Russell bragged that "the Accord had kept wages in check and facilitated a major shift from wages to profits". However, the so-called Accord’s real intent was to use Keynesian policies to lower unemployment by using inflation to cut labour costs. What most commentators do not realise is that the underlying principle of Keynesianism is that governments can use monetary policy to reduce unemployment by raising the value of the worker’s product relative to the cost of hiring him.

But this policy leads to economic distortions, balance-of-payments problems and the boom-bust cycle. Hence the 1991-92 recession and the subsequent decline in the CPI. Now Russell charged that though unemployment fell “employers had little incentive to raise productivity — labour was cheap and profits were high, so why should they bother?”

This is shocking nonsense that assumes labour and capital are substitutes and not complementary factors. If Russell were right countries with an abundance of cheap labour would never industrialise. He ought to know that it can be easily shown that in a situation where labour is virtually a free good it would still pay employers to invest in machinery that would raise productivity. If he wants a sensible explanation of why productivity was low in the 1980s he should look elsewhere.

If the reader refers to the chart for deposits he will notice that deposits, meaning credit expansion, virtually levelled out from late 1988 to about June 1991. They stood at 28.9 billion in January 1989 and 30.2 billion in June 1991, a mere increase of 1.3 per cent. This is where the recession came from. From 1989-90 to 1991-1992 fixed capital expenditure in manufacturing fell by 18.3 per cent. However, manufacturing output started to decline in late 1988 or early 1989 (Reserve Bank of Australia Bulletin, Semi-Annual Statement on Monetary Policy, May 1997, p. 5). We can now see that Australia was sliding into recession well before 1991.

Simple-minded economic thinking has it that by expanding demand — cranking up the money supply — the RBA can stimulate consumption (true) which through the multiplier effect will induce business to invest via the accelerator — not true. Let us do this by the numbers:

1. There is no Keynesian multiplier. It is nothing but a dangerous fiction.

2. Stimulating consumption always lowers investment. Furthermore, using inflation to increase consumption not only undermines the capital structure it also misdirects production.

3. The accelerator is another Keynesian fiction. It was completely demolished by the late Professor William H. Hutt. (The Keynesian Episode, LibertyPress, 1979, chapter 17).

I would dearly like say that Russell's terrible economics is the exception. Not so. The 'economics' one finds floating around in the Liberal Party is just as bad — if not worse. For instance, the RBA has given us a rerun of the 1980s and not a single Liberal politician has the slightest clue as to what is really going on. The cluelessness of Liberal Politicians was brought home again by two events. First, we had Julie Bishop making asinine comments about "short-selling'. At the same time Malcolm Turnbull was making stupid comments about interest rates.

Second, Brumby, Labor Premier of Victoria, recently called upon the Rudd Government to slash interest rates and flood the country with phony bank deposits. (Herald Sun, Tougher global times require strong action now, 2 October 2008 ) Why? Because Brumby has been advised by some vulgar Keynesian getting fat on the taxpayers' dollar that economic growth can be created by forcing down interest rates which will then then expand credit.

This is one of the oldest and certainly most dangerous economic fallacies around. Yet not a single Liberal politician seems capable of seeing that Brumby is peddling pure economic snake oil.

*Don Russell was chief of staff to Paul Keating as treasurer and prime minister.