While most of my blog readers like my analysis, the same can’t be said for the economics profession in general, let alone the so called market economists–mainly but not exclusively Chief Economists for banks (I would be curious to find out what their own “internal press” looks like!). This page will record some of the negative press I’ve received as a result–and also comments, such as ex-PM John Howard’s recent comment, that argue this isn’t a major crisis.
It should prove an interesting litmus test over time. If I am wrong, then these commentators can bask in their own “I told you so” moments. And if not…
Priceless
I’ll keep a permanent record of outstandingly bad predictions here, and a rolling parade of attacks, gaffes and “it’ll all be over by Christmas” predictions in “Run of the Mill”.
The piece of cake here has to go to Gerard Baker of The Times of London on January 19, 2007:
Welcome to ‘the Great Moderation’ Historians will marvel at the stability of our era.
“Economists have coined a term for this remarkable period of stability. Taking their cue from the Great Depression of the 1930s and the Great Inflation of the 1970s and 1980s, they have called the current era the Great Moderation.”
And second prize goes to Ben Bernanke himself, for a speech he gave in February 2004 on the same topic:
“My view is that improvements in monetary policy, though certainly not the only factor, have probably been an important source of the Great Moderation. In particular, I am not convinced that the decline in macroeconomic volatility of the past two decades was primarily the result of good luck, as some have argued, though I am sure good luck had its part to play as well. In the remainder of my remarks, I will provide some support for the “improved-monetary-policy” explanation for the Great Moderation…”
Of course, Ben has more than just one reason to be nominated here. Who could forget his “On Milton Friedman’s Ninetieth Birthday”:
“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: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
or “Deflation: Making Sure “It” Doesn’t Happen Here”:
“Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.”
Adam Carr, senior economist at ICAP Australia, Business Spectator. MAKE AUSTRALIA WORK: Forget the deflation bogeyman. I expect this argument will prove to be an excellent example of the proposition that there is nothing more dangerous than a bad theory–and that people who have a bad theory, a.k.a. economists who believe in “neoclassical economics”, helped cause this crisis and then have no idea of its severity, or how to fight it. My next Debtwatch will argue that calling our financial system a “fiat currency” one is akin to the parable of the blind man deciding that an elephant was a snake when he felt its trunk.
Fatalists will pipe up that the world is littered with deflationary episodes and that, indeed, is the truth. For instance, during much of the 19th century many nations experienced deflationary periods and prior to that, history shows that prices were just as likely to increase as decrease. Yet there is one fundamental difference between those periods and now – money isn’t backed by anything, such as gold or what have you. In other words, money has no intrinsic value and this is called a fiat currency system.
In this current crisis, if the US monetary base was shrinking and the Fed was doing nothing about it, then deflation may have some credibility. Yet the Fed isn’t doing nothing – interest rates are at zero and ‘credit easing’ is in vogue. The US monetary base has consequently expanded at its fastest pace in modern economic history.
That being the case, it seems to me that the greatest error the RBA could make right now would be to cut too aggressively and so be ill-prepared should the economy (global and domestic) turn out to be stronger than everyone is forecasting.
Think back to the conversations we were all having this time last year. Everyone was forecasting a stronger-for-ever Chinese growth cycle and permanent inflation pressures. That consensus was wrong last year and while things are very uncertain now, it’s not beyond the realm of possibility that the consensus is wrong again. The consequences of this are very serious and would necessitate a destabilising series of rate hikes as the pendulum again swung to inflation hysteria.
February 20: John Howard, Five great reforms are an essential legacy.
The legacy of the former Liberal government is one that we should all want to own. Australia was a stronger, prouder and more prosperous nation in November 2007 than it had been in March 1996. Yet attempts have been made to discount the contributions of competitive capitalism and more open markets to the remarkable economic growth, in many nations, during these past 30 years.
Economic change of the type Australia experienced over this time has been extensive and, to many, unsettling but it has been accepted as necessary.
In 1980 our nation needed five great reforms. We needed to deregulate our financial system, fundamentally change our taxation system, make our labour markets freer, reduce excessively high tariffs and rid the government of ownership of commercial enterprises that would be better run privately. By 2007 these five great reforms had been achieved.
Those five reforms were an essential Australian contribution to what one might properly describe as the neo-liberal experiment of the past 30 years.
