I spent much of last week in the Snowy Mountains with my family (the Powerbook came too, of course, so I kept up at least some blogging). It was the first time we’d been back since the devastating fires in January. Large areas are still closed off, and signs of fire are everywhere. Fire is a natural part of the lifecycle of a eucalypt forest, and signs of regeneration were already evident in many of the places we visited. But some of my favorite spots, such as the mountain ash forests around Round Mountain, are probably gone for good. This is the second fire in twenty years and it’s unlikely that new seed has been set. Even if they do come back, it will be decades before they regain anything like their former state.

As is inevitable with such a disaster, fingers have been pointed in all directions, notably at the National Parks and Wildlife Service for not burning off vigorously enough and at global warming for the extreme severity of the drought and hot weather conditions that led to the fire disaster. I’m keeping an open mind on the relationship between drought and global warming. Looking at the way the fire burnt through grassland as well as bush, I’m doubtful that any regime of controlled burning could have mitigated this fire much, unless it was so extreme as to fundamentally change the character of the Park.

Tim Lambert has produced yet more evidence of academic malfeasance by pro-gun economist John Lott. Kevin Drum at Calpundit has more. Since I was convinced long ago that Lott was discredited beyond any hope of redemption, the only point of remaining interest is the collateral damage being incurred by Lott’s allies and defenders.

Obviously, the once-respected American Enterprise Institute, which still employs Lott, is at the top of the list. Having had my own run-in with its current head Karl Zinsmeister, I agree with Brad de Long, whom I cited a while ago saying “Back in the late 1970s, the American Enterprise Institute ranked close to the Brookings Institution as a thinktank you could trust not to deliberately lie to you. Now it has fallen very deeply into the pit indeed”. No doubt some good work is still being done at AEI, but the AEI stamp now detracts from credibility rather than adding to it.

Another casualty is Lott’s Australian co-author, and gun rights advocate, John Whitley, who ended up with his name on an article that Lott himself refused to sign off on when the other party in a dispute pointed out a string of coding errors (Tim Lambert, linked above, has the details).

But the biggest not-so-innocent bystander to be hit by friendly fire is surely the king of the blogworld, Glenn Reynolds of Instapundit. Having cut his blogging teeth on the Bellesiles scandal (the discrediting of a widely-acclaimed piece of research seen as favorable to gun control), and having ferociously attacked those on the anti-gun side who failed to dissociate themselves from Bellesiles, Reynolds has consistently given Lott the benefit of the doubt, and has even, in a dispute between Lott and respected economist Steve Levitt, been implicated in Lott’s slimy manoeuvres (again, see Tim Lambert for the complex and gory details). Clearly all that rhetoric about ‘fact-checking your ass’ only applies to those who come up with the wrong conclusions.

Update Jason Soon reports that Steve Levitt has just been awarded the John Bates Clark medal for the best US economist under 40 (Paul Krugman is a previous winner, and it’s often seen as a harbinger of a future Nobel). So I guess he won’t be too worried by anything Lott and Reynolds have to say about him. Tom Spencer has more.

Ken Parish has had a go at Clive Hamilton over an extract from his new book, Growth Fetish, published at Online Opinion. I think a lot of the debate is either at cross-purposes or misses crucial distinctions.

In essence, Clive restates a critique of growth, as measured by Gross National Product, that goes back to Galbraith’s Affluent Society. The link is sharpened by the fact that Clive, like Galbraith, refers to Gross National Product (GNP) rather than, as is more usual in Australia, Gross Domestic Product (GDP). Ken makes some good points but, in large measure, offers a restatement of the arguments that were put forward in rebuttal to Galbraith and, even more, to 1970s critics of growth like the Club of Rome.

On balance, I agree more with Ken than with Clive, so it’s only fair to begin with a point on which I agree with Clive.

GDP growth is a lousy measure of how well a country is doing, even if we are only interested in relatively narrow economic assessments of welfare, as opposed to social, cultural or spiritual issues. The name gives three reasons why Gross Domestic Product a bad measure of economic welfare.

It’s Gross because depreciation is not subtracted. If we are concerned with measuring economic welfare, even from a narrowly materialist viewpoint, the net measure is relevant and the gross measure is not.

It’s Domestic because it measures the amount produced in Australia, including that which accrues to foreign owners of capital and is paid out as interest or dividends. National Product which is the output accruing to Australian land, capital and labour is more relevant.

Finally, it’s Product, that is, a measure of output that takes no account of inputs. If we increase our product by working harder or longer hours (a point Ken notes), or by consuming more natural resources, we are not necessarily better off. What matters in the end is productivity, not product.

Why then do economists pay so much attention to GDP? The answer is that it’s useful primarily as a measure of economic activity, for short-run macroeconomic management. If GDP is declining, this is a good indication that the economy is in recession and that macro policy needs to be more stimulative. Taking account of things like depreciation, international income transfers and work intensity would reduce the precision of estimates of short-run growth because all things are hard to measure, and would make GDP less useful for its primary purpose. (Of course, this is a Keynesian view – national account statistics like GDP are essentially a product of the Keynesian revolution).

This is a big subject and I’ll try to post more on it as I get time.

I’ve been noticing a quote, attributed to Keynes, that neatly encapsulates an argument I’ve been putting for some years.

The market can remain irrational longer than you can remain solvent.

The point of this is that, even if you can see a market bubble (or irrational slump) developing, you should not bet that prices will return to normal, for example by selling stocks short. The most sensible course is simply to avoid holding assets that are overpriced (I’ll need to work through the details of this argument formally some time – I guess it’s done in the literature on rational bubbles). Anyway, although the quote is being widely reproduced, I haven’t been able to find an actual citation, and the informal use of “you” leads me to suspect that these are not Keynes’ actual words. If anyone can find the source, I’d be very grateful.

On the same front, I gratefully acknowledge reader Bernhard Walpen, who sent me the full text of the Hayek quote on Pinochet that I mentioned some time ago. Here it is (with emphasis added by me):

Hayek, Friedrich August von, 1981: “En el Momento Actual Nuestra Principal Tarea es Limitar el Poder del Gobierno” [Interview], in: El Mercurio, April 4, 1981, p. D8-D9.

D9: “Bueno, yo le dirla que, como una institución a largo plazo, estoy totalmente en contra de las dictaturas. Pero bien puede ser un sistema necesario en un periodo de transición. A veces es necesario que en un país haya, durante un tiempo, alguna forma de poder dictatorial. Como usted comprenderá, es posible que un dictador gobierne de manera liberal. Y también es posible que una democracia gobierne con una total falta de liberalismo. Y yo, personalmente, prefiero a un dictador liberal y no a un Gobierno democrático carente de liberalismo. Mi impresión particular es – y esto es válido para Sudamérica – que en Chile, por ejemplo, habrá una transición entre un Gobierno dictatorial y un Gobierno liberal. Y en esa transición puede ser necesario mantener algunos poderes dictatoriales, no como algo permanente, sino como un arreglo de transición.”

My Spanish isn’t great, but it’s clear on the one hand that Hayek is endorsing the Pinochet regime [Bernhard’s extensive research on Hayek revealed no statement critical of Pinochet], and on the other hand, that he viewed it as a transitional stage in a movement towards a nondictatorial liberal government.

The most natural reading of the phrase I’ve emphasised is that, even without the prospect of transition, Hayek thinks a liberal (that is, free-market) dictatorship is to be preferred to an illiberal democracy. But as with Marxists and the ‘dictatorship of the proletariat’, the tendency is to use the prospect of ultimate transition to an ideal state to avoid a clear commitment for or against a dictatorship of indefinite duration. And, since the Pinochet regime did ultimately give way to a democratic government, it’s probably not sensible to draw firm conclusions on the basis of Hayek’s attitudes in this case.

Update In the comments thread, reader Alan from Southerly Buster provides a good translation. And Brad de Long notes that he has been unable to find a source for the Keynes quote which looks ‘too good to be true’. I agree – it seems like a response to arguments that Keynes would never have encountered, regarding the potential for rational speculators to stabilise markets.