JERRY ROBERTS. Neoliberalism, Neoclassical Economics, Twinkle-toes Turnbull and a New Year’s Resolution

We have put the gender issue to bed.  The priests have had their five years of infamy.  The electors of New England and Bennelong have told the High Court where to stick the dual citizenship clause.  Is there an opening for the Parliament and the press to consider the only issue that matters – the problem that causes all the other problems – the galloping inequality, the public squalor and private splendour of a neoliberal, deregulated capitalism?

We float on an ocean of triviality. Just when one sea of flotsam clears we sail into another.  Now Hollywood actresses are recalling distant memories of how such and such an actor or producer went for a grope in the dressing room. At a time when we should be saying good-bye to Buckingham Palace and leaving that problem to the Poms we are bombarded with news of the royal family.  We are back in the dark ages when the editorial staff of the Australian Women’s Weekly were under orders to include a royal story in every issue on pain of death or, worse than death, a lecture from Ita Buttrose.

Deeper in the ocean under all this garbage runs the current of the great debate around the question that has been asked since Aristotle.  How does the economy actually work? I’m not an economist but I can read and write and my mother named me after Jeremy Bentham so I have an unfortunate genetic predisposition to meddle in politics. I’m familiar with most of the economic theories going back to the Physiocrats and they all make a contribution to our understanding.  The problem arises when a theory becomes gospel and its adherents neglect to read the earlier theories.  This is a weakness throughout the social sciences and perhaps in the hard sciences too.

Malcolm Turnbull is a well-read gent so it is reasonable to assume that he too has read the economic theories and that he is familiar with the classic paragraph that governs his thinking today.  This is the paragraph of our times and it is often quoted from the letter Keynes wrote to Hayek on 28 June 1944 congratulating the Austrian on publication of The Road to Serfdom, with a famous reservation.

“You admit here and there that it is a question of knowing where to draw the line,” wrote J.M. Keynes. “You agree that the line has to be drawn somewhere (between free markets and planning) and that the logical extreme is not possible.  But you give us no guidance whatever as to where to draw it.  In a sense you are skirting the practical issue.  It is true that you and I would probably draw it in different places.  I should guess that according to my ideas you greatly underestimate the practicability of the middle course.  But as soon as you admit the extreme is not possible and that a line has to be drawn you are, on your own argument, done for since you are trying to persuade us that as soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice.” (to totalitarianism)

As is common in the human condition Malcolm Turnbull’s strength is also his weakness.  He is a barrister by trade and as such, a master of the art of debating, in which the speaker is trained to argue with equal ferocity the positive or the negative case, without necessarily believing either side of the story, indeed not necessarily believing in anything at all.  In other words, young Malcolm is pragmatic rather than dogmatic.

This is likely a good thing at a time when conventional wisdom is falling apart.  As the year closed we saw an extreme example of Twinkle-toes Turnbull in action.  One day the Prime Minister was a small-l liberal supporter of the gender marriage issue.  The next, his government announced the Gary Johns appointment, such a spectacular sop to the Coalition’s lunar Right that only the most brazen of barristers could have kept a straight face.

Looking at today’s politics, especially in America, the writer who comes to mind is not Keynes but Trotsky.  In his History of the Russian Revolution, Trotsky quotes General Zalesky describing his fellow officers in the High Command of the Czar’s army in 1917. “Much adventurism, much ignorance, much egotism, intrigue, careerism, greed, mediocrity and lack of foresight, and very little knowledge, talent or desire to risk life, or even comfort and health.”

Because the American Democrats are so anxious to blame Russian spies for their own loss of direction the Republicans were able to skip through the Congress with what Paul Krugman calls their “terrible, no good, very bad tax legislation.” Illustrating the Republican triumph on our television news broadcasts we saw four men marching in step – Donald Trump, Mike Pence, Mitch McConnell and Paul Ryan.  Would anybody in his right mind march behind this quartet?  They in turn were marching to the tune of Arthur Laffer.

It did not cross my mind that any government would go looping the loop again on the Laffer Curve, embracing the cargo cult of trickle-down economics, but now we have Scott Morrison, The Australian Financial Review and even Treasury urging us to jump over the cliff with these American financial geniuses.  Let’s hope Bill Shorten and Chris Bowen stand firm.  Governments are crying out for revenue.  We need to lift taxes, not cut them.  On that subject, it does seem odd that it took a small group of journalists to uncover the Panama Papers and the Paradise Papers.  Surely tracking down and destroying these tax havens is not beyond the professional skills of the world’s treasury departments, tax offices and political leaders.  They can’t all be on the take …. can they?

