Home > Politics (general) > A journey of a thousand miles begins with a single step

A journey of a thousand miles begins with a single step

April 27th, 2010

My last post, arguing that the left needed to offer a transformative vision as an alternative to rightwing tribalism has drawn lots of interesting responses, and generated some great comments threads, both here and elsewhere (Some of them: Matt Yglesias,DougJ at Balloon Juice, Democracy in America at the Economist,Aziz Poonawalla at BeliefNet,Geoffrey Kruse-Safford |, and Randy McDonald).

Since my idea was to open things up for discussion, I don’t plan to comment on particular responses. I do want to respond to one theme that came up repeatedly, a combination of discomfort with words like ‘transformation’ and ‘vision’, and a feeling that a politics in which such words are employed is inconsistent with the pursuit of incremental reforms. Even though I stressed the need to learn from such critics as Burke, Hayek and Popper about the need for reform to arise from organic developments in society and to avoid presumptions of omniscience, the mere use of words like ‘vision’ set off lots of alarm bells.

To me, the difficulty of getting this right reflects my opening point in the previous post. After decades of defensive struggle, we on the left no longer know how to talk about anything bigger than the local fights in which we may hope to defend the gains of the past and occasionally make a little progress. But the time is now ripe to look ahead.

My main point in this new post is to reject the idea that there is a necessary inconsistency between incremental progress and the vision of a better society and a better world. (I’ll link back here to my earlier post on Hope, which might be worth reading at this point, for those who have time and interest.)

The liberal and social democratic reforms of the New Deal and its counterparts in other developed countries were incremental changes. But they weren’t presented as mere technocratic adjustments to social and economic mechanisms. FDR’s New Deal and Four Freedoms, the Beveridge Report, the Swedish Folkhemmet, Ben Chifley’s “light on the hill”, Michael Savage in New Zealand, all presented their reforms in the context of a broader vision that could inspire mass support.

Combining day-to-day advocacy of immediately feasible reforms with mobilization for a broader vision of a better world implies some constraints. Most obviously, the kind of vision I’m talking about needs to be realistic rather than utopian. As I said in my post on Hope, the goals

ought to be feasible in the sense that they are technically achievable and don’t require radical changes in existing social structures, even if they may set the scene for such changes in the future. On the other hand, they ought not to be constrained by consideration of what is electorally saleable right now.

On the other hand, the kinds of incremental change we should be looking for must be informed by these goals.

An example, one of the few topics where Obama has maintained the rhetoric of hope that inspired support in his campaign is his advocacy of the goal of a world free of nuclear weapons. Obviously, this can’t be achieved at a stroke, and it may never be fully achievable. Nevertheless, (as I plan to argue in more detail soon) we seem more likely to make incremental steps away from the precipice on which we are standing if we have such an ultimate goal in mind than if we think in terms of adjustments to a balance that depends, in the end, on mutually assured destruction.

Conversely, articulating a goal like this (as compared, say, to non-proliferation) implies the need for much sharper questioning of the positions of the long-established nuclear powers. Are essentially frivolous considerations of national pride sufficient to justify Britain and France in maintaining a capacity for genocidal war? Assuming the perceived need for a strategic deterrent is going to persist for some time, can the US and Russia justify keeping tactical nuclear weapons. And so on.

Similar points can be made about the other goals I suggested in my ‘Hope’ post as well as those put forward by commenters and other bloggers. A moral imperative to end extreme poverty in the world seems more likely to overcome parochial tightfistedness than a desire to promote economic growth in less developed countries. But it also implies different policies, with more focus on action that will directly meet human needs for better health, education and nutrition, and less on large-scale development projects, which might be better left to the market sector.

I’ll repeat the endings of my previous posts. Writing this kind of thing, I can sense the feeling that it’s naive/utopian/pointless. But I think it’s precisely this kind of feeling, hammered into us by years of retreat that we need to overcome. And I’m keen for better ideas and analyses than what I’ve offered. So, comments please.

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  1. Freelander
    April 27th, 2010 at 21:27 | #1

    Vision might sound too ambitious but having a sense of direction, the direction in which you ought to be heading, is always needed, and to get that sense of direction you have to clearly have an idea of which way to something better than you already have, and that may involve a touch of utopian thinking, hopefully tempered by a grounding in reality, plenty of understand of potential obstacles, and of what is realistically achievable.

  2. paul walter
    April 27th, 2010 at 22:59 | #2

    Ah yes, the politics of vision.
    The first thing Labor in SA has done back from the election is to pass more pro developer legislation, this time as to removal of significant trees. The Advertiser has gleefully inserted a photo of large river redgum due to go down immediately the legislation has been processed.
    God grant me releif from the Labor right wing and their apologists, when it comes to right wing tribalism-even more than the poor silly Hansonists, because Labor should and does know better and must therefore be rotten to the core.

  3. BilB
    April 28th, 2010 at 02:02 | #3

    Nicely thought out there. My first impression is that vision is for frontiers, fairly obvious. Second instinctive reaction is that the acceptance of another’s vision is optional. I particularly like the Obama’s vision example. To have some “m’s” to add to the visionary list. I suggest Mandella, Muldoon, and Mugabe. From a visionary point of view you could talk of the good, the bad, and the ugly, but Muldoon was only half bad, he had some very good concepts which if relived today would make New Zealand the talking point of the post financial crisis global warming abatement world.

    I think that you nailed it with……Vision and Method.

  4. BilB
    April 28th, 2010 at 02:12 | #4

    and…..Timing.

  5. Chris Warren
    April 28th, 2010 at 12:06 | #5

    This is just a repeat of a previous thread.

    Still not addressing the problem of capitalism.

    I certainly have more than discomfort as words like ‘transformation’ and ‘vision’, in the absence of a rigorous analysis of underlying political and economic forces.

    We have been down this path before – Stuart Holland’s “The Socialist Challenge” (1975) is an example (which includes, centralised planning, that John seems to, illegitimately, attach to every mention of socialism).

    The problem is capitalism – not the vision of capitalism.

    We have to exit this fog.

    Is Stuart Holland worth revisiting, as an alternative to the above?

    Is Stuart Holland an example of “superior analysis” (excluding centralised planning)?

  6. paul walter
    April 28th, 2010 at 12:20 | #6

    Chris, I think that is about the goal of every conscious rational person, to find a way thru the tangles that the describe, it may also be so , that to get to the base you must dismantle a bit of infrastructure. Thus, you must be able to “see”, to find.
    Whether a person chooses to do that is another question, which could involve “bad faith”.

  7. April 28th, 2010 at 13:05 | #7

    Waleed Aly writes in the latest Quarterly Essay: ‘What’s Right? The Future of Conservatism in Australia’:

    “… liberalism and conservatism will have their best chance of thriving through the disavowal of neo-liberalism. If that is to happen, the time is now. The political logic of climate change and the global financial crisis suggest that an ideological retreat would not only be philosophically coherent, but politically fashionable. The common thread connecting these political issues is a widely held view that the untamed operations of the market were a major contributing factor in the creation of such problems. The short-term goals of profit that prevail in the marketplace have thus far proven incompatible with the long-term challenges of conserving the environment, and the long-term desirability of fostering economic (and with it, social) stability.

    If the conservative link with neo-liberalism can be severed, this will free conservatives to accept and then confront the biggest political issues of the day, including climate change. …”

  8. paul walter
    April 28th, 2010 at 13:27 | #8

    Megan, #7, with accurate Waleed Ali comment,
    Maybe that’s what the Clegg phenomena in GB is?
    The two neoliberal parties have finally burnt out, beyond recovery, in the eyes of many Britains, first the Thatcherist
    Tories, now the soul less dregs of New Labour.
    But it will take a while to burn out under the weight of its own contradictions. The question is, can the Greens gather sufficient critical mass to eventually see the back of the Abbott dry right and then the rightist, tribalist Philistines of Ned Rudd, who will also surely implode on the spike of their own delusions, against reality.

  9. Alice
    April 28th, 2010 at 20:49 | #9

    JQ – of all the statements in your above comment the following carries the greatest hope of all…

    “a world free of nuclear weapons.”

    Its been a long fight (a ling long fight) and one we should never give up on and if that means avoiding nuclear energy facilities….so be it…it is no accident that nuclear weapons storage facilities across the globe are situated very close to nuclear power plants.

    We need to recognise the connection.

  10. rog
    April 28th, 2010 at 23:19 | #10

    Recycling warheads into power stations appears to have some political attractions.

  11. Freelander
    April 28th, 2010 at 23:29 | #11

    One of the many advantages of nuclear power, is that suitably irradiated, at night, the recipient is able to light their own way. Indeed, nuclear power offers the potential to light our way out of the horror of the climate change hoax.

  12. Alice
    April 29th, 2010 at 07:06 | #12

    @Freelander
    Freelander….ahh but you jest again (and how I laughed!). The glow on the hill that will lead us all forward…

  13. Black Mage
    April 29th, 2010 at 12:09 | #13

    Well, John, yesterday I bought Mungo’s Canberra (Mungo MacCallum’s contemporary reflections on the Gorton and Whitlam governments) and James Walters’ new book, about ideas in Australian politics. And together they’re an interesting read.

    We consider Whitlam something of the epitome of the visionary in Australian politics, yes? A coherent vision, capable of inspiration — hope, even — of social and economic change? I know you’ve written about Whitlam as the first economic rationalist but that’s certainly the way he’s been assimilated into the public discourse — and certainly the way Walters reports on him, as an inspirational figure with a coherent liberal-progressive-social democratic outlook.

    Well, at the time, Whitlam was considered, by many on the left at least, as basically Kevin Rudd with a cockatoo hairstyle. Opportunistic. Compromising. Conservative, naysaying, and frequently using appeals to xenophobia and prejudice to try and shore up support amongst the ‘Bazza McKenzie’ voters.

    So maybe ‘vision’ only makes sense in hindsight. Maybe we try to rationalise away the past in terms of hectoring the present — the Whitlam discourse’ as we understand it is largely a series of anti-Hawke discourses, whereby this past ‘inspirational’, ‘radical’ figure was built up to attack Hawke’s manifest failings thereof.

    So maybe our problem is one of perspective — we’re still so close to Rudd that he doesn’t make sense unless we draw back a bit. Maybe in 20 years we’ll see, in things like national healthcare reforms, and the BER, and the Apology, that he was a mite more inspirational and possessed a more over-arching ‘vision’ for social change — even one badly sold to the public, as arguably Whitlam’s was — than we think at current, as events flood by.

  14. Freelander
    April 29th, 2010 at 12:21 | #14

    So you’re saying “Vision is in the eye of the beholder”?

  15. paul walter
    April 29th, 2010 at 12:41 | #15

    How bleak a future, for some of the grim realists here. Can’t stop smirking at the black humour, which is probably a shame.
    My unpleasant vision for the Australia of the next decade has a story like Britain’s over the last.
    As to “nookula”weapons,
    I wonder if places like Israel or Pakistan will willingly surrender their little treasures, let alone the Chinese.
    So the US will then just unilaterally disarm?
    When you think about, heaps of things could go wrong as bad as that, involving germ warfare or whatever other shit they are dreaming up in their underground labs, or something as drastic as the Aceh tsunami, in hubs like Tokyo or Los Angeles; places where quake intensity can very high.
    When does the one day in a billion come?

  16. Don Wigan
    April 29th, 2010 at 20:38 | #16

    As someone who was 30 when Whitlam came to office, Black Mage, I’d differ on that contemporary interpretation you’ve suggested. I’d say there was vision going back to at least the 1969 campaign and somewhat refined by the time of the 1972 It’s Time campaign. Though I’d agree that the difference between the two campaigns was not the vision but the fact that by 72 the entrenched Left in Victoria (who were a massive electoral liability) had been removed from control there.

    As to mistrust from the Left, there was a little of that in the 60s. Partly that reflected the battle for control of the machine, where Whitlam favoured wresting it away from the unaccountable ones (the Faceless Men) who were mostly from the Victorian Left and Joe Chamberlain forces. In a sense it was vision vs entrenched interests.

    Some of the more idealistic leftists mistrusted Whitlam’s position on Vietnam where he refused to back immediate withdrawal. But as his position became better known he was widely accepted by the left, if not loved as much as Cairns. Mungo might even cover that in his book because he was such a convert. Tom Uren was another. So was Clyde Cameron, although much later they fell out.

    I don’t doubt that there was some pandering to populism. And some of his Program had both vision and popular appeal (eg urban and regional development, education).

    Maybe the appointment of Doug McClelland as Minister for the Media (nicknamed privately as Minister for Bobby Limb) was an example. But mostly I think it was incidental to The Program. In fact, some have argued that an obsessive commitment to The Program may have hastened his downfall, although personally I think it was a combination of events -global inflation and oil price hikes, incompetence and inefficiency at cabinet and caucus, obstructionism by coalition parties in the States and Senate – that led to it.

  17. Alice
    April 29th, 2010 at 20:55 | #17

    @Don Wigan
    The incomptentence you speak of Don Wigan…can be traced directly to Commonwealth Treasury, who, by the time of Whitlam’s leadership had become infected with the Friedman virus. Whitlam tried to fight it..valiantly..by trying to avoid Commonwealth Treasury officers and hiring his own team of economic advisers..but they won in the end..and went on to lead us to the GFC. The debutante ball of neoliberalism…but Australia as ususal were just followers…(sheep)..not thinkers. Humphrey McQueen detailed our propensity to follow international trends rather than think. The aspirational “lost isolated continent”.
    When will we grow up?

  18. Jim Rose
    April 29th, 2010 at 21:32 | #18

    It should be remembered that Whitlam only scraped into office with a majority of 9 seats after a 2.64 per cent swing in 1972.

    His opponent was dopey old Billy McMahon and a tired and smelly government of 23 years vintage. Defeating such a rag-tag bunch does not say much for the political skills of Whitlam, or his success in persuading voters to his cause. Whitlam happened to benefit from the electorate throwing the other side out because once more was too much.

  19. Alice
    April 29th, 2010 at 21:37 | #19

    @Jim Rose
    and dont forget a concerted media atack by the right wing media owners…fallen under the spell (wrong spell…Friedman and vested interests)…Jim Rose.

  20. Freelander
    April 29th, 2010 at 21:39 | #20

    @Jim Rose

    A round about way of saying that you vote for the other side of politics…

  21. Alice
    April 29th, 2010 at 21:48 | #21

    Right wing media blitz known as the Khemlani affair…for those of us old enough to recall the Khemlani affair…and had the Whitalm govt borrowed the middle eastern surplus available. (lots of it)..we may have been better off for the investment. We always relied on the UK and it helped. What difference an investment by middle eastern financiers? A scandal over what appeared to be nothing but niggardliness on the part of an opposition that hasnt had a vision of public investment since.

    Just a bunch of austerity merchants..

  22. Jim Rose
    April 29th, 2010 at 22:21 | #22

    Friedman would have been flattered that he had any influence on policy in Australia in the 1970s. Reviews of textbooks, journal articles and newspaper reports will show that the 1960s and 1970s were the zenith of Keynesian economics in Australia. Little wonder the economy collapsed in stagflation in Australia and overseas in the 1970s.

    Edward Nelson published a paper in 2005 studying the Great Inflation in Canada, Australia, and New Zealand using newspaper coverage and policymakers’ statements made at the time to analyse the published views of the day on the inflation process that led to the 1970s macroeconomic policies. Nelson undertook similar studies of the USA, UK, Japan, Germany, Ireland and Switzerland.

    Nelson’s paper is called “Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand.” Nelson argued that to understand the course of policy in each country, it is crucial to use the monetary policy neglect hypothesis. This claims that the Great Inflation occurred because policymakers delegated inflation control to non-monetary policy devices. This hypothesis helps explain why, unlike Canada, Australia and New Zealand continued to suffer high inflation in the mid-1980s.

    Australian monetary policy was tightened at the end of the 1980s because the current account fallacy was riding high. Nothing much happened to the current account, but inflation went from double digits at the end of the 1980s to about 2 per cent in 1991.

    It is hard even for conspiracy buffs to argue that the Treasury was infected by Friedman in 1972 when inflation was not accepted to be a monetary phenomenon until 20 years later, through the brute force of unintended events, and Australia was very much a latecomer to inflation targeting.

  23. Freelander
    April 30th, 2010 at 01:32 | #23

    Friedman probably was flattered.

    The zenith of his career was the holiday he took in Chile, in the 70s, to watch people he didn’t like being thrown out of helicopters.

    He was such a charming humanitarian.

    Sad that he left no legacy of unrefuted ideas. Nevertheless, all though specious nonsense, “Free to Choose” is great entertainment, full of unintended humour. I thoroughly recommend it, even if it is one of those books that you shouldn’t put in the hands of young impressionable and otherwise shallow and superficial minds.

    It is not like the typical Aryan Rand novel, so boring that Jack Kevorkian is rumoured to intend using them for his patients. [But surely there must be less painful means?]

  24. Jim Rose
    April 30th, 2010 at 11:10 | #24

    Freelander,

    Friedman also visited China and other socialist states, giving lectures and meeting with top officials. Friedman stressed the importance of unfettered markets, pointing to China’s neighbour, Hong Kong, as a model to be followed. Does that make him a communist fellow traveller? Perhaps a candidate member of the gang of four and an unindicted co-conspirator in the great leap forward?

  25. Freelander
    April 30th, 2010 at 11:20 | #25

    But he didn’t go there (China) to watch people he didn’t like being dropped out of helicopters.

  26. Jim Rose
    April 30th, 2010 at 12:13 | #26

    Freelander,

    Good to see we agree again. Friedman visited many countries including tin-pot dictatorships and totalitarian states. He gave the same lectures and same advice.

  27. Freelander
    April 30th, 2010 at 12:29 | #27

    After the out cry over his Chilean holiday, he may have tried to cover his tracks by visiting China. Anyway, his lauding of HK as unfetterred free market was just a good example of his unintentional humour. He gave a lot of people a belly laugh about that one. He probably thought that a fairly light extraction of revenue also went on in HK. Pity they live in such little places all cramped in together. Just another market outcome I suppose.

  28. Jim Rose
    April 30th, 2010 at 12:54 | #28

    Freelander,

    you seem to be unaware that Hong Kong is a small place with many mountains and hills, little land and no resources; its size sums to 1100 square km in all.

    Its residents could have defected to the workers’ paradise across the border before 1997, but why leave one of the richest countries in the world? A free country too with that old enemy of socailists one and all – the rule of law.

    China now imposes residency restrictions to stop its own citizens moving to Hong Kong. They must be attracted by the hell on earth of no sales tax, no capital gains tax, and no GST. Income tax is set at 2% for those earning less than HK$35,000 a year, 8% for HK$35,000-HK$70,000, 14% for HK$70,000-HK$105,000 and 20% for anything exceeding that. There is a flat tax of 17.5 percent on corporate profits, and 16 percent on property owners and unincorporated enterprises. Public housing, health and other social services are well-targeted to minimise middle-class welfare.

  29. Don Wigan
    April 30th, 2010 at 13:07 | #29

    Wow! I accidentally started something with this Keynes vs Friedman thing, which was not where I’d intended to take things. I was mostly keen to correct the impression from Black Mage that the vision/idealism might have been a more post hoc recollection and nostalgia. It was real enough at the time, and just remembering the reform legislation passed then should be additional evidence.

    In deference to Alice, I could have mentioned a few other contributing factors to the general impression of chaos at the time. The attitudes of business, the banks (how about flooding consumers with credit cards at the height of inflation?) and the unions (who seemingly could not understand that raising the social wage meant raising monetary wages was less important and potentially reckless) who were all caught up in their own agendas and parochial interests.

    As Nicholas Gruen and others have often posted on, the Hawke-Keating Governments were more competent in ministerial personnel and in terms of enacting legislation politically successfully. One reason for this was that many of the Hawke ministers had been inspired to enter politics by the idealistic examples of Whitlam and Dunstan.

    So back to topic: yes idealism and raising hopes is important.

  30. Jim Rose
    April 30th, 2010 at 13:33 | #30

    Don,

    On Keynes vs. Friedman, Keynesian macroeconomics fell out of favour because it could not explain stagflation in the 1970s. Stagflation was supposed to be impossible.

    Keynesian macroeconomics reinvented itself as the new Keynesian marcoeconomics.

    It the course of reinventing itself, new Keynesian marcoeconomics co-opted so much of the economics of its critics that in more candid moments, prominent new Keynesians admit that the correct label should be new monetarist economics! New Keynesian economics is preoccupied with how to best run monetary policy and operate inflation targeting. They are like high Anglicans, Catholics all but in name.

  31. Chris Warren
    April 30th, 2010 at 16:31 | #31

    @Jim Rose

    Keynesian economics should be dismissed because it cannot explain ongoing per capita increase in debt, and it cannot balance its own circular flow under equilibrium conditions – assuming capitalism.

    Keynesian economics may be possible if you exclude capitalism.

    Friedmanite economics may be possible if you exclude capitalism and monopoly.

    You can take some right-wing theories and produce a progressive alternative from them.

  32. jquiggin
    April 30th, 2010 at 18:38 | #32

    @Black Mage
    Re the Left dismissal of Whitlam, the most notable example was MacFarlane & Catley, From Tweedledum to TweedleDee. MacFarlance stayed on the left, but Catley was an undistinguished Labor MHR for a few years, en route to the free-market right. Throughout his career, he was a reliable follower of fashions that were about to go out.

  33. Alice
    April 30th, 2010 at 18:59 | #33

    The benefit of Friedman was that he observed the difference between east and west germany but he mistakenly extended from that to the conclusion that “all market was good” and “all state control was bad”. He observed the vibrancy of a market economy and assumed the market could deliver it on its own. He missed the point that there was state management and he missed the point that you dont correct the error of oppression with the error of uncontrolled freedom.

    Balance – the eternal problem for economists.

  34. Alice
    April 30th, 2010 at 19:02 | #34

    Should I suggest Friedmans followers extrapolated Friendman’s view and direction to an extreme even Friedman wouldnt have gone to??

    Followers misinterpreters and extremist remedy peddlers…the absolute bane of economics.

  35. Alice
    April 30th, 2010 at 19:20 | #35

    @Jim Rose
    Ah ha…the mistake everyone makes

    “Keynesian macroeconomics fell out of favour because it could not explain stagflation in the 1970s.”

    Keynesian economics could then in the 1970s, and did explain the stagflation of the 1970s.

    Core dispute here. Core misprepresentation. The US expanded into the Viettnam war when it was close to full employment. Classic Keynesian crisis of overtsimulation of aggregate demand….coupled with a supply shock (oil crisis)…which came first?…the true Keynesian error came first…excess aggregate demand in the US sent manufacturing commodity prices and wages through the ceiling.

    The middle east just saw an opportunity to cash in. It wasnt unions…that explanation was a load of codswallop. It was a reaction to excess profits being made by metals industries (war industries) and set across the board so other labour could deal with the excess demand fuellecd prices.

    Jim…youve got it wrong… Keynes didnt fail. The US policy merchants dumped Keynesian caution and went to Vietnam come hell or high water when they didnt need to and shouldnt have.

    That war duped us all and sent policy haywire. Keynes didnt fail. US economic policy failed and its been failed ever since, going down extremist avenues…

    and ending up with the sackful of extremely wealthy lying Goldman Sachs executives that have impoverished whole nations with their “too big to fail and obviously too big to shut down massive… banker bets”.

  36. Alice
    April 30th, 2010 at 19:20 | #36

    @Jim Rose
    Ah ha…the mistake everyone makes

    “Keynesian macroeconomics fell out of favour because it could not explain stagflation in the 1970s.”

    Keynesian economics could then in the 1970s, and did explain the stagflation of the 1970s.

    Core dispute here. Core misprepresentation. The US expanded into the Viettnam war when it was close to full employment. Classic Keynesian crisis of overtsimulation of aggregate demand….coupled with a supply shock (oil crisis)…which came first?…the true Keynesian error came first…excess aggregate demand in the US sent manufacturing commodity prices and wages through the ceiling.

    The middle east just saw an opportunity to cash in. It wasnt unions…that explanation was a load of codswallop. It was a reaction to excess profits being made by metals industries (war industries) and set across the board so other labour could deal with the excess demand fuellecd prices.

