My bet with Bryan Caplan

John Quiggin47 Comments

Since Europe-US comparisons are in the air again, it seems like a good time to report on the first year of my bet with Bryan Caplan, the terms of which are

The stake is $US100 and the agreed criterion is that, for Bryan to win, the average Eurostat harmonised unemployment rate for the EU-15 over the period 2009-18 inclusive should exceed that for the US by at least 1.5 percentage points

The relevant figures are at Eurostat and, with December still to come in, I estimate that the EU-15 rate will be 0.3 percentage points below that for the US for 2009, so that I beat the spread by 1.8 percentage points.
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Haiti disaster

John Quiggin27 Comments

The Haiti earthquake looks to be one of the worst natural disasters in recent years. Lots of aid agencies will be involved in rescue and recovery efforts, but I’ll mention PLAN International which has been active in Haiti for a long time.

Remember also that, while earthquakes and tsunamis rivet our attention, hunger and disease are cutting lives short every day. Give what you can, whenever you can, to help.

A surprise invitation

John Quiggin166 Comments

I’ve just received an invitation from the Brisbane Institute to participate in a debate with Ian Plimer and Lord Monckton. Having seen Plimer’s Lateline performance, I can’t imagine that this exercise will add much to the sum of human knowledge. OTOH, the event will go ahead regardless. Any thoughts?

Clarification I should say straight off that I have no intention of attempt to debate climate science. Although I’m probably better qualified to discuss the key issues (many of which involve statistics) than either Plimer or Monckton, that’ s not saying much. In any case, discussing these issues in a debate format with dishonest antagonists is pointless, as has been shown many times.

So, the only way to approach it is to address the underlying conspiracy theory directly. If Monckton and Plimer are right, all the major scientific bodies in the world are engaged in a conspiracy to introduce communist world government by (drumroll!) auctioning tradeable carbon emissions permits. The question is, can I convince an audience sympathetic to delusionism that this is a really silly thing to believe?

Update Without advising me that my invitation had been withdrawn, the Institute made another invitation, to Barry Brook, who accepted. So, the decision has been made for me. I did, however, think about the approach I might take if I accepted.

I planned to elaborate Monckton’s conspiracy theory, announce myself as part of the global conspiracy, and conclude by pointing to Margaret Thatcher (Monckton’s former employer) as the originator of the whole thing (she has a great 1990 speech putting forward the case for urgent action based on the precautionary principle). At the end I would have played it straight for a minute or so, asking the audience whether they want to believe this black helicopter nonsense or the alternative that the scientists have it right. Would this have worked? We’ll never know.

Regardless, I certainly hope that Barry Brook and Graham Readfearn (the Courier-Mail environment blogger who will also appear on the pro-science side) stick it to Monckton and Plimer for their political axe-grinding, long track record of lies, and general nuttiness, rather than giving this deplorable event any credibility.

Efficient markets

John Quiggin35 Comments

The efficient (financial) markets hypothesis still has plenty of defenders, though their arguments are looking rather ragged at present. Coincidentally, it’s ten years since the merger of Time Warner and AOL, the biggest and most disastrous in history. If any single event symbolises the failure of the EMH, it’s this merger, driven by the ludicrous valuations of the dotcom era. As I commented at the time

If the accounting numbers are taken at face value, AOL Time Warner will have a price-earnings ratio of about 350 to 1, modest by Internet standards. When options are taken into account, the ratio is more like 1000 to 1. It is difficult to see how an economy in which investment decisions are based on numbers like these can avoid some sort of financial catastrophe

We are all Melmottes now

John Quiggin119 Comments

Hot/cold on the heels of Iceland’s quasi-default, the Roger Lowenstein in the NY Times urges underwater/negative equity homeowners to “Walk Away From Your Mortgage!”. . Lowenstein’s key point is that businesses (including those owned or controlled by the banks themselves) treat default as a straightforward business decision, to be adopted whenever it is profitable to do so. Lowenstein gives a number of examples where leading banks like (inevitably) Goldman Sachs have engaged in strategic default and urges his readers to do likewise. The piece is in a section headed “The Way We Live Now” and it’s striking that it’s taken more than 100 years for the business ethics of Augustus Melmotte to percolate through to the American middle class

To be fair, it’s only in the last thirty years or so that such ethics have become dominant in the corporate sector, to the point where a board that rejected profitable opportunities to stiff their creditors would now be regarded as having violated its fiduciary obligations to shareholders (particularly if the creditors are workers). And despite all the talk about shareholder value, a CEO who passed up opportunities for personal enrichment at the expense of shareholders would be regarded by his or her fellows as a mug.

Millions have defaulted already – (one in eight mortgages is currently in arrears). Bankruptcy is once again as common as divorce. When defaulting on debt is this common, it is hard to sustain any sort of social stigma or internalised notion that this is anything other than a financial option, like refinancing an existing loan. And, as with divorce, we must soon be reaching the point where most people who take out loans will do so in the knowledge that default is an option.

The question is – can the consumer credit system survive this? Probably it can, but the system will need some radical changes. It’s worked for several decades on the basis of creditworthiness criteria that work on the assumption that (nearly) everyone will repay their debts if they can. Until recently, the checks could also rely on the assumption that people would be more-or-less honest in the information they provided in their applications. The financial system, by promoting ‘liar loans’ colluded in the destruction of the second assumption, and by leading the way in strategic default, helped to destroy the first.

The problem for lenders now is that they will increasingly have to act on the assumption that their borrowers (including those who appear creditworthy on the old standards) are planning, at a minimum, to use default as an insurance option. The only good way to protect against this is to demand lots of secure collateral. That means less liberal credit (and, given higher default rates, higher interest rates) for everyone and no credit at all for lots of us.

Pulped fiction?

John Quiggin44 Comments

Talking of books, it’s been nearly a month since it was announced that Volume 3 of Keith Windschuttle’s fabrications would be released “next week”. Such vaporous promises are typical of KW, but I would have thought that if a book was promised for next week it would have already been printed. Could it be that, with his lead story about Rabbit Proof Fence totally demolished, Keith has decided to pulp the book and try again?

Update Commenter Charlie, who obviously has a stronger stomach than I do, visited the Quadrant website, and found an extract and cover art for the book, with publication details as follows: The Fabrication of Aboriginal History, Volume Three, The Stolen Generations 1881–2008, Macleay Press, $59.95, 656 pages, published in December 2009. But MacLeay Press itself has nothing.

Update While I’m on the topic, the latest outpouring from American Enterprise Institute Fellow Charles Murray as he complains about the number of black and brown faces on the streets of Paris has drawn attention to his past as a youthful cross-burner. In between his KKK wannabe youth and his current channelling of Pauline Hanson, Murray wrote a bunch of books, such as The Bell Curve and Losing Ground, which put a scholarly gloss on the same ugly stuff, and were therefore treated with more respect than they deserve.

Since he has already commented in defence of Windschuttle, I expect Jack Strocchi will have something to say here and I’m going to let him. However, that’s the end. From this post on, any comment from Strocchi touching on the issues of race, ethnicity, religion or immigration, directly or indirectly, will be deleted and repetition will be cause for an immediate and permanent ban. No correspondence will be entered into, and any attempt to dispute the policy in comments (here or elsewhere) will trigger the same ban. Strocchi is, however, welcome to continue commenting on other topics.

Further update The book has now appeared (11/1/09). I guess Windy was just trying to put some time between the Rabbit Proof Fence debacle and the release. Interestingly, he’s still promising Vol 2 and Vol 4.