Australia's Financial Punditry Displays Its Ignorance as the Economy Sinks

Australian manufacturing is on its back, clearly indicating that Australia is in recession and has been for some months, despite the unemployment rate being 4.4 per cent. As is par for the course, the country's economic commentariat is at a complete loss on how to deal with what it considers to be conflicting data. Several examples will amply demonstrate why this lot cannot be relied on to provide a solid economic explanation of the country's plight.

Terry McCrann is a finance writer for the Herald Sun whose economic commentary is highly regarded in business quarters. This is a great pity considering the extremely poor quality of his economic arguments. He is also prone to slyly readjust his own predictions to make them fit emerging developments. For instance, last September he argued that Australia was not in recession but New South Wales is. (Lane changes in the two-speed economy, 12 September 2008).

Now he argues that the "The 'premier state' was going into recession all on its own, but also pointing to a more general national slowdown. . ." It seems that our Terry is putting a great deal of faith into his gift of hindsight. As I stressed in Real factors signalled an impending recession, not the financial crisis the notion of a "two-speed economy" is utterly absurd.

McCrann follow this up with the puzzled observation that "We were still creating new jobs across the country, but at a slowing pace". There is no puzzle here. I predicted that unemployment would continue to fall even as manufacturing cut production and shed labour. Anyone acquainted with the history of the so-called boom-bust cycle and the Austrian approach to capital and money would have known this. Unfortunately it is no exaggeration to say that our economic pundits' ignorance of economic history and the history of economic thought is truly appalling.

Making matter worse for himself, McCrann congratulated the market process for exposing the economic follies of others, and expressed the pious "hope that market process works to keep us informed on a timely basis. (Hail market process for outing the truth, 13 December 2008). He obviously does not understand that what we are experiencing is the dreadful result of the criminally loose monetary policies of central banks having dangerously distorted the market process. If the market process had been left alone to do its work there would have been no world-wide financial crisis. That this basic fact eluded him serves to reveal that the less he says about market processes the safer the rest of us will be.

Peter Jonson (aka Henry Thornton) simply stated "that the main point that needs emphasis is that periodic crises are a feature of the capitalist system". (Courage and adventure, The Australian, 17 December 2008. This is really terrible stuff and gives readers a completely false impression of why we are in the current financial mire. Periodic crises emerge not from the capitalist system or 'market failure' but from a fractional reserve banking system. So long as banks can create bank deposits out of nothing we will continue to have booms and busts. This is something that the real Henry Thornton gave considerable thought to, leading me to conclude that Jonson has never read Thornton's An Enquiry into the Nature and Effects of the Paper Credit of Great Britain (1802).

Alas, there is still more bad economics to come from Murdoch's Australian. Michael Stutchbury, the paper's economics editor, earnestly wrote that "Australia is now entering an income recession. Our stellar export market is crashing." (Our China crisis, 13 December 2008). More nonsense. Incomes and employment continue to rise even as the economy finally slides into recession. Only when recessionary forces rapidly sweep down the production structure do incomes fall. Stutchbury is merely echoing the fallacy that consumption drives the economy.

Anatole Kaletsky — another vulgar Keynesian — argued that the question "over who allowed the banks to get into this mess in the first place" should be dropped in favour of how to get out of it. (Markets crisis could get much worse, The Australian 2 October 2008). Wrong again. We already know who is responsible and that person is John Maynard Keynes. It was the relentless pursuit of Keynesian policies that brought about this disaster. And yet all that Kaletsky can offer is more of the same toxic medicine. Kaletsky has never given the slightest indication that he has a clue about the nature of the trade cycle.

If by now the thought has occurred to the reader that the economic advice given to our politicians isn't much better than the stuff doled out by the media's economic pundits then you are absolutely right. Christopher Joye was the principle author of the Home Ownership Task Force report for Prime Minister Howard that was produced in 2003. Joye argues that the report was "a solution to the high levels of household debt that triggered the global credit crisis". (Overlooked solution to credit crunch, The Australian, 15 December 2008).

Where the devil does he think the debt came from? Every central banker on the planet recklessly expanded credit and thereby created a world-wide bubble that could only end one way. Take Australia's disgraceful monetary record. From March 1983, when Hawke won the election, to March 1996, when Howard defeated the Keating Government, currency rose by 221 per cent, bank deposits by 400 per cent and M1 by 337 per cent. The Howard years were nearly as bad with bank deposits rising by 224 per cent from March 1996 to November 2007, the figure for M1 was 200 per cent. What has also been overlooked is that manufacturing in Australia and the US began signally recession before the global financial crisis struck.

Right now the Reserve is at it again: for the September-October period M1 grew at an annual rate of about 18 per cent. If our pundits are incapable of learning anything why should we expect any better from central bankers.

Comments

[DownOnMyLuck:]

This article could have been written about the US. Reckless and irresponsible lending, proded by, and guaranteedby, government caused the inflated housing bubble. The bubble collapsed. The solution: reckless and irresponsible lending guaranteed by the government.

2008 Dec 23 10:05 AM