Tim Lambert has produced yet more evidence of academic malfeasance by pro-gun economist John Lott. Kevin Drum at Calpundit has more. Since I was convinced long ago that Lott was discredited beyond any hope of redemption, the only point of remaining interest is the collateral damage being incurred by Lott’s allies and defenders.

Obviously, the once-respected American Enterprise Institute, which still employs Lott, is at the top of the list. Having had my own run-in with its current head Karl Zinsmeister, I agree with Brad de Long, whom I cited a while ago saying “Back in the late 1970s, the American Enterprise Institute ranked close to the Brookings Institution as a thinktank you could trust not to deliberately lie to you. Now it has fallen very deeply into the pit indeed”. No doubt some good work is still being done at AEI, but the AEI stamp now detracts from credibility rather than adding to it.

Another casualty is Lott’s Australian co-author, and gun rights advocate, John Whitley, who ended up with his name on an article that Lott himself refused to sign off on when the other party in a dispute pointed out a string of coding errors (Tim Lambert, linked above, has the details).

But the biggest not-so-innocent bystander to be hit by friendly fire is surely the king of the blogworld, Glenn Reynolds of Instapundit. Having cut his blogging teeth on the Bellesiles scandal (the discrediting of a widely-acclaimed piece of research seen as favorable to gun control), and having ferociously attacked those on the anti-gun side who failed to dissociate themselves from Bellesiles, Reynolds has consistently given Lott the benefit of the doubt, and has even, in a dispute between Lott and respected economist Steve Levitt, been implicated in Lott’s slimy manoeuvres (again, see Tim Lambert for the complex and gory details). Clearly all that rhetoric about ‘fact-checking your ass’ only applies to those who come up with the wrong conclusions.

Update Jason Soon reports that Steve Levitt has just been awarded the John Bates Clark medal for the best US economist under 40 (Paul Krugman is a previous winner, and it’s often seen as a harbinger of a future Nobel). So I guess he won’t be too worried by anything Lott and Reynolds have to say about him. Tom Spencer has more.

Ken Parish has had a go at Clive Hamilton over an extract from his new book, Growth Fetish, published at Online Opinion. I think a lot of the debate is either at cross-purposes or misses crucial distinctions.

In essence, Clive restates a critique of growth, as measured by Gross National Product, that goes back to Galbraith’s Affluent Society. The link is sharpened by the fact that Clive, like Galbraith, refers to Gross National Product (GNP) rather than, as is more usual in Australia, Gross Domestic Product (GDP). Ken makes some good points but, in large measure, offers a restatement of the arguments that were put forward in rebuttal to Galbraith and, even more, to 1970s critics of growth like the Club of Rome.

On balance, I agree more with Ken than with Clive, so it’s only fair to begin with a point on which I agree with Clive.

GDP growth is a lousy measure of how well a country is doing, even if we are only interested in relatively narrow economic assessments of welfare, as opposed to social, cultural or spiritual issues. The name gives three reasons why Gross Domestic Product a bad measure of economic welfare.

It’s Gross because depreciation is not subtracted. If we are concerned with measuring economic welfare, even from a narrowly materialist viewpoint, the net measure is relevant and the gross measure is not.

It’s Domestic because it measures the amount produced in Australia, including that which accrues to foreign owners of capital and is paid out as interest or dividends. National Product which is the output accruing to Australian land, capital and labour is more relevant.

Finally, it’s Product, that is, a measure of output that takes no account of inputs. If we increase our product by working harder or longer hours (a point Ken notes), or by consuming more natural resources, we are not necessarily better off. What matters in the end is productivity, not product.

Why then do economists pay so much attention to GDP? The answer is that it’s useful primarily as a measure of economic activity, for short-run macroeconomic management. If GDP is declining, this is a good indication that the economy is in recession and that macro policy needs to be more stimulative. Taking account of things like depreciation, international income transfers and work intensity would reduce the precision of estimates of short-run growth because all things are hard to measure, and would make GDP less useful for its primary purpose. (Of course, this is a Keynesian view – national account statistics like GDP are essentially a product of the Keynesian revolution).

This is a big subject and I’ll try to post more on it as I get time.

I’ve been noticing a quote, attributed to Keynes, that neatly encapsulates an argument I’ve been putting for some years.

The market can remain irrational longer than you can remain solvent.

The point of this is that, even if you can see a market bubble (or irrational slump) developing, you should not bet that prices will return to normal, for example by selling stocks short. The most sensible course is simply to avoid holding assets that are overpriced (I’ll need to work through the details of this argument formally some time – I guess it’s done in the literature on rational bubbles). Anyway, although the quote is being widely reproduced, I haven’t been able to find an actual citation, and the informal use of “you” leads me to suspect that these are not Keynes’ actual words. If anyone can find the source, I’d be very grateful.

On the same front, I gratefully acknowledge reader Bernhard Walpen, who sent me the full text of the Hayek quote on Pinochet that I mentioned some time ago. Here it is (with emphasis added by me):

Hayek, Friedrich August von, 1981: “En el Momento Actual Nuestra Principal Tarea es Limitar el Poder del Gobierno” [Interview], in: El Mercurio, April 4, 1981, p. D8-D9.

D9: “Bueno, yo le dirla que, como una institución a largo plazo, estoy totalmente en contra de las dictaturas. Pero bien puede ser un sistema necesario en un periodo de transición. A veces es necesario que en un país haya, durante un tiempo, alguna forma de poder dictatorial. Como usted comprenderá, es posible que un dictador gobierne de manera liberal. Y también es posible que una democracia gobierne con una total falta de liberalismo. Y yo, personalmente, prefiero a un dictador liberal y no a un Gobierno democrático carente de liberalismo. Mi impresión particular es – y esto es válido para Sudamérica – que en Chile, por ejemplo, habrá una transición entre un Gobierno dictatorial y un Gobierno liberal. Y en esa transición puede ser necesario mantener algunos poderes dictatoriales, no como algo permanente, sino como un arreglo de transición.”

My Spanish isn’t great, but it’s clear on the one hand that Hayek is endorsing the Pinochet regime [Bernhard’s extensive research on Hayek revealed no statement critical of Pinochet], and on the other hand, that he viewed it as a transitional stage in a movement towards a nondictatorial liberal government.

The most natural reading of the phrase I’ve emphasised is that, even without the prospect of transition, Hayek thinks a liberal (that is, free-market) dictatorship is to be preferred to an illiberal democracy. But as with Marxists and the ‘dictatorship of the proletariat’, the tendency is to use the prospect of ultimate transition to an ideal state to avoid a clear commitment for or against a dictatorship of indefinite duration. And, since the Pinochet regime did ultimately give way to a democratic government, it’s probably not sensible to draw firm conclusions on the basis of Hayek’s attitudes in this case.

Update In the comments thread, reader Alan from Southerly Buster provides a good translation. And Brad de Long notes that he has been unable to find a source for the Keynes quote which looks ‘too good to be true’. I agree – it seems like a response to arguments that Keynes would never have encountered, regarding the potential for rational speculators to stabilise markets.

Saddam may be gone, but there are still plenty of nasty dictators infesting the world, some of them members of the Axis of Evil and others prominent in the Coalition of the Willing.

Nathan Newman sends the following message:

Here is the first round of what I think needs to be a stronger, pro-active condemnation of authoritarianism of all kinds and nonviolent solidarity movement resisting that authoritarianism as an alternative to Bush’s corporate militarism. And no place better to start than with than Cuba, where a range of left activists are circulating the letter below.

See this post for more.

Palestinian PM-designate Abu Mazin appears to have succeeded in facing down Arafat over his choice of Cabinet. It still has to be approved by the Palestinian Parliament. Once that happens, Bush is committed to publishing his ‘roadmap’ for peace, which Sharon has already effectively dismissed, proposing a wide range of amendments.

This is the big test for Bush’s Middle East policy. If he pushes ahead and demands that Sharon accept the roadmap without significant change, begins dismantling settlements and so on, there is a fair chance that the resulting shift in public sentiment throughout the Arab world will lead to a successful outcome in Iraq. If not, the hostility to the US that is already evident in Iraq will only intensify – there are a number of possible ways the situation could develop from there, none of them appealing.

But as I argued at the time, if Bush was planning to do something serious about the Israel-Palestine problem, it would have been far more sensible to do it first, then deal with Saddam.

According to this NYT report, an Iraqi scientist has reported to the US that
(a) The Iraqis successfully concealed weapons from the UN but destroyed them just before the war
(b) The Iraqis transferred weapons to Syria
(c) The entire operation was linked to Al Qaeda
(d) He had taken the trouble to bury some samples (not chemical weapons, but precursors)
(e) Jacques Chirac regularly visited the site

OK, I made (e) up. But, in the absence of any actual weapons, items (a) to (d) are so close to today’s wishlist for testimony from a defecting scientist, it’s hard not to see this as someone trying too hard to please. As the NYT report, which has apparently been closely vetted by the US military, notes,

But he has given the Americans information about other unconventional weapons activities, they said, as well as information about Iraqi weapons cooperation with Syria, and with terrorist groups, including Al Qaeda. It was not clear how the scientist knew of such a connection. (Emphasis added)

On a related topic, I haven’t had much good to say about Donald Rumsfeld, but his prompt repudiation of a report that the Pentagon expects to establish permanent bases in Iraq was a piece of good sense. I had meant to post on this report under the heading “I really hope this isn’t true”, and for once my hopes appear to have been realised. As Rumsfeld said, it’s not as though the US is short of bases as it is.

US debt will come back to bite. Australian Financial Review 13 March 2003 An extract:

Banana republic populism actually has it easier in the US than in the Third World because the vast majority of US debt is denominated in US dollars. Rather than resorting to repudiation, the US government can simply print all the dollars it needs and use some of the proceeds to compensate the domestic holders of US public debt (a dwindling proportion as foreigners now hold between $2 and $3 trillion of US debt) …

The world has often seen rulers whose military power is not matched by their financial means. The lesson of history is that those who lend money to such rulers usually regret it.

Update 21/4 Niall Ferguson in the NYT develops the historical parallels in a great deal more detai.

Being AAA is not the top , Australian Financial Review ,27 February 2003. As I observed a few days ago, the mention of AAA credit ratings seems to induce a complete loss of reasoning capacity in Australian politicians. An extract:

the political weight attached to credit ratings is based on an exaggerated respect for the financial institutions that issue them. In the 1980s and 1990s, it was easy to believe that the financial wisdom of firms like Standard & Poors and Moodys vastly exceeded that of spendthrift governments in need of fiscal discipline.

The weaknesses of the ratings agencies have been sharply exposed by the financial crises of the last few years, most of which involved some form of crony capitalism. The Asian crisis caught the ratings agencies almost completely by surprise. Even more striking were the failures on their home turf. Firms like Enron and WorldCom, supposedly scrutinised by sophisticated financial analysts, went broke with scarcely any warning from the credit watchdogs.

Unfortunately, the use of dubious fiscal expedients like off-balance sheet partnerships is not confined to Enron. Most of the reduction in Commonwealth debt has arisen from asset sales. The sale of Telstra, which drastically reduced the net worth of the pubic sector, was the biggest contributor. While less significant in quantitative terms, other fiscal expedients have been even more troublesome. They include sale-and-leaseback arrangements very similar to those that formed the basis of the accounting manipulations employed by Enron.

More generally, the adoption of practices such as reliance on commercial confidentiality, a natural accompaniment of faith in the superiority of financial markets over governments, has led to a reduction in the amount of information about the operations of government that is made available to the public. The decline in the usefulness of the Commonwealth Budget papers is particularly noteworthy.

AAA ratings are all very well, but they are no substitute for accurate, comprehensive and comprehensible public accounts. These have been sorely lacking in Australia in recent years

As I’ve observed in the past, the stockmarket bubble in the United States represented a comprehensive practical refutation of the efficient markets hypothesis. The consequences of this refutation will take a long while to work their way through our thinking, but they will certainly include a diminution of respect for AAA ratings.

Now that the military phase of the war is over, the big question is how long the Coalition forces, including Australian forces, should stay, and how much control they should try to exercise. As Kevin Drum at Calpundit has observed, this is a problem with no good answer. Of course the fact that no serious attempt had been made to answer this question was a major reason for opposing the war in the first place.

I’ll try to develop my arguments in more detail, but I’m basically with Thomas Friedman on this one “we broke it, we own it”. Having asserted the right to dictate political outcomes in Iraq we (the citizens of the occupying powers) now have the responsibility for delivering an outcome that justifies the death and destruction we have caused. This probably means a long and expensive occupation.

No alternative for Telstra, Australian Financial Review ,13 February 2003 . This piece provoked a hysterical letter from Alston, but lots of readers liked it, even if they didn’t agree with the policy conclusion, which was:

The problem neither party will talk about is Telstra’s ownership. Just as in structural terms (Telstra represents an unacceptable combination of natural monopoly communications services and vertically integrated content provision), the current half-private, half-public status is an unsustainable mess, as even the government that created it now admits.

Telstra should be renationalised and the peripheral businesses should be sold off. This could be done in many different ways, including legislation or through a takeover by a newly created government business enterprise.

This simple solution is unthinkable to politicians with a 1990s mindset such as Alston. But in the past few years, Britain in effect has renationalised its rail track network, the US has nationalised airport security and New Zealand has created a new publicly owned bank, among many other instances.

There are good arguments for and against public ownership in particular cases. But in Telstra’s case, to quote Margaret Thatcher, there is no alternative.

There can be few ministers who’ve held on to an industry portfolio as long as Alston, while being derided by almost everyone involved in the industry. He’s even a favorite whipping boy overseas publications like the UK-based Register, which routinely runs headlines like This man must be the biggest luddite in history.