The Australian School of Economics has begun to take shape. I have written an article in this week’s Australian Spectator which is a review of Peter Smith’s Bad Economics. There you may find the most important principles that underpin this school of thought. As I mention in the article, you would be lucky to find these mentioned, never mind given prominence, in any economics text, introductory of otherwise. Yet these really ought to be the fundamental principles of good economics for every economist. The serious shame is that they are not.
a) Trying to make an economy grow from the demand side can never succeed (this being a re-statement of Say’s Law).
b) Saving not only does an economy no harm, it is essential if there is going to be faster growth and rising incomes – more saving is always better than less.
c) Entrepreneurial capitalism is the only way to create prosperity.
d) Business decisions, indeed all economic decisions, are based on expectations about the future with only some of those expectations based on past experience while the rest are based on pure conjecture and the spirit of adventure.
e) The allocation of goods and services through the price mechanism (ie supply and demand) is the only way to ensure that resources are used to their best advantage, innovation will occur and rapid growth will be the norm.
f) Government spending does have an important role but what governments should not do is produce what could be produced more efficiently by the private sector and should especially not drive their economies deep into debt as a way to generate recovery from recession.
g) Recessions are inevitable but if properly managed, that is, if no attempts are made to “stimulate” demand but other actions are taken to assist businesses to recover, a return to faster growth and low rates of unemployment should take not much more than a year.
The Australian school is similar to the Austrian but they are not the same. Our ancestry moves through an English tradition in Adam Smith and John Stuart Mill but does also include Mises and Hayek. But the Australian School moves in a decidedly anti-Keynesian way and incorporates Say’s Law not just as an additional concept amongst many but as one of the fundamentals. If you do not understand Say’s Law of Markets, and apply it when macroeconomics is discussed, you will never make sense of how an economy works and adjusts.
This is the same attitude as found in Mill. Here is Mill criticising nineteenth century attempts to use demand deficiency as an explanation for recession while ridiculing the belief that increases in unproductive spending are a sensible way to generate growth and employment:
The point is fundamental; any difference of opinion on it involves radically different conceptions of Political Economy, especially in its practical aspect. On the one view, we have only to consider how a sufficient production may be combined with the best possible distribution; but, on the other, there is a third thing to be considered — how a market can be created for produce. . . .
A theory so essentially self-contradictory cannot intrude itself without carrying confusion into the very heart of the subject, and making it impossible even to conceive with any distinctness many of the more complicated economical workings of society.
Confusion has indeed reigned across the length and breadth of economics since its takeover by Keynesian thought. Who can explain why the Keynesian stimulus did not work? That is what the Australian School does.
I will now be taking the Australian School to London where I will be speaking to the Institute of Economic Affairs on the topic of “The Australian School of Political Economy – Old Ideas Revived”. From there it will be to the Mont Pelerin Society meeting in Prague where the Australian core text, Free Market Economics, will be on sale and available to any and all.
I wish you lots of success over here in the Old World – Europe desperately needs (to understand) the principles of Free Market Economics, so lucidly explained in your eponymous book.
It’s a pitty I learn so late of your trip. Prague is not that far away from where I live in Germany. It would be a tremendous privilege and honour to get to know you in person.
Maybe we shall meet up some day.
Bon voyage!
GeorgThomas
25 Aug 12 at 9:54 am
Ah, the Australian School, supporting an unlimited ‘adjustment’ intake of 3rd world haters of western culture, it seems.
Half of Pakistan arriving must push domestic demand, dunno about the omnipotence of Says.
Ok, you win, money will insulate me from the results.
Alfonso
25 Aug 12 at 9:54 am
Yesterday I had the dubious pleasure of scanning two short books by one of the most hyperactive Keynesians, Roger Backhouse, who came to notice recently with a well-circulated piece which he co-authored on the evils of free markets. In 2010 he published “The Puzzle of Modern Economics:Science or Ideology” and in 2011 appeared “Capitalist Revolutionary: John Maynard Keynes”.
The best thing about these books is that they are very short, both under 200 pages. The other thing is that they contain every untruth, half truth and shibboleth (custom, principle, or belief distinguishing a particular class or group of people, especially a long-standing one regarded as outmoded) propagated by the left about the non-left and especially good economics.
He wrote too soon. He stated, as a knock-down argument against all the folk who are concerned about debt, that the first US stimulus worked!
He first came to my attention as a leading light in the legion of the lost, the people who created the sub-discipline of the philosophy and methodology of economics that grew like a mushroom after Blaug (1980). It is clear that three decades of effort by all those bright and ambitious scholars has contributed practicaly zilch to improve the practice of economics. Interesting if true.
Rafe
25 Aug 12 at 10:25 am
Rafe I am generally a tingling ball of agreement with everything the sensible people on this blog write. But can I suggest something:
Imagine you wanted to sow the seeds of a new school of economic thought? One that made individual risk-taking and individual discretion in the allocation of resources the paramount organising principle?
My advice is: you would never again use the blind, thought-preventing labels of “left” and “right”. They could turn out to be the great deadweights holding back a global awakening to the true meaning of “freedom”. Because they purportedly account for the entire economic spectrum, and they simply don’t. Employers (right) and employees (left) are just the two least significant points of what is actually a triangle. At the top is the consumer. The free individual. A category which just happens to include all the others, as soon as they get home from work.
Keep banging on about “left” and “right” you are just spinning your wheels. They are archaic and stupid words.
Ooh Honey Honey
25 Aug 12 at 11:38 am
Don’t know. The left, the right and the parasite. Pretty much covers the spectrum.
Driftforge
25 Aug 12 at 11:52 am
Or if you want to avoid those terms, the saver, the debtor and the squatter.
But the sense that the terms are both inconsistent in meaning and in that they define a side more than a position, ‘left’ and ‘right’ aren’t helpful when the aim is to develop something that is neither.
Driftforge
25 Aug 12 at 12:01 pm
On left and non-left, I have written about this many times over the last decade or so. I take the point that we want to communicate across party and faction lines and if it helps to stop using the term “left” then so be it. But I think the label left is useful and defensible because there is a suite of attitudes and beliefs that practicall all ‘left’ people hold.
On the other hand, the label “right” is strictly meaningless, except at a miscellaneous term of abuse because it covers a number of positions that are quite different and in some cases flatly opposed to each other.
The casual and careless use of the term right or rightwing is one of the best rhetorical and propaganda tools in the kitbag of the left. So I do not identify as “right” or “rightwing” and I attempt to avoid using the terms.
Rafe
25 Aug 12 at 12:36 pm
Excellent, the beginnings of a manifesto. Let’s take a look point by point:
>a) Trying to make an economy grow from the demand side can never succeed (this being a re-statement of Say’s Law).
This is an Austrian position, among others. It appears to be empirically false, depending on what is meant by “succeed”. Some sharpening is going to be needed here.
>b) Saving not only does an economy no harm, it is essential if there is going to be faster growth and rising incomes – more saving is always better than less.
It is well known that we monkeys like to keep things simple by using terms like “always” and “never” and sometimes struggle with ideas like “sometimes”, rarities, and exceptions to the rule. Just as oxygen keeps you alive, there are rare occasions when it can kill you. So making such claims as “Saving does an economy no harm” is a big call. But that’s good! It means there’s some effort being made around making falsifiable claims. As above, clearly some work is going to be needed around stuff like “better”.
c) Entrepreneurial capitalism is the only way to create prosperity.
A rather uncontroversial statement, acceptable to almost all economic camps.
d) Business decisions, indeed all economic decisions, are based on expectations about the future with only some of those expectations based on past experience while the rest are based on pure conjecture and the spirit of adventure.
An uncontroversial statement acceptable to most people.
>e) The allocation of goods and services through the price mechanism (ie supply and demand) is the only way to ensure that resources are used to their best advantage, innovation will occur and rapid growth will be the norm.
Once again, uncontroversial as a general rule.
>f) Government spending does have an important role but what governments should not do is produce what could be produced more efficiently by the private sector and should especially not drive their economies deep into debt as a way to generate recovery from recession.
Ok, this is a bit of a triple header.
f.1 Government spending has an important role.
f.2 It should not displace private sector where that is efficient.
f.3 Deficit spending during a recession is a no-no.
The first two are uncontroversial again in the main, with f.1 perhaps unacceptable to extreme Austrians. Some work will be needed around f.3 to avoid it being a non-sequitur.
>g) Recessions are inevitable but if properly managed, that is, if no attempts are made to “stimulate” demand but other actions are taken to assist businesses to recover, a return to faster growth and low rates of unemployment should take not much more than a year.
Ok, now this is a really interesting one on the list. “Properly managed” and “actions taken to assist businesses to recover” obviously implies some form of positive state intervention during recessions, yet of a non Keynesian form. (Surely “properly managed” is not the same as say the Austrian position of “do nothing”. It also makes that rarity in economics, some testable predictions! So I would posit that at first glance this seems to be the Australian school’s most distinctive feature. In building a brand, you’re always looking for that unique differentiator, and I reckon this could be the special sauce. It implies distinctive policies, and once these are clearly articulated that’s what will really get debate going.
So we have a school that in the main cleaves to the generally accepted principles of economics, which is good, but adds its own special set of approaches to recessions and even adds some testable predictions. Off to a promising start I’d say.
Daniel Barnes
25 Aug 12 at 12:40 pm
“..there is a suite of attitudes and beliefs that practicall all ‘left’ people hold.”
I think the word “left” falls at this hurdle alone, and should therefore be shot on the track. Viz:
Do they support the rights of the indigenous..to hunt whales?
Do they support women’s rights…in Saudi Arabia?
Do they fight for the lives of oppressed…embryos?
Do they support government welfare…for General Motors?
Do they want the government to stop interfering in individual choice…to marry another man and smoke?
I suppose you are calling them “attitudes” and “beliefs” rather than any internally consistent, valid arguments, but then why even mention them Rafe? In time they will be completely irrelevant. Announce the beginning of that time man!
If there must be two sides it must be on one side: those who want to work, keep what they make, do whatever they hell they want with it and leave everyone else alone, and on the other, those who want to control everyone else. “Left” and “right” really don’t map very well to those two positions.
But anyway, sorry for the nitpicking. I love your work. Carry on.
Ooh Honey Honey
25 Aug 12 at 1:12 pm
I don’t think that there is anywhere near this separation, except at ideological extremes.
The contribution of the individual to the community must be recognised. This is the basic argument of the ‘right’.
The contribution of the community to the individual must be recognised. This is the basic argument of the ‘left’.
The basic argument of the parasite is that to some degree that either or both of these can be ignored.
Both the left and right are correct, and the cases are not contradictory but complimentary.
While the argument of the parasite is weak in and of itself, it provides ‘advantage’ to the left and the right, differently. So you get ‘left parasites’ who try to reduce the degree to which the community recognises the contribution of the individual. On the other hand you get ‘right parasites’, who try and reduce the degree to which individuals recognise the contribution of the community.
Both left parasites and right parasites are wrong, but again their arguments are complimentary.
Driftforge
25 Aug 12 at 2:18 pm
All demand side modification will do is time shift, not produce growth. As you say, depending on what you mean by succeed, it could certainly appear that growth occurred.
Driftforge
25 Aug 12 at 3:08 pm
Driftforge
Rubbish. Of course individuals contribute to the community by doing what the hell they want to with what they made. It can happen without any people who did not contribute to the creation of that wealth, exercising any sort of control. All of what people call “the left”, and bloody great chunks of what they call “the right”, want to control the wealth of others. I’m on the side that wants them all to fuck off.
