Category: Economics – General

Alesina, Ardagna, Austerity, Australia

John Quiggin13 Comments

A while ago I published a blog post, and later a Fin article, pointing out that the influential Alesina and Ardagna article, Tales of Fiscal Adjustment, that coined the term “expansionary austerity” was riddled with factual and analytical errors in its discussion of Australia. That piece has elicited a string of lengthy replies from the Catallaxy/CIS team, notable for the absence of any substantive content. Sinclair Davidson produced a mammoth post with multiple updates, entirely devoted to refuting a parenthetical snark on my part that the paper wasn’t peer reviewed. Now there’s another one from Steve Kates, who wants to quibble about the chronological relationship between Jean-Baptiste Say and the Mills, father and son.

So, an open challenge. In my original post, I give seven quotes from the Alesina and Ardagna article, all of which I say are wrong or at least misleading. Does anyone want to defend any of these? Special bonus points for anyone who can defend the opening sentence of their Australian section, which reads “In 1985, a single-party left-wing government took office and launched a stabilization plan to correct the internal and external imbalances (the current account deficit was 4.13% of GDP and the total deficit/GDP ratio was above 3% in 1984). ” (emphasis added).

UpdateKates has added a lengthy update to his post, without, AFAICT, defending the erroneous claims in A & A

KBU

John Quiggin12 Comments

After long delays[1], GMU has come down with a self-contradictory whitewash on the plagiarism case against climate delusionist Edward Wegman.  One committee conceded plagiarism on a paper that had already been retracted by the journal in question, and recommended a reprimand, while another cleared Wegman of all charges, against the judgement of every external expert who’s looked at the case, and in the face of copious evidence of direct cut-and-paste copying.

With this and the Cato takeover, I think those both on the left and parts of the right who have presented views extremely critical of the “Kochtopus” network can rest their case. Any institution that relies on Koch Brothers money, whether it presents itself as a university, a thinktank or a grassroots organization, has to be regarded as a propaganda outfit.

That’s true, even if, as in the case of Cato and GMU, some genuine and valuable research is produced. The use of genuine material as a cover for industry propaganda is now a well established technique – the most famous blogospheric example was that of Tech Central Station.

For people working at Koch-controlled organizations who value a capacity to undertake independent research and to maintain a credible claim to independence, this is a big problem. Not everyone is in a position to write a presignation letter like that of Julian Sanchez, but the alternative of staying on is not particularly attractive either.

 

fn1. Which I will claim as an excuse for posting this several weeks after the event

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Mrs Beeton, the Voltaire of caffeine

John Quiggin31 Comments

Sighted at Port Arthur, Tasmania, this quote from Mrs. Beeton’s Book of Household Management, by Isabella Beeton (emphasis added):

-It is true, says Liebig, that thousands have lived without a knowledge of tea and coffee; and daily experience teaches us that, under certain circumstances, they may be dispensed with without disadvantage to the merely animal functions; but it is an error, certainly, to conclude from this that they may be altogether dispensed with in reference to their effects; and it is a question whether, if we had no tea and no coffee, the popular instinct would not seek for and discover the means of replacing them. Science, which accuses us of so much in these respects, will have, in the first place, to ascertain whether it depends on sensual and sinful inclinations merely, that every people of the globe have appropriated some such means of acting on the nervous life, from the shore of the Pacific, where the Indian retires from life for days in order to enjoy the bliss of intoxication with koko, to the Arctic regions, where Kamtschatdales and Koriakes prepare an intoxicating beverage from a poisonous mushroom. We think it, on the contrary, highly probable, not to say certain, that the instinct of man, feeling certain blanks, certain wants of the intensified life of our times, which cannot be satisfied or filled up by mere quantity, has discovered, in these products of vegetable life the true means of giving to his food the desired and necessary quality.

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Doublethink doubleplusungood

John Quiggin62 Comments

The news that Republican members of the Wyoming Legislature wanted the state to investigate buying an aircraft carrier[1] as insurance against a possible collapse of the US seems as good an occasion as any to signify the final descent of the party into irredeemable loopiness. Add to that the revival of birtherism, the inability to deal with Rush Limbaugh, and the absence of any coherent economic policy except tax cuts for the rich and you have a party that has seriously lost touch with reality.

As I observed a couple of years ago during the epistemic closure memetime, reality-denial mechanisms have some major political benefits, particularly in mobilising resistance against policy innovations, and tribal solidarity against outsiders of all kinds. But it seems clear at this point that the costs I mentioned then are now bigger than the benefits for the Repubs.

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Non-response on austerity

John Quiggin36 Comments

Robert Carling and Stephen Kirchner have a letter in today’s Fin, responding to my piece last week, which restated points I’ve made on the blog (for completeness, it’s over the fold). The letter is notable for not responding to any of my criticisms of Alesina, and for backing away from his previously unimpeachable authority.

John Quiggin’s criticism of us (“Tales of austerity ring hollow”, Opinion, February 16) warrants a response. We referred to Alberto Alesina’s work not because it is the only or last word on this topic, but because it is an example of a much larger literature in support of fiscal austerity (or less pejoratively, “fiscal consolidation”).

It is incorrect to suggest that the case for consolidation “rests largely on the work of Alberto Alesina”. We could also have cited a lot of other empirical as well as theoretical work, as indeed does Alesina himself.

A full examination of the International Monetary Fund and Organisation for Economic Co-operation and Development literature over the years reveals a more nuanced view than Quiggin suggests (not that the IMF or the OECD are the final arbiters anyway). We recognise nuances that we could not canvass in a 600-word article.