February 20 2009: RBA Governor Glenn Stevens is currently in the hot seat, facing a Parliamentary Committee at a regular twice a year briefing.
Six months ago, he had sat in front of the Committee defending an interest rate hiking program that had pushed the cash rate from a low of 4.25% in 2001 to a high of 7.25% (including one famous and unprecedented rate hike during the 2007 election campaign), but which had just gone into mild reverse with a 0.25% cut days before he fronted the Committee. Today, he has to explain why the RBA was caught so unawares by the direction the world economy moved in, and why inflation targetting has gone out the window as the rate has been cut by 4% in five months to a decades-low level of 3.25%. Here is his opening address to the Committee, with his speeches in September 2008 and April 2008 for comparison. Let’s hope the questioning reflects the seriousness of the change in events, and the whys and wherefores of the RBA’s failure to see what contrarians like myself anticipated as long ago as December 2005.
MARCH 11, 2009: The Fed Didn’t Cause the Housing Bubble–by Alan Greenspan.
This one really belongs in the “he would say that, wouldn’t he?” bin.
“We are in the midst of a global crisis that will unquestionably rank as the most virulent since the 1930s. It will eventually subside and pass into history. But how the interacting and reinforcing causes and effects of this severe contraction are interpreted will shape the reconfiguration of our currently disabled global financial system…”
And if we follow Greenspan, we’ll once more give birth to the seven-headed Hydra of out of control finance.
Here’s a simple rule for politicians: read Greenspan’s advice, and then do the opposite.
Run of the Mill
May 9, 2009: Fed to the rescue; How Ben Bernanke and his central bank headed off a depression. Stuart Washington, SMH.
In the world of financial pain and recrimination after the panic of 2008, it is easy to miss a central point: the US Federal Reserve has, so far, saved the American economy from a precipitous collapse.
May 8 2009: A global triumph. Robert Gottliebsen, Business Spectator
The rise in the markets in the past two months stemmed from the confidence that the global banking system would be saved. Now we have confirmed that the task of saving the system has been much easier than was originally expected.
We can now declare that in all likelihood we have seen the bottom of the share market. We will have big share market corrections along the way, but unless there is some disaster that is currently not on the horizon, the worst in the stock market is over.
We should congratulate the world leaders and central banks for the way they cooperated after the Lehman crash. We had the leaders and central banks of US, China, continental Europe, Japan, Russia and the UK all working together to achieve a common goal. It was unprecedented in global history and what they achieved was remarkable. I wonder if we could ever get them to do it again? The world would be a far better place if they kept doing it.
April 21, 2009: RBA sees revival on the way. Chris Zappone, SMH.
The Reserve Board conceded it underestimated the weakness of the economy but said a revival was on its way, prompting some analysts to predict an end to rate reductions.
”The effect of recent international and domestic information had been that the near-term outlook for demand and output in Australia was now weaker than earlier expected, though a recovery in demand was likely towards the end of the year,” the RBA said.
A Minsky Meltdown: Lessons for Central Bankers. Presentation to the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies—“Meeting the Challenges of the Financial Crisis”, Organized by the Levy Economics Institute of Bard College, New York City
By Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco
It’s a great pleasure to speak to this distinguished group at a conference named for Hyman P. Minsky. My last talk here took place 13 years ago when I served on the Fed’s Board of Governors. My topic then was “The ‘New’ Science of Credit Risk Management at Financial Institutions.” It described innovations that I expected to improve the measurement and management of risk. My talk today is titled “A Minsky Meltdown: Lessons for Central Bankers.” I won’t dwell on the irony of that. Suffice it to say that, with the financial world in turmoil, Minsky’s work has become required reading. It is getting the recognition it richly deserves. The dramatic events of the past year and a half are a classic case of the kind of systemic breakdown that he—and relatively few others—envisioned…
[What is a speech by a Federal Reserve President eating humble pie, and eulogising Minsky, doing on the Brickbats page? Because her understanding of Minsky is so flawed. Reading this was rather like reading Hicks’s “Mr Keynes and the Classics” (1937), in which the deeply neoclassical young John Hicks completely mangled Keynes’s arguments in the General Theory to argue that Keynes was compatible with neoclassical thought:
“Income and the rate of interst are now determined together at P, the point of intersection of the curves LL and IS. They are determined together; just as price and output are determined together in the modern theory of demand and supply. Indeed, Mr. Keynes’ innovation is closely parallel, in this respect, to the innovation of the marginalists.” (p. 153)
Yellen didn’t claim anything quite as brazen as this, but her unintentional emasculation of Minsky’s argument was, to me breathtaking.
