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‘Neo-Liberalism’ Triumphed in 1978.  Who Knew?

Prime Minister Kevin Rudd has produced a 7,700 word essay on The Global Financial Crisis.  Only the first 1,500 words are currently available on-line.  Until I have seen the rest, I’ll refrain from commenting on the substance, such as there is.  If any readers have a samizdat copy, please send it through.

However, if the first 1,500 hundred words are any guide, we can safely comment on the Prime Minister’s style.  Kevin Rudd is notorious for the mind-numbing emptiness of his public utterances.  Rudd’s most overused phrase is ‘for the future’, so it was no surprise that this made it into the first 1,500 words, along with such awful clichés as ‘throw the baby out with the bathwater.’

As with his ‘Between Hayek and Brezhnev’ speech to CIS in August last year, Rudd posits two straw men and then places himself in the reasonable centre.  Rudd’s approach to argument is thus very similar to his approach to politics.  His strategy is to minimise points of disagreement.  But what works well as political strategy won’t fly as serious argument.

posted on 31 January 2009 by skirchner in Economics, Politics

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It’s kind of ridiculous, isn’t it? Just 18 months ago, Rudd was calling himself an “economic conservative”. What does that mean if not a supporter of low levels of government taxing and spending? Does he now reject the floating of the dollar, financial deregulation (in Australia), an independent central bank running monetary policy, reductions in trade protection and reform of GBEs?

Posted by .(JavaScript must be enabled to view this email address)  on  01/31  at  03:03 AM


I suspected that the essay might have been ghostwritten, but given the apparent vacuity of it, he might actually have written it himself (I haven’t read it and don’t intend to).

The Blairist third-way approach is currently falling apart in the UK, so why he wants to tie himself to it I have no idea.

Posted by benson  on  01/31  at  03:37 AM


Kevin Rudd is notorious for the mind-numbing emptiness of his public utterances.

I’m not a fan of Kevin’s speaking style myself, but we haven’t got much of a choice.  The Turnbull who lobbed pot shots at Costello’s tax policy (and Howard’s climate change policy) in 2004-05 seems to have morphed into populist point-scorer little better than Brendan.

The Blairist third-way approach is currently falling apart in the UK

Actually, what’s fallen apart is laissez-faire economics.  I know.  It hurts.  No-one is going to take you guys seriously for a decade.  Deal with it.

Posted by .(JavaScript must be enabled to view this email address)  on  01/31  at  05:52 AM


Actually, what’s fallen apart is laissez-faire economics.

In other words, the third-way approach we heard so much about was actually laissez-faire in disguise. Er, ok.

Posted by benson  on  01/31  at  06:03 AM


Denial won’t help benson.  I feel your pain.

Posted by .(JavaScript must be enabled to view this email address)  on  01/31  at  12:06 PM


A complex series of interventions, institutional failures, economic bubbles, bad management, drastic mis-use of computer models and compounding interactions has a wide range of effects on a wide range of economies and it is summarised as:

what’s fallen apart is laissez-faire economics.

Gee, if policy analysis was that simple, any fool could do it.

Would that be the “laissez-faire economics” which
(1) rationed land use in particular markets creating housing bubbles?
(2) intervened to encourage more home-lending to higher risk home-buyers?
(3) engaged in discretionary interventions on prudential regulation?

etc.

There is surely much to be learned from the current eruptions about how to regulate, or not regulate, financial markets: partly by comparing cross-country performances.  Oz seems to clearly have done better than, well, most folk, for example.  But working through where to draw the line between private action and public regulation has always been a complex matter since there are clearly ways to go wrong in both directions.  Getting all excited about failures in one direction while ignoring all those in the other does not get us anywhere.

After all, the collapse of Japan’s bubble economy and its long stagnation afterwards is a great object lesson in the problems of highly interventionist and discretionary regulation.  And, if, as seems increasingly likely, much of Europe actually suffers worse than the US, that will hardly be a strike against flexible markets over intrusive regulations.

Posted by Lorenzo  on  02/01  at  12:19 AM


Sorry to break it to you guys, but the widespread belief in unregulated, self-correcting financial markets has been shattered for at least a generation.

(2) intervened to encourage more home-lending to higher risk home-buyers?

Hilarious.  When the facts don’t support your ideology, just change the facts!  No-one is buying that story outside of right-wing think tanks.  Like anyone believes all those sub-prime mortgage brokers were badgered into lending by regulators.  Its an absurd notion.

Oz seems to clearly have done better than, well, most folk, for example.

There’s been a lot of premature back patting going on in Australia.  Lets see how well run our banking system is after 12-24 months of falling house prices, corporate failures, and a collapse in demand for our dirt.

As Gerard Minack put it so beautifully in the SMH yesterday:

“The idea that we were a prudent, sensible country that never indulged in the reckless excesses that the rest of the world did - that is complete crap,” he says. “We partied as hard, if not harder.”

Posted by .(JavaScript must be enabled to view this email address)  on  02/01  at  01:25 AM


“But what works well as political strategy won’t fly as serious argument. “

Unfortunately, it has flown as serious argument so far. His Bonhoffer and Brutopia pieces were bad, the original Hayek attack simply appalling and the subsequent Hayek piece was terrible. Hopefully at some stage he is going to get caught out.

In my follow-up to Rudd’s original Hayek piece I found that he had spliced together sentences from different paragraphs into single sentences to mischaracterise Hayek’s thought, yet nobody was interested and nobody pulled him up on that.

The only good thing that has come out is when he tried to argue that Brutopia was an Oakeshottian term and not from Donald Duck comics. I hadn’t heard of Oakeshott before that, but have now read a lot of his stuff and love it.

As an aside, I reckon he wrote the new essay himself and didn’t have it ghosted. He is sufficiently (intellectually) arrogant (not that there is anything wrong with that) to think he could pull it off, and what else is there to do on those long haul flights?

Posted by .(JavaScript must be enabled to view this email address)  on  02/01  at  01:27 AM


the widespread belief in unregulated, self-correcting financial markets
Widespread where?  I must have missed the pressure to wind back prudential regulation in Oz financial markets, for example.

As for interventions in housing market lending in the US (starting with the implicit—and it proved explicit—government guarantee to Fannie Mae and Freddie Mac), it certainly did not cause the problems, but it would be brave to claim it was absolutely not a contributing factor or had no knock-on effects. 

In Oz, bank shareholders took a big hit from the 1980s excesses, but the system kept going.  Given the immediate problems other financial systems had we seem not to have suffered, a modicum of relief seems appropriate. 

The floating exchange rate seems to have again been helpful in ameliorating the shock.  I would agree that housing prices are the biggest potential trouble spot, but since those bubbles are created by land-rationing (discretionary control by officials setting up apparently one-way bets), hardly a point for regulation-is-good.

Posted by Lorenzo  on  02/01  at  02:14 AM


Widespread where?

Everywhere in the Anglosphere.  Come on mate, are you trying to tell me the regulatory environment of the seventies is anything like the regulatory environment of the naughties?  You won a lot of battles over the past 30 years, but looks like you lost the war.  Sorry.

Big government is back—by necessity.

The floating exchange rate seems to have again been helpful in ameliorating the shock.

Its helping in Oz and the UK, its hurting in Japan and the US.  But hey, if the market pushes up the Yen and smashes the Japanese export sector, it must be the “right” outcome, because to think otherwise would be heresy.

since those bubbles are created by land-rationing

Those bubbles were created by easy credit and unregulated risk-management gone haywire.

Posted by .(JavaScript must be enabled to view this email address)  on  02/01  at  04:24 AM


http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403209_pf.html

Posted by skirchner  on  02/01  at  11:23 AM


When people get scared, they look for safety.  Saftey is a government looking after you.
Misguided as I believe it, I have noticed Carbonsinks perspective growing stronger.  K Rudds rantings are a good example of this.

Like Edmond Dantès, laissez-faire economics will do time unjust.  However after its captives mess things up further, it will also emerge stronger, get the treasure and score the hot chick.
Ok ok, maybe not the hot chick.

Posted by .(JavaScript must be enabled to view this email address)  on  02/01  at  03:52 PM


RE: WaPo piece:  Libertarians can crank out all the op-eds they like, no-one is reading them (except perhaps for a giggle).  They’re reading much more revealing stuff like this.

Posted by .(JavaScript must be enabled to view this email address)  on  02/01  at  09:37 PM


There is an awful lot of strawmanning going on

are you trying to tell me the regulatory environment of the seventies is anything like the regulatory environment of the naughties?
The naughties are much less regulated, and are not facing stagflation.  There will be recasting of prudential regulation, but if people think lots of discretionary interventions are a good idea, then the normal problems will arise.

Basically, the 1970s-onwards story is that the collapse in productivity growth and expansion in government spending created an increased policy premium for economic efficiency, which was “cashed out” in relatively standard ways: reduction in transaction costs (de-regulation), re-assignment and better definition of property rights (corporatisation and privatisation) seeking private money for infrastructure (privatisation).  Forms of this pattern go back to the medieval period.

If the issue is now stabilisation, the concern will shift but the general issues will not go away.

if the market pushes up the Yen and smashes the Japanese export sector, it must be the “right” outcome, because to think otherwise would be heresy
Or inference from experience.  To paraphrase, floating exchange rates are the worst way to run currencies, except all the others that have been tried from time to time.  (We can leave aside cases such as Ecuador where dollarisation has been a respite from a political class that really cannot be trusted with control over currency.)

Those bubbles were created by easy credit and unregulated risk-management gone haywire
Yet, somehow government policies to expand and extend easy credit are not relevant?

Anyway, your claim is demonstrably wrong, since there were no housing bubbles in jurisdictions where land was not rationed—e.g. Germany (where the right-to-build is built into the Constitution) or Krugman’s “Flatland”.

Big government triumphalism (or doom and gloom, depending on ideological taste) is inappropriate, since the problems of government intervention will not magically vanish.  There is an interesting debate to be had on where prudential regulation should sit and how.  The notion of wise regulators engaged in discretionary interventions which are reliably beneficial remains at least as much a case of magical thinking as anything the more wild-eyed libertarians can be accused of.

As for Quiggin, “trickle down” is not exactly an economic doctrine while that the poorest tend to benefit from economic growth has a lot of evidence for it in the developing world: admittedly, the problem there is the poor getting any access to capital at all rather than being embedded in a mesh of institutional supports.

Also, leaving aside emergency bank takeovers, I do not think a wave of nationalisations is likely.  Particularly not on Quiggin’s silly cheaper-risk anti-privatisation argument.  (Ask SA and Victorian taxpayers after the Bank of Adelaide and Tricontinental disasters how “cheap” their risk management was.)

Posted by Lorenzo  on  02/02  at  08:34 PM



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