“I must admit to having no compence in economics whatsoever” wrote Robert Manne in the Introduction to The New Conservatism in Australia (1982). He proceeded to demonstrate the truth of that admission by turning his face against economic reform and advocating the kind of policies that locked Japan into recession for more than a decade. There were some signs that he learned something over the years but it is apparent from his introduction to the “Is Rudd Right” series of essays in the May Monthly that he has reverted to his natural state.
The five contributors are Eric Hobsbawn, Charles Morris, John Gray, Dean Baker and David Hale.
Manne describes Hobsbawn as “unquestionably the most formidable interpreter of the patterns of world history from the French Revolution to the present day”. He is also described as a former communist but this conflicts with reports that his recent autobiography reveals that at 85 he remained an ‘unrepentant communist’. He is clearly a living relict from the time when the hard left looked to Russia and then the Soviet Union as the hope of the world. Let Kolakowski’s essay “My correct views on everything” stand as the appropriate rejoinder to Hobsbawn. It was written in response to Edward Thompson, another fellow traveller.
David Hale, head of the US consultancy Global Economics, provides the best contribution of the five. He wrote that the crisis did not arise from systemic failure or false ideas about liberal economcs, but from some relatively easily avoidable factors, especially three factors which drove the American property boom. First, excess global liquidity from current account surpluses of developing countries, second the government push to provide home loans to people who could not afford to service them and third the securatisation of loans and their endorsement as secure by incompetent rating agencies. Hale identified Rudd’s main error in failing to understand the role of the GSEs (government sponsored enterprises), Fannie and Freddie, in fanning the flames for the meltdown. He could have added the low interest rates and loose monetary policy of the Fed. He concluded that the challenge for governments is not so much to increase regulation but to eliminate the perverse incentives that undermine prudent lending practices.
Manne described Dean Baker of the democratic-progressive Centre for Economic and Policy Research as alone among economists in 2002 in describing the housing market as an accident waiting to happen. This claim is nonsense. An article in the New York Times in 1999 pointed out that the push to hugely increase the subprime lending backed by Fannie and Freddie would generate a bubble that would collapse as soon as house prices (inevitably) tanked. The article predicted that this would call for a bailout that would dwaft the previous Savings and Loans bailout (180 Billion).
Charles R Morris, banker and lawyer, is billed as the author of the first serious history of the current economic crisis. It seems that Manne has not heard of Meltdown by Thomas Woods. (Reviewed here). But then it seems that Morris had not heard about Woods or the Austrians either. Woods shows how the meltdown yields to Austrian analysis, while Morris casts doubt on the rigor and predictive capacity of the economics profession at large.
John Gray has embraced the Rudd thesis that the meltdown spells the end of an era and the final collapse of “the great neo-liberal experiment”. This analysis fails to note the role of non-liberal fingers in the pie (the policy of the Fed, the role of Fannie and Freddie, the moral hazard of anticipating a bailout) and the fact that wherever in the world there is a move in the direction of the classical liberal/free trade agenda, things are getting better (notably the rise of the middle class in India and China as they open their economies a little). In addition, the neo-liberal moves in Australia, palid as they are by rigorous standards, and the relatively sound interest rate policy of our Reserve, put us in a better position than most places in the world to weather the storm.