The Wild West ... the outback ... The new world of the 1800s was a time of true liberty. People stood on their own merits. They won or they lost and they reaped the rewards or swallowed the consequences. There were no cubicle dwelling civil servants hell bent on saving you from yourself. No planning permits no licenses no permissions no heritage overlay no bylaw no regulators no inspectors. And guess what ... it worked

This site is set up to provide a forum for a number of like minded professional economists to post and comment on contemporary issues. There are a number of regular contributors whose bios are made available on the site. Most if not all of these contributors use a pseudonym for the simple reason that they are practicing economists who must take into consideration the commercial implications of posting their opinions.

While some may feel that this is a bit of a gutless approach it is the only way we can ensure free and open discussion without jeopardising our paycheques.

Thursday, July 30, 2009

Roy Rodgers Vs the Nursey lady from red cross

Big kev has declared 2009 is the year of the blood donor. He wishes to raise awareness of the need for blood and the importance of voluntary donors.

Fantastic you may say, bloody good you may think … what possible smart arse comment could Roy Rodgers possibly impart on such a worthwhile endeavour.

Lets unpack his wishes the need for blood. I’ve got to admit that this sounds reasonable to me. Given my lack of medical training I’m more than willing to believe that modern medicine and modern treatment practices do require blood.

Wish number two is to raise awareness of the importance of voluntary donors. This is the bit that gets me. Why are volunteers so important? And by volunteers they are referring to hapless altruists with enough spare time that they can spend an hour or so freely giving their own life juice to the state or in this case the state sponsored entity.

Don’t get me wrong, there is nothing wrong with donating time or money to causes you find attractive enough to sedate whatever degree of altruism you have imbedded in your own utility function. There is nothing wrong in giving food to the homeless. I myself always throw junkies a couple of bucks whenever I see them begging. I see it as my contribution to supporting the anti prohibition movement.

The bit I query is whether this is the right approach to take to blood. The thing is, blood is not a charity, people can afford it (or most people could) so the idea that giving blood is somehow charitable is a crook.

The other worry about blood is that if its so important and if its availability literally saves lives, why in the name of the almighty are we satisfied to limit our source of supply of the stuff to a small group of altruists. Not only satitisfied but have actually provided the Red Cross with a legislative monopoly/monopsony. The absurdity of the situation is only highlighted by the apparently never ending shortage of the stuff. According to that annoying bloodhound they keep abusing in their advertising we are living in a perpetual blood drought.

I find this state of affairs so annoying, that during the recent blood drive associated with the Victorian bushfires I decided to conduct a little experiment. I thought i would try and find out how much the Red Cross values a pint of blood and by extension how much they value the life that it saves. I donned my polar fleece vest, neil diamond tshirt and a sturdy pair of Rockwell shoes (my imagined blood donor uniform) and waddled down to the donor centre.

Nursey type : do you wish to donate blood.

Roy: yes I would love to …. whats the going rate per pint?

Nursey type: (face shows confusion and a slight look of concern) there is no going rate.

Roy: okay in the absence of an observable market price ill give you a pint for 20 bucks.

Nursey type: 20 dollars? … you misunderstand we don’t pay for blood

Roy: wow, haggle hard …. Look a lobster is as low as I’m prepared to go.

Nursey type: are you serious people are dying?

Roy: ok … that’s a 50 then (thinking, nursey heres a hint, in a bargaining situation never disclose you have near perfectly inelastic demand)

Nursey type: (with an angry tone) how can you be such a tight arse, profiting off dying people …. Please leave

Roy: me tight? … hey you’re the one that wont fork out a lousy pineapple to save a life ... tell you what, Ill give you a pint for $50 and if i dont pass out, ill give you another for $45 .... and i wont avail myself of your free mouldy sandwiches.

Nursey type: please leave

Roy: hey Im only trying to save lives ..... right then, I'm off to the hospital to see if i can scalp some fresh stuff!!

Why have we not established markets in blood? It’s a basic fact that markets and prices are much better, more efficient and more fair allocative mechanisms than any centrally controlled system would be.

There is nothing about blood that makes it inherently unmarketable. There is rivalneous in consumption, there is full excludability, there are no information problems and we have quite clear frameworks for property rights. If its my juice then its mine.

If we had markets we wouldn’t have shortages.

It makes you wonder just what the human cost of this seeming aversion to the comodification of blood actually is. To my mind one life lost is one life too many, especially if that loss could have been avoided for the sake of a lousy $50.

Tuesday, July 28, 2009

Thanks for the insights Glenn..... (Lone Ranger)

The RBA Governor, Glenn Stevens, has warned about the possibility of a bubble in housing prices:
Equally surprising was the strong warning in his speech that a housing bubble could be on the cards "in the near term" if the low cost of housing finance failed to translate into more dwellings being built.

He said this would put Australians at risk of being denied affordable housing while household balance sheets could become over leveraged and asset prices could eventually deflate.

"Given the circumstances - the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs - this ought to be the time when we can add to the dwelling stock without a major run-up in prices," said Mr Stevens.

"If we fail to do that - if all we end up with is higher prices and not many more dwellings - then it will be disappointing, indeed quite disturbing."

(See link here).

What is a housing bubble? What is any asset price bubble? Well, one definition is that it is a sustained and rapid increase in the price of an asset, significantly in excess of other related variables, particularly income. Classic bubbles in history have included “tulip mania” in the 17th century Netherlands and the Mississippi bubble in early 1720s France. A bubble bursts when the price of the asset becomes unsustainable (i.e. it gets so far out of whack with incomes and/or its true market value, that the prices begin to fall).

Glenn, mate, what do you call the run-up in house prices over the last decade if not a bubble?

Please see the attached chart courtesy of The Australian data for the chart was from Nigel Stapledon at the University of NSW.

What this tells us is that, compared to the long term average, Australian house prices are about three times what they would otherwise be. Three times!! Traditionally, average house prices in Australia were around three times the average income – they are now around 8-10 times. Does this qualify as a bubble?

I borrowed the following chart as well, as it demonstrates the rapid growth of household debt compared to GDP. I am no statistician, but the growth of household debt and housing prices over the last thirty years are looking curiously correlated to me.

And what caused the bubble Glenn? Could it have been the RBA misreading the economy and keeping interest rates at below real market rates? Could it be the out of control growth in the money supply that saw Australians borrowing heavily to purchase rapidly appreciating houses? Is it that the RBA is the problem? Could it be that the RBA Governor would not recognise a housing bubble if it was dropped on him from a very tall height?

