Via The Agonist, I found this story of a journalist who sued Fox News after being fired because she was unwilling to participate in a false report about growth hormones. Allegedly, Fox won its case at the appellate level on the basis that the First Amendment included the right to lie (and presumably to force employees to lie).
I couldn’t find a confirming source for the story, which is in an Internet publication called the Sierra Times, and includes a mis-spelling of Rupert Murdoch’s name, and I must admit it sounds too good to be true -has anyone else among the Agonist’s legion of readers picked this up?

Almost instant update Me No No supplies a range of links, which led me to the Appeal Court’s judgement, available as a PDF file from this site, basically confirming the Sierra Times story (but not the original heading of my post, which I’ve now qualified). The crucial para is “We agree with WTVT that the FCC’s policy against the intentional falsification of the news – which the FCC has called its “news distortion policy” – does not qualify as the required “law, rule, or regulation” under section 448.102.” To clarify, the lawsuit was brought under a whistleblower protection act, and the judgement is that a reporter exposing lies by a TV station is not protected under the act. Fox does not admit that they were distorting the news, but chose to fight on procedural grounds rather than on the facts, which is pretty standard legal tactics.

I’m still leafing through my collection of Borges short stories. A particularly interesting one, in the light of various debates in this corner of Ozplogistan last year (try starting here and reading forward through the archive), is The Don Quixote of Pierre Menard, about a writer who attempts to think himself into the position of Cervantes, and then reproduce Don Quixote, succeeding to the extent of two chapters. Borges, in the person of a literary executor, quotes from Cervantes’ original a conventional apostrophe to History , then the identical passage from Menard’s ‘reproduction’ which, he argues, is utterly different by virtue of being written by a 20th century author.

As much as I throw myself into this intellectual escapism, I have to admit that I’m reading everything I can find about the war. At an intellectual level, I’m still convinced that this is a pointless activity – having tried and failed to stop the war, there’s very little that supporters of peace can do now to mitigate its awful consequences. But this hasn’t stopped me thinking about it most of the time, and so I’ll probably resume posting about it before long.

My piece on oligopolies gave rise to a lively, and often vituperative, comments thread. As is usually the case, the substantive issues got lost in the name-calling (entertaining though the latter was at times). Attempting to extract some coherent issues from the thread, I focused on two:

• whether some industries are naturally monopolistic and
• what, if anything should be the role of competition policy (for historical reasons, this is called ‘antitrust’ in the US).

In this post, I’ll stick to natural monopoly. I think economists have tended to underplay the importance of natural monopoly, particularly in the period of microeconomic reform that began in the 1980s. There are three main factors leading to natural monopoly (or maybe, I like threeway classifications, and have organised a diverse set of factors into three classes).

First, physical economies of scale are important in a lot of different contexts. For a city the size of Brisbane (a million or so people), it makes sense to have just one airport, one major brewery, a handful of major hospitals and so on. For network distribution services (phones, electricity, water supply etc) the same point arises a bit differently. In physical terms, it’s optimal to have only a single distribution network in any given local area. This is pretty obvious, but there were a lot of silly claims in the 1990s based on the fact that since microcomputers had displaced mainframes, it was obvious that technology would in future be small-scale and inherently favorable to competition. The fact that the world’s microcomputer chips were made in a steadily shrinking number of plants costing a billion dollars apiece (and rising) escaped the attention of these gurus.

Second, the economic importance of information is increasing all the time and information is nonrival in consumption – giving information to me doesn’t make it any less available to you. So, the technically efficient procedure is for information to be produced once and shared freely. Again in the 1990s, the slogan ‘information wants to be free’ was repeated a lot. Unlike the idea that new technology is inherently small-scale, this slogan was at least half-right. Once information has been discovered it’s costly and wasteful to keep it secret or restrict its use. But the slogan is also half false. Discovering/producing information in the first place is costly and those who discover/produce it want to be paid in some way.

So far I’ve been talking about information of the “E=MC-squared” type, but another sort of information is equally important or more so in explaining the prevalence of natural monopoly. Human relationships, including long-term economic relationships depend on the beliefs, preferences and intentions of those involved, and these are hard to discover. I can discover my own intentions and beliefs by introspection and I can infer those of other people from observation and experience – the human capacity for self-deceptions means that the latter kind of information is sometimes more reliable than the former.

