One of the Australian Labor (sic) Party’s advisors on matters economic is a shy and retiring character by the name of Stephen Koukoulas, AKA “The Kouk”.
I don’t tend to
waste spend much time on social media these days but, in between large meals and long walks, I came across this provocative tweet by the person who, should Bill Shorten become Australia’s next Prime Minister for the obligatory 18 month term, will be whispering sage advice to the highest office in the land;
If, like me, you aren’t a professional economist, you will be wondering why this claim simultaneously seems to make sense but also seems like it shouldn’t be correct.
We’ll explain why it’s wrong shortly, but first, let’s recall an old brain teaser that used to go around in the school playground in various versions;
Three friends decide to split the bill after a meal at a restaurant. The waiter says the bill is £30, so each guest pays £10.
“Later the waiter realises the bill should only be £25. To rectify this, he takes £5 from the amount to return to the group.
“On the way to the table, the waiter realises that he cannot divide the money equally. As the customers didn’t know the total of the revised bill, the waiter decides to just give each of the three friends £1 and keep £2 for himself.
“Each guest got £1 back: so now each guest only paid £9; bringing the total paid to £27. The waiter has £2. And £27 + £2 = £29 so, if the guests originally handed over £30, what happened to the remaining £1?
If you haven’t come across this puzzle before the explanation is here.
It’s a classic misdirection.
Which is precisely what The Kouk is doing with his tweet.
The explanation as to why his statement is incorrect can be found here in an excellent and highly-recommended free PDF of a classic and easily read lesson on economics for mere mortals such as you and I. Treat yourself to a quick education before opening the next festive bottle.
The mistake or misdirection Koukoulas is guilty of is, helpfully, described in the very first chapter. In it, Hazlitt re-explains Bastiat’s Broken Window Fallacy and the concept of “opportunity cost”.
The explanation is so precise and economic (pun intended) in its use of words that I won’t recreate it here, but hope you follow the link and see it for yourself.
It is almost inconceivable that a professional “economist” is not aware of this fallacy (the first in the book!).
I can think of three possible explanations; either The Kouk is playing a festive game of trolling OR he’s deliberately misdirecting his followers for some other reason OR he’s not a very competent economist.
Of course, economics is a pseudoscience anyway. For proof of this, one only need look at the history of the so-called “Nobel Prize” for the subject; it was created as an effort to lend the subject some scientific credibility.