Rising above an academic world suffocating under layers of its own bulldust is Frank Stilwell’s lovingly nurtured baby, The Journal of Australian Political Economy. (JAPE) Its arrival in my post box every six months is cause for celebration. The current edition (No 80) includes an essay by the South American, Professor Andres Blanco, attacking neoclassical economic theory’s pretence of scientific respectability.  “Neoclassical theory is an ideology because it shows a distorted view of reality in a way that favours the interests that are behind the discourse,” he writes. “Neoclassical theory is practically devoid of any predictive and explanatory capacity.  As an ideology its social function is not to explain reality or predict events but to preserve the capitalist system.”

Tony Lawson, Professor of Economics at Cambridge University, takes a different tack, writing in the same journal under the heading, “What is wrong with modern economics and why does it stay wrong?” Writes Prof Lawson: “Economic or political ideology is not the explanation. Most mainstream economists, in my view, do not think about the way they proceed: They are more sheep than conspirators. Few understand terms like neoliberal or neoclassical, or care what they mean.”

This has been my experience encountering Professor Paul Frijters who roams across the pages of Pearls and Irritations like the Caped Crusader, putting down economic heresies. When Christmas shopping I shouted myself to a present in the shape of the Paul Frijters/Cameron K. Murray book on Australian political corruption – “Game of Mates.”  On the same shelf I picked up Steve Keen’s current paperback, “Can we avoid another financial crisis?” Both books are accessible to the general reader and are highly recommended.  I would like to see both of them set as text books for high school students – say Year 11.  The 16-year-old kids would love them.  So would the teachers but the education ministers, Premiers and bank managers would have heart attacks, which might be a good way to start cleaning up the system.

Frijters and Murray kick off their story with the great Australian real estate racket and give us a welcome reminder of Henry George and his land tax. The parallel the writers draw between the Mafia and the Game of Mates played by our politicians and businessmen is too true and it is tempting to use Mafia tactics to deal with it – make them an offer they can’t refuse.

One of the scary aspects of the events described is that they went down in public view and were criticised at the time.  For example, economics writer Ken Davidson pulled the Public Private Partnership (PPP) policy to pieces years ago.  Bob Santamaria made the call on superannuation – that it should be a public scheme rather than private.  Former Senator Robert Ray recalled that when Paul Keating brought the sale of the Commonwealth Bank to Cabinet he did not even provide briefing papers.  Among many good counter-moves suggested by Frijters and Murray is the use of independent foreign experts to make decisions on discretionary government decisions – like the panels of umpires we see for international sporting events such as Test matches.

Looking at the revolving door between politics and finance from another angle, it seems such a sad thing for the politicians involved.  Many of these people have been in politics since they were in short pants, literally.  They have graduated from handing out how-to-vote cards to counting numbers in the Party branches, to the Parliament and eventually to high office.  They retire with superannuation beyond the dreams of most voters.  If they are in good health and hold driving licences they are in a position for the first time in their lives to do something useful in voluntary work such as driving for hospitals or for organisations like Meals on Wheels where they can work with decent, normal human beings, not the spivs, pimps, real-estate developers, mining entrepreneurs etc who hang around Premier’s offices. I suspect it is not just the money with these political types.  They are addicted to the feel of power, to being at the centre of the action.

The saddest effect of all this corruption is identified by Frijters and Murray with stark clarity.  It is the loss of the very ethos that we Australians like to think distinguishes our race – a rough and ready egalitarian spirit among a people not noted for saluting the officers. Mateship was not about money.  It was about survival in hard times.  “Australia is becoming a class society with an elite that robs the rest of us who are scrambling to salvage some self-esteem by secretly hoping to join that elite. The pathetic kowtowing to wealth that is so typical of class-societies has replaced the proud culture Australia had just decades ago where tall poppies were cut to size.”

Steve Keen explains the shortcomings of economic models based on dynamic stochastic general equilibrium theory that failed to predict the Global Financial Crisis and describes the Hyman Minsky view behind his own prediction.  He acknowledges Wynne Godley, who also forecast the European Union’s problems at the time of the signing of the Treat of Maastricht when he commented on the Union’s inadequate architecture – a central bank but no treasury.

