Whilst I don't know the true reasons for the dumping of Kevin, with the stimulus package, I wouldn't doubt that he also wanted to bring the tax back to the 1960' leval ie 66.6%, as it had been successful in those years. I don't doubt that there were a number who wanted to run their type of campaign, so kicked him out and continued the down hill run of economic destruction that we still have and continue to have with the track record of Peter Costello, Wayne Swan and all those treasurers since 1970. However I believe that our future relies on the rebuilding our manufacturing industries and revitalising our workforce, and we cannot do that if they are going to be kept destroyed by the mining exports as has been happening for the last 40 years, and been promised by Anna that it will get worse when Gina Rhinehardt gets going.

Well said. You have identified the key real issues our economy faces.
Allowing the bankers to inflate housing by reckless credit and just skim profits is a tax that the real economy cannot sustain. Allowing foreign owned mining companies to get bargain basement prices on our national assets and then export the short term profits is just stupid. Failing to train the younger generation then insisting there is a "skills crisis" that demands high immigration was the icing on the cake for youth. Not only are they under-resourced, they also face competition from foreign workers and housing out of reach. Not only has this meant going backwards in standards of living, reduced fertility due to instability and poverty, higher suicides, etc, but it has also created an unsustainable Ponzi finances:We will follow the US into economic Armageddon if we don't restructure soon.
The very last thing that economists and the media wants are competent economists: this would break the "Left/Right", "Classical/Keynesian", "black/white" story we have all been sold. It would also make the conservatives look like insane hypocrites and embarrass politicians from both sides.
Sadly real economic progress will come from Asia, maybe even China. Over there the demographics are not so screwed up. In the west the ageing population are too busy trying to screw the younger generations and throw their weight around a little longer. Not only will this crowd delay action on GW, they will also insist that their bubble investments are not deflated...which means the younger generations keep losing

According to John Turner's theory, paying a million dollars to buy a demountable buildings worth $100,000 makes us as a society richer.

Keynes also believed that earthquakes generate wealth because of all 'jobs' they create. So why don't we all just burn our houses dow? According to Keynesian logic, this is the way to greater wealth for all.

Don't laugh. This is the intellectual standard at which policy is decided at the highest levels.

Peter, that might be how some of the muppets interpret Keynes, but it is oversimplifying things a bit.
You could argue that private industry is hopelessly inefficient as it gives equal weight to the profits from panel beaters as it does car manufacturers. So by your argument more crashes = more GDP = booming economy. McDonald's profits are also of dubious national interest even though their marketing budget could fund our national health service.
So while it is very true that not all government spending is good spending, it is also true that not all private spending is good spending.
I have some sympathy with the government's arguments that by saving jobs the waste was worth it...better to waste on local jobs than export profits or losing $3-4B in foreign exchange like Howard did! This does not excuse the amateur efforts in managing expenditure, just that there are times to borrow and spend, and times to save. Waste is always bad, but they had the right idea to keep employment going.
Government spending should be minimised and targeted at the things that only collective action can solve: (schools, health, transport, comms). The free market (something we barely have) should take care of the rest. However when unproductive (banking), or undesirable (drugs) companies are making huge profits then some sort of regulation is required. One thing the GFC has taught us is "trickle down" theories and unconstrained financial profits do great harm.

Peter Hume,
You need to read or re-read, and understand, the last section of chapter 10 of the General Theory.
Keynes stated, and I quote, "Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better." You have completely misunderstood what Keynes was saying or used the piece completely out of context.

And he stated, "Thus we are so sensible, have schooled ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as an inevitable result of applying to the conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time".

In the same section his comments on the value of gold mining are also worth reading.

Peter Hume,

Keynesian theory on the connection between disasterous ruin and the profit and jobs created from rebuilding is alive and well and being conducted quite openly at present. America's "opportunity" to rebuild Iraq, is a prime example - the only difference being that they first had to knock it down.

Foyle
"Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better."

In other words, Keynes was saying that, if politicians education in classical economics - that we can’t increase real wealth by inflation and spending - stands in the way of their approving public funding for loss-making projects, then pyramid-building, earthquakes or wars may serve to increase wealth [i.e. by creating ‘jobs']. In other words, government funding of blatantly wasteful or destructive processes serves to increase wealth. That’s what Keynes is saying. And the tree is known by its fruit.

"Thus we are so sensible, have schooled ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them [ie adding to the financial burdens of posterity, i.e. public debt] as an inevitable result of applying to the conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time".

In other words, what savings does for the individual (enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time), debt and spending on loss-making activity do for the State (an ‘inevitable result of applying to the conduct of the State the maxims which are best calculated to enrich an individual’).

Those quotes only confirm what I said about Keynes. He preaches that by by spending on loss-making activity, funded if necessary by debt and credit expansion, we can generate real wealth for society.

It’s literally like thinking that smashing windows creates wealth because of the ‘jobs’ it creates for glaziers.

While ever policy is dominated by this profound confusion of thought, people will endlessly fall for snake-oil by the pork-barrel load.

Peter Hume,
You really do not understand when a writer is being ironic.
Keynes is making the case that we should add to the real infrastructure wealth of the community when ever unemployment rises in the private economy.
He is also stating that often governments adopt less desirable actions in such circumstances and that it is the shortcomings of their education and knowledge, and their attempts to mimic the beliefs of business leaders, that gives rise to this problem. He actually used the concept of a duplicated and unnecessary railway when better public housing would be preferable. In the GFC Rudd and Co went for things which could be done quickly. Even the money wasted on overpriced school building ended up as secondary stimulus except that someone probably spent money on a Beemer rather than the kids having better or more facilites for the money.
I would post the whole of the appropriate chapter except that it is too long.
I have my own well thumbed copy of the General Theory. What you have said is almost the complete antithesis of Keynes' intent.

John,you are a voice crying in a wilderness of complacency.

Complacency has its own reward - a very nasty and rude awakening.
Between 80 and 90% of Australians recently voted for the two major parties,neither of which has the faintest clue about where Australia is headed let alone how to steer it in the right direction.

The corollary is that a substantial majority of Australians don't have a clue either - not a good outlook.

“Keynes is making the case that we should add to the real infrastructure wealth of the community when ever unemployment rises in the private economy.

Even so, the necessary implication is that stimulus policies are not wasteful, notwithstanding that they are loss-making projects, because they ‘add to the real infrastructure wealth of the community’.

The question then becomes how does one distinguish between government-funded works that are common-or-garden loss-making projects (pink batts, BER), and those that add to the real infrastructure wealth of the community?

You assume the distinction by such terms as ‘less desirable actions’, ‘duplicated and unnecessary’, ‘better’, ‘things which could be done quickly’, ‘money wasted’, ‘overpriced’, ‘better and more facilities’.

These terms assume what is in issue. If the criterion of investment is not to be profit and loss, how could it be anything other than the arbitrary say-so of the government?

If government spending is to be at a net loss, we are back to the original fallacy of believing that loss-making and waste add to the real wealth of the community.

But if government spending is to be at a profit, the implication is that the total net social benefit of this spending is greater than the total net social benefit if government had not confiscated the funds from private owners in the first place. If this assumption was available, then an assumption of the viability of full socialism would be available. Where is the cut-off point? (And it can't depend on government's assessment of its own beneficence.)

I believe that Keynes intended a short-term solution. He knew his policies were not viable in the long run. He intended, once they ran their course, to correct them with some further intervention. But by that time he was dead.

Government spending and debt on loss-making projects as a way to prosperity is Keynes’ thesis, not his antithesis.

