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John Quiggin 
On Kevin’s rejection of neo-liberalism
According to Henry Ergas
/ Is it Mr Rudd’s claim that the answer lies in the social philosophy of John Maynard Keynes, who he repeatedly cites and seems to take as a mentor? Although Keynes was a complex man, of wide interests and extraordinary capabilities, his views as to the nature of the good society were a jumble of aestheticism, 19th century liberalism and at times, unabashed collectivism. As Mr Rudd says, Keynes wanted to save capitalism from itself. But key to this, he thought, was to drive down the return on savings to the point that would cause the “euthanasia of the rentier”, so that an individualist society could flourish shorn of its “Jewish” features, “the exaction of usury .. and the love of money”, vices he saw as the central flaws of capitalism and as inextricably linked with “the race that has done the most for the principle of compound interest and particularly loves this most purposive of human institutions.”6 Whatever Mr Rudd’s social democracy may be, it is difficult to believe that this is what he has in mind.
Or is Mr Rudd referring to Keynesian economics, stripped of those unsavoury (yet important) wider connotations, which set Keynes so far apart from Hayek and the Chicago economists? /
http://www.ipa.org.au/news/1809/the-crisis-and-beyond
I was tempted to post this under Godwin’s law as it at least comes close, but there appear to be some black-and-white thinking going on here? Alas, I don’t have Skidelsky’s Volume 2 to confirm the footnote source (just 1 and 3!) It appears that Hayek and the Chicagoans were much more savoury…
So the Dow is now down to 50% of peak.
Does this mean that lots of stop/loss & margin calls will be called, so it is likely to be an interesting night, or will it mean nothing in particular?
Why would anyone want to hack into the QUT supported ‘Media Culture’ site and delete all the reviews?:
http://www.media-culture.org.au/
How close is “euthanasia of the rentier”?
Seems like this anglo obsession with not being obsessed with Hitler has become obsessive. For a lot of jews it is a reality not an obsession.
John, it seems like Rees is on top of the climate change debate for today the government announced a plan to encourage renewable energy projects in NSW. Now that is what I call having a red hot go. Thumbs up Rees.
Keynes was far more complex than most people believe. In the truest sense he was a political economist. Not in the “I’m a lobbyist for someone who pays me money”, rather he understood the nexus between people’s attitudes, behaviour and the economy far better than anyone who had preceeded him, and (sadly) far too many since.
He was also intellegenmt and far sighted enough to ask real questions like “what do we all do when we have enough?”. “What sort of society do we really want?”.
Yes, he was an unembashed Liberal, in the truest sense. He believed in freedom and a reasonable sane and balanced society. he was a realist, in the sense that he understood the limits of what societies can deal with .. and the dangers of collapse and possible totalitarianism. In his time he saw democracies going out of style faster than the demand for male stockings.
He also, in many ways, predated cognitive pyschology (and its impacts on economics), his original thesis was on how people deal with uncertainty. He made money and lost money, giving him a hard understanding of how investment markets really work.
All in all a fascinating man, who would, today, be offering unique, workable solutions to our present day porblems. And would be horrified at currently being seen as one of those “dead economists” he always warned about.
Re 1, 4 & 6
What debating strategies work against someone like Ergas? I’m thinking both in print and in verbal debate. Perhaps John has experience both with Henry and those like him.
The specific points he makes are correct (I’ve found vol. 2!) though rather selective (duh!) Ergas is intelligent and well-informed in important ways. Sneering at him won’t work.
Does one let the provocations pass? (Later in his essay he cites Myrdal and alludes to eugenics and sterilisations, by the way.) Does ignoring them imply agreement? How does one deftly deflect them? There has to be better than “Keynes reflected views commonly held at the time.” But can one really say: “Well, the Jews (rightly or wrongly) in fact have been associated with those views for 2000 years. What’s your point, Henry?”
I suppose it’s like trying to deflect: “But Jefferson had slaves, and had a child by one.”
Henry’s views on social democrats amounts to regarding them as bureaucratic, socialistic, unsavoury and well past use-by. Of course, some/many imprudent welfare-statist social democrats have let enthusiasm override what the wider culture and the economy can sustain, just as neo-liberals have.
Maybe the political arena is like a blog: you aren’t going to convince your principal opponent; your goal is to sway those in the audience open to persuasion. But how to deal with Ergas?
Advice please.
Ergas is a microeconomics specialist (nothing wrong with that), but from a school of thought that rejects any kind of macroeconomics that doesn’t have a microeconomic foundation (e.g. Keynes).
Krugman posted something about this just today.
Ergas goes beyond ignorance, however. He’s trying to come up with reasons why Keynes should be ignored even if Keynes was correct, e.g., Keynes was anti-semitic.
Krugman gives some more background here.
Bruce,
Given Rudd’s frequent changes of economic position over the years I do not believe he has more than a little idea of what he was writing about – if, indeed, he wrote it (I would be inclined to believe it was a staff member). His criticisms of “neo-liberalism” therefore ring hollow to me, but then, so does he. I have little doubt that if the current situation were different he would be out there waving the flag for free and open markets and possibly less control over everything except for the (purely incidental of course) need for more tax revenue and maybe a little bit of knee-jerk populism, like our esteemed former Prime Minister was guilty of.
What I find interesting in all of this is the simple fact that he has made no specific policy offerings at all. The philosophical viewpoint he gives (whether it is his or not) is empty of any real content. When he nails his colours to the mast in this way they are revealed for what they truly are – vacuous in the extreme. Hollow man indeed.
Oldskeptic #6 I have a lot in common with you Oldskeptic. Once again I find myself in agreement. The problem with great dead economists is that live economists misinterpret them and they are not around to defend themselves.
Andrew, if Bruce is a libertarian, your argument is just preaching to the converted. If he’s not, then what you’ve said will just look like made-up nonsense, of the kind that he’s trying to refute.
As for the great dead economists, no one mentions them in their courses since the texts became dominated with the two dimensional market model. Fine, but could students have something interesting to know before we teach them this? How about Australian economic history? How about the history of economic thought (yes, all those wonderful but dead economists). You know you give students a bit if that and what do they want? More of it. For the powers that be that are supposedly trying to attract more students to the profession, you are doing a woeful job. Mic and Mac deters a lot without the understanding of economic philosophies and philosophers. Fany a subject cant teach its antecedents. How ridiculous is that? Where is our pride. Even accounting can teach about Paciollo (check spelling). We, in short, are boring first year students so much that they dont choose an economic major and accounting has been winning for 15 years. Where is our pride?
The dow at 7500 or so is on its long run average. It could go below, given the correction.
“Even accounting can teach about Paciollo (check spelling).”
Alice, don’t ever do this again.
You are sitting in front of a computer. It takes a second or so to google “Paciollo” “accounting” and come up with “Pacioli”.
It makes you look like a fool, which I’m still assuming that you aren’t.
SJ – so sorry. Unforgiveable I know. It does take a second, you are right.
Ergas is stranded. His mental engine has seized up. He’s been driving the “Neoliberal Freemarket”, a giant SUV which has blown its head gasket. Only he can’t see it. He’s still crooning over the beautiful paintwork of the inert monster. Poor man, he cannot accept that his favourite mental model is now scrap.
Have pity on him. He has devoted his life to an illusion. He is grieving. His statements are valediction by denial.
Alice, thanks for the comment, we seem to think along similar lines (and have similar speel chicker issues).
But a 7,500 dow? Lower if you factor in long term averages of 6-10 p/e ratios (depending on the company/industry) and lower earnings (zero in many cases of course).
Here in Oz, I expect under 3,000 sometime in the near future. We’ve barely started on the profit downgrades/losses/dividend cuts so far.
re 17# How much lower do you think is the long run average for Dow Oldskeptic?
when I did my incredibly simple ‘Where would the ASX/AllOrds be if the nutty bubble stuff didn’t happen’ about a year or so ago I got 2800 as the point at which to start thinking about buying.
No idea on the Dow
Andrew Reynolds,
the fact that Rudd may not be a total enthusiast as to the obscure mechanics and self defeating esoterica of economic rationalism, does not therefore invite the gratuitous leap in imagination that requires him as lacking in, or a philosophy, including a general economic one.
Quite the opposite. The intriguing suggestion you effectively pose indicates the advancement of his philosophy likely beyond the self seeking and self referential dogma and ideology of neoliberalism.
Unlike Ricardo, Malthus, Sue Morphett, Bounderby, Des Moore, Ralph Nickleby, Wackford Squeers, Volcker, Gradgrind…
Hollow (and noisy) souls, indeed.
I saw AIG has posted a US$62B loss overnight, and requires another US$38B assistance. So we have zombie insurance companies as well as zombie banks. The only way their clients will get claims paid is if the government gives them the money. But they are “to big to fail”.
To me this highlights another area of regulatory failure – non enforcement of anti-monopoly laws. We only considered monopolies bad if they might raise prices, but haven’t considered the downside if they collapsed. We should. No company or industry is immune to the risk of failure and stupidity. Its something the financial world went long on. Also, why don’t prudential regulators pay more atention to insurance companies? We learnt some embarrassing lessons here after the collapse of HIH. The regulator (APRA?) knew nothing about insurance.
Further to 21 above, I am not trying to muddy the waters or take away from JQ’s excellent posts on other causes like the credit rating agencies. But if we are going to examine the system and fix it, we should do it comprehensively. So looking at the idea of monopolies in general seems to me a good idea. When they are “too big to fail’ we should make sure they have strict rules to follow to prevent it happening. If thats impossible then we shoudl limit market shares to manageable chunks.
Paul,
I am not worried as to whether Rudd is a “…total enthusiast…” or not. The point is he either does not understand what it is he (or someone on his behalf) is writing about or he does not care and all he wants to do is burnish his intellectual credentials for the way he wants to lean this month.
You will note that, while he has been criticising a strawman version of a neo-liberal he has been very careful not to actually say what it all means in any concrete fashion. This means that he can look like he is “on message” with whatever part of the populist political spectrum he needs on side, but does not actually tie him to anything or anyone.
That’s hollowness, Paul. Hollow, with barely some skin to indicate that there should be something there.
Yes, Andrew, I know (sigh). I just hope the poor bugger, on a steep learning curve, doesn’t hedgehog up into a ball and give up.
You just don’t want to see him retreating any further into his own preconceptions, beyond retrieval behind a staff firewall after seizing up thru overload and becoming a cipher for those he’s surrounded himself with.
Stepford country?
Frankly the whole world looks a bit Titanicky at mo; you wonder where it will all end up, when it all looks like s’thing out of a Hieronymous Bosch painting.
paul,
I would think he is already there.
To be frank, and I was never a great fan of our former PM (although I voted almost uniformly for them), I think that the fact that our government debt declined enormously under the Libs has given us the breathing space that almost no one else has got. That and the fact that our regulators and legislators never got too involved in trying to run the banks, as happened in the US.
25# the only problem I have with the “great decline in government debt” under the former government is that it came at the expense of asset sales, infrastructure decline and dont ever forget it allowed the aggregate of states and local governments ton remain in deficit. We all feel the pain of that so called great surplus, down here on the ground at local and state levels, but the benefits were mostly set aside for cwealth public service superannuation protection. No other country dedicated their version of the future fund to that sole objective.
Alice: Oversheet down then coming back again to a more stable long term average (though probably quite volatile aorund the mean)?
Factor in, say 20% of Dow members going under in one way or another (or just becoming too small to be part of it).
The 20%? Taking out: Amex (gone/shrank/takeover), BoA (gone), Citi (gone), GM (gone), Home Depot (gone/shrank), JP Morgan (probably gone/merged/shrank), Verizon (ditto), maybe UTC and Boeing (if the 787 fails then it is over for them in commercial aviation, defence work is too small for them to make the grade).
P/e’s are still too high, so even on current earnings there will be a 20-40% drop, then drop earnings to 50% of 3-4 years ago.
3,500-4,000 roughly, possibly 4,500 though I see that as unlikely, but it could happen depending on the replacements for the gone/shrank/takeover/merged/etc group and what their industry mix is. If they ‘fiddle’ the mix, by replacing the gone group with companies that will do reasonably well (health/pharama/oil/etc) then it could be in the upper regions.
As for Rudd, Dudd as I called him last year in Larvatus Prodeo … and got howled down. Now I shorten it to just KRudd.
Neo-liberal apparatchik. Boasted during the election that there was ‘nothing between himself’ and the Liberals on the economy .. and then proved he was worse in his first budget. CSIRO cut, dividend withholding tax cut, (forgot the other nasty he slipped in).
Since then he has distinguished himself by:
(1) Coming out with an emissions trading Scheme so bad it made Howard’s idea look good (and yes it really will punish rail vs road transport).
(2) Killing solar power dead, the last PV manufacturer is pulling out of the country.
(3) Killing about the only useful thing done for Aborigines in the last 20 years, the CDEP scheme.
(4) Maintaining suspending the Racial Discrimination Act, so that we can lawfully discriminate against Aborigines. (Any chance of another ‘sorry’).
(5) Oh why go on, the sad sorry list is awful.
The National Security State is still here .. and they want to censor the Internet. Our boys are still dying for some g*dforsaken reason for some mad idea, etc, etc, etc, sadly etc.
I actually detest KRudd more than Howard … because at least with him there was always the hope that eventually we would get someone better .. we didn’t.
Now we are in Australia’s greatest crisis since the Great Depression and WW2 (repeating history no less) and they have no idea what is going on.
Re Oldskeptic #17 and Alice #18. When the dotcom bubble collapsed and with the help of Shillers ‘Irrational Exuberance’ I crunched some numbers on the back of envelope, the long term numbers suggested DOW about 4600 and the S&P at about 560. this is neither advice or prediction. That gives an ASX of about 2400. Nearly there.
MH: I’d agree normally, but company earnings are going to be so depressed for such a long time that I still bet on the lower level, though maybe after a few bumps on the way (either too high or low).
So many, even in a Depression quite profitable, companies in the US will take ages to dig themselves out the debt hole they have dug (GE for example).
Thinking about it a bit more, the one ‘black swan’ in this is debt cancellation. If by Govt action/order a lot of private/corporate debt gets cancelled (the Steve Keen controlled train wreck scenario), then profitability (and hence p/e) could kick up more after the initial shock, moving into the 4,500 region.
Trouble is that I don’t think they will do that until it is far too late and the damage is already done (translated: far too many people and companies go under).
It resonates, Oldskeptic.
No doubt John will post on it, but for some rich entertainment look at the letter in today’s Fin Review from Standard & Poor’s responding to John’s article.
“Ratings do not … replace the need for investors to do their own risk rating” – really? Then what purpose do your expensive services serve?
“We … acknowledge that many of the forecasts we used in our ratings assumptions of certain United States structured finance securities have not been borne out” – this ranks with the famous opening of Hirohito’s surrender speech (“Developments in the war situation have not necessarily been in Japan’s favour …”).
Indeed, I got some quiet amusement, even more so from the observation that Standard & Poors do not “threaten” state governments with the loss of their AAA ratings.
Sorry not to see any discussion of the BrisConnect-Bolton fiasco. BCS is now suing Bolton and has put the timing of the meeting Bolton has called further into the future, thereby making it much harder for him to hold the meeting to expose the high probability that BCSCA units have negative value. Why are the mainstream media ignoring this miasma of conflict of interest, poor business models etc.?
Re 32 and 33: Beautiful.
The Bradley reforms – to me it looks like Uni courses will become popularity contests and that the lives of academics will become even more determined by quality control reporting to bureaucrats with no idea whatsoever of more or less anything other than the generation of and adherence to reporting mechanisms.
For those enamoured of ‘quality audits’ I am reminded of the one done for a Uni I taught at where it was reported with dismay that some courses had scored below the university average on some indicator – I kid you not.
Nanks, most people are unaware that they have an above-average number of legs. Statistics is simple and profound and therefore difficult.
John, for all the bad news around some good news. According to the the latest reports some 11-and-a-half billion litres of water has been returned to the Darling River in the last couple of weeks thanks to Penny Wong & Carmel Tebbutt doing the wright thing and buying up Toorale Station. Thumbs up.
#37 I discussed BrisConnect here but haven’t been able to find out much more. I suspect lawyers are keeping people quiet.
Minack nails it on the Australian economy here: Morgan Stanley strategist Gerard Minack joins 7.30 Report
We need to hear more from Minack, and less from Bill Evans, Craig James and the other permabulls.
Oldskeptic @ 27: Love your list of gone/shrank/merged Dow components. I was going to add AIG but they already dumped that dog in September last year: Historical components of the Dow Jones Industrial Average
Oldskeptic*27 Me too Oldskeptic. Love it. Just keep sorting them into the gone/shrank/merged/takeover/terminal Dow components and keep me updated.
Nanks#36. When unis are trying to pile 40 in a class with an inexperienced teacher (casual and probably a new grad) and you say the Uni gets dismayed at courses getting below indicator values?…. Well they might wonder why students get ticked off. More are working full time, paying high fees, get crammed in like sardines and they know it and it shows in feedback. As if the unis really care Nanks. Many of them subcontract teaching and many academics avoid it completely and are instructed to avoid it. MacUnis have arrived in the teaching function, and they use brand new grads to teach and rotate them every year when the poor kids cant survive on the salary and leave. Is that not the reality (or am I just being too cynical)?
re#43,
laughable when a tute group trying to discuss something complex has thirty people attending rather than the ten or fifteen of a decade ago.
Risable when you go the library for an essential text and forty of fifty people are scrabbling over maybe half dozen copies at best.
Sad when you can’t get in touch with your tutor because she has so many others to see in a day, on the limited time she is on premises whilst not fulfilling obligations elsewhere, or marking papers because auxilliary staff had been cut.
Marvellous people, almost to a person, lecturers and tutors, but you wonder at the penpushers, politicians, right-wing journalists and ideological axe-grinders who can’t or won’t use logic, playing on public ignorance and prejudices to acidentally or deliberately knee cap education.
Education is the sole hope of civilisation, including our own post industrial economy, in a world ecologically challenged that must work out complex cognitive and material changes quickly.
Paul@ 44 said
“but you wonder at the penpushers, politicians, right-wing journalists and ideological axe-grinders who can’t or won’t use logic, playing on public ignorance and prejudices to acidentally or deliberately knee cap education.”
Oh but Paul, you see there have been efficiencies to be gained in the teaching function at universities and they have been ruthlessly ferreted out and applied over the past 15 to 20 years. Its more effficient to fill a lecture room to standing only point, and now to fill tutorials to the brim. The endless stream of new grads can be recruited to teach students a year or two under them before they get a real job. As the students and the marking and the emails pile up, with time for consultation with tutors not paid, I wonder students find anyone to talk to one on one. There is only the Lecturer co-ordinator who is somehow supposed to also be researching, but now deals with the admin co-ordinating of double or more, the student numbers of 7 years ago, with no fractionally employed assistance, and deals with the bulk of the procession of students and enquiries. Oh, and in all this only the enterprise agreed pay rises (not a cent more for doubling class numbers and burying tutors in marking, diminishing their marginal pay further).
Uni administrators object to casualisation of the teaching role? No, the ferrets just love it.
The sad truth for many uni students is also that the research “output” of unis (publications) is being tallied and advertised each year as evidence of the higher quality of their academic staff over a rival institutions academic staff, precisely in order to attract more students. Students think they will benefit by being taught by the academic producers of such research output. In many cases they wont. It is a form of “bait and switch.”
John, one must feel sorry for Turnbull for today the ultimate party spoiler has really bucked up the Coalition and whatever chance they had of winning the next election for up until two weeks ago Turnbull was wright on cue in taking the fight up to Labor over ‘exports’.
Alice@49 the research component is vital for teaching any area of dynamic growth at higher than basic undergrad. For example, it would be extremely difficult for a university to teach neuroscience (or any science for that matter) at all but the most basic undergrad level without input from staff who maintain an active research program.
Whilst teaching is obviously valuable, the trend to substitute training for education is lamentable and rides on the supposition that universities are primarily about transfer of extant and well defined bodies of knowledge. Such a vision is essentially bureaucratic and 19th century in its epistemology, with the notion that phenomena and their relations are both denumerable and computable – ie the future can be derived with certainty from the present.
Nanks,
Of course I understand that the research is vital for universities but I question, like the drive to short term share rewards in companies, a lot of research these days has a decidely short term profile. Are there sufficient incentives for the big studies? The longer term studies? Research aside, I think many major public universities now treat undergrad students like absolute rubbish and treat the Lecturers and tutors who teach the students like dirt also. Happy to take their money though Nanks. Its only a matter of time before one of them sues. They are down there in the crowded sausage factory bringing in the money that helps pay for research. Uni admins are rubbing their hands together in glee at the thought of the revenue streams from students, whilst dishing out shoddy services and third world learning environments, still clinging to their old fashioned notions that research matters above all else. The students get better services in a private college I work for also (3 hour lectures, one hour tutorials, no more than 50 in a lecture and no more than 25 in a tutorial), and this private college is not doing too badly either (oh and seeking accreditation).
Unis need to wake up. If they want to charge students a lot as they do these days, they had better thing about the service they deliver. Since 1990, (when students were charged very little) Ive watched the classroom do nothing but grow in numbers and with less personal services offered to students (VSU in no small part to blame for that but you cant blame VSU for classes stuffed to the hilt).
Or is it all about greed in universities as well? A microcosm of the financial markets?
Nanks,
One glaring thing I see is that unis have been happy to take all these additional students from everywhere in the world over the past 15 years added to local demand. That is great, and I have only one problem.
How about a few more rooms ??? (Not much to ask).
Add a few more Lecturers and a few more tutors as well.
How narrow and lacking vision is the dearth of investment in the capital needed to accommodate the increased student numbers when, as advertised by Ms Gillard recently, the growing education export market is supposedly valued and is projected to increase further.