The award of the Nobel Peace Prize to Jimmy Carter has stirred predictable reactions.As usual, I’ll give my bald statement of views first, then follow up with a justification if I can muster time and energy. Carter was, with the exception of FDR and maybe Eisenhower, the best US President of the 20th century. To the extent that US foreign policy has any moral credibility today, it’s due to his actions in office and subsequently. He’s an excellent choice for the Prize.

The fact that Lucent is cutting 10000 more jobs and now looks unlikely to survive 2003 in one piece might seem like another boring business story. Motient, Scient, Viant and many faux-Latin bubble-era companies are already dead, or as good as, so the significance of one more casualty is not immediately obvious.
But Lucent is more than an over-indebted telecom gearmaker. At its core is, or was, the heart of American technological leadership for the second half of the 20th century, the fabled Bell Labs. Amazingly, this commercial research organisation earned at least six Nobel prizes, not to mention giving the world Unix and running its own highly-rated economics journal. After the breakup of AT&T and the spinoff of the absurdly-named Lucent, the labs survived but were pushed towards a short-term commercial focus. Now it seems doubtful that anything will survive.
Meanwhile, the symbol of American technological leadership for the first half of the 20th century, Ford Motor company, is also in trouble. Once again, the core problem is the triumph of financial engineering over physical engineering. Ford’s problems stem from its finance arm, which holds billions of dollars in dubious car loans.
Even General Electric, which is still highly profitable despite some recent disillusionment, is now basically a finance company. The great achievement of Jack Welch, until recently the archetypal ‘hero as CEO’ was to combine the cash-cow of GE finance with a PE ratio appropriate to GE’s history as a technological innovator. The gloss has come off, and the question of whether GE would be better off broken into pieces is already being asked.
Done right, financial engineering is a valuable tool for reducing risk, but even more boring than civil engineering. What we have seen for the last two decades is better described as financial alchemy. promising gold and delivering dross.

Ken Parish points out that my assessment of a vintage week in the blogosphere, omitted this very funny piece from Professor Bunyip on multiculturalism and polygamy.
As an aside, my support for liberalism does not extend to the point where people are expected to approve of (as opposed to tolerating) the religious beliefs of others. To modify the US maxim, “You go to your church, and I’ll go to the footy” seems like a pretty good basis for getting along, but I reserve the right to say “There is no god, and no-one is his/her/its prophet”.

The Professor doesn’t do so well with this attack on Ken Davidson for plagiarism. He writes:

A little later, Davidson’s thoughts are stolen from him in advance by Chomskyite William Blum.

DAVIDSON: The US will not even contemplate applying these rules to itself. In 1997, the US Senate passed the Chemical Weapons Convention Implementation Act. Section 307 stipulates that “The President may deny a request to inspect any facility in the United States in cases where the President determines that the inspection may pose a threat to the national security interest of the United States”.

BLUM: Iraq may well wonder at the high (double) standard set by Washington. Less than a year ago [1997], the U.S. Senate passed an act to implement the “Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction” (Short title: Chemical Weapons Convention)… Section 307, stipulates that “the President may deny a request to inspect any facility in the United States in cases where the President determines that the inspection may pose a threat to the national security interests of the United States.”

DAVIDSON: Section 303 of the act stipulates that “any objection by the President to an individual serving as an inspector . . . shall not be reviewable in any court”.

BLUM: Section 303 further states that “Any objection by the President to an individual serving as an inspector … shall not be reviewable in any court.”

As far as I can see, the only words in common are the name and text of the relevant act, and one occurrence of “stipulate”. Of course, the point that the US has been hypocritical in basing a case for war on the need to eliminate weapons of mass destruction while undermining international conventions to the same effect has been made before, including by me. And quite likely, Davidson got the text of the act from Blum either by Googling for it or from general reading. But this is just standard journalistic research.

In a blog, where space is free, it’s nice to have asides saying “thanks to X for this link”, and “Y,Z and many others have already written on this”. The same is true in spades in an academic article where the person you fail to mention will probably be the one who referees your article. But I can assure my fellow-professor that any opinion editor worth their salt would ruthlessly excise any such niceties from an Op-Ed piece with a 750-word limit.

Finally, I thought I would be the first to point out that “Stanley Gudgeon” is the son of the hero in Lennie Lower’s classic (1930) Australian comic novel, “Here’s Luck”, but Google has saved me from an accusation of plagiarising Tim Blair, who made the same observation months ago. I haven’t read Lower for years, but I’ll always remember his observation that “Chatswood is one of those places that are a stone’s throw from some other place”. Once again, Google leads to a longer extract. This leads me on to a yet further diversion, the suggestion, linked by Tim Dunlop that Google might start charging (though at this stage only for ‘extras’ like the news service). Heaven forfend! Anyway, I meant to make the point that for those interested in guessing at the Professor’s true identity, this choice of pseudonym might provide a clue.

As I mentioned, one of several reasons I was happy about Daniel Kahneman’s Nobel Prize was that he works in the same subfield of economics as me. I’m even happier now because I got a mention in the advance citation. Only a little one and only in a footnote, but it’s my brush with fame! Footnote 11 says:

“Cumulative prospect theory combines prospect theory with a cumulative approach developed by Quiggin (1982), Schmeidler (1989) and Luce and Fishburn (1991).”

You can read the while thing here (PDF download required)

Michael Kinsley shares my view about the confusion of US policy on Iraq.

“Ambiguity has its place in dealings among nations, and so does a bit of studied irrationality. Sending mixed signals and leaving the enemy uncertain what you might do next are valid tactics. But the cloud of confusion that surrounds Bush’s Iraq policy is not tactical. It’s the real thing.”

I’ve been blogging on for a while about the dangers (low probability, but some really nasty possible outcomes) posed by derivatives markets, but I’ve never felt entirely satisfied with the explanations I’ve given. Jim Jubak at MSN Money gives an excellent beginners guide.
I’d observe though that it’s not as reassuring as you might think that 85 per cent of derivatives represent interest hedges, which are relatively safe. The other 15 per cent still accounts for around $8 trillion, and JP Morgans alone has about half of this.

I don’t think I’ve seen a better time in this little corner of the blogging ecosystem (or any corner, for that matter) than right now. Rob Corr, Tim Dunlop, Ken Parish, Jason Soon and Scott Wickstein are all in fine form, with sharply argued and well-reasoned posts on a wide range of topics. There’s more good stuff in the comment threads. All in all, this is the kind of thing I hoped for when the Internet first came along in the 1980s. It was briefly and partially realised in the early days of Usenet, but blogging provides a far superior medium for the exchange of ideas.

Writing for Salon, Andrew Sullivan says:

“At some point, given the increasing desperation of the antiwar polemicists, the code word “imperialism” had to come up. And so it has. In what is to me a deeply clarifying alliance, the hard right and the hard left agree on this: The war on Iraq is an imperialist war. ”

Given Sullivan’s prominence in the warblogging word, it’s hard to believe he’s unaware that the issue of imperialism is being debated by people other than antiwar polemicists. Here, for example, Armed and Dangerous blogger Eric Raymond makes the case for US imperialism, essentially based on the arguments of Stephen den Beste. And here’s a critical response from John Hawkins at Right Wing News.

Outside the blogworld, people like Robert Kagan are making very similar arguments. The idea that the US has a ‘mission civilatrice’ or is taking up the ‘White Man’s burden’ (code phrases from French and British justifications of 19th century imperialism) can easily be read into the statements of the Bush Administration, particularly those of people like Richard Perle and Paul Wolfowitz.

Given the unwillingness of the Administration to state any clear war aims, and the obvious distaste of the Pentagon for long-term commitments, the question of whether the US is moving to an imperialist stance remains open. Equally, as the posts above make clear, there are legitimate arguments for and against imperialism. But Sullivan is being silly, dishonest or both when he refers to an ‘imperialism canard’, and suggests that this is an invention of anti-war groups.

Every culture has its superstitions. One of the great American superstitions is belief in ‘Lie Detectors’. William Safire presents what should be a final demolition of this absurd idea.

The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to”

Daniel Kahneman
USA and Israel

“for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty”

Vernon L. Smith
USA

“for having established laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms”

Both winners are worthy, but I’m particularly pleased about Kahneman, for a number of reasons. His work on a generalisation of expected utility called prospect theory (like much of his stuff, a collaboration with the late Amos Tversky) is very close to my own area of research, and it’s always good for a field to have a Nobel (this is actually the second in this area, the first having gone to Maurice Allais). Also, he’s basically a psychologist rather than an economist and it’s good to see the Prize going outside the inner circle of economics. Finally, he’s very good and a nice guy.