Archive for October, 2009

Unforgivable, at least by me

October 30th, 2009 67 comments

The SuperFreakonomics chapter on global cooling is still being kicked from one end of the blogosphere to another, with error after tired delusionist error being pointed out. Most of the time, it’s just sloppy contrarianism of the type you might expect from people who hang around with rightwingers a lot and are in a rush to produce a controversial book. But there is one point that, coming from Steve Levitt, I find unforgivable. Before pointing it out, I’ll quote what I said about Freakonomics when it came out, in a post entitled “Getting the data to talk

what Levitt has taken from the economics profession is not so much a body of theory to be applied, as a set of tools for empirical analysis and an unflinching willingness to look at social and policy issues without regard to social norms or received wisdom. More importantly, he’s combined all this with creative flair and an impressive capacity to see the right way of teasing compelling conclusions out of refractory data.

Looking back, I still think this judgement stands up as regards Freakonomics, which makes the tragedy of Superfreakonomics all the greater.

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Categories: Economics - General, Environment Tags:

Weekend reflections

October 30th, 2009 84 comments

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic.

Categories: Regular Features Tags:

Bligh’s bad arguments for privatisation

October 29th, 2009 33 comments

The Bligh’s government’s original case for the asset sales announced in the June budget was that the state’s finances had deteriorated drastically since the previous assessment at the time of the March election, as part of the generally declining outlook for the world economy. That argument has collapsed as the Australian and global economies have strengthened with the result that the Queensland state budget managed a surplus for 2008-09, as opposed to the projected $500 million deficit.

It would be possible to argue for some (though not all) of the proposed privatisations on the grounds of economic efficiency, but of course arguments of this kind are no more (and, given the epic failure of financial markets seen over the past two years) arguably less valid than they were before the crisis, at which time Labor rejected them.

That leaves the argument that the asset sales will improve the state’s finances. Such arguments depend on showing that the value derived from selling the assets exceeds the value realised by keeping them in public ownership. In this opinion piece, Bligh attempts to make such a case, but the arguments involve hopelessly invalid apples-and-oranges comparisons. When a policy is defended by such obviously shoddy arguments, the only reasonable inference is that the correct assessment comes out the wrong way.

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Categories: Economic policy Tags:

Buying the Grand Final

October 29th, 2009 3 comments

A few days ago, I suggested, a little tongue-in-cheek that the money wasted on Gold Coast car races would be better spent buying a major football grand final. It turns out, that’s precisely what the Bligh government is trying to do, and offering much less than the cost of the car race. Nathan Rees is not happy.

Categories: Oz Politics, Sport Tags:

The prehistory of “liberal fascism”

October 29th, 2009 16 comments

A week or two ago I was doing a bit of work on the Wikipedia article on political correctness, and I came up with what may well be the first introduction of the term (initialised as “p.c.”) to the general public, as represented by the readership of the New York Times, in an article by Richard Bernstein.

At least since the 1970s, the description “politically correct” or, in Australia, “ideologically sound”, had been used within the left to mock those who were excessively concerned with doctrinal and linguistic orthodoxy. The story of how “political correctness” turned from an inside joke to a Marxist-inspired assault on All We Hold Dear is reasonably well known. Bernstein traces its emergence as a pejorative to a conference by the Western Humanities Conference held, appropriately enough, in Berkeley.

For me, at least, the real surprise in this article came right at the end, with a quote from Roger Kimball, now of Pajamas Media, who said “It’s a manifestation of what some are calling liberal fascism”. Apparently, Jonah Goldberg owes him royalties.

Update I haven’t made proper use of the excellent NYTimes search facility until now. This search shows a string of sardonic references to political correctness in the Arts section (and one reference to its use by the Chinese CP) appearing in the years before Bernstein’s piece. After that, there’s an explosion). And “liberal fascism” made its first outing (post-1980 at any rate) in a 1988 story about the Dartmouth Review, spoken by then editor Harmeet Dhillon.

Categories: Politics (general) Tags:

Monday Message Board

October 27th, 2009 27 comments

It’s time, once again for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

Categories: Regular Features Tags:

What is it with governments and car races?

October 25th, 2009 57 comments

Just about every Australian city has had a disastrous experience with a publicly-subsidised motor race. In most cases, the governments concerned have been advocates of market liberalism, who somehow find it possible to make an exception for motorsport.

Adelaide spent a fortune to buy the Grand Prix, only to see Jeff Kennett spend even more to entice it to Melbourne (at the same time as he was closing schools and sacking hospital staff). Economically unsound from the outset, the Grand Prix has experienced steadily declining attendance and interest, and is unlikely to last beyond 2015.

