Magnificent takedown

Yesterday the AFR published this letter from David Johnstone, Professor of Finance at Sydney University:

It beggars belief that people still say that the government should just get out of the way. It is the job of governments to get involved; that’s what they are there for.

The government is effectively a shareholder in every company, both by the taxes it collects from their profits and the unemployment and social costs it pays when they fail.

If it requires $25 million to prop up Ardmona a bit longer, keeping those fruit trees alive and our options open, then that’s about a dollar per head of population and does not seem enough to warrant the parading of economic scriptures.

You don’t hear much from economists against this nonsense because most of the influential ones are paid by the “small government” and “no interference” believers.

And also because economics is so ad hoc, with no truly “scientific” theory of what makes economies work, either for profit alone, or for social, environmental and cultural benefits.

It’s time politicians grew out of love with simplistic economic homily. The damage done long outlasts them.

Just love the argument that government actually owns corporations because they have to pay tax. I suppose that means the government owns people because (some of us anyway) we have to pay tax too. A whole new justification for the term “Tax Slave”.

Anyway, this morning a reply from Stephen Sasse got published:

Professor Johnstone must live at the top of an ivory tower. To assert that the tax collector is a shareholder; that it “is the job of governments to get involved” in the creation of wealth? (“’No interference’ advocates out of touch, AFR February 3)

Can I suggest that he acquaint himself with some basic principles of economics – Hayek’s The Fatal Conceit might be a good start. He might then attend some history lectures over in the arts faculty. Modern Russian History 1925-1933 should be a good practical introduction to the abject of failure of planned economies.

Ouch.

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30 Responses to Magnificent takedown

  1. boy on a bike

    Simple question for the good perfessor:

    If it requires $25 million to prop up Ardmona a bit longer, keeping those fruit trees alive and our options open, then that’s about a dollar per head of population and does not seem enough to warrant the parading of economic scriptures.

    What on earth do we do with all the tins of fruit that no one wants to buy? Do we become like the EU, and start creating a tinned fruit mountain? A poached pears lake?

  2. Pedro

    What about the Kiddies? That idiot is a teacher!

  3. Louis Hissink

    Actually it would be a poached pears pond. ;-)

  4. Squirrel

    “….The government is effectively a shareholder in every company, both by the taxes it collects from their profits and the unemployment and social costs it pays when they fail……” You’ve got to admire the beguiling circularity of that.

  5. Gab

    The government is effectively a shareholder in every company

    All your munney bilong to us.

  6. blogstrop

    The government is more like a bus conductor that isn’t content to just collect fares and punch tickets. It wants to accompany you through your whole day, giving advice and saying what you can and can’t do. To pay for this expanded suite of activities it then charges more, then gets the bright idea of letting some people pay less, funded by you paying more again.

  7. Andrew

    Oh, and from one of our own, very sad. David has clearly taken the concept of stakeholder theory a bit far; yes, the govt. is a stakeholder in SPC, usually looked at more from the other perspective (i.e.. how to neutralise govt. interference) but that the idea that govts. should actively ‘invest’ in firms purely to preserve anticipated (or hoped for) taxes is nonsensical. He’s obviously forgotten the lesson on sunk costs. “And also because economics is so ad hoc, with no truly “scientific” theory of what makes economies work, either for profit alone, or for social, environmental and cultural benefits” – what loopy leftie blog has he been reading!

  8. James Hargrave

    I’m from the University of Sydney and I’m here to help you – as R.W Reagan did not quite say.

    ‘Stakeholder’ – I would willingly drive a stake through the heart of any idiot using that guff term.

    And would you want to be on the same share register as the government…?

  9. Vicki

    Very “sassy” from Sasse!

  10. Jessie

    I suppose that means the government owns people because (some of us anyway) we have to pay tax too. A whole new justification for the term “Tax Slave”.

    Jim Fryar commented 3/1 Cross Post: Clinton Mead – Rate Rise? Yes, Prime Minister.

    In regard to government interference a 1979 Letter to the Editor The Australian authored by Jim Fryar and Viv Forbes

  11. rickw

    “David Johnstone, Professor of Finance at Sydney University”

    This idiot is teaching people?

  12. HK_Brother

    I went to the University of Sydney. I did Engineering. Professors were actually competent in that Dept. They have experience in the REAL World. (Mainly because in the field of engineering, one does have to team up with large private companies to be paid to do research and development with/for them.)

    The greatest gift they gave me was to teach me how to think, analyse, and solve problems.

    …On a side note: Remember to link the response! => Stephen Sasse’s response is found here



    David Johnstone, Professor of Finance at Sydney University

    => Another academic-intellectual who has NEVER been outside of his academic career.

    His background is found here…All he does is publish papers!

  13. Zatara

    “If it requires $25 million to prop up Ardmona a bit longer, keeping those fruit trees alive and our options open, then that’s about a dollar per head of population and does not seem enough to warrant the parading of economic scriptures.”

    Fine Prof, you have two choices. Raise the market price of the fruit to cover what you think are the rightful benefits to the workers, or cut the benefits to what the market will support.

    Raising the actual item cost to the consumer surreptitiously by pimping the politicians to donate some tax money as subsidy isn’t by any stretch of the imagination anything but graft and corruption.

  14. Zatara

    Oh, and good luck selling that $5 apple.

  15. wreckage

    t beggars belief that people still say that the government should just get out of the way. It is the job of governments to get involved; that’s what they are there for.

    No, they are there to formulate and administer laws.

    The government is effectively a shareholder in every company, both by the taxes it collects from their profits and the unemployment and social costs it pays when they fail.

    I am effectively your wife, both because I made you a sandwich and because I looked after your dog for a week.

    If it requires $25 million to prop up Ardmona a bit longer, keeping those fruit trees alive and our options open, then that’s about a dollar per head of population and does not seem enough to warrant the parading of economic scriptures.

    Yes of course: fruit trees represent future opportunities, but $25 million in cash does not.

    You don’t hear much from economists against this nonsense because most of the influential ones are paid by the “small government” and “no interference” believers.

    The government has a smaller budget, and employs fewer economists, than the IPA? Holy shit.

    And also because economics is so ad hoc, with no truly “scientific” theory of what makes economies work, either for profit alone, or for social, environmental and cultural benefits.

    There is. It’s called “economics”. But they conceal information like that in books.

    It’s time politicians grew out of love with simplistic economic homily. The damage done long outlasts them.

    It’s time to love your mother and enjoy apple pie!

  16. The interesting question is the claim that economics has ‘no truly “scientific” theory of what makes economies work, either for profit alone, or for social, environmental and cultural benefits’. The Soviet Model might be described as the engineering version of the economy. Why should social, cultural and ecological responsibilities implicit in economic planning be left to large scale corporations, private or public, with top-down structures and a short term focus on accounting profit? I don’t see how individualism and individual agency fits into this picture. Is the hidden hand, not necessarily as posited by Adam Smith, but as it is generally understood, a scientific theory?

  17. A H

    There is clearly no business case here or some investor group would come in with the money and take over SPC Ardmona. If there were any realistic way that the $25 million would be recovered, someone, perhaps even Coca-Cola Amatil, would have already invested it.

    Shareholders who invest in businesses that do not offer a return generally don’t do so well.

    Sometimes new businesses open up… creating new jobs… sometimes existing businesses expand, and take on new people. Who knows, maybe some former SPC Ardmona workers will end up working at a place like that?

    Cutting tax and regulation will help growing businesses to grow faster…. so they can hire more people sooner…

    It’s not rocket science.

  18. wreckage

    Why should social, cultural and ecological responsibilities implicit in economic planning be left to large scale corporations, private or public, with top-down structures and a short term focus on accounting profit?

    Question begging of the worst kind. As well to ask, why should an individual’s private purchasing decisions be dictated or coerced by unaccountable bureaucrats and election-chasing politicians? Why should decisions on production be made by populist glad-handers with no industry experience and an eye only for the next sound byte? Why should resources be allocated by political spin doctors instead of dedicated craftsmen, tradesmen, and professional managers? Why should we manage the environment to a maximum 3-year horizon, based entirely on what sounds nice to swing voters in the suburbs?

  19. If as you allege, Wreckage, the question assumes the conclusion, it might be rephrased to avoid a logical fallacy. Contrary to your examples I was attempting to state the case objectively and not use emotional or slanted framing. The relevant issue is whether the assumption is correct. That may or may not be the case. It is relevant to Libertarian economic theory and how well it achieves social and environmental outcomes.

  20. wreckage

    Yep, OK. Sorry for taking a tone, although I admit to being rather in love with my dashing rhetorical flourishes ;)

    Still, there is another point to be made here, and that is that as often as not, the benefits of alternative methods of economic organization are assumed, rather than proven, and have their own systemic weaknesses. If we compare worst-case scenarios for isolated examples of market action compared to isolated examples of government action, for example, where the chain of causality is reasonable unambiguous and unbroken, government loses on social, economic, and environmental grounds, often on two or three of the three fronts at once: for example, major Soviet projects were economic failures, caused massive displacement and distress, and directly resulted in ecological disaster.

  21. wreckage

    The Union Carbide disaster in India, so often cited as market failure, was sited, built and staffed contrary to the market, meeting instead political and social goals of local and national importance.

  22. Oh come on

    UCIL was a UCC/Indian govt joint venture. UCC employees from the States who toured the site repeatedly warned the UCIL management that their safety mechanisms were faulty. The plant was losing money and UCIL had been skimping on safety standards for a long time.

    The Bhopal disaster was one of the most grotesque offspring of the Indian mixed economy, not the free market. And of course the Indian bureaucrats involved weren’t and aren’t going to take responsibility when they can deflect the blame on Warren Anderson.

  23. Oh come on

    Apparently, CCA will invest $150 million in the plant. But not a penny more! The gfederal and state governments must pay the remaining $50 million which CCA claims is needed.

    Fuck off. Is it a going concern if you put $200 mil in, CCA? If you’re willing to put in $150mil, cough up an extra $50 mil. Stop asking for discounts. Damn corporate moochers.

    I want to buy a house that costs a million dollars, but I can only afford $750,000. Why shouldn’t I beseech the government for a 250k handout? It’s an “investment”, according to CCA’s logic.

  24. JohnA

    HK_Brother #1178047, posted on February 4, 2014 at 5:19 pm

    David Johnstone, Professor of Finance at Sydney University

    => Another academic-intellectual who has NEVER been outside of his academic career.

    His background is found here…All he does is publish papers!

    Yes, as a Professor, this might be applicable

    Romans 1:22 [21st Century King James Version (KJ21)]

    Professing themselves to be wise, they became fools,

  25. JC

    What an embarrassment to the fiancé discipline he is.

    Fire him.

  26. JC

    Lol. Damned IPad.

    Finance…

    The other day it came up with pubic instead of public.

  27. C.L.

    No no. Fiancé discipline is very important.

  28. JohnA

    Oh, and speaking as we were about foolishness, here’s a doozy
    http://www.heraldsun.com.au/news/anz-late-payment-fees-are-illegal-federal-court-rules/story-fni0fiyv-1226818321031
    reporting on the ANZ fees case.
    So late fees are bad, but other kinds of fees are OK.

    However, note the crazy logic:

    Choice chief executive Alan Kirkland welcomed the ruling.

    “Fees should be an accurate reflection of the costs faced by businesses when customers are unable to make payments on time,” Mr Kirkland said.

    No, dummy! You are conflating cost recovery fees with behaviour modification fees.

    Otherwise, given a bit of time, I could invent a series of cost-consequences for late payment which could justify any level of fees the banks want – at a stretch.

    The hardest part would be finding a judge to sympathise.

  29. .

    Well, if this subsidy is justified because they pay taxes, I demand to be subsidised to the tune of global GDP each year.

    What an absurd argument.

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