Tag Archives: economics

Collaborate or control

The task of economic science, since Adam Smith, has been to explain the origins of wealth. John Kay observes that the theory most favoured, even by Smith—that productivity is ‘almost’ all that matters—is not by any means the only explanation for personal wealth. Nor is it, historically, the most successful explanation (because the arbiters of […]

Economics’ standard model defective

Apt reminder from John Kay

“The standard approach [‘rational expectations’ theory: PWG] has the appearance of science in its ability to generate clear predictions from a small number of axioms. But only the appearance, sincethese predictions are mostly false. The environment actually faced by investors and economic policymakers is one in which actions do depend on beliefs and perceptions, must deal with uncertainty and are the product of a social context. There is no universal economic theory, and new economic thinking must necessarily be eclectic. That insight is Keynes’s greatest legacy.” Extract from FT.com / Columnists / John Kay – Economics may be dismal, but it is not a science


Tim Harford—discussing the dissing of macro—quotes P J O’Rouke:

“[M]icroeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things that they are wrong about generally” Extract from Tim Harford in the Financial Times

Myopic NBN economics


Bill Glasson is an opthalmologist from Winton in Western Queeensland who now chairs the Regional Telecommunications Independent Review Committee. His Committee is doling out more than $60m in subsidies for rural satellite phone bills, indigenous phone services and remote broadband. His view on Telstra’s proposal to upgrade it’s urban cable network?

“Dr Glasson said it was not in the nation’s interest to ‘build two bridges over the same river five metres apart’.” Extract from The Australian

Sure it is. Competition isn’t roadworks, Bill.

It is absolutely in the interests of consumers and the market to have competing offers on a crucial infrastructure like the NBN. Five meters apart or nose-to-nose. Just imagine how much more insufferable Qantas would be if it were not for VirginBlue, or for V and Delta across the Pacific. [Hmmm… Maybe Bill won’t like the Qantas analogy. After all, Winton is their home town too. Could that explain….?]

We can safely assume that if Optus elects to spend $billions on a parallel cable network then they think they’ve got a winning proposition (for consumers) that will return them a big profit. And you can assume that Telstra has also factored in this risk. Let the games begin!

Transition to a non-carbon economy

The objectives of climate-change mitigation programs such as those in the Garnaut Report or in the Australian Government’s absurdly-named ‘carbon pollution reduction scheme‘ cannot be achieved by 2020 or 2050 without a massive, and rapid, transition away from carbon-intensive energy sources of primary energy for base-load power generation, transport etc.

But forcing rapid change in the way we power production and consumption across the economy —for example, by means of carbon-quota (or tax) penalties— will cut growth and will redistribute resources to less productive sectors such as government and (probably) some households. Certainly, the emission controls will affect business and consumer plans, but the wealth impacts also risk undermining our capacity to invest in the infrastructure necessary for an eventual energy transition.

Prof. Vaclav Smil argues that the inertia of energy systems is much greater than these ‘transformational‘ programs acknowledge. Unlike information systems that the micro-processor revolutionized within the span of half a working-life, a transition in energy systems takes generations because it requires fundamental changes in large-scale ‘cooperative’ infrastructure such as transmission networks as well as in the organization of production and consumption.

Memoir of Keynes

GrantKeynes.gifAmusing, anecdotal, accurate short memorial of the great man, now again in the news (the portrait of Keynes at work by his one-time lover, Duncan Grant).

Easterly vs the Growth Commission

The Growth Commission report has been described by David Warsh as an orphan of the World Bank’s former regime (under Wolfowitz). Now Bill Easterly claims its reductionist expertism—abandoning all grand theories of development—is also an empty promise. There is at least one general principle that can be discerned in every case of successful development:

“Confirming Hayek, systems that give more liberty to individuals – featuring both more economic and political freedoms – are associated with much less poverty. The evidence for this comes from both history (for example old, despotic, poor Europe compared with modern, free, rich Europe) and cross-country comparisons (for example South Korea compared with North Korea, former West Germany compared with East, New Zealand compared with Zimbabwe). This alternative paradigm has a much smaller role for experts, because experts cannot direct or impose freedom from the top down (or else it would not be freedom).”  extract from: Bill Easterly in the Financial Times