I think that my earlier posts have shown that I believe we should hang onto our non-renewable assets, and I don't believe that anybody has put up an arguement to prove otherwise. Certainly we are probably losing other valuable assets, some of our doctors, scientists, Engineers etc, and of course those screen stars. Our earlier tax system of the 1950-1970, was invaluable for our wage earners, but did not give them the same wealth as the tax system does now for the wealthy, I think Wayne may have woken up a bit, but it is unlikely. We have got to the stage of CEO's taking up to $42,000,000, but our wage earners are getting to the stage of losing their jobs, their bank balance and their homes, some have, and they with their families destined for the street. You can't have both obscene excessive salaries and other incomes, and have good living conditions for our workers with a good economy, at the same time. What do you want, see high salaries and families kicked out into the street, or a lot of millionaires and multi-millionaires, and have a recession or depression. The choice is yours, you can't have both. The successful high top tax, or a dangerous low top tax.

Peter Hume
Your argument overlooks the fact that in economic productivity terms all unemployment benefits are complete waste. The benefits allow people to survive but they add nothing to the infrastructure.
A stimulus package aimed at constructing school facilities or insulating homes does add to the infrastructure assets of the community.
Something like a new Snowy Scheme would have been preferable but such projects are never shovel ready and by the time such projects were up and running we would have been in a deep unemployment hole.
The Rudd government rightly believed that something had to be done quickly and in haste some errors are bound to occur.
The errors in the roof insulation were mainly state supervision problems and in the schools buildings projects the errors were largely the fault of the pigs at the trough, either/or/and bureaucrats and contractors, depending on which state.
Keynes stimulus idea was basically that it is more sensible for Governments to be ready to take up any unemployment slack than to stand on the sidelines wringing their hands while raising tax money or going into debt to pay benefits for no real lasting return to the economy.

foyle
“A stimulus package aimed at constructing school facilities or insulating homes does add to the infrastructure assets of the community.”

According to this theory, the pink batts scheme was a great idea, the problem was just some technical details in the implementation. There is no reason *in principle* why we shouldn’t do it all again, since it might work next time if better managed.

There are several problems with this approach:
How could it ever be falsified? What would make you change your mind? What would be an example of a negative consequence that you would recognise as result of the policy, instead of presumptively externalising the blame onto the private sector?

What is the *economic* distinction between government funding of loss-making activity that is justified, from government funding of loss-making activity that is not?

The Keynesian approach persists in believing that we can create real wealth by loss-making activity: it does not grasp the intellectual nettle and affirm that only productive activity, not wasteful activity, can create real wealth. Everything else is mere forced redistributions in a total net loss for society.

It assumes that government has a capacity to manage the economy for total net benefits that is not reality-based. If this were true, then what is the cut-off point at which full socialism is non-viable?

It does not answer, if it’s true that these government-funded projects are not loss-making, then why would they not attract private capital? The only reason can be that a given project does not return the same as private capital. In other words, it’s *relatively* loss-making. We are back to the fallacy of thinking that making losses is the road to riches.

It provides a blank warrant for endless spending, waste, fraud and redisbitution. The reason we’ve got it isn’t because it it works, it’s because it gives a spurious legitimacy, a get-out-of-jail-free card to politicians to perpetuate this destructive smoke-and-mirrors, pea-and-eggcup game with other people’s hard-earned property.

(cont.)

You also share the Keynesian assumption that government has nothing to do with the original problem. For example, central banking provides a government monopoly control of the money supply and abilities to print money at will, and expand credit at will. The original justification of central banking was that it would stabilize the economy: it would do away with inflation and depressions. But since the Federal Reserve was introduced in 1913, the US dollar has lost 94% of its value, we have had the most wasteful depressions ever, and permanent institutionalised unemployment.

So do the interventionists re-think their original assumptions? No! Each time the predictable, and predicted, results of their interventions appear, they re-double the interventions. So they added the Federal Deposit Insurance Guarantee, and Fannie Mae, and Fannie Mac, and thousands more regulation of the finance markets. And then, surprise surprise, the interventions don’t work. But do they reflect that maybe their theory is wrong? Not a bit of it: they persist in externalising the blame, and the facts are no defence!

Whichever way you look at it Keynesian theory fails.

The argument against these interventions is precisely that they create unintended negative consequences that are worse than the original problem, *when considered from the interventionists’ own standpoint*. For example, if we print (supply) money out of relation to its market demand, we should expect that this will affect the marginal utility, which will cause structual malinvestment, which will cause bubbles and unemployment. If we make it illegal for people to employ others at the the market rate, we will expect unemployment. And that is the result of these interventions that we actually observe.

On the other hand, if the interventionists were right, these problems shouldn’t exist in the first place. Government already had a monopoly control of money and credit, already had an industrial relations portfolio, already regulated employment, already had a plethora of regulations and bureaucracies at all relevant times.

So whether we look at the observed data using sound economics, or Keynesian theory, Keynesianism proves wrong.

Foyle, You overlook the fact that if we had a tax system like we had in the 1950-70 period, which encouraged full employment, none of those incidents carried out in the Rudd government, would have been needed. I don't doubt that Rudd might have wanted to go to that earlier tax, but was blocked by those with other ideas, Wayne Swan, Shorten, Julia etc and had to try for the projects which he thought might have good results, it wasn't Kevin Rudd who did or organised those who carried out the botched insulation jobs, maybe you can guess who did. From what I have seen of Wayne Swan, I would say that he wanted to follow the US right down until they struck the point of the countries depression, Unfortunately he hasen't got either the intelligence, integrity or common sense to really go for a system that had proved to work properly for both the countries economy and the working community and their families.

merv09
I don't disagree with you on the tax item.
Prof Bill Mitchell argues that tax is a means of keeping noses to the grindstones. For many years I received 28c from my last dollar earned after tax and super and we managed to raise five children and live reasonably well.
Peter Hume
Are you arguing that the welfare of the citizenry went backwards by installing batts and building school facilities? Society just received less benefit than it should have, but certainly more than it would have had the government instead funded a massive increase in total unemployment payments. You don't seem to understand why the government chose the alternate that it did under the circumstances it faced. As Prof Stiglitz said, under the circumstances, the Australian Government did an excellent job.
Since about the time of the first oil shock central banking has not been allowed to work.
The Australian Reserve Bank now has virtually no control over the creation of money. Under pressure from incompetent or malicious bankers, governments removed the statutory reserve requirements and, under the Basle Agreements, bank regulation, such as it is, switched to capital adequacy ratios. The American forced this change as it allowed their dollar to continue as the reserve currency and allowed the USA to continue to import America's oil needs by printing dollars or rather creating bank balances. This money led to the GFC.
As early as 1972 an Australian, Neil McInnes asked in a series in the AFR, "What do we do with these worthless American Dollars/"
Capital adequacy ratios led to the gouging bank fees now prevalent. Under this arrangement all excess bank profit flows to each banks capital adequacy base which allows more lending (money creation). So banks just grind everyone to obtain more profits whereas, as I said earlier, banking and other service costs, in a decent society, should be held as low as possible.
The banks have even devised ways to add money they borrow overseas to their capital adequacy base and again expand their loan book.
The world's finances and Australian banking need substantial reform.

It just goes to show you that you can not trust business to handle govt money; The pink batts is a prime example, sound quite simple get in a roof and throw some bats around, how much training does that need. We can employ 20 drongoes and really make a quid

Well we are agreed that the current state of regulation of money, credit and banking is unsatisfactory.

I see you haven’t answered my question as to the economic distinction between loss-making government-funded projects that are justified, and those that are not?

The benefit from the pink batts and BER was of a redistributive kind – some people were given other people’s wealth. It was not a net social benefit, it was a grand waste.

That should be obvious. The fact that anyone would think buying $100,000 buildings for a million dollars just goes to show the window-breaking mentality I have described.

The only way Keynesianism could make sense is if the government got the money from a moonbeam. Once we realize the government gets the money by taking it from its private owners, the only rational conclusion is that the opportunity cost was greater than the benefit.

The starting point of your analysis is how was Rudd to fix the problem of unemployment arising from the GFC? This assumes it was his business, and he could do it, in the first place. If so, where does governmental competence to manage the economy cut out? Why would that not amount to a blank warrant to make any intervention?

To the extent the problem was caused by the unhampered market - (it wasn’t) - the quickest, fairest remedy is to let loss-making businesses go broke, and productive businesses to re-deploy their resources. There is nothing government can do to quicken the process.

To the extent that the government was causing the unemployment - (it was) - the remedy was to stop doing it, not to add waste and injustice. For example, making employment illegal at the market rate obviously causes unemployment. There are whole branches of government whose purpose is to do nothing but make employment illegal at the market rate – e.g. industrial relations. The fact these interventions were considered non-negotiable shows that Keynesianism, on analysis, rests on the Marxist belief that employment entails exploitation which depends on labour theory of value crapola.

Peter Hume
Re; I see you haven’t answered my question as to the economic distinction between loss-making government-funded projects that are justified, and those that are not?
Ans; The insulation and building projects did not make a loss. They were not government trading activities. They were projects with cost overruns. They were less efficient than they could have been but that does not make them loss making.

Re; The benefit from the pink batts and BER was of a redistributive kind – some people were given other people’s wealth. It was not a net social benefit, it was a grand waste.
Ans; When sovereign governments write cheques the reserve bank honours them. That creates money in a similar fashion to the private banking system's creation of money (Economics 1.01). Whether that creation of money is inflationary depends on circumstances and in the situation the government faced the inflationary risk was negligible. The government is expected by the community to avoid both inflationary and deflationary shocks. Deflation would have caused massive apparent wealth loss but the actual physical assets of the community would not have changed significantly except in money value. The action taken did increase the real asset value of the community.

RE. The fact that anyone would think buying $100,000 buildings for a million dollars just goes to show the window-breaking mentality I have described.
Ans; Probably 80% of insulation installations were both beneficial and cost effective to the clients and the community. No building was ten times as expensive as it should have been. Some states were less efficient than others and some projects charged drainage and similar work to the library/hall project.
The rest of your comment is adequately covered by the author in the original article.
Please read and understand the last section of Keynes' Chapter 10 and remember he is being ironic.

I maintain that Keynesianism is an amalgam of unfalsifiable beliefs that ultimately rest in a denial of the possibility of economics itself, for the following reasons.

Before economics came along, the understanding of the economy was in normative terms: how it ought to be: eg rule against usury. This was in the time of the divine right of kings. The breakthrough of the early economists was to see that there are certain regular patterns in economic affairs. This gave rise to the possibility of a science describing economic “laws”: the systematic interconnectedness and regularity of economic phenomena.

I have five dogs. If I fed them equally, one would become fat and another skinny. So I feed them unequally.

Keynesianism is like a throw-back to the divine right of kings. The king can do no wrong. Authorised by God, he can create whatever economic reality he wants, just by passing laws. People are like a kind of animal owned by the sovereign, to vary their proportions as it sees fit.

Did you see 4 Corners last night? Apparently Bush spent, and put the country into debt, on stimulus handouts more than the USA spent on WWI, WWII, the Korean War, the Vietnam War, the moon landings, and the Iraq war *combined*. He went into more debt than all the Presidents since Washington combined.

And Obama is set to exceed him.

Yet here we have the Keynesians telling us that the way out of the recession is more debt, more spending, more consumption.

Yes the pink batts were not a trading enterprise of government. But absent the measure of profit and loss, what could “efficiency” possibly mean?

> “They were projects with cost overruns.”

They were spending projects with cost overruns.

“The government is expected by the community to avoid both inflationary and deflationary shocks.”
There is no evidence for this proposition.

Even if the proposition were granted, if the population expects the government to do magic by sacrificing virgins, it doesn’t mean the government has a duty to attempt magic by sacrificing virgins.

It’s both uneconomic and unethical: it depends on ‘divine right of kings’ and denial of economics.

What is the *economic* distinction between inflation and inflationary shock; or between deflation and deflationary shock? These are not economic terms. They are arbitrary political terms of endless licence for governmental meddling in what it cannot make better.

> “Probably 80% of insulation installations were both beneficial and cost effective to the clients and the community.”

1. Obviously a forced redistribution of wealth is beneficial to the recipient. That doesn’t prove it provides a net benefit to society or is ethical.
2. There is no evidence of a net benefit to the community. This is simply the idea that we create a net benefit by mere transfer. What they did was, take from its rightful owners a whole lot of real wealth which they then gave to politicians’ pet favourites, to provide them with overpriced goods, which those people would not voluntarily have paid for themselves, while simultaneously burning down houses. It’s voodoo.
3. And there is not even evidence that the transfers were from the relatively rich to the relatively poor; at lot of the time it must have been the other way around.
4. What about the other 20 percent?

“Please read and understand the last section of Keynes' Chapter 10 and remember he is being ironic.”

In what you are calling irony, Keynes was saying that the government might as well spend the money on something more useful rather than less. But the fact is, whichever way you look at it, Keynes was advocating debt, credit expansion, increased consumption, and government spending as the way out of recession.

But if printing money can make us better off, why only do it during a recession? Why not do it all the time? Why not keep doing it until we are all independently wealthy? We have discovered magic pudding.

What would it take to make you change your mind: to see that debt, spending, tax, credit expansion, and consumption do not create wealth ?

I've always admired your rigid application of logic, Peter Hume.

>>But if printing money can make us better off, why only do it during a recession? Why not do it all the time? Why not keep doing it until we are all independently wealthy? We have discovered magic pudding.<<

Here's a test for you.

Spot the difference between:

"The earth absorbs the soft refreshing rain,
And sends it back in flow'rs and fruits again" (Hymn 592)

and:

"Poor weather is bringing more misery to Pakistan as authorities battle to contain record flooding, with yet more heavy rain forecast. Rain is falling in parts of the north and east, with villages badly damaged and crops destroyed in fertile Punjab." (BBC News)

This enables me to paraphrase your contribution as follows:

"But if rain makes 'flow'rs and fruits' grow, wouldn't it be best if it rained all the time? Why would we not want it to keep raining, that way we'd all be fully supplied with 'flow'rs and fruits'"?

To insist that because broccoli is good for you, you should only eat broccoli, shows a profound misunderstanding of the application of economic theory.

Keeping adding water increases wellbeing to a point, and then reduces it.

And the creation of net wealth from nothing would start to be bad at what point?

And by what economic principle would we know what that point is?

Don't tell me, lemme guess: the point at which the government decides so? We know what the government is doing is optimal because the government is doing it?

What would it take to falsify the belief?

Peter Hume,
Let me just point out how ridiculous most of your arguments are. One or two examples might do. Australian citizens elect a government, say a new one. How long would that government last if it ignored economic problems?

The political parties put forward policies, most of them economic or welfare oriented, with the aim of being elected. After the election the successful party lays claim to having a mandate to implement those policies. That is a long way from the claims of the ancient kings that they were entitled to rule by divine right.

Over time both parties have recognized that is was best to charge the Reserve bank with maintaining inflation in the range 2 to 3% but governments have removed some of the tools the Reserve once had to apply the necessary pressure to maintain the rate within that range. That rate has been chosen because a deflationary rate tends to be harder to control. The concept is that it is easier to pull on a string than to push on one.

An inflationary shock would be if suddenly the rate appeared to be heading for 5%. I would have thought that the concept of a shock would not need further explanation.

You seem to be arguing that society has no obligation to care for the disadvantage, a category which would proliferate if unemployment jumped due to such things as a global financial crisis. You might be willing to live in such a society. I do not want to.

The GFC was largely due to the flood of $US caused by the USA creating bank balances to pay for its imports. Those bank balances were onlent to financial gamblers in a parasitic industry. In the depth of the Depression Roosevelt made comments that are quite relevant to today's situation.

Peter Hume (continued),
Roosevelt commented at his 1993 Inauguration, "“In our progress towards a resumption of work we require two safe guards against a return to the evils of the old order; there must be a strict supervision of all banking credits and investments; there must be an end to speculation with other people’s money and there must be provision for an adequate but sound money.”

Re;And the creation of net wealth from nothing would start to be bad at what point?
Ans; Who claimed that net wealth can be created from nothing? Net wealth can be created by employing people who would otherwise become unemployed. Surely it is obvious that shifting funds from the payment of benefits to paying people to be employed in producing assets for the community makes sense. That activity ceases to be worthwhile when full employment resumes and inflation to looms.
In January 2007 I wrote to a newspaper;
"If present economic policies continue we are heading for a cliff. The USA is printing money to pay for its fuel needs.
Scheming scoundrels are then using the bank balances of the suppliers of essential materials to the US to purchase real assets like agricultural land, or even Qantas, and thus, with the help of the extortionate pay of senior executives, causing asset value inflation. In his Boyer Lectures our past Governor of the Reserve Bank drew attention to the problem of asset value inflation but I felt that even he fails to see that there is little difference between consumer goods inflation and asset inflation. Either have the effect of reducing the living standard of those at the lower end of the pay scale.
The Australian Government has a fetish about avoiding government debt. Such debt has two main purposes; firstly to provide essential infrastructure and such essential services as winning a war and secondly to absorb surplus funds in private hands and thereby reduce capital asset inflation. Our supposedly well educated treasurer has the policy of “let her rip.” Sooner or later that policy leads to going over a cliff.

Your analysis begins and ends with the prerogatives of government. There's no reason why that should be the point of departure.

Obviously we live in a democracy. By ‘divine right of kings’ I mean only that the Keynesian approach assumes that the sovereign power can take as much of the property and livelihoods of its subjects as it wants, and spend it on whatever or whomever it feels like. Anything it does is presumed to be for the greater good. It can create any economic reality it wants. It can create net benefits by mere redistributions. Its price-rigging, confiscations and redistributions have no part in causing the problems it is trying to fix with more of the same.

Obviously a distinction between inflation and inflationary shock of five percent is arbitrary. We are back to the assumption that government is omnicompetent, omniscient, and all-good.

You say it is better for government to spend money on infrastructure projects than to pay unemployment benefits. Surely even better would be for government not to stop people being gainfully employed at the market rate in the first place?

If it’s true that government has a general competence to manage the economy:
a) Why didn’t it work? At all relevant times the government regulated the supply of money and credit, the banks, the credit unions, superannuation, the financial advice industry, the stock market, the corporations, employment, occupational licensing, the land, the water, the air, the trees, the pastures, the national parks, the Aborigines, the farmers, the graziers, the cattle, the sheep, the mines, the manufactures, tertiary industry, everone’s income, capital gains, fringe benefits, social security, etc. etc. etc.

Yet for some mysterious reason, we just keep getting these major dislocations between supply and demand. It must be that bloody market again! What is the solution?: more regulation of course!

b) In that case, what is the cut-off point at which full socialism becomes non-viable?

c) How could your approach ever be falsified? How could one know it is not an article of faith?

Peter Hume,
Yes we do live in a democracy, certainly not a perfect one but it has similar aims to the aims stated for the USA, "Government by the people for the people." The aim is that the people be sovereign.

Australians expect the people who represent us to pass laws to protect the weak from the power of the strong. That is why we have minimum wage laws etc. You appear to favour open slather for the strong. That is not for me.

Many economic thinker believe that Keynes saved capitalism from its own inherent faults, faults which you are obviously unaware of.

You need to read and digest both of Adam Smith's well known works. Smith was firstly a moral philosopher and wrote "The Theory of Moral Sentiments". After reading his work, read John Ralston Saul's several works. I live in hope.

If it’s true that government has a general competence to manage the economy:
a) Why didn’t it work?
b) If the answer is not enough government regulation, then what is the cut-off point at which full socialism becomes non-viable?
c) How could your approach ever be falsified? How could one know it is not an article of faith?

Peter Hume,
Re; the three questions you asked,
If it’s true that government has a general competence to manage the economy:
a) Why didn’t it work?
Ans; In combating the effect of the GFC on Australia the efforts of the government DID work. The stimulus package allowed a looming major surge in unemployment to be avoided.

b) If the answer is not enough government regulation, then what is the cut-off point at which full socialism becomes non-viable?
Ans; Lack of control over the money supply in one country, the USA , which unfortunately for the world is the currency of international trade, led to a false market which like a similar false market, the Dutch tulip boom collapsed under the weight of its own stupidity. I have answered the rest of this matter earlier. Citizens want protection form the excesses of unfettered market manipulators.

c) How could your approach ever be falsified? How could one know it is not an article of faith?
Ans; You may think economics is an exact science like physics where there has never been one successful experimental result to falsify Einstein's Relativity. Economics makes no claim to being an exact science so falsification is not an issue. As some comments by others have stated earlier, while Keynesian Theory was applied prior to the first oil shock it worked. After that shock much of the theory was abandoned.

You can if you wish have the last word but so far your arguments have make little sense to me and, I suspect, many others.

The reason it doesn’t make sense to you is because you’re using a double standard. You recognize that the actions of private agents may produce profit or loss, positive or negative economic outcomes. (In fact it’s a *double* double standard, because you also think of profit as an immoral quantity: it’s ‘exploitative’. So the private sector can either produce profit, which is immoral, or loss, which is a waste.)

On the other hand when it comes to the actions of government agents, all its action result in good, and there are no net costs. The fact that government gets its money by taking it from someone else, thus depriving society of the alternative possible benefit, is never taken into account.

If a private person A said to another private person B “Give me as much money as I demand or I will bash you or lock you in a cage”, you would not claim that that creates a net economic benefit.

But substitute the government for person A, and you think that such an action could “keep us out of recession” i.e. it creates a net economic benefit. And the ethical element is disregarded. Unlike private persons, the government can do no wrong.

It is true that economics is not a science in the sense that physics is a science. But that doesn’t mean that the rules of physics and their logical consequences don’t apply to human action. It doesn’t mean we can make something out of nothing by taking goods from A and giving them to B, which is all that Keynesianism boils down to.

Because of Keynesians’ unshakeable faith in this unfalsifiable and illogical belief, it never occurs to them that, since we cannot really make something out of nothing, the interventions of government cause economic and social disharmony, and are the biggest single cause of unemployment and poverty.

It is you who believe in the unrestrained power of the stronger over the weaker.

Any policy intended to improve economic conditions should first consider and eliminate any prior governmental action causing or exacerbating the problem.

Foyle you appear to making heavy weather of this. I think it would be more honest for you to be asking Hume for his references, rather than giving him yours, don't you think?

PH is right. Foyle is arguing the broken window fallacy

http://www.la.org.au/liberty-lesson/broken-window-fallacy-0

http://www.econlib.org/library/Bastiat/basEss1.html

Actually I believe John Turner has got the reason for the cost of
housing wrong.
When the banks and other lenders were forced by government to lend on
two incomes that doubled the amount of money available.
Does anyone other than me know what happens in a market when the amount of money doubles ?
The sisterhood thought they were doing themselves a favour, instead
they lost the choice to work or not, and sociologists wonder why women
are having babies in their late thirties instead of twenties.

Borrow on two incomes, you must have two incomes to repay the debt !
Simple isn't it ?