Ooh Honey Honey
25 Aug 12 at 5:29 pm
I kind of like ‘you shall not steal’. It covers a lot.
Ellen of Tasmania
25 Aug 12 at 5:57 pm
Tell it to the ATO.
Ooh Honey Honey
25 Aug 12 at 6:28 pm
OHH; you make my point. The right focuses exactly as you did, and you are absolutely correct.. There is however a tendency to make the wilful assumption that the community contributes nothing to you that isn’t accounted for in the price you pay for goods and services.
Driftforge
25 Aug 12 at 7:19 pm
Not sure what “contribute” means there. The sky contributes the occasional pretty sunset. Is that what you mean? Outside of what I purchase, are there things that can only be “contributed” by the community that must be funded with my money after it is taken by force as taxation? Rooaads?
Ooh Honey Honey
25 Aug 12 at 7:34 pm
Steve
It just seems like another “school” which ignores finance. Nothing to see here.
sdfc
25 Aug 12 at 7:34 pm
Surely all that requires is rolling Steve Keen’s work into the school?
Driftforge
25 Aug 12 at 7:40 pm
Well the first erroneous assumption there is that government should take money by force. It shouldn’t.
But yes, roads and other infrastructure are provided by the community.
Driftforge
25 Aug 12 at 7:41 pm
I don’t think Steve Keen has much in common with deflationists.
sdfc
25 Aug 12 at 7:57 pm
YOU don’t get to say this.
You reckoned the Government could finance deficits, whatever the size because, “the capital market is large”.
What school of economics do you belong to? The Antipatros Keynes school?
.
25 Aug 12 at 8:06 pm
Australian government debt outstanding is a very small share of the global financial market. The yield on 10Y CGS is ~3.3%.
sdfc
25 Aug 12 at 8:14 pm
Not sure what deflationists have to with this, but Steve Keen has a pretty good model for bringing finance into the equations.
Driftforge
25 Aug 12 at 8:15 pm
And the relevance to this discussion is?
Driftforge
25 Aug 12 at 8:16 pm
If your policy is to avoid inflationary government spending in a deflationary environment you are a deflationist.
Relevant to Dot’s belief that Australian deficits are putting a strain on the global financial market.
sdfc
25 Aug 12 at 8:23 pm
There certainly doing their best to oppose what the community is trying to achieve in terms of debt reduction.
I suspect they will successfully postpone the consequences until after they are turfed out, at which point it will be the Coalition’s watch.
Still, the private debt problem was built by Costello, so what goes around comes around.
Driftforge
25 Aug 12 at 8:29 pm
You don’t need to break them. They will ignore you.
Greek GDP is 300 bn USD, roughly.
Australian GDP is roughly what – 1500 bn USD?
No. The market will make judgments and leave you to eat crow.
.
25 Aug 12 at 8:31 pm
sdfc is right nand and usual equal you are wrong.
Alice
25 Aug 12 at 8:48 pm
alice hitler is back!
Rabz
25 Aug 12 at 8:50 pm
That’s fairly obtuse logic terminology.
Driftforge
25 Aug 12 at 8:53 pm
we have the following points nmade in the above post
c) Entrepreneurial capitalism is the only way to create prosperity.
Provided entrepreneurial capitalism is not reductionist in its approach seeing on the wealthy classes as capable of entrepreneurialism.
e) The allocation of goods and services through the price mechanism (ie supply and demand) is the only way to ensure that resources are used to their best advantage,
The price mechanism fails when there is insufficient competition in a market and monopolies accrue eg Coles, Woolies and Vodpohone. Unfortunately a small population such as Australia lends itself to easier domination by monopolies hence the price mechanism is not competitive and we are subject to price gouging.
g) Recessions are inevitable but if properly managed, that is, if no attempts are made to “stimulate” demand but other actions are taken to assist businesses to recover
I fail to see how assisting businesses to recover can be attained without stimulating demand by governments in a recession. I am sure most businesses, in a recession, may welcome attempts by governments to stimulate demand in the economy and fail to see the objections here.
