Everything old is new again

Gareth Parker detects a timewarp, saying, “I INCREASINGLY feel that Robert Corr was born three or four decades too late.”
But it’s becoming more and more obvious that the ideas that have dominated the last three decades or so have run out of steam. For example, it will be a great many years before anybody can use a phrase like “market discipline” with a straight face. I don’t suppose that the replacement for market liberalism will be a direct return to the social-democratic and socialist ideas that dominated policy from World War Ii to the 1970s, but it will be more like them than like the 1980s ideology that is still driving John Howard.

The Australian editorial column is

The Australian editorial column is still pushing the free-market reform line, as if unaware that the ground has been cut from under its feet. But the message is starting to sink in. In the same paper, : George Megalogenis argues that the “Cronies’ boom is phony “. Megalogenis goes for a cyclical theory and argues that a big swing away from the free-market is already under way.

Brad DeLong has a great

Brad DeLong has a great piece on Vulgar Monetarism. He makes a good case that money supply measures aren’t any use as a guide to the stance of monetary policy. I must say, though, that when I look at those graphs of M2 and M3, I wonder if the inflationary consequences of monetary expansion can be staved off forever.

Today's Economist quotes the conventional

Today’s Economist quotes the conventional wisdom on telecommunications from a year ago, noting:
TODAY, there is no economy but the global economy, no Internet but the global Internet, and no network but the global network,” wrote George Gilder, a technology guru, in February 2001. He predicted that two telecoms firms, Global Crossing and 360networks, “will battle for worldwide supremacy, but in a trillion-dollar market, there will be no loser.
At exactly the same time, I was writing
“The last few months have not been a good time for economic miracles. As late as November last year, we were still being told how the miraculous ‘New Economy’ had put an end to the business cycle in the United States. By Christmas, however, the Internet shakeout had turned into a full-scale collapse, with dozens of failures and downsizings every weak. Moreover, the downturn has spread from the flashy but economically inconsequential dotcoms to the large, and massively indebted, telecom sector
Why was I right, and Gilder, along with most other commentators, wrong. Because I paid attention to the reality of natural monopoly
Throughout the last decade, wishful thinking about the benefits of competition has led to bad economic analysis. The costs have mounted from the billions to the trillions. Both the potential growth of the telecom sector and the strength of the US economy have been massively overestimated, because of the belief that competition is some sort of magic elixir.
There are real benefits from increasing competition where artificial barriers to entry have monopolised naturally competitive industries. But there are equally large costs in failing to take account of natural monopoly, externalities and all the other reasons why not all aspects of life are organised through competitive markets.

Economics: the caring profession

In response to my piece on the mismeasurement of productivity, I was asked by a slightly incredulous reader “Does this mean that the quality of peoples working lives is a fundamental value in economics?”

The answer, which may surprise both non-economists and those who get their economics from the business pages is “Yes!”

The basic assumption of (mainstream/neoclassical) economics is that the cost of labour is the disutility associated with it. The more unpleasant the work, the greater its economic cost.
The idea that gains produced by people working harder are ‘free’ to the economy is, in economic terms, a fallacy (unless people enjoy working harder). A lot of self-proclaimed economic rationalists don’t realise this, but this just shows they are neither rational nor good economists.

If Clinton = Coolidge, Bush = ?

The imminent arrival of a US recession has led Republican sympathisers to intensify their efforts to pin the blame on the outgoing administration and its Wall Street allies, most notably Citibank, which employs former Treasurer Robert Rubin. The strategy is to paint Rubin as a latter-day Andrew Mellon (see below), the roaring 90s as a repeat of the roaring 20s and Clinton as Calvin Coolidge. The problem is to avoid the obvious corollary that Bush is Herbert Hoover and that we’re in for a repeat of the 1930s. The Republicans would prefer another identification, but, to paraphrase Lloyd Bentsen, “He’s no FDR”.

AndrewSullivan presents THE CASE AGAINST RUBIN, saying ” I can’t do better than reprint this email from highly astute reader and financial analyst:

You’re right. Rubin’s nefarious role in Enron and his overall responsibility in helping to create the bubble (along with Greenspan) has not received proper attention. In my opinion, Rubin is even worse than Greenspan. If you recall, he was the one who initially dismissed Greenspan’s “irrational exuberance” comments, and I believe he virtually created government for and by Goldman Sachs during his tenure in office. He frustrated the development of legislation to make the derivatives market more transparent (along with Phil Gramm), which could have prevented the Enron bankruptcy, and managed to get Brooksley Borne of the CFTC sacked when she pressed for such derivatives to be regulated by the Comex. He also cut the SEC’s budget by 60% when he was in office, which frustrated the fine work of Arthur Levitt and enabled many of the unsavoury practices now coming to light to be perpetuated. He was the architect of the strong dollar policy which helped to create such huge imbalances in the US current account in order to attract more money into the US capital markets and thereby create a hugely destabilising bubble. I suspect that Rubin will ultimately undergo a historical revision in reputation comparable to Andrew Mellon (who in 1928 was viewed as the greatest Treasury Secretary since Alexander Hamilton and left office in disgrace in 1932). Rubin was smart enough to get out before things got really messy, but he is even more culpable than Mellon.
I think we’re due for a major re-evaluation of the Clinton-Rubin-Greenspan legacy, don’t you?”

Aples and oranges

Jason Soon follows Heath Ledger (sorry! Heath Gibson) in pointing out the danger of comparing apples and oranges, but misses the biggest example of such a comparison, and the central point of Ross Gittins’ article. The big story from supporters of microeconomic reform has been the growth in labour productivity over the last decade (there’s also something called multifactor productivity, which is supposed to take account of capital, but the real action is in labour).

Labour productivity is the ratio of total output to labor input. Gittins starts off with the point that, in important respects, the quality of output, particularly in relation to services delivered by human beings, has declined.

But the really important point is in the denominator. Labour input is measured in hours, but the increase in the intensity and pace of work over the last decade means that there is an ‘apples and oranges’ problem with productivity measures. People produce more in an hour than they used to, but an hour of work is more stressful and tiring than it used to be. To the extent that the two cancel out, there is no real gain in productivity in an economic sense.

Another technology I don't get

According to Forbes.com IBM is making big use of an instant messaging system. Also, Apple has just released its own contender, called iChat, which I guess I will be buying as part of my next OS X upgrade. As with SMS (but even more so) I’ve never seen the appeal of this kind of technology. Used for two-person chat, it seems like an inferior substitute for a voice call. Used for multi-person chat it’s like talking in a crowded bar (as far as I can see most chat rooms are online versions of pickup joints, which fits with this view). And used for exchanging messages, it seems like a cut-rate version of email, with the checking frequency turned up to the max.

The article doesn’t enlighten me – the only stated benefit is a reduction in the load on the email servers. I thought the servers were supposed to reduce the load on us, not the other way around.