What is the real connection between inflation and unemployment? Then again, maybe that should be inflation and employment. That this has been raised several time on this site which got me thinking about a 1993 study called The Costs of Unemployment in Australia1 by Raja Junankar and Cezary Kapuscinski. The authors, both of whom are Keynesians, argued that a “fight inflation first” policy generally incurs more costs than benefits, a view that is held by most of the economics profession.
As I recall, this study elicited a favourable response from our media. The striking thing — in my view — is that though 22 years has passed it seems that not a single free market commentator made an effort to establish a link between inflation, booms and the consequent unemployment. What we do get is the likes of P. D Jonson, Peter Smith, Des Moore, Sinclair Davidson and Steve Kates2, etc., falsely asserting that the so-called boom-bust cycle is a natural part of the free market order and that we will just have to grin and bear it. (This attitude is music to the ears of the left and Keynesians because to them it justifies their own so-called solutions to the problem of recurring recessions). Continue reading Unemployment and reduced output is the cost of having inflation, not the cost of fighting it
It looks like Steve Kates will never get it right on the Great Depression. Harold L. Cole and Lee E. Ohanian wrote a paper blaming Roosevelt’s economic policies for keeping America in depression. Any genuinely informed and honest person would have to agree with them, at least in principle. Now Kates quoted from an article on the work of these two economists that ended with the following quote from Cole:
The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes… Ironically, our work shows that the recovery would have been very rapid had the government not intervened.
Steve Kates took immediate umbrage with this view, asserting that “what it doesn’t do is put the blame on public spending which is where the blame truly belongs.” Now there is a fundamental error in Ohanian and Cole’s work but it has nothing to do with public spending, an issue about which Steve Kates is utterly wrong. We get the same nonsense from Sinclair Davidson and Julie Novak who argue that Australia’s recovery from the Great Depression was due to cuts in public spending plus interest rate reductions and devaluation. Continue reading Steve Kates gets it badly wrong on Roosevelt, the Great Depression and government spending
Nottrampis posted a comment criticising my attack on Keynesianism. The following is my response. It is not meant to be a rebuttal but more of an outline of my views. In the very near future I shall expand in far greater detail on each of my points.
Now where to begin:
1. Demand springs from production, not the other way round, a fact that is patently clear in a barter economy. Of course, if it were a simple case of demand bringing fourth production then poverty would never be a problem. Keep on increasing ‘demand’ and eventually you will make everyone as rich as Warren Buffett. Continue reading More Keynesian fallacies and the Great Depression
I have been asked a number of times what the hell is wrong with Tony Abbott. The answer is simple: The same thing that is wrong with the Liberal Party. The Liberals are still largely governed by statist thinking and Keynesian economics. It is a party without a grasp of sound economic theory, any knowledge of the history of economic thought and thoroughly ignorant of economic history. James Guest, former Liberal MP, is a perfect and depressing example of this dangerous mixture of sanctimonious witlessness.
Five years ago James Guest did the public a service by openly displaying his staggering ignorance of these subjects in an article he wrote for Quadrant in which he attacked Steve Kates for rightly taking issue with the Labor Government’s reckless spending policy to counter the recession. (One can read Kates’ tepid response here). Continue reading Tony Abbott’s lousy economics and the menace of Keynesianism
I think it’s pretty clear that Keynesians and their votaries in the media have learnt nothing from the last recession. Their absolute faith in the fallacy that consumption drives economies is sufficient proof of that. Time and time again I keep reading that consumer spending is 70 per cent or so of GDP which means, according to them, that if consumer spending falls the economy will slide into recession. Austrian economics has continually pointed out how dangerously wrong this view is.
What really matters is total spending, of which business spending is by far the largest and most important component. The problem is that the commentariat unthinkingly swallowed the fallacy that including spending between stages of production would be a case of double-counting with the result that national income figures seriously underestimate actual spending. Continue reading Recessions, investment and total spending: an Austrian perspective
I wrote this in response to Sarah’s comments about Austrian economics and Catallaxy. It was my original intention to post it as a comment but I then decided to rewrite it as a post. Sarah wrote that the Catallaxy people are “trying to give the impression that they are the only ones in Australia who have read the Austrians”.
Well, she is spot on. The Catallaxy crowd have been trying for years to pass themselves off as experts on Austrian economics. Yet any genuine Austrian who read them would know they are faking it. When it comes to Austrian capital theory, for instance, Sinclair Davidson doesn’t know what he is talking about. He just regurgitates Roger Garrison. He also knows nothing about Austrian trade cycle theory or Austrian monetary theory. In addition, he is also ignorant of economic history and the classical economists. For heaven’s sake, the man is still preaching the gross historical error that Australia left the gold standard in 1931! His casual approach to the crash of 1937-38 is just as bad. He even thinks ‘Ricardo’s theory’ of economic rent “has its origin in the labour theory of value”. No one who had read the classical economists could make such an egregious error. Continue reading Catallaxy gets it wrong again on the classical economists on the trade cycle
by Greg Byrne
Gerry Jackson kindly allowed me to write this introduction. At first, I thought I would just write a basic outline. It was then that I realised the full import of what Gerry had written. For years Australia’s establishment right has promoted Steve Kates’ argument that the classical economists believed that booms and busts were an unavoidable and natural product of capitalism and that we must learn to live with them. This is totally at variance with the historical facts. Continue reading The Real Classical School Theory of the Trade Cycle