As this NYT piece makes clear, differences between theJapan and US bubble economies are now matters of degree rather than kind. There are differences, but the similarities are greater. One similarity the article fails to point out is the extent to which both bubbles relied on absurdly long working hours. Most of the ‘loss’ in output in Japan over the past decade can be explained by the fact that Japanese workers have been steadily cutting back on hours. I predict the same thing for the US over the next ten years. This will mean the end of overblown claims about US economic hegemony, but it will also imply an improvement in the real living standard of American workers.

Meanwhile, the Australian property bubble gets more and more alarming, particularly in Sydney. It’s now reached the final stage. The sceptics have been discredited and are licking their wounds, dire warnings from the Reserve Bank have gone unheeded, and the culture is as obsessed with real estate as the US was with stockmarkets two or three years ago. In these circumstances, even if it is possible for policy action to prick the bubble, no one will be willing to take the blame. This will all end in tears.

I met Jason Soon (in person!) at the Australian Economists’ conference in Adelaide and he told me that our exchange on Fisking had been linked by Instapundit. Since I’ve been away from my computer all day, and my tracking is not working I have no idea how many people if any have followed the debate as far as this. But to any who have, welcome!

This NYT editorial about faked research at Bell Labs misses the central point about scientific fraud. The research in question, as the NYT points out, seemed destined for a Nobel prize until it was exposed as bogus (the guy involved is still denying fraud, but his own admissions are enough to discredit the research). The point is that faked research of Nobel quality will always be exposed, because other people will try to replicate it and fail (think of cold fusion). Then they’ll go back to the original papers and , inevitably, find the tell-tale discrepancies that point to fraud (in this case, the same graph appeared for two different experiments).
The lesson is that, if you want to commit scientific fraud in relative safety, fake results that are just interesting enough for publication, but boring enough that no-one will bother to replicate them. Of course, this is ‘scientific fraud’ only in the sense that it’s committed by someone employed as a scientist. In ordinary language it’s the equivalent of ‘goofing off’, ‘goldbricking’ or ‘taking a sickie’ – you pretend to be working when you’re actually taking it easy.
In the large, science is self-correcting. Unimportant false results can stand up for a long time, but important ones will be exposed.
There is, I think, a lesson in all this for corporate governance. There is no way of completely eliminating fraud and bogus accounting, just as there is no way of eliminating fraud by scientists. But in a system where executive pay is relatively modest, and where only a long career will bring big rewards, no-one sensible will commit the kind of large-scale fraud or dodgy accounting that brings a company to its knees. Such fraud is always followed up and brings discredit to all those involved.
In the current environment, though, this doesn’t matter. A sharp CEO or senior manager can reap millions of dollars in a matter of months from cosy deals and sharp accounting. As long as they avoid criminal prosecution and lawsuits with punitive damages, they get to keep it even if they are subsequently exposed as charlatans (think Jodee Rich and Brad Keeling). In these circumstances, the self-correcting properties of the system break down.

There’s been a lot discussion of the extent to which various states could use the Bush doctrine of unilateral pre-emption to justify attacks on their neighbours. For the moment, I will take the Bush doctrine to be that a state can legitimately act to destroy the weaponry of a hostile state that is preparing to attack it, and that no international authority is required for such a pre-emptive strike.

Rather less attention has been paid to historical precedent, although the Israeli strike on a nuclear reactor in Iraq in 1981 has been mentioned.

Going back a little further, most of the Arab-Israeli wars began with pre-emptive strikes and, given that both sides were on a were footing at all times, either side could have invoked the Bush doctrine.

But the biggest anticipation of the Bush doctrine was surely the Japanese attack on Pearl Harbor. The US was clearly hostile to Japan’s expansion in the Pacific, having embargoed oil and other strategic supplies, and was supplying Britain, with which Japan was at war, with arms. Although the Japanese don’t seem (as far as I can tell) to have published a formal justification, their aim was clearly to knock the US armed forces out of the Pacific theatre for long enough to secure their “South-East Asian Co-Prosperity Sphere” against attack. And of course, the US did in the end attack Japan with weapons of mass destruction. (The atomic bomb could not have been foreseen at the time. But the really crucial weapon of mass destruction in World War II was the fire-bombing of cities using ‘conventional’ incendiary bombs, started by Hitler and followed by allied retaliation. The Japanese could certainly have foreseen the destruction of Tokyo, which their actions brought on).

No doubt some distinctions can be drawn between proposed US attacks on ‘rogue states’ and the examples given above, but I doubt that they would stand up to the crucial test, which is that of a government acting as judge and jury in its own case, deciding to launch a pre-emptive attack.

The only coherent version of the Bush doctrine that rules out a retrospective endorsement of Pearl Harbor is one that reserves the right of unilateral pre-emptive action solely to the United States. As Robert Manne observes, this’ amounts to an almost formal claim to US world hegemony’

Supporters of aggressive unilateralism in the US would do well to read the words of Franklin Roosevelt, starting with his description of Pearl Harbor as ‘a day that will life in infamy’.

Update:Jerome Fahrer in the comments thread and, in email, Peter Lawrence point out that Britain did not declare war on Japan until immediately after Pearl Harbor. I should have written that Britain was at war with Japan’s ally, Germany. Peter Lawrence points out also that the US was supplying arms to China, with which Japan was at war. I had some doubts about this point, but trusted to memory as I was away from my usual Internet connection. I will be sure to do a proper fact check next time.

William Burton has a well-thought out post, drawing on personal experience, arguing that currently illegal drugs should be regulated in the same way as alcohol. In an AFR Review Piece, I considered the same question from an opposite point of view. Suppose we accept the case that ‘legalisation of marijuana, cocaine etc. will send the wrong message’. Shouldn’t we then prohibit alcohol and tobacco as well as the currently illegal drugs. This would, of course, turn millions of otherwise law-abiding citizens into criminals, but our existing laws do that already. And it’s at least arguable, based on US experience in the 1920s, that there would be a net saving in lives. Although I started out with the intention of writing a reductio ad absurdam, I found that the case for consistent prohibitionism can’t be dismissed as easily as you might think. What is clear is that our existing policy is a hypocritical failure.

That’s the title of the talk I’m giving to the Economists’ conference tomorrow. Here’s a sneak preview of my conclusion.

The set of policy programs advocated under the banner of ‘microeconomic reform’ is too complex, and the associated set of outcomes too varied, to admit any simple characterization. Microeconomic reform has been neither the success claimed by advocates such as the Productivity Commission, nor the disaster implied by many popular critiques of ‘economic rationalism’.
Taking the two decades of microeconomic reform as a whole, the aggregate impact of the reform program on the welfare of the Australian community has been close to zero. Periods of strong growth in productivity and output, such as the mid-1990s, did little more than recover the ground lost as a result of the impact of the 1980s ‘entrepreneurs’ and the associated ‘recession we had to have’. Much of the apparent productivity growth of the 1990s is likely to dissipate as workers find ways of winding back the increase in the hours and intensity of work extracted through the unilateral repudiation of implicit labour contracts in this period.
Some of the policy initiatives introduced as part of microeconomic reform, such as the removal of tariffs, appear irreversible. Whatever the costs of adjustment during the process of tariff reform, its seems clear that the reintroduction of tariffs would reduce welfare. In other cases, such as those of privatisation and financial deregulation, the process of reassessment has already commenced. Various forms of renationalisation are being considered, most notably in the United Kingdom and New Zealand. Similarly, it seems certain that the next decade will see an increase in financial regulation, rather than the removal of remaining regulations.
As with the curate’s egg, the only verdict on microeconomic reform that is both brief and accurate is ‘good in parts’.

Professor Bunyip finally takes up my invitation to defend Mark Steyn’s claim (cited approvingly by Tim Blair, Miranda Devine and others) that:
“Of the 20th century’s three global conflicts – the First, Second and Cold Wars – who was on the right side each time? Germany: one out of three. Italy: two out of three. For a perfect triple, there’s only Britain, America, Canada, Australia, New Zealand.”
As I pointed out here, this is a schoolboy howler. Belgium and (most embarrassingly for Steyn) France were on the Allied side in all three conflicts, as was Greece.
The Bunyip wants to rule out my first counterexample, Belgium on the grounds that it was a neutral country which only entered the world wars when it was attacked (this also applies to Greece in WWII). Unfortunately, this defence also rules out the United States, which remained neutral in both World Wars, entering the First only after the attack on the sinking of the Lusitania with the loss of 127 American lives, and the Second only after Pearl Harbour.
Bunyip then makes a series of attacks on French perfidy, most of which have already been dealt with the comment thread of my original post. This kind of argument does nothing to save Steyn. It’s like asserting that the British were on the Japanese side in World War II, then defending the claim by saying that they surrendered cravenly at Singapore. I’ll post a link shortly with a more detailed response for those interested.
Most strangely, there’s a lot of stuff about my supposed claims about the “Anglosphere”, a concept I have never mentioned, but which is a good metaphor for the thinking of Bunyip and Steyn. “Being on the right-side” means “blindly following the English-speaking leader”. Of course, with this definition, the English-speaking countries are always right.

Lawrence Lessig The Future of Ideas: The Fate of the Commons in a Connected World. I’ve always found Lessig worth reading, and I’ve been interested in the concept of the commons for for many years – I’ve written quite a few academic papers on it. I plan on reviewing this book, probably for the AFR. It’s a fascinating read, and Lessig really knows his stuff, but I think he is too pessimistic. The slogan “information wants to be free” is facile and simplistic, but it’s also true. I’ll post the review here when it’s done and look forward to seeing Kim Weatherall’s thoughts.

Terry Lane was kind enough to end our interview with a free plug for this weblog. So a big welcome to any of his listeners who have come along for a look. If you have any questions about blogs or economics (or anything!) feel free to email me at John.Quiggin@anu.edu.au.

David Leonhardt notes that millions of American workers are Out of a Job and No Longer Looking. I made the same observation, and discussed Australia’s dire performance on unemployment, in my AFR column two weeks ago (to be fair, I drew on an earlier NYT report). It’s up at Australian Policy Online and also at On Line Opinion, and should be on my website soon.