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The Forum > Article Comments > Henry's upside-down economics > Comments

Henry's upside-down economics : Comments

By Alan Moran, published 27/5/2009

The Treasury chief, Ken Henry, simply doesn't understand how the economy works.

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Gee, I thought for a while there that all the posters to OLO had gone bonkers after I had read the first few comments. Thanks to the next three, my faith in human nature has been restored. I would suspect that the only reason that Oz is doing as well as it is at the moment, is that previous governments have seen to it that the banking system has been reasonably well regulated as well as cosseted and their debts have not been allowed to get out of hand. That is not to say that they have escaped unscathed, but their ability to keep extracting fees and charges from their customers has been undiminished.

Unfortunately for the Labor government, neither they nor their advisers have a lot of experience out in the real world, with the exception of the PM's spouse and one suspects that she would have had a minimal input into the budget. Treasury forcasts, to me, seem way out in the realm of fantasy, but it the punters who buy shares all believe them, so that the present rise in the market may be short lived when reality sets in. The key to it all is unemployment which is rising steadily, both here and in China which Rudd and Henry think is going to be our salvation.
Posted by VK3AUU, Wednesday, 27 May 2009 3:10:59 PM
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"So the solution is to put you in charge of the economy and all our problems will be solved."

Shal, the author didn't say that. The point is not that this or that person should be in control of central planning of the economy. It is that no person, committee, board or authority can have the knowledge necessary to run the economy.

This is because the relevant knowledge of local conditions and subjective values is dispersed throughout 20 million people, and all the people overseas that they deal with. The knowledge set required for central planning to work is astronomically larger than is available to any planning authority, ever. Political solutions invariably tend to try to create artificial booms by manipulating interest rates. This has the effect of accelerating to the present, investment that would otherwise happen in the future. The result is a boom in the short-term, and a bust in the long term, by which time, the guilty parties are retired on the public purse and the result is unemployment, bankruptcy and the destruction of capital that would otherwise raise *everyone’s* living standard.

Economic planning should be decentralised in the hands of the people who own the property the subject of the economic plans.

Alan Moran
Good article, thanks. You are right: the state's economic planning bureacrats are guilty of utter economic primitivism that just happens to serve the interests of the political class as against everyone else in society.

By the way, ‘Deregulation Unit’ is a pretty unlovely name. What it's really about is repealing anti-social and oppressive behaviour by governments. Perhaps you try some benefit-selling: a change of name to “Freedom and Responsibility” unit?
Posted by Wing Ah Ling, Wednesday, 27 May 2009 4:14:50 PM
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I found this a very interesting article with a lot of profound comments.

It seems to me that borrowing and consumption got us into this mess, so how would further borrowing and giving away money for consumption help in any long term way? Even the money spent on infrastructure won't help a great deal except with short term unemployment.

What makes an economy strong is production, as America did 30 years ago, and Japan before their own bubble burst with unsustainable asset valuations. Does that sound familiar ? We have to make a big change in our philosophy and forget about living on debt. Debt is good when applied to production, but not for consumption. We need to save more and be more self sufficient and not rely on constant government handouts. It stifles free enterprise. We now have to pay out billions in interest, let alone the principle, for years to come as we mortgage our future.

I fear governments, not only in Australia, will continue with "Quantative Easing" with the printing presses firing up and a consequent surge in inflation and higher interest rates. This will hurt everyone. A little pain now is necessary for a cure later on.
Posted by snake, Wednesday, 27 May 2009 4:43:55 PM
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It would appear that Alan Moran is unaware that Ken Henry was chosen by John Howard, and that the Quango he is a director of is an offshoot of the Coalition.
I would be more interested in how Alan Morans Quango would address the GFC, as the Coalition don't appear to have any idea, whats so ever!
Posted by Kipp, Wednesday, 27 May 2009 5:34:44 PM
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Alan, You're an indefatigable ideologist of the hardline "market" position. I'm fascinated to imagine what your views are on market failure, indeed on whether such a thing exists.

Your end point about a "carbon tax designed to raise the price of energy and to thus reduce the competitiveness of our most efficient industries" is, yes, economically true, but hey - it also reflects your view of the world as one-dimensional, economic only.

I was in the audience at an Environmental Economics Conference in September 1990, in Sydney, at which you were one of the speakers. You got up and said that the solution to the Franklin River issue (as one example) was simply to put the river up for sale, and let the market decide.

I thought then, and I think now: you are an idiot savant. Perhaps you know a bit about economic theory, but your human and social perspective is zilch. You are autistic, a sort of idiot.
Posted by Glorfindel, Wednesday, 27 May 2009 10:19:47 PM
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Too many people are playing the man and not the ball on these comments. It's poor form.

Let's not get caught up with the identity of the author or IPA, or what they may or may not stand for. Let's judge the piece on its merits please.

Modelling and forecasting is a bogus exercise. People never get it right, in good times or bad. How many times did Costello underestimate the surplus?

People should put less faith in modelling and look more to the structural soundness of the economy. We must make sure that the economy is in a strong position, no matter what gets thrown at it.
Posted by Rowen, Thursday, 28 May 2009 3:09:34 AM
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