Mangled Thoughts

The economic commentariat are truly dreadful. They are in a flap, saying they have been caught out by surprise ,and the RBA too, in a single day. This very morning in fact, over this:

THE Reserve Bank is predicting an economic slowdown so severe that 100,000 people will be thrown out of work in the next 12 months…

But unemployment would rise by as much as 175,000 if growth in the number of job-seekers keeps rising at the same rate as in recent years. While unemployment remained low at this point, with….

Access Economics declared the RBA had done a good job “targeting inflation but that it is not easy forecasting”. By ‘inflation’, they stated price rises, and not keynesianitis. Access Economics stated that despite the ’surprise’, the RBA does a very good job. What else is to be expected; they live in the same closed loop. So what else is to be expected but the sudden onset of headless chook syndrome.

By ‘economic slow down’, they were stating the fallacy of consumption drives economic growth, rather than the truth capital accumulation is growth.

Against the commentariat, and the RBA, Mr.Gerard Jackson has delivered solid analysis and predictions (and not to omit mention occasional articles from Dr.Frank Shostak for Brookesnews). It’s proving out, again. Then, it’s all down to sound theory and not keynesian hocus pocus oracular consultation. Against the commentariat this morning, why only the last fortnight, these items:

Will the Reserve’s monetary policy sink the Australian economy

It looks like the Reserve is going to give the Australian economy another inflationary shot in the arm

These are proceeded by repeated warnings, over many years now.

Contrast the abysmal performance of the IPA, CIS, HR Nicholls Society, the news commentariat and the RBA. Their ‘efforts’ are inchoate pronouncements absent of analytical content and predictive force, delivered ex Cathedra. It shows. They ran around this morning like so many headless chooks crying, ‘What happened?’

To drive in one nail only to point up the above:

The end of the stock market boom is over. It’s been tumbling for a few months now. Look at the fact, a considerable amount of buying and selling was on credit, and it drove prices up. Then came the credit crunch and bang, the markets are correcting. It’s deflation. The commentariat are a complete blank on this, even though it’s still unfolding before them. To quote Jackson and Machlup in one:

Fritz Machlup (a member of the Austrian school of economics) explained that a stock market boom requires a continuous flow of bank credit. In other words, credit expansion. Therefore a

“… continual rise of stock prices cannot be explained by improved conditions of production or by increased voluntary savings, but only by an inflationary credit supply. (Fritz Machlup The Stock Market, Credit and Capital Formation, William Hodge and Company Limited, 1940, p. 290).”

He also observed that

“. . . monetary factors cause the [business] cycle but real phenomena constitute it”

The economic depth of the Commentariat and RBA is proved up in rather a stark fashion. A child’s paddling pool is deeper.

Rudd and Cabinet

Leaving explanation of money and inflation to Brookesnews, the focus is on the question of unemployment. While Swann is right to say that inflation is a real problem, set in train long before the sclerotic “Right” flung him and Rudd into office, he is an economic ignoramus too.

Swann is equal to Peter Costello, the HR Nicholls Society’s Nobel Prize winning economist. Thus, on inflation both are blanks. It was Pete who once declared that he’d defeated what he means by a bout of inflation with mass banana tree plantings.

The Cabinet is in a panic over unemployment:

Irrespective of who won the 2007 election, emerging rising unemployment was set in train by inflation. Irrespective of who, it was unavoidable. What, it seems, has panicked the Cabinet is that it might be aggravated:

If they do as they promised and reverse labour market reforms, such as they are, and unleash the ACTU and their aim - forcing effective minimum rates above market rates.

This would compound rising unemployment. By how much this would aggravate it can’t be answered, only that it would happen if Cabinet commits the reversal. This is the frightener that has decided the Cabinet, as Gillard has announced, it will not reverse the reforms. At least, not in the next 12 months.

Oh, by frightener, I don’t mean they are no more worried about tossing some onto the unemployment heap than are thugs in the ACTU. No, it’s the frightener called very many more angry voters on a 100% pay cut called unemployment that has them in a flap. With the ACTU standing over them, demanding payment for the 2007 election win in the form of price fixing.

Cabinet is in a right panic. The Liberal Party could inflict real pain but for a few obstacles:

On Labour Markets

Credit where credit is due. The HR Nicholls society won the election for the ALP, and not the ACTU. [Oh, alright, let’s be gentlemanly about it and divide the kudos 50 - 50 each]. Their ‘analysis’ is idiotically wrong, and the advice they supplied Cabinet worse. It reflects also on the former Ministers such as Peter Costello and their advisers. Just to check, here is former Treasurer Costello adviser, David Alexander, still parroting some of the many appallingly bad errors they cooked up between them:

“Labour market reform was considered important in its own right in improving our economic performance… it was also seen as crucial in the face of a developing mining boom… booms have often ended in recession through breakouts of wage inflation…

“The Coalition government’s industrial relations changes, while flawed and bureaucratic, were made in the context of those evolving arguments of lifting productivity and containing inflation…”

[Labor on ropes over rollback pledge, David Alexander, 17/3/08, The Australian.]

This is appalling stuff. Between Alexander and Jamie Briggs alone, Howard didn’t need the HR Nicholls Society to blow reform and him out of the water. It is important to ram home that capital accumulation raises marginal productivity, and rates of pay. Then, they are complete blanks in capital theory too.

Their ignorance, novelties, and contempt for modest Australians combined to destroy the campaign for a thoroughly sound and highly moral cause. Mind, if Peter Costello is the great economist that his chums pretend he his, he would have known the flesh and bones of their advice was garbage and rejected it.

That last sentence is crucial. Efforts were made to supply the correct advice but the HR Nicholls Society, with Costello, Nick Minchin, David Kemp, and Michael Kroger, buried it. Minchin himself unilaterally rejected material that was prepared for Cabinet and not for his private amusement. Then there was Bob Day; he has played a nasty part in blowing the fight for freeing labour markets [more on Day in another item].

What is worse is, due to their hubris they blunder about and cause further carnage to great causes and discredit sound principles. With their knee-jerk reactions to even straight analytical criticism of their defective economics papers and advice, it is plain they do not have a single clue as to what they have done and continue to wreak, havoc.

Neither do they realise what the final force of this damage is, sapping and wrecking the prosperity and progress of millions of Australia. Their full support for Co2 taxes is another telling demonstration of this strange insularity worthy of narcissistic delinquents.

Oh, darn, all this and without mentioning the compeletely stupid responses from such as Julie Bishop to recession and rising unemployment. Bishop’s notion of theory is - it is a skill, as is championship tiddlywinks. Her response, as the article in the Australian quotes, is as cringeworthy as the mush the brainless brigade in the CIS, IPA and HR Nicholls Society have produced.

Unbelievably, on labour markets this lot is still pumping out the same bilge. The point being, the problem of unemployment due to pricing many out of jobs would have been finished if the true economic case and a sound, vigorous campaign to fight it had been submitted to Cabinet and accepted. They put the 2007 defeat down to an ACTU ’scare campaign’. To the contrary. They are now busy trying to finish off the fight completely, through their incompetence and illiteracy.

To cap it all off, recession due to defective/non-existent economic theory and rising unemployment. Now all that is left is to find out as it unfolds how bad it will be. Thanks RBA.