Happiness and unhappiness

June 30th, 2015 8 comments

I have a chapter in a newly released book on happiness, extracts of which have been published in The Conversation. My argument, summed up as Measures of happiness tell us less than economics of unhappiness, is a reworking of points I’ve made in the past. In particular, I argue that it’s more useful to think about removing avoidable sources of unhappiness, and that has been the great success of social democracy and the welfare state.

Categories: Books and culture, Life in General Tags:

A progressive alternative economic agenda

June 26th, 2015 175 comments

This is a statement released yesterday and endorsed by a group of unions and individuals, including me. It calls for a progressive alternative economic policy. It’s a statement of principles rather than a program, and essentially a restatement of the social democratic position that represents the best of the Australian labor movement, free of both dogmatic leftism and the capitulation to market liberalism we’ve seen over the past thirty years or so.

A program developed on these principles would, I believe, be electorally popular if only we could get it before the public. But the policy elite, including journalists and the press, remain under the spell of market liberalism, despite its evident failures. So, our public debate will continue to be dominated by silly pointscoring about debt, deficits and the need for “reform”.

The full text is over the fold (the link goes to a properly formatted version)

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Categories: Economic policy Tags:

Adani Galilee Basin project on hold: threat or alibi?

June 25th, 2015 35 comments

In an interesting sequence of events, Adani has halted engineering work related to its proposed Carmichael mine in the Galilee Basin.

Last week, it appears, Adani sent out notices to our major engineering contractors, including WorleyParsons, Aecon, Aurecon and SMEC, to stop work. A team of up to 40 engineers at WorleyParsons’ Brisbane office, which was working with Aecon on the rail joint venture, was among those pulled off the project. No public announcement was made.

Yesterday, the Guardian revealed the stopwork, citing “sources”. Adani declined to comment

Today, Adani is claiming that the stopwork was due to delays in regulatory approvals, a claim denied by the Queensland government. It’s worth noting that the new Labor government quickly resolved the biggest outstanding issue for Adani’s rail line and port expansion, namely where to dump the dredging spoil from the port. The solution was neat – they offered land that had been reserved for an expansion proposed by BHP Billiton, who have abandoned the idea, as have most of the other big players.

So, there are two possible explanations. One is that Adani is pressuring governments to hurry up with the threat of bad publicity about putting the project on hold, lost jobs and so on. But if so, why not make a big splash with the announcement. The other, more plausible in my view, is that Adani is preparing to cut and run, and wants to be able to blame government interference rather than its own misjudgement of the market.

Categories: Economics - General Tags:

How about that hiatus?

June 23rd, 2015 122 comments

The US National Oceanic and Atmospheric Administratioh has just released its global climate analysis for May 2015. The results

May 2015 was

* The warmest May on record globally
* The warmest May on record on land
* The warmest May on record on the oceans
* The warmest May on record in the Northern Hemisphere
* The warmest May on record in the Southern Hemisphere

Also, the warmest March-May, Jan-May and (I think) 12-month period in the record.

Comment is superfluous, but don’t let that stop you.

Categories: Environment Tags:

An optimistic view on climate change

June 23rd, 2015 64 comments

Regular readers will be aware that I have a generally optimistic disposition. You may wish to bear this in mind when you read this Inside Story piece arguing that the prospects are good for stabilising global greenhouse gas concentrations at 450 ppm.

On the whole, though, I think excessive pessimism is a bigger problem than over-optimism. As I’ve argued before, I think lots of people have locked themselves into positions (eg advocacy of geoengineering, or belief in the end of industrial civilisation) that are based on the assumption that stabilisation is impossible. Many of these people are not open to evidence that stabilization is feasible, and even likely.

There’s a strong case that we should do better than 450 ppm, with a common ‘safe’ figure being 350 ppm. Since we passed that level some time ago, that requires a long period of negative net emissions, which cannot easily be achieved with current technology. Still, if net emissions are reduced to zero in the second half of this century, and some technological advances are made over the next fifty years (a plausible assumption if we put in some effort), even 350 ppm might be feasible.

Australia is dragging the chain under the Abbott government, but even Abbott seems to be feeling the international pressure judging by recent reports. With luck the last couple of years will turn out to have been a temporary detour in progress towards decarbonization.

