There is only one thing worse than having trouble finding shovel-ready projects when a Keynesian mind-set is afoot in the land. That’s having lots of projects that are easy to start. Here is an old (Feb 2009) New York Times article on what happened in Japan:
HAMADA, Japan — The Hamada Marine Bridge soars majestically over this small fishing harbor, so much larger than the squid boats anchored below that it seems out of place.
And it is not just the bridge. Two decades of generous public works spending have showered this city of 61,000 mostly graying residents with a highway, a two-lane bypass, a university, a prison, a children’s art museum, the Sun Village Hamada sports center, a bright red welcome center, a ski resort and an aquarium featuring three ring-blowing Beluga whales.
Nor is this remote port in western Japan unusual. Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.
So maybe, just maybe, we’re lucky that there weren’t a lot of shovel-ready projects and that the so-called stimulus wasn’t twice as big.
Bob Higgs’s latest blog-post is a must-read – one that deserves here to be singled out.
Because of the great variety of ways in which government officials can threaten private property rights, the security of such rights turns not only on law “on the books,” but also to an important degree on the character of the government officials who administer and enforce the law. An important reason why regime uncertainty arose in the latter half of the 1930s, for example, had to do with the character of the advisers who had the greatest access to President Franklin Roosevelt at that time—people such as Tom Corcoran, Ben Cohen, William O. Douglas, Felix Frankfurter, and others of their ilk. These people were known to hate businessmen and the private enterprise system; they believed in strict, pervasive regulation of the market system by—who would have guessed?—people such as themselves. So, as bad as the National Labor Relations Board was on paper, it was immensely worse (for employers) in practice. And so forth, across the full range of new regulatory powers created by New Deal legislation. In a similar way, the apparatchiki who run the federal regulatory leviathan today can only inspire apprehension on the part of investors and business executives. President Obama’s cadre of crony capitalists, which he drags out to show that “business is being fully considered,” in no way diminishes these worries.
Here’s a letter to the Washington Post:
Even if everything Lord Keynes wrote about a capitalist economy is right, Nicholas Wapshott is wrong to write about Keynes that “we owe our understanding of how an economy works to him” (“Was Keynes a Keynesian? In theory.” Sept. 4).
Keynes contributed nothing to that most fundamental analytical tool used by economists still today: supply and demand. (That analysis was fully formed a generation before Keynes wrote.) Not surprisingly, then, Keynes added nothing to our understanding of the vital role of prices in allocating resources. Likewise, he added nothing to our understanding of competition, of the determinants of industrial concentration, or of the function of the entrepreneur. His contribution to international-trade analysis was minimal, as were his additions to our knowledge of economic history and of economic development.
The claim that “we owe our understanding of how an economy works” to Keynes is like saying that we owe our understanding of the way an automobile works to someone who famously explained only why automobiles sometimes run out of gas and what are the consequences of such a misfortune. Even if unassailable in every detail, such an explanation isn’t remotely close to being a “general theory” of how the mechanism in question operates.
Donald J. Boudreaux
Hayek wrote in 1937 that “before we can explain why people commit mistakes, we must first explain why they should ever be right.” Reasonable people mightcredit Keynes with better explaining why people commit mistakes, but it is simply absurd to credit Keynes with playing a key role in explaining why and how economies work well enough in the first place ever to break down.
UPDATE (reflecting a comment that I just made to this post): If economics were automotive science, Keynes and the Keynesians can at most be credited with drawing more attention than pre- (or non-) Keynesians gave to the importance of keeping the automobile’s fuel tank filled adequately with gasoline. Yes, adequate fuel is important. The car doesn’t run without it. And Keynes and his followers also offered explanations for why the car’s fuel tank might become dangerously low on gasoline – explanations either regarded as special cases by non-Keynesians, or dismissed by non-Keynesians as wrong.
But even if Keynes’s and his followers’ explanations of why a fuel tank can get too low on fuel, and of what are (some of) the consequences of a fuel tank being too low on fuel, are compelling, such a focus says next to nothing about what makes the engine and transmission work. It says nothing about what the pistons do and how the pistons work in detail; nothing about how the energy produced by the engine is transformed smoothly into the rotation of the tires; nothing about steering; nothing about carbueration; nothing about braking; nothing even, really, about all the details of the mechanics of ensuring that the fuel is fed into the engine at just the right rate.
That is, even if non-Keynesian automotive engineers said too little (or too much that is mistaken) about the importance of keeping the fuel tank adequately filled with appropriately octaned gasoline – and even if everything Keynesians said about why and how the fuel tank can get too low, and about the consequences of its getting too low, is spot-on correct – the analysis offered by Keynes and his apprentice mechanics is not an explanation of how the car works. It’s no “general theory” of automotive engineering.
Not all – not even most – stalled or sputtering or herky-jerky or inadequately powerful automobiles can be fixed simply by adding more fuel to the tank. The problem almost always is something detailed, under the hood, in the ‘micro’mechanics of the engine, transmission, or some other non-fuel-tank part of the car. Simply creaming “add more fuel!” isn’t good automotive science even though there are situations in which adding more fuel is the correct remedy.
What I’d like him to say is the same thing I wanted him to say in January of 2009. My druthers haven’t moved at all.
Whenever someone writes about infrastructure or bridges, they always use the word “crumbling” and say that we have neglected our infrastrucutre. We have to spend more, we’re told.
It is good to remember this picture from David Leonhardt’s November 2008 column on infrastructure that shows that federal spending on infrastructure as a proportion of GDP was actually higher in 2008 than it had been any time since 1981.
Here is Leonhardt’s assessment of the problem. This, of course, is before the stimulus passed. But Leonhardt was prescient about the problems:
The House recently passed a bill that would allocate $18 billion for new construction projects. Barack Obama has signaled that he will sign a version of that bill and probably ask for tens of billions of dollars of additional spending to create badly needed jobs and help fix up America in the process. Money is going to start flowing.
And yet when it comes to the nation’s infrastructure, money isn’t the main problem.
A lack of adequate financing is part of the problem, without doubt. But the bigger problem has been an utter lack of seriousness in deciding how that money gets spent. And as long as we’re going to stimulate the economy by spending money on roads, bridges and the like, we may as well do it right.
It’s hard to exaggerate how scattershot the current system is. Government agencies usually don’t even have to do a rigorous analysis of a project or how it would affect traffic and the environment, relative to its cost and to the alternatives — before deciding whether to proceed. In one recent survey of local officials, almost 80 percent said they had based their decisions largely on politics, while fewer than 20 percent cited a project’s potential benefits.
There are monuments to the resulting waste all over the country: the little-traveled Bud Shuster Highway in western Pennsylvania; new highways in suburban St. Louis and suburban Maryland that won’t alleviate traffic; all the fancy government-subsidized sports stadiums that have replaced perfectly good existing stadiums. These are the Bridges to (Almost) Nowhere that actually got built.
They help explain why our infrastructure is in such poor shape even though spending on it, surprisingly enough, has risen at a good clip in recent decades. Spending is up 50 percent over the last 10 years, after adjusting for inflation. As a share of the economy, it will be higher this year than in any year since 1981.
So if you talk to people who spend their lives studying infrastructure, you’ll hear two reactions to the attention that Mr. Obama, Nancy Pelosi and even some Republicans are now lavishing on the subject. The first is: Thank goodness. The second is: Please, please don’t just pour more money into the current system.
“The system is fundamentally broken. We send a blank check and kind of hope for the best,” Robert Puentes, the infrastructure maven at the Brookings Institution, told me. “We need an extreme makeover.”
We’re always being told that we need to spend more money to fix the problem. That is much easier than fixing how the money is spent.
