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Lasciate ogni speranza

February 28th, 2012

In the wake of the Labor leadership ballot, I tried to think a bit about new directions for public policy in Australia. My conclusion, in short, is that there aren’t any. I’ve hammered the point that Gillard is a policy-free zone, and even her supporters haven’t pushed back on this. I have to concede though, that while Rudd’s challenge speech was impressive in many ways, he also failed to produce much in the way of new ideas.

The problem isn’t just one for social democrats and Labor supporters. Abbott is the worst kind of poll-driven populist, and Turnbull, the only person on the conservative side of politics who has anything resembling a clue has been permanently marginalized.

Finally, there’s the policy elite represented by the Fin, the Oz and the various establishment thinktanks and policy talkfests. After thirty years, they haven’t come up with anything better than the tired old 80s agenda of market-oriented reform, competition and productivity, encapsulated in Workchoices, rejected by the Australian public in 2007 and totally discredited by the GFC.

The Greens are the best shot, but under current conditions they can’t hope to do much better than their current role of supporting a minority government and/or holding the balance of power in the Senate. That gives them the chance to make a small number of non-negotiable deamnds (eg carbon price), and to exercise some influence. But in broader areas like economic policy, they remain marginal. Even though they have some good ideas, they aren’t treated as serious players in this field.

The best that can be said is that, as long as the terms of trade continue to boom, the cost of missed opportunities will not be all that great. Australia remains a lucky country, run by second-rate men (and now also women) who share its luck.

By contrast, US politics seems to be opening up to the ideas of the left, at the same time as the Repubs are spiralling off into the Delta Quadrant. All in all, a lot more color, interets and hope than the drab prospects before us.

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  1. Adit
    February 29th, 2012 at 23:39 | #1

    @Ernestine Gross

    Following on, I don’t think it wise to form or take a stance on any national policy using arrow-Debreu methodology since, for aggregate analysis, it is invalid.

  2. Adit
    March 1st, 2012 at 00:16 | #2

    Back to jq’s comment “But in broader areas like economic policy, they remain marginal. Even though they have some good ideas, they aren’t treated as serious players in this field.”

    This is an important point… I get the impression from public debate and my own experience rhat there is a general feeling in the electorate that the greens, while “good” for the democratic process, are ultimately unelectable because they can’t “manage the economy”.

    Even a cursory glance at their policy agenda would reveal that they would do more for the future of the Australian economy than any other party on the ballot. I would like to see the greens speak up more on these “broader areas” and lead the discourse…I think their ideas on these matters would resonate with the Australian public more than fringe (but no doubt important) issues such as gay marriage/meat production/environment…

  3. Ernestine Gross
    March 1st, 2012 at 11:33 | #3

    @Chris Warren

    Chris Warren, I don’t agree with your post @49 p 1
    1. The function you show is not the Cobb-Douglas production function. See http://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function.
    2. The Cobb-Doublas production function is an aggregate production function with only two factors of input. The conditions under which it can be shown that an aggregate production function can be constructed from many (decentralised) production functions are not trivial even if there is no fiat money in the economy. But the application of C-D functions typically involves national accounting data (ie monetary values).
    3. The function you give looks like a compound interest formula to me with unspecified parameter values. As long as n is finite there is not even a suggestion that compound interest implies infinite consumption (even if r is strictly positive).
    4. The assumption of ‘non-satiated preferences’ does not imply what you claim it does, namely “Essentially, orthodox economic theory assumes the infinite consumption of finite resources”. In a multi-period context, non-satiated preferences of an individual says no more than that a person wants to live (and consume) as long as possible.

    Does the term ‘orthodox economic theory’ refer to misunderstandings?

    I realise this post goes outside the topic of the thread in a strict sense. On the other hand, politicians are bombarded with promoters of ‘economic theories’. I felt obliged to respond to Chris’ post.

  4. Ernestine Gross
    March 1st, 2012 at 11:48 | #4

    @Adit

    In reply:
    1. I referred to the Arrow-Debreu model and subsequent work using this methodology (eg up to and inclusive incomplete market models).
    2. The point of me referring to these models was to rebut the claim that orthodox economic theory assumes infinite consumption.
    3. The models referred to in 1. above are analytical models. Policy makers seem to look for prescriptive models.
    4. “Aggregate analysis” may be the problem.

    It seems the problem is with the term “orthodox economic theory”.

    PS: Regarding the boundaries of the thread as @3, p2.

  5. Charles
    March 1st, 2012 at 19:37 | #5

    You know John your part of a great Australian tradition, the great whine.

    So every body does nothing and your not going to vote etc. and so on.

    In the end it all gets very dull.

  6. Freelander
    March 2nd, 2012 at 03:23 | #6

    To expect policy leadership from politicians in the moderndemocraticc era seems a forlorn hope. Increasingly the specialization required to rise above the other scumm seems to now make the likelihood that they have capacity for creativepolicy thinking remote.

  7. Chris Warren
    March 2nd, 2012 at 08:09 | #7

    @Ernestine Gross

    Its amazing how pundits in the blogosphere head-off in all manner of weird directions.

    1. I never said that (1+r)^n was Cobb-Douglas. I would have hoped that people would have had enough knowledge to see immediately that Cobb-Douglas only makes sense in you assume infinite consumption. How else do you allow for constant returns to scale if profits are reinvested?

    2. Whether this is an aggregate production function is irrelevant.

    3. (1+r)^n is a standard production function used, for example, by Piero Sraffa, in “Production of Commodities by means of Commodities”. Even as an function of interest it still implies either infinite consumption, infinite inflation, or declining r [Marx's point].

    You cannot have a interest function without a prior production function, and the interest function can not contradict the production function.

    4. People wanting to consume as long as possible, in terms of commodities, is the same as consuming as much as possible.

    I am dismayed at the lack of rigor displayed by those who seek to practice “orthodox economic theory” or Keynesian practices in the long run. They run the economy into a debt-ridden bog and eventually into a GFC.

  8. Ernestine Gross
    March 2nd, 2012 at 20:49 | #8

    @Chris Warren

    My reply is on the sandpit

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