Nick Gruen alerted me to this piece by Ross Gittins, excoriating the Productivity Commission’s report on housing affordability. I had only seen the press reports and was struck by the absence of any reference to the cut in capital gains tax, the biggest single factor in converting a boom to a bubble. Ross says

Despite all the fine words and careful analysis in the body of the report, it was no accident that the media’s headlines focused almost exclusively on the recommendation that the premiers abolish stamp duty.

It was no accident because the report was structured to produce that response. And it was no accident the Boss [Costello] exploited it for all he was worth.

After the PC had shut down any talk of doing something about negative gearing and the half-rate capital gains tax, and excused away the federal tax system’s $18 billion annual subsidy to owner-occupiers, its brave call for the abolition of stamp duty was the only significant proposal left. ….

This report is intellectually dishonest and cowardly. It’s idle for the economic rationalists to keep carrying on about the politicians’ “reform fatigue” when, in the face of someone as terrifying as Peter Costello, the bureaucratic leaders of the movement have lost their bottle.

It’s a great read, and I know the economists of the PC well enough to recognise that Gittins has hit them where it hurts most, particularly in that last para – it will be interesting to see if there is a public response.

It’s time as usual for your comments on any topic? My starter question: is there anything new that can be said about Christmas?

One of the most striking historical facts I’ve learned this year is that George Washington freed all his slaves in his will despite opposition from his family, including his wife Martha. It’s surprising and revealing that this fact has never been part of the standard account of Washington’s life.

It is also one of the facts leading me to an increasingly negative view of Thomas Jefferson. The parallel between Jefferson’s unacknowledged slave children by Sally Hemings and the more recent case of Strom Thurmond is striking. (Jefferson was, quite literally, the first Southern Democrat). Until now, I’ve tended to vaguely excuse Jefferson’s actions here as a case of personal inability to resist the thinking of the times, but Washington’s example undermines this.

I think you can go from the personal to the political here as well. The course leading to the Civil War was set when the Northern States adopted emancipation around the time of the Revolution and the Southern states did not. Jefferson advocated gradual emancipation in Virginia at this time (1783), but he didn’t fight hard on the issue after this. Given Washington’s personal evolution on the issue, it seems plausible that a determined effort by Jefferson in the years after Washington’s death, during which he was president for eight years, could have achieved a peaceful end to slavery.

The Australian courts, tiring of incomprehensible economic and legal arguments about competition law, have reinstituted the ancient and honourable tradition of trial by combat, and they want it a l’outrance.

At least that’s what I infer from this para in Saturday’s Australian Financial Review.

The judgement showed it is very difficult to prove the substantial lessening of competition needed for a breach of Section 50 – blood literally has to be spilt on the floor (emphasis added)

The discussion of The Flynn Effect and the Bell Curve had at least one positive effect on me. I finally took my copy of Howard Gardner’s “Frames of Mind: the Theory of Multiple Intelligences” down from the shelf and looked inside. In a former life I worked in the area of policy development and service provision to schools, and hence tried to keep up with the main themes and issues in education. While psychometrics, IQ and such was not my field, Gardner became big news. Shortly after buying the book, however, I left education and was quite allergic to reading about it for a number of years.
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The idea that speculative markets can be used to forecast political events hit the headlines a while ago with the furore over terrorism futures. This idea is still around and the general claim that political events can be forecast by futures or betting markets is still being pushed hard. The main source of data is at the Iowa Electronic Markets, but there’s plenty more. Reader Jack Strocchi sent me this report on a study of Australian betting markets and elections.

As it happens, I’d already looked at this and come fairly rapidly to the conclusion that the betting markets weren’t much good, so I was struck by the money quote from author Justin Wolfers

The data suggests the Australian betting market is extraordinarily efficient. And why not? There’s a huge incentive for participants to do their homework, collect reliable information and make sure the price is right.”

Looking at the report and also the Iowa studies, the evidence in support of this claim still seems very weak to me. In 2001, for example,

The night before the election, Howard was ahead in two of three major polls ….[on Centrebet] Howard was the favorite with odds of $1.55, suggesting a 64 percent probability of his winning the election,”

That is, on the crudest possible use of the polls, two out of three suggested a Howard win, giving odds almost identical to Centrebet. In fact, I doubt that any serious analyst would have given Labor even a 25 per cent chance by election night.

