12th August 2010
I normally don't comment on Australian policy, particularly where it is somewhat related to my official work. But in areas where my official role is not directly involved, I am able to comment without violating Conduct Rules. And so this post deals with Australian policy. I would like to remind everyone that my views are purely my own and do not represent the official entity that I work for.
Remember that I have commented adversely against the bailouts and stimulus packages in the USA (here). The so-called "stimulus" package in Australia has proved the same point point closer to home: that Keynesians are the greatest enemies of the West, along with Rawlsian social "liberals" or social democrats.
With NOT THE SLIGHTEST CLUE about how governments actually work (never having worked in the 'trenches' perhaps, inside government), these economists rush in where angels fear to tread, borrowing money in the billions and then throwing it into the ditch.
I had read a lot of Stiglitz's work as a doctoral student and to an extent he talks sense, but I soon realised that he is among the economists best avoided. I am now very clear that Keynesians of all sorts are dangerous ignoramuses, with absolutely no clue about human incentives and capacities. If only they had the slightest idea of how governments actually work. But they also have an ego the size of the dung on top of the dung beetle: always confident about their reckless "plans" for the economy. Socialists at heart, they are not bothered about things like individual freedom and the limits of a government's role. The whole society is theirs to experiment with, it would appear, with taxpayers' money. If money doesn't exist, they'll print it.
The following article in The Age today is a breath of fresh air, putting out the key arguments against the reckless destruction of wealth and damage to incentives caused by Keynesians (and he has left out: the welfare socialists) to Australia.
(I just visited Ferguson's website (here) and found a bunch of interesting articles such as "End of the Euro" – the end of which seems inevitable unless strong enforcement mechanisms are devised. The monetary union is turning out to be a cartel where penalties can't be enforced. Ferguson is an economic historian at Harvard – definitely worth reading more of his work.)
Key point from his article:
"Joseph Stiglitz … praised the government's debt splurge as "one of the best-designed Keynesian stimulus packages of any country"." "But is Stiglitz sure — I mean graduate-seminar sure, as opposed to Fairfax-press sure — that this was really due to the government's $52 billion cash splash?"
(Clearly Stiglitz is imagining things, of that one can have not the slightest doubt).
The "more plausible explanations for Australia's relative outperformance" include: "1. Lady Luck 2. The Howard government 3. The RBA 4. China 5. The mining industry".
Indeed, I have argued at length on internal forums on FTI that Australia's financial system, reformed after the Wallis Review of 1997 (during the Howard government) significantly reformed the financial system and created checks and balances. There remain a few gaps which I believe can be eliminated without significant additional regulation but by better focusing of attention by the regulators.
There does exist a significant further phase of financial reform (for India but equally applicable to Australia – see DOF) which will include dissolution of the central bank and splitting its function into the private sector or independent regulators – as appropriate. Once that happens, all major risks to the financial system will be eliminated.
The government must ONLY regulate. It must NOT directly manage the financial system. And (in relation to the 'stimulus') while infrastructure funding is valid, reckless burning of tax-payer funds is not.
Must read this related article: http://www.nytimes.com/2010/08/12/opinion/12poole.html?_r=1