Archive for September, 2010

Another meltdown at the Oz

September 29th, 2010 35 comments

As I’ve mentioned a few times, the Oz is extremely sensitive to blogospheric criticism. In response, its typical MO has been an unsigned editorial, or a piece by a ‘staff writer’, in which unnamed and unlinked (but easily identifiable) bloggers are castigated for their sins. Typically, the piece ends with a flourish of bravado, in which the brave, though anonymous, editorialist, backed only by the multi-billion dollar resources of News Corporation, pledges to carry on in defiance of the powerful, but unnamed, bloggers arrayed against it.

The script has been reversed, however, in the case of Grog’s Gamut, a pseudonymous political blog which made some useful contributions during the election campaign. Apparently acting under the misconception that public servants aren’t allowed to engage in political activity, Oz journalist James Massola took on himself to out the blogger concerned. He works in the film section of what was the Department of Environment, Heritage, Water and the Arts, which suggests that the potential for political activity to compromise his public service role is, shall we say, limited.

There are still some decent journalists working for the Oz, but the paper itself is a sad joke. On the other hand, as Steve Hind observes, the downmarket spiral of the Age and SMH (at least in their online versions) means that there is not much competition.

Categories: Media, Metablogging Tags:

Conference like its 1999

September 28th, 2010 19 comments

A long time ago, I read an article whose author had read through all the leading economics journals from the 1930s. The striking finding was that only a tiny proportion of the articles published in those years concerned the Depression and what to do about it. This struck me as a disastrous state of affairs, and has been one factor in pushing me to comment on the important issues of the day, rather than to a narrow specialisation.

But, having attended the Australian Conference of Economists for the last couple of days, I have to say that a future historian of economic thought will be able to rewrite much the same article about the current crisis. Only a handful of papers presented at the conference have dealt with the crisis, even indirectly, and most of those have concluded that we only need marginal adjustments to our current way of doing things.

The opening plenary session, for example, was on inflation targeting and the main message was that, all things considered, inflation targeting worked pretty well in the Global Financial Crisis. Some tweaks might be needed in the future, but then again they might not. This was the same conclusion as at the Reserve Bank 60th Anniversary meeting earlier this year, and I find it pretty hard to believe.

About the best I can say is that, against this background, my Zombie Economics book stands out.

Categories: Economics - General Tags:

Monday Message Board (on Tuesday)

September 28th, 2010 91 comments

It’s time (past time in fact), once again, for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.

Categories: Regular Features Tags:


September 26th, 2010 29 comments

Sydney readers get a couple of chances to hear me say in person what I write here. I’ll be speaking at the Australian Conference of Economists, at Darling Harbour Dockside, Monday morning on Zombie Economics. Also, the following Sunday at the Festival of Dangerous Ideas at the Opera House.

Categories: Economics - General Tags:

Sandpit 25/9

September 25th, 2010 106 comments

A new sandpit, the place for off-topic rants and lengthy one-on-one debates no-one else can really follow, because they missed the crucial contradiction between comment #347 and comment #186. Seriously, that kind of extended comments-thread debate is part of blogging, and I wouldn’t like to lose it. But, so far, confining it to the sandpit seems to be working pretty well.

Categories: Regular Features Tags:

Weekend reflections

September 25th, 2010 8 comments

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit. As always, civilised discussion and no coarse language please.

Categories: Regular Features Tags:

The text and the book

September 25th, 2010 9 comments

I’ve been living with the text of Zombie Economics for a long time and the cover art came out a while back. But now I finally have my hands on a physical copy of the book, and it’s surprising what a difference the real object makes. My immediate reaction was to open it with dread, sure that some terrible error would jump out at me, but that didn’t happen (no doubt the reviewers will find them, but that’s their job).

With that out of the road, I’ve been filled with irrational confidence. “Surely”, I think, “even the most jaded traveller, passing this book on the airport bookstall, will feel impelled to buy it”. No doubt, this optimistic glow won’t survive the arrival of actual sales figures, but I’m enjoying it while it lasts.

