Whilst Australia was still in the throes of post-election analysis and commentary, The Melbourne Globalist met with respected economist, author and commentator, Dr. H. Woody Brock. A Harvard and Princeton educated economist, founder of Strategic Economic Decisions and acclaimed author of ‘American Gridlock: Why the Right and Left Are Both Wrong – Commonsense 101 Solutions to the Economic Crises’, Dr. Brock spoke on myriad issues, from good and bad debt, the ‘fairness’ of wealth distribution, and the state of academia.
On the Australian economy and public policy
As we discussed the aftermath of the Coalition’s decisive victory and some of the incoming government’s policy challenges, Dr. Brock lamented the pervading fear of government debt in Australia. As is a central tenet of his book, government should be able to take out debt in order to finance socially beneficial projects, of primacy in our conversations was having a renewed emphasis on infrastructure expenditure.
Turning the conversation to Australia’s structural budget deficits that loom large over the next 10 years, Dr. Brock was amazed as we explained the government’s policy of negative gearing that helps middle and high-income investors write off capital losses on investment properties on their taxable income. The resounding message from the economist’s baffled response to this discussion ratchets home the need for Australian policymakers to address this area of crude policymaking rapidly and purposefully.
On the United States economy and public policy
When the conversation turned to the status of the American economy, the broad subject of Dr. Brock’s writing, he noted his disappointment in the lack of policy changes to insulate the financial system from the next great crisis. Particularly conscious of the over-leveraged nature of financial assets, such as derivatives and houses, Dr. Brock suggests that there should be in-built policy mechanisms to force financial actors to de-leverage themselves to stem the risk embedded in the financial system. The proposal, ambitious in nature, suggests that as an assets price and earnings ratio rises well above the well-established benchmark of 15%, the owner of the asset must put more funds in as collateral to tamp down price bubbles that almost always lead to crushing economic downturns.
This dovetailed neatly in Dr. Brock’s criticisms of the Federal Reserve, an entity he suggested had been bought by Wall Street along with the US Congress. He criticised them for not developing monetary policy for the purposes of Main Street, rather being conscious of stimulating financial markets and believing that their profitability will eventually flow through the rest of the economy. Contrasting with the trend seen since 2008, where firms have hoarded funds rather than spent on projects to expand their operations.
Dr. Brock’s criticisms of policymakers also extended to US Congress and the White House, who he suggested had their policymaking power stripped away by Wall Street’s influence over them and their unwillingness to think big about long-term reforms. This extended to a discussion about the lack of proposals to ameliorate the United States’ long-term budget woes; that are all too often abandoned for political convenience as the electoral cycle reaches its frequent climax every four years.
Some of the economist’s harshest words were for the politicians themselves; namely that President Obama is too busy playing basketball and not in forging new economic policy to re-establish the American economy for the future. When probed on alternatives however, Dr. Brock dismissed all potential candidates for the 2016 Presidential Election as lightweights, whilst suggesting that Hillary Clinton is the runaway favourite against an increasingly unelectable Republican Party.
Briefly, our conversation turned to China and their looming slowdown in economic activity, something Dr. Brock attributed to the lack of openness and transparency in their political architecture. He proposed that when economies move out of their initial phase of rapid growth, they must rely on sound institutions and economic actors that respect the rule of law, something China utterly lacks in his opinion.
Further, on the looming housing crisis, Dr. Brock castigated policymakers in China for this policy of rampant growth without broad-based institutional reform to make it sustainable in any way shape or form.
On the future of cities
On the future of role of cities in the 21st century, Dr. Brock hailed cities such as Boston for engaging in long-term policymaking via the Big Dig project of the late 1990s and 2000s, that whilst unpopular at first and hampered by cost blowouts that raised the budget from $4 billion to $16 billion. A city now revitalised in areas that were once crippled by underdevelopment and social dislocation and will reap the benefits over time far in excess of the cost of the project.
Meanwhile, he stated that cities such as Detroit lack vision and innovative policymakers to redevelop them, having fallen into a deep cycle of depression both economically and socially. This was something Dr. Brock suggested was caused by the consistent theme of our discussion, a failure of policymakers to apply more rigorous cost-benefit analysis to realise that many projects of infrastructure and social policy reap significant returns in the long-term, far in excess of their initial capital outlay.
On the state of academia
Throughout our conversations of policy were some stinging indictments on academia and the poor application of such fundamental concepts as Nash’s theory of game theory and bargaining, Arrow-Kurz’s theories on public investment and properly considering the rate of return on government spending and the lack of models at the core of political science.
However Dr. Brock’s main target was big data, popularised by the likes of Nate Silver of the FiveThirtyEight blog. A long-standing advocate of deductive logic, he dismisses the notion that large swathes of data can explain how the world works and doesn’t due to the simple fact that datasets are rarely ever consistent in their sampling over time; for the econometrically inclined, the simple problem of stationarity.
Dr. H. Woody Brock’s insights on these varied topics, in a time of political turbulence in Australia are worth noting. Interviewing him shed light on economic theory, public policy and the role of academia in improving social outcomes, amongst other topics. Perhaps such ideas, if carried into our mainstream political realm, would go along way to shifting our current ideological, partisan battle to a more productive realpolitik.
Pictured above: Editor Sam Baker, TMG’s journalists Christopher Weinberg and Michael Reardon and Dr H. Woody Brock.