It's late and for some reason I'm trawling the drivel that is the Australian media and stumbled upon a couple of articles which are correct but at the same time horrendously wrong in both their analysis and economics.

The first article - and let me add that as it involves a union it comes as no surprise - states that "...a China FTA could create 12,000 jobs for Australia but take away another 170,000 in the manufacturing industry." Now I'm not questioning their numbers - I'm sure the source (a report paid for by the Electrical Trades Union (ETU), hah) is reliable enough - I'm questioning the conclusions they derive from it. Dean Mighell, secretary of the ETU, goes on to say:

"People in the factories, people on the farms, small business people should have real and serious concerns about the implications of free trade agreements," he said.

"The ETU commissioned this report because we think that if we entered into a free trade agreement with China it is the death knell for our manufacturing industries and many of our food-producing industries."

Dean is correct but the solution he's after, for the government to prevent free, voluntary exchange between individuals is not something the government needs to involve itself in. By 'protecting' the manufacturing and food-producing industries by preventing the "dumping of goods into Australia" and other 'evils' that will lower the price of consumer goods in Australia, he is depriving every Australian of a potential increase in their standard of living. Yes, some small interest groups may lose their jobs, but the cheaper prices brought about by the increased competition will provide everyone in the economy with additional income to spend elsewhere (the savings they now make they can use to acquire more goods than they could before). This savings will then be spent in other areas, increasing demand, replacing the jobs that were 'lost'. Not only will we lose no jobs (in the aggregate), but we've all gained additional products, or wealth (of course, government intervention in the form of rigid wages, union barriers to entry and so on can restrict or delay the reallocation of labour resulting in unemployment).

The second article - the one I'm more peeved about - involves the OECD scratching the back of a fellow socialist and "new world order" advocate, Kevin Rudd.

"Australia's fiscal stimulus package seems to have had a strong effect in cushioning the decline in employment caused by the global economic downturn," it said.

"Less by the end of 2010 than if no fiscal stimulus measures had been taken," it said.

Now I'm not sure what these guys at the OECD get paid but if it's more than $0 then it's too much. They plainly state the obvious - that the stimulus prevented job losses - without going into any kind of in-depth, critical analysis at all. Of course the stimulus prevented job losses! It simply protected or insulated industries and jobs which are victims of catastrophic, unsustainable malinvestment and prevented the necessary realignment and restructuring of jobs, wages and prices. Is this sustainable in the long term? No, unless of course they plan to inflate yet another bubble and continue the boom-bust cycle, a policy that Hayek noted would eventually collapse on itself or, worse, lead to full blown socialism. To quote [emphasis added]:

"The great problem in all those instances is whether such a policy, once it has been pursued for years, can still be reversed without serious political and social disturbances. As a result of these policies, what not very long ago might merely have meant a slightly higher unemployment figure, might now, when the employment of large numbers has become dependent on the continuation of these policies, be indeed an experiment which politically is unbearable.

"Full employment policies, as at present practised, attempt the quick and easy way of giving men employment where they happen to be, while the real problem is to bring about a distribution of labour which makes continuous high employment without artificial stimulus possible. What this distribution is we can never know beforehand. The only way to find out is to let the unhampered market act under conditions which will bring about a stable equilibrium between demand and supply. But the very full employment policies make it almost inevitable that we must constantly interfere with the free play of the forces of the market and that the prices which rule during such an expansionary policy, and to which supply will adapt itself, will not represent a lasting condition.

"These difficulties, as we have seen, arise from the fact that unemployment is never evenly spread throughout the economic system, but that, at the time when there may still be substantial unemployment in some sectors, there may exist acute scarcities in others. The purely fiscal and monetary measures on which current full employment policies rely are, however, by themselves indiscriminate in their effects on the different parts of the economic system. The same monetary pressure which in some parts of the system might merely reduce unemployment will in others produce definite inflationary effects. If not checked by other measures, such monetary pressure might well set up an inflationary spiral of prices and wages long before unemployment has disappeared, and—with present nation wide wage bargaining—the rise of wages may threaten the results of the full employment policy even before it has been achieved.

"As is regularly the case in such circumstances, the governments will then find themselves forced to take measures to counteract the effects of their own policy. The effects of the inflation have to be contained or 'repressed' by direct controls of prices and of quantities produced and sold: the rise of prices has to be prevented by imposing maximum prices and the resulting scarcities must be met by a system of rationing, priorities and allocations.

"The manner in which inflation leads a government into a system of overall controls and central planning is by now too well known to need elaboration. It is usually a particularly pernicious kind of planning, because not thought out beforehand but applied piecemeal as the unwelcome results of inflation manifest themselves. A government which uses inflation as an instrument of policy but wants it to produce only the desired effects is soon driven to control ever increasing parts of the economy." - Friedrich August von Hayek: Studies in Philosophy, Politics and Economics, pp. 270–76

Apologies for the long quote but I felt it necessary. Back to the theme of this post, the horrible economic (or lack of) analysis provided by the Australian media (it's expected from the OECD), I think I'm going to have to create some kind of award for the worst piece of Australian economic/political journalism, perhaps on a monthly basis, just to highlight how completely oblivious they are on the entire subject. They, well the majority, just blindly regurgitate what the 'experts' tell them without a second thought. Did no one teach these people how to think?

Just one final word on the Hayek quote, mainly the final part about the government being "...driven to control ever increasing parts of the economy." This is something we're seeing in the US as well as here, governments get involved in the first place and then blam the market for problems caused by that very involvement, such as: creating a telecommunication monopoly, turning it into a quasi-private monopoly then blaming the market for it; maintaining a quasi-private health market which drives up the costs for everyone; inflating the money supply causing a financial crisis (and later inflation); and so on. What's the governments response to all of these government-created problems? More government, more regulation and more control. That simply equates to less individual freedom, higher prices and shortages/restrictions of some kind.

We need reform, but not the kind our politicians are currently undertaking. In fact, if you took everything Rudd and his legion of do-gooders have done since coming to office, doing the polar opposite wouldn't have been such a bad policy response.

The Reserve Bank of Australia (RBA), a group of government-sponsored bankers given the task of keeping the banking, finance and currency cartel going on behalf of various interest groups, decided to leave rates on hold at 3.25pc during their last meeting. Their decision was received with mixed results: the politicians were slapping themselves on the back, citing their 'stimulus packages' as having cushioned the economy while the homeowners and other debtors were moderately critical.

The minutes of that meeting which were released today have revealed that they believe "...the domestic financial system remained strong and the monetary policy transmission process was working to deliver large reductions in interest rates to end borrowers, particularly households."

Well that's true enough. The artificial reduction of interest rates below what the market rate would be will distort the capital structure of the economy and encourage malinvestment in areas such as housing. Why shouldn't people be able to buy houses that they can't afford, right?

"Early indications were that the monetary and fiscal stimulus that had been applied to the economy was having an expansionary effect, but the size of this remained unclear and it would take some time for the full impact to come through."

"The question for policy was whether further stimulus should be added at this meeting, or whether, having reduced rates at each meeting since September, the Board should pause for a further evaluation of the situation. Members could see reasonable cases for both courses of action. On balance, they judged that, having made a major change to monetary policy over the preceding several meetings in anticipation of weak economic conditions, the best course for this meeting was to leave the cash rate unchanged. Members believed this would leave adequate flexibility for policy at future meetings."

The real reason behind the RBA's decision to leave rates unchanged is the dreaded "liquidity trap" that they all fear. The theory behind this stems back to Keynes, where he said that if the rate of interest falls to a level where people prefer to hold cash rather than debt (due to the low level of interest), then central banks have lost "...effective control over the interest rate". This view is supported by central bankers around the world, including the RBA. Here's a good argument outlining the flaws in this theory.

Interest rates need to rise, not fall. Monetary and Fiscal policy will only cause long-term misery. Eventually -- I don't know when -- the stop-go inflationary policy of the central banks will have to end. Each time we have a recession (a necessary restructuring process) and it's 'cured' by said policy, the capital structure of the economy is further distorted. The Austrian's tried to let their government sort out their woes in the 20s and 30s with spectacular results,

“Austria was successful in pushing through policies which are popular all over the world. Austria has most impressive records in five lines: she increased public expenditures, she increased wages, she increased social benefits, she increased bank credits, she increased consumption. After all those achievements she was on the verge of ruin.” -- Fritz Machlup, The Consumption of Capital in Austria, Review of Economic Statistics, II, 1935, p. 19.

We can't turn stones into bread as Keynes suggested. Printing money doesn't create any wealth. If we continue down this path, unrestrained government spending will result in the "eating of the seed corn", or capital consumption, as Mises noted after witnessing the Austrian demise. There's a point at which the interventionist welfare state will have exhausted "the reserve fund" of accumulated wealth, after which the consumption of capital becomes the only basis upon which to continue to feed the fiscal demands of the state.

When in doubt, blame the banks! From the Australian:

Under new ATM access rules due to start on March 3, banks will no longer pay each other a fee every time a customer uses another institution's machine. But nothing will prevent banks from charging their customers a "foreign ATM fee".

Just like with so many things in this country, one government regulation will lead to another. Already we have 'consumer groups' (lobbyists/interest groups) worrying that the banks are going to increase charges to consumers as well as maintain old ones -- NAB, Westpac, ANZ and St George have already announced they will continue to charge foreign ATM fees and the others will follow shortly after.

Consumer advocate Choice yesterday stepped up pressure on the big banks to scrap foreign ATM fees, saying: "The benefits of direct charging reforms will be quickly undermined if customers are charged a separate second fee from their own bank."

Honestly, what do they expect? This is a perfect example of what happens when governments get involved, I can see it now:

Joe: "Hey Sam, those banks are ripping people off, lets come up with a way to stop them!"

Sam: "I agree completely. Let's get our whole team on this and have the new regulation out by friday!"

...one year later (on a friday!) the new regulation comes into effect...

Joe: "Sam, the banks don't seem to be suffering at all. In fact, it looks like they've found a loophole and are actually ripping customers off even more now!"

Sam: "Call the team Joe, it's going to be a long week!"

Now the above is a pretty poor example but it gets the point across -- history has shown over and over again that once you add one regulation they will continue to pile up until they've become some inticrate web of rules that only some 'expert' can untangle. But hey, that creates jobs right? What a joke. Why doesn't the government just deregulate the finance and banking sector, give up control of the dollar (yes, allow banks to create their own currency backed by whatever they want -- not guns like in our current system) and let the market decide if they're being ripped off or not.