The anti-economic rationalist genre

Some years ago, in reviewing Lindy Edwards’ book How to Argue with an Economist, I suggested that it was part of a genre of anti-economic rationalist writing. I think ‘genre’ is a good way of describing critiques of economic rationalism, because it picks up connotations of a common style as well as of shared subject matter and perspective.

There was another example of this in an article by Martin Feil in today’s Age, run under the title ‘We killed manufacturing’. It’s a vigorous polemic against economic rationalism and free-market economics, but as is usual in this genre it does not cite any actual economic rationalist or free market advocate and shows the standard lack of interest in facts.

Admittedly, indifference to evidence does have its liberating effects, allowing creativity closed to those who drearily stick to what can be substantiated. Take this claim, for example:

According to the free-market adherents, productivity improvements occur only when there is no government intrusion in the marketplace. Businesses are left to compete and only the most efficient survive. They then altruistically give their efficiency gains to consumers to grow the market. (emphasis added)

I’ve been reading anti-economic rationalist tracts for 20 years, and have read countless denunciations of free-market theories putting self-interest at their centre, but I think this is the first time I’ve seen the theory criticised for putting too much faith in altruism. Of course many people are altruistic, but it would indeed be a foolish theory that assumed business would give productivity gains away out of generosity. If it happens, it’s because business want to increase the amount they sell by lowering prices – as free market theory would predict.

Another anti-economic rationalist intellectual tic is to present commonplace economic ideas as if they were radical critiques of economics. After saying that tariff cuts were intended to improve economic growth by creating a more efficient and export-oriented manufacturing sector, Feil argues that:

The Australian economy grows for a number of other reasons. These include the creation of new industries and new products such as information technology, computer games, the internet and the mobile phone.

Economic rationalists have, of course, noted that new industries contribute to economic growth. But far from this being a compelling argument against reducing tariffs, it is one reason for doing so – instead of investors being encouraged to put their money into inefficient industries and consumers forced to pay too much for goods this money can go to other industries.

Then there is the reliance on anecdotal evidence:

Thirty years of watching the retail price of imports not fall in response to reductions in tariff barriers and the removal of import quotas has convinced me that the consumer is the last person to benefit from a reduction in either production or logistics costs.

Perhaps Mr Feil hasn’t been clothes shopping in the last couple of decades. As the RBA’s long time series of Consumer Price Index data shows, clothing prices have been held down over a long period of time. Indeed, they are cheaper now than they were in 2000. The reason? We are importing from low-cost countries in Asia rather than propping up our own inefficient clothing industry. The long-term loss of market share by domestic car makers is also clear evidence that the abolition of car import quotas and the reduction in tariffs has greatly helped car buyers purchase the vehicles they want, rather than those that Mr Feil, the car unions, and the car manufacturers think they should have.

When I Googled Feil the story behind this op-ed aquired the potential to become more interesting. It seems that he is probably an economist, having worked for the Industries Assistance Commission long ago (it was a predecessor to the Productivity Commission, back in the days when they published reports on such matters as the duty to apply to bras imported above the quota, one of my favourites from their history – and presumably the world Feil wants to go back to). That makes his misrepresentations less excusable. But I also turned up a personal crisis, a divorce in 2002 that led to this piece on middle-aged internet dating. There seems to be some link between personal crises and wacky political beliefs.

Whatever the case, Feil’s seemingly high embarrassment threshold seems to be a factor behind publishing under-researched and confused op-eds in The Age and discussing his love life – or lack thereof – in the SMH.

92 thoughts on “The anti-economic rationalist genre

  1. Sacha – did the deposit holders of the bank suffer catastrophic personal loss, or was it spread over the whole community?

    The head of our Health Department is paid over half a million $$ a year because apparently we had to have someone from the private sector, and pay to get them. Can’t we assume that he will be managing the Health Department as efficiently as any private enterprise CEO manages their organisation?

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  2. Russell – so people in Japanese cities pay more for rice than they otherwise would. Wouldn’t that effectively be a regressive tax that is redistributed to rice farmers?

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  3. I don’t know what happened to the deposit holders of the SA bank. My understanding is that the entire community had to pay for the the failure of management, which then led to the SA Govt being heavily defeated.

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  4. But why should we care … the Japanese have a democracy and that’s the way they choose to do it.

    ” then led to the SA Govt being heavily defeated” – competition (political) at work!

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  5. Russell, the Japanese had (I dont know if its recently changed) a malapportioned electoral system which favoured rural voters.

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  6. So it’s on that basis (our evaluation of their electoral system) that we can tell the Japanese what to do?
    How about the French?

