Archive for February, 2003

More history lessons

February 20th, 2003 Comments off

The Guardian asked a number of historians to comment on two parallels commonly drawn with the Iraq situation – Suez 1956 and Munich 1938 (others include the Austrian ultimatum to Serbia in 1914 and British intervention in Egypt in the 19th century). I’d like to look at five features of Munich that (arguably) made the decision to appease Hitler a wrong one.

(a) War was inevitable anyway – the pro-war case for an attack on Iraq assumes this, but it’s certainly less than 100 per cent obvious. Given a long containment operation, Saddam could die, be overthrown or even moderate his government as Gaddafi and the Iranian Ayatollahs have done.

(b) Hitler gained strength from the delay in going to war (so did the Allies but not as much) – I don’t think this is applicable in relation to the choice between an early war and containment. Saddam may well have hidden weapons, but no-one seems to be suggesting that he is actively developing new ones under the noses of the inspectors. And in conventional terms, sanctions continue to weaken Saddam while the Americans (and Europeans for that matter) grow ever stronger.

(c) By failing to stand up to Hitler in 1938, the Western European powers lost allies – Czechoslovakia directly and Stalin because he concluded that the West was decadent and doomed, hence the Molotov-Ribbentrop pact. On this point, there is a 180 degree reversal. An early war will lose allies, not gain them.

(d) Hitler was an evil dictator and the world should have dealt with him earlier. I don’t think this argument stands up in relation to World War II. If Hitler had not been bent on aggressive war anyway, a war to overthrow him would have been a very bad idea. Most German Jews got out of Germany before 1939. It was only the war and Hitler’s conquest of Europe that enabled him to pursue his genocidal Final Solution. As far as historical parallels are concerned, containment won’t stop Iraq being a police state. But it is clearly capable of preventing the large-scale massacres that took place when Saddam had the unofficial backing of the West. A doctrine justifying war to overthrow dictatorships could be developed. But, as I’ve argued here this is a dangerous step that needs to be taken with much more care than we’ve seen in the case of Iraq.

(e) World War II formed the basis for a just and democratic peace, at least in the West. This wasn’t true in the Soviet bloc or the Third World. However, the Western Allies did commit themselves to a just peace in Europe and largely delivered on that commitment. In the present case, we’re seeing the sellout of ideals happening even before the war has started. The Kurds have been sold out to mollify the Turks (Of course, if the Turks don’t come in, the Kurds will be back in favor). Now arch-moralist Tony Blair has refused to make a commitment to a postwar democracy, presumably because he knows that the US Administration wants to install a military governor.

UpdateHaving been accused in the comments thread by Ken Parish (yet again!) of anti-Americanism, I’ve replaced a sloppy reference to “the Americans” with the correct “US Administration”. I’ll just point out (again!) that if vehement opposition to the current US Administration constitutes anti-Americanism, then most US Republicans were anti-American from 1993 to early 2001. Oddly, although I’ve been very critical of both Blair and Howard, Ken never seems to accuse me (or other opponents of war) of being anti-British or anti-Australian.

Categories: General Tags:

Idiot Savant

February 20th, 2003 Comments off

Jason Soon links to a discussion on the Oz Libertarian website which reveals the hitherto little-known fact that I am an ‘idiot savant’ who can recite the entire works of Shakespeare . The problem is, people either go to sleep halfway through Timon of Athens or threaten violence to make me stop. Standard savant feats like telling you immediately that 7 March 1963 was a Thursday are no better. As I have a math background, people suspect that I am using some trick of modular arithmetic rather than relying on uncanny mental powers.

So I’m asking for suggestions for a more appropriate idiot savant trick. While we’re at it, how about suggesting similar tricks for other bloggers? Perhaps Jason could tell us what FA Hayek had for breakfast on any given day.

Categories: General Tags:

History lessons

February 20th, 2003 Comments off

In today’s AFR (subscription required) Bob Hogg argues

Yet the Iraqi question has similar ingredients to that which led to NATO’s intervention to end Slobodan Milosevic’s regime in Yugoslavia.

. The only problem with this incisive analysis is that there was no such intervention. Milosevic was overthrown by the Serbian people.

The NATO intervention in Kosovo was broadly analogous to the establishment of the no-fly zones and the expulsion of Iraqi forces from Kurdish areas.

Categories: General Tags:


February 19th, 2003 Comments off

Some interestingly-titled additions to the blog-roll include (relatively) new bloggers, a returnee from hiatus and a couple I’ve been meaning to link for ages. I assume William Burrough’s Baboon is some sort of allusion to the author of the Naked Lunch, but since I know him only as a minor character in Kerouac’s On the Road, I’ll wait for a reader to enlighten me. By comparison, Virulent Memes is straightforward (sometime I’ll address the question of whether the meme meme means much). New blogger Gianna has given her site the obscurely troubling title She Sells Sanctuary. vaara has recently returned from hiatus – his blog is called “silt”. Finally, except for a very mild pun in his alternate title, Martin Wisse plays it straight. A big welcome to all of them.

I’ve made room by dropping some blogs which have turned out to lie outside my corner of the blog ecosystem. To be less high-flown about it, I link people who link back to me or who I find interesting enough to comment on despite the absence of a reciprocal link. For a fairly comprehensive listing of Oz Political Blogs, visit Ken Parish’s blog, assuming he hasn’t moved it yet again. It was last sighted here.

