Year: 2008

A sorry business

John Quiggin129 Comments

Brendan Nelson’s career as Leader of the Opposition looks to be over before he has even faced the Rudd government in Parliament, thanks to his equivocation over the issue of an apology to the Stolen Generation. If Nelson was fair dinkum about supporting an apology, given the appropriate words, he could have made a positive virtue of it, saying something like “This apology needs to come from the Parliament, not just the government. I’m willing to work with Mr Rudd in preparing a statement that will have unanimous support”.

As it is, he will end up being forced through every possible position from outright opposition to conditional support to the final stage when he’ll be forced to deal with the hardline rejectionists in his own ranks.
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Misquoted or badly edited?

John Quiggin18 Comments

As anyone who’s dealt with the mainstream media knows, any time you’re directly involved in a story, you’re likely to see that it’s been misreported.

I was interviewed recently about the economic problems facing the new government and said, several times, that we would be better off if both parties had not committed themselves to large tax cuts on the basis of optimistic projections but that, having made the commitment, the Rudd government should honour it. This is how it came out in the news.com story

Some economists believe the promised $31 billion tax cuts should be abandoned.

“The country would be much better if we hadn’t had these tax-cut promises from both sides in the election campaign,” University of Queensland professor John Quiggin said.

“It was irresponsible to promise such large tax cuts where the fiscal situation needed more flexibility than that allowed.”

But Mr Swan insisted the tax cuts would be delivered.

You could argue that the report is accurate. Some economists do believe the tax cuts should be abandoned and I did make the remarks quoted. Perhaps the reporter submitted a story in which these two facts weren’t run together as they have been here, and it was cut in a way that produced this misleading impression. Or maybe the original report was wrong.

Either way, it confirms negative impressions about the mainstream media. Of course, bloggers make plenty of mistakes too, but it would be nice to think the professionals could do better.

Update I got a phone call this morning from news.com.au and I’m happy to say the story has been rewritten with my views reported correctly. Blogging gets results!

The Great Australian Dream

John Quiggin42 Comments

I’ve been meaning for ages to write a post about house prices, but haven’t come up with an analysis that satisfies me. Still, here goes.

On most standard measures. Australian house prices have been far above their long-run equilibrium value for at least five years, and the gap seems to be widening. But the length of the strength of the boom has convinced most people that high prices are here to stay, at least until they are replaced by even higher prices.

If this belief were suddenly reversed, and the prices returned to say, 2000 levels (even adjusted for changes in prices and incomes since then) there would be an awful lot of financial distress, with hundreds of thousands of households having negative equity.

This is already happening in the US and to some extent the UK. Compared to the US we have nothing like the volume of bogus subprime loans. On the other hand, price increases have been even greater, so there’s more room to fall.

If there is a really dire economic scenario facing the Rudd government over the next few years, this is it. By contrast, a slowdown in the export boom and a gradual deflation of the housing bubble would be a much better outcome.

Weekend reflections (Rudd edition)

John Quiggin24 Comments

It’s time once again for weekend reflections. I’d be interested in views on how the Rudd government has performed in its first couple of months. My short answer: Very well, all things considered. Anyway, feel free to write at greater length than for a standard comment thread. As always, civilised discussion and no coarse language.

The monkey and the organgrinder

John Quiggin30 Comments

At Wikipedia, the fight against pseudoscience and Republican antiscience across a range of articles from global warming to passive smoking to Intelligent design to AIDS reappraisal, is continuous and bruising.[1]. Editors have learned to detect bogus sources of information almost immediately. One of my fellow-editors at passive smoking pointed me to an interesting letter to Science (paywalled, but I’ve quoted the important nit), shedding unintentional light on the way the disinformation machine operates. It’s from William G. Kelly of the Center for Regulatory Effectiveness the front organization founded by legendary Phillip Morris shill, Jim Tozzi (Kelly is employed by Tozzi’s lobbying outfit, Multinational Business Services

Responding to criticism of the infamous Data Quality Act (for more on this see the Crooked Timber seminar on Chris Mooney’s Republican War on Science) Kelly offers a classic non-denial denial, saying

Neither Phillip Morris (a multiproduct company) nor any other tobacco company (or nontobacco company for that matter) played a leadership role in the genesis of the DQA. While working with the Center for Regulatory Effectiveness in Washington, DC, I was personally involved with the development of the DQA, and no industry entity contributed to its formulation.

While we’re at it, can I point out that Henry II was nowhere near Canterbury Cathedral when Thomas Becket met with his unfortunate end. The whole point of having people like Tozzi and Kelly, and groups like CRE is that corporations don’t have to play a leadership role in promoting their own interests in Congress.

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A million foreclosures

John Quiggin26 Comments

The news that over a million homes went into foreclosure in the US in 2007, affecting about 1 per cent of all households or around 3 million people, supports the view that foreclosure has taken over from bankruptcy as the primary mode of financial catastrophe.

As with bankruptcy, however, the high frequency of financial distress is partly offset by the fact that US law and standard contractual arrangements are more friendly than in other countries. Compared to those in other places (at least in Australia) US mortgage contracts have commonly favored borrowers in two important ways. First, they have been fixed rate contracts with no, or limited penalties, for early repayment. That means that borrowers can stick with their fixed rate if market rates rise, but can refinance at lower cost of market rates fall.

Second, most mortgages are non-recourse, meaning that the lender can take the house but cannot recover the debt from the borrowers income or other assets. That means that once the value of the house falls below the amount owing (equity becomes negative) the borrower can walk away from the house and the debt. As Felix Salmon notes, the difficulty of pursuing deficiency payments means that most loans are non-recourse in practice even if the contract says otherwise

In the jargon of financial assets, the standard contract gives borrowers both a put option on the house (the ability to walk away) and a call option on the debt (the ability to pay early). Both of these make the contract more valuable to borrowers and less valuable to lenders. There’s quite a good discussion of all this from Tanta at Calculated Risk, though the author makes heavy weather of the put option and seems to me to be unreasonably exercised about the fact that households are now treating their debts to banks with the same calculating attitude that corporations have long shown to their workers and other creditors, paying them if it is profitable to do so and defaulting otherwise.
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Suharto dead

John Quiggin41 Comments

I don’t imagine many readers will be shedding tears at the death of former Indonesian dictator Suharto, and certainly I won’t be. The bloody massacres in which he rode to power amid the collapse of the Sukarno regime, and the brutal invasion and occupation of East Timor, not to mention his spectacular corruption, mark him down among the worst political criminals of a terrible century, and have coloured Australian attitudes to Indonesia in the decade since his fall from power.

Now that he’s gone, I hope Australians will begin to recognise the immense progress Indonesia has made against daunting odds

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Get well

John Quiggin30 Comments

A slightly belated get well to Tim Blair, one of the pioneers of Australian blogging, who recently underwent surgery for cancer. Tim and I have had our differences, to put it mildly, but this is a time to put such things aside. I’m sure everyone here will join me in hoping for a full and rapid recovery.