Categories: Dead Ideas book Tags:

Universities and stratification

September 24th, 2010 18 comments

One of the big themes in the debate over university education has been that we should have a more differentiated system, rather than a ‘one-size fits all’ solution. This view is shared by market-oriented reformers and by some traditionalists, who look back nostalgically to the days when each state had one university, catering to a small elite, while the rest went to tech, or teachers college or (for the majority) the school of hard knocks. In the idealised view, universities would compete with diverse offerings, and the informed market choices of consumers (18-year olds and their parents) would produce an ideal outcome.

In reality, the quasi-market policies that have been dominant for the last couple of decades have reduced diversity on all dimensions except one. Before the reforms that began in the 1980s, the tertiary sector included many different types of institutions (unis, CAES, institutes of technology and TAFE), and the 1970-vintage universities consciously sought to provide an innovative alternative to the long-established sandstones. Now, there are just universities and TAFE. Policies encouraging universities to nominate “flagship” programs produced the unsurprising (but apparently unexpected) result that everyone went for MBAs and no-one for pure mathematics. Responsiveness to consumer demand produced plenty of courses in cinema studies and very few in classics. And so on. There are still some attempts at doing things differently, such as the “Melbourne model”, but overall the pattern is one of identical responses to identical incentives.

On the other hand, the reforms have amplified long-standing inequalities in wealth and status between universities. Despite the rhetoric of competition, the relative rankings of Australian universities were determined more than 100 years ago, when the sandstone universities were established, followed by the precursors of the “Dawkins universities”. The reforms did not shake these rankings, but they widened the gap between the sandstones and the 1970-vintage unis – before the reforms, a university was a university, and status differences were much less important.

Read more…

Categories: Economics - General Tags:

Exercise again

September 23rd, 2010 22 comments

I can’t bring myself to post about the latest manoeuvring for numbers in the Parliament, and nothing much is going to happen on policy until that’s all resolved. So, since exercise seems to be one of the topics in which nearly everyone is interested (and there are lots of other blogs devoted to the topic on which *everyone* is interested), I thought I would expand on my last post. That post made it seem as if I’m focused on running, but actually I try for a more diverse portfolio
* Group training, three or four times a week
* Running, 5k or so, twice a week, mostly on treadmill or soft surfaces. I was running further and on hard surfaces but cut back when I started getting knee pain
* Cycling, 20-30km, once or twice a week, plus riding into work intermittently
* Swimming, 500m-1K, two or three times a week
That seems to be enough to keep my muscles a bit sore most of the time, but to avoid obvious injury to my joints. Following some problems a few months ago, I’ve been getting some useful advice from my physiotherapist and a sports podiatrist on how to avoid knee injuries from running.

Categories: Sport Tags:

Evidence-based policy

September 22nd, 2010 57 comments

As I mentioned a while back, I’ve been doing a bit of running and, unsurprisingly, had knee problems. One response has been to take drinks made of a foul-tasting powder containing glucosamine sulphate and chondritin, which has been widely held out as having promise in relieving symptoms of osteoarthritis. There were some promising case studies, enough to prompt both widespread use, including by me, and a full-scale trial and meta-analysis.

The tests results are now in, and I have mixed feelings in reporting that the both glucosamine sulphate and chondritin appear to be useless. (H/T Neurologica, but link isn’t loading). I was tempted to finish off what was left, on the theory that it might be doing some good anyway, but my commitment to evidence-based policy, along with the fact that the stuff tastes foul, has prevailed.

Out it goes. Now, if anyone can recommend a good broad-spectrum placebo, I’m in the market.

Categories: Sport Tags:

Monday Message Board

September 20th, 2010 106 comments

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

Categories: Regular Features Tags:

Weekend reflections

September 18th, 2010 2 comments

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit. As always, civilised discussion and no coarse language please.

Categories: Regular Features Tags:

‘States rights’ comes to Europe — Crooked Timber

September 18th, 2010 6 comments

Looking at the Sarkozy government’s attempt at ethnic cleansing of the Roma, The Economist’s Charlemagne had the following observation about

the vociferous protest from the European Parliament. On September 9th it passed a strongly worded resolution denouncing discrimination against the Roma, and singled out the commission for its “late and limited response”. The row thus brings out the contradictions of European democracy: an elected national government finds that its resort to populism is confronted by the European Commission, an appointed body, and by the European Parliament, a distant chamber elected by a minority of voters.