Categories: Environment Tags:

Reversing reverse parking (update)

June 22nd, 2015 42 comments

Back in 2013, I gave a rare nod of praise to the Newman government for a proposal to get rid of reverse parallel parking in the test for new drivers. I’m happy to say that this has actually happened. The new test will focus on safe driving, rather than on skills that might come in handy for drivers, like reverse parking or changing the oil.

The original post is over the fold

Read more…

Categories: Life in General Tags:

In the press

June 16th, 2015 116 comments
Categories: Economics - General, Environment Tags:

To help poor people, give them money (Draft excerpt from Economics in Two Lessons)

June 16th, 2015 97 comments

Here’s another draft excerpt from my book in progress, Economics in Two Lessons. To recap, the idea of the book is to begin with the idea that market prices represent opportunity costs for the households and business who face them (Lesson 1), and then go on to explain why market prices won’t in general equal opportunity costs for society as whole (Lesson 2). A lot of the book will be applications of the two lessons, and this section is an application of Lesson 1.

As before, all kinds of comment and criticism, from editorial points to critiques of the entire strategy are welcome.

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Categories: Economics in Two Lessons Tags:

John Locke, an enemy of freedom

June 15th, 2015 65 comments

“Freedom Commissioner” Tim Wilson has been quoted in The Australian saying that Australian schoolchildren ought to learn more about classical liberal theorists like John Locke. While loath to squeeze yet more material into an already overcrowded curriculum, I’d certainly be glad if there was more awareness of Locke’s actual ideas and actions, as opposed to his prevailing image as an early apostle of freedom. A proper treatment of Locke would have to explain how

* His theory of natural rights in property was designed to justify the expropriation of indigenous populations
* His advocacy of freedom included support for slavery
* His theory of religious toleration excluded atheists and Catholics
* His theory of political freedom did not extend to freedom of speech.

How then did Locke get such a high reputation? The answer isn’t all that mysterious. Locke was closely involved in the British colonisation of North America, both as an investor and as a participant in political activity such as the drafting of the Constitution of the Carolinas, which ratified the expropriation of the indigenous population and enshrined the absolute power of slave-owners.

When the slave-owning colonists achieved independence from the British Crown, it was natural for them to look to Locke to provide the basis for their political theories (theories that did not preclude the passage of the Alien and Sedition Acts restricting political freedom). Locke then benefitted from the same historical amnesia that has absolved all the US founders from their role in maintaining and extending slavery.[1]

Instead of Locke, it might be better for students to learn about that old-fashioned Tory, Dr Samuel Johnson, who remarked “How is it that we hear the loudest yelps for liberty from the drivers of Negroes”, and whose friendship with his Jamaican servant, Francis Barber, a former slave, was a striking testimony to his character.

fn1. of course, the American Revolution embodied much nobler hopes than those of the Southern aristocracy that dominated the early years of the United States. Realising those hopes took decades of struggle and a bloody civil war.

Categories: Philosophy Tags:

Economics in Two Lessons

June 12th, 2015 56 comments

I’m still redrafting the opening section of my book, on the concept of opportunity cost. Some applications to specific problems coming soon, I promise. In the meantime, comments and criticism, including editorial corrections and nitpicks, much appreciated.
Read more…

Categories: Economics in Two Lessons Tags:

Big Oil changes sides in the War on Coal

June 11th, 2015 44 comments

As the time left to save the planet from uncontrolled climate change gets shorter and shorter, the previously glacial pace of movement on the issues has speeded up. One of the most important, and surprising, developments has been a string of increasingly sharp attacks on coal, coming from representatives of major oil and gas companies. As this (rather excitable) piece explains, the reason is simple. The policy debate has crystallised around the idea of a carbon budget – the remaining amount of CO2 that can be emitted while keeping atmospheric concentrations at levels consistent with 2 degrees of warming or less.

Obviously, if such a budget is imposed and adhered to, a lot of fossil fuel resources, currently sitting on corporate account books, will have to be left in the ground. Unsurprisingly, fossil fuel companies have done their best to prevent such an outcome, promoting science denial, and encouraging national governments to shirk their share of the burden with the argument that others should do more. Such a strategy implies a united front among fossil fuel owners, since the longer the imposition of a budget can be delayed, the better off they all are.

The recent break in the fossil fuel coalition therefore marks a new stage. Rather than try to expand the budget for all fossil fuels, the oil and gas companies have decided to get as much as possible for themselves, which means shutting down coal as fast as possible. The facts that have made such a strategic switch sensible are many and varied but the most important are

(a) the increasing recognition of the health effects of burning coal which gives national governments like that of China a strong incentive, independent of climate change, to reduce coal use
(b) the fact that the most immediately promising alternatives to fossil fuels are renewable sources of electricity which compete directly with coal, and are, to a significant extent complementary with gas (as a dispatchable source, gas-fired electricity tends to offset problems associated with the variability/intermittency of renewables.

What’s the appropriate response here? In the end, it will be necessary to phase out fossil fuel use altogether. But the logic of tackling coal first is inescapable. If that logic drives a wedge in the fossil fuel coalition, so much the better for all of us.

Categories: Environment Tags:

Monday Message Board

June 8th, 2015 137 comments

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Since it’s notionally the Queen’s Birthday today, I’d be interest in thoughts about the prospects for, and politics of, an Australian republic.

Categories: Regular Features Tags:

Sandpit

June 8th, 2015 35 comments

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

Categories: Regular Features Tags:

The end of the “hiatus”

June 8th, 2015 52 comments

Graham Lloyd in the Oz (not going to link) is pretty upset about the latest research showing that there is no significant difference between the rate of global warming over the 15 years since 2000 and that over the 50 years 1950 to 2000. The finding is the result of some corrections to data on sea surface temperatures, with the result that the estimated temperature at the beginning of the period is higher (so warming since 1950 is lower) and the fact that the period since 2014 has been the warmest on record.

Lloyd and others have popularized the term “hiatus” to refer to the slowdown which could at least plausibly be found in the data prior to this update and correction. Climate denialists capitalized on the ambiguity in this term to keep alive their beloved, but long discredited, “no warming since 1998, no significant warming since 1995” talking point.

For those interested, there’s a good analysis at Real Climate.

Categories: Environment Tags:

Nuclear power in Australia

June 7th, 2015 44 comments

I’ve decided to make a submission to the South Australian Royal Commission into the nuclear fuel cycle. I can’t actually submit until I find a JP or similar to witness it. This is a minor inconvenience for me, but may be a big problem for plenty of interested groups (for example, indigenous people). On the upside, I have time to ask for comments, and maybe make changes in response. This thread will be open to discussion of any issues related to nuclear power. However, in the event of lengthy two-person debates emerging, I’d ask the parties to move to the sandpits and leave room for everyone else.

Read more…

Categories: Environment, Oz Politics Tags:

Profit and public health

June 4th, 2015 74 comments

Amid the abandonment of tariff protection and the continued assaults on trade unionism, one union/lobby group has been consistently victorious. The Pharmacy Guild has managed to restrict competition so successfully that it’s impossible to open a pharmacy if it might hurt the profitability of an existing business, even if that business is failing to serve a significant group of customers. I ran into an example when I was at James Cook University in Townsville. A request for an on-campus pharmacy was rejected because it was within the market area claimed by a suburban pharmacy, more than a kilometre away and inaccessible by public transport.

Far more important to the Guild is the imperative of keeping supermarkets out of the pharmacy business. The key argument is that supermarkets are just businesses, happy to sell anything to make a buck, whether it’s cigarettes or cancer medications.

So, I was interested to read the Guild’s reaction to a proposal that medical professionals should stop prescribing homeopathic products. Whatever you might think about alternative/complementary medicines in general, homoepathy is plain quackery, combining a magical theory of medicine with the preposterous physics of water memory. Unsurprisingly, research has proved beyond any doubt that it’s no better than a placebo. So, the Royal Australian College of General Practitioners (RACGP) has formally recommended GPs stop prescribing homeopathic remedies and says pharmacists must also stop stocking such products.

The Guild’s reaction:

it is not a regulatory authority, and as such there will be no recommendation backing RACGP’s call for homeopathic products to be taken off the market.

In other words, selling medicine in the same shop as alcohol is unthinkable, but it’s entirely OK for a health professional to promote and sell water as a treatment for serious illness.

This episode demonstrates, to anyone who cares to look, that the Pharmacy Guild is (and in fact claims to be) nothing more than a rent-seeking lobby group, whose sole concern is the profitability of its members. As the Tobacco Institute of Australia would be quick to point out (if it were still around), there’s nothing illegal about that. But when profits and public health come into conflict, the Guild and the Institute are on the same side.

My response to Grattan on solar PV

June 1st, 2015 71 comments

Crikey has published my reaction to the Grattan Institute’s Report on solar PV (over the fold). My summary

the headline finding of the Grattan Report is totally wrong, even ignoring all the criticisms that have been made of the analytical framework. The report should be retracted and rewritten.

