the economics subjects, and while the micro is OK, the macro is (of course) pure keynesian nonsense.
Robert Crew
15 Aug 12 at 11:41 pm