The view that “inflation is not only desirable in its own right. It’s the absolute foundation of sustained growth in the economy and of living standards”1 is the generally accepted one among the economic commentariat. We have basically two positions here: The first one is the nonsensical belief that a ‘modest’ rate of inflation is necessary to promote spending and investment. Therefore, without this rate of inflation prices would continually fall which in turn would curb spending and investment and so depress economic activity. (This argument is also used to promote the idea of a stable price level). But it is absurd to assume that any rate of inflation can fuel economic growth, unless one believes in the ‘beneficial effects’ of “forced saving”, which some people do.
Jeremy Bentham was, I believe, the first economist to outline the forced saving doctrine (the process of using inflation to restrict consumption in order to raise the rate of capital accumulation) which he called “Forced Frugality”2. Thomas Malthus, a contemporary, pointed out the dangers and injustice of “forced savings”3. Henry Thornton damned the process as an “injustice”4. John Stuart Mill described the process as one of “forced accumulation” and condemned it with the statement that accumulating capital by this means “is no palliation of its iniquity”5. Continue reading The idea that inflation can drive economic growth exposed as rubbish by economic history
Matilda published a hit job on Professor Spurr written by Wendy Bacon and Chris Graham. Motivated by ideological-driven spite this pair based their piece on private emails by Professor Spurr that had been illegally obtained. This behaviour would not surprise anyone with knowledge of Wendy Bacon’s lack of ethics. Like all dogmatic leftists she thinks ethical behaviour is for the shmucks, meaning those who disagree with her unthinking leftism.
Wendy Bacon refers to herself as an “investigative journalist who is also a political activist”. That this is an oxymoron never occurred to her. She was a leftwing activist, and still is, not a real journalist. And like all of these phony journalists she was prepared to lie and cheat to advance a leftwing agenda. This paragon of virtue publically admitted (The Australian 24 January 1999) that Jim McClelland confessed to her and others that Lionel Murphy, Labor Party hero and High Court Judge, had been corrupt. Not only that, McClelland, who had been a prominent member of the Labor Party, also confessed to perjuring himself at Murphy’s trial thus securing Murphy’s acquittal. Now let us try to comprehend the full import of what Wendy Bacon did. Continue reading Wendy Bacon, Professor Spurr and media corruption
In January 2007 Malcolm Turnbull, the man who would be prime minister, was appointed Environment Minister. He immediately supported the destructive policy of a 20 per cent renewable target for 2020. Needless to say, he was a fervent supporter of an equally destructive carbon tax. In his arrogance he saw fit to attack consumer choice by forcing Australians to buy expensive compact fluorescent lights in order to satisfy his sense of moral and intellectual superiority and statist mentality. To put it bluntly: Turnbull is an ignorant, egotistical and destructive man. Continue reading Economics, natural resources, economic growth and Malcolm Turnbull’s ignorance and conceit
A reader directed me to an article in The Atlantic that purported to explain Why Economics Is Dead Wrong About How We Make Choices. Being aware of the anti-market prejudices of so-called journalists I expected the worse: my expectations were not confounded. Derek Thompson, the author of this little masterpiece, tells his readers that “[t]he old economic theory of consumers says that ‘people should relish choice’.” Bulldust. Economics has never said any such thing. The extent to which individuals should or should not “relish choice” is a matter for them to decide. Having displayed his ignorance of classical economic thought he then approvingly quoted Daniel McFadden who states: Continue reading To argue that consumers are not rational is to argue for more state control
Now for some light entertainment. A number of leftists absolutely adore Ross Gittins (economics editor of the Sydney Morning Herald and an economic columnist for The Age). While these leftists rhapsodise over Mr Gittins’ unparalleled grasp of economics I find myself less than impressed with his opinions.
So how good is Gittins? On reflection, that should read: Just how bad is Gittins? Last July he revealed his deep understanding of economics in an article in which he basically agreed with certain so-called economists that there is no direct link with the minimum wage and the unemployment rate of marginal labour1. (Minimum wage rises don’t lift unemployment, analysts agree, Sydney Morning Herald, 12 July 2014). However, this post is not about Gittins’ failure to understand what is happening in the field of economics with respect to the minimum wage but his history of sloppy economic reasoning, of which the aforementioned article is one of his most recent examples. Continue reading Economic growth, the minimum wage and sloppy economic thinking
I’ve been out of sorts for some days. Hopefully I shall be posting again on Monday.
Nottrampis made comments about my post on wages and the fallacy behind union bargaining. My thesis, as he called it, is an economic law. To wit: if you price the services of any good above its market clearing price you will get a surplus. And that also goes for labour. The Great Depression testifies to that fact.
Arindrajit Dube is one of the 5 so-called economists that Nottrampis referred to. Now if Dube’s ‘analysis’ were right then there would be no youth unemployment in America. Yet when he published his study in 2010 youth unemployment had averaged about 18 per cent for the year. It is now 2014 and he is still peddling his snake-oil even though youth unemployment is still being reported at crisis levels. Continue reading The minimum wage, economics and dishonest studies
It is a fundamental economic law that pricing the services of any product above its market clearing price will create a surplus for that product. It should therefore be a self-evident truth that this economic law applies to labour with equal force. Regardless of what a many people think, labour is not special nor is it bought and sold. What employers actually do is pay rent to labour for the use of its services. How much rent must be paid for those services depends on the supply of labour and the value of its marginal product. The lower the supply (given an unchanged demand) the higher will be the wage, and vice versa.
The demand curve for labour consists of a descending array of marginal productivities. The point at which the wage rate is determined is where we find marginal workers, those it only just pays to hire. It is at this point that minimum wage laws* do their damage. These workers are the first to go when the effective minimum is raised. It follows that what really matters is not the minimum wage per se but the effective minimum rate, the rate that exceeds the market clearing price of labour. Hence it is this rate that causes unemployment. Continue reading The minimum wage, Keynesian fallacies and leftwing malice
Some readers, still swayed by the current orthodoxy, are a little puzzled by the argument that government policies that bring about increased consumption come at the expense of economic growth (capital accumulation). The classical economists fully understood that economic growth was forgone consumption, meaning that investment, spending on capital goods, can only take place by directing resources away from consumption. It follows that the reverse must be true. Promoting consumption at the expense of savings results in resources being redirected from investment.
Unfortunately, policy-makers, not to mention a huge number of economists, genuinely believe that increasing the demand for consumer goods, by whatever means, will raise profits and thereby raise the demand for more capital goods which in turn would lead to an increased demand for labour. This Alice-in-Wonderland thinking (meaning the Keynesian multiplier) leads to the absurd conclusion that massively raising the spending power of the unemployed would generate enormous growth. Continue reading Why economic policies promoting consumer spending are bad for an economy
Alan Moran has been leading the Institute of Public Affairs charge against renewable energy policies. Now far be it from me to criticise Australia’s leading authority on the economics of renewable energy but, as was the case with Lord Cardigan and the Light Brigade, Dr Moran has mistakenly charged down the wrong valley.
His approach boils down to simply chanting that renewables are too costly, which is just another way of saying that they are less efficient than centralised power generation. It eludes him that the greens’ response is to argue that renewable energy will become more efficient if given enough time to develop. (I have been unable to find a response from any member of the rightwing to this assertion).
Every single member of our rightwing failed to grasp the simple and fundament fact that renewables just do not work. By this I mean that they cannot do the job that greens dishonestly claim for them. Expecting renewables to provide the vast amounts of energy required to drive an advanced economy is like expecting a Ford pickup to do the work of a 300 ton truck. It is a physical impossibility. The bald fact remains that so-called renewable energy faces insurmountable natural and economic obstacles. Yet this unalterable truth has never rated a mention from Alan Moran or anyone else at the Institute of Public Affairs. Continue reading Where the Institute of Public Affairs went wrong on renewable energy