Month: July 2004

Some links on the Middle East

John Quiggin4 Comments

Just a few links with useful info and argument on various aspects of the situation in the Middle East and the surrounding region (very broadly and loosely defined)

* An excellent piece by Stephen Kinzer on Turkey’s democratic Islamist government, and the prospects for admission to the EU

* Juan Cole points out that the case against Iran is every bit as problematic as the case against Iraq.

* Also via Juan Cole, two views on the Wall being built by the Sharon government

* A powerful piece by Nicholas Kristof on Rwanda and Darfur

The virus of error

John Quiggin4 Comments

In the most recent London Review of Books, Hugh Pennington has a generally excellent article on measles and erroneous (to put it charitably) research linking the combined MMR vaccine to autism. It’s a pity therefore that, on a peripheral issue, he perpetuates an equally glaring error, saying

‘Most people have an intuitive appreciation that the best vaccine programme, from an individual’s point of view, is one where almost everyone else is vaccinated while they are not, so that they are indirectly protected without incurring any of the risks or inconvenience associated with direct protection.’ If too many people act in this way, the infection becomes commoner in the population as a whole, and returns as a real and significant threat to the unimmunised. This is a modern version of the ‘Tragedy of the Commons’ described by Garrett Hardin in his influential 1968 essay: 16th-century English peasants had free grazing on commons; their need to supplement food supplies and income was very great; the resulting overgrazing wrecked the commons for everyone.

As I’ve pointed out previously Hardin’s story was, in historical terms, a load of tripe.

It’s interesting to note that, in repeating Hardin’s story, Pennington adds the spurious specificity of “16th century England”, whereas Hardin’s account was not specific regarding dates and places, and therefore harder to refute. This is characteristic of the way in which factoids are propagated.

Respect

John Quiggin15 Comments

Don Arthur and Ken Parish have been discussing values and civility, with links to other bloggers. Both posts are well worth reading. I don’t have anything new to say on this at present, but civility is the kind of thing that’s better shown by example than described in the abstract. With some exceptions, and with occasional lapses by nearly everyone, I think Ozplogistan sets a pretty good example. I rarely agree with, for example, Andrew Norton or John Humphries Humphreys, and frequently disagree with Ken Parish, but we manage to have productive discussions despite this.

Rational manias

John Quiggin51 Comments

There’s a cottage industry within economics involving the production of historical arguments giving rational[1] explanations of seemingly irrational historical episodes, of which the most famous is probably the Dutch tulip boom/mania. This Slate article refers to the most recent example, a complex argument regarding changes in contract rules which seems plausible, but directly contradicts other explanations I’ve seen.

Once opened, questions like this are rarely closed. Still, articles of this kind seem a lot less interesting in 2004 than they did in, say, 1994. In 1994, the efficient markets hypothesis (the belief that asset markets invariably produce the best possible estimate of asset value based on all available information) was an open question, and the standard account of the Dutch tulip mania was evidence against it. In 2004, the falsity of the efficient markets hypothesis is clear to anyone open to being convinced by empirical evidence.
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DeLong on interest rates

John Quiggin3 Comments

There’s an interesting piece by Brad DeLong in Saturday’s Australian Financial Review, which I can’t find anywhere online.He lists four reasons why interest rates can be expected to rise in the future. The first two are just two facets of the same thing – the embrace of deficit finance by the US Republicans in both Congress and the executive branch. The third is closely related: the failure of Western European governments to address the coming fiscal crisis associated with retirement income policies. All of these are currently being offset by the willingness of the Chinese and Indian central banks to buy US and Euro bonds in an effort to maintain competitive exchange rates. But this can’t last forever.

The fourth factor is “the inability of Western European governments top enact sufficiently bold liberalising reforms to create the possibility of full employment, together with the failure of Western European monetary policy to be sufficiently stimulative to create the reality of full employment”. I have some doubts about this. Leaving aside any questions about the efficacy of “liberalising reforms”, it’s far from clear that the adoption of stimulatory monetary policy in the short run is conducive to low nominal interest rates in the long run. I would have thought that just as stimulatory deficits in a recession need to be offset by larger surpluses during booms, an active monetary policy implies a larger variance in interest rates over the cycle.

More significantly, it seems to me that, on a crucial point Brad has the argument backwards. He says “Believers in low interest rates … point to rapid technological progress, which has boosted output.” In general, technological progress ought to create new investment opportunities at high rates of return, while the associated increase in asset values should raise current consumption. This should raise the real rate of interest, not lower it. In fact, this is precisely the argument Brad makes in relation to India and China.

On checking, I was surprised to find out that the ratio of nonresidential gross investment to US GDP is near an all-time low, at 10.0 per cent (you can get the data from the Bureau of Economic Analysis . Taking account of the increasing share of computers and software, which have high depreciation rates, it seems likely that the net investment share is lower than ever. Maybe this can be explained if all the technological progress takes the form of capital-saving reductions in the cost of computing and telecommunications. This would reduce demand for capital (but ought to increase demand for labor, something that has evidently not taken place).

Monday Message Board

John Quiggin24 Comments

It’s Monday again, and time for the Monday Message Board. This is a chance for everyone to give their comments on any topic. Also, if you have longer pieces you’d like to draw to the attention of readers, feel free to post a link. I’ve been a bit slack about policing the “no coarse language” rule in the last couple of weeks, but please adhere to it and stick to civilised discussion.

PPPs – the magic pudding lives

John Quiggin1 Comment

There’s quite a good piece on Public-Private Partnerships by Graeme Hodge in today’s Age. Fair and balanced, but providing some justified scepticism. Meanwhile the news page of the same paper has a perfect example of the magic pudding mentality that still underlies most advocacy of PPP arrangements.

Brian Caldwell, the outgoing dean of education at Melbourne University, has called on the Bracks Government to follow the lead of the Blair Government in Britain, which is rebuilding schools in partnership with the private sector…Professor Caldwell said that while the Government was moving “quite impressively” to improve the quality of buildings, the cost in many schools was enormous.He called on the Government to adopt the policy of the Blair Government, which is rebuilding schools in urban areas. It often involved the private sector building schools and leasing them back to the Government, which paid them off over 25 years.

Caldwell doesn’t mention cost savings or risk transfer or any of the other reasons why PPPs might be worthwhile, he just seems to think that this is a way of getting money for nothing.

Caldwell on to say that the British PPP program is “coupled with redesigning the educational programs of the schools.” But there is, in general, no link between PPP construction and educational programs, which are typically still public in these cases. Conversely, there are plenty of examples of partial or complete privatisation of education in systems where the public maintains ownership of the school buildings (as with PPP construction, the record of such ventures is mixed at best).

Another enterprising university disaster

John Quiggin10 Comments

A few years ago, Monash University was being described as the first global university‘ on the strength of its multiple campuses in Australia, Malaysia, the UK and South Africa. Along with Alan Gilbert of Melbourne, then VC David Robinson[1] was one of the leading promoters of the idea of the ‘enterprising university’. In practice this meant using the public endowment of the university to establish private, for-profit offshoots, an agenda that is still being pushed vigorously by Tim Dodd and the AFR Higher Education Section. Robinson aimed for a campus on every continent, while Gilbert pushed the idea that the Internet could be used to bring academic handloom weavers into the factory age, an idea embodied in U21 Global.

Now Monash’s African operation is described as a money pit. Exactly the same could be said of U21Global[1], a $US50 million enterprise which has so far produced nothing more than a very ordinary online MBA to add to the hundreds already on the market.

The question of why, outside narrowly vocational training, for-profit educational ventures are almost invariably unsuccessful is a complex and difficult one. But the facts speak for themselves. From an Australian perspective,an equally important question is why university managers (mostly former academics with no obvious qualifications for a business career) entrusted with large sums of public money have been allowed to dissipate it in money-losing speculative investments.

fn1. Robinson got sacked a couple of years ago over a plagiarism scandal. As I pointed out in a very early post, this was hypocritical behavior on the part of a University council that backed his anti-academic agenda. “University managers have done their best to suppress the assumptions of free exchange of information in which notions like ‘plagiarism’ make sense. In the brave new world of ‘intellectual property’, you nail down what you can of your own ideas and appropriate anything from the common pool that hasn’t already been grabbed. The former vice-chancellor of Monash seemed entirely suited to the new world, and it was hypocritical to sack him.”

fn2. As with Monash, the term “global” is an aspiration rather than a reality. In practice, U21Global does not even try to compete outside the Asian market, and it seems that it is increasingly focusing on Singapore, its physical location.

The new Iraq

John Quiggin11 Comments

Although there’s plenty of news coverage of inquiries into the “intelligence” that justified the Iraq war, coverage of events in Iraq itself seems to have declined sharply since the formal handover of sovereignty and the shutdown of the Coalition Provisional Administration. There seems to be a general media consensus that things have gone quiet, with the result that, when the usual news of bombings, kidnappings and assassinations is reported, it’s always prefaced with something like Suicide Blast Shatters a Calm (NYT 15 July) or after a week of relative calm (Seattle Times 7 July).

Regardless of the calmness or otherwise of the situation, the installation of Allawi as PM has certainly produced a new dynamic. Allawi has moved quickly to establish himself as a strongman, resolving by default the questions left unanswered in the “handover”. His announcements of emergency powers and the establishment of a security service/secret police have been criticised, but they amount to little more than the assumption of powers previously exercised by the CPA with no legal basis of any kind. The big question before the handover was whether any new military operations would be under the control of the interim government or of the American military. Allawi has moved pretty quickly to ensure that he will give the orders here, putting the onus on the American military to come to his aid if his forces run into serious resistance.
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