… is from page 197 of Ron Chernow’s 1998 biography of John D. Rockefeller, Sr., Titan:
In 1875, Henry E. Wrigley, the head of the Pennsylvania Geological Survey, issued a doomsday warning that the state – and hence the world – production of oil had peaked and would soon experience a precipitous decline, aggravating fears that had overshadowed the oil industry since its inception.
In this week’s EconTalk, Cliff Winston makes the case for deregulating the market for lawyers. The conversation is based on his new monograph with Robert Crandall and Vikram Maheshri, First Thing We Do, Let’s Deregulate All the Lawyers.
Andrew Bolt – Tuesday, September 06, 11 (04:59 pm)
Just what is everyone so frightened of?
First Glenn Milne has his entire column on Julia Gillard’s past relationship with a union conman pulled by The Australian, and is then dumped by the ABC as a commentator.
Now 2UE’s Michael Smith has been suspended for trying to raise the same issue and broadcast an interview with a former state president of the Australian Workers Union. Despite what Media Watch claimed last night, the decision to censor Smith’s broadcasts seems to have been based not on the usual legal grounds, because the interview and some subsequent material had been properly legalled. No, I suspect other considerations were behind it, and Media Watch should defend Smith, not slime him.
The issue isn’t so much whether you think this story is old news and a smear, or whether you think its relevant news about an issue that has never been fully investigated or properly answered.
The issue is whether you think the public should be allowed to decide such a thing for themselves, or whether you think government threats and a weak media should keep the information from it.
Again I should note that I make not the slightest suggestion that Gillard ever did anything underhand or remotely illegal. For me the issue was her judgment and the potential impact of the issue on her leadership. But now all that is as nothing compared to the issue now: a defence of a free press.
Andrew Bolt – Tuesday, September 06, 11 (03:38 pm)
Labor has a choice to make: does it dump Julia Gillard alone, or the tax with her?
Everything suggests the tax be axed, too, but Gillard now ups the ante:
Lower house leader Anthony Albanese says parliament will start two hours earlier than usual next Tuesday in order for the 13 bills to be introduced.
How many of her successors want to be arguing for these bills today, only to dump when they take over?
Another reason to strike within the week.
Andrew Bolt – Tuesday, September 06, 11 (03:12 pm)
Reader Professor Ashley W Goldsworthy (a former Liberal Party president) has a worry about our super rules:
1 I will be 76 in 8 weeks
2 I work full time as Chairman/CEO of 4 companies (one a not-for-profit employing 250 apprentices)
3 I have been a PAYG taxpayer all my working life and still am.
4 I manage my own DIY super fund.
5 Because of my age I am not able to make any contributions to my super fund.
6 Because of my age I face an increasing compulsory minimum withdrawal every year (even if I do not need the money because I am still working)
7 If the earnings of the fund are not sufficient to generate enough cash I then have to sell assts to meet the minimum withdrawal, and hence reduce the value of the fund.
8 Hence I have no way to further grow my super fund to support myself and family when I do retire. (I have four adult children all gainfully employed and 10 grandchildren)
9 I have never drawn a cent of welfare and yet am prevented from further ensuring I shall not be a burden on the public purse.
What is the logic in not allowing me to contribute superannuation while I am gainfully employed and why should I be forced to withdraw funds from my super fund, which can only have the effect of increasing the probability of one day relying on public welfare? Is it not to the benefit of the nation to encourage people to build their own super funds whilst still working (I am not arguing for large lump sum deposits)? I thought we were trying to encourage mature people to continue in the workforce? Why put disincentives in our way?
(No link to this email.)
Andrew Bolt – Tuesday, September 06, 11 (10:09 am)
Everything’s fine with Julia Gillard, and every Age reader should ignore any evidence to the contrary.
(Thanks to reader Joel.)
Andrew Bolt – Tuesday, September 06, 11 (07:12 am)
Bishop is right, of course, but Labor’s Left is now beyond such reason:
LABOR’S split over asylum seeker policy has deepened, with West Australian senator Mark Bishop becoming the first Labor MP to call unequivocally on the government to process asylum seekers in Nauru.
