"The financial crisis represents the ultimate failure of this education system and of the academic discipline as a whole. Economics education is dominated by neoclassical economics": Zach Ward-Perkins and Joel Earle "Economics students need to be taught more than neoclassical theory" Theguardian.com 2013-11-28. P.1
This article discusses why neoclassical economic philosophy and market theories have failed rural Australia
Institutionalization of Neoclassical economics in Australia
Following the 1972 election , the Whitlam Administration sought to widen the powers of the Tariff Board. Sir John Crawford was invited to advise on establishment of a new institution to provide informed and professional policy advise to the Government. The subsequent Crawford Report (1973) recommended a new institution that should provide coordinated policy promoting efficient resource allocation. Implied in this recommendation is neoclassical economics of markets.
In December 1973, the Industries Assistance Commission Act was passed. The Legislation carried only minor variations to the recommendations of the Crawford Report. Guidelines for the Commission stressed resource allocation, adjustment to change, and integration of assistance measures with overall government policy. Policy approach by the IAC is conservative economics favouring free market efficiency and minimum government intervention. Since its inception IAC has been restructured and today is the Productivity Commission.
Over 1970-72 , Evans developed the first general equilibrium model of the Australian economy. His work became the forerunner of the IMPCT model. In 1975, the IMPACT Project was initiated to provide analytical advice on implications of social and economic change as well as policies. The project was initiated by the IAC; but, included a number of other departments: Departments of Industry Commerce, Employment and Industrial relations, Environment Housing and Community Development, and Australian Bureau of Statistics. The Project structure comprised two models for analysis of both medium and future time horizons. The medium term module MACRO consisted of an annual general equilibrium model ORANI; and, a longer- term demographic model BACHEROO. The MACRO medium term model was structured to link sequences of annual projections. The purpose of the long term model, SNAPSHOT, was to provide analytical information on the economy at some arbitrary future point in time.
Provision of the IAC and other government departments with neoclassical general equilibrium models institutionalised market theory as the analytical basis of Australian policy analysis and development. A market clearing assumption within the models reinstates Say's Law of Markets as supply and demand theory. Under Say' Law, supply creates demand. This assumes away deficiency of demand under flexible markets. Competition, efficiency and productivity become industry policy objectives.
Economics Post 1983 supply side economics
The Hawke/ Keating Administration brought supply side economics to Australia. Supply side economics is viewed as "a renaissance of the classical economics of Adam Smith and Jean Baptiste Say" . David Ricardo's Comparative Advantage Theory also features in supply side economics. Supply side economics was a policy direction not in itself an economic philosophy. Consequently, the institutionalization of neoclassical models across Australian public service institutions was not incompatible with supply side economics as both have a common heritage in Say, Smith and Ricardo
The architects of supply side economics was a group of politically powerful vested interest players led by Wall Street Journal editor Robert L Bartley; and, editorial writer Jude Wanniski. Supply-siders drew on thinking of Nobel Prize economists: Robert Mundell, Milton Friedman, James Buchanan, and Friedrich Hayek. Mundell and Friedman are recognised Chicago School monetarists. Hayek is from the Austrian School of thought whilst Buchanan is regarded as being sympathetic to Austrian economics. Another non Nobel Prize former Chicago School lecturer deeply involved in the development of supply side economics was Arthur Laffer
Wanniski was a formidable financial journalist. It was Wanniski in his work "The Way the World Works" that the modern fear campaign about the use of protectionism has its roots. Wanniski argued that the Smoot-Hawley tariff triggered an ensuing trade war. Bartley modifies this claim by saying that Wanniski was probably right; but, the stock market had begun to slide months before the Smoot-Hawley legislation was enacted. Drawing on Robert Lucas' theory of "rational expectations" (Chicago School, 1995 Nobel Prize winner), Bartley argues that investor expectations of the legislative effects might have triggered the "pricking of the share (market) bubble". Despite this tenuous link, the argument that protectionism caused the Great Depression has become a strong defensive instrument against interventionism
Applied Policy Failure: Rural Australia
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