Categories: General Tags:

Comments are back!

February 19th, 2003 Comments off

Haloscan appears to have fixed up the server problem, and to have salvaged most of the comments that were posted immediately before the shutdown. I’m still thinking about a shift and have received some very kind offers of help in this respect. But I’ll put that off until I have a bit more free time. In the meantime, there must be a huge backlog of comments waiting to be made. The Monday Message Board has slipped a fair way down the page, so I suggest that non-specific comments be posted in the thread for this message.

Categories: General Tags:


February 19th, 2003 Comments off

The news that Australia has regained a AAA credit rating from Standard & Poors sounds good, but what does it mean?
The direct benefits of a higher credit rating are quite small. Typically, a one-step upgrade reduces the interest rate on new bonds by about 20 basis points (0.2 percentage points) Hence, for a gross debt of $50 billion, the total benefit would be around $100 million per year, and this would only be realised when the entire outstanding debt had been rolled over at the new, lower rate. Such a gain could easily be outweighed by marginal timing variations in the issuing of new debt.

In view of the small direct benefits of a credit upgrading, the emphasis placed on credit ratings in the Australian policy debate must be attributed primarily to the view that credit ratings represent an impartial judgement of the soundness or otherwise of fiscal strategy. In general, it is true that policies that tend to have a favourable (or unfavourable) impact on the fiscal sustainability of government policy will also have a favourable (or unfavourable) impact on credit ratings. For example, the introduction of unfunded expenditure programs, or cuts in taxes that are not matched by expenditure savings will tend to reduce credit ratings.

However, this argument does not apply in all cases. Credit ratings are designed specifically to inform and protect the holders of government debt. Policies that specifically improve the position of holders of government debt will be viewed favourably by credit rating agencies even if they are harmful to the state as a whole. In particular, reductions in the level of debt will tend to improve credit ratings even if they are financed by inefficient taxes and charges or by the sale of income-earning assets at inadequate prices. The imposition of inefficient taxes and charges will tend to discourage investment and employment while the sale of income-earning assets at inadequate prices will reduce the net worth of the public sector and, ultimately, the capacity to provide public services, even though both measures may improve credit ratings.

Similarly, a government will generally improve its credit rating by forgoing investment opportunities, even if the investments have an expected rate of return well above the cost of capital. The same is true for corporations, and it is one reason why very few corporations now seek to maintain a AAA rating – the cost in terms of foregone investments exceeds the benefits.

Corporations that do maintain a AAA rating are generally involved in financial activities where such a rating is required by regulation or where a short-term loss of confidence could prove fatal. Confidence is important to governments too. However, the availability of the taxing power means that there is no real danger of a run on government debt until finances get in really bad shape – far below the AA levels that have provoked concern in Australia.

Categories: General Tags:

Checks and balances

February 18th, 2003 Comments off

In a comment on my Fin Op-ed piece on the aborted Telstra inquiry (coming to the Web Site soon – I plan to try and move to a two-week lag), Gary Sauer-Thompson discusses the broader issue of executive dominance over Parliament and endorses checks and balances and the role of the Senate. As a ‘born-again’ process conservative, I agree.
In fact, I think the system we have evolved with a constituency-based lower house that can generally provide stable executive government, combined with an upper house, elected on the basis of proportional representation and having a veto on legislation is a pretty good compromise. I’m also glad we have a federal rather than a unitary system of government. On the other hand, I don’t think the intersection of these two, that is the fact that the Senate is elected on a State basis is desirable, though it’s not so undesirable as to justify the massive changes that would be required to fix it. A proportional representation system with the whole nation as a single electorate would be preferable.

Update Ken Parish responds, making the point that the system I propose might lower the quota for election to the point where numerous fringe candidates can be elected. He suggests that the quota for election would fall from 14 per cent in a standard half-Senate election at present to near 1 per cent. Actually I think the correct number would be closer to 3 per cent, but Ken’s point is valid. However, his argument assumes we make no changes to the existing Hare-Clark system. It would be easy to impose a requirement for, say, a 5 per cent primary vote, and lots of PR systems in use around the world do this.

I should emphasise that there is no chance of this actually happening. Although Tasmania is, as far as I can tell, the only state that has ever actually gained any benefit from being over-represented in the Senate (and then only for the brief period when Brian Harradine’s vote was critical) the smaller states would undoubtedly oppose this deal. Since the benefits would be pretty modest, I can’t see it ever happening. Gradual growth may get us to the point where the quota is 10 per cent (9 senators per state) or a bit less, which would give more accurate representation than at present.

Categories: General Tags:

Puzzling good news on Iraq

February 18th, 2003 Comments off

A lot of reports are suggesting that Britain and the US will propose the kind of UN resolution I’ve been advocating (and, on my optimistic days, predicting) for some time. The Economist says:

Along with Britain, America is working on its own version of a second resolution. Instead of asking for a clear mandate to topple Saddam by force, this could set a series of last-minute tests for the Iraqi regime—such as the immediate dismantling of missiles which, the inspectors say, have a range greater than that allowed under UN rules. If Iraq failed to pass these final tests, America would argue that Saddam had well and truly blown his last chance.

The game-theoretic analysis I’ve been proposing suggests that Saddam will in fact destroy the missiles. If he refuses, the missiles will be destroyed in the first five minutes of the war and he will probably be killed not too long after that. Working back, it follows that the supporters of inspection at the UNSC will agree to the resolution. Given that inspections backed by the threat of force will then be shown to be working, war will go on the backburner, probably until after the Northern summer.

This good news, but it raises a puzzle. If the analysis above is right, why would the US Administration put up such a resolution?

One reason would be that they sincerely want peace and disarmament. No comment.

Another is that they hope to include some demand which Saddam either won’t or can’t meet. In this context, the removal of conditions on U2 flights has been mooted. Given that U2 flights are already happening under the same conditions as in the pre-98 inspection regime, an attempt to change the terms now doesn’t seem like a goer.

A more plausible possibility is a demand for more unchaperoned interviews, but it seems unlikely on recent evidence that this is going to prove an ultimate sticking point. A requirement for documented evidence on the ‘missing’ weapons seems more critical, but is much more subjective. Some documents have already been produced, but aren’t adequate according to Blix. It seems unlikely that a demand of this kind will produce either an outright rejection or clear noncompliance in the short term (‘weeks rather than months’ in the words of the current cliche).

A third possibility is that we are seeing another misjudgement of Saddam’s responses. The US has clearly been surprised by Saddam’s willingness to back down, first on readmitting inspectors, then on inspections of Presidential palaces, then on interviews and U2 flights.

Having made disarmament the central basis of a casus belli, the US is finding that there is little alternative to seeing it through. In practice this means presenting Saddam with a series of clearly specified demands until either:
(a) he refuses the demands
(b) a substantial quantity of undeclared weapons is discovered
(c) the inspectors reach the conclusion that Iraq really has disarmed

Perhaps this process will be slow. But, it would surely be better for the US to wait a few months and have either a ‘smoking gun’ or clear Iraqi defiance of the UNSC than to rush to war on the basis of a subjective judgement about non-cooperation that is rejected by most UNSC members and the great majority of the world’s population. This point is argued forcefully by Jack Balkin and, surprisingly perhaps, endorsed by Ken Parish.

Categories: General Tags:

Yet more new on the website

February 18th, 2003 Comments off

I’ve now worked through the backlog of AFR opinion pieces. The most recent one to be posted is A deal not in our interest from 30 January 2003, dealing with the proposed Free Trade Agreement between Australia and the US. The main point is

On the Australian side, there are hardly any traditional barriers left to remove. We still have tariffs on textiles, clothing, footwear and motor vehicles, but these industries are just as beleaguered in the US as they are here, and any impact on trade will be small.

What, then, does the US want from us? One issue stressed by Trade Representative Robert Zoellick is ‘intellectual property’. To see what this might mean in practice, we need to look at the case of Eldred vs Ashcroft, decided recently by the US Supreme Court.

This case was a constitutional challenge to a recent Act of Congress which extended the term of copyright protection from fifty years after the death of the author to seventy years (ninety-five for corporations). The ‘Copyright Term Extension Act’ is often referred to as the ‘Mickey Mouse Act’ because of the observation that the term of copyright is extended whenever the Disney copyright on Mickey is about to lapse.

The constitutional challenge failed, but the case did elicit an unusual degree of interest from American economists , seventeen of whom submitted a brief to the Supreme Court opposing the Act. The list is striking not only because of the eminence of the signatories (five Nobel Prizes and more to come) but because it represents all shades of economic opinion from free-market luminaries like Buchanan, Coase and Friedman to interventionists like Akerlof and Arrow.

Australia still has the term of copyright fixed at fifty years after the author’s death and publishers interested in making public-domain works accessible to the general public are increasingly taking advantage of this. There can be little doubt that the negotiating demands of the US in any agreement will include an extension of our copyright terms.

Jason Soon commented on this piece when it came out, referring to me and Kim Weatherall (who shares these concerns)as ‘Cassandras of academe’. As I’m sure Jason is aware, Cassandra was subject to the curse that her prophecies would be always right and always ignored.

Update Scott Wickstein responds, arguing that bad copyright laws would be a small price to pay for “20 years worth easy access to US markets for our farmers? ” On the implausible assumption that the US will in fact offer this, he may be right. But Scott’s argument reinforces my main point, which is in the opening para of the article

Advocates of agreements for freer trade have had an easy run in Australia in recent decades. In much of the world, such agreements are seen as a form of barter – we give up our trade barriers in return for you giving up yours. By contrast, standard trade theory tells us that, as a general rule, we benefit from reducing our trade barriers regardless of what other countries do.

In this case, as Scott concedes, we are essentially engaged in barter. Fine if we get a good deal, but on past experience of US-Australia agreements, I doubt it. Ken Parish who’s moved yet again (making the shift to MT that I only talk about), has more useful discussion on this.

Categories: General Tags:

New on the website

February 18th, 2003 Comments off

From the AFR on 16 January 2003, a piece called Our worst policy failure. Concluding para is:

At no time since the election of the current government has unemployment been an issue of real concern. Second-order trivia like the GST and waterfront reform have had far more attention. And, sadly, the Australian public has become inured to chronic mass unemployment. In the absence of a severe economic downturn, the government will pay no real political price for its worst policy failure.

Categories: General Tags:

Is Saddam defensible ?

February 17th, 2003 Comments off

In my last post, commenting on Tony Blair’s moral case for war against Saddam, I accepted Blair’s claim that Saddam’s war of aggression against Iran, involving the extensive use of poison gas and the loss of hundreds of thousand of lives was an indefensible crime against humanity. But it can be defended, as witness this counterargument:

Opposition to communism and the rampant Islamic fundamentalism of the Ayatollah Khomeini might actually have required an expedient war. The real world must never intrude into Quigginland. All must be black and white, no room for shades of grey or difficult moral choices where evil will be done either way – we simply avert our eyes and ignore the evil flowing from the choice that our ideological prejudice dictates should have been taken.

OK, I cheated a bit. In the original, this was a defence of the US alliance with Saddam in the war against Iran, and had the phrase expedient alliance in place of expedient war. Still the defence works just as well for Saddam as for Reagan and Bush Sr, and the basic point is pretty clear. If you want to justify a war against Iraq don’t do as Blair did and invoke considerations of morality. Above all, don’t do as Quiggin did and try to assess what a moral case for war would really involve.

PS: In the continued absence of Haloscan, Ken and I have ratcheted up the thermostat, to make up for the absence of the redhot barbs that normally fill our comments threads. Civilised discussion will resume shortly.

Categories: General Tags:

Blair's case for war

February 17th, 2003 Comments off

Like millions of others, I went to a peace rally yesterday. There were about 50 000 people in Brisbane*. I think it’s clear that the case for an immediate war aimed at getting rid of Saddam’s weapons of mass destruction has not convinced the majority of Australians. That could change, given new evidence, but it’s clearly going to take a lot more than we have seen so far.

[* Crowd estimates are always tricky. The march took about an hour to pass any given point. Assuming 15 people per second passed each point (the marchers were about 15 abreast) that would make 3600*15= 54 000.]

Faced with similar protests in Britain, Blair switched to the moral case that has been his primary motivation all along – that Saddam is an evil dictator who has caused immense suffering in a sequence of wars and that his overthrow would be a blessing. This is a strong case, but it implies a totally different approach than that adopted over the last year.

A starting point would be an admission by the US government that it actively assisted or passively encouraged Saddam in the commission of his worst single crime – the war of aggression he launched against Iran, in which he made extensive use of chemical weapons. When Blair correctly says that Saddam’s wars have killed more people than were marching in London, he should be remined of this. I don’t say that the past crimes of the US government mean that it should not do anything about Saddam now, but an open declaration of the US role and an apology for US complicity are necessary if the moral case against Saddam is to have any standing.

The second requirement is for some sort of just basis for asserting that a particular leader is a criminal who deserves to be overthrown. We have such a basis in the International Criminal Court, in which Britain is a participant. Blair should demand that Saddam be tried before this court. Of course, a precondition is that the US should drop its own objections.

Third, there is the problem of equal justice.The moral case against Saddam is compromised by US complicity in the occupation of Palestine. If Bush were to demand acceptance by both sides in this dispute of a peace plan similar to that put up by Clinton and back his demand by a threat of sanctions and a willingness to enforce an agreed peace, the moral case against Saddam would be lot stronger.

Finally, there is the problem of multiple agendas. A moral case for war can be made only by forgoing all attempts at seeking strategic or economic side-benefits. Yet many (most) of the US commentators supporting war are pointing to such benefits as a primary or secondary motivation. A moral case would require a clear commitment not to use Iraqi oil to the benefit of the US, not to use Iraqi territory as a base for further military action, not to make side deals with countries like Turkey etc. So far none of this has been forthcoming.

To summarise, a moral case for war requires clean hands. Arguably Blair has clean hands on this issue. Bush certainly does not.

Update Ken Parish responds, missing the point pretty thoroughly in my view. I’m not claiming that the moral case for war is the only possible one. War can be justified as a defensive response to aggression. In fact, the interpetation of international law prevailing until very recently suggested that this is the only justifiable ground for war. In this case, the considerations I’ve set out above are largely irrelevant.

A second possible case for war has arisen recently, namely that clear and direct defiance of the UN could justify military actions to enforce its resolutions. Since this case lowers the bar for war substantially, it requires convincing evidence. At the moment, the evidence hasn’t been enough to convince anyone who wasn’t already committed to war. In particular, only a handful of members of the UNSC accept it. This could change, for example, if Saddam refuses to destroy missiles, but the need for a clear case can’t be brushed aside on the basis that the US wants to fight before the weather gets too hot.

The claim that there is a moral case for war is quite different to either of the two considered previously. This claim is that war can be justified simply on the basis that the government to be overthrown is a bad one. I’m sympathetic to this claim in principle, but it’s obviously an idea that needs to be handled with extreme care. It must require more than a decision by one government that some other government ought to be overthrown. That’s why I suggested a range of considerations that would apply in this case, broadly summed up as the need for ‘clean hands’.

Ken argues that all of these conditions are totally unrealistic. I’d argue on the contrary that few of them would be particularly problematic for Blair. He’s joined the ICC, supports pressure on Israel for a peace with the Palestinians, does not appear to be seeking strategic or commercial advantage and so on.

Ken argues for a consequentialist justification of war, namely that it is justified whenever the anticipated benefits outweigh the costs. Although he covers himself with the caveat ‘That sort of exercise is not without its own difficulties when many of the consequences can’t easily be measured with precision in advance’ he doesn’t ask who is to make the judgement. The implicit answer is that the government that decides to go to war should make it. I’d suggest that, given this answer, every war in history would pass Ken’s test.

