Archive for November, 2006

New on the RSMG blog

November 29th, 2006 Comments off

Although I haven’t had time to post on the Switkowski report on this blog, Nanni has it covered in a couple of posts over at the RSMG blog, as well as the related topic of carbon trading.

Mark looks at the implications of higher water prices for dairy farmers and concludes that they ‘may not be priced out of the market as some commentators may have thought.

I report some good news for RSMG. We are ranked in the top 20 per cent of economics research institutions in Australia.

Finally, David is starting a discussion paper series. The first and second are on biosecurity and pest management.

Read, enjoy and comment

Categories: General Tags:

Hard to believe

November 28th, 2006 54 comments

Writing in the LA Daily News, in a piece full of harrowing stories of flight from Iraq, Pamela Hartman states

The United States has not liberalized its refugee policy in response to the worsening crisis in Iraq. More than 1 million Iraqi refugees of all religious backgrounds have poured into Lebanon, Syria and Jordan. In fiscal year 2006, just 202 Iraqi refugees were resettled in the United States.

The 1 million figure is broadly consistent with other estimates I’ve seen, but there’s no source for the amazingly low figure of 202 refugees. (If anyone can point to a data source that would be great.) I assume this excludes people like many of Hartman’s clients who’ve found some other route such as a family relationship, but that can’t change the fact that the US is ducking a central responsibility here.

Of course, the same is true in spades for Australia. At the same time as promoting the disastrous Iraq venture, many of our local warmongers have enthusiastically backed the view that we have no obligations to the refugees it has created, and are entitled to turn back any asylum-seekers who have not travelled here directly from Iraq (I’m sure that if any direct routes were feasible, a way would be found to block their use, so please don’t bother with legalistic defences of this disgraceful hypocrisy).

There’s no real way to salvage the disaster we’ve created in Iraq. But we must at least accept the responsibility of providing a haven to those fleeing the carnage we have created.

Update Judging by the comments, the pro-war view is that our obligations to take refugees extend only, or at least preferentially, to Christians.

Categories: World Events Tags:

Cole concludes

November 28th, 2006 37 comments

The Cole Commission has finally reported, and I can take some comfort from the fact that my predictions at the start have been borne out almost entirely.* No conclusive proof of government wrongdoing has emerged, no minister has resigned, and the government’s defenders have had no trouble squaring their denunciations of Saddam with the fact that we were financing his rearmament program up to the day the war began.

Only the last of these points really mattered, since it called into question the whole rationale for our participation in the war, and the good faith of those who urged. But now that the war is almost universally recognised as a disaster, this probably no longer matters. Even for those who justified the whole deal on the basis of commercial self-interest, it should be clear by now that we have lost any positive standing we had in the world wheat market and that the US will be able to lock us out of many markets we might otherwise have competed in with success.

For those who want more, though, occasional commenter Stepehn Bartos has produced a book called “Against the Grain – The AWB Scandal and why it happened”. It is published by UNSW Press in their briefings series, can be ordered online at He says

The book goes beyond the Cole Inquiry concerns of who did what when, and instead looks at the underlying causes of the scandal including inadequate due diligence at the time of AWB privatisation in 1999, poor design of regulatory supervision, and most importantly, the fact that Ministers and AWB officials were all part of the same small, closed circle and not inclined to ask questions even when information alerting the government to the possibility of the kickbacks started to come out.

It sounds like a substantial effort, given the short time, but of course many of the fundamental issues have been familiar from previous episode.

Read more…

Categories: Books and culture, Oz Politics Tags:

The end for endnotes?

November 27th, 2006 8 comments

I’ve been reading Karen Cerulo’s Never saw it coming and while it’s generally pretty good, it contains what I assumed was a howler of a mistake, but turns out to be a gross misjudgement. Cerulo argues that the generally optimistic view taken by Americans does not extend to deviant groups, and uses as an example, the Heaven’s Gate cult which, as she states believed that they would be removed from the Earth by a spaceship following the comet Hale-Bopp, their true home’. As she says, most reporting of the group treated it as the epitome of the lunatic fringe. I assumed that Cerulo was somehow unaware of the fact that all the members of the group had committed suicide in an attempt to ensure that the spaceship didn’t miss them. I looked at the endnotes to check the dates on some of the cited media reports and discovered a note reading

144. Henry 1997, 4. Readers may recall in order to hasten their arrival in heaven, all thirty-nine members of the group engaged in a mass suicide

which to my mind justifies the lunatic fringe description. In any case, surely this point was important enough to include in the main text, or a footnote on the same page.

While I’m on this subject, is there any excuse for persevering with endnotes in books*? They’re just about useless, (those that don’t give something worse than useless like “ibid” or “loc cit”). If the material is of too little interest to be included in the main text or in footnotes, and can’t be omitted altogether for reasons of academic nicety, couldn’t it be placed in a supporting website?

* Footnote/endnote: A bit more discussion of this at Andrew Norton’s blog (thanks to Damien Eldridge for locating this for me)

Categories: Books and culture Tags:

Monday message board

November 27th, 2006 43 comments

It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.

Categories: Regular Features Tags:

What I’ve been reading

November 26th, 2006 9 comments

Never saw it coming by Karen Cerulo is a study of disaster preparedness or rather its absence. Cerulo argues that the failure to prepare for disaster is not a matter of individual incompetence or fecklessness. Rather she argues it reflects a bias towards optimism that is deeply embedded in American culture.

In the abstract the argument seems convincing, and there is plenty of psychological evidence to support it. But I find myself disagreeing with a lot of the detailed argument. On the one hand, some disasters can’t be prepared for in any effective fashion, so it makes sense not to worry about them.

On the other hand, Cerulo cites as an example of successful preparedness the massive Y2K remediation effort undertaken in the United States. As I’ve pointed out on many occasions, other countries undertook no preparation and came out fine. Russia and Italy are notable examples – the US State Department issued a travel advisory for Italy as did UK authorities and Australia actually evacuated its embassy in Moscow leaving a skeleton staff to wait out the cataclysm. This isn’t being wise after the event. Once the 2000 fiscal year began with no serious incidents it was obvious that for anyone except nuclear reactor managers and the like, ‘fix on failure’ was the optimal response.

I’m not sure what to make of my disagreements on the details.Some disagreements is to be expected in any detailed argument. But the range of disagreement leads me to think that maybe handling low-probability catastrophic risk is something we are not very good at, sometimes preparing for non-existent risks and at other times failing to foresee obvious possibilities.

Categories: Books and culture Tags:

Winning the lottery

November 26th, 2006 7 comments

I never win lotteries or raffles (maybe because I study them in my research on uncertainty) so it figures that my first win in decades should be the compulsory door prize at our Seiyushin karate Christmas party. Prize: five rounds with our Kancho (founder) (he’s the one in the picture). I collect on Wednesday night, so don’t expect much in the way of blogging on Thursday.

Categories: Life in General Tags:


November 24th, 2006 35 comments

Faced with documentary evidence that the Australian Ambassador to the UN, John Dauth, told AWB chairman Trevor Flugge of the Iraq invasion a year in advance, correctly observing that even if weapons inspectors were readmitted this would only produce a brief delay, DFAT’s response is to say that it was just a lucky guess. This line has been swallowed with enthusiasm by JF Beck and, in comments here, by Currency Lad.

If this is an example of Dauth’s unaided powers of prediction, it’s a pity no-one asked him what would happen after the invasion.

Categories: Oz Politics, World Events Tags:

Weekend reflections

November 24th, 2006 17 comments

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

Categories: Regular Features Tags:

Triple cross

November 23rd, 2006 35 comments

The news that AWB Chairman Trevor Flugge was told of the invasion of Iraq, and of Australia’s planned participation in early 2002 adds yet another layer of deception to this amazing story of duplicity.
Read more…

Categories: Oz Politics, World Events Tags:

Friedman and Hayek

November 23rd, 2006 26 comments

Brad DeLong gets the distinction between Friedman and Hayek pretty much right in my view.

I think that there is an important difference between Friedman and Hayek. Hayek is an economic (classical) liberal but a social conservative: a believer in respect for throne and altar. Social conservative Hayek can see Pinochet as a good thing: far better to have an authoritarian state that maintains the conservative moral order, if it can be persuaded to adopt laissez-faire economics, than it is to have a democracy that regulates the economy. Friedman, by contrast, hates and fears a government that prohibits use of recreational drugs in your home almost as much as he hates and fears a government that won’t let you undersell your politically-powerful competitors. For Friedman, Pinochet is a bad–an aggressive, powerful military dictator–whose evil the Chicago Boys can curb by persuading him to adopt laissez-faire policies.

Roughly speaking, Friedman’s position was that even a dictatorship (such as Chile or China) would be better off with free-market economic policies. Hayek’s was to prefer a liberal dictator to a democratic government lacking liberalism.

Categories: Politics (general) Tags:


November 21st, 2006 17 comments

In ordinary life, we know that the word “gaffe” means an inconvenient truth. If your SO asks “does this make me look fat” or “can I get away with a combover” the true answer is almost certainly a gaffe (if not, they wouldn’t have asked).

In politics, some avoidance of inconvenient truths is inevitable for much the same reasons. Ambitious upstarts have to say somethng along the lines of “I love and respect our leader” and patient leaders have to say “Colleague X is doing a great job” until the day the knife or axe is ready for use. In matters of this kind, no-one expects truthfulness.

But, as used by the MSM, the term “gaffe” means inconvenient speaking of the truth about policy questions. the latest instance is the statement by Queensland Liberal leader Bruce Flegg that recycled water is safe, and that, given the uncertainty of future rainfall, there is little choice but to go for recycling.

The first statement is supported by overwhelming evidence, and the second by any reasoned assessment of the situation. But because the Nationals are bidding for the support of the large segment of the public with irrational fears on the topic, and Labor is ducking the issue with proposals for a referendum, Flegg’s statment of the plain truth is a gaffe.

Categories: Environment, Oz Politics Tags:

We’ll all be rooned

November 21st, 2006 32 comments

Today’s Courier-Mail has a report pushing the Beattie Government’s plans for new dams, and threatening financial ruin if they aren’t built. Crucial quote:

As its efforts to win approval for the controversial Traveston Crossing Dam in the Mary River Valley move into top gear, the Government has used a consultant’s report on possible economic losses to the region to push its case for the project.

The lack of new water sources could end up costing southeast Queensland at least $55 billion and perhaps as much as $110 billion by 2020, according to the consultants ACIL Tasman.

Even before this episode, the name ACIL Tasman wasn’t one that filled me with confidence. All consultants like to produce reports that support their client’s preferred position, and my experience of ACIL Tasman is that the approach to this outcome is “whatever it takes”.

I haven’t been able to find the report yet, but the numbers seem way off-beam to me. This report says that the total revenue for SEQ Water and sewerage businesses was about $1.4 billion in 2005/06, growing at about 6 per cent a year. ACIL Tasman wants us to believe that limits on additional supplies could cost between $5 billion and $10 billion a year.

I find this implausible, at least as an economically meaningful cost estimate. A doubling of water prices would be enough to reduce demand significantly over time (even allowing for underlying growth in population and income), and make all sorts of supply options, such as desalination, economically feasible, without any need for new dams. The welfare cost of this would be around 0.5 billion a year (I’ll do a proper check on this number later). So, I’d say ACIL Tasman is out by a factor of 10 to 20.

I haven’t seen enough information to determine whether the proposed dams pass the cost-benefit test. But this report makes me think the case must be pretty weak.

Categories: Economics - General, Environment Tags:

Monday message board (on Tuesday)

November 21st, 2006 34 comments

I missed putting up the Monday Message Board yesterday, but better late than never. As usual, civilised discussion and absolutely no coarse language, please.

Categories: Regular Features Tags:

If you can’t beat them …

November 20th, 2006 11 comments

Back in August 2005, Anita Quigley had this to say about blogging:

“Why some pimply-faced geek, sicko or average Joe Blow thinks someone else wants to read every random thought that crosses their mind is beyond me. Alongside the belief that we all have a novel in us – we haven’t – blogging is the ultimate form of narcissism.�


Categories: Metablogging Tags:

The Stern Review and the long tail

November 19th, 2006 24 comments

My first post on the Stern review started with the observation that

the apocalyptic numbers that have dominated early reporting represent the worst-case outcomes for 2100 under business-as-usual policies.

Unfortunately, a lot of responses to the review have been characterized by a failure to understand this point correctly. On the one hand, quite a lot of the popular response has reflected an assumption that these worst-case outcomes are certain (at least in the absence of radical changes in lifestyles and the economy) and that they are going to happen Real Soon Now. On the other hand, quite a few critics of the Review have argued that, since these are low-probability worst cases, we should ignore them.*

But with nonlinear (more precisely strongly convex) damage functions, low-probability events can make a big difference to benefit-cost calculation. Suppose as an illustration that, under BAU there is a 5 per cent probability of outcomes with damage equal to 20 per cent of GDP or more, and that with stabilisation of CO2 emissions this probability falls to zero. Then this component of the probability distribution gives a lower bound for the benefits of stabilisation of at least 1 per cent of GDP (more when risk aversion is taken into account). That exceeds Stern’s cost estimates, without even looking at the other 95 per cent of the distribution.

An important implication is that any reasoning based on picking a most likely projection and ignoring uncertainty around that prediction is likely to be badly wrong, and to understate the likely costs of climate change. Since the distributions are intractable the best approach, adopted by the Stern review, is to take an average over a large number of randomly generated draws from the distribution (this is called the Monte Carlo approach).

To sum up, the suggestion that because bad outcomes are improbable, we should ignore them is wrong. If it were right, insurance companies would be out of business (not coincidentally, insurance companies were the first sector of big business to get behind Kyoto and other climate change initiatives)
Read more…

Categories: Economics - General, Environment Tags:

Milton Friedman: a brief appreciation

November 18th, 2006 50 comments

Milton Friedman has died at the age of 94. He made some huge contributions to macroeconomics, notably including his permanent income theory of consumption, which paved the way for the modern life cycle theory and his work on expectations and the Phillips curve.

He was also the most effective advocate for free-market policies since Adam Smith. As has been said several times over at Crooked Timber recently, everyone, and particularly everyone with a leftwing view of the world, should read Capitalism and Freedom at least once. As Mill said, beliefs you hold merely because you haven’t been exposed to the strongest possible critique of those views, aren’t really well-founded. Certainly, my own views were changed in some respects by exposure to Friedman, and where they were not, I was forced to reconsider the basis for my positions.

Friedman was effective in part because he was obviously a person of goodwill. I never had the feeling with him, as with many writers in the free-market line, that he was promoting cynical selfishness, or pushing the interests of business. He genuinely believed that economics was about making people’s lives better and that disagreements among economists were about means rather than ends and could ultimately be resolved by careful attention to the evidence.

Categories: Economics - General Tags:

Weekend reflections

November 17th, 2006 15 comments

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

Categories: Regular Features Tags:

Stern on the costs of climate change, Part 1

November 17th, 2006 23 comments

The standard (expected utility) approach to assessing the cost of climate change is to
(i) derive a probability distribution for possible rates of climate change under some given projections,
(ii) attach a cost (or benefit) number to each possible outcome, expressed in utility terms,
(iii) calculate the expected utility gain (or loss)
(iv) express the calculated number as a percentage change in some income aggregate (usually GDP)

In this post, I’m going to look at step (ii). In most respects, the Stern review has adopted assumptions that favour strong action to mitigate climate change – relatively optimistic regarding the costs of stabilising CO2 levels, and relatively pessimistic regarding projections of changes in climate. But the cost calculations are conservative, probably because the previously published estimates of Mendelsohn, Nordhaus and Tol have been way too low.
Read more…

Stern on discounting and risk

November 16th, 2006 21 comments

One of the crucial issues in any assessment of climate change policy is how to handle discounting and risk. The Stern review (Ch 2) goes back to first principles and gets the main issues exactly right. The reason for both discounting and risk premiums, in economic analysis, is that the marginal value of a dollar of income is lower when we are rich than when we are poor. Hence, we’re prepared to pay for insurance when we are well off in order that it will pay out when we are badly off. Similarly, if we expect income to rise over time, a dollar of income now is worth more, at the margin, than a dollar in the future. The same points are relevant in considering income distribution but this isn’t covered in the parts of the report I’ve read so far.

In addition, there’s a justification for “inherent discounting”, reflecting the fact that some future event (most probably bad, but perhaps good) may mean that “all bets are off” in relation to future consumption levels. Individuals should have reasonably high inherent discount rates, since we may not be around next year, but the appopriate rate for a community is much lower, being confined to the risk of catastrophes like nuclear war.

The Stern review also has a good discussion of probabilities, including the recent literature on problems where there do not exist well-defined probabilities.

The quality of the economics here is very high, and sets a new bar for discussion of these issues.

There’s more on Stern from James Wimberley

Categories: Economics - General, Environment Tags:

Stern on the cost of climate stabilisation

November 15th, 2006 49 comments

As I said in the previous post, I plan to focus on the economics of responses to climate change from now on and the obvious place to start is the Stern report.

There’s a lot in the Stern report, and I’m going to assess it a part at a time, starting with the issue I’ve been most interested in, the cost of stabilizing atmospheric CO2 levels. I’ll focus on the case considered by Stern, and in my submission of stabilising levels at 550 parts per million, which implies a reduction in emissions of around 60 per cent, relative to business as usual, by 2050. This should be enough to avoid severe damage.
Read more…

Categories: Economic policy, Environment Tags:

The debate really is over now

November 15th, 2006 115 comments

The scientific debate over the reality of anthropogenic global warming has been over for some time, but as long as the opponents of science continued to dominate the political process, it was necessary to combat their claims.

But with the Howard government now supporting emissions trading, at least in principle, and with the overwhelming majority of the public convinced of the need for action, that necessity has now passed, at least in Australia. The main task now is to encourage the government to adopt the most efficient and effective strategies for mitigation and adaptation, in co-operation with other countries. That obviously includes signing Kyoto (with the latest change in position and with Bush a lame duck there’s no reason not to), but it could also include getting the (so-far merely decorative) AP6 process to do some work.

Of course, at least some of the denialists will keep on denying. But they’re in a hole and I’m happy to let them keep on digging. At this point, they’ll do less harm banging on about the hockey stick than they would if they accepted the reality of global warming and used what’s left of their credibility in an attempt to derail any positive response.

So from now on, I’m not going to bother refuting the absurdities of Bolt, the Lavoiser Group and other denialists. Rather than make all those who’ve enjoyed the stoush here go cold turkey, I may put up more open threads from time to time, but my future posts will be about the economics and politics of our response.

Categories: Economic policy, Environment Tags:

Wikipedia hits the top ten

November 14th, 2006 9 comments

For the first time in its history, Wikipedia is #10 in Alexa’s daily Traffic Rank though not in the official top 10.

Read more…

Categories: Metablogging Tags:


November 13th, 2006 21 comments

With a string of financial and sexual scandals affecting State Labor governments, and “corruption” being listed as one of the factors contributing to the Republicans defeat in the US, it’s worth thinking about whether issues of this kind are ephemeral events, making the headlines and then disappearing, or whether they have longer-term implications. It’s possible to point to examples going both ways. The British Conservatives acquired a reputation for sleaze in the declining years of the Thatcher-Major governments, and it took them at least a decade to recover, even up against a government that is scarcely an exemplar of probity. On the other hand, the Howard government hasn’t suffered much from a string of scandals, of which AWB is just the most recent.

Read more…

Categories: Oz Politics, World Events Tags:

New on the RSMG blog

November 13th, 2006 3 comments

There’s a lot happening on the RSMG blog, so it’s worth adding it to your bookmarks file or RSS list.

Most recently, Nanni has looked at the projects sponsored by the AP6 forum on climate change, Mark wraps up last weeks water crisis summit and David announces the launch of a new Discussion Notes series, with a paper on biological control.

Categories: Environment Tags:

Monday message board

November 13th, 2006 7 comments

It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.

Categories: Regular Features Tags:

Remembrance Day

November 11th, 2006 13 comments

A day to remember all who have died, and continue to die, in war. Let us hope that one day we can bring an end to this evil.

Categories: World Events Tags:

War on/over Science thread

November 11th, 2006 68 comments

This is the promised open thread on science. If you want to defend or attack climate science skepticism, take a stand on intelligent design, argue about passive smoking or whatever, here’s your chance. No coarse language, and try to keep it civilised.

Categories: Science Tags:

More amateur climatology from Andrew Bolt

November 11th, 2006 106 comments

Andrew Bolt cites NASA data from the troposphere and stratosphere to show that global warming isn’t happening. He starts with the troposphere and makes what’s now a standard denialist talking point, that global temperatures “peaked in 1998” (a year of an exceptionally strong El Nino). Of course, until the last few years, denialists were (correctly for once) making the point that you couldn’t attribute all of the exceptional temperatures of 1998 to long-term climate change.

But Bolt’s new ace is the stratosphere, which is actually cooling. The graph here looks pretty convincing. Has Bolt discovered something that all the scientists have missed? Should he be publishing his findings in Nature. Well, no.

As NASA explains here, stratospheric cooling is also the result of human activity. The most important effect is from the destruction of the ozone layer, but CO2 emissions also play a role. Remember that the effect of greenhouse gases is to trap heat. This warms up the atmosphere below (in the troposphere), but reduces it above (in the stratosphere). There’s disagreement over the magnitude of this effect, but the direction is clear.

It would have taken Bolt five minutes with Google to find this out. Does he not know, or not care? Either way, he ought not to have a job with any responsible media organisation.

Note on comments: If you want to disagree with NASA, complain about the hockey stick, or otherwise dispute mainstream climate science, please follow the course I’ve suggested for Bolt and write to Nature. Or, if you really must attack science here, ask me nicely and I’ll put up an open thread. But for the purposes of this post, I’m going to take the assessment of the scientific evidence as presented by NASA and the IPCC as definitive. Comments disputing the science will be deleted.

Categories: Environment Tags:

Doubts about demography (crossposted at CT)

November 10th, 2006 9 comments

Tyler Cowen launches another round in the long-running EU vs US productivity debate. As regards the productivity issues, I don’t have much to add to this piece from a couple of years ago.

But there’s one point on which Cowen lays a lot of stress in this post from the Sheri Berman seminar – the fact that Europe has low birthrates and therefore, on average, is likely to have lower output per person in the future. As he says, this is an issue on which I and CT commenters have been conspicuously silent.

Yet family life gets plenty of attention here, and it’s certainly an issue I take seriously. So why did I and others ignore this aspect of the argument?
Read more…

Categories: Economics - General Tags: