Having voiced fears that the US would seek to install some form of puppet government in Iraq, I thought it was at least taking some time to consider Bush’s Feb 25 speech, promising democracy, and repudiating the idea that US occupiers would seek to exploit Iraqi resources for their own ends. Others, more cynical than I, ignored it completely. Two days later Charles Krauthammer was announcing the policies the US imperial government should follow, using Iraq’s resources to pay off scores against the French, the Russians and others

We need to demonstrate that there is a price to be paid for undermining the United States on a matter of supreme national interest. [emphasis added, para on UNSC snipped]

Second, there should be no role for France in Iraq, either during the war, should France change its mind, or after it. No peacekeeping. No oil contracts. And France should be last in line for loan repayment, after Russia. Russia, after all, simply has opposed our policy. It did not try to mobilize the world against us.

Unlike William Safire, who has been pushing a similar line for months, Krauthammer does not even bother with the figleaf of suggesting that these decisions would be taken by a grateful Iraqi government.

What’s really interesting about recent developments, though, is the developing attitude of the Republican establishment towards government debt, which is essentially that of banana republic populism. The three basic tenets of banana republic populism are:

(a) We should borrow as much money as we feel like spending, preferably from foreigners
(b) It’s OK to repudiate debts to “bad” foreigners
(c) Any foreigner who doesn’t do exactly what we want at all times is a “bad” foreigner

Greg Mankiw just got into a lot of trouble from hardcore Republicans for being insufficiently enthusiastic about (a). Krauthammer and Safire have repeatedly emphasised (b) in relation to a US-controlled Iraq, and the same line would obviously sell in relation to the US government’s own debt. And (c) is being shouted from the rooftops at every opportunity.

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 repudiating, 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 rapidly dwindling proportion in any case).

The only question arising from this is why foreigners should be willing to hold $2 trillion worth of such a dubious security at interest rates of 4 per cent, and, even more, why they should be willing to buy another $500 billion worth every year.

Various bloggers have been discussing issues relating to IQ, notably in relation to Herrnstein and Murray’s very bad book The Bell Curve (bad intellectually because it was sloppy and dishonest and bad morally because it used dishonest arguments in a bad cause). Although I’m not an expert on issues specifically relating to intelligence testing and heritability, I know enough about the literature to make the following point about measurement issues (on which I can claim to be an expert). The literature shows that, in Western societies, variations in both environment and heredity make a substantial difference to measures of intellectual performance (including educational achievement and IQ test scores). Furthermore both the literature and everyday experience tell us that these things interact in a very complex fashion.

When two causal variables interact in this fashion to determine a third variable of interest, the idea that there is a meaningful sense in which proportions of the variance in the variable of interest can be allocated to the causal variables (as in statements of the form “x per cent of variance in IQ is due to heredity”) is unsustainable. Minor changes in definitions, model structure and functional form will produce major changes in results.

Kevin Drum responds to my observation that “there is now almost no academic discipline whose conclusions can be considered acceptable to orthodox Republicans” with the point that this kind of thing is not confined to the political right.

I agree entirely – you only have to look at the “Nature-Nurture” wars to see a situation where large numbers of people on both sides have made up their minds what the answer should be before they bother to do any research. However, I disagree with Kevin’s assessment that

More and more, over the past decade, it strikes me that partisans on both the left and the right have increased their skepticism toward scientific results that clash with their ideology.

In my view, the position on the left has generally improved over the past decade. For example, the kind of economic ‘impossibilism’ as in “Demand the Impossible” that was prevalent right through the 60s and 70s has now disappeared almost completely – it’s the left that now worries about where the money will come from.

Anti-science trends like postmodernism and New Age philosophy, which were once seen as leftwing, have now made their peace with capitalism. New Age crystal fans represent a market like any other and the postmodernist idea that reality is socially constructed naturally appealed to the professionals in the business of reality-construction, the advertising and PR industries.

