A few days ago I had an exchange with another brilliant product of one of Australia’s economics departments. This rather conceited young man argued that a little bit of inflation is necessary to maintain economic growth. I tried to get it across to him that inflation is as about as healthy as leprosy. Nevertheless, this young man’s dangerous belief is shared by most of our economic commentariat and this is why one still hears it.
One of those commentators is the renown Terry McCann, no less. This brought to mind his statement of belief 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” (Herald Sun, The prices are right, 9 March 2007). As I recall, McCrann seemed to be coming from one of two positions. The first one was the nonsensical belief that a ‘modest’ rate of inflation is necessary to promote spending and investment. Therefore, without inflation prices would fall which would then curb spending and investment and so depress economic activity. But the idea that any rate of inflation can fuel genuine economic growth is utterly absurd, unless one believes in the ‘beneficial effects’ of “forced saving”.
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”. (A Manual of Political Economy, written in 1795 but not published until 1843, p. 44). Thomas Malthus, his contemporary, pointed out the dangers and injustice of “forced savings”. (Edinburgh Review, February 1811, pp. 363-372.) 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”. (John Stuart Mill, Essays on Economics and Society, University of Toronto Press 1967, p. 307). Continue reading Prices, inflation and growth: our economic commentariat get it wrong again
Dealing with someone as relentlessly deceitful as John Humphreys is indeed a tiresome endeavour. Humphreys starts with the statement that “everybody knows, I wrote a paper that said that a carbon tax was ‘relatively better’ than an emissions trading system.” To begin with, an ETS is a carbon tax. This fact is not altered just because the price of carbon is exogenously set for an ETS. This is something that Samuel J at Catallaxy pointed out. If Humphreys disagrees, then I suggest he debate the matter at Catallaxy and not here.
That a self-professed economist could write a paper on a carbon tax versus an ETS and not realise that the latter is merely a more complicated version of the former should beggar belief. It certainly brings into the question the state of the author’s critical faculties. I always argued that no “matter how it is dressed up any emissions trading scheme (ETS) is in fact a carbon tax which in turn translates into a tax on economic growth and hence living standards.” Yet Humphreys set up a false choice and then declared that to disagree with him “is to say that you think an emissions trading system is better than a carbon tax.”
Continue reading The carbon tax and the deceit of one of its advocates
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
It is being said that if the fed could just get the ‘wealth effect’ into motion the US economy would fully recover from the recession. But the ‘wealth effect’ is a phantom, the sort of economic fallacy that only a Keynesian could conjure up. Those who support this fiction argue that a stock market’s performance is driven by a net inflow of funds which in turn is driven by economic growth. They go further by saying that growth in turn is driven by investment, innovation and productivity, all of which influences corporate profits which in turn drive stock prices. Naturally, when these factors are positive GDP expands. Continue reading The ‘wealth effect’: an Austrian view
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
I emailed Gerry Jackson’s article The Real Classical Theory of the Trade Cycle to the Executive Director of the Institute of Public Affairs John Roskam, IPA Review editor Chris Berg, Quadrant editor Keith Windshuttle and On Line Opinion editor Graham Young — and, of course, Steve Kates. For those of you have not read Gerry Jackson’s article it is a complete refutation of Steve Kates presentation of his so-called classical theory of the trade cycle. Continue reading The Institute of Public Affairs Negative Response to the Real Classical Theory of 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