Leslie Kaufman in the NYT has another piece on welfare reform, beginning with a spin that Mickey Kaus would surely approve of , saying
“During the boom years of the late 1990’s, when the 1996 welfare law was still sending public assistance rolls plummeting nationwide and more recipients were leaving for jobs than anyone had expected, critics of the law had one big warning: wait until the economy sours, the poor will come back.
But despite the economic downturn, it has not happened in New York City, which has the largest number of public assistance cases of any city in the nation. Nor has it happened in many other large urban areas.”
It’s only later in the article that the critics get their say, pointing out that families may be off welfare, but they are turning up at homeless shelters and food pantries in record numbers. No doubt Mickey will see this as a commendable Third Way outcome, with private philanthropy relieving an overburdened state.
Brad DeLong expresses qualified Skepticism Toward the Skeptical Environmentalist I think there’s a much more fundamental problem in Lomborg’s argument about global warming, as I argue here
The Intergovernmental Panel on Climate Change cites a range of model estimates of the costs of implementing Kyoto using market mechanisms. They show that, with a global system of emission rights trading, the cost of implementing Kyoto would range from 0.1 per cent to 0.2 per cent of GDP.
Lomborg [who relies on much higher estimates for non-trading approaches] dismisses global emissions trading as politically infeasible because it would involve the redistribution of billions of dollars to developing countries (page 305 in his book). But then he turns around (page 318) and attacks alternative ways of implementing Kyoto by suggesting that the billions required could be better spent – by redistributing them to developing countries.
To put the cost estimates in context, 0.1 per cent of Australian GDP is about $600 million per year. The economic benefits generated by the Great Barrier Reef alone are more than this, but, like reefs around the world, it is already being affected by bleaching arising from rising water temperatures.
I meant to include this link in my earlier post on trusts and tax avoidance. When the article came out, I copped some flak over my suggestion that trusts were being used to hide assets in divorces. As was pointed out, the Family Court has some power to unwind trusts in divorces. Before reposting, I checked and found a publication entitled Anatomy of Trusts which says:
There are many reasons why family trusts have and may continue to be a popular
vehicle for conducting family businesses and investment strategies including:
(a) The tax effectiveness of the structure;
(b) As a means of protecting and preserving property from:
Ø The claims of creditors in bankruptcy;
Ø Disenfranchised family members in estate disputes;
Ø To a certain extent, estranged spouses in divorce (although as will be seen later, there is a limited scope of effectiveness best summarised by The Honourable Kay J. in his paper “Trusts: Setting One Up in the Light of the Family Court’s Powers”;
“So unfortunately those intent upon maintaining their asset structure after the breakdown of a marriage do have some potent and powerful weapons in their armoury. They must sacrifice real control, however, and must ensure there is no Achilles heel visible such as loan accounts or personal assets and they must be prepared to wear the stigma of bankruptcy in the event of a lump sum order being made against them.”
This piece by Justinian looks at more failed self-regulation by the NSW and Queensland Law Societies. As the article points out, one of the most clearly beneficial aspects of microeconomic reform has been the replacement of self-regulating government providers of infrastructure services (Water Boards, Electricity Boards and so on) with external regulators separate from the provision of services. This is quite distinct from the ‘purchaser-provider split’, a much more problematic concept. This change is even more important in cases where the states legal powers to regulate have been handed over to private interest groups.
An interesting piece by Hal Varian, quotes Marx, but only to refute him
Don Arthur is always worth reading, but his posts are so lengthy, erudite and tightly argued that I seem never to find the time to write up an adequate response.
In this piece he develops a theme on which I’ve written quite a bit, coining the term “Dooguite left” for those on the left who are concerned about the social consequences of theory-driven free-market reform, and can therefore be correctly described as “socially conservative” (The usual recipients of this tag, are better referred to as “sexually conservative”, since they focus almost exclusively on issues of sex and reproduction).
I wrote about this last year in the Fin. A short take:
“Despite the frequency with which the name of Edmund Burke has been invoked recently, the intellectual tradition of conservatism finds no place in the Liberal party. The central Burkean idea, that social change should be gradual and organic, rather than rapid, top-down and rationalistic, is anathema to radical free-market reformers.”
As the subsequent Tampa episode showed, it’s a mistake to be too dewy-eyed about community and so on. The same values that promote solidarity within the community can be used to generate unreasoning hostility to outsiders.
Writing on ‘rank-and-file’ versus parliamentary control of polititial parties, Ken Davidson writes:
“Journalists have a reputation for libertarian tendencies. But this trait is undermined in political journalism by their preference for “strong” leadership and “tough” decisions. ”
I have noticed this phenomenon among libertarians more generally – for example, lots of libertarians admired Thatcher’s style (not just her policies) and quite a few liked Pinochet. On the other hand, the Catallaxy collective seems much more in the classical liberal spirit of, say, John Stuart Mill. Is there an ideological divide here, similar to that on the left between social democratics and Leninists, or is it just different strokes for different folks? Over to you, Jason.
Why am I not surprised by this?
Verbal arguments about statistical issues always get messy. So rather than have another round of words with Ken Parish, I thought I’d copy in the data from Christy’s graphs, and run the stats. I started checking for trends. As expected, the upward trend in the surface data (0.02 degrees per year) is stronger than that in the satellite data (0.005). More importantly, the upward trend in the surface data is statistically significant. That is, we can reject, with high confidence (above 99 per cent) the hypothesis that there is no trend. For the satellite data, we cannot reject either
(a) the hypothesis that there is no trend
(b) the hypothesis that the trend is the same as for the surface data
That is, as I said, it’s impossible to draw strong inferences from short runs of inconclusive data.
I was struck by the similarity in movements between the two series, which seemed to contradict some of what Christy said about the lack of linkage, so I also regressed the satellite data against the surface data. The slope coefficient was 0.76, and was statistically significant. The meaning of the slope coefficient is that, on average, if surface temperature goes up 1 degree, satellite temperatures go up by 0.76 degrees. We cannot reject the hypothesis that the coefficient is 1, that is that the two temperature series move together in the way predicted by standard global warming theory.
Just for fun, I tried out my suggestion of dropping the first five years. The slope coefficient was 0.95, close enough to 1 to verify my claim that just by eyeballing the data you can see that the two series move together from 1985 onwards.
Of course, the statistical analysis I’ve presented here is very crude, and there are lots of better things you can do with more data and fancier time-series techniques. But it confirms my view that the NAS panel got the story pretty much right when they concluded that:
(i) surface temperatures are rising strongly
(ii) there is no conflict between the surface and satellite data.
When I get time, I’ll try to post a more formal version of this.
Replying to Jason Soon, Tim Dunlop puts his finger on one of the more embarrassing secrets of economics. Although we use the term ‘efficiency’ all the time, we don’t really have a consistent and rigorous definition of what it means for an economic policy to improve efficiency. A typical welfare economics textbook will define an economic situation as Pareto-efficient if there is no other situation that would constitute a Pareto-improvement, that is, make some people better off and no-one worse off. This doesn’t just require technical efficiency in production. It’s also necessary that there be no unexploited gains from trade (often called allocative efficiency)
So a Pareto-improvement would be an improvement in efficiency. But policies that naturally produce Pareto-improvements are as scarce as hen’s teeth. So when economists talk about improvements in efficiency, they are usually talking about one of the following possibilities (neither of which is generally defined in a rigorous fashion)
(a) If the gainers from the policies felt like it, they could fully compensate the losers while remaining better off themselves
(b) If the government chose it could tax the gainers, still leaving them better off, and use the proceeds to fully compensate the losers
Cases like (a) are common, but, in the absence of an outbreak of altruism among the beneficiaries of efficiency-oriented policies, don’t tell us much about the impact of policy changes on the welfare of society as a whole. If a policy change makes all 20 million Australians (but one) $100 poorer and James Packer $2.1 billion richer, it’s not helpful to know he could pay us back and keep $100 000 for himself if he chose.
Cases like (b) are more relevant, but the required analysis to show that a policy satisfies this condition is generally difficult and rarely done.
