Australian Prime Minister Kevin Rudd has followed up his critique of neoliberalism with a new essay in the Sydney Morning Herald on the causes of the crisis, and the policies needed after recovery.
With one exception, his key explanations for the crisis are the same as those identified by myself and the handful of other economists who predicted this crisis before it happened:
Broadcast on March 11 2009 by ABC Radio National Big Ideas
A blog member has kindly produced a transcript of the off-the-cuff talk I gave at this forum. I’ve made minor corrections to the punctuation below, but the text is otherwise as delivered on the night without speaking notes–so there are some grammatical slips. For those who want to listen to this alone–without also listening to Bernie Fraser beforehand–here is a link to the MP3 of my talk.
“Lies, damned lies, and statistics” is part of a phrase attributed to Benjamin Disraeli and popularised in the United States by Mark Twain: “There are three kinds of lies: lies, damned lies, and statistics.” The statement refers to the persuasive power of numbers, the use of statistics to bolster weak arguments, and the tendency of people to disparage statistics that do not support their positions. (Wikipedia)
Two recent speeches by the RBA supported the contention that Australian house prices are no longer overvalued, that mortgage repayment costs have returned to historic averages, that Australia is suffering a housing shortage, and therefore that the Australian housing market should not experience the catastrophic falls that are now commonplace across the OECD–and especially in the USA.
It seems we’ve moved from Stanley Kubrick to John Cleese. Rory Robertson’s reply to my “Rory Robertson Designs a Car” post reminds me of one of my many favourite scenes from Monty Python, the fight between King Arthur and the Black Knight:
King Arthur: [after Arthur’s cut off both of the Black Knight’s arms] Look, you stupid Bastard. You’ve got no arms left.
Black Knight: Yes I have.
King Arthur: *Look*!
Black Knight: It’s just a flesh wound…
Several people have commented on the speech by Glenn Stevens (for international readers, Stevens is the Governor of Australia’s central bank, the Reserve Bank of Australia) yesterday in which he commented, inter alia, that:
“I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a ‘tail’ outcome – the kind of outcome that the routine forecasting process never predicts. But it has occurred, it has implications, and so we must reflect on it.”
If things are really grim, it helps to have an indefatigable nature, and there’s no doubt that RBA Deputy Governor Ric Battellino has that in spades—at least in the speeches he makes at public conferences. Were I being crucified, I’d like to have Ric up there with me, singing “Cheer up Brian!…”, to take my mind off the nails.
But were I still in the Garden of Gethsemane, and actually trying to avoid the Romans (and an extended Pilates session the next day), I think I’d want someone else on lookout duty.
Just two years ago, Central Banks appeared triumphant. Inflation, the scourge of the 1970s and 80s, appeared dead, the financial crisis of the Tech Wreck had been contained, economies worldwide were booming, and stock markets and house prices were spiralling ever upwards.
Then along came the Subprime Crisis, and we received a rude reminder of why Central Banks were created in the first place: to ensure that the world would never again experience a Great Depression.
Late last year on SBS News, when Stan Grant asked me which way the RBA would move rates in 2008, I replied “Up, and then down”, Stan quipped “Spoken like a true economist–an even handed answer!”–to which I replied “More down than up”.
I expected the intial rate rises because of the RBA’s focus on the rate of inflation, and a subsequent fall, not because inflation would be heading down, but because the economy would be–and the RBA rate would be forced to follow it
Steve Keen’s DebtWatch No 22 May 2008
The Reserve Bank Amendment (Enhanced Independence) Bill 2008, which was tabled in Parliament in March, aims to give the RBA Governor and Deputy Governor “the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician” (Wayne Swann, Hansard, Thursday, 20 March 2008, p. 2381).
Under the current Reserve Bank Act, the Governor and Deputy are appointed by the Treasurer, and the Treasurer must remove them from their positions if either of them: