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.
Andrew Norton 
I thought even by the usual anti-economic rationalist standard this offering was poor. “We killed manufacturing”, yet he then goes to describe a whole bunch of other industries that have arisen. Reminds me of a Paul Keating comment, when asked what he had to say to all those people who lost their jobs as a consequence of restructuring the economy, he said “How’s the new job going?”. (Kind of sad when you have to quote Keating).
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Dreadful article. Saved it as a permanent reminder of how silly people can be when they approach matters economic without checking facts or applying a modicum of logic and basic economics.
One paragraph I’m still not sure I understood properly: did he really suggest productivity improvements are irrelevant because we have a small manufacturing sector? The conclusion would have to be that Mr Feil thinks you can’t have productivity growth in resources, agriculture or service industries.
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Yes, that op-ed was simply terrible – Rambled on and on without any coherent structure. I am surprised how some op-eds can get onto the opinion pages so easily…
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Feil is trading on his reputation. He was a former Director of the Industries Assistance Commission. Google his name and he turns up cited by the ABC as a ‘respected trade economist’!!
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Thanks for the reminder, Jason. I remember him now. He told the radio audience that “We can’t all be professors of economics”.
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OLD AGE INDUSTRY POLICIES
I read the article and was almost moved to put pen to paper and submitt a rebuttal. I didn’t, however, because in my experience The Age is very reluctant to publish Letters To The Editor criticising their cabal of anti-economic rationalists. Indeed, my success rate in having such letters published in that paper is zero – whereas my success rate in other papers – Fairfax as well as News and CT – runs at more than 70 per cent.*
What is interesting is that whereas anti-economic rationalists such as Carroll and Manne (editors of Shutdown^) have recanted, or at least ceased to peddle, their former criticisms of economic rationalism (whatever that might be), Martin Feil and a few others continue to prophesy economic doom and gloom – and of course to misrepresent mainstream economics in the process. What’s sad in all this is not that such commentators or views exist; it is that The Age continues to give them oxygen, with little requirement for rigour and with little opportunity for contrary comment. Of course, the paper’s editorial line has long been supportive of protectionism and substantial government intervention. While its editorialists are entitled to cling to their beliefs, of course, it is about as “fair and balanced” on these issues as Fox News is on US foreign policy.
________
* BTW, we’re talking statistically significant sample sizes here – I’ve had more than 50 letters published over the years.
^ Shutdown: The Failure of Economic Rationalism and How to Rescue Australia, 1992.
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One phenomenon I have noticed (i live overseas) is how there is some sort of memory of high prices built into Australian industries that were formerly protected. THis is especially the case in TCF.
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Andrew Norton wrote:
There seems to be some link between personal crises and wacky political beliefs.
So spill Andrew, what horrifying personal crisis led you to believe that public schooling was the greatest mistake of the 20th century? Or does the criticism only apply to left-wing commentators?
Didn’t you also publically admit to dating problems on this blog?
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I read the article by Feil and felt rather ill. Some straight factual as you point out – over the past few years too the price of equipment coming into Australia has fallen.
But why does the Age publish this tripe? It really is becoming one of the worst newspapers in the country. Biased and unreliable.
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It reads like he wrote it in a taxi on his way to (Sydney) airport.
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On watching the retail prices of imports not fall, has anyone noticed the trend in the price of printers, scanners, digital cameras etc in recent years. And clothing, it often seems they are giving it away for the price of the raw materials.
And (paper) note books for students.
Have Carroll and Manne actually recanted or just shut up? Documentation would be appreciated:)
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Carroll did recant.
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Rafe wrote:
On watching the retail prices of imports not fall, has anyone noticed the trend in the price of printers, scanners, digital cameras etc in recent years. And clothing, it often seems they are giving it away for the price of the raw materials.
Scanners and digital cameras you would expect to get cheaper over time (or better for the same price).
Printers? Yes they are cheaper but the cost of consumables for them has risen – the companies changed their business models to match Gillette (when it gets cheaper to buy a new printer than to buy a cartridge for your old one, you know something is wrong).
Clothes? Yes – at least kids clothing the price hasn’t changed much over the last 10 years which is a welcome development of cutting the clothing industry loose.
However, is it all built on the house of cards that is cheap transport? It seems that we have switched entirely to an economy based on the price of oil.
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Clothes are the most relevant example here, because Australia never had an industry making the other products, so any tariff would just have been a de facto sales tax rather than an attempt to protect jobs.
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David, I’m a bit confused by your comment. The tone of your comment appears to be supporting Feil’s argument but then you say:
“Scanners and digital cameras you would expect to get cheaper over time (or better for the same price).”
