Archive for July, 2003

The efficient markets hypothesis goes berserk

July 30th, 2003 12 comments

Keneth Miles, Brad de Long and a lot of slashdotters have been all over this report that the Pentagon was on the verge of setting up a futures market in terror attacks.

Apparently, the genius behind this idea is Admiral Poindexter of Iran-contra fame.

Leaving aside the obvious points about moral hazard and insider trading that have already been made, I’m impressed that the most magical version of the efficient markets hypothesis, in which markets can divine the future better than any individual, still holds sway in Washington in the wake of the bubble. Perhaps these guys have been in some sort of bunker since 1999. I wouldn’t be surprised to learn that they planned to run the thing over the Internet, have an IPO and use the billions of dollars they made to fund the Defense budget.

Categories: World Events Tags:

Oil and Economics

July 29th, 2003 24 comments

The issue of oil is still coming up as one of the issues regarding the war in Iraq, and US relations with the Middle East more generally. To get a bit of perspective on this it’s useful to look at some numbers. Currently world oil production is about 80 million barrels each day, of which the US consumes about 20 million. This is about a third of total energy consumption. (a useful conversion factor, if I have it right is that a million barrels of oil yields about 5 terajoules of energy, which is about the output of 10 1000MW power plants).

Saudi Arabia typically produces about 8 million barrels per day, but has the flexibility to range between about 6 and 10. Prewar Iraq was producing around 3 million barrels per day. An optimistic outlook is that a functional government there could produce up to 6 million barrels per day.

There are various ways of looking at this, which I’ll discuss, but a convenient starting point is to focus on a change of 3 million barrels a day in the supply-demand balance. This is the amount of extra Iraqi oil in the optimistic scenario, and was the amount that Saddam could have cut off at short notice if he’d been left in place and in unfettered control of Iraqi oil. It’s also a pretty good measure of Saudi capacity to swing the oil market around.

3 million barrels a day is equal to 15 per cent of US oil consumption and about 5 per cent of US energy consumption. Over the short run, say a year, it would be easy to meet such a shortfall by drawing on stocks (including the ‘strategic reserve’) and by modest rationing measures like ‘odds and evens’. To look at the longer-term economic impact, it’s best to think what tax change would be required to yield this kind of reduction in use. I’ll assume the medium-term elasticity of demand for oil products is about 0.5, which implies that a 30 per cent tax would be needed. Some more rough calculations, available on request, suggest that the economic welfare cost of such a tax would be around $10 billion per year. (This assumes that the price is right to start with. It seems more likely that gasoline is undertaxed in the US, relative to the social costs of car use, and that a tax would be welfare-improving.)

Clearly the cost of domestic action to reduce US oil demand by 3 million barrels a day is a lot less than the cost of the Iraq war (amortised over any plausible time span) or the continuing cost of an expanded military.

The upshot of all this is that any* analysis of the war that places heavy weight on the role of oil implies that the US has adopted a policy adverse to its own interests. This could be because the Administration doesn’t understand the issues, because it thinks a war would be more popular than a petrol tax or because it is acting at the behest of oil industry interest groups. Alternatively, it might be better to conclude that oil (Iraqi or Saudi) was not one of the primary motives for war.

* I leave aside the idea that Iraq is supposed to serve as a springboard for an invasion of Saudi Arabia. If the US wanted to invade Saudi Arabia, it could do so easily, with no need for a springboard, and 9/11 provided the best pretext that’s ever likely to arise.

Categories: World Events Tags:

Monday Message Board

July 27th, 2003 7 comments

I’m on the move again, to Montreal, so I don’t know when I’ll next be able to post. In the meantime, there’s the home-made fun and entertainment of the Monday Message Board. Post your views on any topic (civilised discussion and no coarse language, please!).

Suggested discussion starter: Collective blogs – is the whole more than the sum of its parts?

Categories: Regular Features Tags:

What I'm reading, and more

July 27th, 2003 7 comments

The Paradox of American Democracy: Elites, Special Interests, and the Betrayal of Public Trust by John Judis. This book was published in 2000, but the analysis is still relevant. What’s interesting, particularly from an Australian perspective, is that the book is not, as might be expected, a diatribe against elites and interest groups. Judis argues that the American system relies on participation by interest groups representing real constituencies and by disinterested elite groups – his models are the Brookings Institution and the Committee on Economic Development.

But now, Judis says, most interest groups have no real members, and are merely “letterhead groups” relying either on business lobbies or direct mail appeals for their funding, while the elites have capitulated to business. The result is a corrupt, money-driven system of politics.

The bad guys in the book are the lobbying industry (“K Street”, in the intra-Beltway jargon) and members of the elite who act as mouthpieces for partisan interests – the prime individual example is Henry Kissinger, and the main institutional villain is the American Enterprise Institute. Having never looked into the history of the Institute, I’ve accepted Brad de Long’s judgement that it was once a reputable, if conservatively-inclined outfit. By Judis’ account, though, it was always a front group for partisan conservatives, and so, its recent activities (discussed here, here and here) can be seen merely as revealing its true colours.

Judis’ analysis is quite US-specific, but it is still helpful in trying to work out an appropriate response to the Australian debate over “elites” most of which is at a very low level.

Categories: Books and culture Tags:

Spooky, or what?

July 27th, 2003 5 comments

I’ve previously mentioned my blogtwin relationship with Tim Dunlop. Not only do Tim and I have the same views on a lot of issues, but we often think of the same posts, to the point where, if I have a good idea, I try to check that Tim hasn’t already posted it.

