Tuesday, January 21, 2014
Freshwater economics gone stagnant
RMIT economics professor Sinclair Davidson runs the blog Catallaxy Files - self-styled as "Australia's leading libertarian and centre-right blog" - where I spend a bit of time trolling the various Christianists, libertarians and other wingnut denizens. While admittedly I get away with a lot, I am currently in moderation over there for taking up an old battle with him. I am not so much posting this entry to whinge, but to set it all down somewhere while I'm remembering, and for future reference once this topic inevitably resurfaces.
In 2011, Sinclair posted an article at The Drum entitled 'Stagflation' looms for Australia's economy predicting a rise in inflation to dangerous levels concurrent with a precipitous stall in growth, with an attendant Cat thread and then a follow-up thread a fortnight later (presenting a Zero Hedge graph of questionable construction).
Since that point, and contrary to Sinclair's predictions, growth in Australia has recovered to historical trend levels, while inflation has plumbed new depths - the latter so much so that there is now talk of deflation, which occasioned not just one Deflation risk thread on the Cat but a sequel as well. As is my wont, I immediately waded into Sinclair in the comments with hard economic numbers, plus a reference to Art Laffer's recent capitulation in the face of economic data which refuted his previous pronouncements on inflation. By the time the sequel thread came around the stoush was in full session, leading to the moderation. As Homer Paxton points out, it's hard to fathom why Sinclair can not admit he got it wrong, when the facts are staring at him in the face.
Denial is a distinguishing feature of many economists of the freshwater school, which is one of the many reanimations of right-wing supply side economic thought in the last century or so. Paul Krugman is the best prosecutor of the case against neoclassical economics - led by Milton Friedman of the University of Chicago - after it failed to predict the Global Financial Crisis. Sinclair is part of an even older, less creditable sect: that of the classical economists. Classicists were embarrassed out of the profession, for the most part, by the Great Depression in the 1930s which saw the rise of Keynesianism as voters in recently enfranchised demographics realised they didn't like mass poverty and long-term unemployment. Empirical data which scientists did not expect tends to shake up scientific theory, or at least should do if said scientists are actually using the scientific method.
Despite several such fact-based setbacks to supply side economics, Catallaxy Files is the gathering point of a self-styled "Australian school" of economics, which takes its cues from the Austrian school headed by Ludwig von Mises. Chief hunter of the classicists is John Quiggin, economics professor at the University of Queensland. His characterisation of classicists as zombies in his popular book defined the battle.
Economists like Sinclair now sit in fetid, dried up billabongs, not having changed since the time of the dinosaurs, like freshwater crocodiles in a drought. The climate has changed for freshwater proponents, and they are not able to evolve to adapt to the new environment. This is why Sinclair can not accept reality. He will continue to bare his teeth and wallow in the dust, until the dry wind comes to pick his bones clean.