Reality bites

This reported statement from Paul Bremer, acknowledging that reconstruction in Iraq will cost tens of billions of dollars, and that oil revenue will come nowhere near paying for this is a welcome acknowledgement of reality. But there is still no sign that the US Administration as a whole has accepted the need to spend lots more money. And even Bremer is still sticking to the party line that other countries (read Old Europe) can be expected to give buckets of money to Uncle Sam while being treated as pariahs or interlopers.

Meanwhile Howard is steering clear of the whole thing, offering no more than the handful of troops still left in Iraq and no serious money. I’m in two minds about this. Certainly, we have plenty of problems closer to home, and the benefit-cost ratio is probably higher in the Solomons than in Iraq. On the other hand, we invaded Iraq, smashed its economy to bits, and are now leaving the unfortunate Iraqis to pick up the pieces.

Abbott v Hanson

Our legal system behaves in strange ways. Pauline Hanson was jailed for three years for a highly technical breach of the electoral registration rules. But apparently it’s OK for one political party to foment and fund legal disputes within another.

Update According to Ken Parish, Abbott may indeed be in legal difficulty over this.

A belated farewell

Blogging is hard work – it’s particularly hard if you try to keep up with what other bloggers have been doing on a regular basis. I’ve let that slide a bit recently, and have been busy enough just responding to comments and pings. As a result I only just read this signoff post from Carita Kazakoff’s Manas blog. Carita didn’t post all that often (probably why she’s managed to kick the habit), but she brought a refreshingly different perspective to a lot of the issues she covered, particularly East Timor/Timor Leste.
Her post gives a hint that she may return next year, which would be very welcome.

Monday Message Board

Another Monday, another message board. Post on any topic, civilised discussion and no coarse language please.

Regular reader Observa suggests the topic ‘Is the patenting of living organisms the new face of slavery?’

I’d be interested in comments the more general question of whether the patent system has overreached itself and whether patents now do more harm than good (leading questions, I know).

What I'm reading

The Glass Bead Game by Herman Hesse. Hesse had a huge vogue in the late 60s – along with Charles Dickens and Aldous Huxley, he’s one of a handful of writers to have been the inspiration for the naming of a well known rock group – but he seems to have slipped into obscurity nowadays. Rereading The Glass Bead Game, there’s an obvious similarity with Ursula Le Guin’s Earthsea books, which in turn are reflected in Harry Potter. I’m tempted to say that this is a line of descent in more ways than one, but actually Le Guin stands up pretty well to comparison with Hesse and I’m not going to bag JK Rowling for writing readable massmarket kids books rather than great literature.

Patently right

There’s an interesting piece in today’s Fin (subscription required) about Uni of NSW Vice-Chancellor Rory Hume, who says universities should give away (nearly all) the research they produce rather trying to make money out of intellectual property. I think he’s right for a number of reasons.

First, despite some impressions to the contrary, the returns to universities from commercialising research have been very poor, even in the US where this has been going on for a long time. The Australian Research Council did a study on this and found that the returns from commercialisation were about 2 per cent of the cost of research. In fact, if unis fully costed their commercialisation outfits, including land and administrative overheads, I suspect that the true figure would be negative.

Second there’s the standard public good argument. The social benefits are greater if the results are free to use.

Third, there’s something I saw on Four Corners a couple of weeks ago. They interviewed a very unattractive character who’s secured a dubious patent on non-coding DNA and is using it to extract license payments from virtually anyone engaged in genetic research. In a breach of previous tradition, he’s going after university researchers. When challenged on this, he made the point that uni research labs were commercial outfits these days and deserved to be treated as such.


At a time when the Howard government’s increasingly brazen dishonesty (in all senses of the term) might just be starting to sink in with the electorate, and with the Hanson business raising all sorts of memories, what does Labor go and do but appoint Mike Kaiser assistant national secretary. For those who don’t recall, Kaiser was the leading operative of the AWU machine in Queensland and was forced to resign his Parliamentary seat after admitting involvement in branch-stacking.

Stacking is not the gravest of offences, and I wouldn’t necessarily say that Kaiser should never return to public life, but appointing him as a national official in a party that is supposedly trying to stamp out things like branch stacking is just plain stupid.

Walmart and productivity

Brad de Long links to this piece by Robert Gordon arguing that an important segment of the recent gain in US productivity growth has come in retail trade. Gordon says

America’s retail productivity performance has all been achieved in stores newly built since 1990, not in existing stores.

The new stores are the “big boxes” such as Wal-Mart, Home Depot and Best Buy, large new buildings set up on greenfield sites at interstate highway junctions, in suburbs and, increasingly, in inner cities. As these new stores reap the rewards of their size, openness and accessibility and drive smaller stores out of business, they bolster the average productivity of the US retail sector as a whole.

While countries differ, Europe has many ways of stifling modern retailing, from green belts and land-use restrictions to laws that prevent companies from lowering their prices. These make life difficult for new, more efficient retailers in order to protect small, traditional merchants. This is one of many cultural chasms across the Atlantic. Many Europeans could not care less about retail productivity and instead are adamant that Europe must avoid the US’s unregulated land use and starvation of public transport, which have produced its overly dispersed, energy-wasting metropolitan areas.

This is interesting in a couple of ways.

First, it helps to resolve a puzzle I’ve been pointing out for some time. If US productivity growth is so strong, why is employment in tradables like manufacturing shrinking so fast? On this account, the productivity growth is mainly in nontradables.

But the second point is more important. Retail productivity is very hard to measure. For example, measured retail productivity declined in Australia when shopping hours were extended – the extra convenience wasn’t taken into account in the statistics. By Gordon’s account, the apparent efficiency of big, edge-of-town stores is offset by a lot of negative externalities, and higher travel costs borne by consumers, and other road users. As I observed here and here the US has experienced a big increase in distances travelled, even compared to Australia and this has been accompanied by an increase in road deaths, giving the US one of the highest rates of road death in the OECD, about 50 per cent higher than Australia’s. And all of this reflects the fact that road use in the US is substantially underpriced, as was noted in a recent Chicago Fed letter.

Of course, there’s no easy way of telling whether the costs I’ve mentioned outweigh the benefits that are measured in the retail productivity statistics. Since so many of the costs are externalities, the success of WalMart in driving out the competition doesn’t prove anything. But it’s disappointing to see a fine economist like Robert Gordon fall back on cliches like ‘cultural chasm’ in relation to outcomes that are largely the product of economic policy. And, whatever the net balance, it’s clear that the measured growth in retail productivity is an overestimate.