With my visit to the DC area, the link seems to get even closer. I had a very enjoyable dinner with Tim and his family and (as is fairly typical of me) left my glasses at his house. Next morning, Tim noticed the glasses and I noticed their absence. The problem arising immediately was to pick the appropriately civilised time to call and arrange a return. Tim and I chose exactly the same time, with the result that he got an answering machine and I got a busy signal. Fortunately, it was all cleared up and I can see clearly now. But I can’t help worrying that the blogosphere is generating some sort of obscure psychic network here.

Categories: Metablogging Tags:

The GST and the hidden economy

July 26th, 2003 4 comments

This SMH report says the GST has done nothing to reduce the size of the hidden economy. I haven’t seen the original research on which the report is based. Also, although the reported method of looking at the volume of “unexplained” cash is widely-used in the literature on tax evasion, I have some technical difficulties with it. But the basic result is entirely predictable, and was in fact predicted by every competent economist who looked at the problem. Simon Grant and Stephen King (both then at ANU) did a nice analysis and someone else (can’t recall name right now) published much the same thing in the Economic Record.

I gave a less formal exposition in the Financial Review in 1996. The key point

The silliest of the claims made in support of substituting a GST for income taxes is that it will put a stop to tax evasion, of the kind practised, for example, by plumbers who are willing to charge a lower price in return for payment in cash. It should be obvious, at least to anyone trained in economics, that a change in names will change nothing; plumbers who fail to report their income to the Tax Office will also fail to report their sales to the officials responsible for the GST. For those who prefer a formal general equilibrium analysis, a paper by Simon Grant and Steven King proves that replacement of an income tax by a GST will make no difference in the extent or incidence of tax evasion.

It looks as if the data is finally in on this one.

Categories: Economic policy Tags:

Word rates

July 25th, 2003 6 comments

My model in work is Anthony Trollope who turned out 50 or 60 three-volume novels despite having, for most of his life, a full-time (admittedly, not very demanding) job at the Post Office (he invented the pillar-box). According to his autobiography, Trollope achieved his output with a writing stint of three hours per day, starting at 5am. He set a target rate, with the requirement to write more if he fell behind for a couple of ideas.

All of this sounds crass, at least to those impressed with the Romantic notion of spontaneous expression, but, for those of us who aren’t tortured genii, I think Trollope’s rules are spot-on. To adapt a favorite maxim of the Labor Party, write early, write often and write lots.

That said, I can’t really believe Trollope’s claim that he regularly wrote 250 words a quarter-hour for a three hour stretch. I imagine my methods are similar to his, in that I have my pieces turning over in my head for a fair while before I sit down to write them, and so, when things go well, I’m basically constrained only by typing speed. I can manage about 30 wpm with moderate error count, so that, in principle I ought to be able to beat Trollope’s output rate handily, 450 words to 250. But even the most modest cleaning up – correcting typos and grammatical errors, rearranging clumsy sentences and so on, is going to take 5 minutes in every 15, which cuts my maximum rate to 300 words per quarter hour.

And, while I’m not Flaubert, agonizing over “le mot juste”, I care about picking the right words and so, pretty clearly, did Trollope. I spent 30 seconds or so in the previous para thinking about whether to write “typos” or “minor errors”, and this kind of delay is bound to hit you every few sentences, even when you have the main ideas clear before you start.

All up, I consider myself pretty satisfied when I can turn out a 750-word column in an hour and a half, which is a rate of 125 words every quarter hour, or half what Trollope claims. Given that Trollope was writing by hand, and had to rewrite anything he wanted to change, I don’t believe he could consistently achieve twice that rate.

Trollope described his methods in his Autobiography, which he ensured was published posthumously. He knew that his production-line work ethic would shock the Victorian public, and I suspect he stretched the truth a bit to increase the shock value. (425 words, 45 minutes!)

Categories: Books and culture Tags:

Fixing the Murray (updated)

July 24th, 2003 10 comments

The need to rescue the Murray-Darling river system has given rise to some fairly outlandish cost estimates, as well as to the usual extremes of overdone pessimism and Panglossian optimism.

I thought of the following as a back-of-the-envelope exercise in cost estimation. Suppose the government bought back 1500GL of water at $40/ML/year, this would be an annual payment of $60 million, which could be financed from a capital sum of $1 billion at 6 per cent interest. I’d guess that increasing natural flows would solve about half the problem, which would imply a total cost of the order of $2 billion. This is incredibly crude, but I’d think the order of magnitude $1 billion – $10 billion is about right, and that we are likely to end up spending something around the low end of this range.

Update: My estimate doesn’t look too bad according to this report

Gary Sauer-Thompson has responded, arguing that the mess we’ve made of the Murray

puts into question the deployment of the modernist conception of the Baconian Enlightenment project by the liberal state to make Australia modern. This use of modernist science (reductionist and elimination of old ideas by new ones) involved an ahistorical, instrumental reason to improve the human condition coupled to an appeal to a tacit notion of progress. It has been thrown into question because its categories got things messed up

Categories: Environment Tags:


July 24th, 2003 12 comments

Everybody on both sides of the Iraq debate now seems to be agreed that the war wasn’t about weapons, and most people seem to be agreed that it wasn’t about terrorism. What’s left of the overt case put up before the war is the humanitarian argument that Saddam’s regime was so murderous that it needed to be ended, even if thousands of civilians and thousands more Iraqi soldiers died in the process. This was a minor element in the case put up by Bush and Howard, but a fairly major argument for Blair.

The latest tragic turn of events in Liberia gives us a good test of the extent to which Bush takes this argument seriously. The humanitarian payoff to intervention in Liberia would be far higher than in Iraq, and the cost far lower. Moreover, having been in effect the colonial power, the US could be expected to intervene even under the Cold War era rules where national sovereignty was supposed to preclude intervention except in cases, like the present one, of state failure.

