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Weekend reflections

April 3rd, 2009

It’s time once again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.

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  1. Kevin Cox
    April 3rd, 2009 at 16:25 | #1

    We can fix the financial system once and for all and at the same time increase community participation and solve “The Tragedy of the Commons” for such problems as reducing green house gas concentrations in the atmosphere.

    Please visit http://stableproductivemoney.wordpress.com/2009/04/03/increasing-the-money-supply-without-loans/

    take a look at the online presentation (10 minutes) and tell me why the ideas will or will not work – and of course ask questions about the approach.

  2. anon
    April 3rd, 2009 at 17:16 | #2

    Looking forward to your promised article on the Austrian Business Cycle Theory.

    It would be nice too if you were to explicitly address the concerns outline in this article by Murray Rothbard: http://mises.org/story/3127

    Rothbard claims that the ABCT was an extension of the classical economics understanding of business cycles (as pioneered by Ricardo). He further compares the ABCT with the Keynesian theory, and argues that the ABCT has greater explanatory power.

    It’s a pretty convincing case which Rothbard presents, so wanna hear your views on it.

  3. April 3rd, 2009 at 22:22 | #3

    This presentation describes a way a country can increase its money supply without going into debt.

    The money supply can be broken down into currency (ie not debt) and everything else (ie debt). By definition the only way to increase the money supply without somebody going into debt is by printing currency. Which is certainly possible. And it can also be inflation free if the demand for currency is also growing. Which is certainly possible if the economy is growing and more currency is demanded in order to lubricate the wheels of trade. Or even if foreign central banks like to buy up your currency to beautify their vaults.

    There is no argument that this is possible. However it is also possible to get it very wrong. So the real discussion hinges on issues of governance and who should have the power to create currency and when and why and for what purpose and within what constraints.

    I think the best approach is a market based approach based on common law contracts and private property. Others prefer the idea of an all wise and benevolent king that never sleeps and sees everything and always knows immediately what action is best and is capable of making it so. I’d probably agree with them also if such a king could be found.

  4. Smiley
    April 3rd, 2009 at 23:58 | #4

    With Paul Keating talking like this, I think I’m going to continue with a strategy of holding a little bit of physical gold and silver along with my savings.

    But as Krugman puts it, a world in which the US effectively defaults on its debts is probably a world where any investment strategy may not be enough. So the US has become a country to big to fail.

  5. Kevin Cox
    April 4th, 2009 at 01:54 | #5


    You are wrong when you say that money is currency plus debt. Money is not debt but it is a token representing value. We express debt in money terms but debt is a promise to repay whereas money is a representation of value. These are quite different things and the fact that we have used debt as the way to print money has created this misconception that most money is debt and that the only way to create it is through loans. We can create a representation of value (money) whenever we have things that represents value. One of those things can be a loan as at present but that has proved to be a slippery path.

    If you listen to the presentation you will find that the system proposed is “a market based approach based on common law contracts and private property”. Rewards become money after being spent in a market place. The people spending the Rewards get to own the asset produced. Compliance is achieved through common law contracts. There is no “king” deciding what action to take. The market places in different spending areas will do that.

    We can allocate any number of Rewards – it does not matter to the money supply. If we create too many Energy Rewards then they will inflate in value (sell at a high discount). If we create too many Housing Rewards then they will inflate in value, too many Medical Rewards they will etc.

    Most loans will still be exactly the same as today. The difference is that there will be no or little inflation of the regular currency. This along with the Reserve Bank getting out of the business of setting interest rates means that existing capital can operate in a true market of supply and demand controlled by price.

    Some aphorisms for the current economic system are:

    Lend money you do not have.

    Print money backed by promises not assets.

    Distribute new assets to the rich rather than the poor.

    Measure a country’s wealth by its consumption.

    Reward people for consuming more

    Equivalent aphorisms for increasing the money supply through Rewards are:

    Only lend money if you have it to lend.

    Never print more money than there are assets.

    Distribute new assets to the poor rather than the rich.

    Measure a country’s wealth by its assets

    Reward people for consuming less

  6. BilB
    April 4th, 2009 at 05:45 | #6

    Well that brings up an interesting thought. What is the situation for currencies such as the US dollar where other countries use the US dollar in preference to their own? The US must print money to provide sufficient circulation for the external users as well as their own. What effect does this have on the US economy? And what is the impact where actual money (printed dollars) never changes hands such as with oil trades where bank balances vary by massive amounts but no physical money is needed to transfer value?

  7. April 4th, 2009 at 05:49 | #7

    The G20 Summit was a great success given such a divergence of viewpoints of the G20 leaders surrounding the event. What has unexpectedly emerged out of this great fanfare of international co-operation is what I would like to coin a “London Consensus”. This unequivocal commitment to strengthen and improve the efficacy of international financial institutions like the IMF will undoubtedly help the world economy along its path of recovery towards sustained economic growth and prosperity.

    It seems Kevin Rudd, as an ambassador for the Australian people and in particular of our Australian values, was instrumental behind the scenes long before the summit took place developing directions through his role on a working committee that considered proposals that came from the November G20 meeting. At the summit he pushed the robustness of the Australian economy, particularly the banking sector as well as ideals as strong as he could. A core consideration of the G20 outcome is the “needs and jobs of hard-working families, not just in developed countries but in emerging markets”, not far removed from the spirit of Australia’s recent economic stimulus package.

    With the success of the G20 summit, Kevin Rudd can reinforce this by taking a greater leadership role within our region by hosting a regional forum on the financial crisis as we are mutually interdependent with neighbouring countries, with the view of working more closely together. An example of this interdependency is the reliance of the New Zealand banking sector upon the viability and capitalisation of Australian banks. One could argue that the sharp downturn in the New Zealand economy, particularly the housing sector could easily be transmitted to increasing the riskiness of Australian banks because of the predominant ownership of New Zealand banks by Australian banks. We thus need to work together with countries in our region in a mutually reinforcing way to ensure the G20 reforms are implemented effectively, and we help countries implement their own stimulus packages so that we are all moving in the same direction.

    Ironically, the outcome of the G20 Summit has coincided with some good news emanating from the UK in terms of economic data with the UK Nationwide Building Society housing index showing the first rise in house prices in March 2009, since October 2007. Much more of these types of economic data releases need to occur over forthcoming months before economists and politicians should be brave enough to declare that an economic recovery is underway.

