Author: John Quiggin

The Sistani option

John Quiggin18 Comments

I’m going to try hard from now on to avoid debating whether the war with Iraq was a mistake, and to focus on the question of what should be done from here onwards.

I’ve argued for some months that the most plausible option for a stable allocation of power in Iraq is a de facto two-state solution in which the Kurds get effective autonomy and a share of the oil and the rest of Iraq gets a government which will be dominated by the Shiites. With luck, they won’t try and settle too many scores and will recognise the need to keep much of the Sunni professional elite on side. The government would be Islamist, but not a direct theocracy like Iran.

The key to all this, almost certainly, is Ayatollah Sistani. He’s not the person I’d want running my country (or more precisely acting as the eminence grise for its day-to-day rulers), but he seems like the only plausible choice who wouldn’t be an absolute disaster.
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The back of the envelope model of the FTA

John Quiggin10 Comments

Following up on the snippet below, I’ve done an estimates of the impact of the proposed Free Trade Agreement between Australia and the US, as it affects merchandise trade. My bottom line is that Australia loses about $1 billion per year, of which $800 million is a net transfer of tariff revenue to the US and $200 million is the deadweight cost of replacing the lost tariff revenue, net of reductions in the domestic deadweight cost of tariffs.

This estimate may be contrasted with the most optimistic one publicised before the FTA was signed, a benefit of $4 billion over 10 years or $400 million per year, IIRC.

I’d like to thank everyone who’s contributed to the debate so far, notably Harry Clark, Uncle Milton, John Humphreys and PM Lawrence. The discussion has helped me to sharpen up my own thoughts. Obviously what I’ve done is very preliminary, and I’d welcome more comments.
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Conspiracy or stuffup ?

John Quiggin13 Comments

Perhaps the best informed commentator on the Shiite community in Iraq, Juan Cole asks whether the actions of the Coalition Administration which led directly to the current bloody fighting between Coalition forces and (hitherto relatively quiescent) Shiite militias was Incompetence or Double-Dealing . As he says

The Coalition decision to provoke a fight with Muqtada al-Sadr’s movement[1] only three months before the Coalition Provisional Authority goes out of business has to be seen as a form of gross incompetence in governance. How did the CPA get to the point where it has turned even Iraqi Shiites, who were initially grateful for the removal of Saddam Hussein, against the United States? Where it risks fighting dual Sunni Arab and Shiite insurgencies simultaneously, at a time when US troops are rotating on a massive scale and hoping to downsize their forces in country? At a time when the Spanish, Thai and other contingents are already committed to leaving, and the UN is reluctant to get involved?

As I read Cole, the answer is neither pure incompetence nor double-dealing for its own sake but the fact that the US Administration contains so many competing agendas that its policies are invariably incoherent.

fn1. By closing their newspaper, arresting a leading supporter of Sadr and threatening Sadr himself.

Selfish genes, selfish individuals or selfish nations ?

John Quiggin18 Comments

Following up a post by Henry Farrell at Crooked Timber, I wanted to look slightly differently at the appeal of evolutionary psychology. As I said in Henry’s comments thread the ev psych analysis is essentially “realist”. This is the kind of style of social and political analysis that purports to strip away the illusions of idealistic rhetoric and reveal the underlying self-interest. The only question is to nominate the “self” that is interested. In Ev Psych the unit of analysis is the gene, in Chicago-school economics the individual, in Marxism the class, in public choice theory the interest group, and in the realist school of international relations the nation.

All of these realist models are opposed to any form of idealism in which people or groups act out of motives other than self-interest. But, logically speaking, different schools of realists are more opposed to each other than to any form of idealism. If we are machines for replicating our genes, we can’t also be rational maximizers of a utility function or loyal citizens of a nation. Clever and consistent realists recognise this – for example, ideologically consistent neoclassical economists are generally hostile to nationalism. But much of the time followers of these views are attracted by style rather than substance. Since all realist explanations have the same hardnosed character, they all appeal to the same kind of person. It’s not hard to find people who simultaneously believe in Ev Psych, Chicago economics and international realism. One example of this kind of confusion is found in Stephen Pinker whose Blank Slate I reviewed here, back in 2002.
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What I’m reading

John Quiggin15 Comments

I’ve been looking at an interesting report from the National Office for the Information Economy on Productivity Growth in Australian manufacturing (PDF file). Released with no fanfare (not even a press release) recently, it presents results which accord with everyday observation, but not with the ideological assumptions that dominate the policy debate in Australia. The approach used was to examine labour productivity growth in a wide range of manufacturing industries and use regression analysis to explain differences in rates of productivity growth. By far the most important factor was the use of advanced information and communications technology, with additional explanatory power being gained when the education level of the workforce was taken into account. Claims that reductions in tariffs would expose inefficient industries to the “cold wind of competion” (or sometimes the “hot blast”), forcing them to increase productivity and therefore induce dynamic efficiency gains got no support. The coefficient on the associated variable was both economically and statistically insignificant (negative in most cases) [1].

A notable technical feature is the point, which has been emphasised by Brad de Long that it’s not appropriate to focus on multifactor productivity when most technological progress is embodied in capital items with rapidly declining prices, such as computers.

fn1. A mildly surprising result in view of the Thatcher effect, by which average productivity is automatically increased when inefficient factories close.

What I'm reading

John Quiggin15 Comments

I’ve been looking at an interesting report from the National Office for the Information Economy on Productivity Growth in Australian manufacturing (PDF file). Released with no fanfare (not even a press release) recently, it presents results which accord with everyday observation, but not with the ideological assumptions that dominate the policy debate in Australia. The approach used was to examine labour productivity growth in a wide range of manufacturing industries and use regression analysis to explain differences in rates of productivity growth. By far the most important factor was the use of advanced information and communications technology, with additional explanatory power being gained when the education level of the workforce was taken into account. Claims that reductions in tariffs would expose inefficient industries to the “cold wind of competion” (or sometimes the “hot blast”), forcing them to increase productivity and therefore induce dynamic efficiency gains got no support. The coefficient on the associated variable was both economically and statistically insignificant (negative in most cases) [1].

A notable technical feature is the point, which has been emphasised by Brad de Long that it’s not appropriate to focus on multifactor productivity when most technological progress is embodied in capital items with rapidly declining prices, such as computers.

fn1. A mildly surprising result in view of the Thatcher effect, by which average productivity is automatically increased when inefficient factories close.

A snippet on economic modelling

John Quiggin16 Comments

Economic analysis of policy proposals may be based either on first principles or on economic modelling. The proposed FTA is too complex to be analysed simply in terms of first principles. Nevertheless, a great deal of insight can be obtained from simple parametric models of various aspects of the proposal.

As compared to a large-scale simulation model, this approach has the advantage of clarifying the processes leading to estimates of costs and benefits. A large-scale model offers greater precision and the capacity to model policy outcomes for particular regions and industries. However, where there is a large divergence in estimates of aggregate outcomes between simple and elaborate models, this divergence is rarely a consequence of greater precision in the elaborate model. More frequently, the divergence is the result of differences between the economic assumptions used to ‘close’ (that is, derive an equilibrium for) the elaborate model and the economic assumptions used in the simple model. Hence, there should be no automatic preference for the results of more elaborate models. What matters is the validity of the core assumptions.