Senator Bishop declared it would be better for Labor to take some political pain to solve the problem properly…
Senator Bishop, from the right, said if the aim of offshore processing was abandoned, ‘’you encourage the boat people to go into overdrive. That will challenge the integrity of our immigration policy.’’
If Nauru came under the UN refugee convention - as it will later this month - ‘’you can have a proper office there doing the processing, staffed by Australian officials applying Australian law’’. It would not be significantly different to what happened when people applied to Australian embassies in other countries, Senator Bishop said.
Andrew Bolt – Tuesday, September 06, 11 (07:05 am)
It is illegal to offer a politician an inducement for his vote. Is it illegal to offer a politician $150,000 to stay in Parliament?
Close colleagues of former Health Services Union chief turned MP Craig Thomson said the scandal had all become too much for him, a source inside the party said.
“They have expressed the view he’d much prefer to go,” the source said. “It would be a lot easier with his family life, but he’s not allowed to.”
However, Mr Thomson said last night: “That is completely and utterly untrue and I am not resigning.”
Meanwhile, Labor is struggling to explain the payout even to its own members:
The claim comes after a heated meeting of Labor officials on Friday in which NSW Labor president Michael Lee defended the party’s decision to spend more than $150,000 on Mr Thomson’s legal bills. Party elder and former NSW MP Johnno Johnson is among those understood to have told senior party officials that the party would not be prepared to write a “blank cheque” for Mr Thomson, after it emerged the party had funded the legal fees to stop Mr Thomson becoming “bankrupt” and being forced to resign from parliament.
The money was paid after the defamation action Mr Thomson brought against Fairfax - over allegations that when he worked for the HSU he used his credit card to hire prostitutes - was settled.
Sources said Mr Lee told the administrative committee meeting: “We can’t afford a by-election. It would cost the party a lot of money, let alone the fact that we’d lose."…
But there is growing anger within the party at Sussex Street after it was revealed Mr Thomson had recently lodged a development application for a $100,000 extension to his Bateau Bay home…
Mr Thomson was telephoned by Sussex Street officials on Friday to establish why he had lodged the development application on his house, shortly after Labor agreed to pay his bills. He told the officials he had no plans to develop and simply lodged the DA so his property was worth more and he could borrow against it to pay down debts.
(Thanks to reader CA.)
Andrew Bolt – Tuesday, September 06, 11 (07:01 am)
I don’t know if this is a safe time for Julia Gillard to be out of the country for a few days:
A uniquely large number of world leaders are joining New Zealand’s John Key and Australia’s Julia Gillard at the Pacific Islands Forum summit that starts in Auckland ...
Andrew Bolt – Tuesday, September 06, 11 (06:56 am)
Another front opens in Labor’s war for survival:
PREMIER Barry O’Farrell will declare war on Julia Gillard in his government’s first budget today, announcing he will increase state mining royalties in retaliation for the Prime Minister’s carbon tax.
The decision will mean Ms Gillard will have to forego funds from her mining superprofits tax, putting the federal budget surplus of $3 billion for 2012-13 in jeopardy.
Under the PM’s deal with the mining companies, any state mining tax increase must be offset by the federal government cutting their tax by the same amount. A similar measure by WA Premier Colin Barnett earlier this year cost the federal government $2 billion…
Mr O’Farrell and Treasurer Mike Baird will argue NSW has no choice but to increase mining royalties unless Ms Gillard presents a compensation package for the more than $900 million the state claims its budget will be affected by a carbon tax over four years.
The first item of business for Gillard’s replacement: axe the tax.
(Thanks to reader CA.)
Andrew Bolt – Tuesday, September 06, 11 (06:51 am)
In the wake of the Malaysia offshore processing case, the Prime Minister was entitled to express surprise that French’s judgment seemed inconsistent with decisions he made when on the Federal Court. Justice Dyson Heydon, in his dissenting judgment, cited two Federal Court decisions in which French found that the government had the right to send asylum seekers to another country…
Heydon cited six one-time Federal Court judges, including French, whose decisions he regarded as authority for the validity of the Gillard government’s proposed asylum seekers swap with Malaysia.
In his judgment, French did not address the decisions he made when on the Federal Court.
French was appointed Chief Justice of the High Court by the Rudd government in 2008 following the retirement of Murray Gleeson....
No one doubts French’s qualifications. However, the evidence suggests that - unlike Gleeson - French is heading up an activist High Court. In the Australian Financial Review which appeared on August 15, journalists Alex Boxsell, Samantha Bowers and Hannah Low cited experts as declaring that the French High Court “is gaining a reputation for striking down laws, frustrating contentious government policies and delivering novel and innovative judgments”.
University of NSW academics George Williams and Andrew Lynch, who are not opposed to judicial activism, have also reached a similar conclusion.
In a paper titled The High Court on Constitutional Law: The 2010 Term, the pair argue that the French court marks a “significant change” from the Gleeson court. Williams and Lynch depict the French court as taking on the Commonwealth and the states by a process of “undoubted constitutional creativity”. This is legalese for judicial activism.
All this is a worry, if true. But attacking French was bad politics. What’s more, it overlooks the point that five other judges agreed with his basic opposition to the Gillard Government’s plan.
Andrew Bolt – Tuesday, September 06, 11 (06:21 am)
JULIA, resign.... Resign, Julia. Resign yourself to the fact you’ve failed. Resign yourself to the fact nothing you do has a desirable political effect [What a Ruddish phrase - “desirable political effect” - Ed.]…
Resign yourself to the certainty that you’re leading your party to electoral slaughter…
Resign. You led the coup against Kevin Rudd… You were as responsible for his removal and humiliation as was John Kerr for Gough Whitlam’s. And it’s been a disaster....
While long pro-Kev I’m not blind to his shortcomings. He can exasperate, even infuriate.
But I’m persuaded [by Rudd? - Ed.] he’s learned lessons about being more courageous and collegiate. And let the record show that the excuses used by you and your fellow assassins were the policy failures that you Julia, you, pushed in both the full and kitchen cabinets. They were your policy failures as much as or more than his. [Er, wasn’t Rudd in charge, then? - Ed.]
At the same time you were blind to Rudd’s achievements, most importantly his tactical response to the global financial crisis mark I. It was fast, intelligent and successful. Few believe you can perform to his level for GFC II....
However, the most urgent issue is GFC II. Rudd is far better equipped to deal with it than you [Rudd choosing the most advantagous ground to fight on? - Ed.]
The same polls you used to justify his dismissal show voters would prefer him back in office.
Unless you want to reduce the parliamentary Labor Party to a rump, you must step down....Only with Rudd as prime minister will Labor have fighting chance against Abbott.
Resign, Julia. Resign.
Yesterday former Queensland Premier Peter Beattie suggested Rudd was again leaking against Gillard. Here’s his confirmation. oh, and some backgrounds: it was Adams who was granted Rudd’s first media interview after he was sacked as PM.
Andrew Bolt – Tuesday, September 06, 11 (06:10 am)
In denying too glibly, Communications Minister Senator Stephen Conroy provoked someone to corroborate. Nikie Savva:
Last week Stephen Conroy strenuously denied the contents of a 2009 cable sent by the former US ambassador, Robert McCallum, saying that Conroy “cannot stand” Julia Gillard.
Perhaps McCallum misheard. Maybe one of my sources did too when he told me of another Conroy conversation which I reported recently as despair sinking to depression in Labor ranks.
A senior cabinet minister had confessed political life had become intolerable, acknowledging the carbon tax was destroying the government, yet they could not walk away from it; he admitted his grave doubts about climate change science, revealing himself as one more sceptic in the government, and effectively admitting the campaign on media bias was a diversion.
My source would not then allow me to name the cabinet minister. He changed his mind when he saw the WikiLeaks cable quoting Conroy, horribly inaccurately, of course. Conroy can also insist this conversation didn’t happen, just as he and his colleagues insist Gillard’s leadership is safe.
That Conroy is a sceptic of the theory that man is heating the planet dangerously is not news to me. Add fellow ministers Martin Ferguson, Gary Gray and even, some say, Craig Emerson and others.
But what concerns me is that Conroy, in his desperation to save the Government, could play with the “diversion” of a media inquiry to intimidate the press - an inquiry that, if left unchecked, could impose restrictings on press freedom. Like conniving at monstrous irrationality and irresponsibility of a carbon dioxide tax to “fix” a largely imaginary problem, it is putting politics above policy, and party advantage above the national interest.
Andrew Bolt – Tuesday, September 06, 11 (05:46 am)
Newspoll is utterly devastating for Labor:
For Julia Gillard personally, it is even worse:
Voter satisfaction with Ms Gillard ... fell six points to a record low of 23 per cent as dissatisfaction jumped seven points to 68 per cent. The only modern prime minister with worse personal support was Paul Keating, who had a satisfaction level of 17 per cent and dissatisfaction of 74 per cent in August 1993.
And we all know what happened to Keating when voters finally could get their hands on him, three years later.
Head to head with Abbott, it’s never been worse for Gillard:
Mr Abbott jumped clear to a nine-point lead over her as the preferred prime minister, with a rise in support from 39 per cent to 43 per cent. Ms Gillard’s support fell four points to a new low of 34 per cent.
This is Mr Abbott’s biggest lead over Ms Gillard ...
With Simon Crean and Bill Shorten unwilling to move openly against Gillard, the public sentiment is left to firm behind the man who actually helped to create this disaster in the first place:
Asked who out of Ms Gillard and Mr Rudd was the best candidate to lead the Labor Party, voters chose Mr Rudd 57 per cent to Ms Gillard’s 24 per cent.
And the Greens should feel humiliated, too. Labor has lost 10 points of its support, but not a scrap of its has gone to the Greens. Rather, these extremists have gone backwards, too:
...a two-point fall in Greens support from 14 to 12 per cent
In the latest Newspoll survey, taken exclusively for The Australian last weekend, Labor’s primary vote was stuck at 27 per cent, eight percentage points below Labor’s primary vote on the weekend before Mr Rudd was removed… In June last year, Mr Rudd was nine points ahead of Mr Abbott, 46 per cent to 39 per cent, but last weekend Mr Abbott was nine points in front of Ms Gillard 43 per cent to 34 per cent.
Niki Savva has a sobering analogy as she writes off Gillard:
As gut-wrenching as it will be for Labor MPs to dispatch their second prime minister in a row, and to suffer all the bad jokes and gibes - including mine of Australia becoming the Italy of the Pacific, with four prime ministers in four years (Howard, Rudd, Gillard and Rudd?) - they have little choice. Gillard has shown she is not up to the job. Wayne Swan, who will also have to go when Gillard does, has described her as tough as nails. He’s right. One problem. Tough does not equal smart. She has made too many mistakes and shown a worrying inability to learn from any of them. Under her, Labor has fallen to its lowest levels ever…
No matter how much she wants to stay as prime minister, and her determination is formidable, it is now out of her hands. She has failed on policy, on administration, on credibility, on judgment and on presentation.
Andrew Bolt – Monday, September 05, 11 (06:51 pm)
Mary Crock is billed by Radio National’s breakfast program as a “refugee law expert and professor of public law at the University of Sydney”. This expert refuses to believe that Kevin Rudd’s relaxation of the boat people laws in 2008 lured the boats, and tells a credulous Fran Kelly that John Howard is more to blame:
The Immigration Department is either telling lies, or Crock is spinning hard for Labor.
(Thanks to reader Michael.)