A journey of a thousand miles begins with a single step

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.

120 thoughts on “A journey of a thousand miles begins with a single step

  1. 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.

  2. 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.

  3. 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.

  4. 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.

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

  6. 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.

  7. 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.

  8. 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?

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

  10. 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.

  11. 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?

  12. 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.

  13. 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.

  14. 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.

  15. 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.

  16. 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.

  17. 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.

  18. 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.

  19. 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.

  20. 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”.

  21. 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.

  22. 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.

  23. 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.

  24. @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.

  25. 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.

  26. @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.

  27. 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.

  28. @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).

  29. 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’.

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

  31. @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?

  32. @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?.

  33. @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.

  34. 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.

  35. 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?

  36. @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?

  37. 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.

  38. 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.

  39. @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.

  40. Freelander,

    An excellent question.

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

  41. 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

  42. 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.

  43. 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.

  44. 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.

  45. 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.

  46. 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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