Casting the Demons Out

Book Reviews

Exasperating Calculators
by William Coleman and Alf Hagger
Macleay Press, Paddington, NSW 336 pages

Exasperating Calculators is a rigorous rebuttal of those who demonise economic rationalism -- a critique of the critics.  When even our Prime Minister turns from economic rationalist to bush populist;  when the economically irrationalist Pauline Hanson can poll 10 per cent in WA and 20 per cent in the Queensland seats that One Nation contested;  when enrolments in high school economics classes fall from 44,000 in 1991 to a mere 24,000 in 1996 something fundamental is afoot.  During the past 15 years, many people who enjoyed economic privileges have lost them.  Coleman and Hagger contend that Michael Pusey, Robert Manne, John Carroll, Clive Hamilton, Hugh Stretton and others (including Malcolm Fraser) gave them an intellectual justification for their disappointment which they turned to wrath.  "Economic rationalism" offered every victim of adversity something to hate.

Pusey coined the term "economic rationalism" in Economic Rationalism in Canberra:  a Nation-Building State Changes Its Mind.  With considerable help from the ABC, it spread like wildfire, not just among the social sciences, but among the lay public.  It has, however, so far defied agreed definition.  Pusey, we are told, despite its being the topic of his book, did not offer one.  At the risk of adding to the confusion, I'll propose my own:

Economic rationalists contend that governments should develop the institutions that make markets work better, avoid unnecessary substitution of their own judgements for those of buyers and sellers, and govern without favour.

Coleman and Hagger make clear that neither they nor other economic rationalists believe that economics (rational or otherwise) says all there is to be said about government, let alone about life.  I agree.

Economics, however, said a lot before the event about the sort of economy that we in fact experienced during the 1990s.  The reforms against which the economic irrationalists rail were undertaken by the Hawke Government with the support of the Howard and Hewson Oppositions because economic theory predicted that those policies would best raise productivity and living standards, lower inflation and unemployment, and give us the capacity to weather events such as the Asian "crisis".  Exasperating Calculators is particularly scathing of logical fallacies and I am reluctant to commit the post hoc ergo propter hoc fallacy.  Nevertheless, although the long boom of the 1990s could be chance, it could also be that the overwhelming majority of economists in Treasury, the Reserve Bank, the Productivity Commission and the universities were right.

Exasperating Calculators is mostly an attack on the enemy.  It is mostly armour in the economists' anti-missile defence system, destroying the destroyers.  It does, however, also spell out for the umpteenth time the role for governments in preserving market institutions and correcting market failures.  Unlike "Star Wars" it scores a lot of direct hits, many of them by simply stating a claim made by, say, Pusey or Manne followed by the facts from the most obvious reputable source, such as the Australian Bureau of Statistics.  The kindest thing that can be said about most of the falsehoods is that they are disgracefully sloppy.  (For some not atypical examples, see the extract reproduced on the following page).

Years back, John Carroll wrote something which, if accurate, overturned the principle of comparative advantage.  I had words with Robert Manne over whether Carroll was obliged to publish in a manner that facilitated assessment and challenge.  I am, therefore, particularly delighted that Coleman and Hagger also believe that academics should submit to the rigours of academia.  They land some particularly destructive direct hits on the use that Pusey made of an undergraduate survey which purports to show that Canberra's Senior Executive Service officers are rightwing and nearly all economic rationalists.  It will be interesting to see if Dr Pusey publishes a rebuttal.

The irrationalists look back with nostalgia to the days when Australia was run by nation-builders such as Nugget Coombs and Sir John Crawford from the Department of Post-war Reconstruction.  In 1973, however, Coombs led the Task Force on Government Spending that reported to the Whitlam Government.  He marshalled economic arguments to identify unjustified subsidies, rural rorts, and various regressive forms of featherbedding of which Graham Samuel's National Competition Policy might be proud.  Was Coombs the first economic rationalist?

Coleman and Hagger at times feign a value-free objectivity that is not quite real.  They are classical liberals -- and it shows.  For instance, they take Coombs apart for likening the intelligentsia to lords of the manor with a duty to care for others.  Such a charge, they contend, "means power over others and righteous use of such power requires virtue that we do not find in the human race, educated or not.  We have more faith in uneducated freedom than in a tertiary educated power".  The authors not only value common humanity, they trust it, and therefore can be described only as "liberal".

The major parties in Canberra are falling over themselves to adopt the populism of One Nation and the Greens.  Coleman and Hagger do not ask whether a political party can win votes by catch-up politics, that is, by demonstrating that it will not lead.  At one level their book is a cri de coeur to economists to ensure that conventional economic prescriptions that have apparently worked well are not defeated by unchallenged nonsense.  The lay reader, however, will have no difficulty with the text.  He/she will not be turned into an economist, but may take some satisfaction from no longer being misled by what patently ain't so.

---

Extracts from Exasperating Calculators on the Moral Manne

We see in the Economic Irrationalists no great respect for factual accuracy, but rather an indolent mistreatment of factual particulars which would be almost unthinkable in, say, a Productivity Commission paper.  Robert Manne is an example.

A favoured theme of Manne (and other Economic Irrationalists) is that protectionism was the foundation of the "age of growth" of many economies.

Claim: Imperial Germany was the most successful industrial economy in the four decades before World War 1 (Manne 1992a, page 51).

Fact: The USA was easily the most successful economy in the four decades before World War I.  Elsewhere we find a weaker Manne advancing a weaker contention:

Claim: Imperial Germany was the most successful industrial European economy in the four decades before World War 1 (Manne 1992b, page 55).

Fact: Imperial Germany was not the most successful European economy, by any ordinary measure.  Sweden grew significantly faster, and the UK had higher per capita income than Germany in 1910.

Claim: Protectionism and interventionism have played a part in the history of every (Manne's emphasis) economic miracle in East Asia (Manne 1992a, page 51).

Fact: Hong Kong the original tiger, is more unregulated than any Economic Rationalist could dream of.  This fact is just so well known we marvel at the indomitable ignorance betrayed by Manne's italics.

Manne considers that the experience of the UK conclusively refutes the success of Economic Rationalism.  His method of argument is an array of factual claims.  Several of these claims are false or misleading.

Claim: Manufacturing output rose a "pitiful" 6 per cent between 1979 and 1990, compared with 46 per cent between 1961 and 1974 (Manne 1993b, page 57).

Fact: Manufacturing output rose by about 10 per cent between 1979 and 1990, not 6 per cent (Economic Trends.  Annual Supplement, 1994, Central Statistical Office, page 173).  In any case, why compare 1979-90 with 1961-74?  If we are considering the eleven years 1979-90, why not compare them with the preceding eleven years, the period 1968-79?  If we make this comparison, we find that manufacturing output rose by 10.  1 per cent in the eleven years previous to Thatcher, and 10.4 per cent during the Thatcher years (Economic Trends.  Annual Supplement, 1994, Central Statistical Office, page 173).

The observer can only remark on the slightness of everything Manne has written on Economic Rationalism.  He seems to have done little of anything like research.  By his own account he does not esteem research in economic and social matters.  At the very notion he has thrown this flip, cynical riposte:  "Research and ye shall find!  (Manne 1993a)

The essential character of Manne's writing on Economic Rationalism is rhetorical declamation.  Facts are there just to decorate;  judgements are to intimidate ("bizarre", "breathtaking", "mad", "extraordinary").  And, as of most rhetorical controversialising, the whole point, and test of achievement, is to execute some verbal perdition of the object of loathing.  This is not "debate".

Reproduced, with the permission of the authors, from Exasperating Calculators, pages 80, 81 and 90.  Details of all references cited may be found in the original.