Archive for May, 2003

Be careful what you wish for

May 31st, 2003 1 comment

Matt at Bright Cold Day posted a couple of weeks ago on A function I wish Microsoft Word had, and set up this impressive mockup
A cool post, but I can just imagine how this would actually turn out. The function would be set on by default. Adjectives would be inserted based on some lookup function derived from a database of purple passages. In the manner of Dilbert’s pointy-haired boss, it would turn short, stubby sentences into elegant multi-topic ones. Before long, the world would be overwhelmed in Redmond’s idea of scintillating prose.

Update Kieran Healy tempts fate with an even more ambitious wish. I suspect that anyone granted the wish of a boss mind-reading function would be doomed to endless administrative work.

Categories: Mac & other computers Tags:

Duelling economists

May 30th, 2003 10 comments

For those interested, I’ll be featured in the ‘Duel’ segment of Saturday’s Fin, in combat with Wolfgang Kasper on the proposed Free Trade Agreement with the US.

Categories: Economic policy Tags:


May 30th, 2003 1 comment

I prodded Rob Schaap’s guilt buttons on the quiescence of his blog a while back, and he’s responded by adopting a device which I’ve occasionally used – reposting something from the Dark Ages (2002) when much of the current audience hadn’t yet discovered blogs.

Now it’s my turn to feel guilty for having said nothing for ages about the topics Rob covers so well – health and higher education. Stay tuned while I trawl through my archives and consider whether I can somehow distil a bunch of old posts into a sparkling new one, or just repost them and let you do the work.

Rob’s also put up new posts including the observation that “bearded men are rarely found in the usual course of Australian life these days”. I guess this is right, but, rather than going along with modern fashions, I’m sticking with all my hair. Once you start removing it, it seems that there is no agreed stopping point short of Brazilian-style total depilation.

Categories: Metablogging Tags:


May 29th, 2003 5 comments

My occasional correspondent, Graeme Bond, is as far as I know, the only other person in Australia to have pointed out in public (and in advance) that the Y2K panic was based on patently spurious arguments.

Not surprisingly, Graeme is also a sceptic about cyberterrorism and sent me this link to a story headed ASIO slams cyberterror ‘hype’. I’ve been a sporadic reader of The Crypt Newsletter, a debunker of computer-related panics, and can particularly recommend this story on how U.S. infowar commandos smuggled a deadly computer virus into Iraq inside a printer. Set to go off on April 1 of course.

UpdateLooking over my files, I realise that I forgot to mention Stewart Fist of The Australian who also debunked Y2K , and whose judgement in matters technological is usually reliable. Feel free to remind me of others I’ve omitted.

Categories: Mac & other computers Tags:

Economists v philosophers Round V

May 29th, 2003 16 comments

Matt Yglesias accepts my invitation to demonstrate the naivety of economic thinking about consequentialism. He proposes the following example

John is at the casino and he puts $100 on the number 12 spot at the roulette table. While the wheel is spinning, John dies suddenly. The body is removed and the casino manager finds John’s wife and sole heir Jane. The manager now needs to give Jane the money she’s inherited from John. Instead of just giving Jane the $100, however, he decides to cover the wheel and offer Jane the following choice. She can either choose to just take John’s $100 or else she can leave the $100 on the table and the manager will uncover the wheel. If it turns out that the ball has landed in the 12 slot Jane will get the $3,200 payoff, if not she will get nothing. Jane chooses to take the $100 so the manager gives it to her, then uncovers the wheel revealing that the ball had, in fact, landed on the 12.

