While many Speccie readers will know that our Prime Minister has an economics degree from Sydney University, fewer will appreciate that he doesn’t have a real economics degree. I’m not being pompous or condescending here; it’s just that he opted for the nascent political economy stream which is essentially Marxism broken into different subjects. He also managed to squeeze three years of study into four.

For many years, the Economics Department at Sydney University was rent asunder, with some key left-wing figures fighting the standard curriculum that had been offered to students studying economics at the university. The neo-classical framework, plus lashings of Keynesian stuff and some econometrics (empirical estimation), just didn’t cut it for them.

For some years, the leader of the political economy wing, Ted Wheelwright, did battle with conventional economist and department head, Warren Hogan. Believe me, it was a bitter fight and some students became deeply involved, including our very own Anthony Albanese. There were demos and sit-ins – it all became quite willing.

There are no prizes for guessing which side Albo was on. There is even a photo floating around of him on a rooftop declaring his support for political economy. In later years, he named Wheelwright as the economist who has most influenced him.

Note here Red Ted was obsessively hostile to capitalism, in general, and multinational companies, in particular. He even set up a research centre to look into the evils of multinational companies. For a while, he was on the board of the Commonwealth Bank before it was privatised, which beggars belief. He was a Labor appointee, needless to say.

Eventually, things settled down at Sydney University, with the political economy stream completely separating from the conventional economics degree. Students could choose one or the other and peace finally prevailed. But it’s not clear the Economics Department at the university ever fully recovered.

Fast forward those decades, it’s clear that all that rabble-rousing, left-wing talk had a lasting impact on our Prime Minister. It involves a deep suspicion of business, in general, but of big business especially. Society would be so much better off if the means of production were largely held by the government and, in this way, the needs of the citizens could be met on an equitable basis. (Pause for laughter here.) That was the clear messaging the youthful Albo was being served up during his university days.

The real tragedy is he seems to have failed to grasp the basics of economics, including the reliable supply and demand curves, the concept of opportunity cost, the importance of incentives and the mutual benefits of free exchange between buyers and sellers.

It’s actually not rocket science and plenty of people without economics degrees seriously get it – treasurer Paul Keating is a good example. Sadly, our Prime Minister doesn’t get it. He is a firm believer in a sort of voodoo economics in which magic puddings miraculously appear, as long as it’s Labor policy. Shall we call it Albonomics?

His curious way of analysing things is most apparent when he talks about the care economy. Let’s be clear here, there is no such thing as the care economy. Thankfully, most caring that goes on is completely outside the control of governments: it is about love, assuming responsibility and mutual obligation.

But when care involves distinct transactions, the government is often deeply involved, directly subsiding the transaction as well as regulating its nature – the required qualifications of the carer, the way in which the transaction must occur, etc.

A classic example is childcare. Leaving aside parents caring for their children which is to be discouraged, the government has only one model in mind when it comes to childcare – regulated centres with specified staff-child ratios and required qualifications of staff. Now according to Albo, there are great economic benefits from taxpayers throwing close to $13 billion per year at subsidising childcare fees.

But this is where his ignorance on economics really shows up. Most people would understand that when supply is essentially fixed, at least in the short term, any measure to increase demand will lead to higher prices.

Given that places at childcare centres are currently hard to come by, the recent cranking up of the fee subsidy rates will inevitably lead to higher fees. It already has. But Albo thinks that he can get the ACCC onto the case and this will somehow limit the rate of fee increases. No, Albo, it’s just supply and demand, something you would have learned about if you had done a proper economics course.

He also doesn’t seem to understand the difference between production and productivity. To his way of thinking, the greater subsidisation of childcare will lead to higher female workforce participation and higher productivity. Not so fast.

All the estimates of what economists call the supply elasticity – that would probably be a new term for Albo, one that Wheelwright probably never used – indicate that the boost to female participation is trivial. Work by both the Productivity Commission and Ben Phillips of the ANU indicates that there is a very meagre supply response to higher subsidy rates.

And here’s another tip: production and productivity are not the same thing. Assuming that there is some supply response to the new subsidy rates, that will be an increase in production. But what happens to productivity is a different matter.

If it is the case that most high-productivity/highly paid women are already participating to their preferred extent prior to the change, then the likely impact on productivity is negative as lower-quality workers are drawn into the workforce or work more hours. (Note to Albo: [labour] productivity is output per hour worked.)

There’s another area that really has me, an economist, baffled – that’s Albo’s assertion that higher wages lead to higher productivity. He has discovered a new law of economics – OK, he has just made it up. But the best thing about Albo’s new law of economics is that it enables him to ‘give respect’ to the workers, or should that be ‘the wukkers’?

Now all sensible economists know that simply mandating higher wages does nothing for productivity and seriously runs the risk that employers will lay off workers or reduce their hours. To be sure, in the long run, higher wages may induce automation and other labour-saving initiatives which will increase productivity, but I’m pretty sure that’s not what Albo has in mind. It results in lower employment – fewer workers, fewer union members.

Sadly for Albo, there are actually no new laws of economics, even if Ted told him otherwise. We can only watch now as things unravel.