The Australian housing bubble looked like it was beginning to correct in 2008, but timely intervention by Government to “save” housing prices appears to have kept at least the bottom end of the market bubbling along.

The Australian housing bubble must surely qualify as one of the greatest asset price bubbles in history. As someone with a mortgage, I can already tell you that housing prices are way beyond the sustainable level and will, eventually, deflate. Many Australians are already locked out of the housing market because of this asset price inflation – that the RBA Governor cannot apparently recognise that we have already been through a housing bubble probably means that he should look for another job.

I love nut jobs (roy rodgers)

If you've been following this blog, you probably would have noticed that some of us have a love for nutjobs. I really do love them, they are the highlight of many of the consultation programs I was forced to endure when working for government.

To tell the truth I find their capacity for irrationality bundled with their blind passion and horrendous grammar totally seductive.

Since Ive started blogging Ive found that you don't need to be engaged in some mindless round of consultation to find these guys, you don't need to shift through reams of pointless submissions. All you need to do is read the comments attached to blog sites. Particularly sites that exhibit a good base understanding of economics. For some reason these sites seem to attract the pearlers.

So in the spirit of sharing life's joys ... hear is this weeks pearler nut job

The site it comes from relates to an article/opinion by John Stossel, covering the prohibition on markets for organ transplants and the inevitable rise of criminal activity resulting from the prohibition.

and here it is reproduced exactly as posted ... enjoy


My friend, selling Kidenys will only create a world filled with people who are not capable of moving or enduring pain and stress to create their own destiny!Selling Kidneys is not a Christlike selfless act but a desperate act to stay alive living in mediocrity that the dictators create spending billions of dolloars in hollywood financing films against me and spending billions of dollars for making atomic weaponry while their own people are dying of hunger having to sell Kidney! That is why my Leadership Excellence Program enforced by United Nations will disqualify the incompetent dictators like Ahamadinejad and that is why I am censored and hundreds of young people are being encouraged to martyr themselves so that the dictator could live on behind their dead bodies on the stick for I can talk & they cannot!That is why they kill the living and worship the dead historically not to loose the toxic control of the bully dictator who must be the one stealing lifework of others to make the dead wrong decisions by himself bringing cenosrship from the East blocking democracy in and from the West!

Friday, July 24, 2009

Re: Roy Rodgers vs the Hairy Bitch (Lone Ranger)

Roy’s posting a little while ago got me thinking about primary schools, as my oldest daughter will soon be attending our local school. In my younger, stupider days, my wife and I purchased a house in a seedy but yuppifying inner city area, without thinking through the consequences of things such as schools.

Our local school, which will remain nameless, has the following on its website:

The school is founded upon these core values:
  • confident, life-long learning
  • integrity and self-esteem
  • trust and co-operation
  • respect and resilience
  • leadership and excellence in learning

I was rather hoping that there would be an explicit reference to literacy and numeracy, but no. What the hell is “resilience”? Thanks, but I would rather you left that particular value to the parents.

All a school has to do is teach kids to read, write and add up – and maybe a little history for the heck of it. Why is this such a difficult concept for teachers to grasp?

Home schooling is looking better and better.

Call me a hypocrite........ bureaucracy gone mad

We have recently found ourselves in the unfortunate position of having to put our two girls in childcare, so we have begun the process of being properly registered for approved care, thus entitling us to claim half the cost of childcare as a tax rebate (I may be a libertarian, but I am not stupid - well, not that stupid).

It has been a labyrinthine undertaking, not least the 22 pages of application form we filled in two days ago. To hand it in, I waited 20 minutes in the Family Assistance Office, only to be told that I need to bring in the original birth certificates for both girls (I can't fax them - the originals need to be sighted). "It won't happen overnight but it will happen", as they say.

I went away wondering whether this is just bureaucratic inefficiency or a deliberate strategy to cut costs......

The endless search for new victims or the raison d’être of the modern leftie (Lone Ranger)

The constant and growing socialisation from all our lives through the expansion of Government and the ever increasing volume of regulations and laws cannot be separated from the socialist goal of using “equality” (whatever that means) as a way of controlling society. This desire for equality can manifest in a variety of objectives and goals, including:
  • High levels of taxes on the middle classes and the “rich” which are then used to subsidise the lifestyles of the poor – the “disadvantaged”, the “less fortunate” and the “victims”
  • Ever increasing efforts to legislate thought control, through a variety of “anti-discrimination” legislation (anti-racism, anti-sexism, anti-creedism, anti-heightism etc)
  • Ironically, the desire to shove the concept of “diversity” down our throats as if it must be a positive. Note that diversity does not run to diversity of thought – what is envisaged is a group of multi-gender, multi-coloured, multi-linguistic and multi-age “diverse” people all thinking exactly the same way
  • The growth of more “essential services” without which people will die (e.g. subsidised taxis for the “disabled”). This entails (a) a lot more public servants to administer programs and (b) when Governments decide that more public servants appear to be a bad look, through (entirely publically funded) not for profit agencies
  • The growth of the bizarre concept that no aspect of life is taken seriously unless there is a Minister responsible. This helps to explain why the Victorian Government has a Minister for Community Development (can’t communities develop themselves?), a Minister for Financial Services (Minister for the banks and super funds) and a Minister for Innovation (an oxymoron, surely). The problem arises when Ministers want to be seen to be doing something (the need for a press release is strong – call it a substitute for achievement), and hence new and imaginative regulations and programs must be dreamed up and funded

All of which adds up to the need for a constant stream of disadvantaged and victims that the lefties can “help”. This allows them to tax and spend more, provide jobs for their leftie mates in industries deemed socially “aware”, and pretend that, unless we want throw more and more of our hard-earned at a bunch of no-hopers, we are right-wing thugs and so on.

I mentioned Ministerial portfolios earlier. Indeed, the number of portfolios for victims is extensive – Ministers for Women’s Affairs, Aboriginal Affairs, Pacific Island Affairs, Multicultural Affairs, old people, youth, children, disabled and veterans. And you do not even need to be human to be a basket case in need of help – Ministers for manufacturing are a case in point.

So what does all this mean? Well, the bitter truth is that, despite all the protestations of love, peace and harmony, the whole leftist approach is driven almost entirely by self interest. The left needs a constant flow of new victims to keep it employed (with public money, of course) and to make the rest of us guilty enough to cough up more and more of our income in the form of tax to fund these whims.