To be fair, Wolfers doesn’t put much weight on the election-night market. He says

data from Centrebet, Australia’s largest bookmaker, demonstrated the impact of current events on the betting odds throughout the nine months leading up to the election, reflecting immediately the electorate’s seesawing response to such events as leaders’ televised debates and the Sept. 11 attacks in America.

In fact, however, the betting markets reacted more slowly than the polls. In this piece written in September 2001, Wolfers and his co-author Andrew Leigh rated Labor a 55 per cent chancebased on the Centrebet data.

But enough of this ad hoc discussion. What test should we be applying here? It’s not appropriate, as nearly everyone in this field has done to treat polls and betting markets as separate predictions. Punters in the betting markets have access to the polls. So they should always do at least as well as any mechanical rule based on poll data. The test “have the markets done better than the polls” implicitly compares the actual betting strategies to the rule “at even money, bet on whichever candidate is ahead in the polls”. Even compared to this simple-minded rule, the improvement shown by the markets is marginal at best.

The real issue we should consider, before rushing to embrace terrorism futures and the like, is how betting markets would perform in the absence of information from polls. You’d have to go back before World War II for this, but it’s my impression that predictions of election outcomes in this period were often way off the mark.

Once there were three bubbles. The one that attracted everyone’s attention was the dotcom bubble, of which no more needs to be said. The second bubble, noted by plenty of economists was the glaring overvaluation of the bubble. Given chronic deficits in both the budget and current account, and the fact that the US dollar was trading at a value well above purchasing power parity, anyone who gave any credence to the view that markets eventually reach equilibrium could conclude that the US dollar was bound to fall, and it has duly done so. (this only leaves the question of why putatively rational investors did not sell earlier)

The third bubble seemed, until this year, like part of the second. Rates of interest on 10-year US government bonds are amazingly low, currently around 4.25 per cent (the price is inversely proportional to the interest rate, so low interest rates mean a bubble in bond prices). Most economists would, I think have assumed that, as the US dollar declined in value, long-term interest rates would go up. But, apart from a brief panic a few months ago, this hasn’t happened.
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I usually agree with my blogtwin Tim Dunlop, and one of us often beats the other in posting a given idea by a matter of hours. But this time I’m well ahead. Tim endorses Mark Latham’s criticisms of overgenerous Parliamentary superannuation, making the point that

Now that the sort of neo-liberal policies that Latham favours, and that successive governments have championed, have improved the job market so that nearly everybody’s job is as precarious as that of an elected federal politican, it does seem that some adjustment is in order

I had my say on this in 1998.

Back in the 1960s and 1970s, talk of a four-day working week was commonplace. But with the growth in working hours and work intensity during the 1980s and 1990s, even a five-day week was viewed more as a nostalgic memory than as a realistic proposition.

I’ve been arguing for some time that the tide has been turning on this issue, and the news that ETU secretary Dean Mighell http://www.theage.com.au/articles/2003/12/17/1071337017313.html has launched a new push for a four-day working week fits neatly into this story. Of course, Mighell is very much on the left of the union movement, and this is a personal view rather than an official ETU claim. Still, the fact that the idea is being discussed at all is significant in the same way that the kind of discussion of the “24/7 economy” popular a few years ago mattered more than the fact that the idea itself was chimerical.

Talking of the Scientific American, the November issue has a very interesting article on the discovery of some early human fossils in (the former Soviet Republic of) Georgia, generally assigned to Homo erectus but having a lot of characteristics in common with the earlier Homo habilis. One scientist quoted in the story even uses the phrase “missing link”.

This should be a big problem for scientific creationists, who generally argue that fossils classified as Homo erectus are just Homo sapiens and that Homo habilis is an extinct ape.

But, as we’ve seen from the debate over global warming, it’s unlikely that the accumulation of evidence will change the minds of those whose commitment to a particular viewpoint wasn’t based on empirical evidence in the first place.

Update Bargarz has more.