Alice
25 Aug 12 at 8:58 pm
Alice – I am correct. Please go and learn some economics before you spout the silly ideas that small countries can issue literally endless debts and that Government debt is intrinsically superior to private sector debt.
.
25 Aug 12 at 9:00 pm
Equal an insult fails manifestly to classify as an argument
Can you do better?
Alice
25 Aug 12 at 9:02 pm
I made quite a clear argument and you ignored it, you twit.
Greece’s debt is equal to about 0.5% of GDP.
No one wants to lend them money. I am correct.
.
25 Aug 12 at 9:06 pm
Please adrress the points I made above about Australia equal before we stray on to Greece (without considering the quite different circumstances Greec is in relative to Australia)?
Alice
25 Aug 12 at 9:08 pm
You are too stupid to buy a new SIM card.
Fuck off.
.
25 Aug 12 at 9:09 pm
Oh I see. An insult is better than a reasoned argument from equal.
Equal I dont know what your day was like but your most recent post is a little weak.
Alice
25 Aug 12 at 9:11 pm
You are too stupid and childish to buy a new SIM card.
Prattling on about this is an insult to the intelligence of everyone else here.
Shut the fuck up and go away.
.
25 Aug 12 at 9:12 pm
temper temper – its must be the drink thats gotten into equal
Alice
25 Aug 12 at 9:13 pm
equal is this thread about sim cards or have misread it?
I dont know how to deal with people who are somehwat heated up like equal but he is clearly in a bad mood tonight.
I do hope it wasnt something I said.
Alice
25 Aug 12 at 9:16 pm
By stimulating supply. Fiddling with demand results in time shift distortions (I.e pulling forward purchases that would have normally happened later), which neither grows the economy, nor solve the problems. Increasing supply through reducing restraint results in more stuff being made and done – growing the economy.
Driftforge
25 Aug 12 at 9:20 pm
Eight ho – of course!! Bingo. We stimulate supply onlyt like we have been doing for 30 years by dropping their tax rates, busting unions, de-regulating businesses
and we sit a wtach while demand is starved and unemployment climbs and the welfare bill blows out.
You idiot Driftforge. The world isnt made of just suppliers and there ere demanders as well and you only want to mollycoddle supply.
I cant stand imbalance of ideologies (Thats what has caused things to fuck up).
Balance is what we all need no tleft or right idelogical crap.
(left verus right)
And it is all utter crap.
Alice
25 Aug 12 at 9:25 pm
These days, the nominal titles entrepreneur, saver, debtor, parasite – are more about activity than individual. We each, to varying degrees, have the opportunity to be part of any, some or all of those activities.
There are probably average distributions that vary with wealth / income, but that’s all they are.
Driftforge
25 Aug 12 at 9:26 pm
Alice you think that customers can buy particular things before any firm dedicating to servicing them or that product exists.
You are a twit.
.
25 Aug 12 at 9:29 pm
Driftforge
I agree with yoyr first para. I have no idea what yoyr second para means.
Somehow I sense at least Driftforge thinks about alternatives to the same old lelt right boring views.
We do need to move on, if only to move forward and not dig ourselves into any tribe without the full consent of our own consciences and minds.
Alice
25 Aug 12 at 9:31 pm
Wow. Responding like that to a comment will get people to treat you like dot (with underline) does, rather than responding to your thoughts.
Of course the world is not made up of just suppliers. But here’s the thing; everyone (other than parasites) is a supplier. Supporting suppliers is not about supporting business over labour, it is about supporting business and labour over parasitism.
Driftforge
25 Aug 12 at 9:32 pm
Hey, alice hitler – go throw yourself off a cliff!
You potato brains!
Rabz
25 Aug 12 at 9:34 pm
See, no need for personal invective.
Second paragraph is just saying that there may well be a tendency towards entrepreneurial activity with increasing wealth, although I would guess that is more because it produces wealth that that it requires wealth.
Left and right in their true forms are both important and necessary perspectives on the same issue.
There is just a tendency to argue between left and right rather than agreeing to whack the parasites that grow equally on both sides of the fence.
Driftforge
25 Aug 12 at 9:39 pm
Driftforge
I have no disagreemnt with your comment at all
“it is about supporting business and labour over parasitism.”
I agree completely
If these other fools (equal and rabz would just stop spluttering about my point of view – it is what it is! – if they take offense and start making suggestions for my imminent demise – what can I really do about that?)
Alice
25 Aug 12 at 9:43 pm
Driftforge
“There is just a tendency to argue between left and right rather than agreeing to whack the parasites that grow equally on both sides of the fence.”
Totally agree. A man with my own heart!
Exactly!
Alice
25 Aug 12 at 9:45 pm
To bring it back to the original point – supporting the supply side supports business and labour. Supporting demand supports parasitism.
That’s why forcing demand is counterproductive.
Driftforge
25 Aug 12 at 9:50 pm
However Driftforge – w edo agree on the onse sided supply emphasis as to stimulations in recession.
Im not so sure about that. I dont think suppliers can make the perfect product if demanders cant buy.
Oh I hate economics. Its so flat and it has these persistent chicken and egg arguments. Is it price that causes behaviour changes or is in inventory surpluses or shortages that cause behavious changes?. Price or quantity, price or quantity – which matters most or doesnt it matter at all?
Alice
25 Aug 12 at 9:52 pm
Forcing demand can force supply certainly Driftforge but forcing supply doesnt necessarily force demand if it (demand) isnt there. It will only force unsold inventories and no supplier will tolerate that.
Im not sure I agree with you on the supply emphasis (but I politely disagree) Driftforge and I respect your view.
Alice
25 Aug 12 at 9:55 pm
Edo?
The chicken is the one with the capacity to produce. You increase production by caring for the chicken, not by offering to pay the chicken more for the eggs.
If you leave aside the thought that supply side means business, it’s easier to get away from the left / right paradigm.
You support the side that actually produces product, and you support it in the production of product.
A recession like we are heading into now is basically everyone working to pay down debt at the same time. So.. Doing the hard yakka after living the high life. You have to work harder and consume less. A recession is not a bad thing, it’s a necessary thing.
Driftforge
25 Aug 12 at 10:05 pm
The problem is, you don’t understand what you are talking about.
Please look up the following on google or wiki:
The law of demand
The law of supply
Joint determination econometrics
.
25 Aug 12 at 10:06 pm
equal go to bed. Ive been teaching economucs since before you were born quite obviously and you are getting very tedious.
Alice
25 Aug 12 at 10:08 pm
You’re right, but not following through. Inventories will increase, then leading prices to drop but real product to increase.
It’s the monetary reflection of what’s happening which confuses the issue.
Making more stuff pushes dollar prices down.
Driftforge
25 Aug 12 at 10:09 pm
I try to avoid losing patience with students who leap from the law of demand and the law of supply tp joint dertimation economics and hope that proves their understaning
I have news for you equal – a three word phrase from an econometrics textbook with no undertsandig does not show anything at all.
Alice
25 Aug 12 at 10:11 pm
No.
I’ve actually taught economics at the tertiary level and worked as a consultant you dunderhead.
Now you’re saying the law of supply and the law of demand are incorrect, but you don’t understand how prices and quantities are jointly determined?
Fuck me. You are a swamp creature of low intelligence but with crack pipe smoking levels of pride.
.
25 Aug 12 at 10:12 pm
Never taught economics. Never really been taught it either, other than a bludge class at uni. It probably shows.
Its why I enjoy this sort of thing as it provides an opportunity to hash stuff out and take in different perspectives.
Driftforge
25 Aug 12 at 10:24 pm
Driftforge,
If equal would stop butting in you and could have a good discussion!