One is that the arguments about fiscal consolidation have to be tweaked depending on country circumstances and the credibility of the policymakers. Greece, for example, will suffer from fiscal consolidation, but that is partly the fault of the exchange rate straitjacket they are in.

But, in general, we stand by our basic proposition that fiscal consolidation is essential to the economic rehabilitation of countries with large budget deficits and unsustainable public debt burdens.

The only point worth noting is that the “pejorative” term “fiscal austerity” isn’t mine, it’s from the title of Alesina and Ardagna’s 1998 paper “Tales of fiscal consolidation: can austerity be expansionary”. If austerity is now a pejorative it’s because people know what it means, while “fiscal consolidation” remains a vaguely defined euphemism. Readers with a long memory may recall the US Repubs and Cato dumping “social security privatisation” in favor of “social security choice”

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Further adventures on Intrade

John Quiggin38 Comments

As I mentioned last time I wrote about my adventures on Intrade, I’m sceptical of the claim, a special case of the (semi-strong version of the) Efficient Markets Hypothesis, that the odds in betting markets provide the best estimate of the probability of political outcomes. I managed to double my small stake betting on Newt Gingrich, and might have made more if I had not overestimated the efficiency with which the Republican electorate processes information. I sold on the news of his work for Fannie Mae, and thereby missed the peak of the market when he won South Carolina.

Having made my point and learned a bit about the practical operation of markets, I meant to cash out my winnings, but that turned out to be a complicated process, and I couldn’t resist another flutter. Rick Santorum was trading at 100-1, and while I didn’t think much of his chances, those are pretty good odds in a four-horse race, especially one with no particularly attractive candidates.

He’s now 17.9 per cent (nearly 4-1 in the old language, if I recall it correctly), so I’ve now made a pretty substantial gain. There’s a bit of a cognitive consistency problem here – I didn’t really mean to make money backing Santorum, so now I need some suggestions as to an appropriate use for the money, one which would offset any damage done by backing him when he was down where he belonged. Orientation can be US, Australian or global.

 

 

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Social democracy and equal opportunity

John Quiggin43 Comments

 

My critique of Tyler Cowen’s post arguing the unimportance of social mobility has started off, or maybe merged into, of those old-fashioned blog firestorms we used to have back in the day, now also reticulated through Twitter – a few links here, here and here. But rather than criticise Cowen further, I thought I would try to work through the bigger issues involved from a social democratic perspective[1].  In particular, as discussed in comments here, should social democrats favor policies to enhance social mobility, or does mobility between generations make inequality even worse, for example by justifying what appears as meritocracy?

 

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How (not) to defend entrenched inequality

John Quiggin46 Comments

The endless EU vs US debate rolls on, but now with an odd twist. Although the objective facts about economic inequality, immobility and so on are far worse in the US than the EU, the political situation seems more promising. (I’m not talking primarily about electoral politics but about the nature of public debate.)

In the EU, the right has succeeded in taking a crisis caused primarily by banks (including the central bank, and bank regulators) and blaming it on government profligacy, which is then being used to push through yet more of the neoliberal policies that caused the crisis. And, as we’ve just seen, formerly social democratic parties like New Labour in the UK, are pushing the same line.

By contrast the success of Occupy Wall Street have changed the US debate, in ways that I think will be hard to reverse. Once the Overton window shifted enough to allow inequality and social immobility to be mentioned, the weight of evidence has been overwhelming.

This post by Tyler Cowen is an indication of how far things have moved. Cowen feels the need, not merely to dispute some aspects of the data on inequality and social mobility in the US, but to make the case that a unequal society with a static social structure isn’t so bad after all.
Update Cowen offers a non-response response here. Apparently, disliking arguments for inherited inequality, such as his point 3 (because of habit formation, social mobility reduces welfare) is a “Turing test” for reflexive leftism.

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Cars

John Quiggin59 Comments

Last week I got an urgent request from the Fin for a quick-turnaround piece on the latest plan to save the car industry. I got it done within a few hours, and planned to post it here. Alas, I was as slow in doing this as I had been fast in writing the original piece (over the fold)

In the meantime, Sinclair Davidson at Catallaxy took exception to my observation that the mining industry’s nearly-free access to minerals under both private and public land was a bigger subsidy than anything the motor vehicle industry got. In support of the miners, he quoted Mitch Hooke of the Mining Council as saying

He said the proposed new tax would hit the mining industry with such a sledgehammer that it would destroy value, deter investment, reduce growth, and affect every mum and dad who has shares of equity or provides goods.

Of course, if you deleted “tax” and put in “tariff cut”, that’s exactly the same as what the representative of every industry demanding continued tariffs or subsidies has said.

What’s striking about this is the tribalism involved. As I demonstrate in the article, as far as economic efficiency is concerned, the effects of current levels of assistance to the car industry are third-order. Yet the political/cultural right denounces the car industry, while defending rent-seekers like Hooke.

This is part of a more general phenomenon on the right that I will post more on later. It’s taken for granted on the cultural right that some technologies and industries (nuclear power, oil, finance) are good and others (wind energy, electric cars, Hollywood) are evil – essentially a mirror image of what they think we on the left think. For people who are supposed to believe in the free market, this is a big problem.

Argument stuck in second gear

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My bet with Bryan Caplan – update

John Quiggin15 Comments

 

Back in 2009, I made a bet with Bryan Caplan that the average unemployment rate in the EU-15 over the following 10 years would be no more than 1.5 percentage points above that in the US. Before talking about the bet itself, I’d like to note that while we disagree about a lot of things, Bryan and I both take a strong stand against war, with a limited exception for self-defence. As Bryan says here, that takes a lot of sting out of the possibility of a losing bet for either of us – agreement on war and peace is more important than disagreement about labor markets in my view. 

Now, on to the bet.

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