Author: John Quiggin

Don't worry, be happy

John Quiggin20 Comments

I’m a worrier. I worry about the economy, global warming, cancer, even about whether life has any meaning. But now, thanks to the guys over at Troppo Armadillo*, most of my worries are over. Reading the ‘always excellent‘ Junk Science site run by Steven Milloy, I’ve learned that

How did I come to get the wrong idea on all these questions? Well, it turns out that the National Academy of Sciences, Environmental Protection Authority, Intergovenmental Panel on Climate Change, NASA and a host of individual scientists are engaged in a vast leftwing conspiracy to alarm and deceive us.

Only a handful of scientists have had the courage to resist this conspiracy. They can be recognised by the fact that they are typically affiliated with right-thinking think tanks like the Cato Institute (where Milloy works) and prefer to publish their work with Fox News (‘we report, you decide’), rather than in corrupt journals like Science and Nature, where ‘referees’ from the scientific establishment censor the truth. Fortunately, their work is now being recognised with generous grants from the tobacco, coal and oil industries.

The good news doesn’t stop there. According to this morning’s email, I am about to receive a substantial commission on a transaction involving Nigerian gold (as long as I can beat ASIC to the punch). And beautiful girls from all over the world are just waiting to meet me.

I’m glad I’ve stopped worrying. Now if I could only cure my addiction to irony …

* More exactly, to Geoff Honnor who provided the link to Milloy’s Junk Science site, and to Ken Parish who linked to the similarly-styled Bizarre Science site.

Boring disclaimer A link to a site doesn’t imply endorsement of everything that appears on that site.

Gulliver

John Quiggin11 Comments

Josef Joffe’s Bonython lecture, reprinted in full in the SMH represents the United States as Gulliver in Lilliput, a military, economic and cultural hyperpower of unprecedented dominance, but argues

Power exacts responsibility, and responsibility requires the transcendence of narrow self-interest. As long as the United States continues to provide such public goods [global order, a stable world trade system etc], envy and resentment will not escalate into fear and loathing that spawn hostile coalitions.

I don’t think the hyperpower premise stands up to scrutiny. In military terms, it’s certainly true that the US can defeat any likely non-nuclear adversary with ease, but the lesson of Afghanistan and Iraq is that defeating the opposing army is the easy bit. The US military is now stretched to, and arguably beyond, the limit, occupying a country that is, as we have been reminded so often, the size of California. It can’t or won’t muster the additional resources to stabilise Liberia (effectively a former US colony).

In economic terms, war and domestic profligacy have put the US in the classic imperial position – running an empire on borrowed money. It’s hard to put a precise time limit on current US fiscal policies, but it’s most unlikely they can be sustained for another decade.

Finally, there’s the issue of cultural ‘soft power’. I plan a big post on this Real Soon Now, but for the moment I’ll just observe that the most striking cultural trend of the past few years has been ‘reality’ TV. This phenomenon would be the epitome of the dominance of American low culture, if it weren’t for the fact that it was invented by the Japanese and modified for a broader market by the Europeans before reaching the English-speaking world.

A simple one

John Quiggin11 Comments

Among the questions raised on the Monday message board is one where the answer is, in the words of Ronald Reagan, simple but not easy. The correct way to deal with stamp duty on house purchases is to scrap and replace revenue by scrapping the land-tax exemption for owner-occupied housing.

The current system discriminates in favor of existing home-owners against homebuyers. But since the interests of existing home-owners represent the most sacred of Australian sacred cows, I can’t see this changing.

The housing bubble

John Quiggin15 Comments

Apparently, the housing affordability problem has been all the rage while I’ve been away. Coincidentally, I’ve been looking at the housing bubble as part of my study of economic policy under Howard. Your comments on this would be much appreciated. Here it is

More than any previous government, the Howard government has tied its economic and political fortunes to the performance of the housing market. Activity in the housing market boomed in the leadup to the GST, as builders and households sought to complete as much work as possible before GST became payable. This boom was, naturally enough, followed by a slump in the immediate aftermath of the introduction of the GST.

The government responded vigorously and effectively, doubling the grant to first homebuyers that had been introduced to offset the impact of the GST. The fact that this measure was available for a limited period fuelled a rush mentality which persisted even after the grant was reduced to its original level.

The homebuyers grant was followed in late1999 by a cut in capital gains taxes., which are now taxed at half the rate applicable to ordinary income. Although this measure gutted an important reform introduced by the Hawke-Keating government, it received the enthusiastic support of the Labor opposition.
Although this measure was meant to encourage participation in the so-called Înew economyâ represented by the then-booming NASDAQ stock market, it had barely taken effect when the dotcom bubble burst. Instead, it helped to inflate a bubble in investment properties, particularly unit developments marketed to small investors who could exploit the benefits of negative gearing (taking tax deductible losses from a rental property in the expectation of realising a concessionally-taxed capital gain).

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Slow blogging, part VI

John Quiggin

I’m only just getting around to catching up on what other bloggers have been doing in my absence, and I can report that everyone over at Catallaxy is in top form. My jet lag is such that I’m bound to mix up the contributors to this collective blog, but I’ll go ahead anyway.

I enjoyed Jason Soon’s debunking of ‘sceptics’ on the subjects of global warming and evolution. I must have missed the arrival of Sarah Strasser but she has an excellent account of recent developments in relation to technical devices used to back up ‘global zoning’ schemes of price discrimination. Andrew Norton has some acute cultural comment. You’ve probably all read this already but, if not, go to it.

Fannie and Freddie

John Quiggin1 Comment

This light-hearted piece by Daniel Akst from the NYT raises a lot of important points about prudential regulation, quangos and related issues.

For those not familiar with the cute nomenclature of US financial markets, Fannie (Mae) was a nickname for the “Federal National Mortgage Association”, but now appears to be its official business name. Freddie (Mac) was the Federal Mortgage Acceptance Corporation, or something like that. Both are stockholder owned corporations, established with a special government charter.

In other words, these are quangos in the original sense of “quasi-non-government organisations”,private business organisations, established with effective government backing, to perform what would normally be regarded as public functions.

Among the many problems with quangos, the one emphasised in this article is the implicit guarantee from governments to bail them out if they get into too much trouble. A very similar system applies to banks under the Australian system of prudential regulation. As I observed here

Most Australians would be even more surprised to discover that there is no public guarantee of bank deposits. Under current policies, the government does not guarantee deposits, but does nothing to dispel the general belief that such deposits are absolutely safe.

As Akst observes, this kind of implicit guarantee is the worst of all possible worlds. Governments should either
(i) withdraw the guarantee;
(ii) charge a commercially-sound fee, as in deposit insurance schemes; or
(iii) take ownership of the enterprise
Akst suggests taking Fannie and Freddie into public ownership, getting their books in order and then privatising them without the implicit guarantee. This is probably the best strategy in this case.

Monday Message Board

John Quiggin12 Comments

If I can overcome the jet lag that’s causing me to scramble names in my posts, and generally to operate in something of a fog, I’ll be back to normal blogging this week. To start the week off in the traditional fashion, it’s time for Monday Message Board, where you can post your comments on any topic (civilised discussion and no coarse language, please).

DDT

John Quiggin5 Comments

Ken Parish gives a generally approving link to a piece of junk science claiming that bans on DDT inspired by Rachel Carson’s Silent Spring have caused the deaths of millions of third world residents. He also gives a link to a more balanced piece which gives cautious support to limited use of DDT in anti-malaria campaigns in poor countries (the only use that is currently legal, although there is widespread illegal use as an agricultural insecticide). While noting that not all of Carson’s 1962 claims about the dangers of DDT have stood up to subsequent scrutiny, the author dismisses right-wing conspiracy theories like those in the first link, and makes the point that Carson was campaigning against the use of DDT as a broad-spectrum insecticide, not as an anti-malarial. As the author notes

Soaking the biota in DDT like it was bubble bath, standard practice at the time Silent Spring was written, was a bad thing and Carson was right to condemn it.

As this piece makes clear, the main reason for the abandonment of DDT as the core component in anti-malaria campaigns was the growth of resistance, which was of course exacerbated by indiscriminate use. The ban on DDT use in developed countries, to the extent it had any effect, slowed the general rise of resistant species, and therefore increased the effectiveness of DDT in its anti-malarial use.

The main advantage of DDT is that it is cheap and persistent. Persistence is also one of the main disadvantages, along with broad-spectrum effects. For poor countries, and for the specific purpose of anti-malaria campaigns, the benefits arguably outweigh the costs, and this is why DDT continues to be used in these countries.

The question of when the extra cost of alternative pesticides is sufficiently small to justify abandoning DDT, or sufficiently large to justify readopting it in countries that have abandoned it, is an important one that needs careful analysis. The cause of rational debate is not assisted by propaganda pieces like the one Ken cited.

Note This version has been edited in response to points made by Ken in the comments thread.

What I'm reading

John Quiggin7 Comments

The Wealth of Man by Peter Jay. Among other claims to fame, Jay was one of the writers of Yes, Minister and this book has both the strengths and weaknesses of the series.** In essence, it’s a public choice view of the world. This is conducive to telling a convincing story, as long as you don’t worry too much about what’s being left out. In Jay’s story, private initiative is the key to progress and governments are at there best when they keep in the background setting the rules, and defending producers against internal and external predators.

To tell the story this way, you have to leave out some pretty important chapters, or, as in Jay’s case, report them and disregard. While reading about the Mesopotamian civilisations based on gigantic irrigation systems and the Roman road system that enabled rapid communication from Scotland to Syria, I was waiting for some sort of discussion of public goods, but this is not a category for Jay.

In fact, it would be quite plausible, though a drastic oversimplification, to tell a story in which the main engine of progress is the appropriate choice of public goods. Military grandeur, monarchical display and religious edifices like pyramids and cathedrals soak up capital, while schools and transport infrastructure generate high returns. In 18th century England, even the allocation to religion was turned to good account with clergymen like Priestley and Stone discovering oxygen and aspirin instead of writing devotional tracts.

I also read and very much enjoyed Isabel Allende’s memoir of Chile My Invented Country.

**A totally erroneous claim. As James Wright Russell points out, it was Antony Jay. What’s annoying here is that I had doubts about my recollection on this, and relied on Google, which produced this link, referring to “co-writers Jonathan Lynn and Peter Jayâs 1980-1982 series Yes Minister, said to be the favourite series of then Prime Minister, Margaret Thatcher. ” What’s really annoying is that I have a DVD of the series, so I could easily have done a more reliable check.

Working more and enjoying it less?

John Quiggin4 Comments

This piece from the Economist covers some of the same points I’ve been making about work intensity (here and here. The summary is that the UK and France have approximately equal GDP per person. French output per hour is 20 per cent higher than British, but this is cancelled out by higher British employment rates and higher average hours per person.

I’ve argued in the past, that improvements in GDP achieved by longer hours and greater work intensity are largely illusory and the Economist largely goes along with this. On the other hand, higher employment rates are generally a positive way to achieve higher output, at least if the alternative is unemployment, rather than, for example, participation in full-time education.

A very similar analysis applies to the US, except that US productivity is about equal to that in France and other European countries, so higher employment rates and longer hours translate into higher GDP per person.

A final point is that the greater inequality in the US and the UK imply that the average (median) person falls further short of average (mean) income than in Europe.