I’ve had several emails regarding unemployment rates during the Roosevelt administration. These readers were confused by some Keynesian sites asserting that the unemployment figures were inflated. One reader wrote that “the unemployment figures must have been greatly exaggerated because they excluded people on relief. If these people had been included then unemployment in 1938 would have been 12.5 percent and not be 19 percent.” I immediately recognised the figures as coming from Michael R. Darby’s 1975 paper1.
There is a sound reason why it is Keynesian votaries that tend to use Darby’s figures while the vast majority of economists and historians stick with the conventional figures. Putting the unemployed on relief and giving them a pay check is called working for the dole. It is an attempt to hide unemployment, not eliminate it. The old statisticians and economists understood that and were scrupulously honest in their estimates. It was called relief because it was understood that this ‘employment’ was a government-funded substitute for real employment. Better to be paid for doing something rather than be paid for doing nothing. Therefore, if these had been real jobs they would not, by definition, have been called relief. Taken to its logical conclusion all a government would have to do to eliminate unemployment is assign the jobless to various activities, no matter how pointless, and classify their dole payments as wages. Continue reading Australia’s recovery from the Great Depression compared with Roosevelt’s sorry unemployment record
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
I am frequently asked why free-market thinking in Australia doesn’t seem to be making any headway against the statist thinking. Needless to say, these people also expressed considerable disappointment in Tony Abbott’s economic record, which brings me to the right-wing’s sorry record. No serious scientist ever disconnects from first principles, and the same should go for economists. Unfortunately, first principles are something that our self-appointed advocates of the free market seem incapable of applying, particularly when it comes to the pricing of labour. And this is why, after more than 30 years of intellectual grandstanding, they have failed dismally to persuade the great majority of Australians that the effective minimum wage destroys jobs. Continue reading The minimum wage and defending the free market
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 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
The 1937-38 crash was literally a depression within a depression1. The seasonally adjusted production index peaked 118 in May 19372. A year later it stood at 76, a drop of 36 per cent. From April 1937 to May 1938 manufacturing output fell by 38 per cent. The situation for the iron and steel industry was catastrophic with output collapsing by 67 percent. Factory employment dived by 25 per cent, factory payrolls by 36 per cent while aggregate unemployment peaked at 20 per cent. Such a rapid contraction in production was and is unprecedented in US History. The statistics for manufacturing, and the iron and steel industry in particular, are both striking and instructive if the monthly production figures are examined instead of annual aggregates, a fact that will become increasingly clear. Continue reading The Great Depression and the real facts behind Roosevelt’s 1937-38 Depression
Over the weekend a friend asked me whether I rated George Megalogenis, a former economics writer for The Australian, as a decent economic thinker. No way. That people with Megalogenis’s low level of economic thinking get respect as economic commentators should bother anyone who holds economics in high esteem. My criticism of Megalogenis applies equally across the political spectrum. Economic arrogance and stupidity is not confined to one politically oriented group.
For example, he supported the destructive carbon tax and the daft idea that it would compel businesses to “switch to cleaner energy sources.” The idea that the tax would instead force them out of business did not occur to him anymore than the idea that the tax would lead to the dissipation of capital. But Megalogenis was not alone in this lunacy. In 2008 the Centre for Independent Studies published a monograph by John Humphreys making the same utterly absurd claims. Since then Alan Moran, Judith Sloan, Steve Kates, Sinclair Davidson, et al., have piled it on the carbon tax and also the assertion that so-called “cleaner energy sources” can support the economy.
Continue reading Bad economics and double-dealing
I think this article about Australia and the Great Depression might open up another chapter on that economic tragedy. It reveals that contrary to the standard view Australia in fact suffered a near monetary collapse and it was this massive deflation that sent the Australian economy into depression. It is a known fact that manufacturing led the recovery. What is revealed here is that though real wages (nominal wages divided by the price level) remained stable during the depression the real factory wage in terms of output fell by 43 per cent! It comes to the remarkable conclusion that Australia recovered not because of the Premiers’ Plan but because the Plan did so little while allowing prices to do their work.
Continue reading Australia and the Great Depression: What you don’t know but should