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The Forum > Article Comments > An imperfect liberal democratic perspective > Comments

An imperfect liberal democratic perspective : Comments

By Chris Lewis, published 25/1/2011

Austrian economics ignores the real world consequences of its recommendations.

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I was looking forward to a discussion of the contending orthodox versus Austrian school views of the issues behind the GFC but was disappointed to find that Chris has failed to land a blow, or even to get in the ring.

To do that, he would need to make an argument that does not rely entirely on misrepresentation, personal argument, appeal to absent authority, non-sequiturs, or assuming what is in issue.

Then, to even begin a competent argument, he would need to
o understand and be able to correctly represent the theory he purports to criticize – not merely quoting garbled criticisms by its detractors
o understand the refutations that Austrian theory has made of the amalgam of Marxian, Keynesian and neo-classical theories on which he himself relies without apparently being aware of it
o take account of those refutations in making good his own critique of Austrian theory.

Chris has done none of that, and I grow tired of shooting fish in a barrel. Chris has made no case to answer, and it is poor sport to keep berating him for failing to meet minimal standards of logical thought that he is either unable or unwilling to understand.

E for effort, I’m afraid.
Posted by Peter Hume, Tuesday, 25 January 2011 4:09:56 PM
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Peter,

sorry I am not up to your standard.

Perhaps you could enlighten us with some of your publications, or even present an article for readers to absorb your wisdom.
Posted by Chris Lewis, Tuesday, 25 January 2011 4:15:49 PM
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Nice piece. I think the piece Mr Hume is asking for would be inaccessible to most readers and ultimately, would be a different article. You can't criticize an apple for not being an orange.

No single economic theory is without its problems. Economies by their very nature are an amorphous entity, evolving with the players within them. There will always be some who break the rules, indeed, capitalism is predicated on the notion that we can't trust large groups to control market forces. So imposing a universal system, even a free capitalist one, presents a paradox insofar as it requires players to not break the rules whilst basing itself on the notion that they always will.

In relation to China, I'm constantly amazed by the uncritical voices who extol China's economic virtues without also mentioning the unsustainable practices that are responsible for mainaining the breakneck growth we've seen in recent times. I guess it's a similar variation on those who went along with the wild ride that culminated in the recent US stock market crash. Nobody wants to be the one to point out that the stormclouds are gathering.

As for the idea that China's system is somehow more dynamic, I'd argue it's much less innovative. The bulk of Chinese GDP is still generated by state owned companies. Hardly an advertisement for private industry and innovation, particularly given that China lacks any large, well known brands. It's also interesting to note how much of that GDP is coming from property speculation, and given the insane increases in real estate prices seen in Beijing, Shanghai and elsewhere, this seems like another property disaster in the making.
Posted by TurnRightThenLeft, Tuesday, 25 January 2011 7:43:48 PM
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Nice article Chris. Far from being involved in free trade, the history of China's manufacturing is one of subsidies designed to put its international competition out of business. I remember an Indian seller of silk complaining that he could not compete with China because, for his price for just the silk material, the Chinese would sell the customer a finished wedding dress. Now the Chinese have openly stated that they want to become the world leaders in solar cell manufacturing and they are going to undercut international competitors to do it. We should impose tariffs on Chinese goods that are subsidised by the state or produced under working conditions that violate what we consider reasonable labour practices. Yes, ti would make many things more expensive here - WOW! we would have to cut down on consumption of "stuff"! But we would also have more people employed in manufacturing and our economy would be healthier through diversity.
Posted by michael_in_adelaide, Tuesday, 25 January 2011 11:00:48 PM
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A nice middle of the road potted history of opposing economic ideologies. But finally conservative, offering nothing in terms of fresh thinking, in fact bolstering the status quo between liberal and protectionist policies. This kind of social "maintenance" is typical of popular politics, driven of course by Australia's dominant middle class. The real problem to be addressed is that economic liberalism, whatever its merits, is anti-social, even anarchist, and democratic socialism is unsustainable. Both are environmentally unsustainable.
On China; the abuses going on there precisely mirror those of our own early industrial era. Moreover, we absolutely condone and indeed encourage these abuses by selling China raw materials and buying cheap Chinese goods. Similarly, the Victorian bourgeoisie (and Western equivalents) were directly responsible for the misery that purchased their lifestyles.
So Chris, I hope you'll go on now and develop an angle, an opposing or alternative view to the vacillating economics that continue to demean cultures and rape the planet.
Posted by Squeers, Wednesday, 26 January 2011 7:03:26 AM
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squeers,

There is a lot of truth to what you say; I certainly don't offer any perspective capable of addressing environmental considerations or the competitive behaviour of other nations.

If i was to offer a perspective more considerate of environmental concerns alone, I would probably cop a lot of flack from those representing the perspective of poorer nations and their eco opportunities.

Whatever way I look at it, I do not see any easy (or original) answers, besides those offered by the extremes of the left and right which are unlikely to be fulfilled due to the ongoing competitive realities of the world.

Yes, the world is likely to remain unfair for a very long time, most likely forever. That is why we also have to pay considerable attention to the national interest, just as China does.

And Western societies may have indeed behaved like China does now.
However, I certainly hope we never return to those days just to remain competitive.
Posted by Chris Lewis, Wednesday, 26 January 2011 7:26:26 AM
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Indeed Chris, the struggle for the 'right policy mix' is an arduous one with the conflicting extremes of Left and Right forever battling for the 'moral' high ground.

'... most appropriate balance between markets forces and government intervention. In the real world, people and nations have real concerns from their economic interaction which have to be addressed..."

That is it in a nutshell. I wonder how long free trade concepts will dominate global economics. Free trade is not the panacea of all ills as it's proponents claim, it can foster an environment in the developing world that is anything but free as reflected in your Taiwan example.

Industries of various shapes and sizes (auto,clothing,agriculture) are lost to many nations due to cheap labour and incentives in the form of subsidies provided by governments like China. Blind freddy can see that subsidies and incentives are hardly in the 'spirit' of free trade. A recipe for disaster and we have to ask why do governments keep inviting disaster?

While each nation does not necessarily need to have a domestic presence in all industries, self sufficiency does more for economic wellbeing with trade as required (not as demanded by outside interests). Biosecurity and regulations regarding the use of pesticides like DDT,, presence of pathogens like E.Coli (eg. recent freeing up of apple imports from China) are overridden as quickly as a CEO will vote for his next yearly bonus despite falling share prices.

Protectionism is a dirty word because economists, the media and governments have made it so. Once a bandwagon gathers momentum it is easy to disown the benefits of self sufficiency, public ownership of some essential assets etc. Offshoring and foreign ownership of essential services must be the biggest travesty and betrayal by our political representatives.

The biggest obstacle to discussion around global economics is adherence to dogmatic views of Left and Right ideology. At the moment the Right is streets ahead. We have the appearance of government regulation but little positive impact in the economy and the habit of repeating the same behaviours that led to the GFC.
Posted by pelican, Wednesday, 26 January 2011 9:24:15 AM
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Cont.../

Forgive a quote from a movie- 'Wall Street' character Gordon Gekko which sums up the current world economies perfectly:

"The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bull... You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market. And you're a part of it. You've got that killer instinct. Stick around pal, I've still got a lot to teach you."
Posted by pelican, Wednesday, 26 January 2011 9:25:45 AM
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Chris,
Your example of the practices of Foxconn did bring to mind many instances I have read pertaining to the Industrial Revolution in Britain.

Britain's revolution had a similar impetus to China's except that it in Britain it seemed to evolve with almost no political or government intervention. Whole families were corralled in unhealthy and soul-destroying work environments - the collective slavery of the new capitalism. This was only addressed when government stepped in with various Factory Acts to curb the excesses of private enterprise as to their widespread disregard for their workers' welfare.
But as Squeers has pointed out, that in the West it was this intervention and all those since that has sustained capitalism, and contributed to our continued rapacious behaviour.
Posted by Poirot, Wednesday, 26 January 2011 9:31:30 AM
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Thanks Poirot.
The further point I was trying to make is that we are as directly responsible for the abominations in China as Victorian consumers were for "their" working classes. It's a global system and no good our waxing sanctimonious about conditions in China if we're not prepared to cease trading with them until reforms are put in place.
The problem of course is that we're addicted to growth and cannot afford to back-up the human rights we claim to believe in. As long as wealthy countries like Australia fail to act against the evils perpetrated by global capitalism, it will go on. We're encouraging a return to economic liberalism--with a micro-thin veneer of humanity on top--by stealth.
Full-on protectionism is worse and akin to Fascism. At the working class-level, with its roots in xenophobia rather than ethics, protectionism is the socialism of fools: "safeguard my job against the people who are competing with me".
The Australian government should be prepared to act ethically, and Australians should be willing to gird their loins in support of a more humane and sustainable world. Other countries might just follow suit. Don't forget that the rise of China et al, that we're all so nervous about, is dependent on Western consumers.