When Bush went to Africa, he seemed set to announce a commitment, but now he looks to be going cold on the idea. A decision to do nothing would be a disaster for the US as well as for the Liberian people, especially if things turn really bad as they did when the French sat on their hands in Rwanda.

By comparison, Howard is looking relatively good. The decision to duck out of reconstruction in Iraq, about which I was pretty scathing at the time, can be justified in the light of the commitment to the Solomons.

Categories: World Events Tags:

Public choice = Marxism

July 23rd, 2003 11 comments

Henry Farrell at Crooked Timber posted some critical remarks on public choice theory, and Kieran Healy chimed in with a piece on “Shake’n'Bake social theory” of the general form “A is really B”. For example, public choice theory can be stated as “politics is really a market for votes”. All of this can be applied at the meta-level, in the form “Theory A is really Theory B, with a change of names”. As it happens, I’ve used precisely this move to argue, that “Public Choice theory is really the Marxist theory of the state, and the associated political program is really Leninism”.

The central points of the Marxist theory are

(1) Politics is about struggle between economic classes. The state acts in the interest of the capitalist class as a whole, and arbitrates differences among Îfractionsâ of capital;
(2) Political ideas (except Marxism) are Îideologiesâ designed to rationalise class rule;
(3) The masses acquiesce because of Îfalse consciousnessâ associated with submission to a dominant or Îhegemonicâ ideology.

Translating to public choice theory, we get:

(1) Politics is about the struggle between interest groups. The state responds to the pressure of organised interest groups, typically tight coalitions of producer groups. Log-rolling between these groups produces an outcome which benefits them collectively at the expense of taxpayers and consumers;
(2) Political ideas (except free-market ideas) are ideologies designed to rationalise policies serving various interest groups;
(3) Voters acquiesce because of Îrational ignoranceâ which leads them to take little in-terest in politics and makes them easily subject to manipulation by political interests.

On the Leninist implications of both theories

If ideas do not matter, free speech is at best a luxury and at worst a distraction. Even if speech is not actually suppressed, it is debased. When political debate is seen as a charade by its participants, it naturally becomes one. Furthermore, since the system cannot be changed by reason, some form of ‘short sharp shock’ is required. The result is a cult of ruthlessness (the catchphrase here is ‘tough decisions’). Since opposition to oneâs policies is interpreted as a sign that interest groups are being hurt, it may be taken as evidence of correctness. The correct response is not to persuade oneâs opponents, but to override them.

This was in a piece published in, of all places, the Centre for Independent Studies journal, Policy. The editor in those days, Michael James, was an interesting person – too interesting for the CIS in the end, as I recall.

I’ve done one piece of historical revision in the above story. I didn’t explicitly identify authoritarian Marxism with Leninism in this piece, and I owe the idea of ‘Market Leninism’ to New Zealand economist Brian Easton.

If you want to read the entire article, it’s posted below.

Read more…

Categories: Economics - General Tags:

Findings from America

July 23rd, 2003 6 comments

I’m on my annual visit to America. Although I’m literally inside the Beltway as I type this, I might as well be back in Brisbane as far as contact with the centres of power are concerned. (Actually, except at the very top, most of the powerful seem to live outside the Beltway, and commute). So I’ll just give some general impressions of how my slice of America seems on this visit:

1. Friendly. I made good friends when I lived here nearly 15 years ago and have kept them. In my experience, America is a really friendly place. Of the Australian cities I’ve lived in, only Brisbane has been friendlier (YMMV).

2. Fat. Even on the shortest of visits the prevalence of severe obesity is striking. Australia is said to be catching up on this respect, but on my unscientific sample we’ve got a long way to go.

3. Philanthropic. Visiting the Washington Mall and the National Gallery of Art, it’s striking that the building and all the paintings in it were donated. And of course admission is free, all in striking contrast with Australia. As Tim Dunlop observed to me when we had lunch (in person!), philanthropy has its limitations. It’s much better at providing ‘club goods’ enjoyed by the relatively well off than it is at transferring resources between social classes. I may post more on this some time

4. Fading flush of prosperity. The effects of the big boom are still evident but are fading. Beggars had disappeared from the streets last time I visited, but are now coming back, though still in small numbers compared to the early 90s. At the University of Maryland, where I’m visiting, spending cuts of the kind familiar to Australian academics are being imposed for the first time in years, but buildings commissioned during the boom are still going up.

Categories: Life in General Tags:

Calling for volunteers

July 22nd, 2003 12 comments

In keeping with the idea of slow blogging I mentioned a while ago, I’m going to respond to this two-week old speech by Costello, although other bloggers have already covered at length (From this large set, I’ll link, more or less randomly, to Steve Edwards).

Anyway, Costello is talking about social policy and volunteering and I just wanted to emphasise the point that the application of New Public Management/neoliberalism to the voluntary sector, exemplified by competitive tendering programs like the Jobs Network, makes volunteering utterly pointless. The only effect is to save money for the government while delivering a predefined set of services. In most cases, volunteers would be better off working overtime and sending a cheque to the Treasury.

I developed this point at length last time Costello had a progressive spell and I think the intervening period has only strengthened my case. Here’s the conclusion:

The core of the social contract was that those willing to make contributions of time and money were able, to some extent, to influence the aims and outcomes of public policy, and the way in which public services were delivered. Broadly speaking, government took responsibility for the delivery of basic services, and the efforts of the voluntary sector played a major role in determining what additional services were provided.

As far as monetary contributions to charitable causes are concerned, this is still the case. Although there are plenty of issues regarding the specific design of tax expenditures to promote charitable contributions (why, for example, a deduction rather than a rebate), the basic point that such expenditures are desirable has been accepted even by the dry economists of the Productivity Commission. Moreover it is clear enough that, if governments seek excessively tight control over the direction of subsidies for charitable contributions, the result will be to reduce the amount people are willing to give.

Unfortunately, the same logic has not been applied to voluntary contributions of time and effort. Governments have withdrawn from their role as a provider of core services and have cut back the provision of grants to voluntary groups and non-government organisations. Instead, they have instituted a regime of competitive tendering. In this system, voluntary groups are invited to bid to provide core public services at a lower cost than competitors which may be either for-profit private businesses or commercialised government businesses.

In this competitive environment, the main advantage possessed by non-profit organisation is the availability of volunteers willing to work unpaid, and of idealistic employees willing to accept less-than-market wages. By harnessing this source of unpaid or underpaid labour, governments can reduce the cost of service delivery.

In the long run, however, this is killing the goose that lays the golden egg. As competitive pressures are tightened, the original goals of voluntary organisations are subordinated to the need to meet tender specifications at the lowest possible cost. In the end, it does not really matter whether the tender is won by a voluntary organisation or a profit-oriented firm – the services delivered are those specified in the contract.

All of this is fine from the viewpoint of governments reaping cost savings, but what about the volunteers? Their unpaid labour is being used, not to provide additional services to the community, but to enable the government to provide existing (or, more often, reduced) services more cheaply. The ultimate outcome is to finance tax cuts for those who have chosen, in line with the government’s real beliefs, to maximise their own market incomes.

From the viewpoint of volunteers, this makes no sense. Even supposing they felt impelled to improve the government’s bottom line, they would be better off working overtime in regular jobs and sending the extra pay straight to the Treasury.

In practice, people are not so rational, and the tradition of voluntary effort will be eroded only gradually, but the growth of self-seeking over the past decade or so is plain for all to see. Governments of both political persuasions have promoted self-interest as the engine of progress, and leading political figures on both sides have embodied it in their personal behavior. At this point, calling for volunteers is the last refuge of a scoundrel.

Categories: Oz Politics Tags:

Time and distance

July 21st, 2003 19 comments

The frontpage of Monday’s SMH has a link to a multimedia piece, entitled “Journey to the Centre of the Universe”. I couldn’t make the link work, but the teaser text says everything I needed to know anyway. I reproduce it without comment

Take a spectacular 3D tour to the centre of our solar system. Normally it would take you 50 million light years, but we can get you there in three minutes.Ê

Categories: Science Tags:

Monday Message Board

July 21st, 2003 10 comments

I’m not sure if it’s time for Monday Message Board, as it’s still Sunday in Maryland. But I guess blogging has its own time, and this is an Australian blog. So open up with your comments on any topic (civilised discussion and no coarse language, please).

Categories: Regular Features Tags:

Interruption to service

July 19th, 2003 2 comments

I’m off to the (suburbs of the) heart of hegemonic hyperpower for a short visit. I expect to be back on air before too long, but until then, please converse peacably among yourselves.

Categories: Metablogging Tags:

Internationalism and intervention

July 19th, 2003 17 comments

Jason Soon links to this Telegraph report in which Blair and other centre-left leaders give an in-principle endorsement to internationalist military intervention, saying

Where a population is suffering serious harm, as a result of internal war, insurgency, repression or state failure, and the state in question is unwilling or unable to halt or avert it, the principle of non-intervention yields to the international responsibility to protect

Jason gives his own qualified support and says

I’d be interested to see how the usual suspects will react to it

. Like Jason, I have no love for national sovereignty arguments, and would welcome the emergence of the kind of international order that would permit intervention in cases of state failure or to overthrow repressive regimes. The danger is, of course, that without a clear framework of international law, the principle of intervention could be used to justify wars of revenge, conquest and so on.

Unfortunately, by his acquiescence in the Iraq war, Blair has discredited himself as an advocate of this kind of policy, and greatly eroded potential support for such a policy.

To get Blair on board, the US Administration went through UN processes in the expectation that they would produce an ultimatum that Saddam Hussein would defy. When, instead, Saddam acquiesced, Blair and Bush embarked on a campaign of lies and spin that included vigorous abuse of the UN Security Council. Even now, when it is clear that, on all the factual issues, the UNSC majority was right and Bush and Blair were wrong, there has been nothing resembling an admission of error.

In retrospect, there were two options available to Blair and consistent with his stated principles. One would have been to focus the attention on human rights issues from the start, and seek an international consensus for the overthrow of Saddam on the basis that he was an evil dictator. The problem here is that this would have required Saddam to be charged in the International Criminal Court, and the Americans would not allow this. The alternative would have been, having gone with the weapons inspections process, to stick with it to the end and accept the half a loaf of ensuring that Saddam’s weapons had been destroyed.

Until Blair recognises that the US determination to run the world without interfence is a greater obstacle to internationalist intervention than is residual support for national sovereignty, he’ll continue to flounder on issues of this kind.

Categories: World Events Tags:

A cascade down the Murray

July 18th, 2003 4 comments

The cascade mode of debate in which an initial post attracted comments, followed by responses, to which further responses were then attached, all indented with quotes, made the old USENet nearly unreadable. Blogs have generally avoided this style. The most notable exception, Fisking, seems to have gone out of style with the winding down of polemics about war and terrorism.

But, in a more civilised form, a question and answer cascade might be helpful. so I’m going to try it in response to Gary Sauer-Thompson’s response to my Murray post. I’ve put Gary’s contributions to the discussion in italics, a device not available in USENet days.

Gary says

John says:
I thought of the following as a back-of-the-envelope exercise in cost estimation. Suppose the government bought back 1500GL of water at $40/ML/year, this would be an annual payment of $60 million, which could be financed from a capital sum of $1 billion at 6 per cent interest. I’d guess that increasing natural flows would solve about half the problem, which would imply a total cost of the order of $2 billion. This is incredibly crude, but I’d think the order of magnitude $1 billion – $10 billion is about right, and that we are likely to end up spending something around the low end of this range.”

