The fatal flaw in economic rationalism (letter)by Suryan ChandrasegaranNews Weekly
, February 8, 2003
I have read the claims Mr Colebatch has been making on behalf of the free market.
He mentioned how free markets had helped improve the living standards of some people in developing countries. However, such improvements can be short-lived. Indonesia, for example, is still paying the price for placing its currency at the mercy of the market. In comparison, communist China maintained government control of its currency and continues to have enviable economic growth.
I was taught the economic rationalist ("ER") theory regarding the perfection of the market for three years at university. This theory relies heavily on unrealistic assumptions.
For example, it assumes that there are no barriers to entry to any markets, including labour markets. If this were true, a factory worker who lost his job today could theoretically work as a doctor tomorrow. If this was a regular occurrence in the real world, the market could quickly eliminate unemployment and reduce poverty.
However, it is ridiculous to rely on ER theory alone to solve real-world problems when its underlying assumptions can never be fulfilled. Other countries, such as the US, realise this and behave rationally. They verbally praise the free market but seek reduction of tariffs and subsidies only in industries or areas which would benefit their own people.
Australia's policy of eliminating our domestic tariffs has been costly. It has decimated large sections of Australian industry and cost jobs. This policy has also resulted in social costs as families disintegrate under financial strain.
The supporters of ER theory in universities, government or business do not directly suffer the consequences of the application of ER theory to the economy. They generally keep their jobs, and their pay usually increases. Australian CEOs have recently shown that even if they lose their jobs, they still receive handsome payouts. It is left to ordinary Australian workers and families to pay the price of "restructuring" as their jobs are eliminated.
I commend Mr Colin Teese for speaking up on behalf of these ordinary Australians against the flawed policies produced by ER theorists.Suryan Chandrasegaran,