This is the introduction from a recent piece I wrote for Ausnomics.

"When the gates are all down and the signals are flashing the whistle is screaming in vain; and you stay on the tracks ignoring the facts well you can't blame the wreck on the train," Don McLean, Can’t Blame The Wreck on The Train

We recently attended a lecture on the global crisis by Nobel Laureate Joseph Stiglitz and were left shaking our heads in dismay at the state of the economics profession. In between attacks on his (straw man) interpretation of capitalism and the free market were the usual Keynesian cries for global stimulus to support 'aggregate demand' (capital is homogenous after all, right?); income redistribution to reduce savings and boost consumption; more regulation; a tax on countries that save too much (Germany); and a conclusion implying that the ideal solution would be for a global government with a global fiat currency with the 'right people' (Stiglitz) in charge. Only then can we abolish scarcity and live out our days in a wonderful Keynesian utopia!

Now, Stiglitz did manage to dedicate a small part of his talk (about 2 minutes out of 90) to Australia and the response of the government to the crisis – what he described as a "best in the world," well structured and timely stimulus package that worked to save Australia from depression. We are of a differing opinion and believe that while the stimulus probably did keep Australia out of statistical recession for the time being (when looking at aggregate GDP numbers), it means the eventual bust will be all the more painful.

The truth is that Australia is not different. Australia is neither special nor smarter than everyone else and the property bubbles that have burst in other countries will burst in Australia as well. The dream world that people like Stiglitz live in – one with a strict focus on aggregate demand – leads them to believe that all we need is enough government spending, regulation and income redistribution for everything to be hunky-dory. If only it were so easy. Unfortunately, back in the real world, the Australian government that gloats about how it "…successfully navigated their country through the biggest economic downturn in 75 years," must face the laws of economic science and no matter how much you say, wish or hope to the contrary, economic reality will eventually bite; and bite hard it will.