Finally, after fourteen days, Todd Russell and Brant Webb are free from the mine in which they’ve trapped. It’s a great achievement for the rescuers, and an amazing story of unlikely survival. Watching the TV coverage, it looked like they were both careful enough to clock off on leaving the mine – think of the overtime!
Meanwhile, the funeral of Larry Knight, killed in the cave-in, will be held today. Our thoughts will be with his family and friends.
I got the conference volume from the Reserve Bank of Australia 2005 Conference quite a while ago, but I’ve only just read them. The main focus is on the decline in the volatility of the business cycle observed in the English-speaking countries since the mid-80s (or in Australia’s case since the end of the last recession).
There’s a lot of discussion of monetary policy, micro reform and so on, but no mention of what I would see as the single most important factor – the abandonment of the external balance objective. For most of the postwar period, economic policy makers juggled the desire to keep the domestic economy stable with the constraint imposed by the balance of payments. Not surprisingly, this was a difficult job and promising economic expansions were regularly choked off because of emerging current account deficits.
Now we have a deficit of 7 per cent of GDP (as do most other English-speaking countries) and no one worries. The assumption is that borrowers and lenders are consenting adults who can make their own decisions. Right or wrong, this assumption makes macroeconomic management an awful lot easier.
We may well be about to find out whether policymakers have been right to view trade deficits with benign neglect. The US dollar seems to be beginning its long-awaited depreciation against the euro and other trading partners (even against the $A) and long-term interest rates are rising. Some combination of the two should sooner or later bring the US back into trade balance. The question is whether this adjustment will be smooth or painful.
It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.
If anyone in Brisbane & the Gold Coast is interested in learning karate in a traditional style, with a genuine All-Japan champion, Seiyushin karate is the place. All welcome!
I’m getting involved in Wikipedia and my big project is to set up a categorisation system for economics based on the JEL Classification system.
I think this scheme is robust enough to allow for an expansion of Wikipedia to compete with specialist works like the Palgrave Dictionary of Economics, though this is obviously a long way off. As mentioned in previous posts, I’m very optimistic about Wikipedia’s potential, but the economics section is a long way short of being a comprehensive reference source at present. One side effect of the project is to reveal that there are whole categories in the JEL system for which Wikipedia doesn’t have an article – Computable General Equilibrium models for example.
Anyway, I could do with a bit of help on this from readers with at least some knowledge of economics. Basic Wikipedia editing skills (or willingness to acquire them) are desirable, but if you just want to write articles on gap topics, I could wikify them for you. Contact me by email or in the comments thread, if you want to help.
UpdateThanks for the positive response. I’ve got a starting list of articles that don’t seem to exist:
Exchange economy
Factor income distribution
Atlruism in economics (section in existing altruism article)
Expectations (with link to existing articles for rational and adaptive expectations)
Economics of contract law
Stochastic games
CGE models
and also some stubs (existing article is just a starting point)
Incomplete markets
Social choice theory
Economic methodology
THere’s a larger list of stubs here (though many seem not to need much more than a stub) and requested articles here. In terms of my particular project, if people could try to work out the appropriate JEL category and use that (if it exists already) or advise me (if it doesn’t) that would be great.
Over at CT, I’ve reposted this piece from 2003 on thought experiments in ethics.
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Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.
The resignation of Victorian Opposition leader Robert Doyle has produced widespread suggestions that Jeff Kennett should return to politics. While Kennett could scarcely do worse than Doyle, there’s not much reason to suppose he would do a great deal better.
The core of Kennett’s political appeal in the 1990s was the claim that, thanks to Labor’s mismanagement, Victoria was in a state of crisis that could only be remedied by the radical free-market reforms he advocated. Voters bought this story in two successive elections, but had tired of it by 1999, when he was narrowly defeated. Although some claimed at the time that voters had merely intended to “send the government a message”, a string of Labor victories in by-elections suggested the opposite message – once the possibility of getting rid of Kennett became a reality, voters embraced it with enthusiasm.
Kennett’s biggest problem though, is that everything the Bracks government has done can be seen as preparation against a possible Kennett comeback. On the one hand, they’ve been obsessed with avoiding anything that would smack of fiscal irresponsibility. Official debt levels have been held down through expedients like Public-Private Partnerships (the apparent benefits are bogus, but Kennett can scarcely argue this, having been a pioneer of the PPP mania). On the other hand, they’ve restored a lot of the cuts to schools, hospitals and so on made under Kennett. As a result, Bracks can easily run a scare campaign against Kennett, but not vice versa
It’s hard to see Kennett winning in the election due in about six months, though presumably there will be some clawback from the 2002 disaster. In the longer run, anything can happen. But if he comes back, I’d say this implies a commitment to stick out a full parliamentary term as leader, and it’s not obvious that he’d be willing to do this.
As for Doyle, he will only be remembered, if at all, for his irresponsible campaigns in favour of speeding (more precisely, against any effective measures to curb speeding). His departure from politics is long overdue.
More on the souffle question from Rank and Vile
UpdateSo much for that idea
For the last decade or so, most of the English speaking countries have been running large and generally increasing trade deficits, and therefore running up increasing foreign debt. At the same time, until recently, both real and nominal world interest rates have been falling, which has made debt more affordable. This has produced a sense of security which is about to be reality-checked.
Short-term interest rates have been rising for the last couple of years, and now long-term rates are rising as well. The US 10-year bond rate is now 5.1 per cent, and has been rising fairly fast in recent weeks. The effect is to add a rising interest bill to a large and growing trade deficit. Brad Setser does the math for the US and it isn’t pretty.
If the average rate [on private and government debt] should rise to 6% — roughly the interest rate the US paid back in 2000 — the 2008 US interest bill would reach $420b. That is more than three times the 2005 interest bill.
Unless the trade deficit starts turning around fairly sharply, this would imply a current account deficit close to 10 per cent of GDP, which no country has ever sustained (please point out exceptions in comments).
The story for Australia is broadly similar, though the picture is complicated by the effects of commodity prices, which still seem to be generally rising. As long as that continues, our trade deficit should decline. But, high commodity prices have rarely been sustained for more than a few years at a stretch.