As a trivial example, when I write a column for the Financial Review, the opinion editor expects that I will check my facts before I submit the column – (I flagged my uncertainty about the authorship of the airlines cartoon I cited recently, but as it turned out I should have asked on my blog first). For some columnists and some papers, this isn’t a problem of course, but for papers that aspire to accuracy, it’s easier to rely on contributors who are known to be reliable than to take on new writers who may require more careful checking. This kind of problem arises in all kinds of employment and contractual relationships.

As Ronald Coase pointed out over 60 years ago, it is the transactions costs associated with this kind of information that explain why so much economic activity is arranged through firms and other organisations (governments, households, clubs, and now Internet-based virtual communities) rather than through markets. If it were not for transactions costs, even physical economies of scale would not produce monopoly, since the same asset could be shared by an arbitrarily large number of firms.

I’m going to leave the question of competition policy for another post, but I’ll observe that one factual implication of the arguments above is that competition policy makes a difference. If it were not for restrictions on mergers and for the tight regulation to which monopolies are often subject, a lot of industries that are currently oligopolies (dominated by a few firms) would be monopolies.

As I said a few days ago, I’ve decided to stop posting on the war for the moment – I can’t see anything good coming out of it, or propose anything that is likely to produce a better outcome. But, as usual, I agree with nearly everything Tim Dunlop has written.

My AFR piece today subscription required is about oligopolies (industries with a few dominant firms) and why they can be such a pain to deal with. It was prompted by a particularly painful experience with one of the major banks, and begins

Although the two airlines policy was the subject of many analytical studies, it was perhaps best summed up by a cartoon that ran in the 1980s (as I recall it was by Pryor in the Canberra Times). An employee of one of the duopolists, dealing with an irate customer, is on the phone to his opposite number at the ‘competing’ airline, saying: ‘Bloke here says he’s going to take his business elsewhere – you take care of him will you, Macca?’.
In the language of academic political theory, the irate customer was trying to exercise both ‘voice’ and ‘exit’ and failing in both endeavours.

It’s a real longshot, but if any readers remember the cartoon and can point me to the original, I’d be very grateful.

Update Loads of fun in the comments section, especially for those with an ANU connection.

In sad times, there are always those who provide us with innocent diversion. Here’s the full text of a letter from one of our elected representatives to the Financial Review (subscription required

French are inherently treacherous

I agree with Gregory Viscusi (“US attacks on France ignore the facts”, AFR, March 25), that it is probably disingenuous to say France is against the war on Iraq purely on commercial grounds. After all, the French are inherently treacherous.

They betrayed Joan of Arc one of their greatest, who liberated France to the stake, and obviously they have not changed since 1431.

Julian McGauran ,

Senator, National Party, Victoria.

Globalisation is one of those ‘vogue’ words that suddenly become ubiquitous. They are used in all sorts of contexts by all sorts of people. They seem to promise understanding of the ills and hopes of the day, and yet no one seems to know precisely what they mean. In the 1960s, ‘alienation’ was such a word, while ‘systems’ and ‘structural’ had their vogue in the 1970s.

Undoubtedly the word of the 1990s is ‘globalisation’. It has been used to explain everything from the fashion for baseball caps worn backwards to the decline of the welfare state. It has been represented both as the culmination of human history and as a regression to the 19th century. But in all its forms, globalisation is a crippling and disabling concept. It implies that in future, every aspect of our economic and social lives will be determined by impersonal global forces over which we as a community have no control.

Although no precise definition of such an elastic term is possible, globalisation refers in essence to the growth in international flows of goods, services and especially capital that has taken place since the 1970s.

Two different stories are commonly told about globalisation. The first story is basically about technology. Globalisation is commonly claimed to be the inevitable result of technological changes and, in particular, the striking innovations in computing and telecommunications that have taken place since the 1970s. These developments, it is claimed, have made possible a massive growth in international financial flows, and the development of highly sophisticated international financial markets which form the basis of a new global economy. This story is nonsense. The world economy was far more globalised in 1900 than 1950 and instantaneous links between financial markets were established with the laying of the trans-Atlantic telegraph around 1870.

Whereas the technological story of globalisation ignores the global economy of the 19th century, the neoliberal story presents the 19th century as an economic golden age to which we are about to return. In fact, for neoliberal true believers, the entire 20th century may be seen as a mistake, a statist interruption of the natural development of the free market economy.

