Myth 1: When it comes to solutions, there is “no single silver bullet,” writes David Smith in the Sunday Times (September 14, 2008). How would he know? He failed to prepare his readers for the crash, which suggests we can’t place much value on his pronouncements.

Commentators like Smith love mind-bending jargon like “quantitative easing”. What on earth does it mean? Not “printing money,” insists Smith. No; it means something grander. But torture the language this way or that, it does boil down to scheming governments expanding aggregate demand by increasing spending power. Theirs!

It’s all a matter of logic

Myth 2: We have to spend our way out of recession, writes Roger Bootle of Capital Economics. This, he insists, is the logical strategy (Daily Telegraph, January 13). “The recession is about a shortage of aggregate demand.”

Funny, but I thought the recession came about because people spent too much money – on property they couldn’t afford; by over-dosing on products consumed by going into debt. The recession did not originate because of a shortage of aggregate demand, and we won’t get out of it by spending more money.

But governments don’t want people to do cold turkey, so they are dusting off the clichés from John Maynard Keynes. He prescribed government spending to “pump-prime” an economy out of recession. Politicians love it!

But what about that “silver bullet”?

To curtail the depression and build our way into stable growth, it’s necessary to eliminate the points of friction in the enterprise economy. We know the location of the problem: real estate. We know the dynamics of reckless lending: the pursuit of capital gains. We know where to find the solution: fiscal policy.

Just one silver bullet, and we bag just about all the pathological problems in the capitalist economy. But have economic commentators like David Smith turned the vitriol in their pens against those who have grown rich because of the perversities of the property market. No!

Does Roger Bootle apply his logic to the problem, to help governments order their policy priorities? No!

So sit tight, watch the Keynesian pump boost the money supply, and observe the busy-bees buzzing around all the solutions under the sun, except that one silver bullet that will remain locked away in the magazine.

Economists live in a parallel universe to the one we occupy. It’s not a completely virtual world but it’s not far off fictitious world inhabited by avatars. Most economic theories are located in a spaceless vacuum, which is why they consistently fail when they bump up against the pragmatic truth of the real world.

Joseph Stiglitz’s Theorem

Joseph Stiglitz is a poignant example of the way in which economists fail to deliver the full potential of their discipline. He coined the term “Henry George Theorem” to characterise a theory, which actually embraces the physical world. Put simply, the theory highlights the significance of the rent of land as the efficient way to pay for the public services we share in common.

Stiglitz employs simplistic assumptions to arrive at a conclusion that has reflected the real world ever since the first civilisation. But why doesn’t Stiglitz use his insights when analysing contemporary problems?

He is an influential commentator, and one of the “good guys” willing to challenge the powers-that-be. His authority as a Nobel Prize winner is needed to help governments grope past the global economic crisis yet his observations point politicians in completely the wrong policy direction.

Blaming it on Bush

Knocking George W. Bush has become a sport, but to blame the global crisis on the Iraqi war and his tax cuts for the rich is pure nonsense. Unfortunately that’s the explanation that Stiglitz offers. He does refer to real estate bubbles, but they are treated subordinate issues.

The global crisis is a pure manifestation of perverse policies of public finance. These policies have allowed privileged groups to exploit the real world. Despite his deep learning and sympathies, Stiglitz failed to comprehend the full reality of what was happening on the ground. The origins of all economists perpetual intellectual tragedy are spelt out in Documentary # 2

Messing with our Minds on…

http://uk.youtube.com/RenegadeEconomist

Now, disinformation about the recovery: housing wasn’t the cause of the UK crisis, and prices will bottom next year – and they won’t lose 40% of their value. What’s more, there’s no way to avoid a re-run of the boom/bust cycle, so get a life and stop moaning.

That’s according to Yolande Barnes, one of the keepers of the secrets of the property market. As head of research at Savills, the up-market property agency, you would think she understood the economics of housing. Believe her at your economic peril.

A Blinkered Foresight

Writing in The Times (Nov. 14), Ms. Barnes reveals that she has adopted my theory of the 18-year cycle. But her learning is evidently selective, because she says “it is hard to see how we will stop the housing market crash of 2027”.

It was not many years ago that she and I were guests at a dinner party where I explained the economics that would stop such crashes. Was Ms. Barnes asleep, or was this a case of selective amnesia?

In any event, she insists that “the roots of Britain’s downturn lie in the credit crisis and the withdrawal of funding by lenders, not the other way round”. This is the kind of disinformation that allows politicians off the hook. If the so-called professional specialists believe in arrant nonsense, can we really blame those who rely on them for advice?

Myth of the Fundamentals

People like Ms. Barnes misled the house-buying public in the run-up to the crash by claiming that something called “the fundamentals” were such that Britain would escape a housing crash. She persists with this perverse way of viewing the world by claiming that the UK housing market “is a different country” from the US.

In terms of reality economics, there are no differences between the UK and US housing markets. But it doesn’t suit some mind-benders to face the truth, for reasons that must be left to others to speculate about.

We can change the rules to prevent the next housing boom/bust. The experts won’t tell you what this would take, however. Why not, is explained in our next documentary – Renegade #2: Messing with our Minds. Watch out for next week’s premiere!