  8. jquiggin
    April 4th, 2009 at 05:53 | #8

    #2 Post is coming. But Rothbard’s key claim is obviously false. Rothbard wants to blame central banks for the business cycle. But the cycle predates central banks, which were introduced in an attempt to control it. The US didn’t have a central bank until 1913, and it tried all sorts of different monetary regimes in C19, but none of them stopped the business cycle.

  9. Kevin Cox
    April 4th, 2009 at 09:58 | #9


    In the years 2000-2003 we formed a small company to create an electronic payments system to replace cash for certain types of transactions. We succeeded in designing and building the system but we did not succeed in getting it widely adopted for a whole variety of reasons.

    However in designing and implementing the system we had to represent and manipulate money. This means that when I talk about money it is from the point of view of a person who has built a money system. It turns out that money is what most people think it is. That is, money is a token that represents value. Money is a bank note or its electronic equivalent and it is not as some people seem to think it is and that is a promise to pay.

    Money is no more or less than a token with properties of quantity and the property of currency which is the unit of measurement like the metric system or the imperial system of measurements. It also has another property and that is it is owned (controlled) by an entity. That is about the sum total of what you need to build a money system.

    When we do financial transactions we transfer the ownership of tokens from one entity to another.

    To be useful money needs certain properties. The authority who issues (prints) money should guarantee that the money created will remain as a token of a particular value. Money should be trusted to retain its value when ownership is transferred.

    In our system we always knew how much money was in the system and the tokens always retained their value relative to the official currency.

    When you start to think of money this way then all sorts of things become clear. The first is that there are lots of “currencies” and lots of different types of money. Shares in a company are tokens of value which is fixed and measured by the amount of the company the tokens represent. This value will vary in relation to other currencies but as a share of a company it remains stable unless more shares are issued.

    Time on a phone card is money.

    Clicks on the voucher that is marked each time you get a cup of coffee so that ten markers is equal to a free cup of coffee is money.

    Frequent flyer points are money.

    and the list goes on.

    As long as the issuer of the currency issues and destroys money responsibly then it does not matter what currency measure is used as long as it is trusted to retain its value then all will be well. When it comes to large transfers of money such as oil trades then again provided money is preserved and the tokens are reliable and retain their value it does not matter what tokens are used or how it is done.

    So if a country uses US dollars for transactions then it does not matter as long as the US dollar can be trusted.

    The transfer of money is really a transfer of ownership of tokens of value and from the point of view of the money system who owns the money is irrelevant as long as the record keeping is reliable and the tokens are reliable and trusted.

    Part of the current financial crisis is that people are getting worried about the reliability and value retention of the money. This has been caused because no one actually knows how much money is out there and we are losing our trust in it retaining its value.

    Banks who have been given the responsibility of increasing the money supply through issuing loans with money they do not have are acting responsibly because they cannot issue loans if there are no assets against which to issue money.

    To restore trust we need to start to increase the money supply in a responsible way that does not involve loans and we need to keep track of how much we have issued. In other words the issuers of currency need to take control of the supply and make sure money retains its value.

  10. paul walter
    April 4th, 2009 at 10:36 | #10

    So, the evil Baron Rothbard, Eh?
    How would posters view the attack of Ken Henry on disability pensioners, in light of Kevin Cox#7.
    Nothing makes me sick.

  11. Alice
    April 4th, 2009 at 12:49 | #11


    Im not sure if Ken Henry is just noticing the large disparity between unemployment benefits and the disability pension (causing many on the former to migrate to the latter)and seeing that as a problem. Rather than reducing the disability allowance, I would suggest in light of the growing problem we are having with unemployment benefits …the simple way to fix this disparity and stimulate the economy, and assist the growing numbers of unemployed (to keep looking after themselves, keep looking for work and keep spending on goods and services and keep demand flowing) would simply be to raise the unemployment benefits as a matter of priority to equal the disability allowance.

    At a time like this it would be a positive fiscal stimulus and a good preventative initiative for the social costs of high unemployment.

  12. BilB
    April 4th, 2009 at 14:04 | #12

    Thanks for that Kevin, I find the whole thing quite fascinating. My thought was also about the implications to one country and complexity of expanding the amount of money to supply the needs of many others. The main trading currency for China is the US dollar. The volume of money must be enormous. How does the US Federal Reserve determine how much money to put out there? And is this a cash windfall for the US when they print money to have sufficient in circulation for another country that decides to trade their goods in US dollars?

    By the way if you are into designing money machinery, can you help with this project?


  13. April 4th, 2009 at 14:43 | #13

    The second part of a post in response to a post by Socrates on a previous “Weekend Reflections” vanished into a black hole. I have since turned it into an article:

    Exposing Queensland Government population growth duplicity

    The Queensland government actively encourages population growth, yet, when the adverse and wholly predictable consequences become too obvious to deny, acts as if it had played no part in bringing about that population growth in the first place. Its deception of the Queensland public has been assisted for years by that state’s newsmedia. 

  14. April 4th, 2009 at 14:59 | #14

    BTW, here’s a great and badly needed web site: stopmurdoch.blogspot.com.

    It puts Rupert Murdoch’s news empire, which has done so much in recent years to undermine democracy, to cause war and to inflict ecological destruction on our fragile planetary biosphere, under the spotlight where it deserves to be.

    Also, some good articles about Murdoch are to be found on Spring Hill Voice‘s media page.

    Of course, also, please visit candobetter.org/PropagandaWatch.

  15. April 4th, 2009 at 15:07 | #15

    Alice wrote “…the simple way to fix this disparity and stimulate the economy, and assist the growing numbers of unemployed (to… keep looking for work…) would simply be to raise the unemployment benefits as a matter of priority… it would be a positive fiscal stimulus and a good preventative initiative for the social costs of high unemployment.”

    No, it wouldn’t, because it would increase the external costs of funding all that even further and so increase the distorted incentives favouring unemployment and harming GDP. That’s why – short term and transitionally to something better and somewhat Distributist – I favour the Pigovian tax breaks separately advocated by Professors Kim Swales and (Nobel winner) Edmund Phelps (see also his book “Rewarding Work”), which work as a Negative Payroll Tax to counter the externality by reducing employers’ tax bills according to the sizes of their work forces. Once you had that, then you could increase Social Security payments without those adverse effects – but you still have to set up measures to avoid harmful effects “at the edges” where different economies meet internationally, e.g. discourage firms from offshoring anyway to get out of the tax base. I’ll be working some of this up to get another submission for the Henry Tax Review, due at the end of April.

  16. Alice
    April 4th, 2009 at 15:26 | #16


    Im not at all surprised by what you would prefer by way of a ficsal stimulus PM.