It struck me that you could replace “national” with ” Southern state”, “European Commission” with “US Supreme Court” and “European Parliament” with “US Federal government”, and the analogy with Brown vs Board of Education would be just about perfect (except that it’s the Parliament driving the Commission and not vice versa). Then I noticed that Chris had proposed an almost identical substitution in relation to economic policy here.

This is the first time I can recall the European Parliament playing a key role in a conflict between the central institutions of the EU, such as the Commission and a member state. If the Parliament and Commission prevail, as they should, it seems to me that this will change the effective political structure of the EU, in the direction of a federal democracy. I’d be interested in the thoughts of those closer to the action.

Posted via email from John’s posterous

Categories: Economics - General Tags:

Links to a parallel universe

September 15th, 2010 58 comments

A few stories about what theorists of postmodernism call “the social construction of reality” on the political right

* The Irish science minister, who planned to launch a book denouncing evolution as a hoax, has pulled out after a lot of criticism and some embarrassing revelations about the author

* Newt Gingrich is touting a new version of birtherism, developed by Dinesh D’Souza, formerly one of the bright young things at the Hoover Institute

* The standard ploy among anti-science amateurs has been to compare themselves to Galileo. But now Robert Sungenis and Robert Bennett have taken the War on Science to its next logical stopping place, with a work in favor of geocentrism, entitled Galileo Was Wrong: The Church Was Right

* The tobacco industry is secretly funding a “grassroots” campaign against plain packaging for cigarettes. This is obviously close to home, but tobacco money spreads far and wide, supporting anyone willing to tell lies about health and environmental science. Among their many targets was Rachel Carson.

* On the global warming front, Lord Monckton is still at it. Here (via Tim Lambert) is a demolition of his latest nonsense, from Alden Griffiths.

A particularly interesting feature of all this is what might be called “cafeteria craziness”. I’m referring to the kind of person, common on the Australian right, who takes the anti-science line on climate change, DDT and so on, but is indignant about being associated with the (virtually identical) arguments of creationists and geocentrists. Or, even pickier, those who are embarrassed by Monckton’s claims of a plot to establish a communist world government, but still want to cite him as a scientific authority

Categories: Boneheaded stupidity Tags:

How the Americans stole the Ugg boot

September 14th, 2010 20 comments

Felix Salmon has a great piece responding to a WSJ puff piece on the American trademark troll company that has stolen the name “Ugg boot” then used “intellectual property” laws to impose the absurd claim that the only genuine Uggs are those made in China.

The world would be a lot better off without intellectual property, or at least with a return to the more reasonable rules of the 19th century (14 years copyright, limited patents restricted to actual inventions, trademarks to identify products rather than to stifle competition) and the attempts of the US government to defend IP monopoly rights are one of the many reasons American “soft power” is such a perishable commodity.

Categories: Intellectual 'property' Tags:

The Oz feeling the heat

September 14th, 2010 35 comments

As many bloggers know, The Australian is hypersensitive to criticism, which is unfortunate, since so much of what is printed in its pages calls out for correction. The most consistent example is its War on Science (particularly climate science). Tim Lambert’s series on the topic is now up to 50 entries.

Until now, the usual MO has been to make the attack without identifying the target, though in such a way that anyone actually involved knows who is intended. For example, I got a whole editorial to myself, in which I was described only as “an opinion writer in a financial tabloid” and as a “green activist” with a “totalitarian mindset”. I’ve finally got around to adding the latter bouquet to my sidebar, along with various other compliments.

But, as the Oz has become more and more openly partisan and dishonest, the criticism has come not only from bloggers and occasional columnists but from leading lights of the journalistic establishment, who can’t be ignored in this way. Laura Tingle had an excellent piece in the Fin (paywalled) and the Oz today identifies Barrie Cassidy and Fran Kelly as fellow-critics. The Oz takes offence at a description by Fran Kelly of “front-page editorialising”, but that’s too generous. Party-line propaganda masquerading as news can be found on every page of the Oz.

And what’s true of the Oz is true of the entire Murdoch empire, from Fox News to the Times of London. The former paper of record[1] was recently forced to print a humiliating retraction of the lies it told about the spurious “Climategate” scandal[2], something which the Oz has (I think) failed to do.

Obviously, Murdoch is not incurring any short-run costs from abandoning the truth. His readers and viewers have demonstrated, over and over, that they prefer comfortable lies to inconvenient truths, on everything from the Iraq war to climate change to birtherism. But sooner or later, the political right in the English-speaking world will pay a heavy price for its collective decision to disregard reality.

fn1. To be absolutely specific, it was the Sunday Times – I’m not sure of its exact relationship to the weekday edition.
fn2. Of course, the real scandal was the theft of private emails, and the use of distorted extracts for defamation, a crime in which almost everyone in the anti-science movement was complicit to some extent or another. Their standards of morality are even lower than their standards of reasoning.

Categories: Media Tags:

Fresh sand

September 13th, 2010 115 comments

The sandpit seems to be going well, so I’m starting a new one. Please continue any ongoing discussion in the old sandpit. Meanwhile, this is the place for new side-debates, matters arising, Strocchi-length theoretical expositions and so on.

Categories: Regular Features Tags:

Monday Message Board

September 13th, 2010 23 comments

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

Categories: Regular Features Tags:

Status quo ante bellum — Crooked Timber

September 12th, 2010 30 comments

Nine years after the terror attacks of September 11, 2001, we’ve all had plenty of time to think about war and its justifications. My own views have moved me steadily towards the viewpoint that war is hardly ever justified either morally or in terms of the rational self-interest of those involved. The obvious problem is that, if no one else is willing to fight, an aggressor could benefit by making demands backed by force. It seems to me, however, that this problem can be overcome by admitting that self-defense (including collective self-defense) is justified only to the extent of restoring the status quo ante bellum. That is, having defeated an aggressor, a country is not justified in seizing territory, unilaterally exacting reparations or imposing a new government on its opponent. Conversely, and regardless of the alleged starting point, countries not directly involved should never recognise a forcibly imposed transfer of territory or similar attempt to achieve advantages through war.

This isn’t a novel idea by any means, but I haven’t found an adequate discussion, and the discourse of International Relations theory seems to me worse than useless, being dominated by unrealities like ‘international realism’ , opposed to the strawman of ‘idealism’. Just war theory seems a bit more satisfactory, but I haven’t found it helpful in relation to the hard cases. [1]

Following up on the discussions we’ve had here recently, the status quo ante bellum position can be defended in game-theoretic terms, with no need to invoke unrealistic assumptions about international idealism.

The status quo ante bellum is, in game-theoretic terms, a salient point that provides a natural focus for a coalition, particularly for third countries with no direct stake. An interest in preserving international order provides third countries with a motive not to recognise gains secured by others through military force. While the gainer may be able to secure recognition from close allies, the absence of general recognition renders such gains costly and uncertain to hold, no matter how long they endure.

This isn’t merely a theoretical claim. International practice since 1945 has typically been to deny recognition to territorial gains secured by force, regardless of “facts on the ground”, no matter how long-lasting. Examples include the Indonesian annexation of East Timor (shamefully, Australia was one of the few countries to recognise this claim), the Turkish occupation of Northern Cyprus, the various ‘frozen conflict’ mini-states created under Russian patronage after 1991 and of course the Israeli occupation of the West Bank[2].

But there’s still, it seems to me, a widespread presumption that having gone to war in self-defense (as judged by themselves), countries are entitled to set whatever objectives they see as reasonable. The point of proposing status quo ante bellum as the only legitimate goal is to close off this capacity for self-defense to turn into aggression.

Of course, none of this would matter if the strategic use of military force reliably or even commonly yielded net benefits, as is assumed by ‘realists’ and, until relatively recently, by most holders of, and seekers after, political power. The experience of the 20th century shows the opposite – many cases of wars ending disastrously for those who launched them, and hardly any that produced clear and sustained net benefits.

I don’t intend merely the limited, and obvious point that, taken as a whole, the people of a country that goes to war are worse off as a result. Looking at the evidence, the same is typically true of the ruling classes, and of the individual rulers who make decisions to take their people to war. Of course, there are beneficiaries in the armaments industry and the military hierarchy, but almost any policy, no matter how disastrous, benefits someone.

I haven’t so far discussed the case for humanitarian intervention, punishment of war crimes and so on. The Iraq war showed that if individual governments (or coalitions) are allowed to set themselves up as judges in their own cases, disaster will ensue. The only legitimate basis for such action is a decision of the international community as a whole. At present, the best, admittedly imperfect, bodies for making such decisions are the UN Security Council and the International Criminal Court. The cumbersome nature of their processes mean that many wrongs will go unrighted, and many crimes unpunished. But that is true of all legal systems. And even if such interventions are justified, that does not mean they will be feasible or, if undertaken, assured of success.

Finally, most of what I’ve said about war applies to revolution and other forms of political violence. The fact that the existing order of things is unjust and not amenable to change is not sufficient justification for the certain suffering and far from certain benefits of revolutionary violence. Most revolutions, like most wars fail, and, as with wars, initial success is rarely enduring.

fn1. I’m aware that I’m an amateur dismissing the efforts of the professionals, and therefore likely to have got a lot of things wrong. But, as an economist, I’ve often been on the other end of this kind of criticism, and I think it’s useful to face it.

fn2. I mention this example because it would be silly to omit it, but I absolutely do not want to derail discussion into another rehash of this issue. Any comment referring in any way to the Israel/Palestine conflict will be deleted with prejudice.

My thoughts on 11 September, 2010

Posted via email from John’s posterous

Categories: Economics - General Tags:

Weekend reflections

September 11th, 2010 4 comments

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit. As always, civilised discussion and no coarse language please.

Categories: Regular Features Tags:

A slow motion disaster (update)

September 10th, 2010 24 comments

The floods in Pakistan never produced a dramatic moment like the Boxing Day tsunami. And one flood looks much like another on TV, so it’s hard to comprehend the scale of this disaster. But it is truly one of the worst in recent history, worse even the tsunami in terms of the destruction it has wrought, though not for immediate loss of life. There’s some more information here from Oxfam.

James Farrell ran an election-tipping exercise at Club Troppo, which raised $1150 ($250 from me). I haven’t thought of a gimmick (suggestions appreciated) but I hope we can raise at least as much here. Please give to your favorite charity and record it in the comments box. If you’re shy, email me with the details and I’ll add you to the list as “an anonymous reader”

I’m moving this back up to the top. The disaster is still going on, and help is urgently needed

Categories: Life in General Tags:

One last chance

September 10th, 2010 15 comments

The decision by Queensland coal companies to drop their bid for the track assets of Queensland Rail hands the state’s Labor party one last chance to hang on to office. There is still time to dump the economically silly and politically suicidal idea of a public float for QR, either because the Premier and Treasurer suddenly announce that circumstances have changed (as they did, going the other way, immediately after the last election) or because the Caucus decides that taking a chance on a new leadership team is preferable to the certain oblivion to which Bligh and Fraser are leading them.

According to this poll report, Labor’s primary vote has fallen to a horrendous 29 per cent. Looking at the dismal performance of Federal Labor in Queensland at the recent election, in which the LNP campaigned against Bligh rather than Gillard, there’s no reason to doubt that this would be translated into reality unless something changes. Certainly, on current policies, I’ll be preferencing the LNP ahead of Labor.

Categories: Oz Politics Tags:

The sandpit

September 10th, 2010 21 comments

I’ve been dissatisfied with the way comments threads have been going for a while, in particular because I feel that they rapidly become dialogues (or competing monologues) involving a small group of regulars. That discourages new commenters from joining in. So, I’m establishing this sandpit post, as a venue for any lengthy discussions that arise, particularly if they are off the original topic. The comments policy regarding civil discussion still applies, but I’ll try to be reasonably lighthanded.

So, my request is that commenters avoid lengthy interchanges on the main comments threads, and take these to the sandpit, where they can debate to their heart’s content. I’ll issue requests along these lines, if necessary, but I’d rather not. I may also impose, or reimpose one comment/thread/day limits on individual commenters to keep things under control.

With that said, fire away

Categories: Regular Features Tags:


September 9th, 2010 58 comments

I was too clever by half with my prediction in 2007 that “the Liberal Party will never win another federal election”, but it still looks as if I might be right. My point of course, was not that Labor would be in forever[1], but that the Liberals and Nationals would be forced to merge before they could get back in. The merger has taken place in Queensland, with the result that the current Coalition includes only six members elected as Nationals. The future for Lib-Nat coalitions at state level doesn’t look much better. On current trends, NSW Labor will be wiped out so thoroughly that the Liberals will have a majority in their own right, and anything they give to the Nats will be an exercise in charity. It’s possible that a Lib-Nat coalition could get in at the forthcoming Victorian election, but unlikely, which brings me to a more interesting point.

The Labor-Green-independent coalition that has emerged at the national level is still being treated by the Canberra pundits as an aberration, but it’s becoming the norm for Labor. Labor governments depend on Green support in the ACT and Tasmania. The NT government relies on an independent and the same has been true in the past in SA, Queensland and Victoria. On current indications, the next round of state elections should see Labor beaten in NSW and Queensland (at least if they stick with Anna Bligh and privatisation). Victoria is the state where Green support is strongest, and any remotely fair electoral system would see Labor forced into coalition with the Greens. Whether the Green can actually win enough Lower House seats to bring this about remains to be seen, but Adam Bandt’s win at the national level has certainly brought this into the realm of the possible.

So, it’s entirely possible that, in a decade or two, when we talk about “the coalition”, we’ll be referring to Labor-Green, not Lib-Nat.

fn1. That said, I never anticipated anything like the fiasco by which Labor managed to turn the unassailable position they held in December 09 into the hair’s-breadth margin they nnow hold.

Categories: Oz Politics Tags:

The miracle of democracy, Part IV

September 7th, 2010 94 comments

It’s finally over, and the outcome (if it holds) looks like the best possible. If it’s true that a country gets the government it deserves, we must all have been doing a lot of good deeds lately. Despite the efforts of both major parties to force us into a choice between focus-grouped piles of bribes and banality, we appear set for parliamentary reform, and a serious approach to climate change, tax reform and broadband policy[1].

fn1. Trying to watch the Windsor-Oakeshott press conference online was an object lesson in the inadequacies of our existing networks.

Categories: Oz Politics Tags:

Time for the white smoke

September 6th, 2010 22 comments

There can’t be much left to discuss. Let’s have a government already!

Categories: Oz Politics Tags:

Monday Message Board

September 6th, 2010 15 comments

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

Categories: Economics - General Tags:

One percenters — Crooked Timber

September 6th, 2010 2 comments

In my post on EU-US convergence, I found that the US was similar to the leading eurozone countries in both productivity (output per hour worked) and employment-population ratio, so that the difference in income per person is mostly explained (in some cases more than explained) by differences in hours worked per employment person. I didn’t take the distribution of income into account, since the data sources I was using there did not provide anything useful. But commenter Detlef found a blog post by Maximilian Hagemes at the World Bank site which links to a useful paper by Piketty and Alvaredo on cross-country comparisons of income concentration. For most eurozone countries, they show that the top 1 per cent of households gets about 8 per cent of total income (the presentation is graphical, but in any case, there is no point in going for spurious precision with numbers like this). For the US, the most recent data gives an 18 per cent share. So, the share of national income going to the remaining 99 per cent is about 10 per cent smaller in the US than in the eurozone.

There are a couple of ways of looking at this.

Update I was too subtle for my own good in the original version, putting up the idea that the share going to the rich could be viewed as a kind of tax, and leaving it to readers to draw the conclusion that (99 per cent of) Europeans get better returns from the money they pay to governments than do their American counterparts from a system where a large share of total income goes to the top 1 per cent. In the update, I’ve spelt this out.

The data on the top 1 per cent share I used was out of date. The figure for 2007 was 23.5 per cent. At this level, the share of US income that flows as disposable income to the bottom 99 per cent is probably below that of most European countries (the exact outcome depends on how much tax is paid by the top 1 per cent). The recession probably took a bit more from the very rich, but they are already bouncing back, at least on Wall Street.

The simplest is to adjust the comparisons given in my previous post by excluding the income of the top 1 per cent. There we saw that income per hour worked in the US is about 15 per cent higher than for the EU as a whole. But, given the much larger share going to the top 1 per cent, most of this difference disappears for the remaining 99 per cent, taken as a group. Within that group, Americans in the the top decile or top quintile (but not the top 1 per cent) do much better in relative terms than Europeans, while those in the remaining 80 or 90 per cent do relatively worse, as Piketty and Alvaredo show. So, in terms of income per hour worked, most Americans are probably a bit worse off than their counterparts in the EU as a whole.

But of course, the EU is a very disparate place, as is the US. France, Germany, Belgium and the Netherlands are all above 90 per cent of the US level in terms of total income per hour worked, and therefore ahead of the US as a whole once the top 1 per cent is excluded. We can then say that (excluding the 1 per centers) income per hour worked in the US is significantly below that in the leading eurozone countries. The gap is made up by longer hours of work and (to a smaller extent) by higher female participation in market employment[1]

There’s another way of thinking about this that I find a bit more interesting. In some sense, the top one-percenters are competing with the state for the job of running the economy. If they aren’t burdened down with high taxes and income redistribution, so the free-market case goes, they will do a much better job in promoting innovation, better resource allocation and so on, to the benefit of all. And through philanthropy, the top 1 per cent can help to provide public goods, health services and so on that would, in a social-democratic system be the responsibility of the state.

So, the income share accruing to the top 1 per cent may be seen as an alternative to paying more of national income in tax revenue for governments. It makes sense then, to combine the two, to see how much of total market income is being turned over to those who run the economy, fund public services and so on. Conversely, post-tax market income, excluding the proportion going to the top 1 per cent, is what is left over for private expenditure.

As with the earlier post, the answer is that, on this combined measure, the EU and US are fairly similar. Wikipedia cites Heritage estimates that the US tax revenue share of GDP is 28 per cent compared to 40 per cent for the Netherlands, 41 per cent for Germany and 46 per cent for France. Simply adding in the proportion going to the very rich (a very crude way of doing the adjustment, but this is a blog post after all) brings the US share up to 46 per cent, while the other three come out at 48, 49 and 54 per cent respectively

Within the inevitable margin of error, we can reaffirm the conclusion from the earlier post that there is no significant difference between the US and the eurozone leaders on output per hour worked or on employment population ratios. The big differences between the two are
(a) Employed Americans work longer hours (offset by the fact that Europeans do more household work)
(b) In both the EU and US, ordinary income earners receive about half of total market income as private disposable income. In the US, however, a much larger proportion of the other half goes to those in the top 1 per cent, while in the EU it is mostly tax revenue. It seems clear to me that that the Europeans get a better return for their money

fn1. Conversely, other parts of the EU are behind. And while it’s difficult to get really accurate state-level or regional figures for the US, it’s obvious that you can go the other way, and point to US states that are better off or worse off than the EU as a whole or the leading eurozone countries.

Posted via email from John’s posterous

Categories: Economics - General Tags:

Weekend reflections

September 5th, 2010 105 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 please.

Categories: Regular Features Tags:

The miracle of democracy, Part III

September 3rd, 2010 54 comments

By the end of election night, it seemed pretty obvious that we were in for an extended period of bargaining before a government could be formed. That seemed unlikely to be an edifying process – the usual expectation would be for a massive pork-barrel auction, throwing roads, dams and other goodies at the electorates whose members were lucky enough to be pivotal. Amazingly, so far at least, the reverse has happened. In its deals with the Greens and Andrew Wilkie, Labor has been forced to dump stupid focus-group policies (like the citizens jury), take on powerful interests (like the gambling lobby) and commit to a range of process improvements. The remaining independents (particularly Oakeshott) have made similar noises, so it’s possible to hope for a government much better than either of the miserable alternatives that appeared to be on offer a couple of weeks ago.

Of course, things can still go wrong, and recent experience suggests they probably will. But, at least for one weekend, there’s a bit of hope in the air.

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