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Another Perspective
An Australian Lesson
Australia got out of the Depression in the 1930s by doing the opposite of what Obama is doing now.
I don’t suppose many Americans know this, but they ought to: Australia recovered from the Great Depression much more quickly than did America by doing the opposite of what America is doing today.
This was despite the fact that relative to America it had huge disadvantages: with a population of less than eight million at the time, its economy, and of course its domestic market, was a fraction of the size of America’s.
It had a very small industrial and manufacturing base, was chronically short of investment capital, and was dependent on agricultural and some mining exports. It had a bloody-minded and strike-prone workforce (just before the Depression struck, one of its biggest manufacturers, Sunshine Harvesters, moved to Canada where wages were higher but strikes fewer). To make matters worse, it had first a left-of-center Labor federal government under Prime Minister Scullin and then a right-of-center United Australia Party federal government under Prime Minister Lyons, neither of which were marked by great economic competence and which were committed to counter-productive protectionist policies — even, crazily, putting high tariffs on importing the equipment its own farmers and miners needed to get it some export income.
It did, however, have one thing going for it which more than made up for the rest: it did not have pseudo-Keynesian “stimulus” policies to any significant degree, or their equivalent, the New Deal. Apart from undertaking some relatively minor public works it did not attempt to spend and tax its way out of recession.
Writing in the Australian journal Quadrant for March, 2009, economist Steven Kates of the Royal Melbourne Institute of Technology has provided approximate unemployment rates for the USA, Britain and Australia from 1929 to 1938. The figures are quite astonishing, including respective rates of 23.6%, 22.1% and 23.0% in 1932 and 19.0%, 12.9%, and 8.9% for the three in 1938. (For the full table, scroll down here.)
What saved Australia was that the Scullin Labor government, which had been slow to recognize the onset of the Depression, in 1931 adopted the so-called “Premiers’ Plan” which had been put forward by a number of the States. This had none of the sophistication of Keynes. On the contrary, it advocated some very simple and old-fashioned nostrums: to cut public spending by a whopping 20%, to return to budget surpluses, and to cut wages. This wage cut went through the public as well as the private sector.
My father, Sir Hal Colebatch, the West Australian government representative in London, had his salary halved. Previously, in the Senate, he had spoken for economic stringency and against stimulus spending with somewhat colorful imagery which, when first I read his old speeches, made decades before I was born, I never dreamed I would be quoting as relevant now:
“To the outside world we present the sorry spectacle of a rudderless ship … drifting in a storm-tossed sea along a rock-bound coast … In discordant voices the crew yells for the broaching of the last barrel of biscuits and the final keg of rum.” The phrases “pork-barrel” and “ear-marks” were not around then, but the general picture is pretty clear in 2009.
There were some dangerous corners cut: the Australian Navy, for example, was reduced to four ships in commission at its lowest point, but the plan, aimed at reviving business confidence, did have one advantage over the New Deal: it worked.These figures also show, of course, that Britain recovered far ahead of America without the benefit of anything like a New Deal or a stimulus package, and despite various structural problems unemployment was falling dramatically there even before British re-armament got under way.
What saved Australia, pulled it back from an abyss that might have meant actual starvation, and gave it an economy strong enough to meet the challenge of the Second World War, was simply the application of classical economic theory, which was more or less the exact opposite of what Keynesianism prescribed, the opposite of the New Deal, and the opposite of the stimulus package.
Indeed, Kates points out that in a posthumously-published article, “The Balance of Payments of the United States,” in the Economic Journal in 1946, Keynes virtually admitted that he had been wrong in undermining classical economic theory, and that he now felt a duty to remind his own disciples that classical theory “embodied some permanent truths of great significance.” He lamented the fact that “much modernist stuff, gone wrong and turned sour and silly, is circulating in our system, also incongruously mixed, it seems with age-old poisons …”
The present prime minister of Australia, Kevin Rudd, appears at present intent on proving himself a far worse and more damaging economic ignoramus than his predecessors Scullin and Lyons. He has adopted a smaller version of the U.S. stimulus package and spent some time, not listening to and ranking the advice of economic experts as he is paid to do, but writing a cranky, embarrassing, 8,000-word essay on the need for “social democracy” to “save capitalism from itself.” On the world scale Mr. Rudd and his essay and his stimulus package and disregard for classic economic theory probably don’t matter much. But the US stimulus package does.
About the Author
Hal G.P. Colebatch’s “Immram,” Counterstrike, is being published by Australian publisher Imaginites.
Letter to the Editor View all comments (48) | Leave a comment
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Pingback| 3.16.09 @ 11:03AM
The Lesson | Technorgasmic links to this page. Here’s an excerpt:
Tom Conley| 3.16.09 @ 11:05AM
The major resonse to the Great Depression was not stimulus it was first othodoxy, then protectionism and in very small measure stimulus. There was no Keynesian response to the GD, the major changes in the US were monetary rather than fiscal. The extent of FDR's fiscal stimulus was relatively insignificant until much later and even then still relatively small. The two countries that did substantially stimulate their economies - Germany and Sweden - did better than those that didn't.
Jeremiah| 3.16.09 @ 11:50AM
Australia!
Yes by all means, let us follow Australia.
How terrible it would be for us to follow FDR, whose policies turned this country into a world power and created the broadest and (until recently) most stable and upwardly mobile middle class in history.
Any other ideas guys? How about looking to the example of Gana for prison reform?
China for EPA regulations?
What other revolutionary proposals has the "party of ideas" for us? I'd really like to know.
Australia!
Robert| 3.16.09 @ 12:42PM
Read the new book by Thomas Woods Jr, Meltdown. There was a depression in 1920-1921. The government did nothing and it ended quickly and we had nearly a decade boom. Keynesians talk about a drop in aggregate demand and how we have to fix it. WE ARE FIXING IT! IT'S CALLED SAVING! We've been spending too much damn money.
Hank Rearden| 3.16.09 @ 12:57PM
Jeremiah,
I'm afraid you may be reading too many public school textbooks. The American middle class was a creation of the 1920's (I believe FDR was a governor then), that would be the last time the US touched anything close to laissez faire economics. Militarily speaking, yes, FDR continued the trend his cousin (TR) started and turned the US into a global military power. That being said, I believe that it is quite clear among most economists that FDR's policies especially as it relates to monetary policy, helped turn a recession into the Great Depression.
Pete Walsher| 3.16.09 @ 1:59PM
Jeremiah,
Congratul;ations on completely missing the point of this article.
A small economy got out of the Depression by cutting public spending; a big economy remained in the Depression by increasing public spending.
Or are the figures too difficult for you to read?
Bob| 3.16.09 @ 3:02PM
So here we have yet another non-economist lawyer like Ferrara who knows so little about the subject matter. Here is an historical timeline of the Great Depression:
http://www.huppi.com/kangaroo/Timeline.htm
Australia behaved just like Hoover. Remember the depression started in 1929 with the market crash, not in 1932. Hoovers policies of classical economics was a disaster. FDR made a number of mistakes including not spending enough and trying to reign in spending in the mid-30's. Then, you had the tariff's which made things worse.
As with most non-economist lawyers, this one cherry picks data points rather than showing a chart. The unemployment rate was 14.3 in 1937, went up in 1938, and then by 1940, was back down in the 14% range. This is why I always show charts rather than two point data analysis which are very misleading.
If people who read this board believe this tripe, then it explains why they can't win -- and never will. People who eschew reality have a tough time surviving in it.
Tom| 3.16.09 @ 3:21PM
"Bob" writes: "Hoovers [sic] policies of classical economics was [sic] a disaster."
What part of classical economics urged government officials to call for wage maintenance at a time of price deflation? Which ones called for more public works spending in four years than in the previous 20? Which called for income, corporate, and excise tax increases? Which called for a fund to bail out ailing companies? Which called for loans to support public work projects locally?
Did I miss that part of "classical economics," or did you miss the actual history of what Hoover did?
Ron| 3.16.09 @ 3:24PM
Jeremiah - what made the US a world power was Europe was devastated after WWII and we were the only ones providing the goods needed. It had nothing to do with FDR. We do have a Constitution that all Presidents are supposed to abide by. FDR, and most Presidents, skirted the constitution and we should not allow that.
Jeremiah| 3.16.09 @ 3:28PM
Hank and Pete,
Conservatives have often made a point of criticizing "revisionist history" in recent decades.
When it comes to FDR and the Depression, they engage in more radical historical revisionism than anyone. Howard Zinn is temperate by comparison.
Hank -- I think it's you that needs to do a little studying of American history.
The idea that the middle class of modern America is an outgrowth of the 1920s is absurd.
The middle class is directly related to the massive expansion in government spending that took place during the 30s and 40s.
Where you all get your facts is beyond me. But know this: Sean Hannity and Rush Limbaugh are good entertainment, but they are NOT historians or economists -- the vast majority of whom, by the way, side with me on this one, not you.
But if Australia is going to be your model, by all means, give it your best shot.
Maybe you should move there for a while and do some research into how America ought to be more like Australia!
Hilarious. You people are ignorant as a bag of rocks, and you sit around here calling names all day.
Folks, it's this simple: go to your nearest, tax payer funded, PUBLIC library and get out a damn BOOK on the history of the first half of this century. See how lonesome it is out here on these absurd fringes of right wing reactionary "opinionating."
pjean| 3.16.09 @ 3:45PM
The government says it works for the people. Well, perhaps the "government" should look at how hard-working Americans handle family budgets and take a lesson about finance. When money is tight in our house is that the time to install a energy-efficient furnace, start a landscaping project, or donate $500. worth of books to our local elementary school? Practical Americans families say, "I'd like to do those things, but not right now". They don't admit they lived high on the hog and if it's this bad, what's wrong with a little more debt, even if our hearts are in the right place. Foolishness. THIS IS WHY WE ARE TICKED!! Here comes the revolution and get out of our way.
Robert| 3.16.09 @ 3:46PM
"The middle class is directly related to the massive expansion in government spending that took place during the 30s and 40s. "
If this were true, then we should have seen an explosion of the middle class between the mid 60s and now. Since we haven't, it is therefore false and you are full of horseshit.
Jeremiah| 3.16.09 @ 4:19PM
Robert --
Your point proves nothing. I could just as easily claim that if YOUR worldview were true, the late 19th century, when all was laissez faire, should have been great for everyone. Since it wasn't, the argument would go, your argument is false.
Really what is the problem here are historical analogies that don't hold water. The idea that economic policies of the United States in the 21st century should mirror those of Australia in the 1930s is just nonsense.
Facts are stubborn things. The massive spending of the New Deal and the spending on the war -- not to mention later social programs like the GI Bill -- lifted millions into the middle class.
That level of spending dwarfs anything that came after it -- including the Great Society programs.
I'm not saying we need a return to that huge level of spending, but to deny its positive effect on American society in general is just wilfull blindness. Sometimes you have to set the ideology aside for long enough to let some information get through.
You needn't worry. The fact that Roosevelt's policies were ultimately good for this country does NOT mean they'd necessarily be good for us now.
Conservatives still have strong arguments to make. But Rush Limbaugh isn't going to do your work for you, and you have to make reasonable arguments of some kind. Random guerilla attacks on established standards of historiography won't help your cause any.
Jeremiah| 3.16.09 @ 4:30PM
Consider the argument made above, that the American middle class was created in the 1920s.
The reasoning here is of a badness not to be believed.
There WAS -- it is true -- a growing, inchoate middle class slowly developing from the beginning of the Industrial Age in America. No question. And some progress was made during the 1920s.
But for heaven's sake, man, think. The policies of the 1920s, both here and abroad, and the insane belief that the markets of the world would forever soar upward (the simple credulity of the capitalist), led to the worst and most catastrophic crisis of capitalism in history. The entire system fell apart.
Blaming that crisis on Roosevelt is like saying Truman caused World War Two by dropping the Bomb on Japan.
It is so ludicrous to blame the Depression on the New Deal that I feel downright ungrateful for not appreciating more such an antic and foolish absurdity.
Lord help us, if this is how the "conservative movement" is teaching you people to think these days.
I liked it better back when you all trusted the answering of every question to the dusty old economists at Princeton and Yale.
These days, as long as some fool with a microphone is calling someone a traitor or a socialist or a terrorist, you people will whoop it up and not give a damn what any of it means.
My opinion, you'd better read your Frum a little more closely.
Bram| 3.16.09 @ 4:46PM
A recession started in 1929. Hoover did the exact opposite of Harding and Coolidge (who succeeded in pulling the economy of recession in 1921) by taxing, protecting, and spending his way into a deeper recession and the early days of the Depression. The New Deal was the coffin nail that kept the economy depressed for a decade.
"The entire system fell apart" argument is a lame excuse for the complete failure of government intervention to achieve economic goals. That excuse, unfortunately, continues to be used to this day to justify bad decisions instead of learning from history.
Jeremiah| 3.16.09 @ 4:52PM
Bram -
First of all, the Depression was a world-wide recession caused by a complete collapse of global markets.
The idea that Hoover's tax policy and the New Deal made it what it was is just plain wrong.
Government "intervention" (a.k.a spending) turned this country into a world power and lifted us out of the Depression.
For God's sake, no one was WORKING. Millions of men wandered the country trying to scrape together enough to live day to day. Government spending put many of them to work, and when they got paid, they spent what they had. It's called stimulus -- the "animal spirits" of the markets were made to start circulating again.
What on earth is so difficult about all this for you people to understand?
You think that by mounting some third rate campaign against FDR you're somehow going to change history?
Good fortune to you.
Jeremiah| 3.16.09 @ 5:02PM
Keynes pointed out that in recession the whole problem is that people with capital do the rational thing -- they save.
In order to increase employment in these conditions, wages must FALL more quickly than prices, leading to a precipitous drop in demand.
What tax policy could intervene under such circumstances?
You can cut taxes all you want, it still won't change those basic economic realitities.
What does help? The government, which can afford long term and massive borrowing, makes up the difference by huge spending programs that benefit those most likely NOT to save.
Thus -- you sort of have the New Deal. Only the Republicans insisted that major changes be made in it that made it less effective than it might otherwise have been -- in the name of protecting their friends the Masters of the Universe who are still gracing us all today.
But still, it was good enough, it worked, and everyone who isn't blinded by shallow ideological cant knows it.
Nick| 3.16.09 @ 7:10PM
FDR, one of the worst presidents ever and a communist sympathizer, made the depression GRRRREAT!
So which is it bleeding hearts, the Raw Deal worked or FDR didn't spend enough? You can't have it both ways.
And Jeremiah, "...no one was WORKING." Really?
Actually 75% were working.
Jeremiah| 3.16.09 @ 7:51PM
Nick --
So 25% unemployment... no big deal?
You're correct, of course: I was using hyperbole in a way familiar to any rational person. But still.
Now, the New Deal was effective and it worked. However, it might have been more effective had FDR gotten everything he asked for.
Now -- FDR a communist sympathizer?
That's utterly and totally and completely ridiculous. You'd have to know less than nothing about FDR, about the time period, and about political science to be deluded into believing that man was a communist sympathizer. It's just ridiculous.
You should read Churchill on Roosevelt -- he's still the best source. (Or do you think Churchill was a commie too? ) In his memoirs Churchill wrote of Roosevelt: "He was the greatest man that I ever knew."
Ask your grandparents or anyone who was alive then. Read something credible about the time period. Inform yourself instead of spouting off nonsense.
Doug| 3.16.09 @ 8:12PM
I've been enjoying Jeremiah's jeremiads. Most of his writings are inspired insults and his supporting arguments may essentially be summarized as "I'm always right and you're always wrong!" (to paraphrase Jeremiah and actually quote my daughter at the age of 4. (It was more believable coming from her.))
As near as I can tell, his one argument is that spending a lot of money by Roosevelt created the middle class in America. Without Rooseveltian enlightenment and generosity, (with other peoples money) we would have remained a ... a what?
Perhaps some definition is in order here. Personally I think the definition of middle class is driven by the technology and structure of the time in question. By that standard, the US has always had a strong middle class.
The "yoeman farmer of the early days was the middle class of the early agricultural period. This was followed by small manufacturers, distributers, salesmen, shopkeepers, craftsmen.
We have always had thriving cities ... with their clerks, warehouse and distributers ... complicated systems of finance, trade, manufacture, distribution, and law. Does Jeremiah think these were managed by a very small class of the rich using a vast majority of drunken sots from Hell's Kitchen. Does Jeremiah think that the vast influx of immigrants throughout US history would have occurred because all those immigrants really thought they would be rich or because the vast majority wanted to become drunken sots. They were coming here with reasonable expectations of moving up to whatever version it was of the middle class that was available at the time.
FDR did not create the middle class.
As to the rest of the arguments, as someone with a "dusty" economics degree from Yale and some post-grad experience at the Harvard B school, as well as a 35 year career in finance and risk who came from the lower end of blue collar/middle class existence, (and left my company as one of the strong ones who need no bailout and is, even as we speak, buying up the failures), I'll simply vote to disagree with his interpretation of economic history and activity. Very simply, government activity distorts economic activity ... is always highly wasteful and always shifts resources to politically favored individuals and groups who would not have properly utilized them. I will admit that there are a few things that need to be done by THE GOVERNMENT rather than by individuals. You can expect most of them to be done poorly.
Hank Rearden| 3.16.09 @ 8:49PM
I fear the comments have strayed far from where the author intended. Nevertheless, true unemployment fell by 1937, but was it because of the new deal? Remember, it is all about production. Among other reasons, the market crash became a depression due to protectionists policies of Hoover and coupled with the tax policies of FDR. Nothing was being produced in the thirties. However, once war production begins in the late thirties life for Americans start to improve. It is important to note that at any point during the war the US economy was extremely fragile.
Interested Conervative| 3.16.09 @ 9:59PM
I'll second Doug's reply and add a few names who arguably did more for the "middle class" than FDR - Willis Carrier, Henry Ford and Norman Borlaug. Borlaug gets bonus points for greatest international effect.
I don't know if Churchill met any of them - likely Ford though.
Jeremiah| 3.16.09 @ 10:03PM
Doug --
With that resume, I'm surprised you think you'd be accepted among what passes for conservatives these days.
The Palin -- Limbaugh -- Joe the Plumber crowd doesn't need any smart talkin Ivy League men around anymore.
What you say is true about immigrants. They came, and they expected to do well. And they did, with a lot of help from labor laws, unions, and, eventually, the New Deal.
Government spending during recessions, as you know, is pretty widely accepted practice by economists. It smooths over the sharper edges of the market and keeps its lurches and busts from tearing too harshly at the social fabric. That's not communism. It's just good, liberal policy and it's what made this country a superpower. Before FDR, we were a fairly stable third world country. The free market didn't win WWII, the free market didn't put men on the moon, and the free market didn't build highways from one end of the continent to the other, and the free market won't get us out of the mess we're in.
Lynn| 3.16.09 @ 11:13PM
Jeremiah, I have asked my grandparents, and was even blessed to have learned from my great grandparents. My great grandfather, born in 1886, taught three generations that FDR was a radical who started the United States on the path to socialism. He also taught us that the New Deal prolonged the Great Depression and the only thing that brought us out of it was WWII. He lost his farm in the agricultural depression of 1920-21 which was mentioned earlier. Great Grandpa's understanding of what happened in that time helped prevent my father from making the same mistakes in the 1970's that led to the agricultural recession of the early 1980's.
Go talk to my 96 year old grandma if you would like to hear a conservative view of those years! She will tell you that they survived the Great Depression with hard work, moderation, and saving.
DaveinPhoenix| 3.16.09 @ 11:42PM
Sure, lets spend more taxpayer money ! Despite the negative net worth of the U.S. government of $59.3 TRILLION (according to the Treasury Department's "2008 Financial Report of the United States Government"). Makes perfect sense.
Robert| 3.16.09 @ 11:43PM
“Your point proves nothing. I could just as easily claim that if YOUR worldview were true, the late 19th century, when all was laissez faire, should have been great for everyone. Since it wasn't, the argument would go, your argument is false.”
Actually I gave concrete evidence that falsifies your theory. We've spent trillions since 60s. QED.
Please demonstrate anytime, anywhere in the world that everything was “great for everyone”. Quite the bar you've set. You suffer from the classic, liberal, historical fallacy. You compare a time period to the periods after it, instead of the ones before. Further, you fail to compare a time period in America to anywhere else in world. How were things in Russia? Mexico? China? Africa or South America? If things were so bad in America why were people migrating here in droves? We were on a gold standard and prices dropped, increasing people's purchasing power. New inventions and time saving devices were the norm. The diesel engine, the escalator, the steam engine, the camera, the light bulb, the crop harvester, the dishwasher, the electric fan, the cable car, the razor, pasteurization, the telephone and on and on....
Yea I can see how it would have been better if we'd all have lived in some hut somewhere. Obviously laissez faire sucks.
Jeremiah| 3.17.09 @ 12:01AM
I can see right now you people are having a difficult time following me.
You "conservatives" are always going on about your "principles."
Let's have it out right now. Here are my principles, and the answers to all the questions you're trying to think up to confuse me.
Belief in the Holy Catholic and Apostolic Church;
And the Red Sox, FDR, JFK, Steve McQueen, the superiority of St. Patrick's Day to Thanksgiving, Bruce Sprinsteen, and the right of working people to organize and give massive headaches to people who actually feel entitled for their wealth.
If St. Michael himself descended out of the sky and ordered me point blank to vote Republican, I'd perish a thousand deaths in hell first. It's not that I think Republicans are evil though. It's just that I believe that party is a Moloch worshiping faction of Satan.
Any more comments will have to wait until the high holidays are past. God bless America.
eurydice| 3.17.09 @ 12:17AM
The author neglects to mention a few salient points. The 'policies' had nothing to do with Australian politicians. Australia owed an enormous amount of money to the Bank of England, which, through the twenties, bankrolled Prime Minister Stanley Bruce's industry expansion program. The situation was so dire - the Commonwealth was virtually bankrupt - that Sir Otto Neimeyer (whose memory remains collectively loathed in this country) made a personal visit to tell Australia's leaders that wages and jobs must be slashed and that Australia's first priority was to repay its debt to Britain. The impact on ordinary Australians was horrendous. For a discussion on the rise of the proto-fascist armies and militias in Australia during this period (Former Prime Minister John Howard's father was a member of one of these groups), I would refer the author and any interested readers to Michael Cathcart's In Defence of the National Tuck Shop (As an Australian, the author ought to know what a tuck shop is.)
Australia didn't recover from the Great Depression until the early 1950s. This article is complete guff.
Hal G. P. Colebatch| 3.17.09 @ 2:24AM
I don't usually comment on trolls ' responses to my articles but I will point out in response to "Eurydice" that I have read "Defending the National Tuckshop." It is rubbish. I don't intend to dignify "Eurydice's" material with further comment.
Gerard Jackson | 3.17.09 @ 5:06AM
Bob's view that Hoover implemented the "policies of classical economics" when the depression started is complete nonsense. "The Great Depression: facts versus myths" (http://www.brookesnews.com/092601obama1930s.html) explains what really happened.
Gerard Jackson
Brookesnews' economics editor
Endeavour Hills
Victoria
Australia
Eurydice| 3.17.09 @ 6:16AM
Harsh words. You may not like Cathcart's book, but the facts remain: Sir Otto Neimeyer - Head of the Bank of England - dictated Australian fiscal policy in the early 1930s. Australia was in enormous debt due to SM Bruce's rampant borrowing - his argument was that high prices for Australian commodities such as wheat and wool would meet the repayments. When the bottom fell out of the commodities market in 1930, the Australian economy went with it. The extreme harshness of Neimeyer's terms almost tore Australian society apart - that, Mr Colebatch, is a fact ,whether you like it or not. The period between 1930-33 was the darkest in Australian history. Oh, and not very nice to call someone a 'troll' because you can't take constructive criticism or contradiction. This magazine invites comments, I made mine in the belief that freedom of expression and opinion would be supported. Just because you don't like Cathcart, doesn't mean you can abuse those who pickup the gaps in your historical knowledge. The most innocuous historians of the period agree: proto-fascist militias were a menace in Australia between 1930 and 1933.
Bram| 3.17.09 @ 11:07AM
Jeremiah - shocking to read your "principles" are that of a taxachusetts liberal. Thanks for reminding me why I left the state of my birth and will never reside there again.
Here is the core of my political and economic views: Government is corruption. It is a necessary evil that should be minimized and limited as much as possible (in order to block men like Billy Bulger from rising to power).
Government's drag on the economy is the present value of it's expenditures minus transfer payments. The idea of spending our way out of a recession is idiotic.
baluca| 3.17.09 @ 5:47PM
If we are indeed heading into a depression, and having gone through it before wherein it took a world war to get us out of it, it goes without saying that it may take another world war to get out of it.
JennyinBrizzy| 3.17.09 @ 11:25PM
And here I was thinking I was the only person in OZ of the opinion Mr Rudd is the figure head on the bow of the HMAS 'Disaster' with his NAGMAN set to 'find big black hole'. In the space of around 16 months we have dived off a pile of surplus into the pit of deficit while unemployment has risen from 4ish percent to well over five percent and rising. The answer to the problem has been to spend our way out of this hole. If Kev ( I can call him that because my daughter 'hi fived' him once at her High School) follows the US trend, next will come the higher taxes. In my house when we don't have enough money to buy something or get into debt we stop extra spending till we are out of debt. We buy the essentials and pay expenses till then. Then when we have some money saved then we buy what we we want as opposed to buying what we need. It is not rocket surgery!!! What is happening now is like being in debt with no job and borrowing money to renovate the house without any money to pay for it and then borrowing money to pay for the first loan and on and on. Sometimes I wonder why all these polies all over the world are whining about Bernie Madoff because from my house they are doing exactly the same thing only on a bigger scale. Question is will they end up in jail or retired with a pension and a pat on the back.
Pingback| 3.19.09 @ 3:54AM
Mangled Thoughts » Another insight into the Right links to this page. Here’s an excerpt:
Douglas Bignell| 3.19.09 @ 7:21PM
The initial shock of the depression, as of recessions too,causes unemployment as investments are re-adjusted. The cause of persistent unemployment, the point to Kates' data, is different. It's a question of whether real wages exceeded the marginal value of the worker's product, because this prices labour out of employment.
Colebatch misses the crucial relationship between real wages and employment. It is also absent in the source he relied on, the Kates article.
Kates declared :“None of these figures should be taken as anything more than indicative since there were no official unemployment statistics at the time. All are reconstructions based on incomplete data…”
How did Withers and Pope build their unemployment rates?. Moreover, not merely annual averages is required, but quarter by quarter data. It is amusing the Australian Bureau of Statistics has turned it into a tradition, deficient data collection.
Kates cannot claim as he did the figures “provide … an accurate reflection of the reality experienced”. Further, the rates are far below estimates of unemployment rates that I am aware of. Properly put, the depth and duration of suffering of Australians was far worse than the rates Kates relies on conveys.
The mention of Scullin cutting public servants’ wages, has nothing to do with how free market processes establish wage rates, and so does not answer the crucial question of the relationship between real wages and unemployment. To reinforce this by a counter contrast:
The inverse can happen. Government cuts public service rates, while real rates for labour in enterprises rises. This can occur without inflicting unemployment only by capital accumulation (savings).
The above shatters Colebatch’s claims.
On history of economic thought, contra Colebatch, it's not clear cut. The 1930’s was an axial age, but what happened? Sorting it out out requires solid mastery of the field. I’m not equipped to do it, Colebatch shows he isn't either. Kates is far from reliable. Also, Kates' and Colebatch's usage of 'classical economics' is rubbery.
There is more to Kates’ paper that makes me chary of the claim of heading to a genuinely sound free market position, eg.:
“Yes, the central bank should be lowering interest rates and ensuring the viability of the banking sector.” This is what gave us the recession; central banks and the 'system' engages in monetary expansion and this is what inflation is. It disrupts prices, inducing malinvestments, ending in recession. The cure is a return to sound money.
Regulation? Common law does a superb job, due to its ground. Regulation strangles firms and markets. Kates’ position doesn't bode well at all. Kates uses the flawed data to support his argument. Colebatch relying on Kates' article is telling.
As an Australian, I wish to apologise to readers of The American Spectator. Colebatch’s article and remarks (downright abusive rudeness to Eurydice) typifies the Australian Right’s notion of economic analysis, commentary, and debate.
Eurydice's comment did deserve a courteous reply with sound explanation. Challenged, the Right neither explains nor debates.Colebatch gave the Right's standard reply; jerk the knee and come out smearing.
They believe they know all there is to know about anything. They are also undergraduate textbook bound. Who would dare challenge such genius? How dare anyone try it. I defy any man to say, “The Australian Right are arrogant dumbkopfs”.
As a Spectator reader, one is disappointed to the point of irritation this venerable magazine does not use economists with the depth required to analyse and comment on grave matters. The Spectator prides itself on defending free markets. Articles such as Colebatch’s sap the claim. Colebatch’s article shows only one thing, he is not even a layman economist. Publishing Colebatch induces cringing.
The current recession is not a repeat of the 1930’s depression. Neither is it the worst since the 1930’s, but it is the worst recession since the 1980’s. It can, however, be rendered nastier. Lousy economic policies will do that. Lousy economics commentary gives oxygen to lousy economic policies. Obama in America and Rudd in Australia are committed to the former; the commentariat abets them.
Douglas Bignell,
Mt.Waverley, Victoria, Australia
Douglas Bignell| 3.19.09 @ 7:35PM
To the above comment on Colebatch, I can recommend to economists who are economists, and this means also grip on the history of economic thought.
One is Mr. Jackson, whom I note has commented above. Mr. Jackson concentrates on Australia, and writes for Australians. He also comments on the USA.
Dr. Frank Shostak, concentrates on the USA, and also writes for the general public.
Their articles sparkle with flawless analysis and explanation.
Both write for Brookesnews, and Mr. Jackson is the editor of this newsmagazine.
I recommend to The American Spectator, for expert economics commentary on Australia use Mr. Jackson. They could also call on Dr. Shostak for the American scene.
Here's the link:
http://www.brookesnews.com/
Pingback| 4.29.09 @ 11:41PM
Why does your Australian Prime Minister Rudd fear the late F.A. Hayek? « Mannerisms - links to this page. Here’s an excerpt: