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Archive for November, 2003

US Steel (guest post from Brian Bahnisch)

November 15th, 2003 Comments off

In the AFR of 14 November there was an excerpt from the editorial in The
Wall Street Journal of November 11 stating that as a result of the steel
tariffs domestic steel prices hiked by 30 per cent. The International Trade
Commission found that in their first year the levies inflicted a $US680
million hit on the US economy. The editorial continues:

“A study done earlier this year for the Consuming Industries Trade Action
Coalition went further. It found that the higher steel prices cost 200,000
American jobs and $US4 billion in lost wages from February to November
2002.”

“Those 200,000 jobs were more than the total number of people employed by
the steel industry itself. That’s one reason more than 200 companies and
organisations representing steel-consuming and related industries sent [US
President George] Bush a letter last month begging for relief.”

By any sensible measure it seems that Bush has shot himself in the foot big
time. Why did he do it?

My best guess was that he was trying to prove his credibility on trade
matters to Congress. Hence the steel decision and the hike in farm subsidies
demonstrated his ostensible commitment of the national interest. The reward
was the Trade Promotion Authority (TPA). The TPA, granted by Congress to the
President, allows the President to negotiate trade agreements without the
formal involvement of Congress until the final approval stage.

What will Bush do now? Who knows, I don’t!

Categories: General Tags:

Guest posts

November 14th, 2003 Comments off

I’ve had one or two guest posts in the past, and I’ve decided to make this a little more frequent if I can. I’m taking this slowly as, in keeping with my conservative standpoint, I don’t want to make radical changes to something that is, I think, working well. For the moment, I’ll aim at putting in one guest post a week, if I get an an adequate supply.Mainly I want to give regular commenters the chance to put together something a bit longer from time to time.

I find comments hard to read when they get past about 150 words, and I’ll be looking for guest posts in the range 200-600. I’ll be posting one by Brian Bahnisch fairly soon.

For the moment, I’m not going to run posts that are clearly inconsistent with the blog’s social democratic perspective, but I’m not going to impose any sort of narrow party line. So if you’ve got something to say that would burst the seams of my comment box, now’s your chance.

Categories: General Tags:

The Middle East mess

November 14th, 2003 Comments off

Thinking about the chronic mess in the Middle East, it struck me that, for the last decade or so, no-one has known what to do about Iraq, but lots of people have been determined to do something.

On the other hand, everyone knows what needs to be done about Israel-Palestine, but no-one who matters has been prepared to do it.

The answer to the Israel-Palestine is simple and well-known and has been proposed many times over from the Clinton plan to the more recent Geneva Accord, which varies only marginally from Clinton. The elements are

  • Two states with the 1967 borders, allowing modest adjustments but no net transfer
  • Sharing of Jerusalem as capital of both
  • Compensation of refugees from pre-1967, but no right of return

. The problem is that Sharon and Arafat are beholden both to the groups within their communities who would lose out (the Israeli settlers and the Palestinian refugees) and to outside ideologues with maximalist demands (Islamic rejectionists and American neocons like Daniel Pipes). This seems unlikely to change until the West presents them both with an offer they can’t refuse: either accept the Clinton plan (under a new name natch) in full and without negotiation, or face a withdrawal of all dealings with whichever side refuses it. And of course, that won’t happen as long as Bush is in office.

On Iraq, until the invasion of Kuwait, pretty much everyone in the West was happy to deal with Saddam as both a wealthy customer and the enemy of the Iranian mullahs. And there was fairly general agreement about throwing him out of Kuwait by force if necessary. From then until 2003, opinion has been divided into three camps regarding Saddam: forgive and forget, sanctions and containment, and war. Behind that was a debate about what should be done after a war, which is, of course, the relevant issue now. There are all sorts of options, none of them appealing from “cut and run” to “stay the course, for decades if need be”.

Categories: General Tags:

A life cycle view of the welfare state

November 13th, 2003 Comments off

A secondary but still important issue raised by Peter Saunders in his CIS paper is that of the lifetime impacts of redistribution. Given that the same person may be poor in one period, and rich in another, is anything gained if we tax the rich and give to the poor?

To think sensibly about this question, we need to distinguish a number of different processes that may be at work in changing people’s relative income positions over time.

Read more…

Categories: General Tags:

Westminster wrong!

November 13th, 2003 Comments off

Update In view of continuing interest in this topic, I’ve put it back up to the top of the page. New commenters include PM Lawrence and John Craig. Now read on …

My column in today’s Fin (subscription required) is an expansion of points I’ve made previously on this blog. After defending the bicameral system, I go on to the polticisation of the GGs office and advocate direct election (following Ken Parish and David Solomon). My final para

Of course, an elected President would be more likely than an appointee to come into conflict with the Prime Minister and therefore with the majority in the House of Representatives. To analysts fixated on the idea that Westminster is the model of democracy, this seems like a catastrophic outcome. The Australian public knows better and has voted for checks on the autocratic power of Prime Ministers whenever it has had the chance.

As a result of this piece I received a paper by Clerk of the Senate, Harry Evans which, with his permission I’m making available here (word file). The key quote on Westminster

The Westminster system as described in the current paradigm is a relatively recent development. Originally, the system was described (classically, by Walter Bagehot) as the electors choosing a parliament, the parliament choosing a government, and the parliament holding the government responsible, if necessary by ejecting it from office between elections. Similarly, the mandate theory, that governments have a mandate to govern by legislating as they wish after an election, is a recent rationalisation of this relatively recent development of so-called Westminster government. In sum, the Westminster/mandate paradigm is a rationalisation of what may reasonably be regarded as a degeneration of a system.

Certainly Australia does not have, and was not intended by its founders to have, a Westminster/mandate system. In so far as it was known to the framers of the Constitution, as an emerging phenomenon, they rejected it

As is apparent from the names of our houses of Parliament, the framers of the Australian constitution preferred the American model of democracy to the Westminster system, still theoretically based on a mixture of democracy, aristocracy and monarchy.

It’s important to note that the mandate doctrine does have a role to play in Britain which still has an unelected Upper House. I had a bit more to say about mandate theory here.

Categories: General Tags:

Relative prices, the Baumol effect and myths of rich and poor

November 12th, 2003 Comments off

I’m responding (as usual with a long delay) to a post by Chrish Bertram over at Crooked Timber on the Baumol effect and also to discussions more recently on this blog about public spending on health and education. The reference is to a paper from the 1960s: Baumol, W. (1967), ‘Macroeconomics of unbalanced growth: the anatomy of the urban crisis’, American Economic Review 57(3), 415–26.

To simplify drastically, the Baumol effect arises when productivity growth is more rapid in the goods-producing sector than in the service sector, and particularly in the provision of ‘human services’, including health, education, culture and recreational services (including the subject of Chris’ post, restauarants). Since labour and capital are mobile between sectors in the long run, wages grow at much the same rate in both sectors, so the price of services has to rise relative to the price of goods.

In addition, we need to assume that, for broadly defined categories of goods or services, demand is inelastic. That means that, when the price goes up, we consume less, but not so much less that our total expenditure falls. (This won’t be true in cases where goods with declining prices, such as vacuum-packed cassoulets in Chris’ example, are close substitutes for services with rising prices).

Given all this, we can expect to see an increasing share of income being spent on services like health and education, even though the real supply of these services is increasing only modestly (in the extreme case of zero productivity growth in services, supply will actually decline). Conversely, we will consume substantially increased quantities of manufactures even as employment in the manufacturing sector declines.

Since productivity is rising in at least part of the economy, we expect incomes to rise as well. But it’s useful to observe that the relative price effects would arise even if there were no income growth at all.

Once we understand the role of relative prices, it’s easy to understand things that puzzle a lot of quite smart people. For example, in the last few years we’ve seen a book called Myths of Rich and Poor by Cox and Alm asserting that even the poor are much better off than they used to be, and another called The Two-Income Trap , by Warren and Tyagi asserting that even the middle classes are finding it hard to pay for the bare necessities. These books are reminiscent of the story of three visually challenged persons examining an elephant.

Read more…

Categories: General Tags:

Do we still need the welfare state?

November 12th, 2003 1 comment

Peter Saunders has challenged me to provide a more detailed response to his paper ‘Do we still need the welfare state?’ The full paper is here (PDF). The core of the argument is summarised reasonably well by this para from his comment.

My argument is essentially about ‘churning’ (i.e. the fact that most of us pay in taxes for most of what we get back in welfare payments and services), not poverty. I explicitly recognise that some provision still needs to be made for those who cannot look after themselves (I estimate this at no more than 5% of the working-age population – back in the sixties it was only 3% and we are a lot wealthier now than we were then, so it really shouldn’t be much more than 5%). In my AIFS paper in February this year, for example, I note: “There will always be some people who for one reason or another are incapable of supporting themselves on a long-term basis. But their numbers are not so large as to require a welfare system on anything like the current scale to support them.”
My key point is that, unlike 100 years ago when the *mass* of the population could not earn enough to provide its own basic necessities (which is why a *mass* welfare system evolved to fill the gap), today this is patently no longer the case. …The image that most of us have of the welfare state is of a system that takes from those who can afford to pay and reallocates to those who are poor. The reality, however, is that as welfare spending has grown, so it has had to be funded increasingly by taking money from all sections of society, not just the wealthy or high income earners. This means many people now pay with one hand and receive the money back with the other, and that most beneficiaries end up paying for most or all of what they receive. Indeed, the main reason many welfare recipients appear to need government assistance is that the government has taken so much of their income away in taxation, thereby pushing them into dependency.

The central problem with this argument is that Saunders confuses arguments about transfer payments with arguments about publicly provided services, lumping both together under the term ‘welfare’ and assuming that the purpose of these payments is to alleviate poverty.

As far as transfer payments (age and other pensions) are concerned, I agree with Saunders’ basic point that we should not tax ourselves heavily to fund universal benefits, effectively taking money out of one pocket and putting it back into the other. But of course, we don’t. As far as I’m aware, there are no cash welfare payments in Australia that are not subject to means tests, usually tight ones. Saunders may perhaps favour even tighter means tests, but this gets us straight into a huge and messy debate about effective marginal tax rates.

So even though the majority of Saunders’ discussion is about poverty-alleviation and cash transfers, the real issue, as far as Australia is concerned, is whether governments should reduce spending on services like health and education. There are strong arguments for public funding of these services which have little to do with income redistribution. Saunders concedes the crucial point early on his paper. While he’s opposed to governments actually providing health and education (a ‘socialised’ mode of consumption) and welcomes shifts towards funding of private schools and hospitals ‘a privatised mode of consumption’, he concedes that this does not imply big reductions in spending:

The overall level of government social expenditure might not fall much as a result of this transition, but what does change very visibly is the form in which services are produced and consumed. (emphasis in original)

If, with Saunders, we rule out substantial cuts in expenditure on health and education and we are already imposing tight means tests on cash payments, the only options remaining are to reduce the value of pensions and benefits and to tighten eligibility. These have been the approaches adopted in the US, and they have contributed to the outcomes noted in the previous post.

Categories: General Tags:

Is the welfare state obsolete?

November 11th, 2003 Comments off

A number of readers have asked about Peter Saunders (the CIS one) and his claim that, with rising incomes, we no longer need the welfare state.* Although his argument raises a number of issues, the easiest response is to look at Saunders’ preferred model, the United States, and see what rising incomes have done to reduce poverty in the last 30 years or so. Here’s the data from te US Census BureauUSPoverty2.gif
The measure used is an absolute one, calculated to equal a poverty-line budget in the 1960s. Price changes since then have had mixed effects, but the increased relative price of health and housing means that, overall, the standard of living associated with the poverty line income has probably gone down, not up.
You can read the whole Census Bureau report on poverty here (PDF file)

* In the comments thread, Peter Saunders takes exception to this characterization of his views and says his objection is to the *mass* welfare state. I don’t think this distinction is relevant to the point made in the post above. However, it is one of the more general issues, I mention, and hope to tackle later. Peter’s papers are available from the CIS website.

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The end of the line for the WTO

November 11th, 2003 Comments off

As expected, the World Trade Organisation has ruled that Bush’s tariffs on imported steel violate the WTO rules, and that countries affected can impose retaliatory tariffs.

It’s possible that the Administration will back down, though I can’t see an easy way to do so and save face. And it seems unlikely that the EU, which has already had lots of fun publicising the items on its list, targeted at swing states for 2004 (Harley-Davidsons, Florida orange juice) will refrain from exercising its legal rights. Once that happens, the possibility of a face-saving climbdown will be gone for good, and most of the Republican base will be pushing for another round of (illegal in WTO terms) retaliation. This would undermine the WTO, perhaps fatally.

As I’ve previously mentioned, the WTO made lots of enemies by overreaching itself in the 1990s, on the assumption that big-country governments would always back it up in the end. The wisdom of that assumption is now being tested.

Categories: General Tags:

Lulling them into a true sense of security?

November 11th, 2003 Comments off

Christopher Hitchens has a piece in Slate, deriding accounts of a last-minute peace offer from the Iraqis. I don’t think there’s much to the story, but I was struck by this paragraph, which gives an indication of the kind of parallel universe still inhabited by many hawks.

The Iraqi side openly conceded that U.N. inspections as then being conducted were a farce and a sham. Hassan al-Obeidi, chief of foreign operations of the Iraqi intelligence service, is at one point reported to have offered to allow “2,000 FBI agents” to enter Iraq and look at anything they wanted. He had clearly got bored with the easy and transparent routine of thwarting Hans Blix.

Given that there were no weapons, stopping Blix from finding any was indeed easy and transparent’.

Read as a whole, the piece seems to show Hitchens morphing from his original position (war for human rights) to one of generic hawkishness.

Categories: General Tags:

Monday Message Board

November 10th, 2003 3 comments

Every Monday, I invite readers to comment on any topic that takes their fancy, requesting only that discussion is kept civilised and that no coarse language should be used. As I mentioned a couple of days ago, I really value comments.

I would like, once again, to invite anyone who’s been reading the blog for a while and found it to provoke some thought to post a comment and tell the rest of us what you’ve been thinking.

Categories: General Tags:

What I'm reading

November 9th, 2003 Comments off

The Salinity Crisis by Quentin Beresford and others. This is about dryland salinity which (oversimplifying drastically) occurs when trees are cleared and saline water tables rise to the surface. It’s less well known than the salinity problems that arise in irrigation systems like the Murray-Darling, but equally significant and apparently more intractable. The only clear solution is to replant trees, but the area that has to be planted is so great and the time to fix the problem so long that, in a lot of cases, it appears not be economically feasible.

One topic mentioned in passing, and in which I’m interested is that of amateur vs expert science. In the dryland salinity context, the amateur/community science viewpoint is that of Harry Whittington and his Whittington Interceptor Banks. Whittington, a farmer, proposed a kind of drainage that was rejected as unsound by the hydrologists who had studied the problem, giving rise to a debate that went on for decades. Although debate still continues, belief in Whittington’s approach seems to have dwindled.

I’m of the view that the experts are usually right in this kind of dispute, but their are undoubtedly cases where a particular viewpoint or group interest dominates the expert view to the exclusion of all others.

Categories: General Tags:

Some real research on speed and safety

November 9th, 2003 Comments off

In a recent post, I criticised British sociologist Alan Buckingham who gave a number of presentations for the CIS criticising speeding laws and their enforcement. I made the point that Buckingham was not presenting research-based arguments but a series of sloppy and misleading arguments(while I usually disagree with assumptions that guide CIS research, and the results that flow from those assumptions, the quality is generally pretty good, unlike some other rightwing thinktanks) . It emerged in the ensuing discussion that Buckingham wasn’t even presenting original arguments of his own but was restating and endorsing those of a British lobby group, Safespeed, of which he’s a member. In a statement on its website , Safespeed said

Dr Buckingham is a Safe Speed member and frequent visitor. It is obvious that his article draws heavily on our material, but unfortunately the print version of the article appeared without giving Safe Speed the required credit. We’re happy to accept that this was an oversight and not a deliberate attempt to infringe our copyright. The PDF version of the article has been officially amended to include the necessary acknowledgement. (Thanks to Don Arthur for this link. On checking, the statement is not there any more. It has apparently been withdrawn while a new one is being drafted. If anyone has a cached version, I’d appreciate it).

Having criticised Buckingham for not doing, or using, the right kind of research, I should say something about what kind of research is appropriate. Although I’ve done research on the economic aspects of road crashes and law enforcement, I’m not an expert on the effectiveness of particular road safety measures. However, reader Mark Leggett has kindly supplied me with this study by Newstead, Cameron and LeggettFor those who don’t want to read the whole thing, here’s the abstract

Random Road Watch (RRW) is a traffic policing program in operation in Queensland, Australia. It differs from conventional traffic policing in that an explicit resource management technique is used which randomly schedules low levels of police enforcement in a manner intended to provide long-term, widespread coverage of a road network and hence maximise road safety benefits. Implementation of the program studied in Queensland covered 55% of total crashes within the state. This study aimed to measure the crash effects of the RRW program in Queensland. A quasi-experimental study design was used for the evaluation incorporating Poisson regression statistical analysis techniques. Analysis of the effects of the Queensland RRW program on crash frequency has shown the program to be effective overall. Estimated program effects were largest on fatal crashes, with an estimated reduction of 31%. Estimated aggregate program crash effects reduced with crash severity and increased with time after program introduction. Crash reductions in the third year after program introduction translated into savings, at state level, of some
12% of the state’s crashes of all severities and some 15% of the state’s fatal road crashes. Overall, the program produced a significant 11% reduction in total crashes in areas outside of metropolitan Brisbane. The opportunity-cost benefit:cost ratio for the program was estimated to be 55:1.

I should say that I don’t claim that this study is conclusive or that its results are necessarily applicable to other road safety initiatives. In addition, I would have preferred a broader benefit:cost analysis, though from the data here it’s clear that the result would have been the same. But this is the kind of research that’s needed if you want to make claims about the effectiveness of specific road safety measures, such as speed cameras.

The time series evidence of dramatically declining death rates, and the comparison with rising death rates in the US, provides pretty conclusive evidence of the effectiveness of road safety measures in general. But to look at individual measures you need detailed research of the kind undertaken by Newstead et al. To try, as Buckingham does, to link second-derivatives of the death rate (a slowdown in the rate of decline) to specific initiatives such as speed cameras, is silly, and would not stand up to the kind of statistical scrutiny that is required in serious academic work.

Categories: General Tags:

Thankyou and invitation

November 8th, 2003 Comments off

I haven’t mentioned it for a while, but I really appreciate the contribution made to this blog by the many readers who contribute comments. I get lots of useful information, occasional correction and plenty of points on which to sharpen up my arguments. You get the chance to have your say without the hassle of running a blog. So if you’ve been too shy to comment, now’s the time to have a go. Remember you don’t have to use your real name or anything that would identify you.

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The Economist doesn't understand PPPs

November 7th, 2003 Comments off

The Economist magazine has been an enthusiastic backer of the Castles critique (now joint with David Henderson) of the economic projections used by the IPCC in modelling the impact of Kyoto. It’s also been an enthusiastic backer of the use of purchasing power parity measures, notably through its Big Mac index.

Its surprising then that they endorse an argument by Castles which gets the crucial issues precisely backwards. The crucial para

The IPCC’s procedure relied, first, on measuring gaps between incomes in poor countries and incomes in rich countries, and, second, on supposing that those gaps would be substantially narrowed, or entirely closed, by the end of this century. Contrary to standard practice, the IPCC measured the initial gaps using market-based exchange rates rather than rates adjusted for differences in purchasing power. This error makes the initial income gaps seem far larger than they really are, so the subsequent catching-up is correspondingly faster. The developing-country growth rates yielded by this method are historically implausible, to put it mildly. The emissions forecasts based on those implausibly high growth rates are accordingly unsound.

To see what’s wrong here, suppose you use the PPP-adjusted estimates of income in poor countries. Then the growth required for convergence is lower, and the estimates become more plausible not less.

What is the impact on projections of energy consumption. None whatsoever, as far as I can see. The projections assume that energy use in the poor countries will converge to that in the rich countries as income converges.

The only potentially valid criticism Castles has is that the assumption of convergence is overoptimistic. I don’t think there’s a lot of weight in this, as I argue here/

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Where we stand

November 7th, 2003 Comments off

If you want to know where Australia rates in the perceptions of US business, this story speaks volumes*. The opening para

Breaking ranks with other leading central banks, the Bank of England raised its benchmark interest rate by one quarter of a percentage point Thursday

* Non-Australian readers may want to look at this story from the previous day.

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Factoid watch: Australian hospitalisations

November 7th, 2003 Comments off

The AFR (subscription required) is running a new series called C21 Australia trying to restart reform. It doesn’t get off to a promising start. The first column by Vern Hughes starts off with a reference to :”Australia’s ballooning hospitalisation rates, now the highest in the Western world”. This sounded like a factoid in the making, so I chased down data from the Australian Institute of Health and Welfare, which is here (PDF file).

The data shows that beds per 1000 population, patient days per 1000 population and overnight stays per 1000 population are all declining. The only thing that is going up is the frequency of single-day treatment episodes, particularly in private hospitals, that is, of cost-effective day surgery.

There are no international comparisons in the file I’ve got, but the AIHW notes that “In most countries of the OECD, same day patients are not counted as admitted patients”.

In other words, hospitalization rates are not ballooning (except in the manner of Dick Rutan) and international comparisons need to be handled with care.

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Race, law and order

November 6th, 2003 Comments off

The release of Pauline Hanson, coinciding with some offline discussions with Jack Strocchi have led me to try to crystallise my thoughts about the role of racial, religious and ethnic prejudice in Australian and international politics (I’ll mostly avoid, as too contentious to be useful, the term ‘racism’, and will use ‘racial prejudice’ to encompass religous and ethnic prejudice). I begin with the paradox that appeals to racial prejudice were successful in 2001, whereas previous attempts by Howard and others to exploit such prejudice were notably unsuccessful. Another fact I want to look at is that parties and politicians appealing to racial prejudice have done very well in Europe recently, at the same time as the American Republicans have abandoned (or at least played down) the same kind of appeal, exploited very successfully in the 70s and 80s.

Read more…

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A good result

November 6th, 2003 Comments off

The fraud convictions of Pauline Hanson and David Ettridge have been overturned on appeal. This is a good result because the original conviction was unfair and unjust.

On the other hand, I hope Hanson doesn’t mistake the sympathy generated by her legal mistreatment as support for her political views, which range from simplistic and misguided to frankly repellent. Now that the “Free Pauline” campaign has succeeded, it’s time for another round of “Put One Nation Last!”

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Tory trouble, part 3

November 5th, 2003 Comments off

Via Ken Miles, I noticed this piece by Michael James who argues that the conservative parties in Britain and New Zealand are ‘victims of their own successes’. Money quote

The irony is clear. The Labour parties have appropriated the electoral benefits of the economic stability and growth flowing from the economic reforms introduced in the 1980s and early ’90s: in Britain by the Conservative governments of Margaret Thatcher and John Major; and in New Zealand first by a reforming Labour government centred on Roger Douglas, and then by a National government centred on Ruth Richardson.

Ken points out that the NZ experience of micro reform was not exactly as prosperous as this quote implies. And James himself concedes that the Tories’ macroeconomic mismanagement in the early 90s contributed to their loss of office.

Nevertheless, there’s an important element of truth in James’ argument, though not as much as he wants to claim.

Update There’s a great discussion in the comments thread – at least as well worth reading as the post itself. In response, I’ve expanded a very short allusion to Walsh and Keating as the Australian equivalents of Douglas and Prebble into a longer and, I hope, more balanced assessment.

Read more…

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Help wanted

November 5th, 2003 Comments off

This doesn’t seem to be the sort of thing that usually goes on blogs, but given the diversity of my readers, at least some might be interested. As a consequence of my Federation Fellowship and the associated funding, I’ll be advertising a number of scholarships, fellowships and other jobs. The first ad is in todays Oz Higher Ed supplement and is also online here.

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Factoid watch

November 5th, 2003 Comments off

There’s a well-known factoid that “Of the world’s 100 biggest economies, 51 are multinational corporations”. As most economists know, this is a dodgy one, because it’s based on a comparison of total sales of corporations with GDP (a value added measure). In World Economics (not online as far as I can tell), de Grauwe and Camerman how done the more reasonable comparison of GDP and the value added by corporations. Only37 corporations make it into the top 100 and only two (Walmart at 44 and Exxon at 48) into the top 50.

This is correct in principle, but I was a bit surprised at how low the value of value added to sales came out (around 25 per cent for big companies like GM) and it struck me that there is one significant qualification to make to these results. A lot of multinational companies have large numbers of ‘tied’ subcontractors. Purchases from these tied subcontractors appear in the sales measure but not in value-added. For most of the purposes for which comparisons with GDP are appropriate, tied subcontractors should be included. If contracting out has increased substantially over the past twenty years, then the second conclusion of de Grauwe and Camerman, that the share of the biggest multinationals in world GDP hasn’t changed much in that time, might also need revision.

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Let down by Austrian economics (again!)

November 4th, 2003 Comments off

I drew Schumpeter in the office sweep. Hmmph!

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Good sense from Paddy

November 4th, 2003 Comments off

Paddy McGuinness offers a well-reasoned and balanced response to Max Corden’s call for higher immigration. With very minor exceptions, the article is free of the omnidirectional vitriol I’ve come to associate with McGuinness’ work, and there’s even a modest hint of idealism in the conclusion. Reading this piece reminds me of why I admired him so much back in the 1970s. It would be good to see more like this from him.

I’m more favorable to migration than McGuinness, though not as much so as Corden. My main argument is a liberal/libertarian one namely that, if people want to come here, and the effects on the welfare of those of us who are already here are small and ambiguous, then we should let them come. For those with a more narrowly-defined welfare function, I’ll add the observation that most intending immigrants have family members and friends here in Australia who want them to come, and that refusing them entry therefore reduces Australian welfare.

Update Carrying on my recent display of fallibility, I omitted the link, which is here. I’ve now included it where it should go

Categories: General Tags:

Error correction

November 3rd, 2003 Comments off

An alert reader (Grant) has pointed out that, in a post a couple of weeks ago, I used a figure of $20 million for the cost of saving lives, for which I didn’t give a basis. I can’t exactly reconstruct my error now, but I think I must have used BTRE estimates of aggregate cost in billions. Regardless, the estimate is certainly higher than it should be. In the preceding post, I present and defend an estimate in the range $5 million to $10 million.

Obviously, it’s embarrassing to get things wrong, but I regard blogging as somewhere between conversation with friends/colleagues and the circulation of draft papers. That is, it’s a chance to test out your arguments and detect errors before committing them to print in, say, a newspaper or refereed journal article. In this case, correcting the error doesn’t fundamentally change the argument in the post concerned, though what looked like an overwhelming case is now more like a strong balance of probabilities. In any case, it’s more important to get things right in the end, than to maintain a pretence of always being right.

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How much is life worth?

November 3rd, 2003 Comments off

The debate about speeding inevitably raises the question of whether it is possible to put an economic (more specifically, monetary) value on lives lost in road crashes (the term ‘accident‘ is a misnomer). A more appropriate way of putting the question is to ask whether there is a monetary cost that is ‘reasonable’ to spend for a given expected reduction in the number of road fatalities. This way of putting the question gets us away from impossible questions of the form “How much is Joe Smith’s life worth”.

Read more…

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Is Saddam the key?

November 3rd, 2003 Comments off

Back in early April, I observed that the Iraq campaign was a war of absences. Some of the mysteries posed by those absences have now been resolved. For example, everyone now knows that the Weapons of Mass Destruction did not exist.* But the big remaining mystery is Saddam. It seems pretty clear that he got away from Baghdad safely, and likely that he’s still alive.

On thinking about it, I have the feeling that Saddam is, in a sense, the key to the entire situation. On the one hand, suppose Saddam is caught or (more likely) killed. Whether or not this led to a reduction in terror/resistance attacks, the pressure for a quick American withdrawal would, I think, quickly become irresistible. For most of the Americans who still support the war, this would, I think, count as “Mission Accomplished”, whatever happened in Iraq afterwards.

On the other hand, as long as Saddam is at large, and the security situation remains anything like it is at present, a US withdrawal will be seen as “cutting and running”, and will therefore be resisted with great vigour.

* I leave aside those speakers of parallel universe English in whose dialect this proposition has some entirely different meaning to that prevailing on my planet.

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Monday Message Board

November 3rd, 2003 Comments off

It’s time yet again for the Monday Message Board. Your comments on any topic are welcome (civilised discussion and no coarse language, please).

My starter question for this week: Has anyone got any good ideas for Iraq?

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What I'm reading, and more

November 2nd, 2003 Comments off

A short history of the world by Geoffrey Blainey. I bought this for my son, on the view that a good narrative history would provide a framework within which to fit the detailed study of short periods that’s typical of school history courses these days. It’s certainly a good read. Blainey’s geographical determinism provides an idiosyncratic flavor without being overwhelming.

I’m also reading Interest and Prices by Michael Woodford, which I got as an unsolicited gift from Princeton University Press. It’s the first attempt I’ve seen at a theory of monetary policy in which interest rates are the variable of interest and the money supply is excluded from consideration. On the face of things, this is much closer to the world we live in than the standard approach. I’m hoping this will help to explain the paradox (at least for anyone who thinks the quantity theory of money ought to work in the long run) of persistently high growth in most monetary aggregates combined with persistently low inflation.

I went to see the Namatjira exhibition at the Queensland Art Gallery, having seen it previously in Canberra. In the light of recent discussion on the blog, I was struck by the fact that Namatjira was a close contemporary of Jackson Pollock and, like him, was killed by alcohol, though in a radically different cultural context.

Each in a sense, represents the end of a line. Whereas Pollock represented the last gasp of modernism in art, Namatjira can be seen as the last great representative of the European tradition of landscape painting. By contrast with Pollock’s programmatic formal innovations in drip paintings like Blue Poles, Namatjira’s innovations came from the interaction between traditional concerns (light, colour and shadow) and a previously unpainted landscape.

Also on show at the Gallery is art of the Cape York Peninsula, including both traditional cultural products and consciously created art works.

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Good and bad news on global warming

November 2nd, 2003 Comments off

The bad news is that Russia has not, as the government previously indicated, ratified the Kyoto protocol and and seems unlikely to do so, although Putin still appears willing to be bought by a sufficiently attractive offer. The combination of Bush and Putin is enough to block the treaty. (The Howard government is the only other remaining holdout, but Australia is too small to tip the balance either way).

The good news is the 55-43 vote on the McCain-Lieberman bill restricting CO2 emissions. Although the bill was defeated, this was scarcely surprising given the opposition of the Administration and the Republican majority. It seems likely, given this starting point, that a pro-Kyoto Administration could secure ratification. In particular, the 97-0 vote on the Byrd-Hagel resolution opposing Kyoto has now been consigned to history.

Meanwhile, nothing much is being done about global warming. Russia’s failure to ratify Kyoto gives those who claim to support action, but oppose the detailed provisions of Kyoto, their chance to do something. In particular, it will be interesting to see whether there is any action on the McKibbin-Wilcoxen proposal. I’m not optimistic. As far as I can see, the vast majority of those who claim to support “something, but not Kyoto” actually want “business as usual”. Still, I’m agnostic about the differences between McKibbin-Wilcoxen and the Kyoto proposal and will be happy to support whichever seems most likely to get up.

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