Year: 2007

How safe are bank deposits ?

John Quiggin11 Comments

A reader writes

‘Im about to assume duties as Treasurer of my local church and have found that our reserves are not diversified but are with one institution already in the news as possibly suspect. The outgoing Treasurer is convinced that bank (ADI) deposits are guaranteed by the Reserve Bank and is resisting diversification. My reading of the Reserve Bank site, the APRA site and the modified Banking Act suggests that this “protection” was done away with by changes introduced by the Howard Government and that the claimed “protection” is an urban myth. Hence could you, or any of the readers of your blog advise – are deposits with ADIs protected in that someone will repay them in the event of institutional failure? and if not what should church (and club) treasurer’s do to protect these investments (many people in my position fail to realise that they can be personally liable for any losses)?

My response is that there is no explicit guarantee of deposits, although there is a strong expectation that the Reserve Bank would protect depositor. Unfortunatley, it is not entirely clear which deposits would be guaranteed, which makes life tricky for people like my correspondent. I don’t think there ever was an ironclad guarantee but it’s correct to say that the changes associated with the establishment of APRA moved us further away from such a situation. Coincidentally, the editorial in today’s Fin discusses this very topic, noting that Costello has been sitting, for the last two years, on a report recommending an explicit guarantee, limited to $20 000. I must have missed the whole thing, as I don’t remember any movement on this issue since the Wallis Committee.

Here are some thoughts from 2002. An extract

the medical insurance panic would be nothing compared to what might happen if, in the midst of a liquidity crisis at a major bank, one of our socially responsible talk-show hosts suddenly discovered that there was no government guarantee for bank deposits. This happened on a small scale in the 1970s, forcing NSW Premier Neville Wran to take a loudhailer into the streets to stop a run on a building society.

Back from break

John Quiggin1 Comment

It’s midsemester break at UQ, and I’m just back from a few days holiday on beautiful North Stradbroke island, where beaches are white and Internet connections are patchy. I see that various comments threads have run out of control, with my post on US experience of war being derailed into a string of general rants about the merits or otherwise of US social organisation.

If you believe what you read in the papers, Stradbroke was similarly out of control, although a close textual analysis reveals that the “drunken teen packs” terrorising the island did so mainly by standing around looking bored and not picking up their rubbish. Admittedly Point Lookout is strung out over a couple of kilometers, and its “dimly lit streets” make it hard to be sure what’s going on, but the end of town we stayed at was sufficiently quiet that the ticking of the clock kept us awake. Having invested in a reporter and camera crew, I guess the Courier-Mail had to beat up a story of some kind.

Shedding blood for liberty

John Quiggin54 Comments

A brawl has erupted over a statement in the stump speech of Republican candidate Fred Thompson, who asserts that the US has “shed more blood for other people’s liberty than any other combination of nations in the history of the world” As the WaPo points out, our Russian allies lost millions in WWII alone, as did Britain and France in WWI which (at least nominally) they entered ‘that small nations might be free’. In fact, US casualties in World War I (about 120 000 killed and 200 000 wounded) were comparable to those of Australia and New Zealand,which between them had about 5 per cent of the US population.

Unsurprisingly, vvarious people have tried to quibble by saying that the other losses weren’t in defence of freedom, so that Thompson’s claim is true by default. But in that case, Thompson ought to have said something like “the US, alone among nations, fights for the freedom of othersâ€? which at least sounds like standard meaningless stump-speech rhetoric rather than a false factual claim.

Leaving motivations aside, the striking fact is that Thompson’s claim is pretty much the opposite of the truth. The US is notable among major nations in how little it has suffered in foreign wars, and this helps to explain why the war party is so strong there.

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Defending Rachel Carson

John Quiggin3 Comments

One of the stranger efforts of the political right over the last decade has been the effort to paint Rachel Carson as a mass murderer, on the basis of bogus claims conflating the US ban on non-public health uses of DDT with a non-existent ban on the use of DDT as an antimalarial. Starting from the lunatic fringe of the LaRouche movement and promoted primarily by current and retired hacks for the tobacco industry, this claim has become received wisdom throughout the US Republican party and its received offshoots. Although this nonsense has been comprehensively demolished by bloggers, most notably Tim Lambert, article-length refutations are desperately needed. Now Aaron Swartz has a piece published in Extra!. It’s great to see this but, as the global warming debate has shown, one refutation is never enough in resisting the Republican War on Science.

Tear down this paywall

John Quiggin6 Comments

The NYTimes experiment with putting premium content behind a paywall lasted a bit longer than I expected, but eventually the cost, in terms of separation from the Internet at large, has outweighed the benefits. The NYT columnists and archives will now be available to all readers. (Hat tip, Andrew Leigh).

As Jay Rosen says, this is good news for the conversation that is the blogosphere. Paywalls are an obstacle that we can’t get around individually, since, even if I have free access to a site, there is no point in linking it for readers who have to pay.

But there’s always a downside. The Times decision has been motivated not only by the increasing costs of a closed system but by the increasing returns to advertising, of which the lion’s share is driven through Google (and to a lesser extent, other search engines), which rely on links to place their ads.

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In my experience, growing returns to advertising are being manifested in more, and more obtrusive, ads. This may signal a renewed arms race with ad blockers. I’ve just installed Adblock Plus on Firefox, and am waiting to see if that gets me blocked from ad-dependent sites.

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Signal and noise

John Quiggin10 Comments

Not surprisingly, given the mini-crisis surrounding Howard’s leadership, the Newspoll released yesterday, with the two party preferred position for Labor shifting from 59-41 to 55-45 was big news. But was there really any news, or just the usual random fluctuation. The ABC News on Monday night made it sound huge, describing it as the government cutting Labor’s lead by 8 per cent. On the other hand, if you started with the view that the true position was 57-43, neither this poll nor the last one would lead you to change this view. Two percentage points is well inside the usual allowance for sampling error in polls with a typical sample size of a bit over 1000. So, you might say, it’s all just a beatup.

Comparing the two polls gives a somewhat different answer, which my son Daniel kindly computed for me. Given two polls with 1000 respondents, and the stated results, you can reject, at the 5 per cent confidence level but not at the 1 per cent level, the null hypothesis that they are from the same population. That’s because, given no underlying change in the population, the chance of two variations in opposite directions is smaller than the chance of each variation considered separately.

But that doesn’t end the problems. If you run polls every fortnight, you’re bound, sooner or later to get two samples in a row that deviate in opposite directions, producing a big apparent swing.

FWIW, looking at the Newspoll results since July, I see no reason to think there’s been any real movement in either direction. Aggregating all the polls, and reducing the sampling error accordingly, I’d put the Newspoll 2PP vote somewhere in the range 56-57. The other polls seem to be much the same.

The real problem, though, is non-sampling error. If the question being asked doesn’t match up to the way people are actually going to vote, all of these statistical considerations count for nothing.

Rationality and utility

John Quiggin20 Comments

Over at Cosmic Variance, physicist Sean Carroll offers some admittedly uninformed speculation about utility theory and economics, saying

Anyone who actually knows something about economics is welcome to chime in to explain why all this is crazy (very possible), or perfectly well-known to all working economists (more likely), or good stuff that they will steal for their next paper (least likely). The freedom to speculate is what blogs are all about.

I didn’t notice anything crazy but there’s a fair bit that’s well-known. For example, Carroll observes that utility is generally not additive across commodities, and that some goods are likely to be more closely related than others. That’s textbook stuff, covered by the basic concepts of complementarity and substitutability.

This is a more interesting and significant point

But I’d like to argue something a bit different — not simply that people don’t behave rationally, but that “rational� and “irrational� aren’t necessarily useful terms in which to think about behavior. After all, any kind of deterministic* behavior — faced with equivalent circumstances, a certain person will always act the same way — can be modeled as the maximization of some function. But it might not be helpful to think of that function as utility, or as the act of maximizing it as the manifestation of rationality.

I can only agree. But economists and (even more, I think) political scientists in the “rational choice” tradition regularly get themselves tied up in all sorts of knots about this, switching between the trivial notion of maximising a function and substantive claims in which rationality is frequently equated with egoism. Joseph Butler demolished this kind of reasoning nearly 300 years ago, but it keeps on popping up.

* This qualification isn’t necessary, and Carroll notes later on that choices are often stochastic. The resulting probability distributions still maximise an appropriately defined function.