Read more…

Categories: Economics - General Tags:

Sandpit

June 1st, 2015 23 comments

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

Categories: Regular Features Tags:

Monday Message Board

June 1st, 2015 50 comments

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Categories: Regular Features Tags:

Opportunity cost: A Fabian idea?

May 26th, 2015 124 comments

As part of the research for Economics in Two Lessons, I’m looking in to the history of some of the ideas I’m talking about, including Pareto optimality, externalities and of course opportunity cost. I’m undecided as to whether I’ll include this material, perhaps as starred (skip if you feel like it) sections, or in an Appendix. Suggestions on this point are welcome.

My research on the intellectual history of opportunity cost has so far gone no further than Wikipedia, which attributes the term to Friedrich von Wieser, an Austrian economist in both the national (he was Minister for Finance there in 1917) and theoretical senses. Turning to the article on von Wieser, I was surprised to read that he put forward an argument very similar to mine regarding the relationship between opportunity cost and the distribution of wealth

Instead of the things that would be more useful, there are things that pay better. The greater the difference in wealth, the more striking are the anomalies of production. The economy provides luxury to the capricious and greedy, while it is deaf to the needs of the miserable and poor. It is therefore the distribution of wealth that decides what will be produced, and leads to a consumer of a more anti-economic variety: a consumer wastes on unnecessary, guilty enjoyment that which could have served to heal the wounds of poverty. —Friedrich von Wieser, Der Wert Natürliche (The Natural Value), 1914.

It turns out, even more surprisingly to me, that von Wieser was linked to a Viennese group of Fabians.

I’m still trying to digest this, and work out where to go next with it. Can anyone point to useful information about von Wieser?

Categories: Economics in Two Lessons Tags:

Standard Chartered and Galilee

May 23rd, 2015 63 comments

Among the international banks that might finance Adani’s massive Carmichael coal mine, and the associated rail line and port development, the most significant is probably Standard Chartered of the UK, currently Adani’s largest lender outside India. The media is providing mixed messages here.

Standard Chartered has announced its intention to “review” its involvement, stating, according to the Financial Times that

We will go no further with this until we are fully satisfied with the environmental impact of this project.

The chairman added that

He added that the bank was in “active dialogue” with the Australian government about the issue.

I’d normally read this as a euphemism for “we are going to pull the plug, like everyone else”, except that the Fin reports that the bank is.

running a now fairly discreet process because of the line-in-the-sand assault by the environmental defenders on banks that support coal

We’ll find out soon enough, I guess, given that Adani claims that it will start dredging in September. But given that the previous CEO and Chairman were forced out a few months ago, mainly because of bad loans to mining companies, it’s hard to see what the bank could gain by extending more credit to a venture that’s both financially marginally and politically toxic, or how it can claim to have satisfied itself on the environmental impact of a mine that will contribute as much to global warming as all but a handful of national economies. Surely they don’t believe that they will please anybody by announcing that the Abbott government has assured them that everything is fine.

Categories: Environment Tags:

Economics in Two Lessons: Draft Preface

May 23rd, 2015 38 comments

Over the page, the draft preface for my book-in-progress, Economics in Two Lessons

I got some great comments first time round, but I can see it would be easier if I presented my drafts in a more orderly fashion, though not necessarily sequential. So, I’ll begin at the beginning. Comments, both critical and favorable, much appreciated.

Read more…

Categories: Economics in Two Lessons Tags:

The end of coal

May 23rd, 2015 23 comments

I have a piece in The Conversation, looking at the continued fall in Chinese demand for coal, and a highly relevant IMF study confirming previous findings that, even disregarding climate change, the health costs of burning coal make it more costly than renewables. So, the idea that the path to development lies through coal is a nonsense. The Chinese government has recognised this and acted, and the same will be true in India before too long.

I’ve reprinted over the fold.

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Categories: Economics - General, Environment Tags:

Queensland in recession?

May 22nd, 2015 6 comments

There’s been a bit of fuss over the announcement by Queensland Treasurer Curtis Pitt that Gross State Product contracted during the last two quarters of 2014, which were also the last two full quarters under the Newman LNP government. Two quarters of negative growth is a common criterion for declaring a recession, and much of the controversy concerns Pitt’s use of this term. Is it justified. Obviously, the LNP and their allies would like to prove that it is not, and have made vociferous attempts to do so.

Some can be dismissed pretty easily as bluster. Joe Hockey, demonstrating the grasp of quantitative analysis for which he has become famous, declared Pitt’s claim “complete rubbish”. His supporting arguments were a mixture of irrelevance “There’s certainly no evidence of that at a national level” and wishful thinking “the bottom line is, we want Queensland to grow”.

Similarly, the claim I’ve seen quoted by Opposition spokesman Langbroek that the numbers exclude net exports appears to be just plain wrong.

A more serious objection, at least potentially, is that these figures are derived from preliminary Queensland Treasury figures, rather than the ABS numbers due in June. June isn’t far away, and will either confirm the preliminary numbers or not. It will be interesting to see if anyone is willing to eat humble pie.

A more interesting question, to my mind, is whether two quarters of negative growth is a good definition of recession. This article (in the Murdoch Courier-Mail, but authored in part by the excellent Paul Syvret, suggests not.

According to the data released yesterday, Queensland was by strict definition in recession in the latter months of 2014, but it was not one accompanied by waves of retrenchments (outside sections of the resources sector), business failures and plunging consumer sentiment.

Part of the problem here is that the only recession most Australians can remember is that of the early 1990s, long and deep and followed by a jobless recovery. Before that, the recessions of the 1970s and 1980s were also severe. The last time we had a mild recession, of the kind for which the two-quarter rule was proposed, was back in the 1960s.

This is fairly accurately summed up in the same article

in the second half of last year we had gradually rising unemployment, and a more marked slowing in business investment as major resource sector projects tapered off. At the same time public sector investment was dragging on growth as the government concentrated on fiscal consolidation ahead of its planned privatisation and asset recycling program.

To sum up, the numbers are bad enough to demolish any idea that, to the extent that governments have any influence on the economy, the LNP government and its federal counterpart were doing a good job for Queensland in 2014. But we already knew that the economy was slowing down with the end of the mining boom.

Categories: Economics - General Tags:

The most misleading definition in economics (draft excerpt from Economics in Two Lessons)

May 19th, 2015 33 comments

After a couple of preliminary posts, here goes with my first draft excerpt from my planned book on Economics in Two Lessons. They won’t be in any particular order, just tossed up for comment when I think I have something that might interest readers here. I’ll update as I go, in response to comments and criticism; this may create some difficulties reading the comments thread, but hopefully the improvement in the final product will be worth it.

To remind you, the core idea of the book is that of discussing all of economic policy in terms of “opportunity cost”. My first snippet is about

Pareto optimality

The situation where there is no way to make some people better off without making anyone worse off is often referred to as “Pareto optimal” after the Italian economist and political theorist Vilfredo Pareto, who developed the underlying concept. “Pareto optimal” is arguably, the most misleading term in economics (and there are plenty of contenders). Before explaining this, it’s important to understand Pareto’s broader body of thought, one which led him in the end to embrace fascism.

