There’s been a lot of discussion about the economics of the Kyoto Protocol. Some time ago, the government commissioned Warwick McKibbin, who’s a leading critic of Kyoto, to model the effects. The results he found are pretty striking. Whether Australia ratifies or not, there’ll be a negative impact on the coal industry because other countries will import less. But given that other countries have ratified, McKibbin finds that, at least until 2010, Australia is better off ratifying Kyoto and implementing emission-reduction measures than staying out. The gain is reversed by 2020, but the current agreement calls for new targets to be agreed and implemented by 2012, encompassing more countries. The other striking feature is how small the numbers are -the benefit of staying out in 2020 is 0.2 per cent of GDP or about $1 billion per year. Although I disagree with Warwick’s policy position on Kyoto, I compliment him for keeping his independence as a modeller. The government clearly didn’t like his results one bit.

You can get the full paper in PDF form here. To make things a bit easier, I’ve appended the crucial table from McKibbin’s paper and a press release from Clive Hamilton of the Australia Institute
All of this reminds me that I heard a few days ago that the anti-Kyoto economists’ petition organised by Alex Robson, of which McKibbin was a leading signatory, was about to be released. But I didn’t see anything in the papers, and there’s nothing on Alex’s weblog. What’s the story?

Table 7: Summary of Impacts on Australia 2010 to 2020
2010 2015 2020
Australia in Kyoto without measures -0.41 -0.58 -0.67
Australia in Kyoto with measures -0.33 -0.47 -0.51
Australia not in Kyoto -0.40 -0.38 -0.30

News release
Contact Clive Hamilton 02 6249 6221 0413 993 223
Government humiliated by new economic
modelling of Kyoto
New modelling just released by the Federal Government concludes that the economic cost of the Kyoto Protocol will be higher if Australia does not ratify the treaty than if it joins other countries in global efforts to reduce greenhouse gas emissions, according to the Australia Institute.
The results demolish any remaining rationale for Australia’s continued refusal to sign up to the treaty, as the Howard Government has claimed consistently that it is not in Australia’s economic interests to do so.
The Government commissioned the new modelling after the Marrakech climate change conference last November. But Environment Minister David Kemp refused to release the results of the modelling for five months. It has now released the results after the Johannesburg Summit where Australia was vigorously attacked for refusing
to comply with the Kyoto Protocol.
The modelling, by ANU economist Warwick McKibbin, concludes that by 2010 Australia’s GNP will decline by 0.40% if Australia stays out of the Kyoto Protocol, but will decline by only 0.33% if Australia ratifies. In his media statement accompanying the release of the modelling, Minister Kemp distanced the Government from the new evidence, claiming the work it commissioned only addresses ‘a limited set of the issues’.
“For years the Government has backed its anti-Kyoto stance by referring to the results of economic models,” said Institute Executive Director Dr Clive Hamilton. “Now that the models conclude that we would be better off ratifying the Kyoto Protocol, the Government has run a mile from it.”
“No wonder the Government chose to release this new modelling at 6 o’clock on at Friday night”, said Dr Hamilton.

I pointed out a little while ago the falsity of Mark Steyn’s claim that only English-speaking countries were on the Allied side in both World Wars and the Cold War. In addition to France and Belgium, Greece joined the Allied side in 1917 (same year as the US) and was on the Allied side in World War II and the Cold War.
Leaving aside Steyn’s factual errors, I’d argue that World War I was a pointless bloodbath and award the full score only to the handful of countries that managed to stay neutral in WWI, while joining the right side in WWII and the Cold War. The winners on this count are the Netherlands, Norway and Denmark. My discussion with Jason Soon in the comments section raised the point that Denmark also managed to rescue nearly its entire Jewish population from the Nazis. The outcome in the Netherlands was far bleaker, but, according to the Simon Wiesenthal centre, the Netherlands had the highest proportion of ‘righteous gentiles’ (those who risked their lives to save Jews).
Every country has good and bad in its history. The kind of triumphalism that characterises Steyn’s journalism rests on denying this basic fact with respect to the countries he favors. This fundamental falsehood gives rise to the specific falsehoods and distortions that infect nearly everything he writes.
Update: As Ken Parish points out, Steyn sinks to a new low in his latest column, retailing absurd urban myths that Muslim schoolchildren in New York knew about the impending attacks, then claiming an elite media conspiracy to suppress these myths in the interests of ethnic harmony. Actually ‘urban myth’ isn’t quite right, since Steyn’s source, a journalist named Shapiro, gives the name of a schoolteacher who allegedly remembered the statement a week later. As this this site shows, dozens of stories of this kind, many with more convincing details, floated about in the immediate aftermath of September 11. Virtually all have disappeared for lack of any substance. It’s obvious by now that Al-Qaeda are a thoroughly professional group of killers and that any claim that their plans were leaked to the entire Muslim community (Steyn-Shapiro’s insinuation) or were well-known by Jews (the ‘Arab street’ version) is racist nonsense.
Further update: Don Arthur joins the fray, pointing out plagiarism and inaccuracy in Steyn’s reporting of events in Norway. (Janet Albrechtsen, another serial offender in this respect, is also named).

Yet further update: The ever-reliable Snopes.com Urban Legends Reference Pagespoint out the obvious explanation for this and other stories where ‘predictions’ of dramatic events are ‘recalled’ after the event. They focus on an almost identical story from Dallas, but cover Shapiro-Steyn as well.
” The Dallas boy’s “prediction” appears to have been yet another case of general statements being misremembered or afforded greater significance than they merit in light of subsequent events. ” It’s pretty startling that a top reporter like Jonathan Alter from MSNBC preferred clairvoyance to this prosaic explanation.

More interestingly, Shapiro claims that the same boy predicted a plane crash in November 2001 and that he (Shapiro) reported this to the FBI three days before the crash of Flight 587 on November 12 2001. If true, this would be pretty impressive. On Shapiro’s theory (that the boy was speaking from inside knowledge) it would imply incredible incompetence by Al-Qaeda, leaking information to someone who had previously spilled the beans and been grilled by the police. Otherwise, if Shapiro’s account is to be believed, the case for clairvoyance looks strong. The only question is why Shapiro, who had extensive contact with national media on the first story, decided to sit on this one for ten months, then print it in an obscure magazine. After all, his contact with the FBI would be easy to verify if it took place as he says.

According to Status.Blogger.Com

Blog*Spot maintenance is now scheduled for Sunday 12:00 p.m. Pacific (3:00 p.m. Eastern) to 3:00 p.m. Pacific (6:00 p.m. Eastern).During this time Blog*Spot blogs will be unavailable. Please be assured that every effort will be made to minimize this maintenance time as much as possible.

I’ve added five recent Financial Review columns to my website. They are:

• Market theory unravels, Australian Financial Review, 4 July.
• Bush leads way on race, Australian Financial Review, 18 July.
• Sums starting to sink in. Australian Financial Review 1 August
• Miracles are highly priced. Australian Financial Review 15 August
• Savings need a safety net. Australian Financial Review 29 August

For reasons I’m not clear on, there are two versions of my homepage and only one has been updated. I’ll try to fix this, but in the meantime apologies for any problems.

The Bush cheer-squad, including Andrew Sullivan, is busy praising the brilliance of Bush’s strategy, and the way he has seized the initiative from the UN. Assuming Bush’s real objective has been to eliminate Iraqi weapons of mass destruction, his strategy has indeed been optimal. By putting forward a credible ‘ambit claim’ of regime change, and sending a series of mixed messages on unilateral action, Bush has ensured that he can extract a strong resolution from the UN Security Council demanding readmission of weapons inspectors. If Saddam doesn’t comply, the ground will be cut from under the opponents of military action.
But suppose Saddam does comply and is sensible enough to destroy whatever he has left of his weapons programs before the inspectors arrive. He gets a clean bill of health and there is no war. This would be a great thing for the world, but I can’t imagine it would make Andrew Sullivan too happy, especially since there would then be no real case for continued sanctions.
To put the point more bluntly, if Bush’s objective is to ensure an invasion of Iraq, his UN speech has ensured that the goal can be achieved only if Saddam chooses to assist him by refusing co-operation. It’s rarely a good strategy to hand the initiative to your opponent.

Update According to this analysis in The New Republic , the “war party” in the Bush administration is (rightly from their viewpoint) horrified by the prospect of an ultimatum on weapons inspection that Saddam might accept. Where does this leave Sullivan? Maybe he really is focused on the weapons issue, in which case good on him. Or maybe he wants war but is just not as smart as the rightwingers TNR is talking to.

Readers of this blog will have noticed that I’m very concerned with Pinochet, the former Chilean dicator, and very hostile to anyone who supported his regime or who now seeks to shield him from justice. Why should I be so concerned with one ex-dictator when there are dozens of others living in comfortable retirement, not to mention the numerous dictatorships that are still in place?

I was born in 1956 and a my political views were basically formed between 1968 and 1973. Against the background of the Cold War and Vietnam, I hoped for what would now be called a Third Way – peaceful progress towards social democracy and, ultimately, socialism. In that context, two beacons of hope were the ‘Prague Spring’ of 1968 and the election of the Allende government in Chile in 1970. The first provided hope that Communist governments would gradually move towards liberal democracy. The second seemed to be a demonstration that, regardless of your views about the best form of economic organisation (and I admit that Allende’s economic policies were unsound), democracy was the best way to push those views forward.

Both beacons were brutally snuffed out. The invasion of Czechoslovakia by the Soviet Union (then ruled by Leonid Brezhnev) guaranteed another two decades of Cold War, and the repression of all forms of free thought. There were no mass executions, unlike Hungary in 1956, but the invasion finally discredited the Soviet Union for most Western leftists. The only significant exception was the French Communist party (PCF). Both the PCF and its philosophical supporters, most notably Louis Althusser, were permanently discredited (for me, anyway) by their stance.

The Pinochet coup of 1973 was bloodier and more brutal. Thousands were killed and ‘disappeared’, and torture was routine. Against the backdrop of the 20th century as a whole, this was a relatively minor event, but for a previously democratic country in the second half of the twentieth century, it seeemed unthinkable until it happened.

The Pinochet coup took place with the covert support of the US intelligence apparatus, and the government soon gained the overt support of three (overlapping) groups in the West. The first were advocates of realpolitik such as Henry Kissinger who viewed both the crushing of the Prague spring and the overthrow of Allende as sensible reassertions of control over their natural spheres of influence by hegemonic powers. The second were those, like Margaret Thatcher, who viewed the economic and social disorder of the 1970s as calling for the kind of authoritarian government that could impose the necessary discipline. The phrase ‘man on horseback’ was widely used at this time. The third were the ‘Chicago boys’, advocates of free-market policies whose advice was followed by Pinochet and who were willing, in return, to support his government. Over time, the second and third groups tended to merge, so that Thatcher is now better remembered for her free-market stance (to which she came only gradually) than for her lifelong authoritarianism.

My views on specific issues have, of course, evolved a lot since 1973. Nevertheless, I retain a visceral loathing for all those who supported either Brezhnev or Pinochet.

I’ve followed the debate on Hayek with interest, including contributions from Jason Soon, Tim Dunlop and Ken Parish, but I must say that I’m considerably less favorably inclined to Hayek than anyone who has written so far.
For me, any assessment of a political philosopher must look at actions as well as words. The obscurity of language in Heidegger can’t conceal the fact that he accepted the rectorship of Freiburg University from the Nazis and persecuted his Jewish colleagues. Given this fact, it’s necessary to read Heidegger’s thought in a way that brings out its antihuman and antidemocratic basis.
Hayek’s Freiburg is his support for the Pinochet regime in Chile, symbolised by the decision to hold the meetings of the Mont Pelerin society in Vina del Mar, Chile in 1981, at the height of the dictatorship. Hayek’s view was summarised in an interview he gave to the progovernment newspaper El Mercurio (there weren’t of course, any antigovernment newspapers at the time) in which he was reported as saying Mi preferencia personal se inclina a una dictadura liberal y no a un gobierno democrático donde todo liberalismo esté ausente. cited in Juan T. López, “Hayek, Pinochet y algún otro más”, El País 22 June 1999. A rough translation is ” My personal preference inclines to a liberal dictatorship and not to a democratic government where all liberalism is absent ”
I should say that, despite a fair bit of effort, I haven’t been able to verify this quote, but it’s been widely circulated and never denied, and the Mont Pelerin meeting in Chile certainly took place. My secondary source is here.
In reading this quote, we should note that ‘liberalism’ can only be understood in terms of free-market economic policies, since the Pinochet government was not in the least liberal in relation to freedom of speech and political action (in contrast, with, say, the undemocratic but generally liberal government of 18th century Britain).
With this clue, we can read Hayek’s work such as Constitution of Liberty and see that his support for liberal democracy in the ordinary sense of the term was weak and highly qualified. In relation to democracy, he argues:

“If only persons over 40, or income-earners, or only heads of households or only literate persons were given the vote this would scarcely be more of an infringement of the principle [of democracy] than the restrictions that are generally accepted. It is also possible for reasonable people to argue that the ideals of democracy would be better served if say, all the servants of government or all the recipients of public charity were excluded from the vote. If in the Western world universal adult suffrage seems the best arrangement, this does not prove that it is required by some basic principle.”

Treating the weasel words “it is also possible for reasonable people to argue” as a dishonest way of saying “I think”, it seems clear enough that Hayek is willing to countenance any abridgement of democracy that is likely to support the political outcomes he favours.
On liberty, Hayek reverses JS Mill, arguing that restrictions on intellectual freedom and freedom of speech are less important than restrictions on freedom of action, that is, intervention in markets. The natural implication is that, where speech endangers free markets it can legitimately be suppressed.
Two elements of Hayek’s thought are important here. First, his antirationalism leads him to discount Mill’s main argument for free political speech, namely that free discussion leads to better political choices. If order is spontaneous, talking about it is at best futile and at worst dangerous. Second, there is the (inverse-Marxist) materialism that emerges in full flower in public choice theory, where all political speech is mere camouflage for the nefarious activities of some interest group or other.

In conclusion, I think that Hayek’s support for Pinochet was a natural consequence of his system of thought and not an aberration. The same is true, in my opinion, of Thatcher, a similarly authoritarian free-marketeer.

I don’t want to argue, by the way, that any association with a dictatorial regime necessarily implies support for dictatorship. In some cases, particulary in relation to Stalinist Russia, there may be nothing more than foolishness involved. Gullible but well-meaning people like the Webbs were fooled into believing that the Soviet Union really was a workers paradise, based on the principles of liberty, equality and fraternity. At a more limited level, Milton Friedman defended the role of the ‘Chicago boys’ in Chile by arguing that he would give the same economic advice to any government, democratic or not, and that he had in fact advised the government of China. While this is dangerous ground, if you believe that you can make people better off by advising their government, it’s arguable that you should do so even if the government itself is a bad one. But I don’t think this kind of defence can be made for Hayek.

A former colleague of mine was on the plane that was crashed into the Pentagon. She was travelling to Australia with her husband and two small children to take up a visiting appointment. It’s as close as murder has ever come to me and, given the circumstances, it could just as easily have been me and my family. I am often haunted by thoughts of that flight and the horror of its final moments.
I know of course, that everyone killed by war or the unofficial war that is called terrorism is someone’s colleague, friend, parent, child. If we use the language of war, are we not justified in killing our enemies, regardless of their individual guilt or innocence? But I am no longer prepared to accept the easy conclusion that, in some sense, deaths in war aren’t murder. Some deaths may arise from self-defence or accident, but I have come to the conclusion that everyone involved in war, from presidents and prime ministers to privates and paymasters, should be answerable for their actions.
In the case of terrorists like Al-Qaeda, the implications are straightforward. Anyone involved in such groups is a murderer and should pay the penalty. Moreover, this penalty should be imposed under national or international law, not on the basis of ‘rules of war’ that implicitly justify war itself. If it is necessary to make new and retrospective laws to achieve this outcome, and to use doctrines of criminal conspiracy, this is preferable to a continuation of the international law of the jungle.
But what about ‘ordinary’ wars and the crimes of governments like those of Saddam and Suharto? In the world that prevailed in theory until the formation of the United Nations and in practice until the end of the Cold War, any notion of applying justice in these circumstances was nonsensical. At best, ‘victor’s justice’ could be applied to criminals on the losing side. In most cases, considerations of realpolitik meant that crimes went unpunished.
Today, however, liberal democracies dominate the world. If we are willing to apply the law to ourselves, we can impose it on everyone else. This means seeing armed forces as being like police forces, empowered to use deadly force, but answerable for the way they use it. It is a step which European countries are just about ready to take, but for which the United States is not yet ready.
One problem is that, for law to be effective, there must be a high probability that it will be applied. In the past, heads of state have enjoyed immunity for all but the worst crimes, as have rank-and-file members of armed forces acting under orders. In effect, middle-ranking officers have borne the brunt of criminal prosecution.
On the first score, the arrest and trial of murderers like Pinochet and Milosevic is a start, but there are still dozens of former dictators, and thousands of their top henchmen, enjoying comfortable retirements. On the second, there must have been hundreds of people directly involved the massacre at Srebenica, but only a handful have been tried or even indicted. A similar story could be told for other war crimes.
There may be cases, such as those of long-running civil wars, where the rights and wrongs are too complex for criminal law. Even so, we should not let bygones be bygones. The Truth Commission in South Africa, where those on all sides who had killed or tortured in support of ‘the cause’ were made to confess in return for amnesty, provides one possible model for responding to such situations.

Given the instant christening of September 11, 2001 as “the day everything changed”, it was just about inevitable that the most common observation on September 11, 2002 is that “nothing has changed”. Even if there had been big changes they would not have been significant on the scale of a century in which million-person death tolls were a tragic commonplace, in which technology changed the world beyond recognition and in which borders were drawn and redrawn repeatedly. But I have to admit that I’m struck by how little has changed, particularly in US politics. In terms of daily life, the impact has been far less than that of AIDS, which came similarly out of the blue. In world historical terms, I think September 11 will eventually rank equal in importance with the Balkans War, but well below Vietnam or the fall of Communism. Sadly, the deaths of hundreds of thousands of Rwandans will barely rate a footnote, since they died far from the nearest TV camera.
Of course, this analysis presumes that Al-Qaeda doesn’t manage a successful nuclear or bioweapon attack and that any war with Iraq doesn’t, as has been threatened, “open the gates of hell” in the Middle East. If either of these presumptions is wrong, things really will change.

Brad DeLong continues his defence of Greenspan’s failure to pop the bubble, saying:

“I don’t agree with Stephen Roach that the Federal Reserve should have made interest rates higher and tried to make unemployment higher in the late 1990s in order to diminish investment spending and collapse the stock market bubble. In my view, the time to deal with any problems created by the bubble’s collapse is when the bubble collapses–not before. Relative to a lower-stock prices, lower-investment, one-percentage-point-of-unemployment-higher bubble-popping path for the U.S. economy in the late 1990s, the actual path that we took gave us an extra $1 trillion of real production.

You can complain about how that $1 trillion was distributed. You can regret that a large chunk of it–$200 billion?–was spent on investments that have much lower social value looking forward than their social cost. You can fear the damaging consequences of banruptcy and fraud on the economy. But you have to argue that these drawbacks from the fallout are quantitatively very large for the cost-benefit analysis to go Stephen Roach’s way. ”

Coincidentally, I argued earlier this year that the real loss from bubble-related investments was close to $1 trillion. My February
opinion piece in the Fin, started with this:
” One trillion US dollars. A million million. It’s an unimaginable sum of money. It’s more than the US would spend in development aid in 100 years, and more than enough to fix many of the world’s problems once and for all.

Yet $US 1 trillion is a conservative estimate of the amount of real wealth that has been dissipated in bad investments during the ‘New Economy’ bubble of the last few years”

Admittedly, my estimate included $150 billion spent by Europeans on 3G licenses and other adventures. On the other hand, I didn’t look at the energy sector, where Enron alone dissipated tens of billions, or at excesses in the housing market.

Based on these numbers, and given that there are more failures still to come, I think that when the bills are all paid, the benefit to cost ratio will be will below 1 (that is, the bubble will turn out to be a bad thing).

For what it’s worth, I don’t think the big problem was not interest rate policy, but rather the failure to use other instruments, such as an increase in margin requirements for share purchases, and the fact that, after a brief expression of concern about “irrational exuberance”, Greenspan became a cheerleader for the boom. On top of this, there’s the more general loss of nerve arising from two decades of financial deregulation. Greenspan has been willing to adjust interest rates, but not to interfere with market outcomes.