There’s been a lot of talk about the microeconomic reform undertaken by the Hawke-Keating government and its claimed beneficial outcomes. It’s useful to compare the 20 years since the election of the Labor government with the 20 years that preceded it.

The period before 1983 encompassed the breakdown of the Bretton Woods system of fixed exchange rates, two major oil shocks, and two global recessions. In Australia, it includes the economic chaos that engulfed the Whitlam government and the failure of the Fraser government to cope with the wage push of the early 1980s. Despite this, average performance was as good as or better than the period since 1983.

One on measure, inflation, the period since 1983 comes out clearly ahead. Not only is the average rate lower, but inflation accelerated through the 1960s and 1970s. The inflation rate fell gradually during the Accord period, then rapidly during the ‘recession we had to have’ and has shown no sign of resurgence since then.

The rate of producitivity growth has been the focus of much recent attention. According to ABS estimates the annual rate of multifactor productivity growth over the last twenty years has been almost exactly equal to that the previous twenty years at around 1 per cent. Similarly the average rate of growth in GDP was about 3.6 per cent per year in both periods.
In two areas, performance since 1983 has been significantly worse than . The current account deficit rose rapidly to 5 per cent of GDP after the floating of the dollar, and has fluctuated around that level ever since. A comparison with the pre-float period (when deficits averaged around 2 per cent of GDP) is not really meaningful since, in a fixed-rate system, current account deficits are constrained by the availability of foreign exchange reserves, but deficits of this magnitude are widely regarded as being associated with the risk of a currency crisis.

Performance on unemployment has been even worse. The average unemployment rate for the period since 1983 has been 8 per cent, compared to about 4 per cent in the 1970s and less than 2 per cent in the 1960s In fact, the lowest unemployment rate realised since 1983 is higher than the highest rate reached at any time between World War II and the last few months of 1982.

A sad irony in the poor outcomes on unemployment and the current account is that the case for radical microeconomic reform put forward in the early 1980s depended largely on these two variables. Policies of Keynesian stimulus, aimed at reduced unemployment had been abandoned as a result of blowouts in current account deficits. It was claimed that structural reform would eliminate barriers to growth in exports and thereby permit sustained expansion without growth in current account deficits.

Of course, these comparisons are primarily of historical interest. What matters is the outlook for the future.
The unemployment rate, at 6 per cent, is as low as it has been at any time in the past twenty years. But this is largely a cyclical outcome. Most estimates of the structural rate of unemployment (often called the non-accelerating inflation rate or NAIRU) have remained stationary or even risen over the past two decades.

The productivity statistics give similarly little ground for optimism. According to the ABS estimates, there was a surge in multifactor productivity growth between 1994 and 1998, but the annual rate of productivity growth has since fallen back to the long-run average of around 1 per cent. The fact that rapid productivity growth has not been sustained suggests that the surge of the mid-90s was due to once-off factors like the increase in the pace and intensity of work and not to a fundamental transformation.

One thing I’ve discovered in blogging is that irony is a dangerous weapon. Even after I started bracketing it with warnings [irony alert on] … [irony alert off] people persisted in reading me literally.

But after all, this is an Australian blog and irony is not exactly an archetypical Australian trait. Surely New York sophisticates, not to mention the British masters of irony, would handle this kind of thing better. Apparently not. Andrew Sullivan, a Brit living in New York (I think) and seemingly as sophisticated as they come, responds to Paul Krugman on the Budget deficit, saying

here’s the economic expert, Krugman , on the looming deficit:

[R]ight now the deficit, while huge in absolute terms, is only 2 — make that 3, O.K., maybe 4 — percent of G.D.P.

I take Krugman’s broader point about the deficit, and agree with it. But why such contemptuous sloppiness? There’s a critical difference between 2 and 4 percent of GNP. Isn’t there?

Sullivan probably doesn’t follow the economic debate all that closely. But surely he must have noticed that estimates of the US Budget deficit have been rising steadily, with a new higher estimate announced every six months or so.

I apologise for laboring the point, but rather than risk any reliance on irony I’ll spell it out in excruciating detail. Krugman is not making a series of guesses, but giving an ironic description of the steadily deteriorating outlook. The US Budget deficit for this year was first estimated at around $US 200 billion (2 per cent of GNP), then around $US 300 billion and now looks likely to be closer to $400 billion. Krugman is hinting that this trend is likely to continue.

My piece in today’s Fin (subscription required) on US deficits and the approach of “banana republic” status develops arguments thrashed out on the blog. I’m finding this a very useful way of clarifying my ideas. It’s headed US debt will come back to bite and is paired with a piece from Robert Bartley of the WSJ supporting Bush’s tax cuts.

I’ve finally got back to this feature, in which I write a weekly essay on a word or concept of interest. To help Googlers, I’m making the heading more self explanatory

As I’ve noted, the word ‘democracy’, until recently one of the most fiercely contested in the language is now fairly straightforward. “Social democracy’ by contrast, remains tricky although as with some other hard-to-define concepts you know it when you see it. The basic tenet of social democracy is that major social decisions should be made democratically rather than being determined by tradition or the outcomes of market interactions in which individuals have influence proportional to their endowments of property rights. Most of the broader connotations of the word ‘democratic’ that go beyond strictly political/constitutional meanings are associated with a social-democratic outlook. An example is Furphy’s famous characterisation of his book Such is Life – temper, democratic, bias, offensively Australian.

In practice (and unlike socialism which I’ll discuss another day), social democracy is a fairly well-defined social order. Although it has no perfect exemplar, it has been realised, more or less, in most European countries, to a lesser extent, in Britain and its former colonies and, in to a much lesser degree in the United States. It is a social and economic system which includes a mixed economy with both public and private enterprises and an acceptance that society has a whole has a responsibility for protecting its members against the standard risks of the modern lifecourse (illness, unemployment, old age and so on) and for providing everyone with equal opportunities to develop their potential to the maximum extent possible. An immediate implication is that, while absolute equality of incomes is not necessary, inequality should not be permitted to reach the point where some citizens have massively more power than others, and where their children have a big headstart over other children.

All of these claims are rejected to a greater or lesser extent, by the ideology that dominated political debate in the last quarter of the 20th century, which is most commonly called neoliberalism. The central claim of neoliberalism is that a democratic political order can coexist with radical social inequalities and that democratic government should not intervene to offset such inequalities.

From the crisis of Keynesian social democracy in the early 1970s until the financial crises of the late 1990s, social democracy lost ground fairly steadily. But the neoliberal program has failed in New Zealand, the United Kingdom, Eastern Europe and, most recently, in its heartland, the United States. Some form of modernised social democracy looks likely to be the dominant idea of the 21st century, as it was for most of the 20th.

It had to happen. An ex-dotcommer, the former editor of recently-folded dotcom hypemag Red Herring, has decided the time is ripe to make money out of blogging.. His site, called AlwaysOn, is pretty much what you’d expect to have seen if blogs had been around in 1998 and someone trolling for $20 million to produce a slick commercial version had produced a ‘proof of concept’. I can’t believe that there’s anyone left out there in VC-land stupid enough to throw $20 million at a blog, but if there is, I want to be first in line.

Writing in the New Republic Peter Beinart says:

On the subject of North Korea, there are two groups of people in Washington today: People who are terrified, and people who aren’t paying attention. Unfortunately, the latter category seems to include the president of the United States.

I’ve been in the terrified/horrified camp for some months, during which time things have drifted from bad to terrible. Beinart, recently, described as a full-fledged, talon-baring hawk on Iraq backs up his diagnosis of attention-deficit disorder with the observation

the diplomatic reality is that there is no united front. North Korea adamantly rejects multilateral talks, and South Korea, Russia, and China adamantly refuse to turn the screws. The Bush administration is paying the price for having helped fuel the anti-Americanism that elected an ultra-soft-line president in Seoul last December. And it cannot pull out all the diplomatic stops with Moscow and Beijing since its highest priority is convincing those governments not to veto an Iraq resolution at the Security Council. The unhappy result is that the United States is basically facing this crisis alone. (emphasis added).

Beinart concludes

If the Bush administration does understand that it will eventually have to sit down with Pyongyang, then its current delay represents the inexcusable privileging of politics over national security. If, on the other hand, it has no intention of engaging in such talks, its current stalling tactics may stem from a very different calculation: That the United States can only fight one war at a time. As Stanley Kurtz put it approvingly recently in National Review Online, “If our policy is to strike when we may and must, silence makes a good deal of sense.”

This has so far been too chilling an interpretation for most observers. But, in either case, the United States is much closer to the brink than most Americans realize. And, whether out of political self-interest or ideological zeal, the Bush administration doesn’t seem to mind.

I don’t think the NRO analysis cited by Beinart holds up at all. A war with North Korea would be incomparably more dangerous than anything Saddam Hussein could do, and the danger grows every day. If war with North Korea is planned, or even contemplated, any competing policy priority should be dropped immediately. Every asset the US has, military, economic and diplomatic, should be devoted to achieving a victory in which the North Korean government doesn’t use its nuclear weapons and to achieving the victory as soon as possible, before any more weapons are produced.

Given that this clearly won’t happen, I can only hope that the Administration is planning to buy the North Koreans off. A minimal silver lining in this generally gloomy situation is that a victory over Saddam might give Bush enough political points to cover a craven backdown to Kim-Jong Il – at this point there seems to be no alternative.

Update Ultra-hawk Charles Krauthammer takes precisely the line I’ve suggested on North Korea. He even uses the dreaded A-word “appeasement”. Krauthammer covers himself by saying “it would only be temporary appeasement”, but the North Koreans, like the Turks, are sure to demand cash up front. As Paul Krugman pointed out a while back, no sensible person deals with the Bush Administration on any other basis.

The following is the text of the British amendment to a second resolution to the U.N. Security Council demanding that Iraq disarm:

Determined to secure full compliance with its decisions and to restore international peace and security in the area,

Acting under Chapter VII of the Charter of the United Nations,

1. Reaffirms the need for full implementation of resolution 1441 (2002);

2. Calls on Iraq immediately to take the decisions necessary in the interests of its people and the region;

3. Decides that Iraq will have failed to take the final opportunity afforded by resolution 1441 (2002) unless, on or before 17 March 2003, the Council concludes that Iraq has demonstrated full, unconditional, immediate and active cooperation in accordance with its disarmament obligations under resolution 1441 (2002) and previous relevant resolutions; and is yielding possession of UNMOVIC and the IAEA of all weapons, weapon delivery and support systems and structures, prohibited by resolution 687 (1991) and all subsequent relevant resolutions, and all information regarding prior destruction of such items;

4. Decides to remain seized of the matter.

Assessment Obviously this gives the US automatic authorisation to go to war simply by vetoing any resolution consistent with the terms of Item 3. Hence, it is simply a mean and tricky version of the previous draft, which itself was weaselly in its failure to include an explicit an authorisation of war. The obvious countermove is a resolution imposing specific demands on Iraq in place of what is in effect a demand to satisfy George Bush.

Given that I just reread High Fidelity, I can scarcely refrain from the current trend for listing a top 5 group of referrers. My stats counter only gives this ranking on a “lifetime’ basis, so I need to aggregate across various incarnations of the same blog, and this makes the actual ranking a bit tenuous.With that caveat regarding order, my all-time top 5 referrers are:
Jason Soon;
Tim Dunlop;
Ken Parish;
Steven Den Beste; and
Me;

The first three don’t surprise me, and shouldn’t surprise anybody. These are the blogs I read most regularly, link to most often, comment on most frequently and generally regarded as my closest neighbours in the virtual world of Ozplogistan. Den Beste’s is the only one of the top-ranked US blogs I comment on with any frequency (generally critically) and he occasionally replies. Since he has about 50 times as many readers as I do, this invariably produces a huge but short-lived spike in visitor numbers – I guess the majority of USS Clueless fans are unlikely to become permanent readers of my blog.

Finally, when I started the blog I saw it in part as an exercise in cross-promotion with my website, and it has succeeded in this respect – I get more visitors to the website and a steady flow of referrals back to the blog. I didn’t realise, of course, that moving from running a website to running a blog was like going from marijuana to crack cocaine, but it’s too late now.

Tim Blair finally concedes (only implicitly) that opponents of war aren’t anti-American, saying “It’s all about Bush. These people are as shallow as Lake Eyre .”

Tim, and other warbloggers who have taken the same line, are showing the shallowness of their own thinking. Of course it’s about Bush and his Administration. In any war, the questions “What are we fighting for” and “Who are we fighting for” are at least as important as “Who and what are we fighting against”. Having judged that the Bush Administration is consistently dishonest and pursues policies based on a narrow calculation of the short-term interests of the United States (and in domestic policy, only the wealthiest inhabitants of the United States), I’m unwilling to follow them into a war if I can avoid it.

In the particular case of Iraq, if you don’t believe the statements of the Bush Administration, the core of the casus belli, namely the need for immediate action on WMDs, collapses completely, as does the claim that war with Iraq will assist in fighting terrorism. And if you don’t trust them to engage in constructive democratic nationbuilding in the aftermath of a war, the humanitarian case for war also fails.

Update Kevin Drum reaches much the same conclusion, based particularly on the exposure that claims about Saddam’s nuclear capabilities (which were, at one time, central to the Administration case for war) were based on clumsily faked documents. Kevin attributes the Administration’s acceptance of these documents to incompetence rather than dishonesty, but the logic is the same.

For a variety of reasons related to post-war planning and Bush’s seeming indifference about tearing down international institutions in order to get his way, I’ve been on the fence about war with Iraq for several weeks now. Basically, I figured that all it would take is one more thing to send me into the anti-war camp, and I think this is it. If we’re planning to start a war based on intelligence from the same guys who made this mistake, it’s time to take a deep breath and back off.

I still believe strongly that we need a tough-minded long-term policy aimed at eradicating terrorism and modernizing the Arab world (among others) — and that this policy should include the use of force where necessary — but not this time. This is the gang that couldn’t shoot straight.

Further update Jean-Paul of The Agonist has also switched away from support for war, calling the bogus claims “One lie too many”. Josh Marshall reaches the same conclusion, on slightly different grounds.

The pros and cons of handling Iraq have never been separable from how you do it, the costs you rack up in the doing of it, calculated against the gains you’ll get in having accomplished it. At this point, we truly have the worst case scenario on the international stage. And I think that those costs now outweigh the gains.

(links via Matthew Iglesias. And the NYT has also switched. It’s pretty clear that it’s now or never (or at least not for a long while), as far as war is concerned. The latest evidence means that Powell’s UN dossier, which still forms the core of the Administration case, has been comprehensively discredited (the only substantial evidence still standing is that from the telephone intercepts, which are essentially uncheckable). It will take a week or so for this to sink in among people who follow the news less closely than those I’ve cited above, but the decline in support for war is only going to accelerate.

An imam in Britain has been sentenced to nine years jail for incitement to murder and inciting racial hatred. This raises the question of whether a separate offence of inciting racial hatred is necessary. In this case, I don’t think so. The standard law prohibiting incitement to murder was adequate, and I think it was unreasonable to tack two years of consecutive imprisonment for inciting racial hatred onto the main sentence. On the other hand, it would be easy enough for a moderately clever preacher of racial hatred to word their statements in such a way as to encourage racial attacks without actually saying enough to be convicted of incitement to murder.