Yglesias agrees that Jane adopted the correct decision procedure (since the odds were unfavorable), but nonetheless goes on to say

The purpose of the procedure, after all, is to get you the most money possible, and given these circumstances, Jane could have made more money by taking the bet. Thus, there is a sense in which Jane did the wrong thing

This example seems to me to suffer from exactly the same problems as the stock market example put up in the Stanford Encyclopedia of Philosophy which, the post informs me, is by Walter Sinnott-Armstrong .
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Categories: Regular Features Tags:

Risk and return redux

May 28th, 2003 2 comments

It seems as if the BlogGeist has suddenly focused on the issues of risk and income distribution – admittedly they’re hard to avoid with news of near-infinite payouts for failed chief executives (including Governors-General) being announced daily. At the same time as Ken Parish and I were discussing risk and income distribution, a very similar debate was taking place in the Antipodes (relative to Oz, of course).
Read more…

Categories: Economics - General Tags:

Word for Wednesday: Consequentialism definition

May 28th, 2003 5 comments

Consequentialism is the claim that we should judge the rightness of an action by the desirability of its consequences, as opposed, say, to its conformity with some concept of virtue or honour. As I mentioned last week, it is very closely tied to utilitarianism and is most appealing as a criterion for public policy rather than individual ethics or jurisprudence.

The big question in relation to consequentialism is how we assess the consequences of an action. And as usual there seems a huge divide between economists (particularly decision theorists) and philosophers on this point.
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Categories: Regular Features Tags:

Sharon on the road to Damascus

May 27th, 2003 14 comments

Like Gary Sauer-Thompson, I’m still trying to interpret Sharon’s apparent conversion to the cause of Palestinian statehood, after months in which he appeared to be doing his best to derail the “roadmap for peace”. Can Bush have really applied the pressure to achieve this? Or is it just another tactical retreat? We’ll have to wait and see, but for once there seems to be some ground for optimism

Categories: World Events Tags:

Fat and Mean

May 27th, 2003 8 comments

Ken Parish posts on the latest executive pay scandals, with plenty of detail. I have a couple of thoughts arising from this.

The first is that it’s not long since we were all being told about the new lean and mean corporate model, with its slimmed-down management. As recently as 1996, when the late David Gordon wrote Fat and Mean, pointing out that the opposite was true, it was correctly viewed as a contrarian attack on the conventional wisdom.

The second relates to the rhetoric about risk and return that still dominates much public debate. I remember reading some years ago that, contrary to this rhetoric, the income risk faced by senior executives was about the same, in proportional terms, as that faced by ordinary workers. The comparison by now must be massively in favor of the bosses. Once you’ve got a CEO-type position, you effectively have a job for life, with or without duties. Even if you get booted out the next week, you’re still paid for the rest of your life and beyond. The fact that virtually every CEO employment contract contains provisions of this kind speaks volumes about attitudes to risk

Categories: Economics - General Tags:

Reagan and consequences

May 27th, 2003 14 comments

In posting on utilitarianism and consequentialism a while back, I meant to get on to some relevant implications, but got sidetracked into some interesting disputes with political and legal philosophers. There’s a lot I need to do to shore up my position on the issues raised, but blogging is nonlinear, so I’m going to jump straight to some conclusions, with the plan of filling in the gaps later.

My first observation is that sensible use of consequentialist reasoning requires that we evaluate decisions in terms of the outcomes that could be seen as possible when the decision was made (preferably with probabilities attached, but that’s not always feasible) rather than on the basis of the outcome that actually took place.

To give an example, let’s suppose, as is commonly claimed, that Reagan’s military buildup was designed to force the Soviet rulers to undertake a matching buildup, wrecking their economy and thereby hastening the downfall of Communism. Such a policy obviously entailed a somewhat higher risk that the arms race would lead to nuclear war between NATO and the Warsaw Pact. I’ll be conservative and make the increase in risk one percentage point over the decade or so of the buildup. And I’ll suppose that the arms race brought forward the collapse of Communism by a full decade.

Considered in advance, and with these assumptions, Reagan’s policy was clearly a bad one. A nuclear war would have killed hundreds of millions of people and even a one per cent chance of such a disaster was too terrible a price to pay for the near-certain benefit of an early end to Communism.

Note that, if you focus on actual consequences, you’ll almost always support gambles of this kind. On the assumptions above, there’s a 99 per cent chance that the policy will pay off, as it did.

Categories: Politics (general) Tags:

Today's Fin

May 27th, 2003 9 comments

Lots of interesting stuff in today’s Fin
(subscription required). Tony Harris criticises the view that success justifies the lies that were used to get us into the war on Iraq (I’ll have more to say on this later).

The editorial, on the Free Trade Agreement with the US and its implications for copyright, for once agrees with me (and Kim Weatherall)

It would be a dismal irony if we were to sacrifice free trade in legal CDs, DVDs and software in the name of free trade.

. I said almost the same thing three months ago.

Also in the same area is a piece by the main supporter of the FTA, Alan Oxley, attacking Kyoto. Oxley doesn’t argue the merits. He just says that since the US is staying out, economies like those of Canada and Australia, closely tied to the US, will lose competitiveness by signing. Interestingly, nothing has been said about Kyoto in relation to the FTA, but I bet we are foreclosing a lot of options, such as taxes on carbon-intensive imports from nonsignatory countries (that is, the US).

Finally, there’s a letter from Michael Stutchbury, editor of the Oz, complaining that it appears that Fairfax columnists get a bonus every time they attack the Australian. If only!

Categories: Economics - General Tags:

Move completed

May 26th, 2003 2 comments

At the weekend, we unpacked the last box, and moved the last load of stuff between home and office. It’s almost six months to the day since we moved to Brisbane, and I can now declare the move complete. In my experience, six months is a bit better than average. I don’t plan to test my moving skills again any time soon, though. Brisbane is definitely the place for me.

PS: Talking of moves, I see that Tim Blair has made the move to MT. Well done!

Categories: Life in General Tags:

Monday Message Board

May 26th, 2003 17 comments

It’s time for the Monday Message Board, where everyone gets to have their say on any topic (civilised discussion and no coarse language please).

I’ve managed to avoid comment on the downfall of the GG, so perhaps commentators will fill this glaring gap in my blog. But, as always, comments on any topic are welcome.

Tuesday update Lots of suggestions for a new GG. I’m backing Reithy myself.

And the other subthread relates to Collingwood-hatred. Joining in from his new site, , Tim Blair asks “Why do they hate us”, and promptly demonstrates why, by linking to this shameless piece of Victorian imperialism.

Categories: Regular Features Tags:

What I'm reading

May 25th, 2003 5 comments

When All Else Fails: Government as the Ultimate Risk Manager by David Moss and The New Financial Order: Risk in the 21st century by Robert Shiller. These are both important books and I plan to review them in the near future.

I also watched Enigma on DVD, expecting it to be based on some combination of the breaking of the eponymous German code and the life of Alan Turing. Instead, it was dominated by an absurd spy thriller/action hero subplot – I should perhaps have been warned off by Tom Stoppard’s credit for the screenplay.

But watching this movie prompted a question. In movies of this kind, it’s necessary that the audience have some idea what’s actually involved in codebreaking (or similar esoteric devices). Surely there must be some other way of conveying the relevant info to us than to have one character ask a lot of dumb questions, giving another (usually the hero) a chance to deliver a lecture.

Categories: Regular Features Tags:

The innocent and the guilty

May 24th, 2003 8 comments

Tim Dunlop links to this report in the Christian Science Monitor providing survey estimates that the number of civilian deaths in the war on Iraq was between 5000 and 10 000. (Thanks also to Jack Strocchi who alerted me to the same piece).

Tim quotes the following claim from Bush

With new tactics and precision weapons, we can achieve military objectives without directing violence against civilians. No device of man can remove the tragedy from war; yet it is a great moral advance when the guilty have far more to fear from war than the innocent.

and implies that these figures may prove him wrong.

My view is that, if serving in the Iraqi army and obeying orders makes you ‘guilty’ then Bush’s claim has been validated. I think it’s clear that the number of Iraqi soldiers killed was many times greater than the number of civilians, and must have been in the tens of thousands. Many of these ‘guilty’ soldiers were conscripts, and all faced the threat of being shot for desertion if they did not fight. And civilians are still dying in large numbers as a result of the chaos produced by the war, including crime and breakdown of basic services.

The decision to overthrow Saddam by force and to impose a government of occupation has imposed a huge moral responsibility on the countries that took that decision. As I’ve argued previously, producing a sustainable Iraqi democracy will take years of effort and cost tens of billions of dollars. The US was prepared to spend the billions on war, but it has budgeted almost nothing for the peace.

Categories: World Events Tags:

The US slowdown

May 24th, 2003 2 comments

I missed this piece by Brad de Long when it came out in December last year, but Jack Strocchi sent it to me recently, and I thought it would be worth responding to now. The headline The Slow Countries and lead-in

US productivity keeps growing – right through the bust. So what’s wrong with Europe?

give the general flavor. Here and elsewhere, Brad focuses on technology-driven change in ICT-producing and ICT-using manufacturing manufacturing has grown even faster, and argues that the US has proved clearly superior to Europe in this respect. To the extent that he’s a pessimist, Brad worries about the fact that, with slow output growth, all this productivity growth is driving employment down in the US. Brad suggests that Europe may catch up to the US in the next growth cycle, but worries that ‘something in the water’ (that is, a combination of restrictive labor market policies and deflationary macro policies) will prevent this. I disagree with a lot of this and, to sharpen things up, I’ll argue for the polar opposite case, that we’re going to see the US converging towards Europe in important respects over the next few years.
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Categories: Economics - General Tags:

Bully for Billionaires

May 23rd, 2003 5 comments

Warren Buffett gets stuck into the Republicans over the greed of the rich in pushing for tax relief while paying less (proportionally) than almost anyone else. He also makes the obvious point that its the current account deficit and not the abandonment “strong dollar policy” that will ultimately drive down the US dollar, getting backup from fellow-billionaire George Soros

And while I’m saying nice things about billionaires, this Salon story says Bill Gates is giving away the bulk of his fortune mostly to people in poor countries. (Both Buffett and Soros are also notable for philanthropy).

At the very least, the latter report makes me feel less resentful about paying my Microsoft taxes (the effectively compulsory copy of Office I need primarily for file compatibility).

Going further, it makes me think about billionaires and egalitarianism. Certainly these guys are doing a lot of good with their money. And while there are other billionaires who don’t do anything positive, taken as a group the ultra-rich seem a lot more attractive than the merely rich, as represented, say, by the Bush administration. So perhaps a bit of inequality at the very top of the income distribution (a few billion-dollar fortunes and a corresponding reduction in the number of millionaires/multimillionaires) is not such a bad idea. With this much money it is possible for someone to a lot of good unilaterally.

Categories: Politics (general) Tags:

Thought for Thursday

May 22nd, 2003 8 comments

Readers of yesterday?s post Spin Cycle got a preview of my piece in today?s Fin (subscription required) and the debate in the comments thread has already anticipated some of the issues I raise. I commend a policy of higher taxes and more services to both parties. Here?s an extract

For Labor, a policy based on an explicit tax levy would provide a resolution of the inconsistency inherent in promising both the return of bracket creep and improvements in public services. Although such inconsistencies are par for the course in opposition, they will have to be resolved before Labor can present a credible program to the Australian electorate.

To take this course, Labor would have to drop the refrain that Howard’s is ?the highest taxing government in history?. The argument is bogged down in definitional disputes about whether the GST is a state or federal tax, and has gained no electoral traction.

By contrast, Crean’s proposals on health, education and the rehabilitation of the Murray-Darling have produced a strong positive response. In particular, the AC Nielsen Poll, showing Labor with 49 per cent of the two-party preferred vote is scarcely consistent with the view that the next election is unlosable for the government. With the right strategy, Labor would be a serious contender.

Looking back at the last ?unlosable? election, in 1993, it is evident that the threat to Medicare was a more potent issue than the much-overrated GST.
The government should also reconsider the wisdom of cutting taxes and services It might seem paradoxical to commend a policy of tax increases to the current government, but Howard and Costello have shown a surprising amount of flexibility on this score. Despite the disdain of economic purists, they have introduced a string of special-purpose hypothecated levies, and do not seem to have suffered electorally as a result.

Given the adverse reaction to the erosion of Medicare under this government, an increase in the Medicare levy to finance a return to bulk-billing would be a sensible political response. And, for a government that prides itself above all on not being like the Fraser government, it’s worth considering that Fraser scrapped Medicare and abandoned tax indexation. This government would do well to take the opposite course of action on both issues.

Categories: Oz Politics Tags:

Observa's story

May 21st, 2003 9 comments

Observa has sent me a further instalment of his story of his family’s brush with paedophilia. As he observes “it has been a difficult task for me to write about an emotive issue, when I am largely a facts and figures technocrat.” I agree with Observa’s comment in the Monday Message Board that:

“My view is that society needs to discard its sense of taboo on the subject of paedophilia and separate fact from fiction. The outcomes for individuals are too important to be swept under the carpet.”

This is obviously a difficult issue, and the comments about it have lacked the dogmatic certitude that characterizes a lot of blogging (including a fair bit of mine, I admit). I’ve collected the entire thread into a single post, which you can read below.
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Categories: Life in General Tags:

Spin Cycle

May 21st, 2003 11 comments

Responding to the post-budget opinion polls, most bloggers (myself included) have seen what they want to see Tim Dunlop focuses on the good news for Crean in the Age/SMH AC Nielsen Poll. Gareth Parker looks at the bad news in the Oz Newspoll, and Tim Blair (permalinks still bloggered) accuses the SMH of spin. As Rob Corr observes Tim B seems to have missed the fact that the SMH and Oz each have their own polls, both out on the same day.

But for the real spin story you have to visit the Newspoll site and read the raw poll numbers (downloadable as PDF). Newspoll found that 15 per cent of voters thought the budget would make them better off 38 per cent thought it would make no difference, and 32 per cent though it would make them worse off. This mildly negative result (fairly typical of responses over the 15 years Newspoll has asked this question) was spun by The Oz into a ringing endorsement ?53 per cent of voters thought the Budget would make them better off or no worse off ‘(emphasis added).

The AC Nielsen Poll asked a clearer question and got a clearer answer. Asked whether they would prefer the tax cuts announced in the budget or improvements in health and education, 20 per cent opted for the tax cuts and 77 per cent for improvements in services.

Categories: Oz Politics Tags:

Bloggers redux

May 20th, 2003 3 comments

Ken Parish is back from a short hiatus, with a string of excellent posts and a new co-blogger, Geoff Honnor. Also back on air is Gummo Trotsky, whose posts include the best demolition yet of Keith Windschuttle’s paean to David Stove in The Killing of History. Those still off-air, and missed by their devoted readers, include Rob Schaap and Carita Kazakoff. The dozens I haven’t mentioned in either category can flame me in the comment box, or better still by posting about and thereby supplying me with the links I crave.

Categories: Metablogging Tags:

Still Bemused Too

May 20th, 2003 Comments off

Brad de Long is Still Bemused

by the fact that there were 3.3 percent fewer hours worked in the nonfarm business sector in 2003:I (the first quarter of 2003) than in 2000:I. Such a prolonged shrinkage in hours worked–given America’s robust demographics–is an extraordinary labor market experience for the United States.

I’ve been thinking about this too, and, although I don’t have a fully worked-out story my view is that 2000 was exceptional, while 2003 is, in most respects, a return to normality. Looking at the decline in hours worked, between one-third and one-half is due to a decline in average hours per worker. This is a reversal of the historically unprecedented increase in average hours per worker that took place during the 1980s and 1990s.

At the same time, demand for labour was exceptionally strong. Employers were scouring remote rural areas, clamoring for access to prison labour and (Mickey Kaus’ favorite story) eager to take on former welfare recipients. The unemployment rate, at 4 per cent, was the lowest in recent times, but if anything that understates the tightness of the labour market. As things have slackened, there has been a big drop in participation

A final feature of the late 1990s was an incredible investment boom (the other side of the current account deficit). The result was that whereas labour productivity grew strongly in the late 1990s, multifactor productivity was relatively weak, a point that has attracted insufficient attention in assessments of the boom.