As environmentalism has become part of mainstream public policy, the need for a solid scientific basis has reasserted itself over the emotional ‘deep ecology’ that prevailed a decade or two ago. Meanwhile the opponents of environmentalism are reduced to relying on people like Steve Milloy who claim that the results of standard scientific research, endorsed by bodies like the National Academy of Sciences, are Junk Science, and that the real stuff is being done in rightwing thinktanks. (Quick Google exercise – what’s the shortest link from Steve Milloy to Stephen Moore?)

The Odyssey in the translation by TE Lawrence. I tried to tackle anothr translation when I was still in my teens, but this seems much more readable The Seven Pillars of Wisdom is also a good read.

We all went down to the Brisbane River for Clean-Up Australia Day, which was being run locally by a group that is gradually cleaning up the riverside in our area. There was the usual stuff – styrofoam, syringes etc, but the total amount of rubbish was a lot less than there used to be in all places like this a couple of decades ago. All this raised a couple of thoughts.

First, I’m sick of being a conscript in the War on Drugs. After three or four decades of total failure, I think it’s time to admit defeat and let people take whatever drugs they want, provided they do it somewhere it doesn’t impinge on the rest of us.

Second, it would be interesting to explore the relationship between cleaning up litter and environmentalism. At one time, environmentalists were very suspicious of this kind of thing (and perhaps some still are), seeing it as a plot to avoid corporate responsibility. But on the whole, I think the impact has been to reinforce support for environmentalism. The evolution of Ian Kiernan from yachtie wanting to clean up Sydney Harbour to full-time campaigner to clean up the world is a striking illustration.

Update 4/3 Stentor Danielson (permalink not working) agrees on the positive impact of tying environmentalism to the deeply-held positive associations of cleanliness.

Jason Soon points to this piece of silliness by Stephen Moore of the National Review. Moore doesn’t like Greg Mankiw because he once wrote that Reagan-era supply-side economists were “charlatans and cranks”. The piece is certainly ripe for a fisking, but I’ll just concentrate on Moore’s proposed alternatives. He writes

The good news is there are a multitude of brilliant supply-side academics who would be superb chief economists at the White House. I am thinking of talented people like Brian Wesbury of Chicago, Richard Vedder of Ohio University, and David Malpass of Bear Stearns.

It seemed a bit odd to describe someone working on Wall Street as an academic, but of course lots of academics have been lured there in recent years. And while I’d never heard of any of these guys, Chicago is one of the top economics departments in the US (or the world, for that matter) and Ohio State is certainly respectable. But why not say “University of Chicago” and “Ohio State University.”

A short Google search reveals all. Not only is David Malpass not an academic, he doesn’t hold an economics qualification of any kind (he has an undergraduate physics degree and an MBA), though this hasn’t stopped him becoming chief economist at Bear Stearns. Wesbury is “Brian Wesbury of Chicago” in the same sense as millions of other people – he works for a bank in Chicago – but at least his undergraduate degree is in economics. On the other hand, Richard Vedder is a genuine but obscure academic, and Ohio University is a real but obscure university (at least in relation to economics).

In fact, I doubt that there’s a single academic economist in any of the top 20 Universities who would seriously disagree with Mankiw in his assessment of the economic ideas promulgated by people like Moore. Of course, there’s no rule that says that the Council of Economic Advisers should be headed by an academic economist, prominent or otherwise, or, for that matter that it should be held by a trained economist at all. If Moore were arguing honestly, instead of claiming the support of ‘a multitude of brilliant supply-side academics’, he’d argue that the wisdom of practical business people should be preferred to academic theories.

In fact, it’s striking that there is now almost no academic discipline whose conclusions can be considered acceptable to orthodox Republicans. The other social sciences (sociology, anthropology, political science) are even more suspect than economics. The natural sciences are all implicated in support for evolution against creationism, and for their conclusions about global warming, CFCs and other environmental threats. Even the physicists have mostly been sceptical about Star Wars and its offspring. And of course the humanities are beyond the pale. Yet despite this, Moore seems to want to claim academic respectability for his ideas.

Update After chasing down Moore’s two non-academic sources, I got lazy and didn’t check my impression that Ohio University was a private institution. In fact it’s a state university. Thanks to William Sjostrom for pointing out this error, which has been corrected.

The Slate Saddameterhas had the odds of war at 98 per cent for the past few days, despite a series of events that have substantially reduced its likelihood. These include
(i) Iraq’s promise to destroy missiles
(ii) The revolt against Blair by Labour MPs
(iii) Repeated delays in Turkish acceptance of a deal to allow US troops to use bases in Turkey
(iv) Sharon’s repudiation of any possible peace deal with the Palestinians, immediately following Bush’s commitment to a viable Palestinian state

All of this reflects the near-total isolation of Americans from world public opinion. With the exception of the Iraqi missiles, the events I’ve mentioned have barely reported in the US and what reporting there has been has been thoroughly misleading in all cases. Dan Rather’s interview with Saddam was grossly misreported, so that the decision to destroy the missiles, which was, as I’ve pointed out, a forced move, came as a surprise. The assumption that the Turks would be bought off has been so ingrained in US commentary that the possibility that the Parliament there might respond to (overwhelmingly anti-war) public opinion has not even been considered. Sharon has got a free pass as usual. But it’s the failure to understand (or in most cases even report) the British revolt that’s most striking. The number of Labour backbenchers crossing the floor was the biggest in a century, that is, the biggest since the Liberal party began breaking into pieces over Irish Home Rule. And that was on a motion which was according to its backers, specifically not the last chance to vote against war.

The most probable path leading away from war is as follows:
(a) Iraq destroys missiles at a steady pace for the next two weeks
(b) The UN-UK resolution fails, either because of multiple vetos or because it can’t muster nine votes in the UNSC
(c) Blair (or the Labour Party) decides not to participate in an invasion without a second resolution
(d) Bush decides not to go without Blair

At this point (a) and (b) are close to certain. On (c), Blair has said in the past that he might ignore an ‘unreasonable’ veto (the presumption was that this would be cast by France with only one or two others in the minority), but at this point it looks unlikely that a veto will even be necessary. And a look at the British Parliamentary vote shows how limited Blair’s options are. The Ministerial vote (Ministers, Parliamentary secretaries etc) was rock-solid for Blair last time, but an attempt to go to war without a resolution will almost certainly bring about a significant number of resignations. Once this happens, all bets are off. Blair could lose the Prime Ministership, the Tories could change sides to defeat the government on the floor of the House etc etc. It’s been suggested that Blair could order the troops in, then allow Parliament to vote, relying on the ‘rally round the flag’ effect. It’s clear now that this would only sharpen the opposition. In summary, without a second resolution, British participation is at best a 50-50 proposition.

Finally, a pullout by Britain would produce huge political and logistic difficulties for Bush. Given the complexity of the buildup, it’s hard to believe that the withdrawal of 25000 troops, 100 planes etc would not derail war planning to an extent requiring weeks of rearrangement. And politically, a ‘coalition of the willing’ consisting of the US, Kuwait and Australia will not seem convincing to anyone. So again, I think the likelihood of Bush going ahead without Blair is at most 50-50.

So, whereas Slate is implicitly suggesting 50-1 odds against peace (98-2 or 49-1 to be exact) my analysis suggests that 3-1 (ie 75 per cent to 25 per cent) would be generous. This appears to be what economists call an arbitrage opportunity. As far as I can tell, though, there are no markets for betting for or against war, which is probably a good thing.

There was a mild buzz of excitement among the Australian commentariat, following Sally Jackson’s piece in the Media Section of Thursday’s Oz. The article was mildly interesting, but, since a healthy ego is an essential prerequisite for an opinion columnist, there was a lot more interest in the sidebar, where the “leading columnists” had their positions briefly summarised (unfortunately the sidebar is not in the Web version as far as I can tell).

I got a fairly straight summary “Left-wing economist, anti-privatisation, anti-GST”. This was slightly inaccurate since I support a GST with food exempt or zero-rated, which is what we have (except for the bizarre limitation to ‘fresh food’, a concession to a combination of Treasury opponents of all exemptions and Democrat health freaks). But the error was understandable given that I recently referred to the GST as an example of ‘second-order trivia’ that distracted attention from more important issues like unemployment. Others, like Michael Baume who was accurately labelled as a ‘Howard apologist’ will be less happy. And I hate to imagine the response of those who were left out altogether.

The day after Bush called for a viable Palestinian state and an end to settlements, Sharon has repudiated both. This provides a simple and straightforward test of whether Bush’s word on this issue and on Iraq is worth anything. If it is, he will announced that both Arafat and Sharon have failed to make peace and that it’s time for the world community (either the UNSC or the ‘Quartet’ of great powers) to formulate, impose and enforce a peace plan.

The most promising single route is a UNSC resolution to be debated in parallel with the one dealing with Iraq. Even the Syrians would have a hard time rejecting a pair of resolutions demanding both withdrawal from the West Bank and unconditional Iraqi disarmament.

I’m not expecting much. On the other hand, Bush really wants to go after Saddam, and after the British Parliamentary vote, Blair really needs a second resolution.

Glenn Hubbard has resigned as chairman of the White House Council of Economic Advisers to be replaced by Greg Mankiw. Mankiw was a somewhat surprising (until this news) signatory of the recent economists’ statement endorsing the Bush tax cuts, and has written papers taking a relatively relaxed view of government debt (it’s a sign of the times that this is a crucial qualification for a Republican CEA chairman).

I’m a big admirer of Mankiw’s work, which I’ve cited on many occasions, most notably in relation to the ‘equity premium puzzle’. I’m also, in a very distant sense, a co-author: one of my pieces was reproduced in the Australian edition of his bestselling textbook. But I don’t think he’s made a wise decision in taking the CEA job. It’s one thing to reject scaremongering about current levels of government debt (about 50 per cent of GDP in the US). It’s quite another to be pushed into the position of advocating fiscal policies that are already fiscally unsustainability and are only likely to get worse over the next couple of years.

There’s not much more boring than Federal-State financial relations. However, the issue is important, and not well understood, so I’m going to post about it anyway, picking up one of the most common misconceptions.

Dennis Shanahan writes in today’s Oz

Three years ago the states signed up to a new financial agreement which gave them access to the funds from the GST. The full income stream from the GST won’t be available for all the states until 2007, but the money has begun to go into state coffers and will continue to do so on an increasing basis.

This is what the states wanted, a growth tax, and they got it. Now, as the money starts to roll in, the states are fighting a rearguard action to maintain all the old commonwealth funding buffers and avoid whatever responsibility they can.

Wrong, wrong wrong! The states have yet to see one extra cent from the GST. They’re still operating under a guarantee that they would no worse under the new tax system than under the agreement it replaced. Even when the GST revenue exceeds the guarantee the states will be no better off, partly because the guarantee was inadequate to meet the needs of growth and partly because any action here can be offset by cuts in specific purpose grants and other transfers.

All of this is important because, in the Australian system it is the Commonwealth that collects all the taxes and the States that provide all the services that matter. This ‘vertical fiscal imbalance’ means that Commonwealth governments have an inbuilt bias towards cutting taxes. The States have an inbuilt bias towards spending money, but since the Commonwealth has the fiscal whip hand, it’s Commonwealth biases that matter. This is one structural reason why both taxes and public spending are too low in Australia, compared to what the public would prefer, what economic analysis would imply is desirable and what other developed countries actually do.