Kevin Rudd and Robert Manne in their previous essays (Rudd: “The Global Financial Crisis”, February 2009; Manne: “Neo-liberal Meltdown”, March 2009) and now five contributors to the symposium commenting on these essays (“The Rudd Essay & the Financial Crisis”, May 2009), all indict those responsible for the global financial crisis, but under various undefined and therefore imprecise labels. There is however a precise label, rent seeking (the appropriation of unearned surplus), that is uniquely appropriate here, and it is central to the theory of market failure. Not surprisingly therefore, those responsible for the crisis had adopted the neoclassical economic model precisely because it excluded the possibility of market failure. Even more cynically, they did invoke government interventions but, as Dean Baker points out, “always when income is thereby redistributed upwards”. Only David Hale and Dean Baker place land-value speculation at the front of the chain leading to the crisis.

For David Hale, Kevin Rudd had neglected to mention that “the downturn resulted from the collapse of the residential real-estate market in the US” and that it was Congress that essentially promoted the sub-prime boom.

For Dean Baker, Kevin Rudd had underestimated the role of the real-estate bubble in causing the meltdown. Yet “there was overwhelming evidence that the economy was being driven by a gigantic asset bubble” that created “US$8 trillion in housing-bubble wealth.”

Eric Hobsbawm starts on firm ground, reminding us that monopoly capitalism and monopoly socialism have both crashed in the past and that all economies now combine the public and the private. The rationale for this combination is already well established in the constituents of market-failure theory such as monopoly, externalities, merit goods, rent seeking, and non-monetary components of utility such as the environment. However, in a single paragraph, the fourth, Hobsbawm makes four serious mistakes that compromise the remainder of his response. One: that the higher growth rate of the post-1945 “golden age” was due to the remnants of wartime central planning. No, it was due to massive infusions of Marshall-plan capital into war-torn Europe, with results predicted by the theory of marginal returns in situations where the capital base is seriously depleted. Two: that subsequent slowing growth in the OECD was due to market fundamentalism. Partly true, but during that period accelerating real-estate speculation was dragging investment away from the productive towards the unproductive. Three: that the Asian economic miracles rested on “distinctly un-Hayekian” principles. No, “in all three of Asia’s biggest successes – Japan, South Korea and Taiwan – the groundwork for both fast growth and the income equality that eased the social strains of development was laid by a radical land reform.” (The Economist, 29 June 1991, p.16). And, after 1976, another land reform lifted China’s economic growth from near zero under communism to an unprecedented 10% per annum under the liberated peasant-driven Household Responsibility System. This explosion in productive incentives, spilling into the Town Village Enterprises that followed, still carries the highly inefficient State Owned Enterprises, and an increasingly irrelevant command bureaucracy, on its back. Four: that Atlantic capitalism was responsible for the economic stagnation of the bottom 40%. No, that stratum was a class that, until tempted by Fanny Mae and Freddy Mac, rented housing from a land-owning class whose wealth was rapidly increased by a raft of tax breaks, remorselessly increasing real rents paid and implicit rents received in huge un-taxed capital gains.