Pareto and the libertarian path to dictatorship

Pareto sought to undermine the version of liberalism that dominated 19th century economics, according to which the optimal (most desirable) economic outcome was the one that contributed most to human happiness, often (if somewhat loosely) summed up as ‘the greatest good of the greatest number’. Particularly as developed by the great philosopher and economist John Stuart Mill, this is a naturally egalitarian doctrine.
The egalitarian implications of the classical framework reflect the fact that the needs of poor people are more urgent than those of the better off. So, the happiness of the community as a whole all be increased by policies that benefit the poorest members of the community, even if these benefits come at the expense of those who are better off. It follows that a substantial degree of income redistribution will be social desirable and that large accumulations of individual wealth, which contribute only marginally to the happiness of a small number of people are undesirable in themselves, though they may in some circumstances be a by-product of desirable policies.
Pareto’s big achievement, further developed by a large number 20th century economists, was to show that much of economic analysis could be undertaken without invoking the concept of utility. Hence, interpersonal comparisons of happiness, which invariably lead to the conclusion that redistributing wealth more equally is beneficial, could be dismissed as ‘unscientific’.
Pareto didn’t stop with an attack on the economic implications of Mill’s approach. Mill’s philosophical framework implied support for political democracy, including the enfranchisement of women. Since everyone’s welfare counts equally in the classical calculus, the political process should, as far as possible, give everyone equal weight.
Pareto reversed this reasoning, arguing that a highly unequal distribution of income was both inevitable and desirable; he proposed what he called a power law, described by a statistical distribution which also bears his name. Pareto’s “Law” may be summed up the 80-20 proposition, that 20 per cent of the population have 80 per cent of the wealth.
The supposed constancy of income distribution implies that any attempt at redistribution must be essentially futile. Even the aim is to benefit the poor at the expense of the rich, the effect will simply be to make some people newly rich at the expense of those who are currently rich. Pareto called this process ‘the circulation of elites’. (In his dystopian classic 1984, Orwell has the Trotsky-like character Emmanuel Goldstein present the same idea as the starting point of The Theory of Oligarchical Collectivism. Orwell almost certainly derived the idea from James Burnham, an admirer of Pareto whose work Orwell saw as the embodiment of ‘power worship))
All of this led Pareto to become one of the first advocates of a political position combining an extreme free-market position on economic issues with hostility to political liberalism and democracy. Pareto welcomed the rise of Mussolini’s fascist regime, and accepted and accepted a “royal” nomination to the Italian senate from Mussolini. However, he died in 1923, less than a year after
Pareto was not really a fascist however. Rather, he developed a version of liberalism similar to that of his more famous successors, Hayek and Mises, both of whom embraced and worked for murderous regimes that had come to power by suppressing democratic socialist parties. Like Pareto, neither Hayek nor Mises can properly be described as fascists – they weren’t interested in nationalism or in the display of power for its own sake. Rather, their brand of liberalism was hostile to democracy and indifferent to political liberty, making them natural allies of any authoritarian regime which adheres to free market orthodoxy in economics. (Fn Supporters of Hayek and Mises commonly describe themselves as “libertarians”, but their alliance with brutal dictators makes a travesty of the term – they have been derisively described as “shmibertarian”).

Pareto optimality

Now back to “Pareto optimality”, and why it is such a misleading term. Describing a situation as “optimal” implies that it is the unique best outcome. As we shall see this is not the case. Pareto, and followers like Hazlitt, seek to claim unique social desirability for market outcomes by definition rather than demonstration.

If that were true, then only the market outcome associated with the existing distribution of property rights would be Pareto optimal. Hazlitt, like many subsequent free market advocates, implicitly assumes that this is the case. In reality, though there are infinitely many possible allocations of property rights, and infinitely many allocations of goods and services that meet the definition of “Pareto optimality”. A highly egalitarian allocation can be Pareto optimal. So can any allocation where one person has all the wealth and everyone else is reduced to a bare subsistence.

Recognising the inappropriateness of describing radically unfair allocations as “optimal”, some economists have used the description “Pareto efficient” instead, but this is not much better. It corresponds neither to the ordinary meaning of “efficient” nor to the meaning with which the term is commonly used in economics, which is also misleading, but in a different way.

The concept of opportunity cost gives us a better way to think about the possibility of making some people better off while no one is worse off. If such possibilities exist, then there are potential benefits that have no opportunity costs. Conversely, if there is a positive opportunity cost for any benefit, then we can’t make anyone better off without making someone else worse off. So, a “Pareto optimal” situation may be described, more simply as one where all opportunity costs are positive.

Categories: Economics in Two Lessons Tags:

The political is personal

May 18th, 2015 39 comments

Working on my Economics in Two Lessons book, I’ve had to address the concept of Pareto optimality, which naturally raises the question of how it fits into Pareto’s larger body of anti-democratic and anti-egalitarian thought, which culminated, at the end of his life, in his embrace of Mussolini’s fascism. This led me to an article (paywalled, sorry) published by Renato Cirillo, in 1983, defending Pareto against the charge of being a precursor of fascism. Cirillo asserts that, far from being a fascist, Pareto

“manifested consistently a strong attachment to a type of liberalism not dissimilar to the one later attributed to Mises and Hayek”

These are rather unfortunate examples, in view Mises writings in praise of fascism and work for the Dollfuss regime, and (even more), Hayek’s embrace of Pinochet, at the very time Cirillo was writing [^1].

This, along with my discovery that Locke was actively involved in the expropriation of the native American population, justified by his theory of property, led me (back) to the question of the relationship between the writings of political theorists (broadly defined to include economists, sociologists and philosophers engaged with these issues) and their personal political activity and commitments. I’ve come to two conclusions about this.

First, for serious writers on political theory, political engagement is and ought to be the rule rather than the exception. I don’t mean that philosophers should (necessarily) run for office. Rather someone whose political theory doesn’t lead them to have and express views on the great political issues of their day probably doesn’t much of interest to say about theory either (unless of course, their theory leads them to some form of quietism). That’s true of the writers whose commitments were creditable (for example, John Stuart Mill and Bertrand Russell) as well as the discreditable cases I’ve mentioned.

Second, it makes no sense to look at the theoretical writings and ignore the political commitments with which they are associated. For example, it is easy to construct readings of Pareto, Mises and Hayek in ways that make them appear either as friends or as enemies of political liberalism. Their (remarkably similar) actions make it clear which reading is correct. Eventually, of course, ideas outgrow their creators to the point where original intentions, and the texts in which they were expressed, cease to be relevant. But, as the Locke example shows, that’s a very slow process. As long as a writer is regarded as having any personal authority, the weight of that auhtority must be assessed in the light of their actions as well as their words.

[^1]: To be sure, none of these writers can properly be described as fascists – they aren’t interested in nationalism or in the display of power for its own sake. Rather, their brand of liberalism is hostile to democracy and indifferent to political liberty, making them natural allies of any fascist regime which adheres to free market orthodoxy in economics.

Monday Message Board

May 18th, 2015 134 comments

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Categories: Regular Features Tags:

The Laffer hypothesis in Australia

May 16th, 2015 34 comments

I didn’t have time to respond, but the IPA brought Arthur Laffer out to Australia a month or two ago. For those interested, over the fold is a relevant extract from Zombie Economics.

Of rather more concern is the evidence that both the Secretary of the Treasury, John Fraser, and his Deputy for Revenue, Rob Heferen are adherents of the Laffer hypothesis or something very close to it. Fraser gave evidence to the Senate endorsing the Reagan tax cuts (based on Laffer’s hypothesis), while Heferen has claimed that something like 50 per cent of the revenue lost through a company tax cut will be returned through dynamic effects.

Although no issues are ever truly resolved in economics, this informal survey published by Ezra Klein is revealing. Klein asked various people about the tax rate at which revenue would be maximized. His respondents fell into three groups: left/liberal economists, who mostly gave answers around 70 per cent, rightwing pundits with zero credibility who gave answers around 20 per cent, and serious right/centre-right economists, who declined to give a direct answer to the question.

This suggests to me that the debate over the Laffer hypothesis has been won fairly conclusively by the left, and that those on the right would prefer to frame the question in the more defensible (though still, in my opinion, incorrect) claim that we face a long-run trade-off between equality and growth.

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Economics in Two Lessons

May 16th, 2015 6 comments

I’ve been promising for a long time to write a new book, framed as a reply to a free-market tract Economics in One Lesson by Henry Hazlitt, published in 1946, but still in print and popular among free market advocates. Its popularity reflects the fact that it’s a reworking of Bastiat’s “What is Seen and What is Not Seen”, still one of the best statements of the case for free markets.

Bastiat’s argument is implicitly based on the concept of opportunity cost but, since the term wasn’t coined until 1914, he doesn’t use it. Neither, more surprisingly, does Hazlitt. Once this is made explicit, Hazlitt’s rather ponderous, and misleading statement of his “One Lesson”

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

can be boiled down to the much simpler statement “Market prices reflect opportunity cost”. In important respects, this is true, particularly when we consider the problem from the perspective of choices about how to allocate an individual, family or government budget. With fixed aggregate levels of public expenditure, for example, more money for the military means less for schools, and vice versa.

There are plenty of other questions about private and public decisions for which Hazlitt’s One Lesson is useful. Another example is the well-supported finding that the best way to fight poverty is to give money to poor people. This is unsurprising given that poor people themselves will usually have a much better idea of the opportunity costs they face than will those seeking to help them.

But as a general statement, Hazlitt’s One Lesson is false, which is why my working title is Economics in Two Lessons”. Lesson Two is “Market prices do not reflect all the opportunity costs we face as a society”
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Economic policy for the 21st Century

May 13th, 2015 18 comments

That was the title for the John Freebairn lecture on public policy I gave in Melbourne on Monday (Sorry for not giving any advance notice, I’ve been a bit swamped). Having offered that ambitious title, I decided to confine myself to the subset of policy issues surrounding the knowledge economy, and how it renders the reform agenda of the 1980s obsolete or irrelevant.

I believe there will be a vodcast, but in the meantime here are Mac Keynote and PDF versions of the slides.

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