Not surprisingly, demand for labour was exceptionally strong. Everything fell in a heap when the bubble burst in 2001. As the investments in dotcoms and telecoms proved worthless, multifactor productivity actually fell. I would guess that MFP recovered a bit in 2002, but not much. Here’s some data I got from the Bureau of Labor Statistics MFP Home Page

Series Id:   MPU750023 (K)
Measure:     Multifactor Productivity (Index, 1996 = 100)
Sector:      Private Nonfarm Business


1991 94.8
1992 96.7
1993 97.2
1994 98.2
1995 98.6
1996 100.0
1997 101.0
1998 102.2
1999 102.9
2000 104.4
2001 103.3

Categories: Economics - General Tags:


May 20th, 2003 13 comments

I’m going to do an interview with the 7:30 report about the proposed Free Trade Agreement with the US. If my bit isn’t cut and the whole piece isn’t bumped for something hotter (both normal occurrences in my experience with TV) it should go to air this evening.

If you prefer text to video as an information source, you can get a pretty good idea of what I’m going to say here. For the pro-FTA case, you can go here.

Update As half-predicted, the interview didn’t go to air. Another day, perhaps.

Update 21/5 The piece went to air tonight with a couple of soundbites from me.

Categories: Economics - General Tags:

The New Corruption

May 19th, 2003 7 comments

Tim Dunlop has some interesting thoughts on a factoid reported by Kevin Drum that Australians are less likely to pay bribes than inhabitants of any other country. (the Finns, though, are said to be the least corrupt).

The closest I’ve ever come to paying a bribe is once when I had to collect a very heavy consignment of household goods from the Sydney wharves and a friendly wharfie forklifted the stuff onto our truck in return for a very modest backhander. (Even in this notorious milieu, I wouldn’t have known what to do if my Dad hadn’t been with me).

Although it’s not relevant, I can’t record resisting that on the same visit I saw a squashed Ferrari. One of a consignment of six it had been accidentally dropped from a great height, compressing its already low-slung profile to a height of about a metre.

In part, my limited acquaintance with bribery reflects the fact that I grew up mostly in Canberra. Until about a decade ago, federal politics in Australia was corruption-free to an amazing extent. Ministers of both parties lost their jobs over minor breaches of customs regulations, and the idea of bribing a public servant was pretty much unthinkable.

Things deteriorated in the later years of the Hawke-Keating government as it became expected that government ministers and senior public servants would move on to high-paying corporate jobs. It didn’t take long for people to work out that a few well-placed favors given out in office could be repaid with interest subsequently, and we’ve recently seen instances of blatant corruption at the ministerial and senior public service levels. (I won’t risk the first blog defamation case by naming names – Australian readers will know who I mean, and others wan’t care).

All of this has been accelerated by reforms (I don’t bother putting scare quotes around this much-abused word any more) which have grafted a US-style patronage system onto a Westminster system of unconstrained executive government. The logical outcome is a system with all the ill-effects of patronage, but without any of the checks and balances. This hasn’t yet come to pass – there are too many old-style public servants, and ministers haven’t yet realised the full extent of their power – but things are getting worse every year.

Categories: Oz Politics Tags:

Data mining redux

May 19th, 2003 5 comments

Daniel Davies (permalinks bloggered) has an excellent post on data mining, using everybody’s favorite example of dodgy research, John Lott. I discussed the same issue here and “with specific reference to Lott, here.

In practical terms, Davies suggests that economists should keep log books recording their estimation strategies. I’ve urged this kind of requirement in the past. The scandalous fact is, however, that in the great majority of cases, economists don’t even keep their datasets, at least not in a publicly accessible form. To be fair, Lott did at least make his data available, though he didn’t record the data mining that must have been necessary to derive results that were so uniformly favorable to his case.

Categories: Economics - General Tags:

Ageism and mathematics

May 19th, 2003 3 comments

For those of us who are “of a certain age”, it’s encouraging to read this piece presenting some evidence against the presumption that, in the words of GH Hardy, “mathematics is a young man’s game”. The gender part of this claim was debated a little while ago, in relation to the highly mathematized fields of economics and analytical philosophy. The age part of it is also interesting and is related, as Jordan Ellenberg points out to the idea that mathematical progress is a matter of huge intuitive leaps.

It’s striking that, whereas vast amounts of intellectual energy and research effort have been expended on determining whether gender differences in mathematical ability are biologically or socially determined, discussion about age differences is still at the level of casual conjecture. Since discussion is at this level, I’ll throw in the casual conjecture that age differences in research output and creativity are due at least as much to socially determined career structures, as to the biological effects of aging.

Categories: Books and culture Tags:

Rawls and Bentham

May 19th, 2003 4 comments

Rereading what I said earlier about Rawls and utilitarianism, I think it needs a correction. Rawls really is proposing something different in its approach from classical utilitarianism. In particular, his approach focuses attention on the idea that we might want to pay attention to things like the relative position of different individuals in society rather than simply aggregating utilities across individuals. The most popular way of making this operational has been with social welfare weights that depend on an individual’s rank-order according to some welfare measure. I’m very attracted to this idea, partly because it’s analogous to an idea I developed in the theory of choice under uncertainty called rank-dependent (expected) utility.

Confusion arises with Rawls’ treatment because the maximally risk-averse (or inequality-averse) form of rank-dependence is maximin, just ‘as it is for expected utility. There’s a nice paper on this by Udo Ebert ‘Rawls and Bentham reconciled? in Theory and Decision 24, 215?223.

The other issue is whether you view rank-dependent models of this kind as being alternatives to utilitarianism or generalisations/variants. In the theory of choice under uncertainty, some people (including me) like to talk about generalised expected utility theory while others talk about non-expected utility theory.

Categories: Dictionary Tags:

Monday Message Board

May 19th, 2003 16 comments

Another Monday, another Message Board. Now that everyone has forgotten about Iraq (except the Iraqis, of course), there’s lots to get our attention on all news fronts – universities, tree-clearing and the Murray-Darling – to name just a few. If I get time, I’ll post on these and other things, but why don’t you have your say first. As always, civilised discussion and no coarse language, please.

Categories: Regular Features Tags:

Bursting bubbles

May 18th, 2003 6 comments

It looks as though the US dollar bubble has finally burst. The rapid depreciation of the dollar in recent weeks has brought exchange rates closer to their long-term equilibrium level and is therefore a good thing, though of course there are both costs and benefits. My main interest for the moment is in pointing out that the bubble representations yet another refutation of the efficient markets hypothesis, this time for bond markets (which might be expected to be immune from some of the sources of inefficiency that affect stock markets, such as the influence of amateur ‘noise traders’.

As I pointed out last October,

If you accept that the $US has to depreciate at some time, then holding bonds denominated in $US, and paying interest rates lower than those obtainable in other currencies, is a dumb idea. Unless you think either that European governments are likely to default on their debt or that euroland is poised for inflation, eurobonds are a better bet, and similarly for Australian government bonds denominated in $A. But I’ve given up even the residual belief in the efficient markets hypothesis that would lead me to try and work out a coherent explanation of perverse asset prices.

The failure of the efficient markets hypothesis is not complete. As this NYT report says, the proportion of new issues of debt denominated in euros has risen sharply in the last few years (relative to the predecessor currencies, most notably the deutschmark), and is now about equal to that in dollars. Given that most debt issues involve rolling over existing debt, it’s likely that the majority of new debt is being denominated in euros, and that, as the report indicates, some holders of debt are shifting part of their portfolio into euros. But this kind of gradual adjustment is not what the efficient markets hypothesis would predict.

Update 21/5 Dean Baker at In These Times also considers bursting bubbles. He correctly traces the problems back to the Clinton boom. In addition to the stock market and the dollar, Baker is concerned about a bubble in housing prices. My instinct is to agree. But it’s worth noting that if there’s a bubble in the US, where real prices have risen 30 per cent, the situation here in Australia, where prices have nearly doubled in a lot of markets, is far more dangerous.

Categories: Economics - General Tags:

More on utilitarianism

May 17th, 2003 8 comments

There are a couple of things I really like about blogging compared to academic writing. The first is that the relatively terse nature of blogs means that you can take a firm position, without the thicket of qualifications and citations that are needed in academic writing. The other is that the usual boundaries between disciplines and between academics and non-academics are broken down. So I get to see how, for example, sociologists, legal philosophers and businesspeople react to arguments that would normally be confined to economists.

The responses to my short post on utilitarianism illustrated this
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Categories: Dictionary Tags: