Keynesian fallacies and the Great Depression: or how Australia left Roosevelt eating her dust

Gerard Jackson

This post is a response to a Keynesian reader.

 If the 1931 spending cuts deepened Australia’s depression, as is alleged, then the rate at which unemployment had been rising would have accelerated. In fact, the reverse happened as shown by the chart below. In the year 1928-29 unemployment leapt by 74 per cent and 42 per cent in the following year. For the year ending 30 June 1931 Commonwealth spending peaked at £68,585,546, after which it fell and the Commonwealth began to accumulate surpluses until war broke out. According to Keynesianism this policy should have been an economic disaster. However, as we can clearly see from the chart, not only did the rate at which unemployment had been increasing slow down significantly, rising by only 5.8 per cent, it then began to quickly drop even though the Commonwealth increased its surplus by 277 per cent and cut spending even further. Continue reading Keynesian fallacies and the Great Depression: or how Australia left Roosevelt eating her dust

Unemployment and reduced output is the cost of having inflation, not the cost of fighting it

Gerard Jackson

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

War, destruction and Keynesian madness

Gerard Jackson

I had several emails from greenies arguing that curbing CO2 emissions is good economics “because it will lead to more investment and this would mean more growth and jobs.” This is one of the nuttiest arguments for cutting CO2 emissions that the greens used in their war on cheap energy and it reveals a staggering ignorance of economics. Nevertheless, the “usual suspects” have mindlessly promoted it, one of them being Anatole Kaletsky, an economics writer for the Reuters and The International Herald Tribune and one of the crudest Keynesians in the media today. And that is really saying something.

I referred to Kaletsky in particular because these emails reminded me of an outrageous article he wrote for Rupert Murdoch’s Australian1 in which he seriously argued that severely restricting CO2 emissions would stimulate economic growth and employment because it would, and this comment is a real beauty, “have the effect on the world economy comparable to a large-scale war”. This is truly Orwellian: war and destruction bring prosperity, peace brings stagnation. Continue reading War, destruction and Keynesian madness

The idea that inflation can drive economic growth exposed as rubbish by economic history

Gerard Jackson

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

Steve Kates gets it badly wrong on Roosevelt, the Great Depression and government spending

Gerard Jackson

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

Wendy Bacon, Professor Spurr and media corruption

Gerard Jackson

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

Economics, natural resources, economic growth and Malcolm Turnbull’s ignorance and conceit

Gerard Jackson

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

The minimum wage and defending the free market

Gerard Jackson

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

To argue that consumers are not rational is to argue for more state control

Gerard Jackson

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

Economic growth, the minimum wage and sloppy economic thinking

Gerard Jackson

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