Ok lets take the excess inventories line – does that really result in a drop in prices or does it just lead to ordering less? Who acts first? – the person in charge of ordering inventories on the person in charge of setting prices in a company?. My own instinct suggests to me that the person who sees an excess in their shop or factory will reduce production first before they consider reducing prices (this is one of the chicken and egg arguments of economics I was discussing with you – is price more important than quantity?)
Its important because what isb eing purchased is determnined by demand but if sufficient is being produced instead of an excess, the there may be no need to lower the price.
On the other hand, if supply is subsidised in a recession and an escess is produced, how will that convince people to buy?
Will it not just result in a larger surplus of unsold goods and wull subsidising only supply not just result in a whole new lot of rent seekers climbing on board for the latest subsidy from governments(and wont we then revert back to the golden age of protection in the 1920s where goods wre produced that were only profitable because of government largesse?)
What we do to correct, where corrections are needed must be balanced IMHO.
Alice
25 Aug 12 at 10:25 pm
equal you have excelled youself with a new level of low in insults like this.
“Fuck me. You are a swamp creature of low intelligence but with crack pipe smoking levels of pride.”
You are very fucking tedious indeed equal.
Ive been keeping it nicely in check for the last twenty posts but you bore the shit out of me.
Alice
25 Aug 12 at 10:30 pm
It would be useful if you tried to educate yourself with free resources rather than talk out of your rear and and clog up the site with your inane ramblings of like how you are too childish to buy a new SIM card.
Get off the crack pipe, swamp creature.
.
25 Aug 12 at 10:32 pm
Supporting supply is not about subsidising it. It’s primarily about removing restraints. Even if you take the bluntest instrument and just reduce personal and corporate taxation levels, you don’t automatically increase supply levels. Far better but more difficult is reducing regulation and other parasitic costs.
Why government shouldnt take on debt in a recession follows directly from that.
Driftforge
25 Aug 12 at 10:37 pm
equal – you are a boring toad
Alice
25 Aug 12 at 10:44 pm
Driftforge
Its been a great conversation (without equal). I agreen re some regulation but even regulation reductionn has been stuffed up for example large fincial institutions in the uS have benefitted enormously from regulation reduction at the same time we have witnessed nregulation increases on individuals and small business increase
The reason government should take on debt in a recession is because if they have a good credut rating that is the whle point of having it – for times when government dent is needed. It is not needed in good times.
But I must go to bed because I cannot keep my eyes open now…so I look forward to our next debate!
Alice
25 Aug 12 at 10:52 pm
Till then.
Driftforge
25 Aug 12 at 11:15 pm
Wait. What?
Ooh Honey Honey
25 Aug 12 at 11:48 pm
I have come to this thread a day late but it is an interesting discussion
A really good example of a daft demand side policy was the first home owners scheme (persued by both sides of politics at different times)
It penalised the people it was suppose to help by pushing up prices & spent tax payers money at the same time
Real estate prices are artificially high for a range of reasons (all to do with Govt policy & rent seeking)
If the Govt had gone to the supply side of the market instead & made it more affordable to build new homes & units (by land release, getting rid of planning depts, make DAs less arbitary, ignoring rent seekers, opening up closed markets in building supplies etc), then there would have achieved what they set out to do.
Notice that this is govt actively undoing the mistakes of the past.
Imagine how good it would be for the economy if people could spend less of their income on housing.
Richard D
26 Aug 12 at 8:02 pm
I’m not sure that this is easy to change. Without removing the speculative aspect of land ownership, I can’t see any real drivers to change the proportion of income spent on housing. I’m not even sure if there is a real need to – people have their own wants and a lot of them revolve around how and where they live.
Now removing the speculative aspect from property ownership is doable, but that’s correcting a badly designed market structure and will take some time or a pivot point to achieve. Over time, you can switch to something like flowhold title; if you have a pivot point, you can switch income and capital taxes for land taxes. Both have the effect of reducing the capacity of parasites to draw wealth from the property market.
Even doing so, I don’t reckon there will be a huge change in distribution; maybe a 10%-20% drop from current expenditure over a generation.
Home is culturally and socially important.
Driftforge
26 Aug 12 at 9:48 pm
Driftforge
I did add that last comment in as a quick afterthought, but surely if you increased the supply of land & reduced both the cost of building & the uncertainty approval, people would get better value for the large amount of money they are outlaying even if they don’t reduce the amount they are spending on housing.
There are a lot of places in the world where speculation has only played a minor role (& it is not because they are places people don’t want to live) but it is because the Planners have not been allowed to run mad.
I would love to see some of these issues on the supply side of the Housing market addressed & see what happens. Efficency will always be positive in some significant way.
Richard D
26 Aug 12 at 10:38 pm
I suspect that efficiency in housing largely results in larger better finished homes, not lower spending.
Driftforge
26 Aug 12 at 10:44 pm
“All of what people call “the left”, and bloody great chunks of what they call “the right”, want to control the wealth of others. I’m on the side that wants them all to fuck off.”
Brilliant stuff. I’m on that side too. Can I use that in my sig?
Twodogs
27 Aug 12 at 9:27 am
http://cafehayek.com/2012/08/quotation-of-the-day-379.html
A brilliant quote from Oskar Morgenstern, posted on Cafe Hayek on the perils of aggregation…
Skuter
27 Aug 12 at 12:48 pm
Hi Steve
I’m rather puzzled about this idea that an “Australian school” exists, because to my way of thinking it doesn’t.
The economic insights that Catallaxy posters, and other Australian classical liberals, evoke are important but they are largely not original.
As you intimate in your post, we borrow heavily from Mises-Hayek Austrian economics, Friedman-era Chicago economics or, in limited instances, English pre-marginalist theory or French liberalism.
We can’t claim originality to the extent we directly borrow from the intellectual giants before us; in your case, I perceive your quest to be the rehabilitation of pre-Keynesian macro which once existed as intellectual convention.
If there are distinctly “Australian schools,” the ones that come to mind are the protectionist Hobart School, and until recently the evolutionary economics Brisbane School of UQ researchers. Perhaps the economics of Shann, Benham, etc. of the 1920s and 1930s could be conceived as a distinct school? In any case, I don’t exactly see a distinctly Australian school now.
I also don’t think it’s true to suggest that all Australian classical liberals borrowed then, and borrow now, from J.S. Mill (even so, I ask, which Mill? Good Mill, or bad Mill?!).
By way of examples William Hearn was influenced in part by Bastiat, while Bruce Smith was inspired by Herbert Spencer.
Happy to entertain the idea of an “Australian school,” but would like to know what it is, what its distinct and original contributions are, and who are its representative members.
Julie Novak
27 Aug 12 at 2:20 pm
The synthesis of evolutionary/complexity economics and Austrian/classical liberal economics offers some potential for novelty. Work on this has started, but not yet seen through to anywhere near its conclusion.
I’d like to see:
Brisbane School + Cat-like Austrian/classical lib = Australian School (21st C)
The question is: do you need to make a break from the past or a distinctive point of difference to constitute a new school, or is it sufficient to simply curate scholars working in a few somewhat similar strains of thought, and see where that takes you? This is mostly semantics, but I would suggest that unless you are fusing hitherto (mostly) disparate research trajectories, you’re not setting the agenda for a new school, simply working in the traditional of existing schools.
The “Australian School” banner as beginning to be sketched out here on Cat may serve in the very least as a sort of mission statement for a future direction – which is great, and would serve a purpose. But like most instances of qualitative/categorical difference and heterogeneity, however, schools of thought are often only truly identifiable retrospectively. Growing organically out of existing schools of thought may lead to sufficient originality, but I think attempting to fuse more distinct insights would probably prove more successful. That is if the goal is to forge a new school; if the goal is to just be correct then there may not even be the need.
Trent
27 Aug 12 at 4:45 pm