    Jim…youve got it wrong… Keynes didnt fail. The US policy merchants dumped Keynesian caution and went to Vietnam come hell or high water when they didnt need to and shouldnt have.

    That war duped us all and sent policy haywire. Keynes didnt fail. US economic policy failed and its been failed ever since, going down extremist avenues…

    and ending up with the sackful of extremely wealthy lying Goldman Sachs executives that have impoverished whole nations with their “too big to fail and obviously too big to shut down massive… banker bets”.

  37. Alice
    April 30th, 2010 at 19:21 | #37

    oops – double post

  38. Freelander
    April 30th, 2010 at 20:20 | #38

    Jim Rose :

    On Keynes vs. Friedman, Keynesian macroeconomics fell out of favour because it could not explain stagflation in the 1970s. Stagflation was supposed to be impossible….

    Sorry Jimbo. You’ve got yourself all in a muddle. You’re talking about the Phillips curve, not Keynesianism. Keynes was dead when the Phillips curve was invented. Its the Phillips curve that was inconsistent with stagflation. Keynesianism has no problem at all explaining stagflation. In fact the explanation is regularly taught to first year students. The Phillips curve was always a bit shakey. A stock standard stimulus is why Australia is fine at the moment while NZ is still in the mud. As I stated earlier, poor Milton has left no legacy. None of his ideas seem to have been left unrefuted. He was an excellent BS artist though, could talk the legs off a donkey apparently and often did. He was lucky that PETA formed later. Never let facts inhibit his creative juices. And he still has a cult following, just like L Ron Hubbard, Joseph Smith, and JC. Yet he didn’t even offer his followers the story of Xenu or the option of polygamy or everlasting life floating on a cloud.
    If you want to talk about an economist with a legacy how about PT Barnum? Phineas had some powerful reality based insights that haven’t been refuted. How about his inspiring the observation “There’s a sucker born every minute.”? Now that is profound, and demonstrated his deep understanding of markets! Like Keynes, he actually knew enough about markets to make money; Miltie was at least wise enough to not even try. Miltie remembered what happened to Irving Fischer. More recently some other similarly hewn fantasists also tried their luck in an outfit called Long Term Capital Management. Unlike Miltie they didn’t seem to understand that they really didn’t know what they were talking about. They revisited Irving’s experience.

  39. Freelander
    April 30th, 2010 at 20:30 | #39

    Jim Rose :
    Freelander,
    you seem to be unaware that Hong Kong is a small place …

    Yes. But despite being so large, as you have suggested HK is, some 11000 sq kms. or whatever you found on the net, that is, given they have plenty of land, apparently the people live in very tiny appartments all crammed together; most of the buildings, so I’m told, are 30 stories high; it is very very crowded, everyone is crampted together, in shops, in schools, in all the facilities; and the price of properties and accommodation is simply outrageous. Also, its smelly, and its very easy to catch an infection, so I’m told. So, what explains all this? The unfettered market at work I wonder? And why is tax so low, as you suggest it is? How have they acheived that marvel? Is it all an example of the best that could happen with the resources available? All just the unfettered market resulting in the best of all possible worlds? Can you explain? Or to use the words of the red headed Howard, ‘please explain’?

  40. Jim Rose
    April 30th, 2010 at 20:37 | #40

    Whitlam had no one but himself to blame to his dismissal as PM.

    The Senate passed supply quickly after the dismissal because the Labour senators did not know of the dismissal and did not get suspicious about the sudden back-down of the coalition senators.

    A great parliamentarian like Whitlam should have known that the House of Reps. should have withdrawn the supply bills from the Senate as soon as the Senate has deferred considering them pending a promise of a double dissolution so the house always had control of the passing of the bills.

    After his dismisaal, Whitlam could have telephoned his Senate leadership and told them to vote against the supply bills. Fraser would have had to resign because he could not secure supply as he had promised.

    What did Whitlam do? He retired to the lodge for lunch – a very famour steak. With tactical skills like this, little wonder that he just beat Bill McMahon and lost seats to Snedden.

    Whitlam seemed to recognise his tactical errors when a few years later he proposed that supply bills include an enactment clause that they take effect on a day appointed by a resolution of the house of representative rather than at the time of royal assent. The House could not be dissolved during a supply crisis with this procedural safeguard.

  41. Alice
    April 30th, 2010 at 20:55 | #41

    @Freelander
    Correct Freelander – keynes paper on prices in the war years accomodated it well…trouble is the right didnt read it properly.
    “Keynes’s health collapsed circa 1938. When World War II broke out in earnest, Keynes re-emerged and published his 1940 pamphlet, How to Pay for the War. In that small tract, he identified the “inflationary gap” created by resource constraints during the war effort, and promoted the device of “compulsory saving” and rationing to prevent price inflation, proposals that were adopted in 1941. The 1940 piece is notable for it provided the seeds of a theory of inflation to complement the “depression economics” of the General Theory.”

    Go read it. It worked well in the post war inflationary period (and yes we had strong government intervention that worked).

    It was the economic mandarins of the 1960s/1970s under the influence of the now questionable Chicago school…. that dropped Keynes (baby out with bathwater). Young turks wanting to steal the thunder of the king. Keynes never failed anyone. Younger economists just went astray with fashion; an ideology; a promise of a future equilibrium if only enough of us subscribed, technology that suitably programmed could produce mathematics on tap any way you want the numbers to go (too bad no-one could understand the output)…

    That didnt work that well. Decades later when we are still waiting for the optimum long run nirvana to arrive…but we cant help noticing a lot are becoming impoverished and dying on the way to the promised land.

    In the long run….etc

  42. Jim Rose
    April 30th, 2010 at 21:13 | #42

    Freelander,

    Another agreement! Neither Keynes nor Keynesian economics could explain stagflation.

    That explanation required the introduction of aggregate supply curves into macroeconomic analysis over the course of the 1970s – into analysis that was previously all about aggregate demand. Why would aggregate supply concepts enter into Keynesian analysis that explained high unemployment as the result of deficient aggregate demand against a background of sluggish wage and price adjustment?!

    Out went is IS-LM analysis and in came aggregate supply curves and aggregate demand curves incorporating Friedman’s natural rate hypothesis for unemployment and the rational expectations hypothesis for aggregate demand shifts.

    BTW 1: do you know of any OECD area central bank that disagrees that inflation is a monetary phenomena?

    BTW 2: The minutes of central banks’ monetary policy meetings are available as well as their public statements and policy decisions. They were Keynesians to their bootstraps, adopting all sorts of non-monetary explanations for high inflation. That was why wage and price freezes and controls were popular back then. The Keynesians were the intellectual bodyguards of Hawke, Keating, Fraser, and Muldoon to name but a few. Wages pauses, wage indexation discounting, the Accord and other interventionist nonsense to blame ordinary workers for the inflation caused solely by loose monetary policies. They are your fellow travellers. Friedman was a champion of full wage indexation so that workers’ wages did not fall behind inflation. He specifically rejected wage and price controls as a solution for inflation.

  43. Alice
    April 30th, 2010 at 21:26 | #43

    @Jim Rose
    So wrong Jim. Did you actually read Freelander at 38 before you declared “agreement” with him?

  44. sdfc
    April 30th, 2010 at 21:44 | #44

    Running persitent budget deficits and easy monetary policy during periods of growth and inflation had nothing to do with Keynes’ theory. The traditional Keynesians understood Keynes theory as poorly as his many critics.

    The IS/LM model is Hicks attempt at describing Keynes. It falls well short.

  45. Freelander
    April 30th, 2010 at 21:56 | #45

    Inflation is simply a monetary phenomenon is just another one of Friedman’s totally refuted canards. The reality is much more complex and money is almost impossible to define in a satisfactory way.

  46. Jim Rose
    April 30th, 2010 at 22:09 | #46

    Alice, good to see that we are in agreement too.

    Neither Keynes nor Keynesian economics could explain stagflation. Keynes was dead. Keynesian economics, with its Phillips curve trade-off between unemployment and inflation, could not explain both high inflation and high unemployment at the same time.

    Freelander should reflect more deeply on what he recalls in those first year classes.

    He was looking at a long-run vertical aggregate supply curve – vertical because of the predictions of Friedman’s natural rate of unemployment hypothesis. He was then looking at a family of upward sloping short-run aggregate supply curves – these reflecting rational expectations as per the Lucas supply equation. The downward sloping aggregate demand curve was increasingly built on or was always qualified by the permanent income hypothesis developed by Friedman, or less frequently, the lifetime income hypothesis. The leads and lags on monetary and fiscal policy were standard in his lectures.

  47. Freelander
    April 30th, 2010 at 22:12 | #47

    The mad monetarist Brash was responsible for most of the damage done to the NZ economy since the “great leap” forward [not]. The various ‘reforms’ did a lot of damage but Brash probably did the most. I imagine you are an NZ policy advisor from the fanciful stuff you are talking. I do know that some people still do believe that nonsense. But I am always amused when I meet one more.

  48. Freelander
    April 30th, 2010 at 22:17 | #48

    The Phillips curve was dreamed up after Keynes was dead. “Natural rate” is complete nonsense. There is nothing ‘natural’ about a rate of unemployment. This was simply an invention because the nonsense that Friedman believed was refuted by the reality of unemployment even if his sort of silly policies were in place. This required redefining reality. Seeing as zero unemployment wouldn’t happen, as the theory predicts, you simply define the unemployment you see as the natural zero and call that the ‘natural rate of unemployment’. Friedman was such a sophist.

  49. Freelander
    April 30th, 2010 at 22:20 | #49

    And Lucas very pretty and elegant all his nonsense was achieved something truely amazing.

    Most of those undeserving who have received faux nobels got them before their ideas had conclusively been shown wrong. Lucas managed to get one well after his nonsense had been refuted by reality. That is indeed an achievement.

  50. Jim Rose
    April 30th, 2010 at 22:24 | #50

    Freelander, if Friedman is so refuted, why is inflation targeting so widespread?

    Why require central banks to deliver low-inflation, within a narrow publicly announced and agreed band, if the chosen instrument – monetary policy – is ineffective and will fail?

    How well did wage and price controls go in the 1970s as an anti-inflation measure? What were the implications for workers’ wages?

  51. sdfc
    April 30th, 2010 at 22:26 | #51

    What Freidman misses is that consumer spending relies on the ability of consumers to spend. Once investment and employment begin to fall so does the consumer’s ability to spend.

    Keynes theory is a theory of disequilibrium, Milton liked to think the market was self correcting. A common mistake of economists who ignore the role of expectations and financial markets play in the economy.

  52. Freelander
    April 30th, 2010 at 22:27 | #52

    If economics is ever to become a science then the scientific approach has to be adopted. Some ideas are very pretty, but when they are show to not be in accordance with the evidence they have to be discarded, ruthlessly. That is the difference between science and religion.

  53. Freelander
    April 30th, 2010 at 22:32 | #53

    Inflation targetting is so well spread for the same reason that various competing religions are so well spread. There have been thousands of religions throughout history. At most one can be right. More likely zero. Nevertheless believers persist. The mechanical inflation targetting that has been all the rage is simply silly. Stiglitz has talked about its stupidity and its dangers.

  54. Jim Rose
    April 30th, 2010 at 22:36 | #54

    Freelander,

    You should think more deeply about maintaining, on the one hand, that inflation is not a monetary phenomenon – that monetary policy is impotent – an extra on the stage of macroeconomic life; and then blame monetary policy for recessions.

    Conspiracy buffs are often so busy making new allegations that they end up accusing the poor defendant of being in two places at once, places far apart from each other with little in common.

  55. Freelander
    April 30th, 2010 at 22:41 | #55

    You should read more carefuly what I said. Then you would be able to represent my views correctly.

  56. Jim Rose
    April 30th, 2010 at 22:52 | #56

    Freelander,

    it comes as no surprise that you hang off the words of Joe Stiglitz.

    He was in the pay of the worst of the worst of the sub-prime industry.

    In 2002, he co-authored “Implications of the New Fannie Mae and Freddie Mac Risk-Based Capital Standard”. This stated that “on the basis of historical experience, the risk to the government from a potential default on GSE debt is effectively zero.” Plainly, he got it wrong. He forgot to mention this paper was commissioned in the Fannie Mae papers, Volume I, Issue 2 March 2002 in his latest book.

    I am sure you agree that Stiglitz should be among leading defendants in the dock for this collaboration with and empowerment of the sub-prime industry.

  57. Jim Rose
    April 30th, 2010 at 22:56 | #57

    The previous posting should read:

    Freelander,

    It comes as no surprise that you hang off the words of Joe Stiglitz.

    He was in the pay of the worst of the worst of the sub-prime industry.

    In 2002, he co-authored “Implications of the New Fannie Mae and Freddie Mac Risk-Based Capital Standard”. This stated that “on the basis of historical experience, the risk to the government from a potential default on GSE debt is effectively zero.” This paper was commissioned in the Fannie Mae papers, Volume I, Issue 2 March 2002. He forgot to mention this gem of earlier foresight in his latest book.

    Stiglitz should be among leading defendants in the dock for this collaboration with and empowerment of the sub-prime industry.

  58. Freelander
    April 30th, 2010 at 23:43 | #58

    hang off the words of Joe Stiglitz… I do? He should? Nonsense. You really don’t know what happened then. Amazing. You don’t know how the GFC happend?

  59. Freelander
    April 30th, 2010 at 23:45 | #59

    Given that you seem to be debating yourself or phantoms of your own creation. I will leave you two to get on with it.

  60. Freelander
    April 30th, 2010 at 23:53 | #60

    On the HK matter. You don’t know much about that either. Or why Friedman’s talk about HK was such a joke. Or why their taxes appeared to be so low. Yet their government still managed to have revenue coming out of every orifice. Very amusing. But never mind. As they say, ignorance is bliss.

  61. Jim Rose
    May 1st, 2010 at 00:45 | #61

    Freelander, the panic of 2008 was the result of government failure.

    First, monetary policies were far looser than suggested by the policy rules that delivered the great moderation in inflation and the business cycle from the early 1980s. This looseness applied across the OECD countries. U.S. policy interest rates were 1% for several years after any possible justification could be made for that by, for example, the Taylor rule for monetary policy. Is this in dispute?

    Secondly, the housing boom was further spiked by anti-deficiency laws in the states were most sub-prime mortgage defaults occurred, such as California, Arizona and Florida. Anti-deficiency laws limit or prohibit banks from pursuing defaulting mortgagees if the mortgagee sale comes up short. Anti-deficiency laws turn mortgages into options, especially if there is no deposit. Is this in dispute?

    Third, bank capital regulation changes across the OECD area starting in the late 1990s encouraged lending for housing. Is this in dispute?

    Forthly, the housing boom and the sub-prime mortgages in particular were underwritten by government chartered enterprises subject to a soft budget constraint. Freddie Mac’s and Fannie Mae’s underwriting of mortgages in the trillions meant that neither the issuing banks nor the mortgagees will be held responsible for any deficiency. Many were therefore playing a government underwritten game were heads, they win, tails, the taxpayer loses. Is this in dispute?

    BTW: why were and why are taxes so low in Hong Kong? From 1960 to 1996, Hong Kong’s per capita income rose from about one-quarter of Britain’s to more than a third larger than Britain’s. Direct government spending is less than 17 per cent of national income in Hong Kong in 1997, and this includes subsidised housing, free medical care, and free education. This BTW information is taken from Friedman’s writing so he was well aware of the true size of the Hong Kong state sector. He did not mistakenly think that the state sector was somehow a lot smaller, which you seem to suggest?

  62. boconnor
    May 1st, 2010 at 02:06 | #62

    As usual a thought provoking post from JQ. One issue that comes to mind is implementation of JQ’s list. That obviously requires a party to embrace the policies, and successfully sell them to the electorate.

    What is hard to fathom is how come JQ’s list which seems so reasonable, eg eliminate extreme poverty, is not embraced by the ALP, the natural party of the left for those who would like to be in government to implement their ideas.

    It is the inherent nature of modern left learning political parties who are popular enough to form government that they naturally shy away from policies that require even minimal redistribution of wealth? If so, why is that? Its perplexing since there is no suggestion of overturning the market system to get these changes – the system could be reformed by, as JQ says, incremental improvements. So really there should be no chance of “scaring the horses” (the voters) , if that is the perceived barrier.

    Its hard to know if the internal operators within parties like the ALP have lost faith that change is possible, or have become the true conservatives and don’t actually believe in the type of policies JQ alludes to. Its also difficult to know if the issue is raw selling ability or inherent rejection of progressive ideas by the voting majority, where no amount of well targeted persuasion will convince the electorate to embrace progressive polices. If the ALP really, with passion and commitment, embarked on a campaign using a JQ-like list would they (the voters) buy it?

    The Greens look attractive as the natural party of progressive ideas, but in voting results seem unlikely to ever match the ALP’s primary vote. That implies that the electorate would not embrace JQ’s list.

  63. paul walter
    May 1st, 2010 at 02:26 | #63

    You hit it on the head, boconnor, they’ve given up and are “drawing in the laager”: it’s a tendency exhibitive of a trait sometimes described as “reactionary modernism”, derived of the disempowerment phenomena that seems a precondition for society in our time. I think Hansonism was the most obvious example with its subjective (and quite frankly, in some cases, objective) fear, grief for lost innocence and happier times, and sense of impending doom driving reactive, knee jerk solutions out of touch with actual realities.
    At the moment this politics of fear and ignorance has found a home not only in politics but government itself, thru the fertile soil of Labor right anti-intellectualism; “resentiment”, to draw loosely on a po-mo term.

  64. Alice
    May 1st, 2010 at 07:15 | #64

    Freelander, the panic of 2008 was the result of government failure.

    The governments failure to regulate the massive private sector financial fraud that has been and is still occurring in Wall street, and Greenspans obsession with low interest rates, and his complete failure to reign in a massive speculative bubble, in any way, shape or form (disciple of “Friedman the Faulty” that he was) was the cause of the global financial crisis Jim Rose. If you recall he left saying “I found a flaw in the (free market) model”…and hasnt been seen in public since.

  65. Alice
    May 1st, 2010 at 07:18 | #65

    above post should be addressed to JR.

  66. Freelander
    May 1st, 2010 at 08:46 | #66

    Yes. You have no idea how the GFC happened. In your fictional account the idiots in the free market lent money that any fool would know they couldn’t expect to get back, and why did they do it? Somehow the Government conned them? The Government fooled them into making bad and foolish loans? Magic government. What did the Government do? Wave a magic wand to turn them into fools? You mean they weren’t fools already? Or more correctly not fools, simply crooks, because they made money even if and when shareholders and everyone else lost?

    They lent the money. Not the government. The government didn’t hold any gun to their heads. They were responsible for making the bad loans and the whole story is provided elsewhere than in your incoherent fiction above. As the real explanation has already been discussed at length on this blog, I won’t rehash but will leave it to you to read those earlier discussions. It is simply mindless trash to blurt out, without a shred of analysis or evidence, just strings of non sequiturs, when anything bad happens, to support “Guvment did it, your honor!” Guvment did do it in a way by not stopping the crooks. And why did Guvment not stop them, because idiots like you work for government and tell them you don’t actually need to reign in the behaviour of crooks. Greenspan was and still is a fellow traveller and on the Government side he was responsible for creating the conditions where financial sector crookery could thrive.

    As for HK, you still haven’t explained why they live so cramped, despite having lots of land. Friedman as usual worked backwards, and because HK was a success, as far as he was concerned, therefore HK had to be unfettered free market. He and you don’t understand why their tax rates were lower also.

    BTW, “[Friedman] did not think the state sector was a lot smaller, which you seem to suggest?” Don’t know where you get that one from. The HK example is like a variety of humorous examples in Friedman’s unintentionally humorous Free to Choose book, are simply an exercise in casual empiricism where Miltie plucks out [of think air] convenient little ‘facts’ without really checking them out thoroughly, ‘facts’ chosen simply because they ‘fit’ the nice little story he was currently telling. In picking his facts, Friedman certainly operated on the principle that he was “Free to Choose”.

    Friedman was always great at weaving nice little stories. Pity they were more of the nature of fairy tales than of serious scholarship.

  67. Chris Warren
    May 1st, 2010 at 10:45 | #67

    I am not sure what we should conclude from Jim Rose’s example of Hong Kong.

    Australia would have the same financial success if we reduced minimum wages to A$500 a month instead of around our present $500 a week (approx).

    But financial success is not necessarily social success.

    It seems to me that Friedman’s economics assumed capitalism and, in effect, ignored the interference in markets due to oligopoly, cartels, and restricted information.

    You are never Free to Choose under market capitalism. Under capitalism, some have greater ability to choose than others, where that choice is expressed in money.

  68. Jim Rose
    May 1st, 2010 at 11:44 | #68

    Alice,

    Greenspan kept interest rates so low because the Keynesian obsession with the risks of deflation and deficient aggregate demand. Bernanke is also a Keynesian. See his textbook.

    With the leads and lags in monetary policy, you want a world were a bubble is seeded by weak monetary policy and then a recession is deepened by attempts to prick the asset bubble that has nore often than not already burst. Central bankers cannot be both those incompetents who missed the global financial crisis and sub-prime crisis and also superb managers in waiting able to foresee and deflate asset bubbles.

    Friedman was a life-long opponent of monetary activism. He wanted a computer set to increase the money supply at a fixed quarterly rate to service trend increases in the demand for money or just simply a freezing the monetary base. Monetary policy would not be an independent source of instability. There would be mass unemployment of central bankers if Friedman had his way. I am sure you would oppose these job losses?

    Freelander,

    You need to think more deeply about the way risk is dealt with in investment portfolios. People take more risks if the return is expected higher rewards but the price is always a greater chance of poor returns too and even a total loss.

    If you have a mortgage, and must make up any deficiency on a mortgagee sale to the point of bankruptcy, you may not borrow as much. A bank’s willingness to lend to home buyers will be influenced by the extent to which it suffers a capital loss from defaults, and the regulations that control how much it can lend to different classes of risk. These classes of risk are defined by regulators subject to special interest capture.

    If you have a mortgage and the bank has no recourse against you after a less than successful mortgagee sale, you have purchased an option. If the price of the house goes up, you exercise this option by paying of the mortgage off and pocket the profits made on borrowed money. If the price does not go up, you post the house keys back to the bank and default. Americans call this jingle mail. Freddie Mae and Fannie Mac make up any losses of American banks at the taxpayers expense.

    Depositors do not care because there is generous deposit insurance. Roosevelt was initially against deposit insurance in 1933 because it would increase moral hazard.

  69. Freelander
    May 1st, 2010 at 11:51 | #69

    Oh no not the ‘moral hazard’ nonsense once more. The truly ridiculous idea that in a modern economy caveat emptor should prevail and every individual should expend the incredible resources necessary in an unfettered market to keep a check that what ought to be criminal behaviour doesn’t occur with their bank deposits.

    When I hear people talk such nonsense I always feel sorry when it so often appears that they don’t even have the excuse for their words that they are habitual heavy drug users.

  70. Jim Rose
    May 1st, 2010 at 12:33 | #70

    Freelander,

    Investors can handle moral hazard through diversification. Costs you nothing, does not require the acquisition of any additional information, and increases returns. A simple rule: do not put all your eggs in one basket. This rule should be in red on the front of every investment application form.

    Banks become too big to fail if investors and depositors expect to be bailed-out. If you have deposit insurance and implicit guarantees reducing investment losses, go for the higher returns! Without these interventions in the market, these banks would not grow by as much.

    Left wing parties clamour to bail out the banks to protect the investments of their middle-class constituents. The fiscal costs are paid in higher taxes and reduced states services for ordinary workers.

    Right-wing parties have a better understanding that capitalism is a profit AND loss system. Workers should not pay higher taxes to protect the investments of the middle-class.

  71. Freelander
    May 1st, 2010 at 12:39 | #71

    Cost you nothing. Only trivially true in the sense that if you have nothing the additional cost of diversifying your portfolio by imagining that instead of owning 100 per cent of nothing of one thing you in fact own various proportions of your nothing spread over owning nothing of a variety of things. Why do you insist on talking non sense. Diversification does not “cost you nothing”.

  72. Alice
    May 1st, 2010 at 12:46 | #72

    Oh dear …I do agree with the following comment of JRs
    “Right-wing parties have a better understanding that capitalism is a profit AND loss system. Workers should not pay higher taxes to protect the investments of the middle-class.”

    Good..now can we get on with upping bankers taxes and the taxes on the rich and upper middle and.. lowering them for the workers and the middle?

    Damn good idea JR. Tax those splendid bonuses of the financial execs on Wall Street first.

    If right wing parties have a better understanding that workers should not pay higher taxes to protect the investments of the middle(??? – I do assume you mean middle and higher classes dont you?) they are yet to demonstrate it.

  73. Alice
    May 1st, 2010 at 12:48 | #73

    @Jim Rose
    Jim

    I have seen Bernanke’s textbook. Its one of the worst Ive ever seen.

  74. Jim Rose
    May 1st, 2010 at 15:11 | #74

    Alice,

    we agree. Keynesian macroeconomics textsbooks are a poor show indeed.

  75. Jim Rose
    May 1st, 2010 at 15:29 | #75

    Returning to the topic of the post, the journey of a thousand miles beginning with a single step will be into the dustbin of history for the Left for a long as it is unable to cope with honest disagreement.

    Many too many on the Left prefer to believe that those that disagree with them do so out of ignorance or moral turpitude, or preferably both.

    Facing up to the fact that some or all of the socialist or left-wing solution will not work or has been shown not to work is then side-stepped. There is no need to learn from history and experience. There is no need to work hardier on why your message is deeply unpopular.

    Too many progressives end up as collaborators with corporate capitalism – collaborating in the drive of big business and various smaller allies to limit competition. Most regulations and government interventions that supposedly gave capitalism a human face merely made matters even worse for the common worker and the consumer and protected incumbents from displacement by new entrants and smaller rivals.

  76. Jim Rose
    May 1st, 2010 at 15:47 | #76

    Alice,

    Good to see you have become a fan of Hong Kong. Incomes taxes are trivial except for those with above average incomes, targeting of social services to low-income groups, and there is no GST.

    Of course, just taxing the well-to-do would cut the size of the state sector by 40 to 50 per cent. The bulk of national income is earned by ordinary people. That is why GST, payroll tax and base income tax rates are so high in Europe. After taking it mostly off the middle class, it is give back to the middle class. A wealth destroying merry go round.

    You also seem to cheerfully subscribe to director’s law of public expenditure: public expenditures are made for the primary benefit of the middle classes, and financed with taxes which are borne in considerable part by the poor and the rich.

    BTW, the $700 billion dollar TARP bail-out was initially defeated in the U.S House of Representatives by a coalition of right wing republicans opposed to a bail-out and left-wing democrats wanting to give the money to someone else. The right-wing republicans stayed staunch and the centre and left passed the bill.

  77. Freelander
    May 1st, 2010 at 15:55 | #77

    @Jim Rose

    “Many too many on the Left prefer to believe that those that disagree with them do so out of ignorance or moral turpitude, or preferably both.”

    I am not sure if that [prefer] is so. Nevertheless, many of those on the extreme right identify anyone who doesn’t agree with their mostly silly ideas as being on the extreme left, even if they are not even on the left at all. As for “do so out of ignorance or moral turpitude, or preferably both” too frequently those on the right do so for precisely those reasons. Evidence of that requires but few words. Tea party, birther, Sarah Palin, John McCann, George W Bush, FoxNews,… Enough examples given, but I could easily write several more, very obvious, examples to fill the rest of this page.

  78. Jim Rose
    May 1st, 2010 at 16:57 | #78

    Chris Warren,

    You say that Friedman’s economics assumed capitalism and, in effect, ignored the interference in markets due to oligopoly, cartels, and restricted information.

    Friedman wrote his PhD on monopoly! He published it in 1945 with Simon Kuznets as Income from Independent Professional Practice. New York: National Bureau of Economic Research. You can download it at their website. It discusses the monopolies in the medical and related professions.

    Second, chapters 8 and 9 of Capitalism and Freedom are Monopoly and the Social Responsibility of Business, and Occupational Licensure.

    Third, you may not have heard of the Chicago school of antitrust, which has a sophisticated analysis of mergers, monopoly, collusion and vertical integration. There are detailed discussions of when collusion will work based in part on the economics of incomplete information, what pre-disposes a market to overt and tacit collusion, and what behaviours is evidence of collusion. The antitrust policy advice is to regulate horizontal mergers and to criminalise price fixing.

    Fourthly, George Stigler got his noble prize partly for his studies of the role of imperfect information in market processes.

    Fifthly, in 1921, Frank Knight of the old Chicago school wrote one of the two or three most famous PhD dissertations in the history of economic thought. The title was Risk, Uncertainty and Profit. Knight made his famous distinction between risk (randomness with knowable probabilities) and uncertainty (randomness with unknowable probabilities), and set forth the role of the entrepreneur in a distinctive theory of profit and in a theory of the firm based on who bears uncertainty.

  79. Chris Warren
    May 1st, 2010 at 17:44 | #79

    @Jim Rose

    Yes, he knew about monopoly, but ignored it to the extent it rendered his economics invalid in society.

    He also opposed extending copyright – but yet the existence of copyright also rendered his economics invalid in society.

    Just as today’s free trade economists ignore the differing wage costs for the same level of productivity, even though they write PhD’s a plenty about them.

    I judge theories on what they do to society – not what they say.

  80. Jim Rose
    May 1st, 2010 at 18:05 | #80

    Chris,

    Careful – Friedman also and famously judged theories by their usefulness in predicting behaviour – in understanding society – and not how plausible were their assumptions.

    Friedman described three alternatives for a monopoly: a public monopoly, a private monopoly, or public regulation. None of these were considered desirable or universally preferable. Monopolies come from many sources, but direct and indirect government intervention was the most common, and such interventions should be stopped wherever possible. Friedman was against all forms of state occupational licensure. Friedman therefore had detailed positions on the effects of monopolies on society and what to do to stem these effects.

  81. Chris Warren
    May 1st, 2010 at 20:04 | #81

    @Jim Rose
    This is not germane.

    Marshall, Keynes, Weber, Friedman, possibly all economists (or theorists of capitalism), claim their theories are based on understanding human behaviour in various guises. They all believe they understand society. Life usually frustrates them. Was Marx the only one to say that modern commercial behaviour was in fact false? (Maybe Proudhon?)

    As far as I am aware, your so-called “Chicago school”, concluded that democratic efforts to regulate monopolies created more harm than the monopolies – except for unions of course.
    In effect, Friedman (and Hayek) allow monopoly to remain where ever it is commercially advantageous and they, thereby, ignore its disruption of a free market.

    If you want a tighter argument, then you should be aware damage is done by degrees of monopoly (cartels etc) not pure monopoly as such (which is easy to oppose). I prefer to see the problem in these terms, as I originally stated, not in your restatement.

    The problem with monopoly, cartels, etc is not due to such industry structures in themselves, but due to the downstream effects once they are added into a supposed free market and then the further subsequent damage done on society. In essence the problem is capitalism. Capitalist profit is greatest under monopoly.

    Some Marxists, once they exclude capitalism, also sprout Hayek (eg Eric Aarons).

  82. Freelander
    May 1st, 2010 at 20:14 | #82

    Another problem with monopolies, which the Chicago Collective were unconcerned about, is the unjustified extraction of ‘tribute’ to the monopolists themselves. Wealth provides power and the opportunity to exercise power in its many guises. Power to fund right wing collectives, for example, those institutions often humorous called ‘think tanks’.

  83. Freelander
    May 1st, 2010 at 20:16 | #83

    Re: Stigler and some others. I thought he and some others got their faux nobels simply for being prominent members of the MPS.

  84. Alice
    May 1st, 2010 at 20:36 | #84

    @Jim Rose
    So Jim – can we assume that Friedman delivered us from Telecom and state electricity straight into the hands of Sol Trujillo, higher telecommunications bills and higher electricity bills…and add hours of lost time on the telephone…trying to get their mistakes corrected (and add a telecommunications ombudsman working on a massive flow of complaints) now that wasnt exactly useful was it?
    I dont suppose it ever crossed your mind Friedman had some things very wrong about public services?

  85. Alice
    May 1st, 2010 at 20:39 | #85

    @Jim Rose
    I would really like you to stop the charade of “I see we agree Alice”. So far I have not agreed with you Jim Rose. Would you mind waiting for me to agree…if I see something worth agreeing with?.

  86. Alice
    May 1st, 2010 at 20:44 | #86

    @Alice
    I would also hardly classify Bernanke’s textbook as Keynesian seeing as he grabbed large (and flat accounting type equations) and other slabs straight from Fama and the Chicago school.
    It is just a poor textbook without much detail and without much investment in terms of intellectual rigour, and without many well explained diagrams and without much algebaric expression to explain his models and relative to the general theory…is a tawdry marketing exercise to the modern growing foreign student market.

  87. Freelander
    May 1st, 2010 at 20:51 | #87

    Bernanke was a big fan of the big F.

  88. Freelander
    May 1st, 2010 at 20:55 | #88

    Here is Bernanke speaking to Friedman at Fridman’s 90 birthday do, “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna [Schwartz, Friedman's coauthor]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

    Jimbo in the manner of most libertarians has access to his own ‘facts’ and those ‘facts’ are entirely mutable and liable to change as his argument requires.

  89. Jim Rose
    May 1st, 2010 at 21:36 | #89

    Freelander,

    Bernanke’s essay is an excellent summary of Friedman’s work on the great contraction. Friedman attributed the great contraction to the Fed’s failure to act against banking panics after 1930 to prevent a mild recession turning into a deep depression.

    Keynesians admitted that Friedman got the better of them by the late 1970s. The official surrender ceremony was when Franco Modigliani admitted in 1977 that there were no significant theoretical differences between Keynesians and monetarists.

    What is your explanation for the great contraction and why was the great depression so much deeper and lasted so much longer in the USA than elsewhere?

  90. Alice
    May 1st, 2010 at 22:35 | #90

    @Freelander
    “but thanks to you, we wont do it again”…and all the while they couldnt even see it coming…although in fact they did but only a month or two before the GFC…there was a tiny column in the SMH that said that the UK central bank, in a joint effort with some European CBs and the US Pumped 80 billion in to the banks in a joint monetary stimulus(the joint effort part unprecedented). So in fact your great free marketer Bernanke – student of Greenspan, devotee of the Fama school and obviously fan of Friedman, knew before…but only just and didnt want it warned in the media. Murdoch complied but ran a tiny article.

    Wonder if they placed any bets beforehand?

  91. Chris Warren
    May 1st, 2010 at 23:11 | #91

    I rather like Friedman’s cute explanation of how oppressed third world labour increases employment in America when American business flee offshore.

    According to our economist, its no issue, because when businesses flee America they increase offshore incomes, which means, sooner or later, overseas customers purchase more American goods, so there are therefore, more jobs for America.

    This is the level Friedman is at. See | Friedman Magic |

    In this interview you will also see the standard rant against unions, and the standard rant against the government role countering the Depression.

    So Friedman is an economic poet for the increased exploitation of labor and increased freedom for business. Its an old song.

  92. Freelander
    May 2nd, 2010 at 03:28 | #92

    Jim, it is increasingly clear that nothing anyone says here or elsewhere and no amount of contrary evidence will shake your faith in your chosen religion. Clearly your belief system satisfies some deep need, and while it does you will continue to worship at the Great and Universal Church of the Chicago Collective. That said, everyone here has already heard all of that church’s scriptural texts so your proselytising here falls on deaf ears.
    Do you believe in Magic? Apparently so.

  93. Freelander
    May 2nd, 2010 at 03:31 | #93

    @Chris Warren

    Chris, Milton could always be relied on for a good laugh! Maybe he, rather than Ayn Rand, should have tried his hand at writing novels.

  94. Jim Rose
    May 2nd, 2010 at 07:34 | #94

    Freelander,

    An excellent question.

    You reminded me of Karl Popper’s great question – what evidence would cause you to give up your position? Well?

  95. Jim Rose
    May 2nd, 2010 at 08:29 | #95

    Freelander,

    Correct, I initially posted on the wrong thread. My mistake, sorry.

    As part one of my reply to you, lets start with natural experiments. This is where countries with the same cultures, peoples and similar resources are partitioned for arbitrary reasons.

    These would be East and West Germany, North and South Korea and Taiwan and China. In each case, the socialist solution was left for dead by capitalism.

    In the early 1960s, Joan Robinson got into a dispute with a colleague about the great economic success of Korea. A confusing debate until a listener realised that Robinson was talking about North Korea and the other about the South.

    Soon after, there was a coup. The new South Korean dictator knew nothing of economics, but he knew he was surrounded by the old dictator’s cronies so he fired them all. Before a new lot of cronies got properly in place, the economy boomed.

    Taiwan and Cuba are also natural experiments. Both are threatened with invasion and trade sanctions by large bellicose superpower neighbours. Cuba is a dump. Taiwan changed from a rural backwater to a rich country.

    East Germany was the best run of the socialist economies, but as Kennedy said at the Brandenburg Gate in his greatest speech “Freedom has many difficulties and democracy is not perfect, but we have never had to put a wall up to keep our people in”. I assume you agree with Reagan, as any democrat must, when he said at the Brandenburg Gate, “Mr. Gorbachev, tear down this wall!”

    Joan Robinson developed the greatest ever put down of the socialist solution. She point out that in 1848, the battle cry of the communist manifesto had some relevance – rise up ye workers, rise up, for you have nothing to lose but your chains! She said in 1942 that this battle cry would have to be amended to rise up ye workers, rise up, for you have nothing to lose but your suburban home and your motor car!

    In a nutshell, this need to continually amend battle cries is why the socialist solution, and its watered down versions, are still on the way out, and rather than on the way back in. The superior economic performance of the free market over the long term will always defeat the socialist solution at the ballot box

  96. Freelander
    May 2nd, 2010 at 08:33 | #96

    Those aren’t natural experiments. The use of the term natural experiment is simply to attempt to give sciences cloak of respectability to pseudo-science.

  97. Jim Rose
    May 2nd, 2010 at 09:03 | #97

    Freelander,

    Part two of my reply to your request for hard evidence will address European welfare states. Social democratic policies deliver stagnation and mass unemployment.

    Since the 1970s, Western Europe stopped catching up with the USA in GDP per capita. The gap is now about 25 per cent. Fully one-fifth of the European productivity catch-up with the USA over the previous half-century has been lost over the period since 1995!

    European unemployment spiked in the 1980s into the double digits, so much so that it has taken the worst US recession in the post war period for the unemployment rate in the USA to equal that of Europe in any year in the last 20.

    It took the equally worst Australian and New Zealand post-war recessions in the early 1990s for these countries to match European unemployment rates in an ordinary year. The European welfare states are permanently in what others would regard as their worst post-war recession.

    The gap between European and American incomes is equivalent to the drop in US livings standards in the 1930s great depression. Western Europe is in a long term depression because of the social democratic policies.

    Australia and New Zealand should be compared. In 1986, NZ general government expenditure was 50 per cent of GDP – Swedish levels. The reward – NZ had not grown at all in real GDP per working age person between 1973 and 1992. There was a 30 per cent drop in NZ productivity between 1973 and 1992, with most of the drop in the 1970s. Real income growth per capita returned in the early 1990s as the NZ state sector reduced in size.

    Government revenue and general government expenditure is still both a quarter to a third larger in NZ as a share of GDP as compared to Australia. This price of this is wages that are now are almost a third lower than those in Australia.

    This post has given you plenty of additional countries to compare.

  98. Freelander
    May 2nd, 2010 at 10:13 | #98

    Yes. NZ is a great example of yet another failed libertarian ‘free market’ experiment and the horrible consequences, Iceland, of course, being only the most recent example. Thanks for pointing out that example of libertarian free market failure.

  99. Freelander
    May 2nd, 2010 at 10:16 | #99

    Also a great example of the flexibility all libertarians show. A libertarian example of a miracle economy, once the evidence in, becomes not a libertarian example at all. Just as Greenspan has been disowned now that even a libertarian can see that he mucked up big time.

  100. Jim Rose
    May 2nd, 2010 at 10:26 | #100

    Freelander,

    so you are happy with the mass unemployment and and multi-decade long economic stagnation in Europe? You do not dispute that these are the natural outcomes of the Western European welfare state and of social democratic policies?

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