General Glut and Australia’s CAD

John Quiggin26 Comments

General Glut turns his attention to Australia’s current account deficit, a topic that’s also being debated in a number of threads over at Stephen Kirchner’s blog. There’s a lot to cover here, so I’ll list the main points I’m going to cover up front

* Martin Wolf makes a point I’ve also been going on about for some time, that the Anglosphere dominates the consuming and borrowing side of the global trade balance
* Although Australia and the US have similar CAD/GDP ratios, the underlying stats are very different
* The claim that Australia’s CAD is being used to finance non-dwelling investment doesn’t stack up well when you look at actual expenditures, rather than volumes derived from dubious price adjustments
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Interest rates unchanged

John Quiggin24 Comments
.!.

In macroeconomic terms, the RBA decision to keep interest rates unchanged looks like a good call. With the levels of indebtedness we have in Australia, the risk of overkill, as seen in 1990, are greater than the risk of delaying for a while to see what happens. Although the evidence is patchy, the claims that economic activity has peaked look quite plausible. On most reasonable estimates, interest rates are still below their ‘neutral’ level and it looks as if they can’t go significantly above this level without producing substantial damage

In microeconomic terms, the decision looks far less appealing. Interest rates represent the price of current consumption in terms of future consumption. If they are permanently held below their equilibrium (roughly the same as neutral) level, the result must be too much consumption and too little saving and Australia has seen this in spades, with negative rates of household savings for some years. Not surprisingly, this has been accompanied by a boom in asset prices, particularly for residential land. This in turn has been associated with a shift in investment towards housing which, since it produces non-tradable services, is not helpful in addressing a huge current account deficit.

When one set of considerations strongly suggests holding interest rates steady and another suggests they need to rise significantly, the obvious conclusion is that we are trying to do too much with one instrument.

Monday message board

John Quiggin94 Comments

As usual on Monday, you are invited to post your thoughts on any topic. Civilised discussion and no coarse language, please. As we approach the winter solstice (for Southern hemisphere readers), I’d be interested in seasonal reflections.

Karimov and Saddam

John Quiggin49 Comments

Pro-war left site Harry’s Place links to a rather equivocal piece by Christopher Hitchens on the Bush Administration’s backing for the Uzbekistan dictator Karimov, and picks out the following quote, among others

The United States did not invent or impose the Karimov government: It “merely” accepted its offer of strategic and tactical help in the matter of Afghanistan.

This sounded familiar, and I thought it would be interesting to see what happened if “Karimov” was replaced by “Saddam” in a Google search.

No exact matches, but “US did not create Saddam” pulls up a bunch of links from sites like Martin Kramer and billhobbs.com defending or downplaying the Reagan Administration policy of support for Saddam during the 1980s, when his foreign wars and internal oppression killed vast numbers of people. “Did not install Saddam” gives more, and no doubt other variants can be found.

Even now, I doubt that Hitchens would accept “the US did not invent or impose Saddam” as a justification for the aid and warm embraces (literal and metaphorical) given to Saddam in the 1980s. But, given his current trajectory, I think it’s only a matter of time.

I am disappointed though, that Harry’s Place, which has generally taken a principled line of opposition to all dictatorship,s should give a favorable link to this weaselly piece, which is more concerned with scoring points against Hitchens’ former allies than in advocating any particular response to Karimov.

PS: Mark Bahnisch is a little kinder, calling Hitchens “confused”.
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Oil economics

John Quiggin28 Comments

So I was reading the less interesting bits of the paper and looked at a report on the price of oil which, as is pretty much routine, contained the suggestion that a shortage of refinery capacity was contributing to the high price of crude. Turning my brain on for a moment, it struck me that economics 101 suggests the exact opposite. Refineries and crude oil are complements in production, so a shortage of refinery capacity should lower the price of crude, while increasing the price of refined products such as petrol and distillate (easy thought experiment to show this: if there were no refineries at all, crude oil would be worthless).

A quick Google shows that I’m not the first person to notice this point, but the erroneous claim keeps on getting repeated.

How does an error like this get started. The obvious reason is that if the price of oil is driven by demand fluctuations (as at present) high prices for oil will be correlated with perceived shortages of refinery capacity. It will be easy to find specific instances to support an apparent causation going the other way. For a refinery working at maximum capacity, a breakdown will cause a supply interruption and will be very obvious. The same breakdown, occurring at a slack time, might be dealt with by rearranging operations and rescheduling maintenance and never reported to customers.

What I’m reading

John Quiggin13 Comments

I just reread “The Dispossessed: An Ambiguous Utopia” (Ursula K. Le Guin), which I enjoyed as much as ever. There are a bunch of other books I should be reading, most of them weighty tomes on network theory, real options and so on, but Mark Bahnisch has kindly pointed me to a nearly endless source of distraction, China Miéville’s list of Fifty Fantasy & Science Fiction Works That Socialists Should Read. Le Guin is on the list, of course, along with many of my favorites (though many of the books recommended are new to me) and classics like Bellamy’s Looking Backwards and Mary Shelley’s Frankenstein

Heidegger and the Nazis, again

John Quiggin41 Comments

Continuing on a European theme, and on recycled debates, the hardy perennial issue of Heidegger and the Nazis has re-emerged.

Back in the Pleistocene era of Australian blogging (2002), there were some interesting discussions of how we should react to the political mistakes and crimes of philosophers. Examples included Heidegger’s involvement in Nazism, Hayek’s support for Pinochet and Sartre’s adherence to the Stalinist French Communist Party . Don Arthur (site long gone, alas), Tim Dunlop (can’t find a link, but maybe still in the archives), Jason Soon and Ken Parish all had some interesting things to say.

Most contributors to the debate were more willing than I was to separate thought and action. I don’t think the idea that the arguments of a political theorist or philosopher can be treated in isolation from their life and work as a whole is, in general, sustainable. There are exceptions to this: a philosopher might collaborate with a dictatorial regime out of fear or ambition, even though this was the opposite of the course of action implied by their philosophical views. But that doesn’t appear to be the situation in any of the cases I’ve mentioned.

Much closer to the centre of the action, controversy over Heidegger has been reignited by the publication of Emmanuel Faye’s Heidegger, l’introduction du nazisme dans la philosophie, which also includes an attack on Carl Schmitt, another thinker associated with the Nazis but now popular on the left (Mark Bahnisch gives some background here). Not surprisingly, Faye’s book has produced a reaction, in the classic form of a manifesto (in 13 languages!). The manifesto announces this site, with many contributions (all in French), , with lots of references to to rprevious contributions to the debate, but without a systematic organisation, which makes it all a bit hard to follow. Some of the arguments focus on the details of the historical evidence, and others on the more general question of whether this kind of attack is legitimate.

I haven’t read Faye, and it sounds as if he pushes his case too far, but I’m not ready to acquit Heidegger of collaboration with the Nazis or to conclude that his philosophical views are untainted by his own apparent interpretation of them as a guide to action. Comments appreciated.

It’s the median, but I shouldn’t call people “stupid”

John Quiggin34 Comments

David Brooks resurrects the claim that

The Western European standard of living is about a third lower than the American standard of living, and it’s sliding. European output per capita is less than that of 46 of the 50 American states and about on par with Arkansas.

This was done to death in the blogosphere a couple of years ago, but it’s obviously time for another go.

Update: Oops! Scott Martens points out in comments at CT that the EIU gives US median household income as $57 936, way out of line with the Census Bureau figure, which obviously invalidates my comparison, and casts doubt on their figures for France. I guess I’d better not just rely on a quick Google next time. I’ll look into the EIU numbers some more.

And, as several commentators point out, that will also teach me to be more careful before slagging off others for sloppy work. Time for a dish of crow.

Further update I haven’t yet found out how the EIU gets its numbers, but I’ve fixed the obvious errors in the post and taken the opportunity to remove unfair comments about Brooks

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Weekend reflections

John Quiggin29 Comments

This regular feature is back again. The idea is that, over the weekend, you should post your thoughts in a more leisurely fashion than in ordinary comments or the Monday Message Board.

Please post your thoughts on any topic, at whatever length seems appropriate to you. Civilised discussion and no coarse language, please.

Since Tampa ?

John Quiggin23 Comments

I’ve noticed numerous statements lately to the effect that the number of asylum-seekers dropped to zero after the Tampa incident, usually with the implication that the associated policies were tough but effective. Those who want to use this argument should be honest about their history. The Tampa was seized in August 2001. There were plenty of boats after that, including SIEV-4, which was at the centre of the “children overboard” incident. The event that brought the whole process to a halt was the sinking of SIEV-X in October 2001, with the loss of 353 lives.

Most of the Tampa asylum-seekers were eventually recognised as refugees, and many made it to Australia in the end. It wasn’t the use of Pacific islands as detention camps, but the willingness of the government to turn back unseaworthy boats, reaffirmed after the SIEV-X tragedy, that ended the flow of asylum seekers. This policy, reinforced by the lesson of SIEV-X, had the desired effect. That doesn’t make it any less shameful.

More on asylum-seekers from Andrew Bartlett, Tim Dunlop, Nicholas Gruen and Ken Parish