Why? Perhaps because Feil is wrong – the consumer has benefitted from a reduction in production or logistics costs. As for the price of oil, the price of electronics has fallen in nominal terms (and clothing has fallen in real terms) over the last 9 years, notwithstanding a sextupling (6?) of the oil price.
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Rajat wrote:
David, I’m a bit confused by your comment.
I think Feil is largely wrong. However, he is grasping at the edge of something interesting (competition rather than altruism drives markets). Companies don’t like competition, but consumers do. I don’t understand why Andrew Norton resorted to a personal attack to try to make his point when there was lots of lower hanging fruit to be picked off.
Clothing prices have fallen dramatically as their production has shifted to low wage countries, so the component of the price that is transport has become more significant (although I may be very wrong on this point – the efficiency of a container ship is relatively high).
More interesting to me is that while clothing is relatively essential, digital cameras etc. are not, so I don’t really care whether they get cheaper. Housing, food and water don’t seem to be getting much cheaper.
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One other point. Car unions do not decide the product mix of their employees companies. The car companies are their own worst enemies when it comes to product choice, and scream long and hard for protection and handouts whenever things look bleak (or they’ve been building the wrong cars – something that’s been a specialty of the local industry, Mitsubishi being the worst offender)
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“However, he is grasping at the edge of something interesting (competition rather than altruism drives markets). ”
This is important, but it is not interesting. It’s been obvious for centuries, and so he should not be ‘grasping’ at it.
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Andrew Norton wrote:
It’s been obvious for centuries, and so he should not be ‘grasping’ at it.
Somebody should have told the Liberals when they were drafting Workchoices.
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Andrew, thanks for the steer on Carroll, can someone help on Manne? Actually I think Carroll was the ghost in Manne’s machine, when Manne edited The New Conservatism he just said he knew nothing about economics.
David, what point were you trying to make about Feil “grasping at the edge of something interesting”?
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David, what point were you trying to make about Feil “grasping at the edge of something interesting”?
Feil strikes me as another commentator who starts with conclusions and ends up with his argument – entirely missing the point. I think there’s a major disconnect in the attitude on both the right and the left in mainstream Australian politics with the mechanics of the market. The left feel that an antagonistic stance (regulation and more regulation) towards free market capitalism will somehow soften it’s impacts on the least fortunate. The right talk about giving free reign to market forces to allow self interest to achieve efficiency, but don’t have the political will to make it happen. Feil tries to make the point that altruism isn’t to be expected from self interest (and he’s right) but he’s entirely wrong in the assessment that the free or deregulated market should work that way, and so is John Howard as a specific example (how surprised he was at companies taking advantage of Workchoices to sack people!). Either way, we’re getting nowhere – neither side really seems to trust an entirely free market.
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David R, your personal question directed to the host of this blog was unfortunate.
“More interesting to me is that while clothing is relatively essential, digital cameras etc. are not, so I don’t really care whether they get cheaper. Housing, food and water don’t seem to be getting much cheaper.”
Sorry, I don’t understand where housing and water come into this. They’re not easily created and transportable goods. Clothing can be cheaply produced in mass quantities and transported between countries.
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Who has ever wanted an entirely free market, free of enforceable rules against the use of force and fraud? Who can you quote on “giving free reign to market forces” apart from leftwing critics of markets? Actually I think you mean free rein.
Markets are not disembodied forces, they happen when people trade, “letting the market decide” means letting potential buyers decide. I still don’t understand the point you are trying to make.
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Food has been getting cheaper for decades and the cost of food for home consumption has been a declining part of the family budget. Some of us can remember when eating out was a rare treat, now some people seem to eat out more often than they eat at home.
As for the cost of housing, bear in mind that the size of the average home has doubled in about thirty years and most of the cost of city houses is the land component.
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Perhaps that comes down to a definition: the meaning of “free market”. Some people may think that you could have fraud and the ability to use force in “an entirely free market” while others may think it means that there are enforceable rules against fraud and the use of force.
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An aside – is it just an urban legend that some inner-city apartment don’t have an effective kitchen?
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Sacha Blumen wrote:
David R, your personal question directed to the host of this blog was unfortunate.
I was (crudely) trying to make a point (obviously not very effectively).
Rafe, why not “free reign” – as Bob Dylan sang, you gotta serve somebody.
I honestly think the rhetoric about free markets not matching the substance of policy is grossly dishonest (the last ten years being a real standout). If the majority of us are comfortable with big government conservatism or regulated and expensive markets, we should have them with all the consequences. I don’t like the idea of being sold the stallion of market ideals and getting the mule.
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STRAW ECONOMIC MEN
DR said “I honestly think the rhetoric about free markets not matching the substance of policy is grossly dishonest”
The problem, David, is that most of the misleading rhetoric comes from the left. Witness Michael Pussey’s characterisation of economic rationalism as being about “money, markets and materialism”, or his assertion that economic rationalists believe that markets are always better than government intervention, when no or virtually no economist believes that. Feil’s article is just another in a long line of commentary from the left that knocks down straw economic men. Read any Productivity Commission report, or anything out of Treasury, and you’ll find plenty of times where economists advocate government intervention in the marketplace.
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Tom N. wrote:
most of the misleading rhetoric comes from the left
That might be true Tom, but most of the dishonesty in policy not matching rhetoric has come from the right (although this may just be a feature of the Liberal party). Why, for example, can’t we let the market decide what the best mechanism is for cutting greenhouse emissions, rather than “picking and sticking” with Nuclear when it’s just one of the options available? Why do we continue to prop up or subsidise car manufacturing and forestry product industries? These positions make (twisted) sense from the (economic) left but none from the (economic) right. Yet when it comes to areas like education and health, where it’s far less clear that the current ideas on deregulation will work equitably, we have gung-ho progress. It makes no sense to me.
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David has a point about what happens to free market ideology once it gets into the hands of practical politicians.
The long-dormant youthful Marxist in me, though, says to look for the class interest here – those bits of the ideology that suit particular interests will be progressed, those that don’t will not be.
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A partial admission of error from Manne.
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I think Manne’s admission is more satisfying than Carroll’s (in the Age article), which is just praise for John Howard for how he has managed the economy. Manne actually admits that economic reform didn’t do the bad he predicted while Carroll does not tackle this issue directly.
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So is Clive still fighting the good fight?
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David, at the risk of being a bore I want to keep asking you what you are trying to say about the free trade/economic rationalist agenda. I think even people like Manne and Carroll now admit that the deregulation initiated by Hawke and Keating has been a good thing. At the very least they have admitted that they were wrong to predict disaster.
Are you trying to make a point about the desirability or undesirablity of free trade policies, or are you just saying that the Coalition has not been very active or effective in pursuing them?
So let me ask you the simple question, are you in favour of free markets? And if you are not in favour, why not?
If you are just saying that there is a (dishonest) gap between the rhetoric and the reality of supposedly free enterprise politicians, then recall that (a) the Coalition did not have a majority in the upper house until three years ago (and not really a majority even then) and (b) there is still a very articulate (if incoherent) body of opinion, represented by Mr Feil, that can be mobilised anytime that serious free trade policies are mooted.
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Rafe, sorry to but in, but don’t you think that Manne and Carroll are likely to be still just as critical of the philosophy, or mindset, behind economic rationalism, even though they’ve retreated from the debate about numbers?
I suspect they both still think that economic rationalism involves pushing too much of life into an amoral market system, that it’s a system run by the rich mainly for their own benefit, and that’s it fruits (accelerating environmental damage and tasteless spending on junk) are despised ? And that it’s still early days … maybe a few more downsides will become apparent as time goes by.
When you say free markets, you don’t mean totally free do you?
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Russell, thanks for your comments. It helps to see economic rationalism as a part of the classical liberal agenda which has at least three strands of policy (1) free trade, (2) the rule of law and (3) a moral framework including things like honesty, compassion, civility, self-reliance and community spirit.
Economic rationalism offers something for everyone, rich and poor, like the opportunity for all able-bodied people to work. As for the amorality of markets, a market is something that happens when people trade goods and services. It is a category error to talk about the morality of markets.
As for the environment, there is a rich literature on free market environmentalism, demonstrating the ecological downside of public ownership. Property rights give people a vested interest in looking after the property. Sensible pricing tends to force people to economise with scarce resources.
The downsides that you mention are either non-existent or they are the result of people using their freedom to do things that you don’t like (spending on junk).
I have already pointed out in a previous comment that free markets are supposed to operate under the rule of law to minimise force and fraud.
I would be interested to see Manne and Carroll actually engage with the philosophy and mindset behind economic rationalism.
See the link for some choice examples of the abuse thrown at economic rationalists 20 years ago. http://catallaxyfiles.com/?p=2745
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Rafe – I heard this tonight:
That’s the sort of thing that seems to happen with markets because they amplify self-interest. What do you think?
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That is an indictment of certain practices, not the policies of economic rationalism. Unless you are a utopian you have to expect that some people will act in undesirable ways some of the time. However the evils of unprincipled marketeers are minor compared with the largescale exploitation of consumers that happens when political interventions favour special intersts.
Self-interest is a constant, it is not a product of markets, nor is it aggravated by markets.
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Rafe wrote:
Are you trying to make a point about the desirability or undesirablity of free trade policies, or are you just saying that the Coalition has not been very active or effective in pursuing them?
I’m saying the coalition has been ineffective at pursuing free trade. Perhaps this was a function of a hostile senate, more likely they currently do not have the courage of their convictions. A perfect example for me is the “fair pay commission” – what is the point of replacing arbitration of minimum wages when deregulation of employment should entail the removal of minimum wages altogether. The coalition know this would be politically unpalatable, but they insist on swapping one working system for an unproven one.
For the record, I know free trade works for tradeable commodities but I’m less convinced where it comes to more widespread social benefits that flow from safety net health and education systems. I have been, in the past, a blind faith supporter of markets (an active consumer of private schooling and health – I worked for a merchant bank for 11 years), but ended up troubled by both the poor value I received and the growing inequity that is palpable in international cities I’ve seen over the years. I know difference, envy, self interest are powerful motivators but no longer believe that the twisted consumerist mentality that has been harnessed and fostered by their pursuit will lead to anything resembling a civilised society.
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If you are saying, David, that the Coalition claims to be a free trade party but isn’t, then I can certainly agree – at least with the last bit.
But Martin Feil’s attack was on economic rationalists, free marketeers and economists; not on the Coalition. That is where this debate started. How, or why, you finished up where you did is not immediately apparant.
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Tom, it ended up there because you stated “most of the misleading rhetoric comes from the left” – both sides have been equally bad and given the coalition have occupied the corridors of power most recently, their self serving deceptions are more obvious.
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Russell, one common complaint of less regulation is that people can be unfairly dealt with moreso than with more regulation – but people can be nasty or unfair, or try to get around whatever constraints there are, in any system, and human nature is such that some people will. What you need, then, is to have enforceableTrade Practices Acts so that unfair practices can be dealt with.
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Rafe and Sacha: “Self-interest is a constant, it is not a product of markets, nor is it aggravated by markets” – I disagree, when publicly owned institutions are privatised the motivation for providing the service changes (ie to profit) and the consumers become more exposed to people who want to take advantage of them. Eventually you can’t have dealings with organisations that treat you as a citizen, rather you’re seen as a target to be exploited.
David: “For the record, I know free trade works for tradeable commodities” – what if the French want to protect their agricultural sector because they want to protect that way of life, the form of society they have …. isn’t it reasonable for them to make that choice? If the Japanese particularly value food security over cheaper imports, why shouldn’t they protect their agricultural sector?
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Russell – do you think that publically-owned organisations can’t treat people poorly? I understand that the motivations of publically or privately-owned organisations might (or then again, might not) be different, but at the same time, people may be more interested in the outcomes those organisations produce.
I know people in the NSW public service who tell me that, in some parts of the NSW public service, it doesn’t matter how or if one performs, as there’s no need to. The stories I hear are just incredible. One difference between profit and and public organisations is that a public organisation doesn’t usually cease to exist if it doesn’t make money.
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A subpoint about this is that profit-driven organisations need to perform to survive, while publically owned organisations don’t.
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Russell, the Japanese do not protect their farmers for food secuity, it is a matter of getting the rural vote, so the people in the cities have to eat the most expensive rice and meat in Asia.
Contra to treating customers as targets to be exploited, private sector firms in a free market who want return business (and good word of mouth publicity) have to keep customers happy in a way that monopolies (public or private) do not.
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I don’t think that’s so – public organisations have to justify their budgets to ministers who would be happy to use the money for other things.
The profit motive as a need to perform leads to ruthlessly exploiting market power to drive out competitors, corrupting public officials, covering up damage, environmental or otherwise – I could go on – and if they do go broke these organisations can cause huge hardship and distress for their investors – Enron?
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Rafe: “people in the cities have to eat the most expensive rice and meat in Asia.” – seems they can well afford to, so the policy couldn’t be doing too much damage to their economy. What about the French?
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Didnt the publically owned SA state bank go belly-up?
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Russell – in the public sector, there isnt the outside discipline that may effectively force it to be better and more efficient at what it does. Politicians may try to make it more efficient (remember the “efficiency dividends” required by the Hawke govt to make budget savings?). Because those outside competitive pressures dont seem to exist in the public sector, it doesnt really matter if it underperforms.
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