    Tax cuts for business (or a headache or arthritis or infertility?). Wouldnt that be a return to supply side Reaganomics straight out of the poison chalice?

    Ahh I forgot – it will trickle down.

  17. Ikonoclast
    April 4th, 2009 at 16:34 | #17

    The worst thing we can do is to let free market economics, as a discipline, lead our society. Rather, the market is a tool we should use along with our other important ‘tools’ of democracy and public works to run our society. That sounds very vague and general I know but the limits of this post will enforce a certain brevity.

    I think the important things to learn out of the past and present crises are;

    a) Unregulated markets are inherently unstable.

    b) Both the extreme socialist and extreme free market models fail at a number of levels, socially and economically.

    c) A mixed economy model functioning in a social-democratic nation state and supplemented by a policy of dirigisme in key strategic sectors has and will deliver the greatest good to the greatest number.

    My thinking would be (and I believe it is supported by empirical outcomes in the ‘laboratory’ of social and economic history) that we need the following;

    1. A mixed economy consisting of approximately 80% private enterprise and 20% public enterprise.

    2. Public enterprise to consist of public services, national ownership of strategic industries and industries which constitute natural monopolies. The latter would include water, power and transport infrastructures.

    3. The public sector should function as an “employment reserve” which would essentially set a minimum wage and eliminate all unemployment except for frictional unemployment (about 2%) and the genuinely unemployable. (I know aspects of this policy would get tricky in practice but running a healthy economy and a healthy social democratic polity is never going to be simple.)

    4. Private enterprise and the markets need regulation. The costs of excessive regulation are significant but, as we are now finding out, the risks and costs of inadequate regulation are also significant. A balance needs to be struck. Regulation needs to be concerned with matters like preventing monopoly and monopsony situations, regulating debt expansion and asset bubbles, guaranteeing contract law, ensuring shareholder protection, consumer protection, consumer safety and the proper pricing of negative externalities.

    5. Re-visiting the precise design of the fractional reserve banking system and the creation of debt. Some economic theorists (like Minsky and Australia’s Steve Keen) argue that free financial markets are inherently unstable and that empirical data and dynamic economic modelling both support their case against the equilibrium models of the neoclassical economists. The Global Financial Crisis has comprehensively refuted the “great moderation” theory of the neoclassical economists. Stability itself is destabilising as stability encourages an expansion of risk taking (overconfidence). Keen argues that monetary policy (creation of fiat money) only theoretically leads money creation in the current fractional reserve system. The empirical data shows that in the current fractional reserve system the banks are in effect creating debt money 12 to 18 months before governments create the fiat money that backs the debt. This system allows the creation of excessive debt and asset bubbles. These are the undelying issues which need to be brought under control by a redesign of the fractional reserve banking system.

  18. April 4th, 2009 at 17:12 | #18

    Pr Q says:

    # 8 jquiggin Says: April 4th, 2009 at 5:53 am

    #2 Post is coming. But Rothbard’s key claim is obviously false. Rothbard wants to blame central banks for the business cycle. But the cycle predates central banks, which were introduced in an attempt to control it. The US didn’t have a central bank until 1913, and it tried all sorts of different monetary regimes in C19, but none of them stopped the business cycle.

    Rothbard refers to any form of government backed currency as “fiat money” fractional-reserve banking which he argues is inherently inflationary. Of course being an anarcho-capitalist nothing less than full private ownership and issue of currency is acceptable.

    These private banks are supposed to only issue specie-backed currencies which are presumed to be of fixed value and are supposed to lead to a gradual deflation in time with productivity growth.

    Rothbard’s major talking point is that the FRB badly blundered in validating a stock-market boom with fiat money credit multiplication which lead to a bubble. Which the FRB then panicked and pricked leading to financial collapse and industrial depression.

    You have to give the Austrians some credit for being critics of government currency validated stock Asset price bubbles. THe Greenspan Put made a bad situation much much worse.

    Of course their solution, which is to put the foxes in charge of the chicken coop, is probably going to be much worse.

  19. Kevin Cox
    April 4th, 2009 at 17:27 | #19


    Preventing diseases and researching their prevention is clearly a public good and it is something an individual cannot do and has to be a community funded endeavour. The problem is how to decide on which diseases to concentrate and which research to foster. It is really the same problem with most research and development and how to fund it.

    The approach of giving some people the time and resources to follow their ideas without putting pressure on them to meet output targets such as papers published or products produced is a good one. That is, our society should be rich enough to allow those who wish to follow their dreams be it in research or in the arts or in writing or in sports. One way to do this is for each person to receive a living wage. If they want more than a living wage then they must be able to get support from others by doing activities for which they can be paid.

    So the first thing is we finance a living wage for everyone. Everyone gets a minimum amount and some people with special needs get more. Everyone who gets money above this minimum for personal consumption pays a percentage as taxes and it is this money that pays the minimum wage. We can set a tax of 30% of money paid to people for their personal consumption excluding the minimum wage and that funds the minimum wage.

    Everyone also gets Rewards that they must give to research groups – including medical research – in society. The funds would be “new money” because it adds to the wealth of society but in ways we do not understand. These groups may research Croynes disease or Malaria or Cancer etcetera and can pay people to work in those areas.

    In other words the system is the same as any Rewards where we have a market place where groups compete for funds from a large number of buyers – but the money must be spent on endeavours for which society as a whole is richer – and the groups seeking money have to explain why their groups are good for society and explain how they spend the money and must be accountable for the money spent. People now have the choice on which areas to support.

    A system such as this will allow the dreamer to go off and dream and do their own thing but be poor on the living wage. It allows groups to form to organise and get funding for anything that seems reasonable. People who abuse the system are “voted” out by the market participants and can no longer participate. They are voted out by either not receiving any funds or where a case can be made for collusion and there is no contribution to society then society can vote them out completely. For example, groups that foster violence would be removed from the system along with any people who support them.

    This is just a sketch of the idea but you can see the principles. Give people the choice, use market places to distribute funds and permit the group to determine who is in and who is out.

  20. Kevin Cox
    April 4th, 2009 at 17:38 | #20


    Free markets are not inherently unstable. Markets are unstable because they are poorly constructed. The idea of having supply match demand moderated by price is a good one and works well when it is allowed to.

    That is markets are a good way of distributing resources because they allow choice and they allow sellers to fail. When we see an unstable market we look for the reasons why it is unstable. I maintain that financial markets are unstable because of the way we increase the money supply which leads to positive feedback which in turn causes instability. Remove the cause and financial markets will work well.

    Share markets are unstable because supply cannot be increased to meet demand. That is supply is constrained because companies are not required to increase the number of shares to meet demand when prices rise and they are not required to buy shares when the prices fall.