Like other users of netcomments, I suddenly found that my comment facility wasn’t working and the netcomments.co.uk site had vanished – you get a redirect to a hosting service. I guess this explains why businesses don’t want to trust their vital operations to Application Service Providers (for those who don’t follow fashion, these were the Next Big Thing in mid-2000). Following the lead of Tim Dunlop, I’ve moved to Haloscan – I hope they are better. Talking of Tim, check out his stoush with the Rittenhouse Review. I thought global warming was a hot topic, but I’ll make sure never to mention the Pope.
US Home Sales Surged in July, prompting statements like this:
“A continued solid gain in prices of existing homes — a proxy for housing wealth– suggests that rising home equity will continue to buffer any weakness in equity wealth and sustain household spending,” said Maury Harris, chief economist at UBS Warburg.”
Exactly, the same argument has been pushed by Alan Greenspan.
In economic terms this simply doesn’t stand up. As the name suggests, households live in houses. The services of the housing stock are consumed by households, and any increase in the value of housing for one household is a loss for others. The only way the household sector as a whole can gain from rising house prices is to sell to immigrants or for non-residential use.
It follows that a consumption boom based on rising home prices is, in the words of the Bible, a house built on sand.
(This argument needs to be qualified by the special features of the US mortgage market, discussed below. Arguably, it’s not households who are in trouble but the institutions who lend to them. But the boom is just as unsound either way).
Ken Parish responds to my post on satellites, making a small but important error in doing so. He attributes the view I quoted to the IPCC then makes the reasonable point that, just because you are one of the 2000 scientists who worked on the report doesn’t mean you endorse everything in it. In fact, the statement I quoted was from the report of a panel assembled by the US National of Academy of Sciences specifically to examine the issue of the apparent discrepancy between satellite and ground data. It had 15 members, one of whom was John Christy. Judging by Christy’s evidence to the US Senate, cited by Ken, Christy would not have written exactly the same report as that of the panel, but he signed his name to it nonetheless, and did not append any dissenting notes as he could have done if he wished. I don’t think it’s “fast and loose” to quote a joint report on a specific topic as evidence of one author’s views on that topic.
To illustrate my point about the fragility of arguments based on short time series take a look at the graph (Fig 1) in Christy’s evidence and drop out the first five years. Even eyeballing it, you can see that the discrepancy between the trends would just about disappear. (As drawn, the level of the satellite data is lower, but that’s a graph artifact).
At the urging of Ken Parish, I’m returning to the topic of global warming, but I’ll do my best to keep things civilised. One issue raised by Ken is the discrepancy between ground level and satellite measurements of global warming. I have followed this one fairly closely and on one crucial aspect of debate, I have a fair bit of professional expertise.
The big expert on satellite measurements of climate is John R. Christy of the University of Alabama. His data, which started in 1979, initially appeared to show a cooling trend in the troposphere. Since satellite data seemed free of many of the errors that affect surface measurements, these results were seized on by global warming ‘sceptics”.
However, it was discovered in 1998 that the satellite data had problems of their own, arising from a failure to correct for the gradual decay in their orbits. Correcting for this, and adding more data, the satellite data now shows a slight warming trend, but not as much as the surface data. These facts were enough for an NAS panel, including Christy, to publish a report Reconciling Observations of Global Temperature Change which concluded that
“Despite differences in temperature data, strong evidence exists to show that the warming of the Earth’s surface is undoubtedly real, and surface temperatures in the past two decades have risen at a rate substantially greater than average for the past 100 years”
Of course, some sceptics could not bear to give up their best bit of evidence and have put a lot of weight in the remaining discrepancy. Speaking as someone who has taught and researched the statistical analysis of time series, I can say that putting this kind of weight on 20 years of inconclusive data is not justified, even if such events as the eruption of Mt Pinatubo in 1981 had not added to the usual background noise.
The satellite data does raise some issues – for example it shows that the link between tropospheric and surface level temperatures is not as tight as was once thought, but the idea that it represents serious evidence against the hypothesis of human-induced global warming has been thoroughly refuted.
US Federal judge, bestselling author and highly-cited economist Richard Posner has been taking a hammering in the Oz blogworld lately. First there was a discussion of his book on public intellectuals, where the reaction ranged from lukewarm (me) to scathing (Don Arthur). Along the way, Tim Dunlop and Ken Parish weighed in with some acute observations. Now his contribution to law and economics in general is up for debate, with Ken panning him again and Jason Soon offering a very qualified defence.
I’ve read a fair bit of Posner’s stuff over the years, and I can see why he elicits this kind of reaction. He’s very bright, but tends to be glib and superficial, and takes too much delight in being deliberately shocking. (Actually, I’ve got a fair bit in common with him, and have tried hard to train myself out of these kinds of faults).
More fundamentally, I think he’s focused on the least convincing ideas in Coase, namely that judges and the common law should make judgements in line with efficiency. I’m not a big fan of judicial legislation, though I dislike even more the kind of spurious literalism that allowed people like Garfield Barwick to impose their own political views while posing as conservatives. I prefer an ‘original intent’ approach to the interpretation of the law, with sensible modification in the light of changing social and technological conditions.
I find a lot more interest in the other great interpreter of Coase, James Buchanan, though I think he is also fundamentally wrong in trying to find an unchallengeable base for property rights in some sort of contractarian myth.
What does all this mean for the tortious liability of ski-lift operators? I’ll tell you next time.
On of the big problems of policy debate, particularly on the “left”, is that it’s considered unthinkable to advocate a return to the institutions of the past, even when they performed demonstrably better than those that replaced them. That’s why it’s encouraging to read Martin Mayer, a guest scholar at the Brookings Institution, saying that Banking’s Future Lies in its Past, that is, that it was a mistake to repeal the Depression-era Glass-Steagall act which required complete separation between commercial and investment banking. Of course, Mayer doesn’t advocate a return to the exact policies of the past, but a modernised version taking advantage of the controls made possible by new technology.
Barchester Towers, one of Anthony Trollope’s ‘clerical novels’. As the bishop is reported to have said, there’s nothing better on a Sunday afternoon than to curl up in bed with a good Trollope.
By the way, did anyone watch the adaptation of Trollope’s The Way we Live Now. I don’t have a copy, so I couldn’t check it the BBC had updated some of Melmotte’s rhetoric to make it even more uncannily familiar, but the obvious lesson in relation to financial speculation is plus ca change, plus c’est la meme chose.
The official Wizard of Middle-earth is retiring to get married and move to Australia.
I just installed Mac OS 10.2, and put on the T-shirt. Since the worldwide release started today at midnight, Australasian Mac-heads were the first to get access to the new OS. I didn’t bother going out at midnight – I figured a few hundred Kiwis would be ahead of me anyway, and there’s no point going out in a Canberra winter night to be #314 in the world. So far, there’s a definite improvement in graphics and a subjective improvement in speed. I’ll be interested to see what MacFixIt and others have to say.
One of least-known disaster scenarios for the US economy arises from the peculiar structure of US mortgage contracts. Unlike Australian mortgages which have either a variable interest rate or a fixed rate and fixed term, US contracts typically have a fixed rate, but allow early repayment without penalty. In effect, this means interest rates are variable but only downward, since householders can refinance whenever rates fall. They are doing this in droves right now for 30-year and 15-year terms, producing A New Refinancing Boom in Mortgages
For those who like the jargon of finance markets, US mortgages are like fixed-rate contracts with a bundled put option – comparing the terms with Australian mortgages this option appears to be free, but it’s very valuable to the borrower and potentially very costly to the lender.
If US long-term interest rates rise significantly, lenders will be stuck with a lot of long-term mortgages at low rates while they have to finance their activities at the high rates. They will have to bear the difference. Thanks to the securitisation of mortgages it’s unclear who will bear this loss, but the loss is potentially massive. It was precisely this feature of US mortgage arrangements that generated the S&L crisis two decades ago, but no lessons seem to have been learned. Although interest rates aren’t likely to vary as much as they did in the 1980s, the ease of refinancing means that the volume of the problem could be huge even for a rise of a few percentage points in the longterm bond rate.
Bright Cold Day links to this version of the archetypal modern art hoax story. You can read my take on this, first published in 1999, here
A short sample, with an apposite link I just found:
It is still possible to outrage US Senators and New York City Mayors with such ‘artworks’ as chocolate-smeared performance artists and Madonnas rendered in elephant dung, especially when their production and exhibition is paid for by taxpayers. But for the mass public, the game of epater le bourgeois (shocking the middle class) has been played out. Hardly anyone nowadays is really shocked by anything as petty as modern art. Rather, most people accept incomprehensible, trivial and ‘confrontational’ art as one of the facts of modern life, much like the operations of financial markets. Just as with markets in financial derivatives, they give their passive assent to the experts who assure them that modern art is a Good Thing, while retaining an underlying conviction that it is really a gigantic con game. Stories of paintings by ducks or monkeys being hailed as masterpieces are standard filler items in the tabloid press, greeted with the same mild schadenfreude as exposures of failed financial manipulations.
Yet again, I had the idea for a great post, bouncing off Tim Dunlop’s observation that “bloggers are the new public intellectuals” and linking back to the tradition of pamphleteering notably celebrated by George Orwell. But of course, I quickly discovered that Emily Eakin at the New York Times had beaten me to it by two weeks, and done it better than I would have.
One consolation comes with today’s Salon where Arianna Huffington asks “What would you do with all the money squandered by corporate America?”
Arianna’s piece is funnier, but I got in earlier with:
this piece beginning
” One trillion US dollars. A million million. It’s an unimaginable sum of money. It’s more than the US would spend in development aid in 100 years, and more than enough to fix many of the world’s problems once and for all.
Yet $US 1 trillion is a conservative estimate of the amount of real wealth that has been dissipated in bad investments during the ‘New Economy’ bubble of the last few years”
“Today’s ‘New Economy’ enterprises have been purpose-built for the mission of enriching their managers and the financial insiders who put them there. They have succeeded admirably in this mission. Everyone else, including workers, consumers and small shareholders, has lost out.”
Probably very few thoughts are original, but with search engines as efficient as Google, and the filtering services provided by weblogs, it’s getting harder and harder to sustain even the illusion of oringinality
Paul Krugman notes an NBER paper which tells us, in official economic terminology (‘rent-seeking’) what we already knew about executive pay – it’s a ripoff.
This poll finds that Most Americans Favor Action Against Iraq, but only 20 per cent support unilateral action without support from Western allies. I am encouraged by this evidence of support for multilateralism, which is usually drowned out by the noise generated by the warblogger right and the old-style leftists who are always opposed to any kind of military action. An operation to remove Saddam, based on UN resolutions, and with a commitment to the long-haul work of restoring democracy (the strong point of the European allies) would be justifiable in my view, whereas a Bush-Saddam vendetta is not.
Of course, to secure the resolutions, the US would need to prove that Saddam is still producing weapons of mass destruction, give him appropriate ultimatums and so forth.
Update:James Rubin sets out a lot of the same arguments here
Among a bunch of interesting posts, Don Arthur links to a critical review of Richard Posner’s bestsellet Public Intellectuals: A Study of Decline. I thought I’d grab the chance to plug my own review which adds an Australian angle. My two-para grab:
For an Australian reader, though, the really striking feature of Posner’s list is the obscurity of so many of the names on it. and especially of the American academic public intellectuals who are the primary focus of the book. I could only recognise about half the names in this category, and my efforts were boosted by the overrepresentation of economists in the list, reflecting the fact that my academic roots and Posner’s are much the same.
Although we are allegedly living in a globalised world, it is evident that the market for public intellectuals remains nationally segmented. Each country, it seems wants to hear its own policy problems discussed in its own accent. To illustrate this point, a Google search of Australian websites gives over 900 references to Donald Horne and over 2400 to the late Manning Clark, compared to just over 100 for William F. Buckley and 33 for William Kristol. Even rank-and-file Australian public intellectuals (such as the present reviewer) are better represented on Australian websites than these giants of the US scene.
Mickey Kaus demonstrates that he has indeed turned into a rhinoceros (that is, a neoconservative) in his discussion of the ballooning budget deficit in the US. Every serious analyst now accepts that the US is going to remain in deficit forever under current policies. So the question is “Who lost the surplus?”
The obvious answer is Bush, by pushing through unaffordable tax cuts costing trillions of dollars> But Kaus echoes the Republican party line, saying (with marginal qualifications) that the problem is “runaway spending”. It turns out that, in Kaus terms “runaway spending” means spending growing in line with GDP. This is of course, the same definition that the Republicans have imposed on the Office of Management and Budget (OMB), but that doesn’t make it any more sensible.
As Brad DeLong observes, if the volume of services required grows in line with population and the main cost (wages) grows in line with income per head, spending has to grow in line with GDP just to maintain existing services. You can deduct a bit for productivity growth, but it’s hard to get a lot of productivity growth in, say, police services or schoolteaching.
A simple look at history suggests that public expenditure has hardly ever declined significantly relative to GDP even under governments like Thatcher’s that have been willing to run down the quality of public services in important areas. So in Kaus’ terms “runaway” growth is almost inevitable.
Welcome to Ken Parish, who’s ‘a sometimes opinionated Australian legal academic based in Darwin”. Ken’s current posts show him to be a greenhouse sceptic, a social democratic opponent of outsourcing and a critic of John Howard’s hypocrisy over the Pell business. In other words, he’s going to be hard to put in a box.
For the second time, I’ve coined what I thought was a neat new blogterm, only to see it pop up simultaneously somewhere else. Last week it was “peaceblogger” which showed up on Slate. Today it’s the “Catallaxy Collective”, simultaneously used by Tim Dunlop. It’s not a meme since the whole point of memes is “replicating with modification”. There’s a marvellously nutty idea called “morphic resonance”, invented by a British scientist called Rupert Sheldrake a couple of decades ago, which is supposed to explain this kind of thing. But I think the best explanation is that this is a trivial instance of Merton’s law of multiple discovery. Given the right circumstances, the internal logic of thought will lead several people to make the same connections at once. Tim and I think similarly on lots of things, we both wanted to refer to Jason and his co-bloggers as a group, and neither of us could resist the lefty associations of “collective”.
As an aside, Merton is the father of Robert Merton who got the Nobel Prize for Economics for his work on option pricing (a multiple discover itself) then helped Long Term Credit Management to bring the world financial system to the edge of collapse in 1998.
The Heckler column in the SMH is an interesting experiment, with variable results. Today’s piece, on recent sporting scandals in Sydney, is a gem. The “bigger” scandal, about salary cap breaches by the Canterbury Bulldogs is a yawnfest, and Ubersportingpundit Scott Wickstein was right to give it short shrift.
The more interesting example, which is worth Scott’s attention, is that professionals are now being hired for the Greater Public (=private) Schools rugby competition. In addition, players are encouraged to repeat year 12 so that they’ll be bigger and stronger than their opponents. Only the public sector ring-in to the GPS, Sydney Boy’s High has failed to catch on, and after losing 104-0 against one semi-pro team, it decided to forfeit rather than risk injuries to its players. Our heckler writes:
“As for the battered lads from Sydney Boys’ High, they’ve just learnt the most valuable lessons they can learn if they’re going to take their place among our society’s elites: never give a sucker an even break; winning really is all that counts; all’s fair in business and sport; unless a tactic is explicitly forbidden it’s OK; if it is forbidden, there will always be a way around it; fail to match the opposition’s morality and you’ll be out of the game; money buys everything; the big (bull)dog eats first; and, most of all, don’t fall for your own mythology.”
Advocates of market-oriented reform will be pleased to know that at least some in the public sector are catching on. I’ve heard of cases of teams boosted by Year 12 repetition in sports-oriented state schools, though it seems to be on the initiative of individuals rather than schools at this stage.
I was tempted to post a withering counterblast to Mark Harrison’s latest piece, but good sense prevailed. The constructive debate I’ve previously engaged in with the Catallaxy collective is more valuable than scoring points in another blogworld flamewar.
I will just correct a minor error noted by Mark and add a useful link. The reference to William Nordhaus was not in the counterpetition but in a supporting opinion piece by Alex Robson.
The actual statement by Nordhaus, and 2000 other economists including a number of Nobel Prizewinners is entitled ECONOMISTS’ STATEMENT ON CLIMATE CHANGEThe relevant para, almost identical to that in the Australian petition reads
” Economic studies have found that there are many potential policies to reduce greenhouse-gas emissions for which the total benefits outweigh the total costs. For the United States in particular, sound economic analysis shows that there are policy options that would slow climate change without harming American living standards and these measures may in fact improve U.S productivity in the longer run.”
This correspondence is now closed (at least from my side).