Failing that, we should cut the humanitarian pretence (especially on days like today, when we celebrate "what" exactly---Schadenfreuda?) and just confess that we're a miserable nation of self-seeking, amoral hedonists!
Of course that excludes those who think it makes it ok if they go to church and pray..
Posted by Squeers, Wednesday, 26 January 2011 10:18:53 AM
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Squeers,

Here's something William Cobbett observed in 1824 after a tour of the mills and factories in the counties of northern England. Commenting on the inhuman conditions and alluding to the lack of personal liberty, he wrote:
"Nine hundred and ninety-nine thousands of the people of England have not the most distant idea that such things are carried on, in a country calling itself free; in a country whose Minister for Foreign Affairs is everlastingly teasing and bothering other powers to emulate England in "her humanity..."
While the practices in China are not "our practices" we close our eyes and our consciences to the workplace ethics employed by China. These ethics are cut from the same cloth and follow the same pattern as those practiced in early industrial Britain.
As long as the "stuff" keeps flowing so cheaply onto Western shelves we are content to ignore dubious foreign work practices and the unsustainable environmental degradation associated with their manufacture.
Lastly, we cruel ourselves by losing the skills and productive impetus that comes from nurturing our own manufacturing base.
Posted by Poirot, Wednesday, 26 January 2011 11:01:29 AM
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Squeers,

I agree 100%. We, as commentators, have real reason to expose how our purchasing habits aid the mess, exploitation and so on.

I did not elaborate upon this, but would hope people would see this through my indication that the Chinese company produced Western owned products.

That is why I attach socialist sources so people can read further, beyond my article.

Liberal democracies, which I support, can play a role in many ways.
Posted by Chris Lewis, Wednesday, 26 January 2011 11:06:28 AM
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Chris,
there's no doubting your humanitarian ideals.

I've just been listening to Andrew Parkinson's inspirational address and at the end he speculated on what a great country Australia might become once it decided what it ought to do. For my money, it ought to decide what it believes in and then stand by those principles doggedly.
Instead, Australia is a national lap-dog to once-great nations and the anonymous face of globalism.
Posted by Squeers, Wednesday, 26 January 2011 12:49:36 PM
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If you want to see how poorly workers can be treated and exploited in Australia see what happened in Adelaide recently. You wouldn't believe it possible:

http://www.youtube.com/watch?v=YKp7Y316fyQ&feature=player_embedded#!
Posted by michael_in_adelaide, Wednesday, 26 January 2011 4:09:17 PM
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The title of your preceding post: “Can western nations remain affluent?” prompts the basic question: Can one on this planet be affluent without another being effluent?

How can economists and people equally unproductive survive without being supplied with goods and services by another group?

Certainly no economist that I know has so far dared to assess the ratio of people that actually produce the goods and perform the tasks necessary for the survival of us all against the total number of people who benefit from what wealth they procure.

I dare say that those of us who have the task of producing or servicing, day in day out, hardly have the time or the opportunity to read articles like yours on OLO, let alone write articles for any publications. They are the Silence of the Nation.

And their job gets harder and less rewarding with the numbers of non productive graduates’ that hits the street at the end of every academic year.
Posted by skeptic, Wednesday, 26 January 2011 4:21:45 PM
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skeptic

I am not sure what you are on about.

Please explain. Are you suggesting I return to factory work and labouring to be productive. No thanks, academia is a bit easier.

Yes, Micheal in Adelaide, an absolute disgrace. That is my fear, that democracies are turning in on themselves with govts turning a blind eye to such issues.
Posted by Chris Lewis, Wednesday, 26 January 2011 5:28:02 PM
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Dear Chris.....

you said in your piece:

//Austrian School economists generally hold that the complexity of human behavior makes mathematical modeling of an evolving market extremely difficult//

You might be very interested in this information.

"Century of the self" in a number of parts. It connects the impact of Freud, Bernays,(Father of public relations) and some important movements which reshaped the American 'consumer' psyche, and in turn, caused capitalist interests to look to the information processing capability of the Star Wars resources to predict that very thing which eluded the Austrian school adherents.

http://www.youtube.com/watch?v=HpLCjgWYsrY&feature=related

No Australian should be unaware of the information in all 6 parts.