Why do you think leftists love refugees who have almost no hope of integrating into Australian society any time soon? Not because they believe in racial equality – indeed, anything but. The refugees are so helpless, apparently, that they need the help of the lefties to get by. Whole industries are dependent on the constant flow of these people – social services, health services, interpreters and translators, educators, advocates – you name it. And all funded from the public purse either directly or indirectly.

The whole welfare state is, in many ways, a giant scam cooked up by lefties to provide well paid careers for them and their cronies. Government support for the unemployed and “less fortunate” grows over time, thus obviating the need or desire for many to ever work again or take responsibility for their families (helped along by minimum wages locking them out of the workforce). And see what this lack of responsibility causes – broken families, broken societies and a permanent underclass of no-hopers who have come to expect – nay, demand – a constant flow of hand outs from Government. It makes me laugh when I hear people talk about “free” education or “free” health since it might be free for them, but not for the poor sods who have funded it. By what moral right should Governments determine how any of us use our hard earned?

Think of the lack of logic that Government interventions generally have. For instance, Governments tax the billy-o out of gambling, and then use some of the proceeds to assist “problem gamblers”. If gambling is such a problem, outlaw it. Or better yet, get out of the way and let the losers and their families live with the consequences of their actions. Whatever happened to free will and taking responsibility for the consequences of your actions?

In their search for victims (aka the meal ticket), these people will stop at nothing. You too can be a victim, as long as you are prepared to find an advocate who looks convincing on camera.

Until we collectively stop this rubbish, it will continue to get worse. A better approach can be summed up, I think, in that classic refrain “just get over it”. Liberty is not yet dead, but I think it is on life support.

Thursday, July 23, 2009

(post by Roy Rodgers)

I’m sure macroeconomists are very nice people its just that I’m starting to think that the economics they are proffering may be pure snake oil. The stinky slimy kind of snake oil.

What they taught us in school

I sat through the macro lectures at uni and even managed to get pretty good grades. But all I can remember from undergrad is some overly simplified flow charts that somehow magically added up to GDP and aggregate demand and supply curves with some sort of pretence to grandness … the all important ISLM.

What I do remember quite clearly was macro at honours where we were duly informed that all the hours spent learning this ISLM framework were a great big conspiracy. Apparently it had been abandoned long ago by all self respecting economists. We were duly informed not to be too cranky for although it was all rubbish, apparently we were all the better for it, better intellectually for having sat through three years of the crap.

And then there was postgrad ...

Well, I don’t know about you, but post grad macro for me was two models a lecture, two lectures a week over 14 weeks and a final exam that covered all of the models. That’s 56 models that our sadistic bastard of a lecturer required us to memorise. When queried on the educational value of such an approach his response was “I spent my post grad crying myself to sleep, and I’m a better man for it, so you will be too”.

This particularly loathsome human being prepped us for our final exam with the following statement “the exam is composed of three questions, don’t read the third until you’ve completed the first two. I have set the question so that it’s impossible for anyone in this theatre to answer and if you read it before you complete the other two you will most likely freak out and not be able to complete the exam at all”. When queried how he intended to grade us if the test was set so that we could only achieve a maximum of 66% he responded with “don’t worry … the bulk of you will actually fail the exam … and I’ll have to adjust you all upwards anyway”. There is a special room in hell put aside for this arsehole, a bare cold room where he has to spend all eternity being examined on stuff he can’t possibly answer … again and again.

That was the mandatory macro postgrad component, needless to say I stayed the hell away from anything remotely macro in the electives. By the way I got a distinction for postgrad advanced macro (despite the fact that I’m pretty sure I only got 40/100 for the final) and to this day I have absolutely no idea what he was trying to teach us other than how to do calculus. All I know is that I never want to see another Hamiltonian in my life.

Are we picking up on a bit of a theme in Australian tertiary education? Paternalism as a mask for sadism or paternalism as a mask for lazy teaching … take your pick.

Trust me… I am a macroeconomist and I’m here to help….

This brush with macroeconomics has left me with a deep rooted distrust. I don’t trust macroeconomics, its theories, its models or its policy prescriptions. And given the policy responses to the global credit crisis … I’m starting to believe its pure snake oil.

On what planet does it make sense to squander money on purely consumptive rubbish when your smack bang in the middle of a recession? If you ran a business and you started to experience a contraction in revenue, would you think to yourself, ‘now would be a good time to spend a couple hundred thousand on that feng shui consultant’. No of course not! Collectively our nation’s macroeconomists seem to be advocating history’s most massive spendathon and none of them to date seem to have registered any concern for what this will do at the microeconomic level.

At the end of the day it doesn’t matter what a macroeconomist says, the truth is that all economies are driven by their microeconomic health. If you want to increase income then you have to increase productivity … and this is well and truly in the domain of microeconomics. But these macro guys just don’t seem to care about the micro.

Macro vs Micro

The vast bulk of economics falls under the category of microeconomics. Micro is your basic classical liberal economic approach. Most microeconomists tend to agree on all the important issues. All of the fundamental theorems are readily observable in everyday data, and we know that its policy prescriptions by and large work to the betterment of an economy. Microeconomics has been tried and tested.

Macro on the other hand is a small sub branch of economics whose participants don’t seem to be able to agree on anything. Its theories and hypothesis are not readily observable in the data, in fact in some instances they are non testable. All a macroeconomist has to do is admit that there is no humanly possible way to model the actual complexity of an economy and they have a get out of jail free card. After all, you can’t prove my theory false if you lack the statistical sophistication to adequately test it (then again, you can’t really prove it to be true can you?).

10 reasons to feel a bit uneasy

There are a couple of basic fundamental characteristics of macro that really get under the skin. Given my general level of ignorance on the subject I could be totally wrong on this, but I suspect not.

1. In Macro, there seems to be a universally held belief that people are stupid. I don’t know how else to explain their dogged determinacy that you can fool people into thinking that consumption resulting from a government pork barrelling stimulus actually represent real demand. Our macro colleagues ask us to believe, ‘Hey, if I owned a factory producing widgets and gadgets I would have just bought four new expensive widget machines because of that unanticipated percentage point increase in demand over Christmas.’ Who are they kidding? Mr Widget knows Christmas was a big kev special and most likely a one off. The other thing is that stimulus are founded on the assumption that you are so dumb you won’t realise that although the government is giving you money now, at some point someone has to pay, and given that the governments main source (only source) of income is taxation that means you are going to have to pay for it at some point in the future.

2. The seeming indifference between government spending and private spending. Just because you have some crappy formula stating income equals the sum of investment, consumption, net exports and government expenditure, doesn’t mean a dollar spent by big kev is the equivalent of a dollar spent by your local entrepreneur. When big kev spends money its called pork barrelling, it goes to his mates or his mate’s mates. Not every one got a big kev Christmas bonus … I certainly didn’t. But big kev made sure the traditional labour party base got their goodies. In the same vain it also appears that a major requirement for a bailout package is that your industry be heavily unionised, cars get money but hospitality gets to suck its thumb. Not only does big kev lack the proper commercial incentive for investment he also lacks a base respect for money. Big kev doesn’t have to make money, he takes money and he takes it for free without asking … at the end of the day he doesn’t care if it’s well spent… after all, he can always just take a bit more. Your local entrepreneur on the other hand is usually living off the skin of his arse, respects money like you wouldn’t believe and only invests in things that people actually want and will voluntarily pay for … unlike big kev he/she has no power to take. So on average, a dollar spent by an entrepreneur is most likely to go towards something much more meaningful than a dollar spent by a bureaucrats.

A perfect example of this is the June government spending rush. At around June every year, whether you know it or not, busy little bureaucrats all over the country are trying to spend as much money as they can to ensure they make budget. You see… the incentive structure for government isn’t to do what you do as cheap as you can, it’s to make darn sure you spend every last dollar of your budget before the end of the year. Other wise Treasury is going to take it away from you next year. Law firms with government clients love this time of year, all of a sudden bureaucrats are seeking legal opinion on just about anything they can.

3. There doesn’t seem to be an explicit recognition that all economies are primarily driven by microeconomics. Macro is only good for the short term and I’ve got to say, as a microeconomist, after you consider all the market distortions resulting from subsidies grants and bailouts, any macro gain we get comes at a not insubstantial micro cost. You get the feeling that we may be cutting our own nose off to spite our face.

4. The science of it seems to be driven by political agendas not by scientific inquiry. Guys like Krugmen and Stiglitz are undeniably political.

5. They don’t seem to be able to cobble together a reliable model. One of the oldest running jokes is that economics has come so far its been able to predict nine of the last two recessions. Coupled with this failure at producing reliable models is a bizarre faith that modelling is the answer to everything and the more complex the model the better it is. Macroeconomists appear fully committed to the idea that you can engineer an economy, they actually appear to have whole heartedly swallowed that philosopher king rubbish.

6. Other than agreement on their own importance, macroeconomists don’t seem to be able to agree on much else. Of course the proposition that consensus is necessary in science is fallacious, but these guys have been at it a fair while and you would think that if they had uncovered any fundamental truths that there would be some level of agreement. This bunch of slippery buggers can’t even agree on a definition for what constitutes a recession. Are we having one or aren’t we, is it real or not blah blah blah.

7. Macroeconomics seems hell bent on promoting intervention. Any good economist should have a healthy dislike for government intervention. We know that time and time again the government with all its good intentions invariably stuffs things up. With this in mind, it’s quite alarming to encounter a stream of thought that holds intervention as one of its basic foundational building stones. Where are the macroeconomists that believe less is more?

8. Macroeconomics doesn’t seem to want to allow markets to operate. Most, if not all, macro policy prescriptions are aimed at softening the blow, protecting people from the downturn etc etc…. Well that’s all fine and dandy but what if the down turn is the market seeking to correct. By blocking the correction you become part of the problem not the solution (see FDR and the new deal). It was Joseph Schumpeter that said “Gentlemen, a depression is for capitalism like a good, cold douche.”

9. The consequences of their actions are so large they are downright scary. The scale of the stuff they are working on is so large that the risk associated with their failure makes the hair on the back of your neck stand up. It sometimes looks like they lack the humility you would expect of someone whose advice has the potential to not only effect one firm or an industry but an entire country. You would expect some of this humility to come through when you consider that to date this approach of kick starting an economy through stimulus packages has met with universal failure. Stimulus packages have not helped Japan, they did nothing for Germany post unification and the current consensus amongst economists is that they played a large part in putting the great in the great depression. By and large history has shown that the best you get from a Keynesian stimulus package is a short temporary burst in consumption.

10. I’m sick of people at BBQs asking me what’s going to happen to the interest rate. Most if not all non-economists think macroeconomics is economics … so I worry that when everyone wakes up from the heady intoxication of spending money they didn’t earn and realise that the only outcome from the latest round of stimulus is a deep and long lasting state of perpetual debt and higher taxation, my problem at BBQs will not be trying to explain how I’m an economist with no idea what is going to happen to interest rates, rather it will be trying to dodge the fist of the hairy ape that thinks I’m just another snake oil salesman.

Tuesday, July 21, 2009

Funding research (Roy Rodgers)

Its not often you come across a case of publicly funded research that ticks all the boxes.

So I thought it worth while bringing to your attention the following.

Thursday, July 16, 2009

Buffalo Bill on wealth and happiness

Roy Rogers has rightly pointed out the absurdity of measuring happiness according to the method used by the New Economics Foundation. The tragedy is that our own Fairfax journalists could be so uncritical as to accept the report - complete with the conclusion that Australia is a less happy place than various impoverished, war-torn and corruption-ravaged corners of the earth.

A simple look at the study's methodology reveals that the index does not actually measure happiness at all. Since it arrives at its rankings by dividing measures of happiness and life expectancy by a measure of ecological footprint, the best that could be said of the index is that it seeks to arrive at some measure of the average ecological efficiency with which different nations achieve a given level of happiness. If we assumes that there are diminishing marginal returns in this space - i.e. that the effect on happiness of a rise in national income gets smaller the richer a nation becomes - then it would come as no surprise that some of the poorest nations, using low levels of ecological resource to generate low levels of mateiral wealth, would score well on this measure.

That doesn't make them happier. In fact it makes them considerably less happy than their more developed counterparts.

Economists might point to a simpler measure of the relative happiness between nations - revealed preference. Where do people wish to live? If Costa Ricans are the happiest people on earth (as the survey suggests) then we would expect to see a steady flow of (say) Americans getting the first available flight. We might expect illiegal immigration by Americans to become a big political issue in Costa Rica. I am not aware that this is the case.

But it is worth asking what the bigger issue is here. The study so breathlessly reported by the SMH is part of an increasingly cliched attack on policies which seek to improve national incomes. At times, the attack is directed at the economics profession itself. The basic claim is that money doesn't make you happy. That richer nations aren't really any happier than poor ones (once you adjust for ecological footprints etc.).

