The Age slimes the free market — again
Gerard Jackson
Tim Colebatch and Kenneth Davidson must be among the worst of Australia's economic commentariat – and that's saying something. In To reform or not to reform?(The Age, 7 December 2004) he once again attacked economic reform, accusing if of just about every economic ailment you can imagine. (As usual, our self-appointed free market warriors gave him another pass).
When I look back on this man's economic scribblings I'm still appalled at the sheer gall of the man and the scale of his anti-market bigotry. As I see it, Colebatch is a nauseating example of that growing journalistic species that feels free to treat its readers and the truth with complete contempt.
Let us, for example take his We're all the losers in the propaganda war (The Age, 29 June 1999). This article was a graphic example of what I mean. He falsely accused free marketeers are of refusing to "admit any negative consequences" from their reforms. And what were these "negative consequences"? Labour-market reforms that raise productivity have "no impact on unemployment" (sic) and lower tariffs do nothing for employment and the trade balance.
This nonsense was followed by a class warfare argument that though productivity is rising and profits as a share of GDP are higher than in the 1960s real wages have only risen by 10 per cent in five years. This was clearly intended to suggest that the rich must have been creaming off the money that should have gon to the workers, which brought us to the haves and have-nots, especially the ones on the dole.
To ram home the point about how bad we really were doing economically he compared the then level of 7.5 per cent unemployment with 1.7 per cent that prevailed in 1969. This comparison was meant to insinuate that market reforms are really responsible for our unemployment and hence the plight of the unemployed.
Taking another stab at free-market thinking, he argued that it was responsible our growing foreign debt and our expanding current account deficit. Why? Because before 1980 our trade balance was in surplus but after liberalisation it went into deficit. Ergo! Those dreaded free-market reforms must be the culprit.
Colebatch's primitive economic thinking is based on the old post hoc ergo propter hoc fallacy. In plain English, arguing from false causes. It assumes what follows an event must have been caused by it. It's a common fallacy, particularly among economic illiterates. But Colebatch, as economics editor of The Age, is supposed to know better.
I'm inclined to the view that if he really did know better he'd by fired as summarily as the conservative Tony McAdams was.1 The last thing The Age seems to want is an open and honest debate about free market economics.
Let's take Colebatch's anti-market charges one at a time. First, our high level of persistent unemployment was been caused by overpricing labour, regardless of what Colebatch says. For this we can thank the malevolent influence of our trade unions.
How many families this destructive wage destroyed we'll never know, just as we'll never know how many men were driven to suicide by acute depression brought on by unemployment, or how many kids ended up homeless and drug addicted because of the kind of job-destroying wage-fixing policies that Colebatch smugly endorses from his air-conditioned office.
That the cost of persistent widespread unemployment is terrible in human terms is as indisputable as Colebatch's refusal to debate the real cause of the tragedy, despite being challenged to do so. All he has to demonstrate is that raising the cost of labour above the value of its product does not cause unemployment. Instead he served his readers up nonsense about job-destroying productivity gains.
It has not escaped the attention of some that the likes of Colebatch have now ceased abusing America's much freer labour markets. For years this crowd preached that American conditions created masses of low-paid jobs (they prefer no jobs to low-paid ones) and lowered productivity and living standards.
But as soon as US productivity started rising, along with real wages, and unemployment feell they quietly dropped the issue. America's critics were further confounded by the findings of researchers like W. Michael Cox, vice-president of the Federal Reserve Bank in Dallas who, for example, not only demonstrated that living standards, measured in terms of consumption, had been rising and not falling but that the US also led Europe, including Germany, in per capita consumption and that real German income was 85 per cent of the US level.
Professor Gregory, who has done what he can to discredit American labour markets, was frequently quoted by anti-market journalists. The plain facts that these ideologues refused to acknowledge is that real American wage rates exceeded, and still do, Australian wage rates and that America had also returned to full employment.2
The 1997 Economic Report of the President revealed that 70 per cent of all jobs generated from 1993 to 1996 paid above average wages. The very reverse of what the left-wing journalists led the Australian public to believe, thanks to the likes of Professor Gregory, who, incidentally, ignored a request by the Australian Bulletin of Labour to answer Des Moore's argument that America's labour outcomes are superior to Australia's. Another fact that strangely enough still eludes Mr Colebatch's journalistic eye.
Colebatch claimed profits had been at a record high while real wages had risen by only 10 per cent in 5 years. The class-war insinuation is clear: profits grow at the expense of wages. Really? Then why didn't this happened in the less regulated US labour market where the share of national income going to labour was much higher than in the period preceding the mid 1970s? People need to be informed of five basic facts:
1. What really matters is the net rate of return on capital, not aggregates. Using this measurement profitability during the '90s remained below the level of the 1960s.
2. The so-called profit share of GDP is also misleading from another angle. For example, the average annual rate of growth from the deep recession of 1991-92 to 1996 was only 2.8 per cent. This means companies must have been going through a recovery phase. In addition, the measure of profits used in the national accounts was misleading. One flaw is that it ignored the unincorporated sector.
Another flaw is that it did not discount for inflation. Taking inflation in to account we find that the real combined gross operating surplus for the incorporated and unincorporated sectors increased by only 0.5 per cent a year from the recession to 1996.
3. The so-called profit share really refers to corporate profits. This rose as the share of the unincorporated sector fell. Taking all factors into account, combined corporate and unincorporated profits as a share of GDP were below the 1960 average.
4. There are no such things as shares of GDP. Profits, like wages, have to be earned. In a free market labour tends to earn the full value of its product while 'profits' tend to correspond to the rate of interest.
5. Real wage rates are not a function of profits but are ultimately determined by per capita investment.
Colebatch finally turned his attention to the current account deficit, blaming it — you guessed it — on free trade. That there is nothing wrong in principle with a current deficit was never even hinted at.
For more than a century after the War of Independence the US ran a trade deficit. It was this deficit that underpinned the US economic growth and helped build its railways. America was also a high tariff country.
If low tariffs caused our trade imbalance why did America run such a balance for nearly 100 years. Furthermore, the Asian tigers ran huge trade imbalances before the monetary crisis of 1997, even though most of them had erected tariff walls. But according to Colebatch's brilliant economic thinking none of this is possible — perhaps he thinks it did not even happen.
Colebatch basically accused free marketeers of being liars and intellectual cowards. To say this is rich coming from Colebatch would be an understatement. For more years than I care to remember Colebatch and Davidson have been using The Age as a propaganda platform to wage a disinformation campaign against the free market.
Colebatch then had the cheek to call free-market thinking propaganda, which he defined as "creating a false impression" and of trying to "mislead". A perfect description of his own brand of left-wing journalism.
It's more than five years later and he's still at it.
1In the mid-'80s Tony McAdam, a media commentator, was fired by The Age because of his conservative views.
2Unfortunately the next recession, brought on by monetary mismanagement, will reverse this process. However, the resulting unemployment will be short-lived so long as Congress keeps its meddling hands of labour markets etc.
Gerard Jackson is Brookes' economics editor
BrookesNews.Com
Monday 13 December 2004