April 17, 2009: More US economic hope.
Claims for US unemployment insurance unexpectedly dropped last week and single-family housing starts stabilized in March, providing more evidence the economic slump is easing.
Initial jobless claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January, the Labor Department said today in Washington. Builders broke ground on 358,000 single-family homes at an annual rate, unchanged from the prior month.
“There’s a real possibility this could be a turning point,” said James O’Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. “We’ve seen some fading of weakness in consumer spending. The logical next step would be some fading of weakness in the labor market.”
April 12, 2009: Signs of hope for economy: Obama.
UNITED STATES President Barack Obama has taken a calculated risk by predicting the US may be beginning to rise out of recession, saying that he saw “glimmers of hope” across the economy…
“What we’re starting to see is glimmers of hope across the economy,” Mr Obama said at the White House after getting an update on the economy from US Federal Reserve chairman Ben Bernanke, treasury secretary Timothy Geithner, and Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation.
But that phrase could come back to haunt him if the recession turns out to be prolonged. It will be used over and over again by the Republicans in next year’s mid-term congressional elections if unemployment rates are still high and the economy is still bogged down.
April 11, 2009: Obama adviser has end in sight.
AMERICANS will begin to feel like they are recovering from the economic downturn within a few months, a top US economist says.
Lawrence Summers, director of the National Economic Council and the closest economic aide to the US President, Barack Obama, said his aim was to ensure that the downturn did not become a historic event.
Speaking at the Economic Club of Washington on Thursday, he likened the state of the economy to a ball falling off a table with no end in sight and said that, despite persistent downdrafts, within months “we will no longer have that sense of free fall”.
The assessment is one of the most buoyant from anyone connected with the Obama Administration since it took office in January, and was taken by some as a sign that the US economy had already reached its nadir.
But the viewpoint is at odds with that of the permanent staff of the Federal Reserve, which on Wednesday cut growth forecasts, saying productivity would flatten in the second half of this year and turn slowly to expansion in 2010.
April 09 2009: Warwick McKibbin joins The 7.30 Report.
KERRY O’BRIEN, PRESENTER: Former Reserve Bank economist and now Reserve Bank board member Warwick McKibbin is one of the Australia’s most highly credentialed economists. He’s director of the Centre of Applied Macro-economic Analysis at ANU, a senior fellow at the Lowy Institute and has racked up a string of international posts as well…
KERRY O’BRIEN: Warwick McKibbin, are you, in the end, on optimist more than a pessimist right now?
WARWICK MCKIBBIN: Well I am optimistic. I can see green shoots of recovery. If you just look at the statistics, you can see that the US should by now be starting to come out of the dynamic adjustment path to a standard recession. They do have asset overhang problems. They have some very important decisions to make over the next few months. But I see the US entering a recovery phase and I’m very optimistic in what’s happening in China and India and the developing world. So on a balance, I’m an optimist, but in this environment, some bad news can be devastatingly bad. And that’s what concerns me, is that we just don’t know completely that this is over.
April 09, 2009: Values more likely to rise, contrary to warnings. HOTSPOTTING: Terry Ryder, The Australian
THE only function of economic forecasting, economist J.K Galbraith said, is to make astrology look respectable.
Right now in Australia, astrology is looking very respectable indeed as a gaggle of publicity-hungry economists predict dire outcomes which are later contradicted by actual events…
Each new data release from the Bureau of Statistics is greeted with a chorus of surprise from economists who expected less positive results. [This was published the day unemployment rose 2.5 times as much as market economists had anticipated]
But, in the spirit of “if we’re going to get it wrong, we might as well get it wrong about everything”, a small number of noisy economists have been predicting decimation of home values. They’ve received undue attention from some sections of the media which haven’t bothered to question whether the forecasters have any credentials to be pontificating about property. The title “economist” is deemed sufficient. None of those predicting an implosion of values are property analysts…
With improved affordability, low interest rates, high levels of government incentives, the lower end of the market is buzzing.
That will produce price growth, or at least price stability, in contrast to those sad predictions of big decreases.
April 3, 2009: Dollar soars to three-month high.
Kinetic Securities chief economist Clifford Bennet said the Australian dollar had a “great rally” and was expected to build on its gains.
“Our medium term target remains 79 US cents,” he said.
“We have had 69 and 79 US cent targets all year on the expectation of the world economy doing better than consensus expectations and Australia having a momentary recession only.”
Bank of New Zealand currency strategist Danica Hampton said on Friday that financial markets were upbeat about the steps announced in London.
“The idea that the world is on the road to recovery and perhaps we are going to pull out of this quicker than expected has really encouraged demand for growth-sensitive currencies like the Australian dollar,” she said.
April 03, 2009: Housing damage won’t be drastic. Alan Wood, The Australian.
In the US and Britain, (nominal) home prices already have fallen by more than 20 per cent. The Standard &Poor’s/Case-Shiller index for 10 leading US cities is down 30 per cent from its 2006 peak and the 20-city index is down 29 per cent.
Nothing like this has happened in Australia, nor is it likely to…
Does this mean the fall in housing prices is already over and from here on prices will rise? That looks like too optimistic an expectation, given the severity of global recession. But, as with the Australian economy overall, there are good reasons to expect our housing market will stay in much better shape than housing markets in the US, Britain, Europe and Japan.
Now, of course, we have the worst global recession since the ’30s and an international credit crisis, but an authoritative analysis last week by Anthony Richards, the Reserve Bank of Australia’s resident housing expert, highlights several important reasons for expecting Australian housing prices to perform better than in many other countries…
March 31, 2009: Your house is safe, RBA says. Chris Zappone, SMH.
Australia’s house prices will hold up better than those overseas, despite the slumping economy, the Reserve Bank said, largely because of the quality of the loans underpinning the market.
“We continue to believe that the market here will hold up better than overseas,” RBA deputy governor Ric Battellino said in a speech to the Urban Development Institute of Australia in Brisbane.
March 24, 2009: First-home grant should be free loan. Christopher Joye in The Australian. In a first, I’m posting this on both the Brickbats & Gems pages–the former because it does take a swipe at me, the latter because Chris proposes a “middle way” that is quite possibly what the Government will go for.
Australia also has incredibly low long-term mortgage default rates, only 0.4per cent of all loans, despite hefty recent mortgage costs (US rates are 6.25 times higher). Banks have tightened lending standards since the crisis began and apply their harshest rules to first-time buyers. The pressure on households to deleverage has plummeted as mortgage rates have been cut by 40 per cent to 38-year lows and the ratio of household interest payments to disposable income has dropped from 15 to 10per cent. Finally, Keen offers no analysis of how debt levels, serviceability (fine), default rates (low) and house prices (hardly changed) all interrelate.
One solution is to convert the grant into an interest-free loan. Rather than taxpayers making a gift to every new owner, the subsidy could be adjusted into a loan that would be repaid when the property is sold. This is similar to the way the Higher Education Contribution Scheme works for higher education. A better solution would be to index the loan to the lesser of inflation and the home’s capital gains, ensuring taxpayers avoid real losses.
MARCH 11, 2009: The Fed Didn’t Cause the Housing Bubble–by Alan Greenspan.
This one really belongs in the “he would say that, wouldn’t he?” bin.
“We are in the midst of a global crisis that will unquestionably rank as the most virulent since the 1930s. It will eventually subside and pass into history. But how the interacting and reinforcing causes and effects of this severe contraction are interpreted will shape the reconfiguration of our currently disabled global financial system…”
And if we follow Greenspan, we’ll once more give birth to the seven-headed Hydra of out of control finance.
Here’s a simple rule for politicians: read Greenspan’s advice, and then do the opposite.
February 21: Michael Duffy, SMH. The rubbish PMs love to peddle. Frequently I find Michael Duffy’s conservative scepticism a good combination, but there’s no scepticism here in how he assesses our recent economic past.
“We face the melancholy prospect that Australia’s most recent three governments will come to resemble in their effects on the economy the pattern of rise and fall seen in some wealthy families. The first generation (Hawke-Keating) establishes the fortune. The second (Howard) consolidates it. And the third pisses it up against the wall.”
February 20 2009: RBA Governor Glenn Stevens is currently in the hot seat, facing a Parliamentary Committee at a regular twice a year briefing.
Six months ago, he had sat in front of the Committee defending an interest rate hiking program that had pushed the cash rate from a low of 4.25% in 2001 to a high of 7.25% (including one famous and unprecedented rate hike during the 2007 election campaign), but which had just gone into mild reverse with a 0.25% cut days before he fronted the Committee. Today, he has to explain why the RBA was caught so unawares by the direction the world economy moved in, and why inflation targetting has gone out the window as the rate has been cut by 4% in five months to a decades-low level of 3.25%. Here is hisopening address to the Committee, with his speeches in September 2008 and April 2008 for comparison. Let’s hope the questioning reflects the seriousness of the change in events, and the whys and wherefores of the RBA’s failure to see what contrarians like myself anticipated as long ago as December 2005.
February 20: John Howard, Five great reforms are an essential legacy.
The legacy of the former Liberal government is one that we should all want to own. Australia was a stronger, prouder and more prosperous nation in November 2007 than it had been in March 1996. Yet attempts have been made to discount the contributions of competitive capitalism and more open markets to the remarkable economic growth, in many nations, during these past 30 years.
Economic change of the type Australia experienced over this time has been extensive and, to many, unsettling but it has been accepted as necessary.
In 1980 our nation needed five great reforms. We needed to deregulate our financial system, fundamentally change our taxation system, make our labour markets freer, reduce excessively high tariffs and rid the government of ownership of commercial enterprises that would be better run privately. By 2007 these five great reforms had been achieved.
Those five reforms were an essential Australian contribution to what one might properly describe as the neo-liberal experiment of the past 30 years.
Neoclassical economists like Warwick McKibbin (Professor of Economics, ANU ) and Peter Swan (Professor of Finance, UNSW) are finally putting their ignorance in print–see especially the bits I have put in bold. I hope Kevin Rudd and Wayne Swan are reading this stuff carefully, and justifiably shaking their heads.
February 6: Mark Davis, SMH. Reserve bank director opposes package.
“A RESERVE Bank board member has expressed concern about the size of the Federal Government’s $42 billion fiscal stimulus package and cast doubt on whether its planned cash payments to millions of Australians would be effective in stimulating spending in the economy.
Professor Warwick McKibbin also accused the Government of playing politics with the economic slowdown and warned that this could shatter fragile consumer and business confidence.
“It risks turning what isn’t a crisis into a crisis,” he told the Herald yesterday.
Professor McKibbin, a prominent economist from the Australian National University, is one of six non-executive directors who sit on the RBA board with the central bank’s senior executives and Treasury secretary Ken Henry.
“If it is a crisis — and I am not sure we are in a crisis — that suggests making the cash handouts even bigger will be problematic.”
February 6: Peter Swan, SMH. Rudd’s pudding much too sweet. “But short-term handouts are a flash in the pan without lasting benefit. They are, like the earlier $10 billion giveaway that created a temporary Christmas blip, the centrepiece of the Rudd Plan. And they should have no place in a sensible package based on neoclassical growth theory to build long-term sustainable wealth.”
February 5: Malcom Turnbull. Rudd’s splurge is too much too soon. “The Coalition will vote against the Rudd Government’s latest $42 billion expenditure package because it is poorly targeted and unnecessarily large.”
January 31: World can learn from us: Gillard, SMH. In two years time, I think Julia will file this in her “wishful thinking” folder:
“Australian regulations for banks and financial institutions could help shape tough new rules to police the global economy, Deputy Prime Minister Julia Gillard says… Gillard, who is at the WEF, said she believed countries could learn from Australia’s regulations which she described as being among the best in the world and had stopped the country experiencing the kind of problems in its housing market that had been seen in the US.”
Adam Carr, senior economist at ICAP Australia, Business Spectator. MAKE AUSTRALIA WORK: Forget the deflation bogeyman. I expect this argument will prove to be an excellent example of the proposition that there is nothing more dangerous than a bad theory–and that people who have a bad theory, a.k.a. economists who believe in “neoclassical economics”, helped cause this crisis and then have no idea of its severity, or how to fight it. My next Debtwatch will argue that calling our financial system a “fiat currency” one is akin to the parable of the blind man deciding that an elephant was a snake when he felt its trunk.
Fatalists will pipe up that the world is littered with deflationary episodes and that, indeed, is the truth. For instance, during much of the 19th century many nations experienced deflationary periods and prior to that, history shows that prices were just as likely to increase as decrease. Yet there is one fundamental difference between those periods and now – money isn’t backed by anything, such as gold or what have you. In other words, money has no intrinsic value and this is called a fiat currency system.
In this current crisis, if the US monetary base was shrinking and the Fed was doing nothing about it, then deflation may have some credibility. Yet the Fed isn’t doing nothing – interest rates are at zero and ‘credit easing’ is in vogue. The US monetary base has consequently expanded at its fastest pace in modern economic history.
That being the case, it seems to me that the greatest error the RBA could make right now would be to cut too aggressively and so be ill-prepared should the economy (global and domestic) turn out to be stronger than everyone is forecasting.
Think back to the conversations we were all having this time last year. Everyone was forecasting a stronger-for-ever Chinese growth cycle and permanent inflation pressures. That consensus was wrong last year and while things are very uncertain now, it’s not beyond the realm of possibility that the consensus is wrong again. The consequences of this are very serious and would necessitate a destabilising series of rate hikes as the pendulum again swung to inflation hysteria.
January 28: Ross Gittins, SMH. No good reason to feel depression.
“But no matter how bad this recession proves to be, it’s a safe prediction it won’t be nearly as bad as the Depression, when the rate of unemployment leapt to more than 20 per cent. So don’t let the talk of depression spook you…
“And consider this: were the rate of unemployment to more than double to 10 per cent, that would still mean 90 per cent of workers had kept their jobs…
I predict that, before the year’s out, we’ll see letters to the editor proclaiming: What recession? My local restaurant is still full on Saturday nights. Why am I sure we’ll see this? Because I hear people saying it in every recession…
Remember, too, that contrary to what we first think, the economic news is never all good or all bad…”
January 22: Michael Pascoe, SMH: Ah, so that’s unemployment. “Oh My Gosh! Companies are laying off workers! So that must be what they meant when they said the unemployment rate would rise…For the individuals whose lives are turned upside down by suddenly being sacked, these are indeed worrying and stressful times. For the people who own businesses that are going broke, wiping out their savings in the process, it’s worse again. But for the economy as a whole, the glass isn’t even down to the half empty level.”
19 JANUARY: Bernard Keane, Crikey: The peddlers of recession p‑rn. “Steve Keen has complained in Crikey of being treated as an Eeyore, but really he is more a Biblical figure than a resident of the Hundred Acre Wood, having warned for years about the dangers of debt with the fervour of an Old Testament prophet. Every new piece of bad news is, for Keen, who last week upgraded his predictions of doom to “worse than the Great Depression”, evidence that he was right and the rest of us sinners, who have refused to repent of our debt-laden ways, wrong.”
7 Jan 2009: Christopher Joye, CONCRETE DETAIL, Business Spectator: “In one of his recent notes, Mr Robertson comments: “The household sector’s debt-servicing ratio is in the process of dropping from about 14 per cent to about 10 per cent of disposable income. Yes, job cuts are coming, but the pressure for Australia household sector as a whole to “deleverage” actually is falling, not rising… The early signs are that Dr Keen will turn out to be quite wrong.” ”
January 2, 2009: Mark Davis, SMH: Give your pay packet a shave and help save jobs.
Here it is. When I saw this crisis was imminent in December 2005, one major factor that motivated me to go public with my analysis was the certainty that, when the crisis hit, economists would either blame it on wages being too high (“the abolition of Work Choices caused the Depression!”) or would suggest that wages should be cut to reduce the imbalance between the supply of and demand for labour.
The crisis hit too early and was far too global for the abolition of Work Choices to cop it sweet, but here we have “Economic modellers” telling us that a 1% cut in wages will boost employment growth by half a percent…
I have written a Letter to the Editor about this piece of nonsense; I expect to see it published tomorrow. After that, I’ll put a blog entry up on this one:
the Government … should revive the long-dormant instrument of wages policy…Wages have been growing by 4 per cent a year as employees chase rising prices and employers face shortages of skilled workers. But with the economy turning, the old adage that one worker’s pay rise is another’s job will come into play again… the Fair Pay Commission chairman, Ian Harper, would have to award a parsimonious minimum wage increase of $12 a week as opposed to last year’s $22 increase…
The next step would be for employers and employees with collective or individual wage deals up for negotiation this year to accept pay rises of 3 per cent or less.
Economic modellers reckon cutting aggregate wages growth by a percentage point boosts employment growth by half a percentage point. Some think it boosts employment more. In the current environment that could save more than 50,000 jobs.
Early and decisive leadership is needed.
The only thing that should be done “Early and decisively” is that all neoclassical economists should be sent to training camps where they would be compelled to read Minsky, Keynes, Schumpeter and the like (including Marx), and to attend lectures on dynamic modelling by engineers.
December 30: Christopher Joye, Business Spectator: The great house price myth.
“Yet the median Australian home, worth just over $400,000, has been extraordinarily resilient falling by little more than 1 per cent. It is, therefore, highly misleading to presume that the experience of upper income households can be applied to the average Australian home owner as is the media’s wont. While rising unemployment will inevitably put further pressure on prices, this will be counterbalanced by 30–50 per cent reductions in mortgage rates combined with the government’s commitment to support households via greater fiscal stimulus. Australia’s media also needs to come to the party by spending less time fuelling consumer fears with sensationalist headlines and investing more effort objectively analysing the data.
The $3.3 trillion housing market is simply too big a topic to get wrong…”
December 28: The hard times aren’t over yet: Fuel, rent, power bills up next year, SMH. The post itself is just a news piece, but this prediction from Commsec’s economist Craig James is worth preserving for posterity:
CommSec economist Craig James said the economy would emerge from the global slowdown in the middle of next year, driven by higher construction. He said interest-rate cuts and first-home buyer grants would cause house prices to rise 5 per cent, and the Federal Government’s infrastructure program and grants to councils would drive work on roads, railways, hospitals and schools.
Mr James estimated the cash rate would fall from 4.25 per cent to 3.25 per cent by June, bringing more good news to home owners whose loans had variable interest rates. But he said if the economy performed well, interest rates might rise again.
“The Reserve Bank will start making noises mid-year about lifting interest rates, given the strength in our domestic economy and improvements in economies overseas,” he said.
December 4th: Lessons from the national accounts, The Australian Editorial. “Economics is an inexact science, but today’s sophisticated techniques for monitoring performance and the close interaction between countries help authorities avoid the mistakes of the Great Depression… Such an assessment has little in common with the views of doomsday uber-bear economists [No argument with that!–SK] such as the University of Western Sydney’s associate professor of economics and finance, Steve Keen, whose frequent appearances on the ABC and elsewhere have made him a kind of ubiquitous Eyeore”.
December 4th: Christopher Joye, Real estate’s temple of doom, The Australian. “Keen likes to shock by quoting statistics about the rise in household debt without acknowledging that debt-servicing ratios have remained unchanged thanks to vastly lower real interest rates, the emergence of two-income households and higher real incomes.”
December 3rd: Malcolm Maiden, The bottom of the interest rate barrel is a long way off, SMH
November 28th: Bloomberg, ‘Rate Cut’ Rory Bets Australia’s Highest Peak on House Prices
November 26 2008: Ross Gittins Housing heads for a soft landing, SMH
November 24 2008: Gittins “Whatever lies ahead won’t be nearly bad enough to be compared with the Depression”
November 16 2008: Howard’s “stop comparing what we now face to the Great Depression” comments, SMH
Gerard Henderson, SMH, October 21 2008. Doomsayer gets instant fame.
Henderson isn’t an economist, but he takes the prize for the most prominent and vitriolic spray to date.
Michael Pascoe, Crikey, October 23: Economists lining up to disagree with Steve Keen
Chris Richardson, Access Economics, reported in The Age, October 23: “Keen on gloom”
Terry McCrann, The Herald Sun, October 16: More bad home-buying behaviour
That’s it for now; I know I’ve missed quite a few though. If you know of any particularly notable brickbats that I’ve missed, please email them to me and I’ll post them here.