Categories: General Tags:

Monday Message Board – Manual backup

February 17th, 2003 Comments off

Haloscan, my commenting facility, is still out of action. The site says they ran into problems while trying to fix the server. I have a bad feeling about this, and I wish there was an easy way to save and archive my comments. However, there is some progress – comments are now readable although posting is still disabled.

For the moment, Monday Message Board is moving to manual backup. Email me your thoughts on any topic, and I’ll post them in batches as I get time.

Categories: General Tags:

What I'm reading and more

February 16th, 2003 Comments off

QED by Richard Feynmann explains the basic principles behind quantum electrodynamics without any of the nasty integrals required to actually work anything out. Quantum theory has been the subject of a lot of confusion and outright mysticism starting with Heisenberg, but for anyone comfortable with probability theory there’s nothing fundamentally counterintuitive about it.

Subatomic phenomena are better described in terms of probability distributions than as miniature versions of macroscopic phenomena like waves and particles. Taking a ‘particle-like’ observation amounts to collapsing a distribution to a point mass in one dimension, leaving an uncertain distribution in another dimension. So far so good. It would be nice to actually be able to work this kind of thing out, and if I ever have a few years to spare, I’ll learn this.

I’m also converting my CD collection to MP3 files for my iPod. I want to move on the more challenging problem of my old LPs next. My turntable just died, but I was pleasantly surprised to discover that Tandy’s still stocks them at very reasonable prices. Anyway, if anyone has experience of converting LPs to MP3s, particularly using a Mac, they’re welcome to email me.

Categories: General Tags:

Haloscan chewing comments again

February 16th, 2003 Comments off

The comments thread has been particularly lively and informative over the past few days. So of course, Haloscan is having one of its now-routine episodes of comment-chewing. On past experience, the comments will reappear later, but comments posted in the interim (that is, now) will be lost forever.

I’ve been putting off moving to MT, despite some valuable advice and offers of help, but I won’t be able to do so much longer. Once I’ve got the main website transition completed and the backlog of files down to a manageable level, I plan to make the shift.

Categories: General Tags:


February 15th, 2003 Comments off

One thing that interests me in discussions of the UNSC is that France, China and Russia are always mentioned as having veto power. But no-one ever mentions the possibility that the US may end up vetoing a UN resolution, say, one calling for another four weeks of inspections.

Categories: General Tags:

George Bush is not "America"

February 15th, 2003 Comments off

In a series of recent posts, Ken Parish has attacked critics of George Bush and his Administration as “anti-American”. The targets have included the Labor Opposition, columnists like Ken Davidson, and even Americans like Maureen Dowd.

A major problem with this claim is that most though not all, critics of the Bush Administration were, and are, favorably inclined to its predecessor, at least as far as foreign policy is concerned. Conversely, attacks on Bush pale into insignificance by comparison with the vitriol poured on Clinton by his domestic and foreign opponents. As an example, Ken cites a Bunyip post, which attacks Clinton, as the source for his claim that Davidson’s piece, which praises Clinton and relies primarily on American sources, is “anti-American”.

It seems as if Ken’s steadily hardening pro-war position has clouded his judgement on this one. Only a couple of months ago, Ken himself was writing

I’m not usually impressed by Maureen Dowd’s journalism. However, her New York Times piece on President Bush’s appointment of Henry Kissinger to”investigate” America’s preparedness and actions leading up to September 11 is an exception. It’s succinct, well written and compelling.  I must admit I had harboured mixed feelings about the Bush administration until now (despite Paul Krugman’s convincing demolition of the Bush tax cuts), but in my book a government that associates itself with this cynical, thoroughly evil old man has definitively characterised its own values and aspirations.

The fact is that, for many opponents of war with Iraq, including me, distrust of the current Administration is one of the main issues. I simply don’t believe that the stated motives for the war are the real ones, and therefore that the promised outcomes will actually be delivered. By stigmatising all criticism of Bush as “anti-American”, Ken is stacking the deck in favour of war.

A separate claim is that, even if criticism of the current US Administration is legitimate in general, it’s not legitimate for an Australian government or alternative government. The difficulty here is that it’s generally accepted that Howard is going to do whatever the US Administration tells him to in relation to Iraq, and that any Australian government would probably be in the same position. In these circumstances, to say that criticism of the Administration is off-limits for Australians is to accept the role of a client state. Maybe that’s realistic, but it’s also humiliating.

Categories: General Tags:

Quiggin wrong on economists and tax cuts

February 15th, 2003 Comments off

Ina recent post on economists opposing Bush’s tax cuts, I predicted that few free-market economists would line up to support Bush’s budget. As “Anonymous Coward”* points out, I was way off the mark. The US Treasury has just released a statement by 250 supporters, including big names like Feldstein, Boskin, Mankiw and Meltzer. Since Feldstein has in the past been a big supporter of the ‘crowding out’ hypothesis, I’ll be interested to see if he puts forward a supporting analysis.

* This is the default identity from Slashdot and elsewhere, which has been popping up a bit in my comments thread. I’m going to treat AC as one person for the moment, but who knows. It could be yet another manifestation of the many-avatared Imre-Gudgeon-Bunyip-Parish complex, in which some commentators have sought to implicate me as well.

Update I wasn’t 100 per cent wrong. As the NYT points out, there are currently 5 Nobel winners at Chicago, none of whom signed either ad.

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Gittins wrong on household debt

February 15th, 2003 Comments off

I mostly agree with what Ross Gittins writes. But I think he’s off the mark in today’s SMH. Ross plays down concern about growing household debt, noting that it is more than offset by growth in assets. He writes

The value of all our houses accounts for more than 60 per cent ($2.1 trillion) of total assets and it’s been rising at the rate of more than 12 per cent a year. So rising house prices and strong investment in new housing account for most of the growth in our wealth.

The problem here is what’s sometimes called a fallacy of composition. Any one household can deal with a debt problem by reducing housing wealth (taking a second mortgage, or selling their house). But households collectively can’t do this, since the only potential buyers are other households.

What this means is that, far from being part of the solution to the debt problem, the increase in house prices is part of the problem. If there is a general increase in the difficulty of servicing household debt, for example arising from an increase in interest rates, individual households will respond rationally by seeking to sell their housing assets. But since households generally will be trying to do this, house prices will fall, exacerbating the original problem.

The longer house prices (more accurately, land prices) stay high, the more debt individual households will accumulate against their wealth and the worse the problem gets. In fact, having taken on a mortgage in my move to Brisbane, I’m part of the problem – you can’t beat the Zeitgeist I guess.

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Osama and the warbloggers

February 14th, 2003 Comments off

Quite a few pro-war bloggers, notably including Glenn Reynolds and Tim Blair, have opined that bin Laden is dead and that the recent tape is therefore a fake. I think that they are probably right. But this means, obviously, that the US intelligence analysts who declared the tape genuine are misinforming us, or aren’t very competent. So presumably when Powell presents us with audio evidence, vetted by US intelligence, we should be sceptical. For example, audio evidence of Iraqi officers discussing WMDs.

As far as I can tell, if we discard the phone intercepts, nothing in Powell’s dossier of a week ago is left intact. The in-depth British analysis of Iraqi intelligence turned out to be the products of a Google search, subjected to a quick and dirty piece of spin doctoring by Blair’s in-house team. The supposedly current data was actually a decade old. The Al Ansar chemical weapons factory turned out to be an invention of their local opponents. The Al Qaeda link was evaporating until someone decided to channel bin Laden himself to back it up. The photographs of trucks were photographs of trucks.

Maybe in all of this there’s something solid. But when even Tim Blair and Glenn Reynolds think the Administration is lying, it’s hard to see why anyone else should believe them.

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New on the website

February 14th, 2003 Comments off

The economic year ahead , Australian Financial Review , 2 January 2003

My predictions for 2003 with a look back at my record for 2002.

As regards the Australian economy, I have, like many others, been surprised by the length and strength of the bubble in housing prices. Fortunately, having learned from past experience that it is easier to diagnose a bubble than to tell when it will burst, I refrained from making any prediction about the timing of the bubble’s inevitable end.

It now seems clear, however, that the period of rapidly rising prices has come to an end. The optimistic view is that the boom will be followed by a plateau, rather than a collapse. However, as the Japanese experience suggests, a long period of stagnation can be just as painful as a short sharp shock. Prices are well above their equilibrium real values and, at current prices, the housing stock is well in excess of total demand. While it is impossible to predict the course of this adjustment, it is safe to predict that it will be unpleasant, at least for the housing and construction industries.

The big question for Australia is whether the strong performance of the past couple of years is a fortuitous by-product of the real estate bubble or a reflection of underlying economic strength resulting from microeconomic reform. I lean to the former explanation, and therefore to the view that a slowdown in housing and construction is likely to be transmitted to the broader economy.

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Tim Dunlop gets cromulent on Iraq

February 14th, 2003 Comments off
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Economists against tax cuts 3

February 14th, 2003 Comments off

A couple of days ago, I noted the normally equable Brad DeLong saying that the US was on the path to national bankruptcy. Here’s some similar observations from
Paul Krugman

If the administration gets what it wants, within a decade — or perhaps sooner — the United States will have budget fundamentals comparable to Brazil’s a year ago. The ratios of debt and deficits to G.D.P. won’t be all that high by historical standards, but the bond market will look ahead and see that things don’t add up: the rich have been promised low tax rates, middle-class baby boomers have been promised pensions and medical care, and the government can’t meet all those promises while paying interest on its debt. Fears that the government will solve its problem by inflating away its debt will drive up interest rates, worsening the deficit, and things will spiral out of control.

Ho hum, you may say, Krugman never has a good word for the Bushies. But Hal Varian is as moderate and reasonable as they come, and his piece starts

ALAN GREENSPAN, the Federal Reserve chairman, called the latest forecasts of budget deficits “sobering.” A better word might be “shocking.”

and ends

What will happen if nothing is done? If deficits continue to accumulate, the temptation to print money to pay our debts will become almost irresistible. Inflation is all too tempting as an “easy” way to avoid the political pain associated with tax increases or budget cuts.

All a president needs is a pliable Federal Reserve Board, and this can probably be arranged sometime in the next 10 or 15 years. Inflating away the debt is not pretty, but it may well end up being the most politically expedient solution to the burden of accumulated deficits.

Varian in turn quotes work by Auerbach, Gale, Orszag, Potter, highly respected economists associated with the Brookings Foundation (Democratic-leaning but centrist rather than left-liberal). Analysing projections from August 2002 (that is, without either an Iraq war or the latest Bush budget) they estimate a 10-year deficit of $5 trillion averaging about 4 per cent of GDP. The 2003 Budget and Iraq imply another $300 to $400 billion in annual deficits (3 to 4 per cent of GDP), suggesting a budget deficit well in excess of the 5 per cent rate generally regarded as signalling a descent into unsustainability.

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How important are Saddam's missiles?

February 14th, 2003 Comments off

According to this report, Saddam has developed missiles that have a range of 180km when he is limited by UN resolutions to a range of 150km. This isn’t important in itself, but it could be critical in the way that things play out from now on. Despite the noise Blair and Howard are already making, the breach won’t be sufficient to justify immediate war in the eyes of anyone who isn’t already committed to it. On the other hand, it is a clear breach.

The obvious next step is a UN resolution demanding that Saddam destroy the missiles. I expect this will be passed because it gives a lot of UN members a potential escape from their dilemmas. If there is a resolution and Saddam doesn’t destroy the missiles, all those who have been on the fence will be able to support a war. On the other hand, if he does destroy the missiles, the position of the doves will be greatly strengthened. So the French have a strong incentive to support a resolution of this kind – they clearly
(a) are not fundamentally opposed to war
(b) do not want to be seen to bow to the US

A clear-cut demand will suit them very well in resolving the difficult position they are now in.

Blair needs a UN vote and this provides an obvious basis. And I suspect, given the difficulty of his current position, he would not be terribly upset if Saddam did destroy the missiles and put war off the agenda for a while . He could reasonably claim victory, in that British and US pressure was producing the desired outcomes (all this applies for Howard too, of course).

The people who will be unenthusiastic about this are those who want either war at any price or peace at any price. In principle, both parties should be confident that Saddam will jump the way they want, but he is too unpredictable for this.

The two Kevins (Drum and Batcho) have some related thoughts.

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Thought for Thursday

February 13th, 2003 Comments off

My piece in today’s Fin (Subscription required) is my reaction to Alston’s suppression of the Telstra inquiry and his lame defence of the status quo printed on Tuesday. As regular readers will know, I hate being conned (particularly being conned into pointless extra work during the summer break) and I say so, vigorously.

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Windschuttle yet again

February 13th, 2003 Comments off

In his Oz piece yesterday, Keith Windschuttle exhibits a pattern that has become the norm, making accusations against his opponents that apply as well, or better, to himself. He begins

[Michael] Duffy also observed ( The Daily Telegraph , December 21) that intellectuals on the Left “have always had a remarkable ability to switch arguments as soon as they sense they are losing”. The co-editor of the National Museum’s anthology, Bain Attwood, confirmed this ( The Australian , January 6) when he claimed there was nothing new about my rebuttal of the Aboriginal genocide thesis. Academic historians had already abandoned the concept of overt genocide for more focused, local analyses, he said, citing the work of Reynolds, Ryan and Dirk Moses.

Hence my book was no expose. “It’s just old news from a tabloid historian. Only those ignorant of the academic historiography – or unwilling to go and read it – could believe otherwise.” Moses himself followed Attwood ( The Australian , January 13), arguing that since I was “unable to describe historical writing accurately”, no one should trust anything I say.

True, Reynolds has admitted the colonial authorities did not intend genocide, which I acknowledged in my conference paper and twice in my book. Instead, however, Reynolds claims it was the Tasmanian settlers who wanted to exterminate them, which is why I devoted my longest chapter to analysing and disproving this claim.

But in relation to Reynolds, it’s Windschuttle who’s switching away from a lost argument,and misrepresening Attwood in the process. In his National Museum piece, he was asserting that Reynolds had made, then abandoned a claim of genocide.

Despite their denials, the very fact that the orthodox school has at last been publicly subjected to some sceptical questioning has already, in this brief period, led some of its practitioners to abandon some of their more outlandish claims. These developments include:

· Whereas Lyndall Ryan was still claiming in 1996 that the Tasmanian Aborigines were ‘victims of a conscious policy of genocide’, Henry Reynolds now disagrees. In his latest book, An Indelible Stain? , he has conceded that what happened to the Aborigines in Tasmania did not amount to genocide. [6] (emphasis added)

Windschuttle complains that Ryan has had a long time to answer his criticisms, but the clock is ticking for him too. His misrepresentation of Reynolds is one of a number of points where he’s been accused of error. So far his response on most points has been nothing but bluster.

In the spirit of practising what I preach, I will concede that I overstated the significance of Windschuttle’s misquotation of Lyndall Ryan (running two paras together and shifting the footnotes). However, I still think that
(i) When quoting someone’s words against them, no unacknowledged change is acceptable [added emphasis should be noted, omissions indicated with ellipses etc]. When a misquotation is identified in a case of this kind, and the person misquoted objects, they should have the benefit of any doubt
(ii) the effect of Windschuttle’s change was to strengthen a perception of deliberate dishonesty as opposed to sloppiness.

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A voice from beyond the grave

February 12th, 2003 Comments off

At the time of bin Laden’s first audio message, I wrote that I didn’t believe it

First, Al-Jazeera produces what is supposed to be a handwritten message from bin Laden, and now an audiotape, assessed by US authorities as ‘probably genuine’. If someone can smuggle a tape recorder into and out of whatever hole bin Laden is hiding in, why not a videocamera ? That would prove he’s alive, which seems to be the object of the exercise. I prefer the hypothesis that someone is producing spurious evidence of bin Laden’s survival and that the US is playing along, either because they’re the ones producing it, or for some other obscure motive. Of course, even if the evidence is spurious, bin Laden could still be alive.

Now bin Laden resurfaces, again without video, and sings in tune with Bush, saying that he’s arm-in-arm with Saddam or at least with the Iraqi people. This would certainly explain the first tape as “establishing character”. If it hadn’t been for that tape, no-one would believe that the current one was anything but a CIA forgery.

Unfortunately, we still can’t be absolutely sure that the tape isn’t genuine. After all, if he’s alive, bin Laden almost certainly wants war even more than Bush does. And, if he’s dead, the same would go for the surviving Al Qaeda leadership, who might also have produced such a tape.

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More about education

February 12th, 2003 Comments off

Andrew Norton replies further in the debate over the question of whether too many people are undertaking tertiary education. He raises quite a few points, to which I want to respond by setting out my view of the key issues. I’m going to focus exclusively on the instrumental view of education as a way of preparing people for the labour market – I’ll took about broader issues later (I hope).

My starting point is that the general trend of technology is to increase the demand for relatively skilled labour. This isn’t true always and everywhere, but it holds on average for any timescale from a decade to a century. So the proper question isn’t whether there are too many people getting tertiary education (or finishing high school, or whatever). It’s whether the growth in the number of people getting more education has temporarily outstripped the growth in demand for more educated workers. The signal that this is happening will normally be a compression in the wage distribution, more particularly a decline in the wage premium associated with higher levels of education. We haven’t seen any sign of this so far, if anything the reverse (of course, labour markets are complex and this outcome could result from other factors, such as the decline of unions).

In the long run though, we can assume that the labour market will demand more and more educated workers. A worrying possibility is that we might run out of people capable of benefiting from further education. Norton raises this point, specifically mentioning

high university drop-out rates for the weaker Year 12 students that would make up the bulk of any expansion in the system (suggesting it may simply be beyond many of them).

There’s no doubt that weaker students are struggling at present. But I don’t think we can conclude that we have reached the bottom of the barrel in terms of student ability. A far simpler explanation is that massive cuts in resources per student (about 50 per cent in universities over the last decade) have had the effect you would expect, with the weaker students suffering most.

This is clearest at the secondary level, where school completion rates fell sharply after cuts introduced by the Kennett government in Victoria and the Olsen government in South Australia. This outcome can’t be explained by a weaker student body, since the denominator in the completion rate is the entire age group. And some European countries are already managing school completion rates close to 100 per cent, with standards comparable to ours. The US has also had a norm of high-school completion for many years (hence the term ‘dropout’, which would have made no sense in Australia until very recently), though standards are variable.

Perhaps at some point we will run up against inherent limits in the intellectual capacity of the population. At the moment though, I’m more worried by the incapacity of those making education policy to accept that in this as in all other economic activities, lower inputs means lower outcomes.

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More new stuff on the website

February 12th, 2003 Comments off

My last AFR Op-ed for 2002, was The best case for Telstra, 19 December
Key sentence

Paradoxically, in the process of arguing for the privatisation of Telstra, the Howard government has provided some of the sharpest formulations of the case for renationalisation of Telstra’s core telecommunications business.

I’ll be having my say on Telstra again in tomorrow’s Fin.

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The Bunyip hunt is on again

February 12th, 2003 Comments off

The Great Bunyip hunt is on again. On 5 December, Tim Blair stirred the possums and other billabong beasts by posting a one-liner saying,
“IMRE, er, I mean Professor Bunyip – is back! “

This passed without mention, but along with a few other things, it left me with the view that Imre Saluszinsky is the best candidate for Bunyiphood we have – after all, how many born-again conservative academic Lennie Lower fans are there in Australia (I qualify on my own somewhat eccentric definition of “conservative”, but it isn’t me, honestly).

So when, commenting one of Ken Parish’s posts, I made the Freudian slip of typing “Imre” rather than “Bunyip”, I thought I’d do my own bit of stirring and leave it unchanged to see what happened.

Now Jason Soon has jumped into the fray, saying

Though I don’t have first hand confirmation of my guess, I do strongly believe (with literally close to 100% certainty) I know who the Bunyip is now, based on something that the Bunyip himself wrote in a relatively recent post. However, his secret is safe with me, the rest of Ozplogistan will have to continue their speculations.

Jason implies, but carefully doesn’t say, that his candidate is not Imre.

The standard secret identity question is ‘Have you ever seen them together’. Given that bloggers are virtual creatures, we can’t physically locate them, but we can expect that the pseudonymous identity won’t refer to the secret true identity and vice versa.

So let’s Google “Bunyip + Imre” and see what we get. That brings up this post where Professor Bunyip mentions an email from Imre to Tim Blair. The pseudonymous Professor refers to his putative alter-ego as “the Professor”, leaving the reader in a whirl of postmodern confusion.

A second Google hit, here starts

Imre Salusinszky hits a six

Both of these are from the very early days of Bunyip’s career. A boringly prosaic explanation is that Prof Bunyip, as a neophyte blogger, took a few weeks to realise that you don’t use a pseudonym to plug your real self, unless you want to be called a ‘sock puppet’, a cruel fate for a ferocious denizen of the deep. A more appealing interpretation is that these posts and Tim’s one-liner are all part of an elaborate prank. If so, I hope we don’t have to wait too long for the denouement.

Update Be sure to read the comments thread where, at least according to several well-informed commentators, the truth is revealed!

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