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  7. Russell wrote:
    If the Japanese particularly value food security over cheaper imports, why shouldn’t they protect their agricultural sector?
    Because in the long run it’s counter productive. They get more expensive food and the price of food security is never under competition. It’s quite simple for a consumer to select (say) beef from a particular country for food security reasons as the beef is marketed that way. Those concerns may carry a cost (i.e. the producers can differentiate their products – Australia certainly does in the Japanese beef market) – something the consumer should be able to determine at the time. You could argue that Japan would culturally be poorer for losing it’s home grown agriculture, but Australia would be nowhere if that were true. Somebody always loses when you’re subsidising or protecting industries, and it’s usually the consumer. Japan will probably always have a boutique industry, but tariffs are not the way to secure it’s long term future, and an illusory way to ensure food security (mono cultures are especially dangerous in food security terms).

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  8. David – I don’t follow. If the Japanese or anyone else want to be able to be self-sufficient in food – some grain, some meat etc – in case of being cut off during a war, how are they going to have this local food production if they don’t control what’s coming in from cheaper producers?

    But forget the detail – whether it’s food security, or maintaining a way of life, or avoiding GMO’s – why shouldn’t a country be able to decide to trade off price benefits for the other benefits they want? Why is the object 100% economic gain, all the time?

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  9. Russell wrote:
    Why is the object 100% economic gain, all the time?
    That’s the entire point of food production – do it as well and as cheaply as possible. There are few other measures that are meaningful when talking about food.

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  10. Russell, you can subsidise any industry you want, or have whatever trade arrangements you want. The point is that these may well have consequences. For example, if Japanese consumers pay more for rice than they otherwise would, well that may effectively constitute a regressive redistribution of income from consumers to farmers.

    I don’t know if anyone is telling the Japanese or French what to do, except if it’s part of some trade negotiation.

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  11. Team,

    What follows doesn’t invalidate at all any of Sacha’s and Rafe’s points about agricultural subsidies being a regressive tax. And it in no way supports Russell’s contentions.

    But I’ve been living in Tokyo for six months now, and something that quite astounds me is how cheap food here is compared to prices back on the east coast of Australia. You can have a full meal for lunch – admittedly bits and pieces of things, but including ricey treats – for around the equivalent of A$3. You can have a good dinner for around $6.

    I expect prices would be lower if the agricultural protection were removed. But, as an economist by trade, I’d love to get to the bottom of this apparent paradox. Perhaps, with a market of 120 million to service, the economies of scale are sufficiently large to allow this outcome?

    Just speaking generally:

    Tuesday night, I was speaking to an English actuary who has been working here for around two years. He too is astounded at how the Japanese can produce such high quality goods and services for such low prices. At the top of the market, goods and services are tremendously expensive. But there is a substantial ‘middle quality’ section that is more than reasonably priced. And the Japs manage to produce all of this with a service culture that is quite eye-popping. I doubt anyone could move through Tokyo and not run into some employee waving their arms, talking at customers, etc. as part of the sales effort. Walk into a store and seven people will shout ‘Welcome’ to you – quite a contrast to my visit to Myer in Sydney a couple of weeks back, when the staff insisted on conversing about their weekend plans and completely ignored their customers.

    Don’t even start me on the metro rail system, as compared with what passes for a service in Sydney.

    The market system here is just as ruthless as in Australia – if not moreso. But the culture in which it exists is completely different.

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  12. When I was in Manhattan during Christmas in 2004, you could get meal-like lunches for $5 all over the place. It seemed extremely like an extremely competitive market.

    Jeremy, something I remember from Japan was the enormous amounts of labor in the department stores – my experience in the food hall in one department store was that each counter sold its own goods and you couldn’t buy its goods at any other counter. I remember that the doors to one department store in Ikebukuri (phonetic spelling!) must have opened at, say, 8:30, sharp – and the store manager was there bowing to everyone as they came in, and all the workers at their counters also bowed to us as we walked in, maybe because the store had just opened.

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  13. Sacha,

    Yes, Japanese businesses are labour intensive, relative to those in Australia.

    But that’s part of the puzzle, and what the actuary and I were wondering about – how are they able to employ all these charming people to do jobs that can’t possibly justify the wage they are earning – and yet still bring their goods to market at highly competitive prices.

    It may have something to do with the large amounts of capital relative to labour, and the resultant low rates of profit. But if it is, then I’m glad for it.

    The department stores here really are a marvel – oh no, I’m suffering from (gasp) affluenza!

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  14. Continuing on …

    You’ll be greeted with a bow and a pleasant ‘Irasshaimase!’ (Welcome!) wherever you tread in a Japanese department store, and in all other stores you’ll at least get the Irasshaimase.

    It’s a completely different culture, and approach to one’s work and one’s customers.

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  15. Oh, those wonderful Japanese department stores … a little disturbing Jeremy that you seem so keen on staff bowing to you though…. Anyway I visited the horror of Bunnings on myself this morning and they also have staff who greet you (who would be better employed at a till, and are only standing at the door to make sure people don’t steal stuff).

    Are wages in Japan low, at the lower end ? I just wonder because they live in such tiny spaces – Australians have vast houses (and cars) filled with stuff, and are constantly ‘renovating’. Japanese don’t seem to do this, and I remember that many offices also seemed dingy with really old furniture – nothing like the stylish swish spaces we work in.

    One contrast with Perth I remember was their train stations. Ours was ‘redeveloped’, probably cost millions, but the platforms being open under a huge canopy, are boiling hot in summer, freezing in winter. In Japan you could often sit in one of several little cafes that faced onto the platform enjoying a cup of tea while you waited in comfort, and on the platforms they had these crummy looking long little rooms you could sit in, that appeared to have been constructed from old windows from somewhere, with an ordinary airconditioner bunged in at one end, which kept you perfectly comfortable.

    Sacha I know that protection or subsidies will have consequences – I just wonder why its always assumed that cheapest is best. I don’t really know the price of food that I buy – I look for freshness, local produce, organic, quality… and despite what Rafe says I expect to be lied to: this morning I bought some cashews – the manufacturer proclaimed on the packet that they were bringing me “the fresh taste of Australia” it was a “product of Australia”, but in small letters it has ” made with imported product” – in other words cashews from Vietnam. BTW those cashews were $32 a kilo – I know the price of those because they’re about 3 times the cost of the cashews you now find everywhere – but they are same quality cashews that used to be sold everwhere. Food has gotten cheaper but only for cheaper quality. Clothes have gotten cheaper, but for cheaper quality.

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  16. Russell, when did I ever say it was all about price and economics?
    http://www.the-rathouse.com
    We started off talking about economic policy which is very much about prices and choices, and limiting the damage inflicted on consumers by special interests using political influence. It is also about the efficient use of natural resources.

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  17. Rafe, very nice first paragraph on your link. I only mentioned your name above in relation to duplicitous merchants – and I will still have to buy those cahews because they are the only ones worth eating!

    “the efficient use of natural resources” what does this mean? I want food to be produced sustainably, humanely and by local communities. You know how they used to use the phrase ‘animal husbandry’ – I want food producers to look on their work as husbandry. Efficiency isn’t my first priority.

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  18. “damage inflicted on consumers by special interests using political influence.” – Could the same have been said of Wilberforce and the Evangelicals who lobbied to outlaw slavery? (I’ve just been reading Windschuttle’s article on slavery in Quadrant.)

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  19. Russell, what has eliminating slavery got to do with reducing the opportunities for special interests to exploit consumers? Do you expect to be taken seriousy?

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  20. Russell – have you read former Senator Peter Walsh’s political autobiography “Confessions of a failed Finance Minister”, published with additions in 1996 or 1997? Regardless of whether you agree with his viewpoint, it’s interesting to read his description of what he sees as special interest groups attempting to gain benefit at the public’s expense. It’s a very interesting book.

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  21. The reason I quoted Rafe’s remark ““damage inflicted on consumers by special interests using political influence.” was to make the point that the damage to consumers may not be as important as the reason for doing the thing. Consumers may have had to pay more, but to lobby for change was still the right thing to do. The ‘benefit’ of cheaper prices to consumers isn’t the only thing to consider.

    Sacha – haven’t read it – I never could stand Peter Walsh, John Dawkins et al. Always seemed to me arrogant and mean.

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  22. I recommend that you read it – Walsh came across to me as someone interested in the overall public interest as opposed to the interests of sectional groups.

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  23. Sacha, what with this blog, Quadrant and the wretched Policy magazine I have hardly any time for Eureka Street and Green Left Weekly. Since I still need further improving (I haven’t read ALL the classics yet) I doubt there’ll be time for Peter Walsh….

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  24. *laugh* It sounds like you’re reading lots of anti-left forums – are you intrigued?

    Aren’t all the Green Left Weekly editions basically the same?

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  25. Intrigued? No, there’s good writing and good ideas/criticism from all over. Take the issue of Quadrant I was reading – although I’ve heard Windschuttle on the radio and thought he sounded insane, he has a good little article there, and Ron Brunton’s article on the Single Noongar claim over Perth was good (and new) but the article on obesity is just tripe. Counterpoint tonight has something about diet – it’ll be interesting to see if it’s as bad as that article. (Rafe has an article in there too, but I didn’t read that.)

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  26. Sacha – Counterpoint is a program that Radio National puts on so that we left wing listeners can be reassured that the right is as dumb as we think it is.
    http://www.abc.net.au/rn/counterpoint/
    Last night they had a moron who has published a book called Diet Nation (try to find even one review in a quality journal). He was criticising those who had ‘an agenda’ to promote the idea that there’s something wrong with you – so that you need their pills or diets or whatever – but then sort of became aware that he was criticising good old free enterprise, so said of what they do “…and that’s fair enough, they’re in business”.
    It reminded me of our discussion here: does the right to make money trump social responsibility?
    I can say one thing nice about Counterpoint: good music. Played a bit of Peggy Lee last night which reminded me of the excellent Dean Martin show on TV in the 60s – Peggy was often a guest. (See, not a popular culture snob).

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  27. Thanks Russell – I don’t listen to Radio National (I listen to the local ABC station in the morning). Glad to hear you’re not a popular culture snub 🙂 (BTW My partner tells me I’m a popular culture vacuum – probably because I don’t read the social pages much – I read more on politics and economics!)

    About your question – “does the right to make money trump social responsibility?” I suppose that the starting point to think about this is to work out everyone’s responsibilities. What are everyone’s legal responsibilities? If one can legally do something (eg make money) then is it some kind of ethical consideration as to whether you make money in what others might think is a slightly unethical way? Should ethics be legislated for? How would one legislate this way?

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  28. Well Rafe was going on about “reducing the opportunities for special interests to exploit consumers”, without allowing for any complexities. If I want to try to influence politicians to ban battery hens in tiny cages, even though that’s the cheapest way to produce eggs, I think I’m entitled to – perhaps even morally obliged to if I think keeping hens that way is cruel.
    If I were selling eggs from hens kept in perfect conditions, and campaigning against battery hens, Rafe might say I was only hoping to force my competitors and their cheap eggs out of the market – but again, if I believed that hens should be kept in more natural conditions, I would be following my conscience in trying to outlaw the tiny cages.

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  29. Russell – I’m honestly not sure how to respond to this. (And I mean this honestly!)

    The reason I say this is, that while I understand the logic in what you write, I *feel* that this last comment is taking something to a logical conclusion of some sort, whereas in reality, logical conclusions are not taken. In logic and pure mathematics (in using proof by contradiction), one might use an argument appealing to the logical conclusion of an argument, but I feel that this is not authentic in politics (and economics).

    I feel, without speaking on his behalf, that Rafe’s argument is about special interests using their situations to benefit themselves selfishly at the expense of the general public, and there are innumerable examples of this happening.

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  30. Russell, I am prepared to handle any degree of complexity as it arises. Sacha has got it spot on in his last sentence.

    The greatest dangers are state-protected monopolies where the issue is quite clear-cut. The are potentially bad and dangerous in all sorts of ways.

    When you get into things that involve the possibility of cruelty and inhumane actions then of course moral and ethical issue need to be considered along with the economics of the case and maybe in defiance of the economics. Slavery is an obvious case and you need to realise that classical liberals are not just concerned about markets, we are also concerned about the rule of law and the moral framework as well.

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  31. “classical liberals are not just concerned about markets, we are also concerned about the rule of law and the moral framework as well.”
    Moral as in describing political inteventions that favour special interests as “evil” (comment 38).
    Are the French rural communities ‘special interests’, and is their favouring by the government evil? In answering that, what factors would you take into account?

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  32. Like Martin said in the internet piece:

    “Data and events in our memory banks that don’t support our position or emotional state meet the fate of all such data, regardless of the analytical application.”

    It’s a pity that he gets such a good run in the Age. No matter what the subject I always like to read contrarian views – but only if they have something to offer. In this case, I’m afraid it just ain’t so.

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  33. # 88 “evil” was too strong in the context, read “downside”. What has to be taken into account is how many people you want to see supported in a lifestyle that is no longer economically viable – consider the bullockies of a hundred years ago. I don’t have a simple answer and I am not a utopian so I don’t expect that there is a simple answer, certainly there is no solution that will make eveyone happy.

    The situation in France is that there are a lot of farmers on very small plots of land and they need to be propped up by the taxpayers at large. Incidentally to get over the shortage of land at home, French wine interests have invested bigtime in South Australia.

    What factors would you take into account if you were planning to argue in favour of raising the tariff on cars, shoes and clothes to their previous level? And if you are not prepared to make that case, why not? The makers of cars, shoes and clothes will love you!

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  34. “I don’t have a simple answer” – I suppose that’s all I wanted to hear really, because (back to the topic) it seems to me that economic rationalism is far too simplistic: market forces are best, free trade is best, continually reducing government is best etc.
    I’m looking at container deposit schemes at the moment and it’s the usual depressing story – the packaging industry says it’s a cost and opposes them, the environmentalists say the cost is worth it for the benefits. Some people know the price of everything and the value of nothing.
    As to cars and clothes – a bit complex for me, but I would support activities based partly on their importance: a car industry is important because we wouldn’t want to lose all the knowledge and advanced technical skills, in all the industries, that go into making cars – – as long as we need cars.
    Making clothes is a simple skill that individuals can learn for themselves – as many do. I guess that you could fairly easily resuscitate a footwear industry if you had to, but not a car industry.

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