    When we look for regulation look first at changing the market rules not externally imposed regulation .

  21. April 4th, 2009 at 19:09 | #21

    Alice, I am not at all surprised that you didn’t bother to follow any of that up, with the usual result (which you have applied to other people around here as well as me) that you don’t know what you are talking about but instead make things up as you go along – even to the point where you think Pigovian measures have something to do with fiscal stimulus, Reaganomics, supply side economics and trickle down. You can lead a horticulture… But I was obliged to point out the flaws in what you proposed, and felt morally obliged to point you at alternatives with links and mentions of those who came up with them. Anyway, from here on your ignorance is all down to you.

  22. April 4th, 2009 at 20:57 | #22

    You are wrong when you say that money is currency plus debt. Money is not debt but it is a token representing value. We express debt in money terms but debt is a promise to repay whereas money is a representation of value.

    I’m actually pretty much agree with your statement quoted above. In my defense I was refering to the “money supply” and not “money” and I was merely working with the generally accepted definition. Of course if we get specific and talk about M0 then things would be clearer.

    Further to your point, money (or money proper if we want to avoid semantic arguments) has a particular characteristic that debt does not. And that is the ability to act as a “unit of account”. Debt can rival money in terms of acting as a “medium of exchange” and as a “store of value” but debt can never substitute as a “unit of account”.

    In general I try to use the terms currency and debt rather than the term money. Simply because in general language usage the later is not a well qualified term. Too much polyseme.

  23. Alice
    April 4th, 2009 at 21:16 | #23

    PM # 21 – thats fine. It was you who suggested a bail out for inadequate super after the GFC was getting people to work until they were 70 and that was your submission to the Henry Review. Im soory I dont have much respect for your views but thats the way it is. Ill agree to disagree with you.
    No need to take it so personally. I just dont like your solutions to the recent crisis. I think there are more effective ones.

  24. Alice
    April 4th, 2009 at 21:20 | #24

    As a follow up PM – I think Ill leave that (the follow up) to Iknonoclast who’s views I have much more agreement with than yours.

  25. Alice
    April 4th, 2009 at 21:42 | #25

    PM # 21

    Ill add one futher comment PM. Its about the quality of your links…..they are not very good (really). Three pages from… Phelps – just a statement by “Phelps” with no references, no publication details, no data, no research conclusions …just a a statement, nothing else. And PM – you want to say I dont follow up? I did follow up your links and they are all empty rhetoric and ideological rubbish. No evidence and no facts.
    I think you need to up your ante PM. You must have better sources than that surely?

    Yet you compain I didnt follow up?? (I did follow your links but there was nothing serious to follow up…??????)

    Lord help me. Why do I bother with them??

  26. April 5th, 2009 at 00:08 | #26

    Alice, you don’t bother, that’s the point. You didn’t bother with the earlier submission or its links, so referring to and repeating your past misrepresentation hardly buttresses your position. This time round, you didn’t get any of your slurs from either of the links I provided, and it’s sheer chutzpah to complain that material at one of them is scanty when you wilfully decline to look at longer stuff anyway – and even if that were true, it still wouldn’t support the slurs. By the way, the main Phelps stuff is in the book, which isn’t on line so I provided a link to his five page submission (I notice you can’t or won’t count, either), which is on line and is not scanty. You might want to look at Google Books excerpts from it, of course (theoretically, you might). In any case, I also provided the Swales link.

    Bluntly, you aren’t even entitled to claim you are agreeing to disagree with my recommended solutions when you can’t even be bothered to take them on board but instead distort them with straw men as you do. “It was you who suggested a bail out for inadequate super after the GFC was getting people to work until they were 70 and that was your submission to the Henry Review” is a downright, flat out lie, since you know by now that I have repeatedly told you that I do not advocate that but rather what I actually spelled out in an earlier Weekend Reflections. Readers are welcome to confirm that that aims at rearranging the funding and provision of different retirement support systems, leading to perfectly normal retirement with different things (“pillars”, in the Henry Tax Review jargon) supporting it at different ages and stages. The only significance of “70″ is that that would be when the final one took up the load – and even then, only after a phased implementation, years down the track.

  27. Oldskeptic
    April 5th, 2009 at 08:58 | #27

    PM, its funny how unconscious beliefs affect logic. I’ve seen this argument, in many forms over the decades “do this and GDP drops, do that and it raises”. The original doomsters have always been neo-liberals, we were all doomed to penury unless we degregulated, cut taxes, welfare, education, whatever.

    But there is an underlying belief here that some types of spending are better than others.

    Typically societal spending on:
    high end consumer items; land/property; cars/roads; financial ponzi schemes, coal generated electricty; marketing, tax cuts for corporations and the rich.

    Is seen as better than:
    Solar/wind/etc electricity; public transport; manufacturing; real infrastructure investment, science and engineering (not the elaborate PPP rip off schemes we have now), higher welfare.

    {I pick these because that is where all the money has gone over the last few decades, at the expense of the 2nd group}.

    From a GDP point of view it makes no difference (say) whether your electricity is generated from a coal power station vs somthing else. In fact, if we decided to shutdown and replace every one of them, GDP would actually increase (=more economic activity).

    Higher welfare changes nothing, only the pattern of consumption changes, mostly from higher end consumer items to lower ones as money is transferred from higher paid people to lower ones. Makes no difference in aggregate, assuming that it is fully funded by tax.

    Most other arguments like this simply display an ideological bias … which is why I have long argued that neo-classical economics is simply another political ideology and an intellectual fig leaf for neo-liberalism.

    Simply empirical proof, GDP per person: Sweden (say) vs Australia. Ah yes, high taxes and welfare have driven them into bancruptcy and they are all living off rubbish tips … or is that us?

  28. Alice
    April 5th, 2009 at 09:08 | #28

    36# I read your Mr Phelps statement PM. It appears the Commission he put forward his arguments to didnt listen to his statement either. A cure for unemployment is to subsidise the employer of low wage workers. I can see how fast that would turn into a “hire as many as possible for a day each” to the same output as before. I note he recommends it only be applied to full time workers. That leaves about 30 percent plus out of the equation, the casuals, the part timers and the stop gap workers so common these days but I wont be entering into any further discussion with you PM because you use the arguments to post basiaclly what I consider to be “free market” ideology and I am really over that (no insult intended PM – you can have your version of reality but for me this free market, free enterprise view with the sole focus on the private sector as the source of “all wealth (not some wealth but all wealth)” nonsense has shown itself the exit door. I would not agree that subsidising employers is a solution to higfh unemployment. Not one bit. The public sector is also an employer and the balance should be between the public sector and the private sector. I would see this as diverting resources to employers, in the same way that resources were diverted to private job placement agencies by JH. Look at how that went. Firms with incentives to keep people unemployed and to keep them paying for training and skills seminars so they can keep getting public funds. Its a rort, as usual of public resources that would do little to help the unemployed.The trouble is some modeller gets to design what works as an “incentives” and there is no ability to see that people exploit and distort such incentives PM. Im not going to discuss this further PM. You get too agitated and youd rather change my mind than respect my view.

    I quite honestly find these sort of ideas horrifying (the idea of subsidising private sector employers and expecting them to correct the problem of unemployment…this is not a free market solution …its a redirection of public funds to those who dont need assistance ie the employers).

  29. Kevin Cox
    April 5th, 2009 at 15:26 | #29


    I agree. The community – perhaps through the government – should decide where we best direct resources. This is after all what government budgets are all about.

    Those who argue against government direction in the private sector are arguing from the point of view that properly function market places are very good at resource allocation for a particular class of resources such as food through a traditional farmers market. They say if we have free markets in any commodity or service we will get better value for money spent.

    This is true but markets are not good at deciding the overall allocation of resources to different areas of the economy. Markets cannot decide whether we should invest more on education or defense or police or health or environmental matters. They can allocate resources efficiently once we have decided how much to spend on say education.

    This is at the heart of the Rewards concept. It gives a way for governments to spend money efficiently through markets for a particular purpose.

    Looked at this way we combine the government direction approach with the market based approach and we can combine both government spending with private spending in the one market place.

    It turns out we can not only use markets to allocate resources efficiently but we can add other non monetary goals to our market places – such as more equal access to health resources or emissions targets or money supply increases.

  30. April 5th, 2009 at 17:09 | #30

    Alice, I have no problem with you disagreeing with my reasoning and conclusions, but I find it both offensive and impertinent when you misrepresent what I actually put, misdescribing what I advocate and so on.

    For what it’s worth, the whole subsidy thing I described just there isn’t a true subsidy anyway but a virtual subsidy (the Swales variant does not leave employers better off in aggregate, as overall rates on the supporting tax go up as well as tax breaks coming in, and whether those taxes or others rise the tax breaks never produce a funds flow from the government to the employers).

  31. Alice
    April 5th, 2009 at 17:24 | #31

    29# Kevin you agreed with Oldskeptic?? (not in your comments that followed your “agreement”)

    I think you misunderstood what Old Skeptic said summarised best in his last two paragraphs

    “Most other arguments like this simply display an ideological bias … which is why I have long argued that neo-classical economics is simply another political ideology and an intellectual fig leaf for neo-liberalism.

    Simply empirical proof, GDP per person: Sweden (say) vs Australia. Ah yes, high taxes and welfare have driven them into bancruptcy and they are all living off rubbish tips … or is that us?

    Markets are not always competitive or efficient and are not always efficient in allocating resources once it is decided that money should be spent on “health, policing, job network providers” as you said

    “Markets cannot decide whether we should invest more on education or defense or police or health or environmental matters. They can allocate resources efficiently once we have decided how much to spend on say education.”

    So you mean give the money, (once decided on an amounts) to private firms in private markets?? is that what you suggest?

    Hardly efficient and just more of the same nonsense with corruption and degradation o previously good public services.

    Yours (and PMs) approach is basically a neoliberal ideological stance with a distinct preference for private sector running all – and there should be balance between public sector provsion of services and private provision.

    There should be more public goods and services provision not less as become so fashionable in the past two decades. The experiment with market ideology fails us all dismally (in many areas of infrastructure). Unemployment is one consequence of this failure. You dont treat disease with exposure to more of the same active virus that caused it.

    The market is not god. Never was. Never will be. The market can be anarchic, disruptive, dishonest and destructive and shouldnt be left to its own devices. Its an unholy mess when unregulated that enables a few to profit enormously while the majority lose.

    Ask the electorate who are over the PPPs deals being done by State Labor with transport or in tendering for Railcorp services – ugly and not useful. Ask the people who suffered in the city blackouts – why? because there has been lack of investment by government in our electricity infrastructure. If they think privatising it will fix it…wait for the same games Telstra played under Sol.

    You would think they would have learned but no – the State Treasurers are still wearing their “market is god” hat.

  32. April 5th, 2009 at 17:27 | #32

    Oldskeptic, I would be glad if you could point out any instances of unconscious bias on my or others’ parts – of their nature, I wouldn’t be aware of them if there were any. But equally, the charge cannot trump any actual reasoning, of which I have seen plenty from Swales while Phelps has referred to his own in the material linked to (and I have done my own independent work in the area, which is consistent with Swales’s results). Certainly, the Swales and Phelps plans do not contain any incentives favouring one form of product over any other, only resetting a bias towards capital intensive means of producing towards a less distorted pattern with a larger proportion of labour intensiveness.

  33. April 5th, 2009 at 17:33 | #33

    “Yours (and PMs) approach is basically a neoliberal ideological stance with a distinct preference for private sector running all” – more abuse and misrepresentation from Alice, I see.

    Apart from your own bias, where do you get off accusing me of “basically a neoliberal ideological stance”? Try looking at Kevin Carson’s anarchist/mutualist blog for something a lot closer to my position. You are not entitled just to make stuff up when you don’t know what you are talking about and can’t be bothered to find out.

  34. Alice
    April 5th, 2009 at 18:57 | #34

    Ah I see “to dissolve etc…. by whatever means the government and state in the economic system” (your link). No thats not neo liberal is it PM? Its much worse than that in terms of market extremism.

    You dont want to know what I really think of your views based on your own links and you are dead right – I cant be bothered to find out.

    Its completely tedious.

  35. April 5th, 2009 at 20:29 | #35

    Alice, we are agreed then that you do not know what you are talking about and cannot be bothered to find out. Our only disagreement in this area, then, is that you insist on making stuff up and waving it about instead.

    For the benefit of other readers, nothing of mine or at that site is “neoliberal”, since it is all about removing the problems for which trendy leftiness provides a very sound and – currently – very necessary palliative or crutch, and afterwards discarding the crutch as, when and if it becomes unnecessary, and not at all about starting by throwing away the crutch like some idiot faith healer and leaving people in the lurch. Alice only sees a search for health, as it were, as seeking to abandon the sick, or a distaste for needing a crutch as a distaste for helping where help is needed.

    But I believe enough others have experienced her trollish qualities for me not to need to justify myself further, and I will stop feeding her. Her ignorance is impervious, and in future I will confine my attentions to her remarks to showing other readers the truth of any matter which I may chance to possess.

  36. April 5th, 2009 at 20:43 | #36

    For instance, readers, when Alice wrote “to dissolve etc…. by whatever means the government and state in the economic system“, she appears to have been misquoting “To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. –Proudhon, General Idea of the Revolution“, which appears at the head of Kevin Carson’s blog. Certainly “…by whatever means…” is an egregious invention of her own, distorting the whole, and those words appear nowhere on that page as it stands now (I did a find to check). As someone once remarked, everyone is entitled to his (or her) own opinions, but not to his (or her) own facts.

  37. Alice
    April 5th, 2009 at 20:53 | #37

    PM – I dont feed trolls and you are the troll (probably a young lib post teen). Your links show it because they are always the same and you back up with insult after insult.

    Repetition is the name of the game – how many times did we get bored to tears with your submission to the Henry Tax review and then there is the anarchist mutualist link now up half a dozen times?

    In fact you are a very very aggressive troll – now why dont you take you extreme right wing views and similar quack economic remedies and go and lurk under a dark damp bridge somewhere and wait for someone to rob in the name of the market.

  38. Alice
    April 5th, 2009 at 21:17 | #38

    I think people get the idea from the link itself (yes there is is again troll like in its repetition)…”reducing, simplifying, decentralizing and suppressing one after the other the wheels of the great machine, the government” bla bla bla disappear the govment, the whole govment, brick by brick, rule by rule, wheel by wheel!!!!

    Isnt there a model train track you can blow up?

    Government keeps trolls who want to make their own rules, whether they are hard left communists or hard right fascists or even more extreme anarchists, under control.

    One day when you grow older PM you will look back at your beliefs and you will find them an embarrassment (when you have read more).

  39. Ubiquity
    April 5th, 2009 at 21:46 | #39

    Social democrats say

    “a) Unregulated markets are inherently unstable”

    But Mises and Hayek say:

    “markets are inherently stable; the government is the destabilizer.”

    The last sixty or so years of “stabilisation” policies have failed miserably and strongly support the view of Mises and Hayek.

    The Keynesians can persist only by arguing that particular countercyclical measures were too weak or implemented too late. So will you ever get it right ? (In a perfect world maybe) especially if you consider the consequences of the “butterfly effect”.

    “To understand the root cause of financial and economic instability, we need to go back to Ludwig von Mises’s “non-neutrality” thesis. Mises pointed out that monetary intervention (easy money policies and artificial lowering of interest rates by the central bank) is the principal source of uncertainty, false expectations, and excessive debt-leverage in the economy and on Wall Street. Under a stable monetary system, a laissez-faire economy would suffer occasional financial mishaps, bankruptcies, and down-days on Wall Street, but there would be no systematic “cluster of errors” that currently characterize today’s global economy”

    The underlying problem resulting in a “cluster of errors” rather than smaller mishaps are those things that account for the increased level of indebtedness beyond what a free market would have inherently restricted. It is a credit expansion engineered by the central bank that increased the level of indebtedness.It is banking legislation that has encouraged financial institutions to take undue risks while the FDIC continues to provide deposit insurance at subsidized rates. It is the too-big-to-fail doctrine that has guided regulators in dealing with overextended financial institutions.

    Centrally orchestrated credit expansion is the cause of the extremes of the business cycle as spelled out by Mises and Hayek. Externalizing risks and subsidizing risk-taking behavior is another way of fostering an unsustainable boom.

    Mises description of a “cluster of errors” (such as the current huge number of worthless CDS and CDOs) rather than “ocassional… mishaps”, the difference being a cluster of errors is more likley in an environment of strong monetary expansion most possible through a central bank and government regulation.

  40. Alice
    April 5th, 2009 at 22:00 | #40


    Unemployment in this country in the three decades after WW2 averaged less than 2% and more often only 1%.
    I dont call that a failure. Since the 1970s (and Monetarism and its offspring) it has been a disaster. A much worse disaster than keynesian stabilisation policies gave us. Monetarism is a failure and the one eyed emphasis on money and interest rates and inflation is a failure. There now needs to be a shift back to a sensible approach of putting full employment back on the agenda and if the private sector cant deliver enough jobs (which they clearly cant) then public sector needs to roll up its sleeve and participate in job creation.

    It will come. Governments cant afford to leave unemployment rising and trending up towards 9 and ten percent (and how much more?). It will trigger a a seismic shift in attitudes and in policy and it will be towards Keynesian stabilisation policies not towards Mises and Hayek.

  41. SJ
    April 5th, 2009 at 23:00 | #41

    Alice Says:

    PM – I dont feed trolls and you are the troll (probably a young lib post teen)

    He’s certainly post-teen, but he claims to have been born in 1954, and from having read his comments here for a number of years, I have no reason to doubt his claim. I won’t post a link, but he has made his CV readily available with a fairly simple google search. Keypoints: BA (math) from Cambridge 1975, MBA from Monash 1993.

    Note that this is a purely factual matter, and not meant as an endorsement of Lawrence’s views. His CV could be made up, but I consider it unlikely.

  42. Kevin Cox
    April 6th, 2009 at 07:20 | #42

    31# Alice

    I want more community spending but I want community spending distributed through a market place.

    What I am saying is that we give money to citizens for them to spend in restricted marketplaces.

    Market places are good at allocation of funds. – this keeps neo liberals reasonably happy.

    Governments (the community) should decide where we spend the communities money – this keeps Old Skeptic and perhaps you happy?

    Rewards will do both.

    It seems to me to be a nobrainer with respect to the community objective of reducing the concentration of greenhouse gas concentration. Give lots of money to the citizens but require them to invest it in technology marketplace to reduce ghg.

    No one yet has given me any argument why this will not work.

  43. Alice
    April 6th, 2009 at 09:27 | #43

    Kevin – Im not opposed to your view at all – except that at times like this when we need unemployment tackled the government must necessarily expand to assist (the private sector is simply underweight with jobs provision).

    Then when the economy is expanding and firms are expanding – some reduction of government is practical. Its the extreme views I also loathe (all for a strong government or all for market fanaticism) and Im all for a bit of both except that I dont think rewards do it at times in terms of core public spending (just that part).

    There is a core of infrastructure that should be kept well away from the private sector (well away and I think there is a strong argument for that in essential public utilities – we will come back to that one day because its stabilising and keeps order and the privatisation experiments will fail without doubt in the medium to longer term).

    For example Centrelink is now being beseiged with phone calls from the newly unemployed and Centrelink has announced 1000 new positions this morning – good.

    Thats 1000 new jobs.

    Its exactly what we need (but more of it right now – the budget is moving to deficit precisely because it should).

    All is as it should be and yes, its Keynesian stablisation policies at work. Despite the war of ideologies – we are getting what we need, not more of an untested social experiment in some perfectly meticulous dreamlike utopic hallucination.

    Its just a shame the stimulus packages here and internationally went overweight on bank bailouts which will prevent change the “too big to stay as they are” global financial oligopoly (leaving the door wide open for these firms to abuse their market power and the global financial system once more in the future).

  44. April 6th, 2009 at 09:41 | #44

    SJ, I wish you hadn’t tried to enlighten Alice. It would have been far more helpful to give her plenty of rope so readers could see just how much she makes stuff up to support and reinforce her bias.

  45. Chris Warren
    April 6th, 2009 at 16:17 | #45


    Don’t worry about PM Lawrence – his CV places him within the “News Weekly” camp. other associations are ‘confidential’ and are probably just as unsavoury typical of his type.

    He appears to be a right-wing anarchist, posing as anti-capitalist (in the same sense as did right-wing national socialism).

  46. April 6th, 2009 at 17:45 | #46

    Chris Warren writes ‘his CV places him within the “News Weekly” camp’.

    You are mistaken, though understandably so. At the time I was trying to place material with whoever would take it, to build my cv. After I did so, and only after, someone told me I had damaged my cv by doing so with them. If you want to see the divergence of views between me and News Weekly, see the article on my publications page I wrote for them on the War on Terror issue, in which I highlight the parts they cut about what the USA was doing or could do wrong. Prophetic, if I may say so, particularly about destabilising Pakistan.

    The rest of what you assert about me has no backing beyond that sort of guilt by association – in this case, association with what you are reminded of. The cure, if you are willing to take it, is to go and look at what I provide myself and what I link to – and take it on board.

    I should tell readers, that is not actually my cv, but a sample cv that cuts off some years ago to avoid conflicts of interest.

  47. April 6th, 2009 at 17:49 | #47

    Drat. That link to the article doesn’t seem to have come through properly.

  48. Alice
    April 6th, 2009 at 19:12 | #48

    PM – just give up. You are losing the argument tragically and one day you will look back in shame. But any time you want an argument over your mad views Ill be here waiting…
    Love Alice

  49. Chris Warren
    April 6th, 2009 at 19:29 | #49

    It appears that P M Lawrence is disassociating himself from ‘News Weekly’.

    Wise move.

    I find it hard to characterise his position but we can at least retrieve him from the ‘News Weekly’ camp. It was a long time ago.

  50. Alice
    April 6th, 2009 at 19:39 | #50

    45# Chris

    Any relationship to the New Guard (the extreme right wing group in the 1830s)??. The mad De Groot followers (damn fascists seeking to get conservatives re elected in the 30s over Jack Lang’s government – armed and dangerous) of which JH is linked through the supposed admiration of his father Lyall (not conclsuively demonstrated that Lyall was a member – one son says no another says yes)?

  51. Alice
    April 6th, 2009 at 19:39 | #51


  52. Alice
    April 6th, 2009 at 19:42 | #52

    (“news weekly” not in ambit?) – I am hoping to retrieve him from insanity….

  53. Alice
    April 6th, 2009 at 19:54 | #53

    Or perhaps Im trying to just retrieve PM from the professional role of propangandism.

    Its the same.. within that role a conflict of true beliefs over paid beliefs emerges and its very obvious…it always makes their arguments terribly light but terribly manipulative (as if they are thinking about how they can change tack quickly).

    There is a studied “diversion” technique in posts, similar to the “studied incompetence” most 1950s born males exhibit in the kitchen! (I know – sweeping generalisation…etc but its true for the majority).

  54. April 6th, 2009 at 20:09 | #54

    Alice, you are resorting to abuse, not argument. As, when, and if you care to address issues, represent facts and other people’s positions correctly and apply reason to those, I will engage in discussion. Short of that you have a claque, not the better of any argument.

  55. April 6th, 2009 at 20:13 | #55

    Chris Warren, far from attrempting to distance myself from anybody, I am willing to take what part of the truth I have to any quarter – the likes of News Weekly or of you yourself. It’s a publicans and sinners thing, if you like. Feel free to call them either of those, but don’t stand aside yourself.

  56. Alice
    April 6th, 2009 at 20:35 | #56

    I have the better of it PM – and Im actually very proud of that.

    What is the “news weekly” link anyway PM? Maybe you should explain yourself. It sounds like something completely tacky.

  57. Alice
    April 6th, 2009 at 20:43 | #57


    You dont deserve any argument PM – it is you who are abusive and manipulative and distort the facts with extreme right wing zealotry and you dont faze me one bit.

    As I said you can keep your crazy ideas (you are an embarrassemnt to every balanced decent minded individual when it comes to economic policy ideas) – you obviously dont care but you also dont carry much blog cred here so dont try and bully me.

  58. jquiggin
    April 6th, 2009 at 20:48 | #58

    Cool it, please guys.

  59. Kevin Cox
    April 7th, 2009 at 06:02 | #59

    #43 Alice

    The reason markets are a “good thing” is that they permit choice and innovation and with that they allow failure. Markets are agnostic and working well they are a good way of distributing resources.

    What I am proposing is that governments can use markets to distribute resources by giving money directly to the people and let them choose.

    The current financial crisis gives us a once in a generation opportunity of using this approach to eliminate inflation, get rid of the business cycle, help eliminate social problems like unemployment and a distorted distribution of wealth, while fixing environmental problems like destructive climate change. This is an opportunity we should not miss particularly as it is simple to implement.

    I urge you to listen again to http://stableproductivemoney.wordpress.com/2009/04/03/increasing-the-money-supply-without-loans/

    If it does not make sense or if there is some flaw in the argument or ideas on implementation then I would like to hear about it.

    Underlying it all is the concept of individual spending for the common good as well as for the benefit of the individual. That is, it is a solution to the Tragedy of the Commons in a way that neither free for all markets, not government direction can achieve on their own.

  60. Chris Warren
    April 7th, 2009 at 07:27 | #60

    Kevin, Alice

    Is the real problem with markets, more to do with practicalities than theory.

    In theory, pure, free markets, can allocate resources, but in practice, as workers never get wages equal to their productivity, they cannot produce suitable demand for market equilibrium.

