As the NYT reports, the S.&P. 500 has dropped all non-US companies. This is pretty much a vote of non-confidence in globalisation and, since 5 of the companies are Canadian, in NAFTA as well.

There’s a nasty sting at the end of the article:

“One change that was not made by the index was to drop the 10 companies with tax headquarters outside the United States, like Tyco International, based in Bermuda, and Carnival, based in Panama. S.& P. said those companies maintained the United States as their operating headquarters and as the principal market for their stocks.”

One of the striking ironies about microeconomic reform is that it was promoted as a way of reducing Australia’s current account deficit, and therefore our net overseas debt. In the twenty years since, the CAD has remained at about 5 per cent of GDP, and net debt has grown gradually. The defenders of reform have taken two contradictory lines on this today. In The Australian, Michael Chaney makes the standard last-resort argument for failed policy – things would have been even worse otherwise. Meanwhile, as
Ross Gittins points out, more sophisticated supporters of reform have decided that the CAD is actually a good thing. As he says, “Well, if you say so.”

Andrew Scott is spot-on in asserting that the last thing Labor needs is ‘modernisation’, at least as it is being defined in the current debate.

According to recent arrival James Morrow, fun has been banned in Australia. Not having noticed the nanny state at work in my daily life lately, I read on to discover that, for Morrow,”fun” consists of driving around looking at billboard ads for McDonalds and Marlboro, then settling down for an evening watching TV ads for fast cars. Well, James, I think we have to concede that, by that definition, Americans have more fun than anyone else.

This story from the New York Times describes the decline of the AOL Time Warner empire and presages its eventual fall (or at least breakup). Here’s my take on the merger which took place just as the NASDAQ was approaching its peak.
(The Telstra-Ozemail merger I mention never happened – it was killed off by Allan Fels and Ozemail remained part of the Worldcom empire).

Writing on why Why Labor has hit the rocks, John Button notes the takeover of the parliamentary party by political careerists and carpetbaggers.

“After Kim Beazley’s vigorous campaign in the 1998 election, Labor returned to parliament with a party of 96 members of vastly changed occupational backgrounds. Although one medical practitioner, one public servant and one engineer remained, no farmers or tradesmen did. There were two academics, two teachers and nine lawyers, but the social complexion had changed.

What had replaced a broad spectrum of backgrounds was a new class of political operator who had been filtered through the net of ALP machine politics. Out of the 96 members, 53 came from jobs in party or union offices. These members described themselves variously as “administrators”, “officials” and “electoral officers”. There were also 10 former members of state parliaments and nine described as political consultants, advisers and lobbyists.”

I suspect the situation is only marginal better in the Liberal Party. Worse still, for most of these careerists, public office is not the final object, but a stepping stone to bigger and more lucrative things. After 10 years or so in Parliament, it’s time to cash in on the contacts, favors and obligations you’ve built up with a job in lobbying or a cushy board set. Recent examples include Wooldridge, Fahey and Reith.

Daniel Akst in the NYT writes: Shocked by Scandals? These Are Nothing!, claiming that large-scale fraud has always gone on.
But careful reading of his examples shows:
(a) Nothing at all from the New Deal to the 1960s
(b) A penny-ante fraud from the early 1970s (Industrial Equity)
(c) Some bigger ones in the 1980s, which served mainly to lay the groundwork for today. (Akst’s claims that today’s scandals pale into insignificance by comparison is way off the mark, as he just about concedes in the end)

The explanation is simple. The financial regulations, such as the Glass-Steagall act, put in place after the 1929 crash made it very difficult to carry out the kind of frauds we’ve seen lately, where lots of people (auditors, analysts etc) are more or less conscious collaborators. Those regulations were dismantled from the 1970s onwards. The S&L scandal was the first big set of frauds that followed directly from deregulation, and a bunch of others have followed.

In Australia, by contrast, we had some really big fraud, relative to the economy, in the 1980s. That’s one reason things haven’t been so bad here this time around. But at an ideological level, things won’t change until these lessons are learned in the US.

Asset Pricing by John Cochrane. This is the book if you want to understand finance theory from an economic viewpoint.

As the first of these Economist Jokes says, economists have a reputation for disagreeing. And given that Jason Soon is a big Hayek fan, and I’m an admirer of (though not a follower of ) Gunnar Myrdal, we would be expected to disagree more than most. But, facts have a way of forcing themselves on our attention, and, given the experience of the past 100 years or so, it’s not too hard to conclude that:
(i) in general, free trade in goods is a good idea
(ii) free trade in financial capital is not such a good idea
As Jason observes, even strong free-traders like Jagdish Bhagwati agree on this. Similarly, despite writing some very effective critiques of standard trade theory, so does Paul Krugman. Since there’s no fundamental difference between international and domestic trade, I’d take the points further to say
(i) in general, free markets in goods are a good idea
(ii) in general, financial markets need regulation
Those who like plenty of cut and thrust in their blogging should not be disheartened by this sudden outbreak of consensus. There’s still plenty of room for disagreement. I see health, education, infrastructure services and labor markets as being more like the financial sector while I’m sure Jason sees them as being more like ordinary goods markets.

Happy 0-th birthday to Rosemary Morgan. Best wishes to David and Katie