Send in the (economic) clowns

The social sciences are just opinion dressed up as evidence-based theory. From something just sent to me, although published in the middle of December: Reform the economic system now or the populists will do it: The interests of the financial sector and the economy at large are different.

Direct inflation targeting is common today, but was unknown before the 1990s. Medium-term fiscal policy targets are also a modern invention, as are independent fiscal councils. Behind these institutions and policies lie a theoretical foundation — new Keynesian macroeconomics. John Maynard Keynes himself would probably characterise its average proponent as “a defunct economist”.

The theory asserts three key points. One, that a low rate of inflation is consistent with full employment, so it is sufficient for a central bank to target a low rate of inflation. Two, that fiscal policy should not be used for economic fine-tuning but should follow medium-term stability targets. And three, that neither monetary nor fiscal policy make a difference in the long run.

But as he says, there is a problem:

While the case for a challenge of the macroeconomic policy doctrine is overwhelming, I doubt the western policy establishment will do it. As happened during the financial crisis, vested interests will intervene. The macroeconomists who designed the models are the gatekeepers and the beneficiaries of the system. They are the independent central bankers. They are running the independent fiscal councils. Some are finance ministers.

If economists cannot tell that Obama along with the rest of these mad spenders have left our economies a wreck, it must only be because they are so cossetted from any actual economic problems that they are impervious to just about anything. Real living standards for a large part of the population are falling – tried to buy a house lately on an average income? – but they not only cannot explain it, they cannot even see it.

This entry was posted in Economics and economy. Bookmark the permalink.

52 Responses to Send in the (economic) clowns

  1. Speedbox

    tried to buy a house lately on an average income?

    Yep. Housing affordability is grossly out of control in Sydney and Melbourne. At current levels and into the foreseeable future, there is no likelihood that the average working populace will be able to buy a detached property within 45km of the CBD without engaging in a crippling mortgage that will require no less than 40 years of repayments.

    This is why the NSW and Vic Governments, in particular, are so keen on new developments that feature terrace housing and high rise apartment blocks that generally surround a “common area” of a small park with BBQ and playground area. A repeat of the socialist utopia? Back in the days of the USSR, this was the most common housing solution (multiple high rises surrounding a small park) whilst the rich and/or well connected lived in detached properties.

    Here in Brisbane, there are vast areas north and south available for detached housing with a mix of other housing types but the land is locked into some perverse land bank whilst to the west of the city, hundreds of hectares are under a caveat that prevents subdivison to less that 10,000 metres each. Yes, 10,000 metre blocks starting only 16kms from the CBD and serviced by the M5 freeway. Ultimately, the State Government/Brisbane City Council will buckle and the land west of the city will be subdividable but by then, the land value will be astronomical.

    Every politician who has supposedly served the community for the past 50 years bears culpability for the inability of future generations to acquire the Aussie dream without being packed like rats into a box.

    And don’t get me started on Stamp Duty……

  2. Roger

    Every politician who has supposedly served the community for the past 50 years bears culpability for the inability of future generations to acquire the Aussie dream without being packed like rats into a box.

    Our politicians are creating the conditions the ancestors of many of us left England to escape.

    Affordable, decent housing in a country like Australia is not rocket science.

    We are governed by idiots.

  3. .

    Our politicians are creating the conditions the ancestors of many of us left England to escape.

    Affordable, decent housing in a country like Australia is not rocket science.

    We are governed by idiots.

    That’s in part why I want to get out.

  4. Roger

    That’s in part why I want to get out.

    Where to, dot?

  5. Tintarella di Luna

    We are governed by idiots.

    And so say all of us.

  6. Entropy

    it must only be because they are so cossetted from any actual economic problems that they are impervious to just about anything.

    This is the core problem. The SES, particularly at DDG level and above, and the wages of the child advisers in Minister’s offices, are too out of kilter to the ordinary pleb.

    And then there is your typical backbencher on $200k plus expenses. What would they know about blue collar workers raising a family, particularly as most of them these days have never had other than a politically connected job straight out of uni?

    I used to naively think pollies weren’t paid enough. Now they are paid extremely generously I realise how wrong I was. I think what needs to happen is that there is a reduction in backbencher salaries to line up with the average weekly wage. That will force them to see what it is like for an ordinary person and family. It also has the benefit of turning politics into a vocation rather than a career. You could also consider making it something only available to people around retirement age while they are at it. Prospective politicians must have a previous career first.

  7. .

    Roger
    #2250282, posted on January 2, 2017 at 7:48 pm
    That’s in part why I want to get out.

    Where to, dot?

    Anywhere that isn’t the West or the worst of the rest.

  8. Roger

    I recently took a wrong turn on the north side of Brisbane and stumbled into something I’ve never encountered before in Australia: about twenty “two up, two down” townhouses crowded onto what would have been two standard housing blocks in the Brisbane of yore (the 1960s/70s). The bikes and toys littering the very narrow roadside indicated families with young children lived there. Lord Mayor Quirk apparently wants more of this “infill”. Brisbane must become Birmingham, it seems.

  9. Roger

    Anywhere that isn’t the West or the worst of the rest.

    Good luck. I noticed a growing expat community in Fiji when I was there earlier this year. Most of the locals are devoutly Christian or Hindu and there is the distinct advantage that it is an Anglophone country.

  10. .

    I am of the Aaron Clarey “the west is ruined, enjoy the decline” school.

  11. stackja

    Liberty Quote
    What is wrong with the discipline that is nowadays taught in most universities under the misleading label of economics is not that the teachers and the authors of the textbooks are either not businessmen or failed in their business enterprises. The fault is with their ignorance of economics and with their inability to think logically.

    — Ludwig von Mises

  12. Rabz

    We are governed by idiots.

    I prefer the term, “maladministered”.

    And yes, don’t get me started on housing unaffordability in this country, which has a population of 23 million and is the size of continent.

    Inexcusable.

  13. RobK

    I was given a book for Christmas, called “Currency Wars- making of the next global crisis” by James Richard. Although first published in 2011, I found it a captivating read. The top of page 92 goes:
    “The lesson that a nation cannot devalue it’s way to prosperity eluded Nixon, Connally, Peterson and the stock market in late 1971 as it had their predecessors during the Great Depression. It seemed a hard lesson to learn.”

    It’s still a hard lesson today it seems.

  14. RobK

    The author is James Rickards. Autocorrect incident.

  15. Tel

    The social sciences are just opinion dressed up as evidence-based theory.

    Climate science must be one of the social sciences then.

  16. AndrewWA

    The lack of housing affordability is no real surprise.
    We are a capital-city-centric population because, over the past 100 years, apart from the pathetic effort of Albury-Wadonga there has been absolutely no effort to decentralise our population by any level of government – either State or federal.

    Only the Mining Industry has done anything to more populations away from the coast – over that period – and even that with no support from successive Governments. The end result was FIFO. What choice did the mining coys have. FBT and any lack of Pers Income Tax relief for mine workers meant that coys had little choice.

    70% of our population live in our 8 capital cities (inc Canberra).
    Our country population have been totally forgotten with regard to the provision of any level of service (medical, education, etc) that is demanded by city folk as a mandatory entitlement. How many city folk are prepared to live >100km away from the duty doctor on weekends?

    Tasmania. South Australia and Victoria have become “Welfare” states with NSW not far behind.
    What else can we expect from the “GIVE ME” mentality that feeds our political system.

    Union Membership is predominantly a Public Service actuality so why are we surprised that Unions are only too happy to steal from the public purse. Union corruption goes right to the top of Labor Governments.

    The Lucky Country is rapidly moving towards the Keating’s Banana Republic and few even give a fig!

    Wake Up Australia!!!

  17. egg_

    Climate science must be one of the social sciences then.

    Models are now evidence?

  18. JohnA

    And three, that neither monetary nor fiscal policy make a difference in the long run.

    Well, there are two sides to that:
    a) it undermines the entire macro-economic theory base of Keynesianism which is a measure of realism rarely seen in public discourse
    AND/OR
    b) slack monetary policy (quantitative easing by any other name) = inflation

    The solution to both is to get the government’s hands off the economic levers. In this regard, I remind Cats of the episode in Restaurant at the End of the Universe (Adams, Douglas, the late) in which our team of anti-heroes were trapped in a black spaceship which turned out to be under the control of Hotblack Desiato’s star cruiser. Consequently, anything that Ford, Arthur, Trillian or Zaphod attempted only had the effect of messing with its external guidance system. Once they left the controls alone, the ship happily flew through space in perfect equilibrium. The only problem was that the desired destination of the occupants did not correspond with that of the Disaster Area concert performance control crew, which was directing it to dive into the sun of Kakrafoon.

    Douglas was rather a perceptive writer…

  19. RobK

    Egg,
    “Climate science must be one of the social sciences then.

    Models are now evidence?”

    Generally conjecture will do. See link.

    http://mobile.abc.net.au/news/2017-01-02/growing-parrot-wingspan-could-be-due-to-climate-change/8152602

  20. Cpt Seahawks

    Superb commentary everyone. I enjoy economics when we are poor. It teaches us real wealth ideas. That we need to remember.

  21. win

    Like the slow march through the institutions ,it has seemed to me having been involved in hospitals ,wineries and the printing industry that manufacturing small businesses were being targeted as a deliberate strategy to destroy the self employed and bring every one into them pay of the government. Started by Whitlam and
    given its death notice by Keating who contrary to myth destroyed the Australian economy and started us on the path to the perpetual servant of his Keatings ” service industry” that was to replace manufacturing.

  22. One, that a low rate of inflation is consistent with full employment

    So I assume from this that Denmark with it’s negative interest rates not only has full employment but full-full employment on top of it.

  23. Crossie

    We are governed by idiots.

    I prefer the term, “maladministered”.

    And yes, don’t get me started on housing unaffordability in this country, which has a population of 23 million and is the size of continent.

    Inexcusable.

    Maladministered in the sense that it is a collusion to keep land prices inflated which benefits local councils and builders/developers. High land prices also keep state governments afloat with the huge stamp duties collected on the inflated real estate values. I don’t see any of them letting go on their own, only the federal government can short circuit this by releasing crown lands at cheap rates as they did in the 70s.

  24. Eyrie

    Parrot wingspans? Shut down the universities.Demolish. Salt the earth.

  25. Empire GTHO Phase III

    this that Denmark with it’s negative interest rates not only has full employment but full-full employment on top of it.

    I think the bureauspeak term is “fullerer” – “we have directed the central bank to go negative on rates to ensure fullerer employment. Come hell or high water we will spend our way to prosperity”. Or similar bullshit.

  26. Snoopy

    The increasing length of parrots wings is a negative feedback mechanism. Bigger wings, more shade, less warming.

    Longer wings are a good thing.

  27. Mark M

    Wait. What? Parrot wingspans and Global Warming?

    “As she reaches the end of her eight years as Chief Scientist, Julia Slingo reflects on how Met Office science has evolved and what the future holds.

    We usually employ these in forecasting, but we can equally apply the concept of ‘one flap of a seagull’s wings will forever change the future course of the weather’ to explore the myriad of paths that the world’s weather could take.”

    http://www.metoffice.gov.uk/barometer/features/looking-to-the-future?WT.mc_id=Twitter_Content_Science

    Science!
    How Lasers and a Goggle-Wearing Parrot Could Aid Flying Robot Designs

    In a new study, a team of scientists measured and analyzed the particle trails that were produced by the goggle-wearing parrot’s test flights, and showed that previous computer models of wing movement aren’t as accurate as they once thought.

    http://www.nbcnews.com/mach/innovation/how-lasers-goggle-wearing-parrot-could-aid-flying-robot-designs-n692731

  28. .

    Adam
    #2250480, posted on January 3, 2017 at 7:20 am
    One, that a low rate of inflation is consistent with full employment

    So I assume from this that Denmark with it’s negative interest rates not only has full employment but full-full employment on top of it.

    You’re a little off the beam, but…

    Negative interest rates result in more inflation (until it ruins the economy and prices depress). Think of the growth of the money base. In the end purchasing power suffers as the economy is permamently damaged.

  29. Old Woman of the North

    Re economics – what will happen in Australia when USA lowers company tax, as has been stated, to %15?

    Collusion between government, big companies and unions is elevating the cost of building, power, transport, medical services (eg. pharmaceuticals), etc. If this is not corruption, I don’t know what is.

  30. .

    One, that a low rate of inflation is consistent with full employment

    This true as well anyway. Income growth and output growth don’t cause inflation.

    Always refer back to the production function. If output increases, there cannot be a general decline in purchasing power.

    The contrary has been proven untrue by rational, evidence based economics for the past 60 or so years.

  31. Dr Fred Lenin

    The way to control spending is to punish pollies and heads of departments who are wasrefull with taxpayers money,long prison terms for those who waste taxpayers moneyand confiscation of family assets. For instance NBN ,rudd conroy the heads of departments involved and the heads of tge white elephant project front a tribunal which decides culpability and legnth of prison time to be served . Perhaps public servants would then rein in pollies ideas to get votes and prefernces , on pain of punishment they might think twice ,just imagine ,no assets, no pension and a long hard lail sentence , enough to make you think before you leap .

  32. .

    Re economics – what will happen in Australia when USA lowers company tax, as has been stated, to %15?

