Monthly Archives: September 2010

When is a bet a derivative?

Roulette WheelAlmost 6 months ago, the Australian Securities and Investments Commission (ASIC) was rattling its sabre, threatening to “shut down” online betting agency Centrebet if they continued to allow punters to bet on stock market and interest rate moves.

Peter Martin reported at the time in the Sydney Morning Herald that ASIC had written to Centerbet saying:

it has come to the attention of the Australian Securities and Investments Commission that you may be carrying on a financial services business without holding a financial services licence.

In particular we believe the financial bets you offer over the ASX 200 share index and RBA interest rate changes may be ‘derivatives’, as defined in the Corporations Act.

It seems that anyone in Australia in the business of offering financial derivatives is required to hold an Australian Financial Services Licence (AFSL) and adhere to a raft of regulatory responsibilities. Centerbet, apparently, did not have such a licence.

It was a little bit surprising, therefore, to see an article about the soaring Australian dollar in today’s Herald feature the following commentary from another online betting agency, Sportsbet:, which has taken bets on US dollar parity of up to $2000, says there has also been a plunge on the Reserve Bank raising interest rates next week.

So what has changed? A quick call to ASIC confirmed that a business offering bets on financial instruments would be required to hold an AFSL and that their records indicated that Sportsbet did not in fact hold such a licence. I asked them how this requirement was enforced and they told me that if they received a complaint, they would investigate it. They could neither confirm nor deny whether they had received any complaints about Sportsbet.

I will be listening out very carefully for the sound of ASIC’s sabre!

UPDATE: further digging revealed that even while ASIC was clamping down on Centrebet back in April, Sportsbet were taking financial bets. The difference in treatment is quite mysterious.

FURTHER UPDATE: Sportsbet have now taken down their pages for betting on interest rates and the Australian dollar. It may be temporary, or it may be that ASIC are investigating them…It’s now back up, so it appears to have only been a temporary suspension.

NBN in more than 140 characters

migNow that Labor has scraped their way back into power, it looks very likely that the National Broadband Network will go ahead in some form or another. Debates on the merits of the scheme continue apace, not least on Twitter, conveniently labelled with the #nbn hashtag. One frequent twitter on this topic, @pfh007, is also a regular commenter here on the Stubborn Mule. It seems that his thoughts on “Fibre to the Home” (FTTH) can no longer be constrained to a mere 140 characters, so he has now written a guest post for the Stubborn Mule.

A friend asked me a few days ago whether I could state my position on the current NBN proposal in 140 characters or less.

Although 140 characters suits my attention span and typing speed, the FTTH NBN proposal requires a few more.

Please note I have no academic, technical or professional background in this area to give weight to my opinion. So take it for what it is – sideline commentary from my IT shed. But first an initial comment about the FTTH NBN debate.

Unlike many commentators, I do not feel that the debate has been sterile or shallow. Certainly, there has been some partisan barracking where views expressed seem to be simply based on what position a person’s political team is taking on the issue, and some commentators have let their passions get the better of their reason, but overall I have found a broad range of thoughtful and considered thinking on the issue in both the traditional and electronic media. I am confident that a full and frank debate about the FTTH NBN proposal will eventually result in a policy that will be in the interests of all Australians.

Some important throat clearing comments first up:

  • I believe that Australia needs better broadband access.
  • I agree that optical fibre is technically the superior technical solution to supplying fast high capacity broadband.

Some other important considerations:

The attempt in Australia to regulate a private monopoly of the fixed connection network was a dismal failure. It seems clear to me that the government must resume an important controlling role in the delivery of a fixed connection network to ensure that at least some regard is given to the public interest. Accordingly, it is important that the government buy back the farm (a.k.a the wholesale fixed connection network currently owned by Telstra).

Having bought back the farm, the government should immediately sell down its interest to 51%. The remaining 49% can be sold to private investors, ideally the retail suppliers who have, or should have, an interest in the provision of a high quality fixed connection network and thus actively contribute to ensuring that the fixed connection wholesale supplier is well run. One approach might be simply to leave a 49% interest with Telstra and let them sell down their share as they see fit.

The advantage of this approach is that the new wholesale fixed connection entity would immediately have a source of cashflow and the capacity to generate a commercial rate of return. Some of that cashflow could then be allocated to the improvement of the fixed connection network – more on that below. Additional investment could be raised by debt or capital investment by the shareholders. In short this entity would be making money from wholesaling access to the existing copper network.

The 51% government stake in the new wholesale organisation must remain in public hands as regulating private monopolies does not seem to be a strong point of our public administration.

While I am not entirely convinced that, given the choice, consumers over the next decade will continue to believe that a fixed connection for telephone/ internet is necessary, for reasons set out below I have assumed that every house will want and continue to require a fixed connection.

On the assumption that a fixed connection to every house remains desirable, it seems sensible that any new connections to new houses should be via an optical fibre. While I have no statistics to back me up, the cost of laying a new fibre connection as opposed to a new copper connection to a new house should be roughly similar. To the extent that optical fibre may be more expensive, the advantages of that technology would greatly exceed the difference in cost.

Households who currently have little or no access to a decent ADSL or HFC cable connection (the stuff used by Optus and Foxtel Pay TV) should be prioritised for improved connections. These connections could be initially fibre to the node (FTTN), to allow fast ADSL access, and eventually FTTH or if it is more cost effective to skip the interim FTTN step, FTTH immediately .

Fibre connections to public buildings or commercial premises should be given high priority as these users are much more likely to benefit from and be in a position to make practical use of the faster broad band connection that FTTH allows. Most of the applications for FTTH that I have read about seem most relevant to public or commercial buildings.

Households who currently have good quality ADSL or HFC connections would be given a much lower priority and may not be converted to FTTH for a long time or at least until demand clearly requires or the proposal outlined below is implemented. Assessing demand will be quite easy as, by that time, large numbers of new houses will have acccess to FTTH and word will have spread if it proves to be a compelling proposition for residential users. We will not need to speculate whether consumers will choose to improve their existing ADSL or HFC fixed connections to optical fibre.

Where sections of the existing copper network fail or prove to be more expensive to maintain than to replace they should be replaced with fibre.

Competition by private wireless networks should continue and be encouraged.

Will there be a continuing need for fixed connections to households?

Perhaps the greatest weakness of the current FTTH NBN proposal is the assumption by its proponents that a majority of households will wish to maintain a fixed connection (for telephone or internet) of any description to their home.

Increasingly many people, particularly young people, do not bother having a fixed phone connection at all. They have a mobile number and that is that.

This trend seems highly unlikely to reverse.

What does this mean for internet access via a fixed connection, arguably the only remaining persuasive reason for a fixed connection to many houses?

This year can be regarded as the year of the smart phone/smart appliance.

Although Apple iPhone had the field much to itself over the last few years, the rise of android, improvements to Nokia’s symbion and the impending arrival of Win 7 mobile seem likely to herald the storming of the mass market by smart phones.

Needless to say the market for iPads, tablets and e-readers will only further expand the demand for mobile internet access.

Although the limitations of wireless broadband are obvious to the old hands of fixed broadband (myself included) it is dangerous to assume that young people whose primary experience of the internet is framed by their smart phone gadget will see things the same way.

It may be that for most of their needs their smart phone will be perfectly fine and they will see no more need for a fixed broadband connection than they do for a fixed telephone connection.

Simply put – they may settlle for second best wireless connection because second best suits what they want from the internet.

They may wish for improved wireless broadband but it is not safe to assume that they will have a need for a fixed broadband connection simply because it is technically superior.

Mobility may trump speed and capacity.

At the present time, in the midst of explosive growth in consumer demand for mobile connections, the proponents of a FTTH NBN network are simply failing to articulate a persuasive case as to why the community should spend a large amount of money replacing the existing copper and HFC cable connections to the millions of households who currently have access to adequate broadband connections using those technologies.

To the extent that it is possible to gauge consumer interest in the FTTH NBN, it is clear that there will be insufficient consumer demand for its high speed fixed connections unless the consumer is denied the current fixed connection alternatives available to many of them – copper and HFC cable.

The most compelling argument in favour of a FTTH NBN

I have read much about the exciting ways the capacity and speed of FTTH broadband can be applied, but few of them are convincing as mainstream applications for residential users.

I appreciate that this may simply reflect the limits of my imagination and the imaginations of the current crop of futurists vibing the brave new world of FTTH, so I will keep an open mind that someone will come up with something in due course.

I believe there is only one application that makes a compelling case for a FTTH fixed connection network. Broadcast TV and video on demand including Pay TV and IP TV.

If radio tramission of all television was to cease when an area is fully supplied with FTTH and all free to air TV was supplied via the FTTH then many, if not all, households would demand a connection and a device that would allow them to feed the TV signal into their TV set.

Not only would this create a genuine need for FTTH but it would allow the considerable amount of valuable radio spectrum currently used by the analogue and digitial television broadcasts to be reused for other purposes including possibly 3G and 4G wireless.

There seems little justification for continuing to use valuable radio spectrum for the purpose of delivering SD and HD video programming which could be delivered simply and effectively by an optical fibre.

It is better that as much radio spectrum as possible is available for the provision of mobile internet access particularly as it is likely that mobile internet access will be favoured by many if not most consumers.

The auction of that spectrum to telcos and other wireless internet providers would go someway to defray the cost of the FTTH roll out, particularly those sections of the FTTH network where a universal service obligation may be the only reason for construction.

The availability and universal coverage of the FTTH would also allow multiple existing and new pay TV providers to use the cable as their main method of service delivery – especially to areas not currently supplied by existing technologies.


In short the proposal is as follows:

  • Have the government buy back a 51% interest in the wholesale fixed network – buy back the copper (this new wholesale fixed connection supplier would generate an immediate return from the existing copper fixed telephone and ADSL connections)
  • Fixed connections to new housing to be optical fibre
  • Existing houses with no access to HFC networks or ADSL to be provided with FTTN (or possibly FTTH)
  • Prioritise optical fibre connections to public buildings and commercial premises
  • No change to FTTH for existing houses with HFC or decent ADSL until it is clear that there is consumer demand to do so
  • All existing free to air TV to be supplied via the optical fibre to build community acceptance for non-broadcast supply of TV
  • As engineering and technical resources (including labour) allow progressively convert TV broadcast regions to FTTH and when connections are complete and operating turn off the broadcast TV signal
  • Auction the broadcast TV digital and analogue spectrum for alternate uses – say 3G and 4G wireless

The irony inherent in the proposal set out above is that while the FTTH connection could be used for ‘internet access’ as we currently understand it, the primary objective of the FTTH would be to facilitate the provision of increasing amounts of wireless internet access to mobile devices by removing TV (analogue and digital) from the radio spectrum.

Furthermore, it also suggests that the proponents of a FTTH NBN might be better served by promoting the capacity of the FTTH to deliver TV, pay TV and other forms of video entertainment that the consumers value highly as this would allow improved wireless connections to deliver the lion’s share of the internet access that most consumers are likely to want in the future.

For remote houses that cannot be connected with FTTH – satellite delivery of free to air TV and Pay TV should be available.

Purchasing Power Parity postponed

The Australian dollar has been going for a bit of a run over the last few weeks and many commentators are concerned that it has become over-valued. A widely quoted Bloomberg article published yesterday argued that the Aussie is 27% over fair value compared to the US dollar.

AUD/USD Australian Dollar vs US Dollar (Jun 2009 – Sep 2010)

Their case rests on the theory of “purchasing power parity” (PPP). According to this centuries-old idea, exchange rates should be such that identical goods in different countries should, in the long run at least, cost the same amount. If prevailing exchange rates make it cheaper to buy the same goods overseas than in Australia, then the buying power of the Australian dollar is too high and the currency is over-valued.

The rationale behind PPP is that if there is a big price difference, it becomes worthwhile for enterprising souls to export goods from the cheap country to Australia. Not only would this put upward pressure on prices in the cheap country, but the entrepreneurs would be buying the cheap country’s currency and selling the Australian dollar, thereby putting downward pressure on the Australian dollar. Both of these effects would tend to correct the over-valuation implied by PPP.

For years now The Economist has, famously, been publishing league tables of over- and under-valued currencies based on the price of a Big Mac at McDonalds. Their most recent report suggested that the Australian dollar was over-valued by almost 4%. At the time of publication, the Australian dollar was trading in currency markets at around US$0.88. Since then it has increased in value by another 9%, suggesting the over-valuation is now 13% (assuming Big Mac prices are about the same). However, the Big Mac index has come in for some criticism: last year various News Corporation organs broke the alarming story that Australian Big Macs are in fact smaller than Big Macs around the world, which suggests they are not as cheap in Australia as the Economist believes.