ANYthing on this is valuable.
These doco's cover so much ground, at such a depth that you simply cannot absorb it in one go...nor can one understand 'today' compared to the 50s.. without it.

The scariest part is the work of the ESALEN INSTITUTE. (see wiki)and where it led.

http://www.youtube.com/watch?v=D2OwUcmXj4M&playnext=1&list=PLFCC677C23D37B6D0&index=24 "policeman inside you" part 1 of 6

All of this has direct bearing on economic questions.. so it's not off topic if you please. In fact..I'd go so far as to say that without covering this information.. one CANNOT understand the bigger economic questions.
Posted by ALGOREisRICH, Wednesday, 26 January 2011 7:46:54 PM
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Al Gore is Rich,

Yes, I have seen that second documentary before. Quite interesting.
Posted by Chris Lewis, Thursday, 27 January 2011 6:28:55 AM
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Another hobby-horse, Boaz?

>>These doco's cover so much ground, at such a depth that you simply cannot absorb it in one go...nor can one understand 'today' compared to the 50s.. without it. The scariest part is the work of the ESALEN INSTITUTE<<

Presumably the Institute has secret links with the Fabians? And to the EDL? Naturally, also to the subversive activities of Al Gore himself?

The Esalen Institute is a tiny blip of Californian hippie nonsense, and about as relevant to the Austrian School as Skippy, the Bush Kangaroo.

And the only dangerous part of est is the bill...

http://www.merivale.com/#/establishment/est

$39 for a starter? That's gonna hurt.

I am beginning to lose count of the mini-fads that you involve yourself with, Boaz. None of which, by the way, is at all conducive to calm, rational thinking. But if that is what amuses you, far be it from me to condemn it.

Still no update on Fortrose Cathedral, though, which is disappointing.

>>It will begin with a trip to my forebears tomb "Fortrose Cathedral" where you can ponder why it lies in ruins<<

Any chance that you might admit that you made it up, thinking that having illustrious Scottish ancestry might provide artistic verisimilitude to an otherwise bald and unconvincing narrative?

Or is confession only for Catholics?
Posted by Pericles, Thursday, 27 January 2011 7:24:24 AM
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But let me not stray too far off topic.

The problem I find with the Austrian School is that it has the ability to point at problems, but is reticent on solutions. A bit like mother saying "I told you that you'd catch pneumonia if you went out in the rain", but failing to identify an alternative means to get to work each day. Accurate, but unhelpful.

There is little doubt that if all economies had stuck to Austrian School principles, we would not be experiencing the financial pain that we are at present. Or, more accurately, that the US and most of Europe are experiencing.

But I strongly doubt that we would be "better off", in any tangible way. And far more likely, we'd be mired in a low-growth, low-innovation, low-reward existence. Our economies would have been necessarily sluggish, since von Mises insists on accurate pricing of debt, and limiting growth to that which can be funded, largely, through savings.

It is of course impossible to turn back the clock to determine whether this would have created the same kind of growth in wealth of countries such as, say, China, whose population has been a major beneficiary of the floods of "anti-Austrian-School" cheap credit. Would they have been able to pull hundreds of millions out of poverty, as they did, if the engines of growth in the rest of the world not been turned up to 11?

Of course the second problem with the Austrian School is that they don't have any answers as to what we should do, now we have pneumonia. No medicine, no painkillers, no hospital bed, no nursing.

"It serves you right, you'll just have to lie there and suffer"

Unfortunately, this form of tough love will put several millions out of work, as we re-cut our fiscal cloth to von Mises' pattern. It really doesn't help, to sit back and say "If that's where you want to go, I wouldn't start from here."
Posted by Pericles, Thursday, 27 January 2011 9:43:56 AM
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Pericles,

Pretty much agree with your last post.

Take housing. Sure the Austrian school notes how govts contributed to the problem by keeping interest rates loans and encouraging dodgy loans to the poor, but they also need to discuss how such housing needs would have been met. In other words, given the fiscal crisis of many Western states, each policy idea and approach has its own strengths and weaknesses.

That is why I suggest that followers of the Austrian school follow up on how some of their ideas play out in real terms.
Posted by Chris Lewis, Thursday, 27 January 2011 10:18:17 AM
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