According to the neoliberal story, the 19th century economy based on free movement of goods, capital and labour produced strong economic growth and was generally beneficial. However, some groups, such as workers in industries threatened by competition from imports, generated a backlash against globalisation which led to the widespread adoption of tariffs and restrictions on migration. The end of globalisation was completed by the suspension of free capital movements during and after World War I. According to this story, we are only now returning to the true path of a free-market economy.

In this story, globalisation per se is less important than the imperative of a return to free markets. Globalisation goes hand in hand with domestic free-market reform.

Opposition to ‘globalisation’ does not necessarily imply support for economic or cultural nationalism. The term ‘internationalism’ is far older than ‘globalisation’ and connotes a democratic and progressive position of support for international cooperation. The same position is sometimes summarised in the pejorative phrase ‘transational progressivism” (adherents are more briefly referred to as “Tranzis”).

One of the most striking features of the war so far has been the fact that, on a wide range of issues, Iraqi official statements have been a more reliable source of information than those of the US and allied governments. Within the first day or so of the invasion, US sources on the spot in Southern Iraq were claiming the capture of towns like Nasiriya and Umm Qasr, the surrender of entire Iraqi divisions and predicting the imminent fall of Basra. Meanwhile, Iraqi officials in Baghdad were denying all this and claiming that their forces were fighting on. Even for someone as skeptical of US official pronouncements as me, it did not seem difficult to tell who had the facts on their side and who was merely blustering.

But as it has turned out, the Iraqis were right on all these counts, while the US was wrong. The Iraqi claims may have been just lucky guesses but it seems more likely that their communications have not been disrupted to the extent that the US has claimed.

On the US side, there’s no reason to suppose that the claims were deliberate lies or military misinformation. The most plausible explanation is less sinister but in many ways more disturbing. Throughout the journey to war, the US Administration has displayed wishful thinking on a massive scale, leading to uncritical acceptance of anything that seemed to reinforce its self-belief. The easy credulity that was given to the forged documents supposedly showing Iraqi purchases of uranium from Niger and the clumsily doctored and plagiarised analysis of Iraqi intelligence put forward by Blair’s spin doctors are two of the most notable examples, but there are many more.

The most critical piece of wishful thinking is the assumption that the armed forces of the US and UK, which have been bombing and starving Iraqis for the last decade, will be welcomed as liberators when they finally defeat Saddam. The argument that Saddam’s defiance was responsible for the bombings and that his corruption was responsible for the devastating impact of the sanctions, plays well in Washington thinktanks, but I imagine the view of the average Iraqi is much closer to ‘a plague on both your houses’.

Having long feared the adoption of a ‘shock and awe’ strategy in Iraq, I assumed the worst when large-scale bombardment of Baghdad began a few days ago. ‘The worst’, in this context means a strategy designed to terrify the population into submission either by inflicting substantial casualties or knocking out services like electricity and water. In fact, the reports from Baghdad so far suggest that, while massive in scale, the bombardment was tightly focused on targets like government departments and Saddam’s palaces, and that civilian casualties have been limited. This is a good thing, and gives at least some hope that the war will not turn out disastrously badly.

On the other hand, while technologically impressive, this kind of attack does not seem to have generated much shock or awe and nor was it likely to. Everyone knew that the US had the capacity to flatten Saddam’s palaces and assumed they would do so. That included the regime which appears to have evacuated most of the obvious targets in Baghdad itself, although the situation may be different with the Republican Guard perimeter defences.

The strategy of striking at symbolic targets associated with the regime, and of attempting ‘decapitation’ would be an effective one if (as some commentators have assumed) the regime is so much hated that the majority of people would actively support an invasion as soon as it appeared safe to do so. But so far, that does not appear to be the case. No doubt most Iraqis hate Saddam, but there’s little evidence that they have any love for Bush.

The war is only two days old, but it’s already clear that its central rationale is fatally flawed. If Saddam’s weapons of mass destruction represented a threat to the US under any circumstances, they would already have been used, against US forces or against Israel.

The absence of an attack on Israel is particularly striking. US forces are already seizing possible bases for Scud attacks in Western Iraq (finding no Scuds apparently) so the opportunity for such an attack will be over very shortly. There is no reason why Saddam should refrain from such an attack except that he lacks any capacity. Similarly, the Iraqi forces in Southern Iraq are throwing everything they have at Kuwait. This clearly doesn’t include WMDs and, despite early reports, apparently doesn’t include Scuds either.