Sistani rules, Ok (Part 5)

After summarising the generally gloomy prospects for IraqPaul Krugman writes in today’s NYT

much of U.S. policy in Iraq – delaying elections, trying to come up with a formula that blocks simple majority rule, trying to install first Mr. Chalabi, then Mr. Allawi, as strongman – can be seen as a persistent effort to avoid giving Grand Ayatollah Ali al-Sistani his natural dominant role. But recent events in Najaf have demonstrated both the cleric’s awesome influence and the limits of American power. Isn’t it time to realize that we could do a lot worse than Mr. Sistani, and give him pretty much whatever he wants?

He’s right, but it’s important to look ahead to the next step. Sistani has rejected violent resistance to the American occupation, but has always opposed the occupation and has refused to meet with the Americans or their representatives. Assuming elections go ahead and a Shia majority government is elected, it will be under intense pressure to demand the withdrawal of US troops, regardless of the security situation.

Among the possible responses to this, the really stupid one (and therefore the one the Bush Administration will probably pick, if Bush is re-elected) would be to invoke Article 59 of the Transitional Administrative Law approved by the unelected Iraqi Governing Council, which allows for US troops to remain in effective control of the country until a permanent constitution is in place.

A more plausible solution, but one that would probably be unacceptable even to a Kerry Administration, would be to hand over command of a scaled down (but still mostly American) force to a UN commander, operating subject to the control of the elected government. The Iraqi government would probably accept such a compromise.

The final option would be to pull out as requested, and leave the Iraqis to sort out the resulting mess. It’s looking increasingly likely that this will be the actual outcome, and perhaps it would be better than what we have at present.

A big goods and services deficit

The seasonally adjusted balance of trade in goods and services came in a deficit of $2.7 billion. If continued at an annual rate, this would amount to about 4 per cent of GDP, implying a current account deficit in excess of 67 per cent.

There’s plenty of debate about whether large current account deficits can be sustained indefinitely. But there isn’t (or shouldn’t be) any such debate about large deficits in the goods and services balance. A large and stable deficit on goods and services necessarily leads to an explosion in net debt and in the current account deficit[1]. This can’t be sustained, and therefore won’t be, but the process of adjustment may not be pleasant.

As various people have pointed out, one contributory factor is the poor performance of the “elaborately transformed manufactures” sector, on which high hopes were set in the early 1990s. More generally, it’s difficult to square this outcome with claims of a miraculous productivity performance in Australia.

I don’t suppose that this will have much impact on the election campaign. But it helps to point up the fact that the government’s reputation as good economic managers is as much the product of good luck as of good judgement. Running sustained large current account deficits is a gamble that world capital markets will continue to take the relaxed view of such deficits that they have in the last decade as regards OECD countries, rather than suddenly changing their minds as they have done in relation to Mexico, Asian countries. Argentina etc.

fn1. If the rate of growth of nominal GDP is higher than the rate of return received by foreign lenders and investors, a small deficit on goods and services can be consistent with a stable ratio of debt to GDP. But that isn’t the case for Australia. The ten-year government bond rate is 6.25 per cent, which is about equal to nominal growth, and private borrowers would mostly be paying rates higher than this.

One Cheer for John Howard (guest post from Jack Strocchi)

Following up Brian Bahnisch’s guest post, I’m presenting another from Jack Strocchi. It should be obvious that I don’t agree with Jack’s view of Howard as a Straussian/Machiavellian, telling “Noble Lies” to lead us all to his vision of tolerance. But I’ll leave it to others to make up their own minds.

I found the discussion of Brian’s post very interesting. Jason Soon has some more thoughts, with which I broadly agree, though I’d concede that excessively narrow utilitarianism can lead to the kinds of moral blindness pointed to by Brian.
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Two beatups

Tonight’s election news had both parties engaging in dreadful beatups. The Libs tried to turn a Labor policy of a 0.1 per cent addition to the Superannuation Guarantee Levy into “a new national payroll tax’. This is so bogus I can’t imagine it lasting past tomorrow.

Meanwhile Labor plugged away on the line that Costello will replace Howard sometime in the next term of office, and that Howard is being dishonest by not admitting this. Of course, this will probably happen, but it might not. Having predicted before the 2001 election that Howard would not serve a full term, I’m not going to make any predictions or demand any promises on this one. If you vote Liberal, you might get Howard, you might get Costello, you might get someone else. I suppose it’s unlikely that Labor would dump Latham in his first term if he won, but give him a couple of terms in office and the same question will arise.

A reminder of our insignificance (in American eyes)

The headline for William Safire’s Op-Ed piece in today’s NYT is “Four connected elections”, and the teaser is

More than one election will affect the young democracy in the land of Saddam’s former tyranny.

Obviously, there’s the election in Iraq itself, and the US election in November. Then there’s another Presidential election in Afghanistan. What’s the fourth? You might expect that the first national election to be held in one of the original “Coalition of the Willing” countries since the war would count for something. But actually, it appears that Safire counts the outcome in Najaf[1] as a ‘primary’.

I’m well aware of how little we are noticed, but even so I opened Safire’s article expecting a mention of Oz. For anyone who thinks that our policy of unwavering support for the US buys us anything in the way of gratitude, or even attention, this is a sobering reminder of our insignificance in American eyes.

fn1. Which by the way, he grossly misinterprets. Sistani, who he correctly presents as the big winner, has been an unwavering opponent of the US occupation. However happy he may be that Sadr is out of Najaf, he is unlikely to countenance a continued presence once a Shia majority government is installed.

Barns on hypocrisy

Writing a defence of Ross Cameron, and political hypocrisy in general, Greg Barns puts forward the startling proposition that it’s OK for politicians to keep a mistress at taxpayers’ expense[1].

For the body politic in France, Italy, Spain, Portugal and their former colonies, the fact that their political leaders attend church on Sundays, preach the need for less corruption and moral virtue during the week, but keep a mistress at taxpayer’s expense merely raises a resigned shrug of the shoulders.
This latter approach is not only more realistic but recognises the point .. that there’s little reason to expect that the personality type attracted to politics is a human of impeccable moral virtue.

If Barns himself should ever run for office, we can’t say we weren’t warned.
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