    Wages are set by politics and, unlike capital, labour cannot move freely to access opportunities.

    Society tries to make up the difference by boosting demand through credit and population increase.

    This make matters worse. If theory and practice contradict each other – do you change theory, or change practice?

    So are you both right?

  61. April 7th, 2009 at 12:06 | #61

    I have to admit, Alice, that you do not distort the facts with extreme right wing zealotry – you do it in other ways. But when you repeatedly accuse me of that, when you misrepresent my stated views that way, when you misquote material to support your slurs and indulge in guilt by association – just who is trying to bully whom, here? It’s a bad case of projection and “cet animal est mechant, il se defend quand on l’attaque”.

    I do indeed want you to cool it as JQ suggests, but if you don’t I shall take care to let others see where I am really coming from and really saying, and I shall call you what you are for doing all these things. I see no reason to let your slurs go unchallenged. Do I want people to work until they drop, and so on? I do not, but you have repeatedly accused me of that. Show people where I did any of those things, by all means, if you can find anything like that, but do not mistake your own misquotations and distorted descriptions for what I have been trying to communicate. Your bias is no substitute for the truth.

  62. Alice
    April 7th, 2009 at 12:47 | #62

    Refer to 58 PM and dont bother addressing any further comments to me. You wont get a response.

  63. Ubiquity
    April 7th, 2009 at 23:49 | #63

    Alice @ 40

    You are correct about low unemployment rates in the 50s and 60s and early 70s. Prosperous times. In the mid – 1970s early 1980-s unemployment increased from around 2% to 6-7% and has remained at these higher levels. We have never been able to achieve the 1-2% unemployment rates again.

    In the 1950s and 1960s the underlying rate of unemployment was consistent with full employment and the balance between real wages and average labour productivity was maintained.

    “In the early 1970s something happened to the efficiency of the Australian labor market. Real wages increases accelerated above the average rate of increase in the previous two decades without an accompanying increase in the underlying rate of change. The increase in real wages created a real wage-labour productivity imbalance. As a result there was a “real wage overhang” – that is the real wage level of 1975 exceeded the level of labour productivity that would prevail at full employment”

    I have quoted Bob Gregory (above) from this article


    My point is this, regardless of the history of the success of “fine tuning” of the economy in the 50s and 60s, those same economic principles failed to stop the overall increase in unemployment, because they were unable to anticipate the slower rate of technological change which in a market free from “fine tuning” would have produced a slower rate of growth of labour productivity consistent with full employment. What actually happened was real wage increases accelerated at a much greater rate then that required to maintain full employment.

    It is fine as Bob Gregory has done in hindsight, to identify the failure of the “fine tuning policies”. However it is another thing to try an anticipate the future response in a complex system were even small decisions can result in anything from great success, no result, or disasters never expected.

    My preference is still as much as possible, whilst retaining human dignity , to leave the market to sort out issues such as unemployment.

    Of course, anything is possible and the Social Democrats may end up finding the holy grail of economic models, but I haven’t seen it yet.

    I will agree with you on one final point, you say;

    “It will come. Governments cant afford to leave unemployment rising and trending up towards 9 and ten percent (and how much more?). It will trigger a a seismic shift in attitudes and in policy and it will be towards Keynesian stabilisation policies not towards Mises and Hayek”

    Lets hope Keynesian economics is more than a rationale for special-interest groups, such as trade unions, who don’t want to adapt to reality of supply and demand, and what the market viewed as real wealth.

    Sometimes you get the impression the Kenynes policy-driven economy mimics the unstable behaviour that Keynes thought to be charecteristic of a market economy.

  64. Alice
    April 8th, 2009 at 20:30 | #64

    you say
    “My preference is still as much as possible, whilst retaining human dignity , to leave the market to sort out issues such as unemployment.”

    Then under your criteria, the market is failing. When unemployment is trending tpo 9% -10% plus with no sign of abating yet there are huge affronts already occurring to human dignity.

    The market is not solving this problem Ubiquity. If it was unemployment wouldnt be rising quite so dramatically (and nor would inequality).

    The Keynesian rationale is being played out as real policy now for the whole economy not just special interest groups like unions, regardless of what Mises or Hayek fans would like. The economy has voted (and it votes for its own seldf interest).

  65. Alice
    April 8th, 2009 at 20:34 | #65

    The people have voted not only for their own self interest ubiquity, but for their own survival. I would suggest a lot of people saw themselves as worse off under workchoices, which is an extension of market theory (the so called flexibility of labour to be hired, fired and paid at the will of the employer with no protections).

    People lost real money Ubiquity. Its a one way ticket to turn people against the peddlers of such ideologies.

  66. Alice
    April 9th, 2009 at 09:41 | #66

    63# Ubiquity

    I agree on you point re the the weaknesses of Keynesian style intervention in the hands of the wrong people… (special interest groups – refer State Labor and the relatives and friends involved in property deals, committee appointments, poor/failed privatisation projects resulting in defacto taxing, etc)…
    Controls are needed (the type of controls that once clearly delineated the public sector from private interests and held public servants to greater account than now. When a situation exists like it does in State Labor where rules are overturned, committees created with nepotism, deals awarded to those with close links to the party and incompetence is rewarded etc…

    Keynesian style interventions are certainly not all smooth sailing either and they also need controls (that goes without saying). However monetary policy on its own is not reliable as a stimulator if people are not encouraged to borrow. With demand down and unemployment rising the missing factor is confidence…would you start a business now with debt, or expand your debt just looking about you (there are a few more shops standing empty around my way that are up for lease and have been for months)???

    I think people will tend to sit on their hands despite the huge liquidity injections, for quite a while yet.

  67. Ubiquity
    April 9th, 2009 at 23:44 | #67


    Ask yourself why The Keynesian policies are being adapated by most of the global governments as the solution to the GFC.

    Its hard to go past the idea that Keynesian policies are the simplest solution to subdueing the masses in the wake of the GFC. By handing out money to anything that walks and talks, it takes attention away from the biggest state assisted corporate economic blunder in history.

    Keynes basically implied in his “General Theory of…” . Prolonged mass unemployment is a unsatisfactory condition and suggested as the solution to devalue the currency as the workers won’t be clever enough to realise it and won’t offer resistance against a drop in real wage rates. He was basically proposing cheating the workers instead of declaring honestly that wage rates must be adjusted to market conditions.
    Full employment by means of inflation.

    I am not sure who the Keynesian policies are trying to save, The government or the people. I smell a rat amongst all this “quantitative easing”. The people will end up poorer, but for the state and its mates its business as usual.

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