I have some queries.

First, this seems to imply that governments enter the water market each year and buy the 1500 gigalitres required for enviromental flows. Why that option? Why not reduce the cap by 10-12%. Why not buy back water licences permanently? Why not take farm land out of production–pay the farmers to leave?

I’m not proposing this as the optimal policy, just one that allows for easy cost estimation. Reducing the cap would have much the same effects, but costs would be borne by farmers rather than the community as a whole. One of the aims of my research project is to look at policies that give both a relatively low-cost (efficient) solution and an equitable sharing of costs and benefits.

Secondly, we have $1 billion for environmental flows and $1billion for the other half of the problem. What is the other half of the problem? Land restoration? Reducing water consumption? Shifting to sustainable agriculture?

Some combination of land restoration and more sustainable agriculture. Again, at this stage I’m just trying to estimate costs, not laying out concrete proposals

Thirdly, how do we go from $2 billion to $10 billion? Is this an insurance for the rapid rise in the cost of water due to increasing shortage?

This just reflects the imprecision of the exercise. I prefer to represent this imprecision in order of magnitude (log scale) terms, rather than as an additive error range.

Fourthly I appreciate its back of envelope calculations but John does talk in terms of “fixing” the Murray. It is not clear what ‘fixing’ means in this context. It is often suggested that the “fixing” problem is about the demand of the domestic consumers, who are unwilling to pay a higher price for their vegetables.

This was implied by Tricky (Ticky, actually) Fullerton in her 4 Corners Sold Down the River. Sure those living in the cities need to change their habits in the use of water, and we need to redesign our cities to make them more sustainable. But the centre of the “fixing “problem is the unsustainable agricultural practices of farming systems (wine industry) geared to exporting their products to an overseas markets.

I’ll look more into this, but I think you’ll find that, given tradable water and a reduction in total allocations, the big reduction in water use will be in irrigated pasture for dairying, which is mostly for domestic markets. Other likely losers of water are rice (mostly domestic) and cotton (mostly export). Horticultural crops like grapes are generally high-value uses of water

.The queries are offered in the spirit of dialogue and debate.

And the responses similarly.

Categories: Environment Tags:

Thought for Thursday

July 17th, 2003 10 comments

My column in today’s Fin (subscription required) is about work and work intensity. The takeaway

According to the Australian Bureau of Statistics. Average working hours for full-time employees increased from 42 to 45 hours a week between 1982 and the mid-1990s, levelled out, and have declined slightly over the past two years. It is reasonable to assume that work intensity has followed a broadly similar pattern.

The productivity statistics reflect the easing-off in effort. The best single measure is multifactor productivity, which takes account of capital inputs and working hours, but not of changes in work intensity. After two decades of fairly poor performance, ABS estimates of showed a strong increase in multifactor productivity from the end of the recession in 1992 to the late 1990s, when work hours and work intensity reached their peak.

In the last few years, however, as work intensity has eased off, so has (measured) productivity growth. The figures have bounced about, but the average rate of multifactor productivity growth since 1998-99 has been below 1 per cent.

Can the Howard government claim, then, to have delivered a relaxed and comfortable Australia? Certainly it could not do so on the basis of its first term in office. The government ditched its pre-election commitments as Înon-coreâ and used the Black Hole and the Commission of Audit to justify a new round of reforms and Budget cuts. But the pace of reform has eased significantly since then.

Many commentators have criticised the slowing pace of reform, arguing that it has contributed to slower productivity growth. They may be right, but a slowing pace of reform, along with worker resistance to the erosion of leisure time, has also contributed to more Îrelaxation and comfortâ.

Categories: General Tags:

Word for Wednesday: managerialism (again)

July 16th, 2003 11 comments

Nobody agreed with my attempt two weeks ago to link neoliberalism, and particularly ‘new public management’ with the ideology of managerialism, and the supporting academic ‘discipline’ of management as embodied most notably in MBA programs (for more on the reason scare quotes are appropriate see this piece by Henry Farrell).

I agree that the two are superficially dissimilar, and that their practitioners do not have much to say to one another. I also concede that my supporting argument, resting on the proposition that the two are united in opposition to professionalism was inadequate. Still, I believe it is an empirical fact that the two are generally found together and this fact can be given a theoretical basis. So I’m going to reformulate my argument.

The central assumption of new public sector management is that, if organisations are given the right (financial) incentives, they can deliver socially desirable outcomes without reliance either on direct political control or on any assumption that the organisation is committed to some concept of public service. In practice, in the sentence above the first occurrence of ‘organisation’ should be replaced by ‘managers of organisations’ while the second refers to the members of the organisation considered collectively.

So new public sector management embodies the hypothesis that managers can ensure that organisations pursue whatever objectives are determined for them by policymakers choice of incentives. From a free-market viewpoint, the most congenial way this hypothesis could be satisfied would be for the incentives to be transmitted from top management through the levels and departments organisation. In effect, this would imply a system of piecework with the prices mirroring the incentives chosen by policymakers. But if everything could be done by piecework, there would be no need for the organisation and particularly no need for the senior managers.

So in practice, new public sector management applies direct incentives only to top management and assumes that there exist a set of generic management skills that can produce the desired outcomes even when the individual interests of the organisation’ staff are not directly tied to those outcomes. So, new public sector management depends on managerialism.

The converse link is weaker, particularly since managerialism is first and foremost a private sector doctrine. However, it’s clear that, even in the private sector, managerialism and neoliberalism reinforce each other. Managers clearly get more of the autonomy they want in a neoliberal policy setting, and neoliberal policies of Îlight-handedâ regulation are justified by the assumption that, provided the rules of the game are set correctly, unfettered managerial discretion will yield the best possible outcome.

Categories: Dictionary Tags:

PM Lawrence on canals and railways

July 15th, 2003 1 comment

Occasionally my comments thread gets a contribution that deserves a fully-fledged post of its own. I posted one from Observa some time ago. Now regular commenter PM Lawrence has presented a history of transport in the UK, which I think deserves a bit more prominence than a comments thread.

Here is where it begins

As promised – an overview of the economic history of UK transport since the canal age (much omitted, obviously, e.g. no stage coaches or aircraft).

Of course, this should also provide some insights of wider applicability. I shall take the opportunity of making a few asides about things they told me during my Monash MBA studies that weren’t true, which I had more sense than to tell them at the time.

The idea and practice of canal building reached England in the late 17th century, from Holland, which had got them in turn from northern Italy (the term “canal” actually comes from the Italian).

Read more…

Categories: Economics - General Tags:

Monday Message Board

July 14th, 2003 34 comments

Roll up yet again for the Monday Message Board. All topics welcome, civilised discussion, no coarse language please.

Suggested discussion starter 1: Why do the great majority of visitors read blogs, but never comment?

Suggested discussion starter 2: What’s your favorite self-referential paradox?

Update Although others came close, Chris Sheil gets the prize for recognising the subtle link between my two topics. Anyone who comments on topic 1 instantly disqualifies themselves, since I want to find out what motivates non-commenters.

Further update Controversy rages in the comments thread, with some participants maintaining the c8to should have been given the prize, and others rejecting the identity politics inherent in my supposition that commenters are not qualified to comment on the motivations of noncommenters. All this makes James Russell’s head explode. Read, enjoy, and comment!

Categories: Regular Features Tags:

Libertarianism, continued

July 14th, 2003 6 comments

Jason Soon has settled down in London and written a long response to my post on libertarianism. I agree with his conclusion that

the non-purist libertarians can be seen simply as a species of utilitarians/consequentialist who have arrived at different results from their fellow utilitarians/consequentialists who end up as left-liberals or social democrats because of different interpretation of history/policy/economic paradigms.

and I didn’t intend to say anything inconsistent with this. My point, perhaps not stated clearly enough, was that acceptance of the liberal/consequentialist position of say JS Mill doesn’t imply a conclusion one way or the other on free markets vs social democracy, and Jason clearly agrees with this.

It’s clear from reading our blogs that, even though our views on policy issues are usually different, Jason and I are working within a common philosophical framework, and can therefore engag with each other’s arguments. By contrast, as I said in my critique, I find the claims of ‘purist’ libertarians to be fundamentally incoherent. And conversely, although I often agree with the postmodernist left on specific issues, I find it difficult to engage in any sort of debate in this framework.

There’s a bit more on libertarianism, from a newish member of the ubersportingpunditempire, Objectivist John McVey.

Categories: Philosophy Tags:

What I'm reading, and more

July 13th, 2003 4 comments

Riemann’s zeta function by HM Edwards (includes translation of Riemann’s original paper as an Appendix) . What with A Beautiful Mind and the proof of Fermat’s Last Theorem a few years back, the Riemann hypothesis is the last big maths question accessible to amateurs like myself. It’s hard going though – heaps of complex analysis applied to concepts as simple as those of prime numbers and factorials. In fact, the zeta function is a relatively simple modification of the factorial n!, extended from positive integers to complex numbers in general, and the Riemann hypothesis says that all zeros of this function lie on a given line. With a bit more work I hope to understand this better, and will try to post or link to a good explanation.

Meanwhile, Sunday being the day of religious observance in Australia, I finally did something about the change of religion I announced last year, taking the family out to the Gabba. I’m pleased to report an exciting victory by the Brisbane Lions over the Hawthorn Hawks, 14.9 (93) to 11.15 (81). As a neophyte, I was happy,if surprised, to learn that my new club song is to the stirring tune of La Marseillaise.This set me thinking about other possibilities -perhaps the Horst Wessel Lieder would fit Carlton and Rupert Murdoch’s rugby league teams could use The Star-Spangled Banner.

This was the first AFL game I’ve ever been to, and the first top-grade Aussie rules game I’ve been to since I followed West Torrens in the SANFL 40 or so years ago (In the intervening years, I’ve lived in rugby league territory almost continuously). Things have changed in all sorts of ways, but the change in relative prices is the most obvious. Back then (B&W) TV was a luxury while going to the footy was taken for granted. Today I could get a brand-new colour TV for the price I paid for tickets for the family (not the cheapest on offer, but nothing special). It’s not hard to explain given technology, wages and so on, but it’s striking nonetheless. And despite the prices, the ground was packed.

Categories: Books and culture Tags:

Producers and consumers

July 13th, 2003 11 comments

I was struck by a recent exchange in the comments thread to my post on libertarianism” in which commenter 24601 took violent exception to the suggestion by another participant in the debate that libertarians focused on the concerns of producers rather than consumers. This, 24601 said, was like asserting that libertarians are “greedy, nasty, evil people who like to kill babbies and don’t care about those silly consumers.”

Allowing for the overstatement characteristic of comment threads, this captures an important point about the free-market side of the policy debate in Australia. Concern with the interests of people considered as producers, in preference to the interests of the same people, considered as consumers, is regarded, quite literally, as evil.

I wrote about this in the Fin last year, also covering the themes of managerialism and professionalism. Some extracts

The last ten years have not been good ones for producers in Australia, whether the item produced is as basic and solid as steel or as abstract and intangible as academic research. Work is central to life, but disillusionment with and demoralisation about work has never been greater. Demoralisation is particularly evident among those groups of workers who derive meaning from theh good or service they produce, rather than just their paypacket. Examples include nurses, teachers and many workers in skilled trades.

It is not surprising that producers are having a hard time. Public policy has been dominated by economists who are openly hostile to ‘producer interests’ and see their mission quite explicitly as ‘shifting power from producers to consumers’. …

The fable of the straw that broke the camel’s back is, among other things, a warning about overburdening those who actually do the work. Economic reformers and enterprising managers have been adding straws to the bundle for at least a decade. It’s time to reduce the burden.

The alignment of free-market economics with a focus on consumers is not surprising. The most appealing feature of capitalism, after all, is the shopfront glittering with an unimaginable variety of goods. It’s during the eight (or nine or ten) hours a day spent producing those goods, if you have a job at all, that you get to see the less pleasant aspects of the system.

Categories: Economics - General Tags:

The economic record of the Howard government

July 12th, 2003 23 comments

I’m writing a chapter for a book on the Howard government, in which I’m assessing its economic policies. Here’s my draft conclusion (comments much appreciated).

The experience of seven years of nearly uninterrupted expansion under Howard, following three or four years of tentative economic recovery under Keating has given the government a reputation for good economic management. This reputation has been reinforced by the maintenance of low interest rates.

It is hard to see, however, that the government has contributed much to these outcomes. As in standard nowadays, the Reserve Bank is primarily responsible for the maintenance of macroeconomic stability. The Reserve Bank has judged monetary policy well since the mid-1990s, and, as a result, Australia has gradually recovered the ground lost in the 1989-92 recession.

But whereas the then Treasurer, Paul Keating, must share significant responsibility, along with the Reserve Bank, for the disastrous misjudgements that gave us ‘the recession we had to have’, the current government can claim little credit for the correct judgements of the Reserve Bank. It cannot even claim credit for not interferign. The policy of central bank independence has turned out well in Australia in the last, but it failed badly in New Zealand, where bad monetary policy contributed to a string of recessions in the 1990s.

In its first term in office, the government claimed credit for the decline in interest rates on the basis that the tight fiscal policies associated with the 1996 Budget cuts. The merits of the ‘crowding out’ hypothesis underlying this claim are debatable, particularly in a world of unrestricted capital movements.

More importantly, the government has abandoned any claims to fiscal rectitude since 2001 when it dissipated what remained of the budget surplus, Since then, the government has more or less officially adopted a zero budget balance (on whichever of the various accounting systems seems most appealing in any given year) as its target. This policy ensures that an economic downturn will produce large budget deficits and a substantial reduction in public sector net worth. If the government took its own rhetoric about fiscal prudence seriously it would be running surpluses to prepare for such an event.

Similarly at the microeconomic level, it is hard to see any basis for claims of superiority in economic management. The government has neither produced an alternative to the microeconomic reform agenda of its predecessors nor made any significant contribution of its own beyond the completion of unfinished business and some desultory swipes at the trade unions.

In retrospect, it seems likely that the long expansion of the 1990s will be viewed as a missed opportunity. Such a period of economic stability does not come along very often and is unlikely to persist indefinitely. Yet Australia has surprisingly little to show for this long period of prosperity, except for massive additions to an already impressive stock of housing, now valued at equally impressive prices. Unemployment has fallen a little but is still above the low points reached in previous expansions. No new initiative has been made to deal with the problems of financing retirement for an aging population; there has not even been much progress in tidying up the tangled web of policies inherited from the Keating government. The most important single investment in the future is education: if anything, we have gone backwards in this respect, particularly in relation particularly in relation to post-secondary education, the main area of Commonwealth responsibility.

In 1964, Donald Horne described Australia as ‘a lucky country, run by second-rate people who share its luck’. This epigram could be applied, with equal or greater justice, to the Howard government and its term in office, particularly as regards economic policy. Sooner or later, however, this kind of luck will run out.

Update Lots of useful comments already! I’m grateful for substantive, stylistic and typographical corrections and suggestions. As well, the comments thread has some good discussion of things like measures of unemployment. I’m very encouraged by this and will probably post more.

Categories: Economic policy Tags:


July 11th, 2003 6 comments

I’ve made some changes in the right-hand sidebar.

First, I’ve made the picture smaller in response to people who’ve had trouble with the sidebar sliding under the main posts (this happens if your viewing window is too small relative to teh (fixed) size of the picture).

Second, following the lead of Crooked Timber, I’ve replaced the list of the most recent 10 posts with a list of the 10 before that (thanks to Kieran Healy for advice on how to do this)

Third, I’ve replaced the 10 most recent comments with the 10 most recently-commented-on posts. (thanks to James Russell for advice on how to do this)

The main idea is to overcome the “top of the page” problem, by which attention is focused on the most recent two or three posts. I’d like to think that, as we get better at this kind of thing that we can maintain discussions running over weeks, rather than, as at present, a few days.

I’d very much appreciate your responses and suggestions

Categories: Metablogging Tags:

War and health

July 11th, 2003 9 comments

Also on Mark Kleiman’s blog

The Pentagon says the occupation of Iraq is going to cost about $50 billion per year, indefinitely. That’s not counting reconstruction costs. Keeping Afghanistan safe for its warlords is now costing about $10 billion per year. Can you imagine how much safer a world we’d have today if we’d been willing to spend half that much on rebuilding the fragments of the Soviet Empire in the years just after 1989? Or how much a tenth of that, well spent, could do for human and economic development in Africa? Or how big a horselaugh you would get if you proposed spending anything like those sums on an activity that didn’t also include killing people?

I made the identical point here (full text here, with some reasonably hard numbers

Consider, for example, the alternative option of allocating the money to improved health care or public safety. Under current conditions, marginal health care and public safety interventions in the United States typically cost around $5 million per life saved. Thus, if the direct war budget of $50 billion had been allocated to public health instead, the lives of around 10 000 Americans could have been saved.
…It seems certain, however, that the war will herald a sustained increase in military expenditure of at least $US100 billion per year. A more reasonable comparison, therefore, is the ambitious proposal of the Commission on Macroeconomics and Health, led by Harvard Economist Jeffrey Sachs. The Commission aimed to achieve, for all a poor countries, a two-thirds reduction of 1990 child mortality levels, a three-fourths reduction of 1990 maternal mortality ratios and an end to the rising prevalence of major diseases, especially HIV/AIDS.

As the Commission pointed out, in addition to the humanitarian benefits of saving as many as 8 million lives per year, reductions in mortality are directly correlated with a reduced frequency of military coups and state collapse. These provide the breeding ground for terrorism and dictatorship and ultimately lead, in many cases, lead to US military intervention. The estimated cost for the Commission’s seemingly-utopian program over the next decade is estimated at between $US 50 billion and $US 100 billion per year.

Of course, there’s nothing new here: the same point has been made over and over again for decades. What’s frustrating is that the advocates of war as public policy seem to have no answer to this except to dismiss it as politically unrealistic.

Categories: Politics (general) Tags:

Drugs and Prohibition

July 10th, 2003 4 comments

Via some critical responses from Kevin Drum, I found this piece by Mark Kleiman opposing the legalization of cocaine. There are some good arguments, and evidence, for drug prohibition. However, it’s crucial to apply a consistency test here. Most of the arguments and evidence that support prohibition of cocaine can also be used to support prohibition of alcohol. (Mark’s “adjustment costs” argument about unemployed coke dealers is an exception, but not, as Kevin notes, a very convincing one).

I wrote a piece for the Fin a while back, looking at the experience of Prohibition in the US and concluding as follows:

In summary, Prohibition produced greater benefits than the War on Drugs, at a lower cost in terms of crime and social dislocation. The idea that it is impossible to change the status of currently legal drugs, does not stand up to an examination of the evidence.

The real reason we will not even attempt to make society drug-free is that we do not want to. I don’t want to give up my evening gin-and-tonic, even if it does me more harm than good. Similarly, despite the appeal of ‘Just Say No’ and the priority placed on abstinence rather than risk reduction in other contexts, no-one seems to be suggesting the promotion of even voluntary abstinence from alcohol.

We are then, left with a paradox. Through the governments we elect, we are willing to turn our homes into fortresses and our streets into battlefields in order to maintain the illegal status of drugs that have been widely used for decades. But the same governments are unwilling to take even modest steps against drugs whose only distinguishing characteristics are a longer history of use and abuse, and the existence of influential producer and consumer lobbies.

I do not know whether our social acceptance of established drugs is a good thing. But until we are prepared to take a consistent position one way or the other, we should stop talking about sending messages. The only message our current policies send is that we are a bunch of hypocrites.

You can read the whole thing here

Update Mark Kleiman responds, suggesting

Even believing that alcohol, on balance, creates a net social deficit, I don’t actually believe that alcohol should be prohibited. Given the enormous user base for alcohol, its prohibition would be operationally nightmarish as well as politically infeasible. Instead, why not ban its sale to those previously convicted of alcohol-induced violence or repeated drunken driving? That ban wouldn’t be perfectly obeyed, but it would have some good effect nonetheless, and wouldn’t create another huge illicit market.

I’m not sure this particular policy would work, but I’m with Kleiman on the point that a pragmatic drug-by-drug policy is needed. I’m reasonably satisfied that this would imply more restrictions on alcohol (e.g. on advertising), further tightening on tobacco, some form of legalisation for widely-used illegal drugs like marijuana and ecstasy and harm minimisation for heroin (needle exchanges, injecting rooms and some form of legal provision for registered addicts). I don’t know much about cocaine – for reasons I don’t understand, it never seems to have become a big deal here.

Categories: Politics (general) Tags:

Libertarianism, again

July 9th, 2003 28 comments

With the exception of Chris Bertram, participants on all sides of the debate over libertarianism kicked off by Ken Parish seem to regard refuting Robert Nozick as being a bit of a cheap shot. As Perry de Havillard says in Brian Weatherson’s comments thread

Nozickâs are the weakest arguments for the whole libertarian edifice so donât congratulate yourself all too much on hitting such a large slow moving target.

So I think this is a good time to move on to more serious objections to libertarianism.

Read more…

Categories: Philosophy Tags:

Deja vu

July 9th, 2003 6 comments

A piece in today’s Oz opens with a slab that looks as if it’s been cut and pasted from a dozen previous outings

WHOM does the ALP represent and what is its core constituency?

Historically, the answer was the working class represented by the so-called Howard battlers in the western suburbs of Sydney and Melbourne.

Since the Whitlam ascendancy, this is no longer the case. Beginning in the 1970s and ’80s, the ALP, in Kim Beazley Sr’s colourful phrase, turned its back on the cream of the working class in its rush to embrace the dregs of the middle class.

What’s striking about this set of boilerplate is that it’s often, as in the present case, used in a piece advocating neoliberal policies that the pre-Whitlam Labor party would have rejected instinctively. I reviewed another example here.

In this case, Kevin Donnelly is advocating voucher-based support for private schools and up-front university fees. He says that these policies would benefit the working class and that it’s the middle-class nature of Labor’s current leadership that makes them oppose it.

It is a matter of historical record that the pre-Whitlam Labor party was bitterly opposed to any form of aid to private schools. More generally, it’s worth reading Donnelly (and other articles taking the same line) then trying to imagine the reaction of say, Ben Chifley or Arthur Calwell.

Donnelly may have some good arguments in favor of the policies he proposes, though they are not evident in this article. But he is either ignorant or dishonest in claiming that they represent traditional Labor policy.

Categories: Oz Politics Tags: