Journalists are not the only ones who think there is nothing to economics. Although it has been some years I can still recall the equally mercantilist views of a certain Professor Barry Conyngham. This academic provided another version of the consumption-drives-the-economy myth. His version was the spend-and-tax fallacy. According to this piece of mercantilist thinking regional universities could become the “engine rooms” of economic growth. This nonsense was derived from a report stating that $50 million of spending by the SCU (Southern Cross University) on wages directly ‘created’ 1,900 jobs, which in turn would generate a further 1,380 jobs and an additional $34 million in wages.

Professor Conyngham’s examination of these figures evidently led him to conclude that government spending was the economic equivalent of a perpetual motion machine. All that governments have to do to generate growth, according to this academic, is pour more and more money tax payers’ into universities and colleges which in turn would generate more and more economic growth.

The obvious logic of this economic fantasy is that if we turned the whole country into one giant university not only would everyone get a degree Australia would literally become an economic wonder, an economic powerhouse that could lead Asia and the rest of world into an economic nirvana.

But wait, is there not some vital element missing from the good professor’s tale of good fortune? Well blow me down, I think I’ve just found it. It is called the taxpayer. It turns out on closer examination that the professor’s fantasy does not generate growth at all, it merely distributes income (the product of growth) from the poor to the children of the far from poor. The government takes, let us say, $200 million dollars from genuine taxpayers and gives it to a university which then spends it in a number of ways.

Therefore it is clear that the government has funded the university, worthy or not, by forcing taxpayers to forgo expenditure. In short, the government has merely taken money from the pockets of one group to put it in the pockets of another group. What Professor Conyngham does not understand is that real growth comes from investment spending, not consumption. Expenditure by Professor Conyngham’s university does not add one jot to the country’s capital structure.

Perhaps it is too much to expect every academic to have a solid grounding in elementary economics. But I do not think it is expecting too much for them to be able to spot obvious economic absurdities. I suppose we must not be too hard on the professor. After all, the economic report was penned by two economics lecturers. In case the reader thinks that this fallacious ‘reasoning’ is confined to only one or even several economic faculties I should direct him to the views of Professor Quiggin who also believes that raising taxes to increase government spending will increase the demand for labour, provided that the spending is on labour intensive activities. (Do I detect the presence of the balanced budget multiplier here?)

The following lengthy quote from John Stuart Mill demonstrates just how much of the classical school’s wisdom has been rejected in favour of self-evident economic fallacies:

It is not necessary, in the present state of the science, to contest this doctrine in the most flagrantly absurd of its forms or of its applications. The utility of a large government expenditure, for the purpose of encouraging industry, is no longer maintained. Taxes are not now esteemed to be “like the dews of heaven, which return again in prolific showers”. It is no longer supposed that you benefit the producer by taking his money, provided you give it to him again in exchange for his goods. There is nothing which impresses a person of reflection with a stronger sense of the shallowness of the political reasonings of the last two centuries, than the general reception so long given to a doctrine which, if it proves anything, proves that the more you take from the pockets of the people to spend on your own pleasures, the richer they grow; that the man who steals money out of a shop, provided he expends it all again at the same shop, is a benefactor to the tradesman whom he robs, and that the same operation, repeated sufficiently often, would make the tradesman’s fortune. (Collected Works of John Stuart Mill Vol. IV, University of Toronto Press 1967, London: Routledge & Kegan Paul, pp. 262-263)

Let us once again turn to Caroline Overington. This journalist evidently believes, as so many economic commentators do, that saving retards economic growth and raises the level of unemployment. But this too is another fallacy that the early economists successfully refuted. As David Ricardo put it nearly 200 years ago:

Mr. Malthus never appears to remember that to save is to spend, as surely, as what he exclusively calls spending. (The Works and Correspondence of David Ricardo Vol. II, liberty fund Indianapolis 2004, First published by Cambridge University Press in 1951 p. 449).

If my experience of journalists is anything to go by, it will be only a matter of time before Misses Overington parrots another economic fallacy in the belief that she is saying something meaningful about the economy, blissfully unaware of just how foolish she sounds to informed opinion.

Gerard Jackson is Brookes’ economics editor

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