    American firms will retain more of their profits in the US and they will have capital inflow of portfolio type and foreign direct investment, the USD might appreciate a mildly.

    Collusion between government, big companies and unions is elevating the cost of building, power, transport, medical services (eg. pharmaceuticals), etc. If this is not corruption, I don’t know what is.

    Yes it is. It is legal to do so, but morally wrong, and we all know it.

  33. .

    The theory asserts three key points. One, that a low rate of inflation is consistent with full employment, so it is sufficient for a central bank to target a low rate of inflation. Two, that fiscal policy should not be used for economic fine-tuning but should follow medium-term stability targets. And three, that neither monetary nor fiscal policy make a difference in the long run.

    This is all pretty much true. Remember that under Obama, leftists abandoned the Washington consensus.

    Our housing market issues are a heap of other problems on top of that.

  34. .

    Dr Fred Lenin
    #2250563, posted on January 3, 2017 at 9:59 am
    The way to control spending is to punish pollies and heads of departments who are wasrefull with taxpayers money,long prison terms for those who waste taxpayers moneyand confiscation of family assets. For instance NBN ,rudd conroy the heads of departments involved and the heads of tge white elephant project front a tribunal which decides culpability and legnth of prison time to be served . Perhaps public servants would then rein in pollies ideas to get votes and prefernces , on pain of punishment they might think twice ,just imagine ,no assets, no pension and a long hard lail sentence , enough to make you think before you leap .

    I think a blend of sortition and direct democracy would end the dynastic nonsense we see in Australian politics, without the need to ban political parties or otherwise violating civil liberties.

  35. Negative interest rates result in more inflation (until it ruins the economy and prices depress). Think of the growth of the money base. In the end purchasing power suffers as the economy is permamently damaged.

    If you read the rerfered paper by Paur Romer one of the critics is a divorce by economics from reality into abstract mathematics.

    If you look at what is happening in Europe, shrinking workforce, the economic answers are nothing more than bandaids on a problem that isn’t going to cure itself.

    Europe is now on the same trajectory as Japan, century long deflation, no amount economic stimulus will cure the underlying problem for any length of time, that is an ageing, dying population.

  36. max

    Fiddling with real estate values is a bit like fiddling with Victorian taxi-licences.

    Reduce its/their value and those already invested start to squawk.

    That’s not to say that it shouldn’t be done.

  37. .

    Zippy

    Much of what I am saying is entirely literary with no mathematics and based off the classic Austrian school.

    I am sure you can handle three or four level variables without an equation or blackboard economics to be seen.

    If you look at what is happening in Europe, shrinking workforce, the economic answers are nothing more than bandaids on a problem that isn’t going to cure itself.

    Demographics is part of economics per the labour force and aggregate demand. That used to be a big part of my work.

    The theory you are positing is correct and it has been put forward by Bonner and Wiggin in Financial Reckoning Day.

    no amount economic stimulus will cure the underlying problem for any length of time

    Hey! It never works anyway. That is the lesson from Friedman, Muth, Sargent, Lucas, Kydland, Prescott, Mises, etc.

  38. Muddy

    We are governed apparently happily, by idiots.

  39. Rabz

    Max – Victorian taxi plate holders are a tiny minority of irrelevant, anti-competitive imbeciles. Property owners are a massive voting bloc.

    Any politician(s) that are perceived as being responsible for forcing down the value of residential property would be crucified by the electorate. So, don’t expect the former to attempt this any time soon.

  40. hzhousewife

    We are governed apparently happily, by idiots.

    I recall my father saying as much in 1972.

  41. max

    Any politician(s) that are perceived as being responsible for forcing down the value of residential property would be crucified by the electorate. So, don’t expect the former to attempt this any time soon.

    Yes, but this point nullifies the whole post, doesn’t it ?

  42. H B Bear

    Any politician(s) that are perceived as being responsible for forcing down the value of residential property would be crucified by the electorate.

    The Father of Middle Class Welfare once said that no-one ever complained to him about the value of their house going up. That is why we now spend 30 years of our lives as indentured serfs to your bank manager and vast amounts of the country’s capital wealth is tied up keeping the rain off peoples heads.

  43. King Koala

    That’s in part why I want to get out

    Australia (and the West) has been ruined by the open borders and multicultural nonsense you defend.

  44. Bean Counter

    HB Bear (11.53am). Middle Class Welfare does not exist. The term is a Commie invention intended to disparage people who work and pay nett taxes, as if they are bludgers like the Commies are. The idea of this invented term is to lump the lifters in with the leaners, so why are you going along with using it, exactly?

    Generally speaking, workers earning below about $60,000 pay no nett tax, which means they get all taxes back (and often more) in services etc from government. Thus, anyone earning more than the $60,000 cannot be getting welfare since they have paid for everything they receive.

    As the average wage in Australia is around $80,000 it should be clear that the vast bulk of middle class income-earners pay more than they get back.. Thus they are not on welfare. This is with all rebates and deductions and subsidies considered.

    BTW. When you buy something at a shop and hand over a $50 note, would you consider it welfare to get some change?

  45. .

    King Koala
    #2250731, posted on January 3, 2017 at 2:07 pm
    That’s in part why I want to get out

    Australia (and the West) has been ruined by the open borders and multicultural nonsense you defend.

    The west has been and would have been ruined by socialism, social justice and a sense of entitlement anyway even if you were right (and your theories about the Rothschilds bankrolling WWII are laughable).

  46. .

    Bean Counter
    #2250818, posted on January 3, 2017 at 4:18 pm
    HB Bear (11.53am). Middle Class Welfare does not exist. The term is a Commie invention intended to disparage people who work and pay nett taxes, as if they are bludgers like the Commies are.

    Three problems with this:

    1. The middle class likely don’t pay net income taxes.
    2. Even someone on welfare is taxed at very high rates in Australia.
    3. Any attempt to better yourself in Australia is punished at an increasing rate.

    Please point out where anything I said above is “communist”.

    The whole system needs to come down. It stinks and makes us poorer. You have to accept we are not a capitalist country and this is why for example housing costs so much. We keep on electing governments to soak us “for our own good”.

    We don’t learn, arguably we deserve it.

  47. Bean Counter

    Dot. #1 The middle class are mostly on over $60,000 per year. They are therefore mostly nett tax payers.

    #2 Someone on welfare gets their income from other, nett, taxpayers, who are all middle-class and above. Therefore even if the welfare folk pay some of it back in tax, they are still living off the middle-class, and still nett consumers of others’ taxes.

    #3 Correct.

    The first two very easy knock-downs of your position show that you are a Commie. Why else would you so hate the middle-class lifters….and so defend the dole bludger leaners?

    BTW. This is purely rhetorical since I understand that to fleece them you need to appear to empathize with them!

  48. .

    Dot. #1 The middle class are mostly on over $60,000 per year. They are therefore mostly nett tax payers.

    Purely on income tax? I am comparing regarding all taxes, but often the distinction isn’t made.

    #2 Someone on welfare gets their income from other, nett, taxpayers, who are all middle-class and above. Therefore even if the welfare folk pay some of it back in tax, they are still living off the middle-class, and still nett consumers of others’ taxes.

    Obviously they don’t earn their own money.

    The point is the first dollar they earn is truly taxed (their combined direct and indirect taxes paid) at a rate of nearly 50%.

  49. .

    The first two very easy knock-downs of your position show that you are a Commie. Why else would you so hate the middle-class lifters….and so defend the dole bludger leaners?

    Quite a lot of them are government schleps.

  50. Bean Counter

    Yeah Dot, but we already know that 95% of Govt employees are welfare bludgers, regardless of income level.

    The invention of the term “Middle Class Welfare” was to deliberately muddy the waters, so that someone in a productive job in private industry….employed or self-employed…..could be lumped in with all manner of actual bludgers as being somehow on the public teat.

    A person getting say $120,000 pa from a private business, and paying $30,000 income tax (+all other govt taxes, charges +fees) has been determined to pay about $18,000 nett income tax roughly. That they can get a few grand of that $18,000 (all produced by them, then confiscated) back is called Middle Class welfare by any non-Commie is a disgrace.

    A PS worker on $120,000 is a bludger on welfare by definition.

  51. Rabz

    BC – I believe the term “middle class welfare” was first coined in recognition of the absurdity of filtering a taxpayer’s income back to them through the public sector. Often these taxpayers were caught up in the welfare system against their wishes, but had no option but to acquiesce in order to get some of their hard earned back.

    The reason? They should have simply had their tax rate lowered instead, but hey, that would have made too much sense.

    And no, I’m not defending the use of the term “middle class welfare” but simply arguing that these people should not be caught up in the welfare octopus. It was a plainly obvious, cynical attempt by politicians to demonstrate their “generosity” with other peoples’ money. In this case the money of the person being gifted it back by a “benevolent” government.

Leave a Reply

Your email address will not be published. Required fields are marked *