Kate Carnell in Canberra wasted a fortune on the V8 Supercars before admitting defeat. Before that, there was the Greiner government’s Eastern Creek fiasco. Now, we have another fiasco on the Gold Coast.

I’ll pass over the easy pointscoring about a government, claiming to be reduced to such straits that it has to sell off the family silver, blowing over $10 million on a sporting event. Even supposing we had to spend this money on sport, surely we could do better than this low-grade exercise. I have a few suggestions over the fold, and would welcome more.

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Categories: Oz Politics Tags:

A snippet on representative agents

October 23rd, 2009 13 comments

In response to some comments, I’ve written a little bit about the representative agent assumption in Dynamic Stochastic General Equilibrium Models. I argue that, given the underlying DSGE assumptions, you won’t get very much extra by including heterogeneous agents.

But, I intend to say in the “Where next” section, it seems likely that heterogeneous and boundedly rational individuals, interacting in imperfect and incomplete markets will generate ’emergent’ macro outcomes that are not obvious from the micro foundations. Of course, this is going to be a prospectus for a theory, not the theory itself.

In the meantime, comments on my snippet would be much appreciated.

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Categories: Dead Ideas book Tags:

Weekend reflections

October 23rd, 2009 86 comments

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic.

Categories: Economics - General Tags:

Bookblogging: Implications of micro-based macro

October 21st, 2009 19 comments

Another section from my book-in-progress. The book-so-far can be viewed here.

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Categories: Dead Ideas book Tags:

Midweek Message Board

October 21st, 2009 215 comments

Running late, so we’ll call it Midweek Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

Categories: Regular Features Tags:

Solar sums

October 21st, 2009 15 comments

Are you interested in switching to solar hot water and/or power? My UQ colleague Tim Coelli (mainly in the vineyard and holiday business these days, but still an adjunct professor) has done the sums, and says they come out looking pretty good for the package as a whole. Of course that depends on location, costs, available subsidies and so on. Tim has produced a spreadsheet so you can work it out for yourself.

Categories: Economics - General, Environment Tags:

The Importance of Being Earnest: How Superfreakonomics killed contrarianism

October 19th, 2009 88 comments

I missed out on the Crooked Timber book title contest (combine a classic title with a “How C did Y” subtitle in the modern manner) a while back, so here’s my entry. As regards earnestness, i’m riffing off Andrew Gelman, via Kieran Healy at CT, who observes “”pissing off conservatives” is boring and earnest?”

The main point, though, is that the fuss over the global cooling chapter in Levitt and Dubner’s new book is the first occasion, I think, where the refutation of specific errors has taken a back seat (partly because, in this case, it’s so easy) to an attack on contrarianism, as such. The general point is that contrarianism is a cheap way of allowing ideological hacks to think of themselves as fearless, independent thinkers, while never challenging (in fact reinforcing) the status quo. Here’s Krugman and Joe Romm, for example

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Categories: Economics - General Tags:

The Goldman put

October 17th, 2009 10 comments

From the NYT on the remarkable profitability of Goldman Sachs

A big reason for Goldman Sachs’s blowout profits this year has been the willingness of its traders to take big risks — they have put more money on the line while other banks that suffered last year have reined in such moves. Executives say there are big strategic gaps opening up between banks on Wall Street that are taking on more risks, and those that are treading a safer path.

Hmm. I’d be willing to take big risks if I knew the Fed and the US Treasury were standing by, ready to pick up all my losing bets. In the circumstances, the guys at GS doubtless stand amazed at their own moderation in creaming off a mere $20 billion for the year.

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Categories: Economics - General Tags:

Buying out brown coal

October 15th, 2009 94 comments

Today’s Fin (paywalled) leads with a story that the foreign owners of brown coal power plants are demanding that, instead of receiving compensation over time for the effects of the ETS, they should be paid a lump sum, in the billions of dollars, to shut down the plants. Given that compensation is to be paid, it is impossible for me to disagree with this. The whole point of the ETS is to reduce pollution, and that can’t be done effectively if major polluters receive payments that are conditional on continuing polluting activities.

But should they receive compensation. These plants were all in public ownership in 1992, when the Australian government first committed to reducing CO2 emissions (subject to the findings of the then-new IPCC). When Jeff Kennett sold them, the original buyers ought to have known they were taking a commercial risk regarding possible limits on emissions. Most of the current owners bought even later, after Australia had participated in the negotiation of the Kyoto Protocol.

The people who should be getting compensation are not investors who made bad bets, but the workers and communities who pay the price for their bad decisions. More on this in this paper with Flavio Menezes and Liam Wagner.

Categories: Economics - General Tags:

The right in LaLaRouche land

October 13th, 2009 136 comments

I just spoke at an event organized by the UQ Greens to discuss emissions trading. There was lively debate over the relative merits, and prospects for success of emissions trading, carbon taxes, and direct regulation (my views here).

Things were made even livelier by the attendance of some LaRouche supporters who explained, as usual, that emissions trading was a genocidal plot by the British Royal Family. On an issue like climate change, LaRouchites represent the extreme fringe of rightwing opinion, taking the usual conspiracy theories about grantgrubbing scientists and environmentalist plans for world government into utterly paranoid territory.

But the traffic isn’t all one-way. On the issue of DDT, a lot of people buy a watered-down version of the LaRouche theory presented in LaRouche’s 21st Century Science by Gordon Edwards back in the early 1990s, according to which the US ban on agricultural use of DDT in 1972 produced a global ban on the use of DDT to fight malaria, costing millions of lives as part of a genocidal eco-imperialist plot.

Tobacco lobbyist Steven Milloy, looking for a stick with which to beat the environmental movement, used his junkscience site (then affiliated with the Cato Institute) to push Edwards’ LaRouchite fantasies, including the claims of genocide, but (doubtless in deference to conservative sensibilities) without the usual LaRouche link to the Royal Family (Milloy’s genocide clock is here). Roger Bate of AEI later took up the same line with great success, though he has backed away from it more recently.

But who would be stupid enough to fall for the second-hand propaganda of a nut group, recycled by the tobacco industry ?

(Answer over the fold)

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Categories: Environment Tags:

What went wrong with New Keynesian macro ?

October 13th, 2009 17 comments

More bookblogging! It’s all economics here at CT these days, but normal programming will doubtless resume soon.

Most of what I’ve written in the book so far has been pretty easy. I’ve never believed the Efficient Markets Hypothesis or New Classical Macro and it’s easy enough to point out how the occurrence of a massive financial crisis leading to a prolonged macroeconomic crisis discredits them both.

I’m coming now to one of the most challenging section of my book, where I look at why the New Keynesian program (with which I have a lot of sympathy) and ask why New Keynesians (most obviously Ben Bernanke) didn’t, for the most part, see the crisis coming or offer much in response that would have been new to Keynes himself. Within the broad Keynesian camp, the people who foresaw some sort of crisis were the old-fashioned types, most notably Nouriel Roubini (and much less notably, me) who were concerned about trade imbalances, inadequate savings, and hypertrophic growth of the financial sector. Even this group didn’t foresee the way the crisis would actually develop, but that, I think is asking too much – every crisis is different.

My answer, broadly speaking is that the New Keynesians had plenty of useful insights but that the conventions of micro-based macroeconomics prevented them from forming the basis of a progressive research program.

Comments will be appreciated even more than usual. I really want to get this right, or as close as possible
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Categories: Dead Ideas book Tags:

Ostrom and Williamson win Nobel

October 13th, 2009 18 comments

The award of the Economics Nobel (yes, yes, I know) to Elinor Ostrom and Oliver Williamson came as a big surprise, but is certainly welcome. I’ve always been keen on Ostrom’s careful and empirically-based analysis of common property systems (I did my Master’s thesis on this topic, and wrote a bunch of papers about it back in the 1980s), in contrast to the factually false Tragedy of the Commons story pitched by Garret Hardin. And Williamson’s work on transactions costs transformed the way economists think about these things, though we have yet to offer a fully satisfactory account of them.

Update Over the fold, an extended version I wrote for Crikey

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Categories: Economics - General Tags:

Praising with faint damns

October 13th, 2009 9 comments

The Australian’s Online Poll today is “Do you think the federal government deserves all the credit for averting a recession? ”

Obviously they judged that even the readers of the Oz weren’t going to reject the idea that the government deserves some credit for its successful management of the crisis. Even the obviously rigged version only got 62 per cent in favour at last count.

Categories: Media Tags:

Bookblogging Micro-based macro

October 12th, 2009 4 comments

Over the fold, yet more from my book-in-progress, Zombie Economics: Undead ideas that threaten the world economy. This is from the Beginnings section of the Chapter on Micro-based Macro, and covers the breakdown of the Phillips curve and the rise of New Classical and Rational Expectations macro. This (along with the bits to come on DGSE models) is probably the section on which my own background is weakest, so feel free to point out my errors.

I’ve now posted drafts of the first three chapters (+Intro) at my wikidot site, so you can get some context. In particular, before commenting on omissions, take a quick look to see that the point hasn’t been covered elsewhere.

Micro-based macro is here

I’ve got a lot out of comments and discussion so far, and I hope some of this is reflected in what you are reading.

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Categories: Dead Ideas book Tags:

Monday Message Board

October 12th, 2009 19 comments

Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

Categories: Regular Features Tags:

Weekend reflections

October 10th, 2009 123 comments

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language. I’ve cut off a thread-derailing discussion of the Pinochet dictatorship on another post, but those so inclined can go at it here, bearing in mind the comments policy and the requirement for civility.

Categories: Regular Features Tags:

Bookblogging: Micro-based macro

October 8th, 2009 14 comments

Another installment of my slowly-emerging book on Zombie Economics: Undead ideas that threaten the world economy. This is from the Beginnings section of the Chapter on Micro-based Macro. I’ve now posted drafts of the first three chapters (+Intro) at my wikidot site, so you can get some context. In particular, before commenting on omissions, take a quick look to see that the point hasn’t been covered elsewhere.

Micro-based macro is here

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Categories: Dead Ideas book Tags:

Options after a double dissolution election

October 6th, 2009 59 comments

I’ve been thinking a bit about the possibility of a double dissolution. Given the complete incoherence of the Opposition, anything could happen, but it’s hard to see them agreeing on amendments that would be workable in any way. And equally it’s hard to imagine any outcome from a DD election other than a crushing victory for the government. Even so, a Senate majority looks out of reach.

That leaves them with two options after the election. They could use the joint sitting mechanism to pass the ETS bill rejected twice by the Senate. Alternatively (or subsequently), they could sign on to an agreement at Copenhagen and introduce new legislation implementing that agreement, relying on support from the Greens (or, in the event of a post-thrashing change of heart, the Opposition). The latter option looks a lot more appealing in many ways.

The worm in the bud

October 6th, 2009 61 comments

I finally read Gillian Tett’s Fools Gold

, an account of the development of the derivatives industry centered on credit default swaps (CDS) and collateralised deposit obligation (CDOs) that collapsed so spectacularly last year. The discussion is excellent, but still, I think, too charitable to these instruments and their creators. Tett’s main source is the group at JP Morgan who pioneered many of these derivatives and, largely, got out before the crash. Their line, unsurprisingly, is that the problem was not with the concept as they developed, but its abuse by latecomers.

But a close reading of Tett’s account yields a different story. These innovations were defective from day one.

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Categories: Economic policy Tags:

Bookblogging & bookwiki

October 5th, 2009 2 comments

I’ve been moving slowly on the book for the last few weeks, but I have taken one positive step to encourage further discussion. In response to suggestions from readers, I’ve started a wiki site imaginatively named Zombiecon where my plan is to post draft chapters. The Efficient Markets Hypothesis is already up. In part, the idea is to provide a reference to avoid some of the problems that arise from blogging a section at a time. But, if someone wants to create one or more talk pages on the site itself, that would be great. I’m not really sure joint editing in the mode of Wikipedia, but if you have suggested minor changes, go ahead and make them – I may revert or partially adopt them. ????? ???? ? ????????? ????????

Categories: Dead Ideas book Tags:

Some interesting quotes

October 5th, 2009 119 comments

Glenn Milne

Any other outcome than the endorsement of Dutton by the Gold Coast Liberals would render the party not worthy of a vote across the country.

(Dutton lost).

Tony Abbott

The argument [on climate change] is absolute crap. However, the politics of this are tough for us. Eighty per cent of people believe climate change is a real and present danger.”

Malcolm Turnbull

I am very committed to my service to the people of Wentworth and I’ve got no plans to leave,

(on this, see JK Galbraith)

Miranda Devine

the fact is that you can articulate a position on climate change that does not dispute man’s contribution without buying into a complicated ETS,

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Categories: Oz Politics Tags:

Monday Message Board

October 5th, 2009 20 comments

Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

Categories: Regular Features Tags:

Disasters in Asia

October 2nd, 2009 4 comments

There are lots of tragic scenes from the tsunami and earthquakes that have affected so many of our neighbours, and the terrible typhoon and floods in Manila. You can help by giving more generously than usual to the development charity of your choice. Here is a link to an appeal by CARE. ????? ?????? ???

Categories: Life in General Tags:

Presentations in Adelaide

October 1st, 2009 52 comments

Despite strenuous efforts, it’s hard to avoid air travel in my line of work, and I’ve been doing more than usual lately. One strategy I use to reduce travel is to bundle multiple commitments into a single trip and I’ve done this reasonably effectively with my latest visit to Adelaide. I presented a paper at the Australian Conference of Economists, a public lecture for the Don Dunstan Foundation and an assessment of the economic outlook for the ACE Business Symposium as well as taking part in several meetings. (A couple of presentations are linked).

My presentations were mostly concerned with the financial crisis and its implications, but I also had meetings on water allocation in the Murray Darling Basin and on Internet access to public information and cultural assets such as image libraries. ???? ??????? 50 ???

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Categories: General Tags: