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Setting the Economic Agenda by Wayne McMillan


Economic and financial commentators, central bank gurus, policy research spokespeople and treasury boffins use a language that could be called econo-speak. They talk as if anyone that has difficulty understanding them, must be an economic ignoramus. They frame the economic agenda and decide what will be discussed, how it will be discussed and the terms of the discussion. If any Australians dare decide to discuss economic issues outside the boundaries set by this self-proclaimed economic literati, then be prepared either for ridicule, waspish biased criticism or arrogant refusal to even contemplate differing views.

Considering the economic disaster from the global financial crisis and the bald fact that 99.9% of the econo-speak commentators did not predict this event, it doesn’t stack up that they are the font of all economic knowledge. Even worse if we dig a little deeper and delve into the economic theories that these commentators draw from, we also find out that these are the very flawed theories upon which the global economic crisis was built.

If you search hard enough you can read or listen to well-known economists, alive and dead across the political spectrum, telling all and sundry that orthodox economic theory needs to be rethought as it has failed us. This isn’t a new phenomenon it has been with us for some time. I attended a talk by internationally acclaimed Nobel Prize winning economist Joe Stiglitz in 2014 at the Sydney Town Hall to a packed audience. It was attended by a broad cross-section of people. Joe was adamant that the Anglo-American constructed economic theories had failed many countries especially the USA and warned Australians not to go down the road of austerity policies or follow American orthodox economic ideas.

In the light of these revelations, discussion about economic matters should be up for grabs and no new economic hypotheses and ideas should be labelled nonsense, until they are scrutinised carefully and proven to be empirically invalid.  We need open, free debate about issues relating to budget repair, taxation, deficits and surpluses. The time to drop the TINA (There Is No Alternative) rhetoric is long overdue.

I don’t believe that most Australians think that the economic problems we face are simple to solve, but some of our economic commentators give the impression that this is the case. One of the problems facing us is that many of our politicians follow these commentators like glue, so this doesn’t help to enlighten the public about the range of policy choices available.

A major simplistic technique used by some politicians to explain the Federal Budget is to compare it to an ordinary household budget, which is patently false. Fiscal and monetary policy is far more complex than just balancing the books. Federal budgetary policy, which is one aspect of ‘fiscal’ policy has also a stabilisation role for the economy which is very important for future economic growth and differs greatly from the role of household budgets that seek to keep a family living within its means. Confusion over levels of public and private debt has been deliberately propagated. Australia doesn’t have a high level of public debt, but it does however have a high level of private household debt.

When we come to the financial sector, there is still much confusion and secrecy about how central banks and ordinary banks operate. What does our central bank actually do and what is its role? Can governments who issue a sovereign fiat currency that is free floating, ever run out of money? Do banks create new money out of thin air in the economy by lending to people they see as a good risk, or do they loan out the money of savers?

There are many interesting questions that have come out of the post global financial crisis. New and developing economic theories about Economics abound and they deserve further objective investigation.

We need to sort out the wonkish and ridiculous from those theories or hypotheses that have a firm, empirical basis. We need to look at the facts and relevant circumstances first before we assume any given outcome.

No economic theory comes out of the ether it has a firm foundation in a distinct mix of social, political and ideological contexts. Our media today is not unbiased and I include the ABC in this category, it tends to label certain ideas and theories through a prism of so called assumed norms and mores, which are supposed to be common knowledge. This is a myth and it’s self- perpetuating.

To introduce any new policies it will require a range of sound tests and there will be an element of trial and error. There are no easy answers to complex socio-economic, problems, so we will have to go back to the drawing board more than once. Therefore economic education is needed for the ordinary Australian, to ensure they are not fooled by economists, politicians and economic commentators, who have a vested interest in pushing their own ideological point of view.

Quotes from famous economists.

“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” (Joan Robinson)

 “Economics is extremely useful as a form of employment for economists.” (John Kenneth Galbraith)

 “The only function of economic forecasting is to make astrology look respectable.” (John Kenneth Galbraith)

“…the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.” (Thomas Piketty)

 “Too large a proportion of recent “mathematical” economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.”  (John Maynard Keynes )

 “We move from more or less plausible but really arbitrary assumptions, to elegantly demonstrated but irrelevant conclusions.” (Wassily Leontief)

 “Existing economics is a theoretical system which floats in the air and which bears little relation to what happens in the real world.” (Ronald Coase)

 “The economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” (Paul Krugman)

 “Economics has become increasingly an arcane branch of mathematics rather than dealing with real economic problems.” (Milton Friedman)

“Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing.” (Mark Blaug)

“Economics has never been a science – and it is even less now than a few years ago.” (Paul Samuelson )

“For far too long economists have sought to define themselves in terms of their supposedly scientific methods. In fact, those methods rely on an immoderate use of mathematical models, which are frequently no more than an excuse for occupying the terrain and masking the vacuity of the content.” (Thomas Piketty)

“In my youth it was said that what was too silly to be said may be sung. In modern economics it may be put into mathematics.” (Ronald Coase)

“If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves “what would I do if I were a horse?” (Ronald Coase)

 “Any man who is only an economist is unlikely to be a good one.” (F. A. Hayek)

“The study of economics has been again and again led astray by the vain idea that economics must proceed according to the pattern of other sciences.” (Ludwig von Mises)

“The use of mathematics has brought rigor to economics. Unfortunately, it has also brought mortis.” (Robert Heilbroner)

 “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”  (Laurence J. Peter)

 “When an economist says the evidence is “mixed,” he or she means that theory says one thing and data says the opposite.” (Richard Thaler)

 “The First Law of Economists: For every economist, there exists an equal and opposite economist. The Second Law of Economists: They’re both wrong.” (David Wildasin)

Wayne McMillan is a recovering student of Economics living in Whalan NSW. He is an active member of Rethinking Economics Australia, an organisation dedicated to fostering new economics education and learning for the 21st century.