Following last week’s stuffup, when I thought I had posted, but didn’t, this purportedly regular feature is back.
It’s your chance to make comments on any topic of your choosing, to be written and read at the leisurely pace of the weekend. I welcome pieces a little longer than the usual comments, but not full-length essays. If you want to draw attention to something longer, try an extract or summary with a link. As usual, civilised discussion and no coarse language.
John Quiggin 
Will Australia’s exports fill the void left by the end of the domestic housing boom?
Is Peter Costello’s reference to a resources boom just a plugging of the gap.
One informed reference. A blogger’s opinion.
Me thinks the economic void will open up.
My present coming-into-work lookup blogs are Matthew Yglesias, Mark Kleineman, and John Quiggin. Which leaves an obvious gap; can anybody out there refer me to a good blog by somebody named Luke?
I also take Brad de Long, but I don’t want to complicate the issue.
Why Economic Rationalism (ER) is not understood in the community
In 1985 the late Leo Dunbar published an article on the Austrian School of economics in the now defunct Melbourne Age Monthly Review. Dunbar was an avid customer at the bookshop run by a small and transient libertarian think tank in Sydney which distributed many of the standard Austrian texts by Mises, Rothbard, Hayek, Kirzner et al.
His article, The Austrian Key, was left in my hands when Dunbar returned to England and it can be found on my website.
http://www.the-rathouse.com/hayaustriankey.html
The article sketched the background of the Austrians, especially their deviation from the neoclassical equilibrium analysis to emphasise the pervasive uncertainty of economic events, the role of the entreprenneur and the tendency of all people to make the best of their situation given the circumstances and the incentives that we are offered. Dunbar sketched the rudiments of the program of economic rationality or de-regulation that followed from the tenets of the school and he summarised some of the local work that had been done along those lines to contribute to the debate on reform. He especially emphasised the welfare benefits of the ER program in terms of lower prices for consumer
goods and increased employment opportunities.
He noted that the early stage of the debate was confused by four groups of people who were largely responsible for the almost universal mis-understanding and suspicion of ER. Not much has changed in the two decades since that piece was written although the most damaging do nothings have quit the scene. The four groups are:
1. The ‘do nothing free marketeers’, especially Malcolm Fraser and Joh Bjelke Petersen who mouthed the slogans of free enterprise but did not open up markets or dismantle controls and regulations. Fraser was supposed to be something of an intellectual, a reader of Ayn Rand, no less! In fact he had no intellectual grasp on the issues at all and his term of office was doubly destructive because the continued failings in our economic performance was widely attributed to the very policies (of dryness) which he resolutely resisted in his own Cabinet.
2. Economically illiterate conservatives. The academic paradigm is Robert Manne,who proudly announced his ignorance of economics in an early collection of papers on the new conservatism. They do not pretend to support free enterprise in a thorough and consistent manner though they do claim to oppose socialism, often resulting in strange postures like the rural socialists of the Country Party. The Liberal wets may belong in this group although some of them thought of themselves as progressives rather than conservatives. Lacking understanding of the issues these folk, conservative and progresive alike, made no useful contribution to the debate on economic policy but they made life almost impossible for John Howard in his first spell as Opposition leader and they delayed essential reforms in the Coalition parties.
3. The Hawke/Keating team of reformers, the ‘Labor dries’shared many aims of their Liberal counterparts but they polluted the public debate by their severe criticism of the so-called New Right and their refusal to give credit for the support that they enjoyed from the Opposition. This meant that the best communicators in the nation did not contribute
to a wider understanding of the need for the reforms that they implemented, plus the need for more to be done, especially the need for serious reform in industrial relations. The reticence of the Labor dries is understandable given the need to placate rival factions, win elections and retain their traditional supporters but it was a disaster for the education and enlightenment of the community. It contributed to an amusing situation where the Liberals in NSW won a landslide for the Greiner administration on the back of community concerns about the Federal program of deregulation.
The downside of this failure in communcation is that the ALP now has difficulty in getting a fair share of the credit for any good economic news that arrived after they went out of office.
4. The left generally has not risen to the intellectual challenge of the economic rationalists, with honourable exceptions such as our genial host. For the most part the critics have circulated misleading rumours,with generous quantities of personal abuse. Because I was in contact with people who regarded the New Right as a mortal enemy I resolved to find out more in order to provide a more effective defence. Exploring the literature of the ERs and their critics was a remarkable experience. First of all it turned out that the humanitarian intentions of the reformers are not in question, contrary to the impression conveyed by the abusive language used by most critics, supported by selective quotes from fringe characters like Ayn Rand. It is not helpful to think that ordinary, decent people in business and non-Labour politics harbour sinister and malicious intentions towards the sick, the poor and the disabled. Second,it appeared that most of the critics were not reading the primary materials of the ERs; the overwhelmng majority of references in books like the early Ken Coghill collection and the Pusey productions are commentaries and criticisms generated by other critics. Thirdly, the more I learned about the history and political economy of the Industrial Revolution, the rise of the trade unions, the Great Depression, the New Deal etc etc the more credible the ER account appeared, at the expense of the standard leftwing stories which most people have learned as the orthodox account, so they are usually accepted without question by radicals, conservatives and people in the street alike.
This is a disappointing state of affairs, especially for those of us who thought back in the 1960s that the expansion of higher education would lead in the direction of a brave new world of learning, with sweetness and light spreading in all directions through the rollback of ignorance and folly. Something has gone wrong. How did so many people in the universities abandon the disciplines of scholarship to become agents of divisive and destructive ideologies? What is to be done?
After the Australian, Afghan, American and Ukrainian elections, the next big event is, of course, tomorrow’s double referendum in Hungary, on the privatisation of hospitals and the granting of citizenship to ethinic Hungarians in neighbouring countries.
On the privatisation bill, the Socialist government is advocating a NO vote. And the rightwing opposition advocates YES. That’s straightforward enough. Until you find out that actual question is: do you want to ban further privatisation?
In fact, although the ruling party has roots in the communist regime, it is nowadays socialist only in name. Together with its junior coallition partner, the Alliance of Free Democrats – it pursues a pragmatic, technocratic, economic rationalist program, except when it decides to prime the electorate with allowances. Like most centre-left European governments, this one is a globalising, Hawke-Keating type government, that knows it can’t revitalise the health system without private capital.
The referendum was initiated by the tiny left wing Workers’ Party, on behalf of the Health Employees Trade Union. But the YES campaign was soon taken over by the main opposition party FIDESZ, a media-savvy outfit that stresses patriotic and economic nationalist themes, and above all knows a popular cause when it sees one. The referendum campaign has been bitter and divisive, with both sides resorting to crude scare tactics. The same highly charged atmosphere characterised the 2002 election campaign, when FIDESZ narrowly lost to the Socialists. Miklos Harasti of the Free Democrats expresses the view of many Hungarians when he argues that the polarisation of their politics owes much to the aggressive style of FIDESZ leader Viktor Orban, and in particular his refusal to distance himself from the far-right MIEP party of Istvan Csurka. But the Socialists, whose ranks still include a few old communist apparachiks, are not incapable of populist scare-mongering either. After the last election Harasti said:
Friends of mine will boycott the referendum, on the grounds that neither issue should be settled in this way. The elected government should be allowed to pursue its health policy. The citizenship issue, initiated by the World Federation of Hungarians, and seized upon by FIDESZ, is far too complex to be reduced to emotive formulas. For example while it might be a fine gesture to give passports to Romanians and Slovakians of Hungarian descent, should they be entitled to collect benefits and vote? Originally the government adopted the wisest course and advocated a conscience vote, but eventually decided to oppose the proposal and was drawn into the acrimony.
As I understand it, for a referendum proposal to be carried requires not just a majority of votes, but a minimum of two million votes in total. On this basis neither proposal is likely to get up, but the opportunistic Orban will have got what he wants.
I apologise for being so perfunctory on an issue that’s dounbtless been keeping you all awake at night, but anyone with a burning desire for more on this can find it here and here.
Just a very brief response, Rafe, since you went to so much trouble. I think most people who read your essay will find that’s it pitched at too high a level of generality invite a response. Of those people who are happy to call themselves economic rationalists, only a small handful would have the vaguest idea what Austrian economics is about. Aside from a few platitudes about uncertainty, entrepreneurs and so on, and a link to your own website, you don’t give much insight. So they’ll be happy to go on being neoclsssical economic rationalists. As for the rest, the response is likely to be: well, you’re a self-proclaimed fan of Austrian economics – you would say that. If you want to get a discussion going, perhaps you need a few striking examples of how Austrian theory offers a better insight.
I think Rafe – and Dunbar – are correct to identify the perception that the Austrian school is uninterested in welfare as a reason why many people are put off them. I am glad I read the essay because it helps to put a human face on those economists and their followers. It would help still further to see more evidence of willingness on the part of Rafe and his libertarian colleagues to expose and denounce: anti-competitive practices by big business, which include the lobbying of governments for protection; the abuse of market power to procure sweatshop (ie unfree) labour; resort to untruths and devious practices to evade responsibility for damage to public health and the environment.
Replying to James, this is not really the place for a serious exposition or defence of Austrian economics, I thought the Dunbar piece was just about enought of that.
He identified the four groups who screwed up the debate on economic rationalism and that was the point of departure for my statement. Namely, ER has not been understood by its critics and was not adequately explained by the Hawke/Keating administation which started to implement some of the ER agenda.
Thanks to Paul2 for some encouraging comments. It is not possible to say everything that needs to be said about a complex topic at the same time. I am more than happy to lambast corporate welfare and dishonest actions by corporate leaders. In the US nobody has been more critical of Reagan and the Republican party than the Austrians in the Mises Institute and the libertarian groups at large.
Another Dunbar manuscript that I have published is a review of the first volume of H R Nicholls society papers where Dunbar pointed out that the collection, which was critical of the wage fixing process, should have been prefaced by an introduction that identified corporate welfare, esepecially tariffs, as an equal part of the problem, not just the industrial courts and the trade unions.