The same criticism was levelled more recently by critics from such diverse backgrounds as the Wall Street billionaire, George Soros, and the Greek patriot, Yanis Varoufakis. Steve Keen is difficult to classify but there is an integrity in his argument that commands attention.  His demolition of Larry Summers is short and sweet.

In a general comment concluding the penultimate chapter he writes: “Forty years of neoliberalism – which is effectively introductory neoclassical economics disguised as political philosophy – has transformed the global economy so that on paper it looks much like the model world of a first- year economics text book. Finance markets have been deregulated, unions have been destroyed, tariffs have been dropped worldwide, competition policy is applied to basic services like health, education and transport.”

John Menadue in his suggested weekend reading linked up with the Yanis Varoufakis piece from JAPE in which the writer described the taking of red and blue pills to symbolise the gap between the real world and the fantasy created by universities, the media, corporations and politicians.  This is a summary of an earlier book co-authored by Varoufakis in which the authors referred to a movie called The Matrix, which they used as a template to explain their argument.  I was born with a red pill in my mouth so I think I understood the point but I stayed up late one night watching The Matrix on television and I could not make head or tail of what Keanu Reeves and his fellow actors were doing.

Thus we come back to the ancient question.  How does this thing called the economy work?  The next big book on economics is “Capitalism, Competition, Conflict and Crises” by Anwar M Shaikh, Professor of Economics at the New School for Social Research in New York. It is reviewed by Susan K. Schroeder in my favourite journal. (Schroeder.S.K. (2017),’Review Essay: Classical Political Economy Resurgent’ Journal of Australian Political Economy No.80, pp 212-20.)  In her comprehensive review, Susan Schroeder compares the book to Joseph Schumpeter’s ‘History of Economic Analysis.’ Reading Anwar Shaikh’s magnum opus is my new year’s resolution.  It is a substantial resolution because the book is over a thousand pages in the hardback.

Jerry Roberts is a former parliamentary reporter, still interested in politics.

 

 

 

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11 Responses to JERRY ROBERTS. Neoliberalism, Neoclassical Economics, Twinkle-toes Turnbull and a New Year’s Resolution

  1. Rodney Edwin Lever says:

    One medium size atomic bomb onto the Panama Papers and even the Queen of England would be broke!

  2. Max Bourke AM says:

    Maybe you should recommend that Harbourside Mansions goes back a bit and reads some of Karl Polanyi, sure he made a few bad calls but his general theory on the track from corrupt capitalism in conjunction with failing democracies leads to fascism seems to be showing some truth,

  3. Mary Tehan says:

    This is the best read I’ve had for a long time … so much wit merged with information inviting new possibilities for me. Thank you so much Jeremy for your intellect, intelligence, and groundedness in the suffocatingly, spin-doctored world of economics. I might even subscribe to this Journal of Australian Political Economy myself!!

    I feel hope …

  4. Malcolm Crout says:

    It’s encouraging to experience the views of someone calling out the political and elite classes for the parasites they are and for debunking the neoliberal think infesting what goes for informed economic debate in the western world ……. but I must disagree strongly with the emphasis of the author on the need to raise taxes as revenue for Government. This feeds into the notion that sovereign currency issuers must balance budgets like a business or household and this unfortunately is the core of the neoliberal thought process which keeps citizens impoverished in real terms.

    The currency is fiat and Governments can never be bankrupt or insolvent in their own currency as long as they hold the monopoly on issuance and free float the currency. Thus the need to balance the domestic budget is allayed while the external account does it’s job one way or the other. One need only consider that over the past fifty years Australia has had a total of three true budget surpluses and the sky hasn’t caved in or the currency gone the way of the mythical pacific peso. Keating sold us a pup when he described Australia as a banana republic or touted the recession we had to have – like most of his utterances then and now on matters of macroeconomics he is clueless.

    The fact is that the Reserve Bank and Australian Treasury are acting against each other rather than in a unified way purely in the pursuit of an ideology which has no basis in macroeconomic fact. In short, taxation in a fiat economy acts to provide value to the fiat and while Government may adjust taxation to alter behaviour or to adjust demand in the economy, simply put it is not banked for later spending or held for the bad times. It doesn’t exist except as balances in computer accounts which the fiat issuer is able to wipe out with a keystroke. And if this shock horror act is performed, nothing drastic described by the financial geniuses happens, unless you live in the parallel universe of Wall Street which does nothing except shuffle balances around the world while clipping dollars into their own balance sheets.

    If you are a non believer in fiat, then ask yourself how Japan can pay negative interest on reserves and yet their bond issues are always oversubscribed. Why doesn’t the Yen get avoided like the plague on the international markets? Where do the funds come from for Governments to apply quantitative easing or where does the money come from to pay for those dreaded deficits? Simple really, it comes out of thin air. Money is nothing more than a medium with no intrinsic value. An economy can only operate to the extent of it’s real resources like people and materials – the things you can touch. So while this hapless Government cuts education and imports skills from overseas or pays private operators to manage health, they are actually not acting in our best interests, but rather pulling apart the ability of the economy to function.

    It’s the economy stupid!

  5. neil hauxwell says:

    What more is there to be said: Jerry’s piece slicing through the year’s Australian media’s economic bull with far more edge than the blade that that I attempted to slice the Christmas ham with. I’m also taking up his suggestion to read more radical takes on economics and his inference not to cry over The Age giving column inches to Tom Switzer. Thanks

  6. John Bloomfield says:

    How does this thing called the economy work? you ask Jerry.
    The statement “…governments are crying out for revenue….” indicates that you too reside solidly in orthodox economic camp – oblivious to the fact that sovereign currency issuing govts. do not need collect taxation revenue to spend.

    For one evidently widely read it puzzles me you have not come across Mitchell, Hail, Wray, Mosler or MMT for that matter – a lens through which to view the practical workings of the economy.

    I suggest before you set out to read Anwar M Shaikh’s 1000 page tome (as worthy as his work may well be) you should read the 300 page work of more local economic experts – one Prof Bill Mitchell+Wray+Watts.
    An understanding of economic reality is always a good place to start.

    “Modern Monetary Theory and Practice – An Introductory Text” of 300 pages is a most enlightening, informative and interesting read.
    Fancy dynamic stochastic general equilibrium theories play no part in Mitchells’ work- only practical observation and knowledge based on experience – on how our macroeconomic financial systems actually function. If you read that book and can demonstrate where Mitchell & Co is fundamentally wrong on any of their analysis you would be a first.

    “Let’s hope Bill Shorten and Chris Bowen stand firm…” from an ex parliamentary reporter puzzles me.
    Shorten/Bowen/Chalmers economic utterances in parliament indicate they too are for ‘budget balance’ and more ‘efficiency dividends/spending savings’ – which put’s them in with the looney neoliberalist Laffer curve lot.

  7. John and Malcolm — New Monetary Theory is the new kid on the block. I’m aware of it but must confess I don’t know any detail. It seems too good to be true. I’ve known a few Bill Mitchells in my time so I’ll look up this Prof. Regardless of economic theory, new or old, the money syphoned away to those beautiful Caribbean islands would surely be better spent in its countries of origin on hospitals, schools, age and disability pensions.

    The massive untaxed salaries and wealth of our time distort society and make no constructive contribution to the real economy, where real people live. Indeed they destroy the real economy and the problem is even worse when you remember that most of this wealth is not earned by merit but gained through political cronyism, as documented by Frijters and Murray in “The Game of Mates.” If we’re going to pay multi-million dollar salaries to bank managers and other pox doctors let’s tax them at Picketty’s recommended 80 cents in the dollar. Then, indirectly, they will be doing something good for society.

    You’re right about the Labor Party, John, and I’m speaking as a member. As Bob Katter puts it, there is a cigarette paper’s difference between the major parties on the major issues. Following the gender postal survey, we might add the minor issues to Bob’s point. I’m just hoping that Bill and Chris won’t be “wedged” by Scott Morrison to follow the American tax cuts.

    Neil — We’re still eating the Christmas ham. Not tired of it yet. Thanks for the comment and Max — I love hearing people talk about Polanyi. Everybody should read The Great Transformation. It is not just what Polanyi has to say, it is the eloquence of his writing. I have spent a lot of my life in the company of Australia’s traditionally-oriented Aborigines to I have a special place for this Polanyi quote:

    “For if one conclusion stands out more clearly than another from the recent study of early societies it is the changelessness of man as a social being. His natural endowments reappear with a remarkable constancy in societies of all times and places and the necessary preconditions for the survival of human society appear to be immutably the same.”

    Thanks Mary for that lovely comment. I can’t remember what happened to 2017 but you brought it to a sweet conclusion for me. The Journal of Political Economy is published twice a year by the Department of Political Economy at the University of Sydney. It is not light reading but it doesn’t cost much.

  8. Peter Lynch says:

    A most entertaining article, Jerry, and spot on. Your reference to the “quartet” of Republicans – Donald Trump, Mike Pence, Mitch McConnell and Paul Ryan – marching along together to the tune of Arthur Laffer leaves a lasting, if unpleasant, image in the mind. Your discussion of our leader, MalcolmTurnbull, and his ministers is also interesting. There is a tendency for journalists to believe that Malcolm is basically a good well-meaning guy stuck in the wrong party where his desire to do good things for Australia and Australians is constantly stymied by an old reactionary back bench rump. They are wrong. I think Malcolm has now been in parliament and in office as PM long enough for us to see just how his “twinkle toes” work. As you say, it appears that he may not believe in “anything at all”.

    If you look at his voting in parliament and his decision-making, in isolation from his rhetoric, there is little reason to believe that he actually has any philosophy, or follows any theory of government, or subscribes to any economic theory, certainly not one that promotes the welfare of all Australians. He talks about his love for ordinary Australian battlers while pursuing taxation and social welfare policies that make their lives harder. He talks about indigenous reconciliation but blocks any action towards it. He boasts about how he achieved same sex marriage (“we did it”) when in fact his delayed and undermined the attempts by others to bring it about. He talks about his belief in human-induced climate change, but has done as much as any leader on the planet to ensure that carbon emissions keep rising. His foreign policy amounts to little more than toadying to the big bully that is the USA, regardless of the morality of the particular issue in question. And he paints himself as an urbane, well-mannered gentleman, very different from the low characters on the opposition benches, but spews out vitriol of the worst kind to others whenever he gets the chance.

    I think the evidence is there for us to say that Turnbull has worked his way to the top job simply for the power and prestige it carries and to promote and enhance his own interests. His government is an intellectual and moral vacuum.

  9. paul frijters says:

    thanks Jerry, very generous. It is indeed a question of balance.

  10. It is a terrific book Paul. Congratulations! I hope it is selling like hot cakes in the university bookshops. The kids need to stop taking their blue pills and get angry. You’re angry. I’m angry. Yanis Varoufakis is angry, so angry that I found it difficult to read his last book. John Menadue is angry. Mike Secombe is angry and vented his rage on John Howard all over the front page of The Saturday Paper just before Christmas, but the Australian electorate returned John Howard to The Lodge for 11 years, so do we get angry with Australians generally? It would help if they looked up from the cricket and the cooking classes now and then and paid some attention to politics.

    Like you, I was surprised by the frank comment from Tony Abbot on the job for Ian Macfarlane. I was not surprised by the jobs for Ian, and Martin Ferguson, Conroy, Arbib etc. Disgusted yes, surprised no. I was surprised when Bob Carr started the rot by taking up an appointment with the Macquarie Bank after serving as Premier of NSW for many years. Bob set such a terrible example for the Labor Party. Apologists for Bob and for the bank said there was no conflict of interest but the Macquarie Bank would not exist without the government of NSW. The State and the country are one big, back-scratching club.

    The solution, as you write, is to take the grey gifts off the table. As you also acknowledge, it would have been easier if the grey gifts had not been put on the table in the first place. This is where you and I differ on the importance of ideology.

    From their recent utterances it appears that Malcolm Turnbull and Scott Morrison have given up. They know they don’t have a clue about what to do so they are grasping any opportunity to attack their opponents. On the Labor side, the most heartening sign was the way Linda Burrnie stood up to the New South Wales Right on the Dastyari affair. The Labor Party, of which I am a member, does not need to put up with the New South Wales Right and the Australian electorate certainly does not need to tolerate these people. Members of political parties are apt to forget that there are 25 million Australians who do not belong to political parties and who think it is the job of honourable members to work for them, the voters, not for the grubs in the party factions and not for the banks and multi-nationals.

    Steve Keen asked “Can we avoid another financial crisis?” in the title of his book that I read concurrently with yours. In the last chapter he answers in the negative. I first encountered the Paul Frijters name in your response to John Menadue’s post of 21 June and it made such an impression that I copied it out in longhand in my diary. You concluded the political commentary thus: “We live in dark times.”

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