A friend of mine said the other day that he knew how to make money quickly. You must buy an Economist for what he is worth and sell him for what he thinks he is worth.

And what is an Economist I asked. He said, well, an Economist is a guy who gets paid lots for guessing wrong about the economy. They do not know much about it although they pretend they do. Talk is cheap. Supply exceeds Demand

They come with primary school theoretical models of a world that produces only two goods in perfect competitive markets, wonderland, but not our world, he added. They cannot even predict the price of oil a week ahead although they claim they understand the whole economy.

If Physics or Chemistry were predicting with the same rate of failure about natural phenomena they would be thrown out of universities for being superstitious witchcraft or fanatic dogma rather than sciences.

I see, I replied, but why they are paid so much then? Their function, he continued, is NOT to explain how the economy works, but to push the ideology of those who hire them at such a high rate.

The agenda of their masters has to be heard and believed.

So much so, that it is very easy to anticipate any of their recommendations. Ninety percent of the time those recommendations will favor the corporations that hire them.

Take the example of high inflation. Even accepting the proposition that inflation is only caused by excessive consumption one could argue that taxes, rather than interest rates, might be increased selectively so as to curve the spending of those with highest disposable incomes avoiding so the deleterious effects of interest rates on genuine investment and economic growth.

Why this proposition is is never put forward?. The reason is simple: the main beneficiaries of higher interest rates are the banks.

And we know that the righteous Economist will never have the courage to bite the hand of his master.They just want a tranquil life.

They are the new pastors of Western Fundamentalism, for a price, of course.

No matter if hundred thousand farmers in Punjab, India, have committed suicide drinking pesticide after going broke because subsidized American cotton farmers dumped their products there because of Free Trade.

Or if others committed suicide setting themselves on fire because Monsanto sold them seeds that won’t reproduce and they cant afford new ones. Who cares, The Economist will defend the Nazis for the right fee. He is well fed, almost obese, although he exercises regularly, wears a suit, and may even go to Church.

He gets paid to preach here and there, the dogma that privileges the powerful and inflicts deadly wound on the weak.

He has no conscience or morality; he just has a bank account and is up for hire: a mercenary. A mujahedeen of corporate power who believes in his fanatic dogma regardless of the harm caused to others.

All that nonsense of perfect competitive markets operating freely is a huge simplification for the simple minded.

Nick M's style is to infer a view that is just NOT expressed in a blog...

In this case apparently I "wish to abolish international trade, scorn free market competition and reject conservative economic policies"..

The tactic is to then proceed to knock that straw man down...but it is a tiresome and unconstructive contribution to OpenForum.

My blog neither says nor implies what NM claims...as to why he would put words into my mouth...I have no idea.

I did note recently a positive development with NM making an original post of his own...and it was good to read a positive rather than destructive contribution.

More original posts please Nick and less of your tilting at windmills that just don't exist.

Peter Roberts.

Frederico Durkheim wrote of economists that "they come with primary school theoretical models" and that "all that nonsense of perfect competitive markets operating freely is a huge simplification".

Agreed! It's scandalous in my view that the incredible degree of simplification in economic models is not heeded by policy makers. If engineering was based on the same type of simplifications, no buildings would ever be built. The faith shown in trickle down economics by so many in power turns out to have no basis. For benefits to trickle down to all sectors of society, it was shown in a piece of Nobel prize winning analysis (!!) that the market has to be efficient. That is, all people have the same information. It's worse than ludicrous.

There's a reductio ad absurdum here. People pay financial planners because planners know more than their customers. Ergo the market is not efficient; indeed it is so far from being efficient that huge profits are made from selling the knowledge that is supposed to be free to all. Trickle down economics has no basis if the efficiency assumption does not hold, so says the theorists. Yet so much social policy in Western democracies is explicitly rooted in a faith in trickle down.

I sincerely wish that this would be a technical debate and not a political or ideological one, because the technical issue is quite stark. If my understanding is correct that economic theory casts fatal doubts upon trickle down economics, then clearly the challenge is to free market champions to show how their model can really be good for all.

Stephen Wilson
Lockstep

As chance would have it we don't have to look either very far back or very far away to find examples - the interest rate sledge hammer was a chief contributor to "recession we had to have " in the early nineties. Further a field poorly planned economic deregulation, an a doctrinal commitment to privatisation and monetary restrictions lead to a five-year recession in Argentina, and completely destroyed to Russian economy to the point where people's life expectancy fell by about a decade.

Now that doesn't mean that Monetarism is bad per se. Economics isn't about good and bad, it's not about morality and it's not a religion. It's about using the right response at the right time.

The Keynesian approach of counter-cyclical government spending, price controls and measured wage increases rescued Western Europe, the US and Australia from the great depression, and continued to deliver healthy economic growth for about four decades. Although Mallory is right in so far as it doesn't respond well to price shocks, so when the oil price shocks of the early seventies hit we ended up with stagflation.

The question at hand is whether it is the right response given the current economic environment in Australia. Increases in interest rates seek to control inflation by controlling demand, effectively by making money more expensive.

However, in an economy where debt is so unevenly spread across the generations, where price rises on consumable goods is being caused by supply side and not demand side factors (prices of food are going up because of the drought, not because we're eating more), and by international demand (the Chinese are eating more meat, so the price of grain to feed the meat they want to eat is also increasing) - increasing the price of money is only going to exacerbate the effect of inflation, without actually controlling it.

What it all comes down to is that right now using interest rates to attack demand isn't going to work, because supply rather than demand is driving inflation. So what do we do?

The argument for fiscal controls is that the government can target those sectors of the economy where demand is actually leading to inflation, by making it more difficult for those sectors to consume.

The third approach is to look at price controls, although suggesting such a response is tantamount to heresy within most economic debates, we do it all the time without actually calling it price controls, we're doing it with the petrol price at the moment.

And besides, it's not really heresy at all, it's agnosticism, and it's important to keep all these ideas on the table, or we limit our ability to respond to the challenges of a small open economy in a vast unpredictable global economy.

... a bit of ideological debate. While it is true that the markets are just an extension of the age-old trading game that has kept the world turning and developing -- and we have yet to develop a better one, I have to agree with FD's, JVD's and SW's comments on the ideological orthodoxy of free-market evangelists.

The reification of 'markets', the implication that they have somehow developed divine properties and are independent of human action -- which somehow makes them (the markets) 'rational, 'efficient' and completely benevolent in its divinity, is as naive as any thought of a contorolled communal utopia that is regularly used as its juxtaposition. Markets, without people who act in them, are a concept no alien would be learning about, and markets, without people, are no 'invisible hand' that would continue to keep the world turning, with or without human participation or intervention.

Perhaps it pays to remember that efficiency is not what keeps the world turning either. If it were, it would be rather illogical that we continue to pursue economic growth in its current form, based on over-exploitation, hyper-production and over-consumption. Markets are efficient insofar as they allow those with something to sell to find those who want to buy it, but their SOCIAL impact is and should remain controlled and regulated for the benefit of all. Surrendering control of all human activity to the 'benevolent hand' of the markets, based on a flawed and dangerous theory that their 'internal logic' is independent of human action, and, hence, somehow superior to human judgment; surrendering our free will to the 'invisible hand' is an act of blind faith afforded to those who make the rules, but not to those who simply get to play by them.

That's why we have governments. They represent us in a perpetual negotiation of "the rules of the game", they are not there to impede some mythical market efficiency that would otherwise create an Earthly paradise for all, etc, etc. And when we question decisions made by those who represent us, we are not doing that out of our ideological blindness for the great divinity known as 'the markets' and their divine internal logic, but because we understand that there is nothing divine, infallible and unquestionable about any form of human invention or activity, and that includes the markets and our theories of their 'rationality' and 'efficiency'.

Tamara