One of the key findings relied on by attacks of this type is that measures of happiness do not appear to have changed much in the last 60 years, despite considerable gains in global wealth over that period. The conclusion drawn by anti-growth activists is that money doesn't make you happy and that the best approach would be to give up on the goal of boosting growth and incomes.

Money does not guarantee happiness, but poverty is a fairly reliable route to misery. Cross-sectional surveys generally indicate that richer people are happier than poor, and that richer nations are happier than impoverished ones.

But the the claim concerning the lack of increased happiness in the last 60 years can also be clarified through another fundamental economic principle - the distinction between marginal and average effects. It might be true that average happiness is no higher today than it was 60 years ago. But what if the issue was assessed at the margin? That is, what if the choice confronting society was whether to maintain existing levels of income and lifestyle or whether to revert to the levels prevailing 60 years ago?

Given the choice, virtually no one would prefer the levels of income and wealth of 60 years ago - in other words, over this range, there is an increase in marginal happiness associated with increased income and wealth. The same is true in relation to the small-scale actions and decisions made by individuals every day: people take a number of decisions - to go to work, or do some overtime - not because they believe money will buy perfect utopian happiness, but because they have worked out that having a few additional dollars is better than not having them. Of course, this is not to exclude the reality that the quest for material goods also comes up against limits. Few would always pursue monetary gain at the expense of other human needs like social interaction or emotional intimacy.

The fact that measured happiness has not increased over the last 60 years does not show the worthlessness of material gains, but rather points to another eternal human behaviour pattern - the tendency to take things for granted. We all do it from time to time, whether it be our health, friends, family or good fortune in general, we are notorious for forgetting or ignoring how lucky we are. For all our advantages, we still conjure up problems, challenges, complaints. But this is not actually the same as saying that we are indifferent to all our blessings - that they bestow no happiness or that we would just as soon not have them.

It is one thing to say I take my friends for granted. Another entirely to say I wouldn't miss them if they were gone.

There is always someone worse off than yourself...... (Lone Ranger)

After a bit of a hiatus (sick kiddies, sick wife, lack of sleep, stressful time at work), I will now try to blog a bit more regularly.

This caught my eye, to the point that I almost choked on my cup of tea (thus causing a colleague to ask whether I was trying to impersonate a coffee perculator, but I digress. Not that I would be reading the internet at work much less posting at work).

The following is cut'n'pasted from Mish's site ( Mish is a free market/Austrian economics advocate and is required reading. If I can ever work out how to link sites, I will link his site to this one. Anyway, back to the quote (which Mish links from a news site). US Vice-President Biden, already reknowned for his way with words, has come out with a corker:

Vice President Joe Biden told people attending an AARP town hall meeting that unless the Democrat-supported health care plan becomes law the nation will go bankrupt and that the only way to avoid that fate is for the government to spend more money.

“And folks look, AARP knows and the people with me here today know, the president knows, and I know, that the status quo is simply not acceptable,” Biden said at the event on Thursday in Alexandria, Va. “It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially.”

“We’re going to go bankrupt as a nation,” Biden said.

“Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, that's what I’m telling you.”

Link to whole thing is here.

While the economic literacy of Government in this country is appalling, at least no one has (yet) attempted to claim that the only way to avoid bankruptcy is to spend. Although.....

One of the key differences in the stupendous levels of debt in Australia compared to the US is that nearly all debt in Australia is privately held (households, businesses, banks). Is the stupidity exhibited by Biden much different to our fearless Prime Minister urging heavily indebted households to get out there and spend? Wonder what the Commonwealth Government deficit will be in 2010-11?

Wednesday, July 15, 2009

The predator Vs the regulator (Roy Rodgers)

When I was a postgrad I was lucky enough to take a subject called industrial organisation. Our lecturer was Nisvan Erkal. I’ll never forget the subject, it was the first time in three years of propositional calculus that I was able to sit in a theatre and think my god this stuff does bears some resemblance to the real world.

Nisvan was a fairly good lecturer and one of the best moments during the semester was when she spent a couple of hours going over classic economic fallacies. One fallacy that we spent a bit of time on was that of predatory pricing.

This lecture served as a bit of an awakening. Up until that moment in time it had never occurred to me that predatory pricing was in fact an absolute load of bull. Nisvan informed us all quite calmly that the actual conventional position of the vast bulk of economists was that it is absolute crap.

At this point its worth noting that our government appointed protectors the ACCC have yet to come to this conclusion. As embarrassing as it is it is true, the ACCC believes whole heartedly in the theory. Not only that, they have the powers necessary to intervene and protect us from it. The regulation will save us!

While the ACCC does believe in it, it also notes that it is difficult to prove…..apparently

the initial signs of predatory pricing are pro-competitive and there is often no written evidence of anti-competitive purpose with which an allegation could be upheld.

Heads up boys …. Maybe its sooo hard to prove because it’s a load of baloney.

What is predatory pricing? The theory holds that a dominate firm will price goods at below cost (that is below their costs) in order to force other firms/suppliers to lower their prices … effectively engaging them in a price war. The theory holds that for some strange magical reason the dominate firm is able to sit out its subsequent losses whereas its smaller competitors can not and go broke. Once the little guys are broke (or in eco speak exit the market) it is theorised that the dominate firm can increase its prices to a higher level (than pre price war) due to its new found market power. Ultimately these inflated prices should provide our newly monopolised firm with more than enough profit to compensate for the losses incurred during the price war.

Sounds sort of a little bit compelling doesn’t it?

However, the reality is that its loony bin territory and just because the ACCC says its true doesn’t make it so. It belongs to that same school of bizarre bullshit economics that anti dumping regulations comes from (anti dumping is a sort of predatory pricing theory with a bit of xenophobia thrown into the mix). They both belong to the school of protectionism dressed up in strangely illogical and yet somehow bizarrely enforceable pro‑competition drag.

The theory also appears to pander to the insecurities of anti capitalists and big business haters whose formal economics training usually amounts to nothing more than a couple of lectures they gatecrashed halfway though their arts degree.

At this point its worth noting that not once in the last 100 years of research has an economist been able to produce a single example that serves to validate the theory.

In reality there is nothing pro competitive about predatory pricing regulation. It is purely and simply a vehicle for small inefficient firms to shelter themselves from aggressive price competition. The theory of predatory pricing is in fact a tool for anti competitive behaviour. Let me reiterate … this is not some libertarian anti government ranting it is in fact the main stream economic opinion.