Perhaps aware of this problem, CBA economists have instead constructed an iPod index, based on the price of iPod Nanos around the world. Now I know that Apple only recently brought out their new Nano, but my Apple gadget of choice is the iPhone. Phone prices are tricky though, as they are distorted by the plethora of phone plan deals. So instead, I have constructed a PPP index based on the iPod Touch to illustrate the workings of PPP exchange rate indices. After all, the Touch is just an iPhone without the phone.

The table below has iPod Touch 32G prices from five countries around the world. For each of the non-US countries, the local price has been converted to an effective US dollar price using current currency market exchange rates. The PPP rate shows what the exchange rate would have to be to ensure that the local currency price would convert to the US dollar price of $299. Intriguingly, on this basis all four currencies appear to be over-valued relative to the US dollar. Indeed, the 13% over-valuation of the Australian dollar appears modest compared to a 23% over-valuation of the euro and the Pound. Even the Japanese Yen appears to be very slightly expensive.

Country iPod Price Effective US$ Price Market Rate PPP Rate Over-valuation

iPod Touch (32G) PPP Index

There is another possibility here though. Perhaps it is not so much that these currencies are all over-valued (or that the US dollar is under-valued), but simply that Apple rips off all its non-US customers! Mind you, as most Australians would know, Apple are far from alone in charging us more for electronic consumer goods than they charge Americans (although Europeans seem to get an even worse deal). So, sadly, the iPod index may not be very useful. The analysis does, however, highlight the challenges of using PPP to assess fair value of currencies.

Economists would caution against using a single product and would instead use a “basket” of consumer goods to compare currencies, which is what most of those arguing that the Australian dollar is over-valued would have done. But the real problem with the PPP analysis is that prices of consumer goods are not nearly as relevant to currency markets at the moment as interest rates are. Compared to the rest of the world, investors see Australian interest rates as attractively high. Here is a comparison of the interest rates you would earn by buying government bonds rather than iPods in the same five countries.

Country 2 Year 5 Year 10 Year

Government Bond Rates (Sep 2010)

Depending on the “term” of the bond you buy (i.e. how many years before you get your money back), the rate you earn will differ. Typically, longer-dated bonds will generate higher returns, but regardless of the term an investor chooses, at the moment they can earn significantly more by investing in Australia than in any of the other four countries. Now Australia is certainly not the only country in the world with higher interest rates than the US, Europe or Japan, but most of the countries with high interest rates are developing countries which investors would consider a much riskier proposition than Australia. Furthemore, the noises coming from Australia’s central bankers suggest that interest rates here are only heading higher. In order to invest in Australia, offshore investors have to buy Australian dollars, and this goes a long way to explaining why the currency keeps getting stronger.

The practice of switching investments from low interest rate countries to high interest rate countries is known as the “carry trade” and it is not without risks. In fact, the Economist has compared the carry trade to picking up nickels in front of a steam roller. Where is the steam roller? It is the exchange rate. A US investor may be drawn to the extra 4.36% that a 2 year Australian government bond offers compared to a US government bond, but if the Australian dollar falls back as far as it has risen over recent months that investor would lose that 4.36% and more. On the other hand, if investors think that the Australian dollar is only going to keep going up as long as everyone is jumping on the carry trade, they may not see depreciation as much of a risk. Everybody wins, until the music stops… and Reserve Bank governor Glenn Stevens seems to be promising to keep that music playing.

So where does that leave the theory of Purchasing Power Parity? Most economists would take refuge in the caveat “in the long run”. It’s not that Purchasing Power Parity is wrong, it’s just taking a back seat to the carry trade for now. Eventually it will re-assert itself. Perhaps. In the meantime, Australians travelling abroad will be making the most of their buying power.

Data sources: exchange rates from OANDA, iPod Touch prices from Apple, bond rates from Bloomberg.

* The US price excludes tax, while the other countries include GST/VAT etc. To provide a fair comparison, the US price has been grossed up by 6%, a mid-range sales tax rate.

UPDATE: Thanks to Andrew for the comment about sales tax. The post has been updated accordingly.

How old is the Mule?

According to one automated blog analyser, I am rather older than I thought I was: is probably written by a male somewhere between 66-100 years old. The writing style is academic and upset most of the time

The gender is correct and academic writing style I can accept, but I am not so sure about being upset most of the time. Generally I am quite happy while writing the blog!

A Delicate Balance

3-way BalanceEver since Julia Gillard managed to wangle the support of two of the three country independents and scrape through to a second term in government, speculation has focused on how long the arrangement can last…and not only in the media but also on the Mule Stable.

Challenging though the road ahead may be for the new government, with so many different interests to juggle, I am of the view that Labor will do whatever they can to hold on to power. Even if they are unable to pass “crucial” legislation, they would be very unlikely to go to the polls early lest they lose the election. After all, if they did not have the courage to trigger a double dissolution when they failed to pass emissions trading legislation to combat the “greatest moral challenge of our time”, it is hard to see what issue could be important enough to them to jeopardise their power.

As for the independents, another election would risk their own new-found power. Furthermore, in siding with Labor they have not really promised very much. All they are committing to is to pass supply and to support the government in the event that no confidence motions are brought against it. On each and every particular piece of legislation they are free to horse-trade once more and potentially vote against the government. Also, as Bob Brown recently pointed out, there is nothing to stop the independents and the Greens backing legislation initiatives brought forward by the Liberals. So there really is no good reason for the independents to withdraw their support from Labor.

Without the numbers, the Liberals and Nationals are powerless to bring on an early election. So, this unlikely new coalition government is likely to be here to stay. The only scenario I can see that could undo Labor is a by-election. If one of the MPs supporting Labor were to fall under a bus, retire, disgrace themselves and resign or in some other way leave the Parliament, the Liberals would have the chance to win the by-election and chance the numbers on the floor. Failing that, I would expect to see Labor ruling for a full term.

What do you think? While it may take some time to see the result, this seems like a good opportunity for another poll on the Mule, so have your say!


Protovis now working in Chrome and Safari

Thanks to everyone who responded to my experimental Protovis post*, whether in the survey, via twitter or in comments on the post. It quickly became clear that my trick for including the code to generate the chart completely failed to work in Chrome and Safari browsers. I still do not fully understand why that is, but I have now worked out a completely different approach to the problem which (fingers crossed) seems to work in more browsers, although I still cannot vouch for all versions of Internet Explorer.

So here is the chart one more time. I hope it now works for (almost) everyone!

[pvis src=”” img=”/blog/wp-content/PV-CDO-circles.png” height=”125px”]CDO deals: total and recycled[/pvis]
I will also be updating the howto post very shortly to explain my new technique.

UPDATE: at the moment, this trick is not working on mobile devices. It should now be working on mobile devices except for Android. The only remaining problem is IE, but I think that will not be possible. I will instead try to make it fail more gracefully on IE.

* Protovis is a javascript data visualisation library being developed at Stanford, which allows the creation of interactive charts on web pages.

Getting Protovis working on WordPress

When I started experimenting with Protovis*, I quickly found that getting it to work in a WordPress blog was rather fiddly. With a lot of help from Google (and this page in particular), I managed to piece together what needed to be done, but since I did not find any explanations specifically focused on Protovis in WordPress, I thought it may be useful for others attempting the same thing if I summarised the steps involved. Most readers will not have the slightest interest in this, so I will not expect many of you to keep reading!

First of all, if you are hosting your blog on, give up now! These instructions will only work if you have a self-hosted installation of WordPress.

1. Download Protovis and unzip it on your server it a convenient location. I put it in a folder called “protovis”, accessible from the root of the webserver.

2. Ensure your headers include a pointer to the Protovis script. How exactly you do this, depends on your theme, but since I am using Thesis, it’s quite straightforward: under Site Options > Additional Scripts, I added the following code.

<link rel="shortcut icon" type="image/x-icon" href="/favicon.ico">
 <script type="text/javascript" src="/protovis/protovis-r3.2.js"></script>

3. Wrap your Protovis code up in a function and save it in a .js file on the server. For example, here is the code I used to produce the chart in the last post. You will see that I wrapped everything up in a function called “cdodraw”. I saved the file in the folder /script/pv.

4. Edit your post in HTML mode and use the following code to load and call your function.

<script src="/scripts/pv/cdodraw.js" type="text/javascript"></script>
<script type="text/javascript+protovis"><!--

You should replace “/scripts/pv/cdodraw.js” with the location of your own Protovis chart code and replace “cdodraw()”. With the name of your own function. Note that the first script command has type “text/javascript” and the second “text/javascript+protovis”. This is important!

Part of the reason for the difficulty is that WordPress has a tendency to mash up the text you enter, which is fine most of the time, but not when you are trying to write Javascript. An alternative may be to try the Text Control plugin, which allows finer control over WordPress’s mashing of your text. I have not tried the plugin myself, so I cannot be sure how well it works.

Good luck, and let me know how you go! If you have any suggestions on how to do this a better way, please let me know. Better still, you could write a WordPress plugin to make it all much easier.

UPDATE: it appears that this function-wrapping trick does not work for Google Chrome or Safari. I’m looking into it!

FURTHER UPDATE: I could not work out why the approach described here does not work for Chrome or Safari, so instead I got it working by creating a custom shortcode that slurps in a javascript file and includes it in the post. I am in the process of wrapping this up in a plugin to save others the trouble of working out how to do it. For those who cannot wait, here is the code I used:

function sProtovis($atts, $content = null) {
 extract(shortcode_atts(array('src' => '#'), $atts));
 return '<script type="text/javascript+protovis">'."\n".file_get_contents($src).'</script><noscript>Scripts disabled -- cannot display chart!</noscript>'.'<p align="center"><strong>'.do_shortcode($content).'</strong></p>';
add_shortcode('protovis', 'sProtovis');

It still relies on the Protovis code already being added into the header (as described above). In the plugin, this will no longer be necessary.

PLUGIN: pv-loader is now available on github.

* Protovis is a javascript data visualisation library being developed at Stanford, which allows the creation of interactive charts on web pages.

Experimenting with Protovis

A couple of weeks ago I gave a talk on using graphics in R. During the question session, someone asked whether I had tried using Protovis, a javascript data visualisation library being developed at Stanford. It was an easy question to answer: no!

However, a bit of subsequent investigation revealed that Protovis has been developed very much in the spirit of Leland Wilkinson’s book The Grammar of Graphics, which I am currently reading, so I have decided to experiment with it here on the blog.

The charts I generate with R are all static images, while a tool like Protovis allows for user interaction which opens up some interesting possibilities. Compared to R, which I have been using for around 10 years, Protovis presents a double challenge: not only do I have to come to grips with Protovis itself, but I will also have to learn some basic Javascript programming. So, I expect it to be a slow journey.

As a tentative first step, I have reproduced the CDO chart from a recent post ranting about bubble charts. At first glance, it is essentially identical to the chart I produced using R. However, if you hover your mouse over the points on the chart, you should see the figures appear! It is by no means perfect (for example, it would probably look better if single points appeared, rather than every point on the chart and it could do with a legend), but it’s a start and I will persevere.

[pvis src=”” img=”” height=”125px”]CDO deals: total and recycled[/pvis]

Producing scripts using a Javascript library does have its drawbacks. For a start, it means the chart will only be visible when scripts can be run, so if you are reading this in an email or an RSS news reader, you will probably not see very much and will have to visit the page on the blog to see it. Even then, some of you may use script-blockers such as NoScript which will also break the chart (mind you, you can trust the Mule, so you could always whitelist this site!). Finally, I believe that some older browsers (such as IE6) will not support Protovis. It would be useful to see how many people can or cannot see the chart, so please let me know using this poll whether you can see the chart.


Getting Protovis to work on the blog was a little fiddly, so for anyone interested, I have also written up a quick guide to using Protovis on a WordPress blog.

UPDATE: Reports in so far indicate that the chart is not working in Google Chrome or on mobile devices. More work to do it would seem!

Keynes on Economics

I have always enjoyed the way John Maynard Keynes had with words. He was responsible for many a bon mot, such as “in the long run we are dead” (skewering the idea of long-run equilibrium in economics), “It is better to be roughly right than precisely wrong”, “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone” and (my favourite) “Markets can remain irrational a lot longer than you and I can remain solvent”.

Today I read a rather scathing piece on the performance of economists in the lead up to and throughout the financial crisis, which included this rather longer but nevertheless brilliant quotation from Keynes.

The completeness of the [orthodox] victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, [with] the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority. But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, in the course of time, the prestige of its practitioners. For professional economists…were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation—a discrepancy which the ordinary man has not failed to observe, with the result of his growing unwillingness to accord to economists that measure of respect which he gives to other groups of scientists…

John Maynard Keynes, The General Theory of Employment, Interest and Money (1936; London: Macmillan, 1964) 32–3

I have a copy of the General Theory, which I have only skimmed. One day I really should read the whole thing. In fact, there’s even a Kindle edition for $3, so maybe that day is not too far away…

Photo credit: Wikimedia Commons.