If you believe in predatory pricing you probably did your economics degree sometime around 1950.

There are three main reasons the theory doesn’t stack up (note that I am relying on my somewhat hazy memory of a single lecture that occurred a number of years ago … so apologies if I’ve left something out):

1. In order to engage in predatory pricing the dominant firm needs to supply goods at below cost prices , that is prices below not only the prey’s costs but also the predator’s costs. This is a very important point. If the dominant firm is pricing below competitors costs but above or at its own average cost it is not engaging in predatory pricing it is simply engaging in old fashioned competition.

The problem with the theory is that the predatory firm by virtue of its own pre-existing dominance has a lot more to lose from underpricing than its smaller competitors.

The following highly exaggerated example should shed some light … If the dominant firm produces 1 billion units and sells them at $10 below cost it has lost $10 billion. On the other hand the small competitor that produces 1 thousand units is only out of pocket by $10 thousand, Who do you think has the better deal?

2. The second issue is temporal, just how long does the alleged predator have to endure these losses before the competition does the honourable thing and bugger off. Bit of a risk, the smaller competitors by definition are incurring much less loss and may be able to weather the storm much better than the actual predator. It may be even worse than that …. what if the competitors decide to run a skeletal production schedule or alternatively temporarily cease production until the price war is over. After all forgone revenue may be a cheaper option for the smaller firm given that they potentially lose $10 per unit if they continue producing.

3. The third and final issue is that the whole thing is doomed to fail even if the predator actually triumphs over his prey. For predatory pricing to stand the predator has to engage in monopoly pricing once the prey have gone. The problem is that this implies they will earn abnormal profits and abnormal profits tend to attract new entrants.

And guess what if you’re a new entrant you have access to some bargain basement priced capital. When the prey exited the market they would by definition sell off their capacity/capital goods (its usually not sound commercial practice to abandon assets). These capital goods are priced to reflect the lowered expectations of future benefits that results from the price war. So at the end of the day not only does the predator find himself competing with new and keen entrants, these entrants have lower costs curves that reflect the price war and thus are able to compete aggressively with the predator, and if I was an entrant this is exactly what I would do because I know the predator is carrying massive liabilities resulting from his stupid pricing policies.

To the best of my recall this is what Nisvan taught us all those summers ago, and I have to thank her for one of the most memorable economics lectures Ive sat through.

Tuesday, July 14, 2009

ACCC to probe big fuel discounts

ACCC to probe big fuel discounts

Is it just me, or has anyone else noted the absurdity of the Australian COMPETIION and Consumer Commission investigating what can only describe as excessive competion. Although I dont really know what that means ... too much competion? prices too low? too much benefit to that other C word .. Consumers?

Maybe it means no one is looking after the little guy, the small local petrolstation, the one that bob from the footyclub runs. The one that cant compete effectively with the big boys .... For gods sake who is PROTECTING bob and his overpriced petrol from competion!

This is all rather suboptimal from a governance point of view. I mean how confusing is it for an organisation to be chartered with the protection of competition and consumers and then have to act for special interests.

If society wants to enforce inefficiency then we really should establish a new commission one with clear objectives ... the Australian Protection and Subsidisation Commission ... their mandate could be to represent vested commercial interests and block mergers on the grounds they would create too much efficiency and too low prices.

The APSC could stand against subadditivity. Its charter could be the advancement of diseconomies of scale and scope.

Saturday, July 11, 2009

Are you serious? (Roy Rodgers)

Last week SMH ran a gob smakingly absurd story by Cathy Alexander, entitled "Australia not home to the good life". The story centres on Australia's ranking in the recently released happiness index.

Apparently Aus ranks 102 in the happiness index. That’s 102 out of 143. Here are some pearls of wisdom from Cathy ....

South and Central America are home to the happiest, greenest people, the survey found; nine of the top 10 countries are from that region. Costa Rica topped the poll. South-East Asia also did well.

Rich western countries did badly, while African nations came in at rock bottom. Zimbabwewas last.

And some more ....

While Australia disgraced itself in the poll, coming well behind Iraq, Burma and Palestine, there was a shred of good news. Australia beat New Zealand by one place.

Ill give you a second to consume that last one. Yes it did say Iraq was a happier place thanAustralia.

By now your bullshite metres must be spinning wildly out of control.

Heres some stuff Cathy didn't tell you ...

The happy planet index is produced by the New Economics Foundation. The foundation is described by Cathy as a British think tank. A more accurate description would be a bin of environmental Malthusian Marxists who appear to harbour an abject hatred of economic growth. Their self confessed goals are environmentalism and welfare economics. And by welfare economics they are not talking about welfare economics in the proper sense of using microeconomic techniques to assess allocative efficiency. I suspect they are talking about creating a welfare state (which any economists should be able to tell you is a rather shitty idea). ... well in Brittan’s case not creating but rather devolving to a welfare state.

and here is the index

Well it looks like Cathy didn't mention how the index was constructed for a good reason. I don't know about you but my modest exposure to statistics is standing on my shoulder poking its little pencil in my ear screaming ROY, I SMELL BULL! Luckily for us the Foundation was stupid enough to accompany the formula with some definitions.

Happy life years: A stat based largely on self reported life satisfaction data. Self reporting or self selection is at the best of times dodgy as ... just imagine how dodgy it is in regard to happiness. Imagine the framing issues. Where do you start ... even defining happiness is next to impossible. One man's happiness is not another’s. I am 100% confident that my utility function is totally different from that of a lycra clad masochist gimp. What makes him happy is not going to make me happy.

Ecological footprint: a measure of the amount of land required to provide for all resource requirements plus the amount of vegetated land required to sequester (absorb) all their CO2 emissions embodied in the products they consume ... apparently 2.1 hectares is each individuals fair share, any more than that and your using more of the globes resources than you are really entitled to, I also assume any less indicates your being ripped off (my BULLSHIT valve just blew a gasket).

Alpha: the alpha constant is added to ensure that the ecological footprint coefficient of variance matches that of the health life years across the entire dataset. Hey why not ... it would smooth things out some.

Beta: the beta constant is added to ensure that any country with a max life satisfaction of 10, life expectancy of 85, and is living within its "fair share" of resources gets a score of 100. Although i have paraphrased I’m not grossly miss quoting.... so yes they are basically saying the index is rigged to max outcomes for those of us who consume "fairly".

The results are driven primarily by the denominator. The data used shows quite clearly that US, Canada, Europe and Australia all have the highest stasifaction ratings and the highest life expectancies. However, the ecological footprint shows (as would be expected given the relative levels of development) that these countries use the most resourse. The US is the outlier using more than 4 planets worth of resources. Europe, Cananda, Australia and Japan come in at 2 to 4 planets worth. South America, Russia and China come in at 1 to 2 planets and Central America, Africa and West Asia come in at under 1 planet.

... all this begs the question of exactly which planet it is that we are currently running this massive trade imbalance with. It must be someone because we are apparently consuming more than 10 times the amount of resources the earth has to offer. I just bet its those pesky free trading plutonians, sneakly blue little bastards.

I could go on all day, but I’m not going to ... I’m more than convinced this is alot of bull.

The real tragedy here is not the crappy report but rather the crappy reporting. All Cathy had to do was spend 10 minutes on the Web and she would have had enough material to write a much more informative article about the absurd use of statistics to promote an essentially anti growth agenda. The last thing we would want is for developing countries to start getting all uppity.

Check it out for yourself.

Happy Planet Index Link

Just to really piss you off, if you spend enough time on the site you may encounter the following

The Index doesn’t reveal the ‘happiest’ country in the world. It shows the relative efficiency with which nations convert the planet’s natural resources into long and happy lives for their citizens. The nations that top the Index aren’t the happiest places in the world, but the nations that score well show that achieving, long, happy lives without over-stretching the planet’s resources is possible.

So after all that the index turns out not to be about happiness.

Thursday, July 9, 2009

Wolframalpha (Roy Rodgers)

This is a seriously cool site ...

Today's Wolfram|Alpha is the first step in an ambitious, long-term project to make all
systematic knowledge immediately computable by anyone. Enter your question or calculation,
and Wolfram|Alpha uses its built-in algorithms and a growing collection of data to compute the

Roy Rodgers vs the Hairy Bitch.


Its late afternoon, you’re in your library perched on your dark red leather chesterfield, which is floating on a sea of richly ornate silk Persian rugs. You are admiring your collection of literary works. You know… they say you can judge a persons intellect by the number of books they own, and boy are there a lot of books on the shelves (the dark mahogany shelves).

The sheer size of the collection is somewhat intimidating, but deep down you suspect that its not just the size of this collection that impresses but rather its depth. It’s the depth that truly separates the intellectual lambs from the lions (at this point I should confess, its not my library, it actually belongs to the Lone Ranger).

Your pleasant moment of solitude is welcomingly interrupted by your six year old son/daughter who, with a look of adoration in their eyes, approaches you in a quiet and respectful manner. However, something is not quite right. Their perfectly angelic face seems to carry a look of concern or confusion. They sidle up to you and ask in a well behaved manner.

“Daddy can I ask you a question?”

“Of course you can. Every thing I have I give to you. The lessons I’ve learnt, the wisdom I’ve acquired, my mathematical and financial nouse. It’s all there for you whenever you need it.”

“Daddy … Daddy in class today Ms Doe said that the western free market based capitalist system had collapsed … what does this mean Daddy?”

The Hairy Bitch strikes again!

I promised my wife I would not call our child’s grade one public school teacher the hairy bitch, and to the best of my ability I will try not to. It’s just that I can’t think of anything else to call the lovely self righteous Ms Doe.

I’ve had enough. Enough of the politically motivated morality the lovely Ms Doe seems intent on ramming down my child’s throat.

It started with plastic. My son now thinks plastic is evil — nude food day …absurd. It should be renamed soggy sandwich day or unhygienic lunch day. Plastic was quickly followed by saving whales, recycling, walking instead of driving … who knows where it’ll end.

Well this is my stand. I am going to blog the biach. And it all starts now with a defense of free markets.

The land of the free

Apparently free markets are the root cause of everyone’s problems. Free markets are the reason the world has gone to the dogs. Free markets are responsible for freddy mac and fanny may, they are responsible for the apparent insolvency of Iceland, free markets destroyed general motors, and unfettered free markets have brought the UK to its knees. I’m not really sure what free markets have done to Australia, but if we keep listening to big kev, then we may be blessed with a recession some time in the future.

When I sat down to write this post I asked myself a simple question, in the face of all the recent market hate that has been floating what are the fundamental aspects of free markets that my son/daughter should be made aware of before his/her public school teacher starts brainwashing him about the evils of the modern world? And I’ve boiled it down to five things. Five is a good number and is probably the extent of a 6 year olds attention span… so five it is, and these are:

  1. Markets are natural — they are an elemental part of the human experience, markets have been with us since the first cave man stood up and scratched his nuts.
  2. Markets are relevant to you — they are not populated solely by mysterious mustachioed Argentinean water barons that smoke cigarillos and have really hot girlfriends
  3. Markets don’t fail — they don’t actually sit exams
  4. Markets are efficient —actually they are more than just efficient, they are the super troopers of allocation.
  5. Some people hate em — happy clappers, nutjobs and entrepreneurial parasites hate markets.

Before we get started we should be clear what it is exactly that we are talking about. What are markets? Apologies if your not actually six years old.

In economics the term market refers quite clearly to the act of exchange between a potential buyer and a potential seller. Markets may be shallow with few participants or deep with many. They may be based on barter or alternatively be pecuniary in nature. They may be accompanied by formal structures that constrain people’s behavior, alternatively they may be informal with no or little constraint on the structure or form of exchange. Whichever form they take their very essence will always be the voluntary and beneficial exchange between two participants.

1. Markets are natural.

They are an innate part of the human experience. The act of exchange and markets themselves, have been around for the full extent of known human existence. They are not an invention of Adam Smith or David Ricardo. They are not an unnatural artifice of evil capitalists. Markets/trade/exchange have been with us since we climbed down out of the trees.

Lets take a trip back in time and see if this is true

- 3rd century Rome. Emperor Elagabalus (AD218 to 222) was by all accounts a nasty bastard with excesses that ranged from murdering children to wearing too much makeup … but he had a particular fondness of wearing clothes made entirely form silk. The thing is that the romans, who had always consumed quite large quantities of silk, had absolutely no idea how to produce it. In fact they didn’t even know where it came from. If you tossed a roman a silk worm he would probably think it was bait. In fact no roman ever met a chinaman and no chinaman ever met a roman, however the wonderful properties of markets and trade allowed for the establishment of the silk route which became one of the most economically important trading routes for both roman empires and their chinese equivalents … yes even back then the local emporium in Rome had a made in China section.

- Lets go all the way back …6000BC. Historians have shown that prehistoric man had established trading routes throughout the Mediterranean and the Middle East. Modern researchers have been able to map these routes using the atomic fingerprints of obsidian artifacts from the stone age (obsidian was apparently very good for spears and such and fortunately for us has an atomic fingerprint unique to the volcano from which it originated), to establish where trade occurred

2. Markets are relevant to you

Market participants are not mysterious foreigners. Markets are composed of you and me of our mothers, fathers, siblings and, heaven forbid, even the odd Nanna. Markets are not some obscure abstract things that do not impact on you. You are part of not just one but many markets. These markets are not populated by moustache wearing foreigners. Markets are composed of many people, individuals buying and selling goods and services, of people pursuing their dreams and ambitions.

The point here is that whenever someone mentions market failure (discussed below) what they are saying is that the participants are not making the correct decisions … that you and me and your nanna have somehow got it wrong and need to be protected from ourselves.

The next time you hear someone mention market failure take it personally, because what they are saying is that you are in effect too stupid to do the right thing. And while I don’t condone physical violence you need to question them and make them defend their contention.

3. Markets don’t fail

Aside from the obvious anthropomorphic issues, markets don t fail. Well actually they do sometimes fail, but when economists talk about market failure they are talking about something specific, something technical.

What they are talking about is the inability of markets to provide the optimal allocation of resources. They are saying they can observe one of a number of specific phenomenon that are stopping the market from achieving a more efficient outcome (just to make things quite clear … they are not saying that the market is crap and we need government to step in).

There are four basic forms of market failure and all of them are overrated. They are:

- Alleged abuse of market power. This occurs when a monopoly starts charging exorbitant prices and acting like an evil profit maximiser. I say alleged because in most cases the data shows that monopolies have provided lower prices.

- The existence of externalities (positive or negative) — an externality occurs when the market does not take into account the impact of an economic activity on outsiders. For example, the market may ignore the costs imposed on outsiders by a firm polluting the environment. This issue is somewhat confused, as often the externality itself results from the lack of a market in the ‘externality’ (see carbon trading schemes).

- The existence of public goods — that is goods that exhibit properties of non rivalness and non excludability, not goods that are provided by publicly owned corporations or utilities. For example Water is definitely not a public good. The amazing thing about this failure is that it’s dolled out quite liberally as a justification for government intervention despite the fact that actual public goods are extremely rare.

- Where there is incomplete or asymmetric information or uncertainty. Yes markets may breakdown when there are too many unknowns. But the thing is, when something is unknown or uncertain this means its unknown or uncertain, not its unknown or uncertain for participants in a market but widely understood by bureaucrats in cubicles. If the actual participants in a market are a bit unsure about something you can bet your next pay cheque the government has not got a clue.

Here are a couple of quick observations about the practical implications of calling market failure.

Firstly, its been my experience that market failure outside of an economics text book is one of the most abused concepts in modern government. For a start quite a lot of alleged market failure is not actually technical failure but simply the market producing outcomes that the bureaucrat finds undesirable. Maybe there should be a fifth type of failure called Cubicle Failure — a markets inability to please a government bureaucrat or minister.

Secondly, the question that should be asked is not if the market has failed (so what if it has) the question is what set of arrangements provide for the best outcome. Are markets with all their failure better than central planners with their own set of failures … let me rephrase is it better ….let people make up their own minds or should we entrust 20 year old civil servants to make up our minds for us? Which approach provides for a more efficient or effective outcome (I know where my money is).

Lastly, I recently heard a fellow economist make the following syllogistic statement

..a properly functioning market that provides for optimal outcomes must by definition be perfectly competitive perfect competition is an abstract concept that only exists in textbooks (very true) therefore all markets are in a state of failure …

oh be still my beating heart.

What crap! Markets are human institutions and as such are never going to be perfect and so what if they’re not? The application of a bench mark that can’t be met is a meaningless exercise. The real question is a relative one … Are markets the best way?

4. Markets are efficient

The statement should read ‘markets are the most efficient’. Don’t believe me? Then ask yourself where would you prefer to live … Hong Kong or North Korea?

There are a number of reasons why markets will always be more efficient than a bureaucrat. The principle one is information. In a market information doesn’t need to be collected, collated and analysed. Each participants knows what their tastes are, what there requirements are, what they want when they want it and how much they can pay for it and also how much they value it relative to other goods or services. They then go out and find what they want by engaging a seller or a number of sellers.

These sellers by the way know what they are good at selling . They know what it costs to produce and acquire all the stuff they need to make the stuff they want to make (and if they don’t the market makes sure they get kicked out on their arse).

The thing is there is no way in hell our 20 year old civil servant can begin to process this information. No matter how big and complex his model is, he will always stuff it up.

5. Some people hate em

Happy clappers, nutjobs and entrepreneurial parasites hate free markets.

Happy clappers want to save you from yourself, entrepreneurial parasites want to suckle on the public teat or alternatively stop their competitors from providing cheaper better goods and services … and nutjobs … well they hate markets because … just because

What about the rest of us

Aside from the happy clappers, entrepreneurial parasites and nut jobs why do seemingly normal people appear to hate free markets? This is a hard question to answer. A more specific narrowly focused question that I have often asked myself is why do some economists (given all that they know about markets) seem to hold a base dislike and distrust regarding free markets.

My theory is that bureaucrats and economists invariable fall somewhere on a spectrum between those that believe people are generaly smart and those that believe people are generaly stupid. Those that err on the smart side (I confess to being one of them) hold that markets are the optimal mechanism for the allocation of resources. Those that believe people are stupid (with the obvious exception of themselves) see market failure everywhere and will inevitably seek to control markets either through public ownership or by levying rules and restrictions that constrain people’s behavior. They are the regulators and they are here to save the world.

This lot of pushy bastards are more aligned with the ideology of guys like Maynard Keynes or his current stooges Stiglitz or Krugman. They know what’s best and they are more than willing and able to help you help yourself (whether you want it or not).

On the other hand, economists that believe people are on average smart generally seek to uphold free markets, lessen regulatory interventions and abolish planning regimes.

So my son/daughter, the next time the hairy bitch complains about free markets you should remember that markets are the most human of all institutions; they facilitate our dreams and provide a forum for us to express our aspirations. They have been and will continue to be a fundamental part of the human condition despite the best efforts of the heroes of social democracy.