Milton Friedman on social democracy

John Quiggin7 Comments

Milton Friedman has a piece in today’s Fin and also[1] in the Oz making the point that, even though many fewer people nowadays professes belief in socialism than did so in 1945, the general movement of policy since the end of World War II has been in a socialist direction, that is towards an expansion in the share of GDP allocated to the public sector. He draws a distinction between ‘welfare’ and the traditional socialist belief in public ownership of the means of production, seeing the former growing at the expense of the latter.

From a social-democratic perspective, I’d put things differently. There are large sectors of the economy where competitive markets either can’t be sustained or don’t perform adequately in the absence of government intervention. These include human services like health and education, social insurance against unemployment and old age, production of public goods and information, and a range of infrastructure services. In all these sectors, governments are bound to get involved. Sometimes, the best model is private production with public regulation and funding, and sometimes it is public ownership and production. The result is a mixed economy.

Over time, the parts of the economy where competitive market provision is problematic have grown in relative importance. By contrast, agriculture, the archetypal competitive industry, has declined in relative importance as have mining and manufacturing, areas where governments have usually performed poorly.

The result is that the ideological swing towards neoliberalism has done little more than slow a structural shift towards a larger role for government.

fn1. Thanks to Jack Strocchi for locating this

Copenhagen: conned again

John Quiggin1 Comment

In previous posts on Bjorn Lomborg’s Copenhagen Consensus exercise, both before and after the event, I expressed the suspicion that the whole thing was a setup, designed to push Lomborg’s favorite line that money spent on implementing the Kyoto protocol would be better allocated to foreign aid projects of various kinds. (I’ve pointed out some contradictions in Lomborg’s general argument, here).

However, I thought some good could come of the exercise, if the conclusions were taken seriously. In my last post, I observed

As attentive readers will recall, the conference concluded that fighting AIDS should be the top global priority in helping developing countries and also that climate change mitigation was a waste of money. I agree with the first of these conclusions, and more generally with the need for more spending on health poor countries, and I hope that Lomborg will put some effort into supporting it. I’ll try to keep readers posted on this.

Now Lomborg has revealed his priorities. Chris Bertram points to an article by Lomborg in the Telegraph. The supposed top priority item, initiatives to combat AIDS, gets two passing mentions. The entire article, except for a couple of paras, is devoted to the pressing need to do nothing about global warming.

It’s obvious from reading this piece that the entire lavishly funded Copenhagen exercise was a put-up job, designed to secure impressive-sounding endorsements for Lomborg’s anti-Kyoto agenda, and that the supposed concern for making good use of aid funding was a hypocritical scam. A lot of work went into relative rankings for different health policies, but I don’t expect to hear anything from Lomborg on this score. Similarly, I doubt we will ever see him campaigning for more funding for AIDS programs, as opposed to using them as a cheap anti-Kyoto debating point.

If I was one of the eminent economists who participated in the ranking exercise, or who submitted papers supporting various initiatives, I would be feeling really angry with Bjorn Lomborg right now.

Back on air

John Quiggin

I’m back on air, but still without comments unfortunately. Thanks very much to my host, Textdrive, and especially to Jason Hoffman, who salvaged the backup version of the blog after I managed to delete the current one in my attempts to get things working again. As a result a couple of posts and comments got lost. I may be able to restore them

Meanwhile, I’m pleased to say JMaximus has deleted the post taken from my blog without permission. Thanks to all who commented on the error of his ways.

Just as we were getting near the double century

John Quiggin

Comments have been turned off indefinitely by my hosting service due to a torrent of obscene comment spam over the past week or so. In addition, I’ve received a number of abusive and obscene emails from a disgruntled individual commenter (not a regular, I’m pleased to say). I assume these are separate incidents, but they obviously create severe problems for me in operating the blog. I’m looking into my options both for technical solutions and (to the limited extent that sources of this kind of stuff can be identified) civil and criminal action, but it may be some time before comments are restored. Crooked Timber has had similar attacks, but not on such a scale, so I’ll try to crosspost there for items that seem worthy of comment.

Update I hope to have comments restored shortly. Unfortunately, to protect my host, I have had to require registration for comments. I apologise for the inconvenience, but hope this will provide some protection against the commercial spammers and abusive commenters who have necessitated this. I particularly apologise to a number of legitimate commenters (most recently ‘Nabakov’) whose comments have accidentally been deleted in my attempts to protect myself, my host and the readers of this blog.

This seems like a suitable occasion to clarify my policy on coarse language and abuse, which clearly needs tightening in the light of recent events

1. Incidental coarse language will be edited, and the edit noted

2. Deliberately abusive and/or obscene posts will be deleted and the author given a single warning

3. Further abuse will result in deregistration and immediate notification of abuse@yourISP

4. Attempts to evade this policy (e.g. by spoofing, spamming etc) will be pursued and, where possible, those responsible will be reported to police or subject to civil action. The same will apply to anyone sending abusive/obscene emails to me personally.

Further update Just to make matters worse, I’ve discovered this low-life stealing my posts, apparently in a lame attempt to get revenue from Google Ads. I’ve seen this before – does it have a name? As you can check on the Creative Commons License, anyone is free to use material on this blog with no restriction other than a requirement for attribution, but this guy can’t be bothered. At the suggestion of Andrew Leigh, I plan to replace links to abusers sites with screen shots as soon as I get my act together, but for the moment, if you follow the link, don’t click on his ads, please.

I’m getting really bad-tempered about this whole constellation of abuse, which is not good news for those involved, at least those I’m able to identify.

Yet further update And here’s another bizarre piece of cybersquatting/identity theft (thanks to Nick Gruen for an alert on this, which I previously disregarded). I have no idea what this scumsucker’s game is, but I’ll get in touch with Blogger to see if I can get the site taken down, and take any feasible steps against those responsible. While I’m at it, let me advise anyone involved in any of the activities listed above not to rely on the notion that the blogosphere is some sort of free-fire zone, in which they can operate without fear of the law, protected by “anything goes” social norms. Spamming, cybersquatting, cyberstalking and email abuse are both crimes and civil torts, and I intend to treat them as such.

Pay without Performance

John Quiggin7 Comments

I’ve been reading


“Pay without Performance : The Unfulfilled Promise of Executive Compensation” by Bebchuk and Fried)

For anyone who still believes that executive pay is based on rewarding performance, and encouraging risk-taking, this book should disabuse them. There are loads of studies pointing out, not surprisingly to anyone who reads the papers, that top executives and boards look after each other in a way that rewards failure.

The most telling detail for me is the observation p98, that every single CEO in the S&P Execucomp Database has a defined benefit pension plan. This, while bosses everywhere have been shifting their employees onto defined contribution plans, where they, and not the company, bear all the risk, and while the Republicans in the US are trying to do the same with Social Security.

One thing I would have liked more of is quantitative information about the aggregate magnitude of payments to executive pay, considered in relation to corporate profits. There’s only a little of this in the book, though the authors say here

Aggregate top-five compensation was equal to 10 percent of aggregate corporate earnings in 1998-2002, up from 6 percent of aggregate corporate earnings during 1993-1997.

Given that this excludes various kinds of hidden transfers[1], that non-executive board members extract substantial rents (mostly through favorable corporate decisions rather than in cash) and considering senior managers, rather than merely top-5 executives, as a class, it’s apparent that the total rents income flowing to this group could easily be between 25 and 50 per cent of aggregate corporate profits. If this is correct, it ought to have profound implications for the way in which we model corporations, and the way in which we think about the class structure of modern capitalism.

fn1. It’s not clear whether retirement benefits are counted, for example, and these are as large, in present value terms, as direct compensation. Then there is the observation that executive insiders do remarkably well in trading the shares of their own companies.

Weekend reflections

John Quiggin9 Comments

A bit late but weekend reflections is back.

It’s your chance to make comments on any topic of your choosing, to be written and read at the leisurely pace of the weekend. I welcome pieces a little longer than the usual comments, but not full-length essays. If you want to draw attention to something longer, try an extract or summary with a link. As usual, civilised discussion and no coarse language. After some nasty recent experiences, I will be more vigorous than ever in policing this rule.

As is usual when I cover certain topics, a couple of posts have produced flame wars, and I have closed comments (meanwhile, the R-word thread has veered off into the 11-th dimension, and I’ve let it run). Anyway, if you have substantial comments you wanted to make on topics where comments are closed, here’s your chance.

Incompleteness and the precautionary principle

John Quiggin18 Comments

As commenters and my last post, and others, have pointed out, there’s a logical gap in my argument that, given imperfect knowledge and the recognition that we tend to overestimate our own capabilities, we should adopt a rule-based version of consequentialism which would include rules against pre-emptive or preventive wars[1]. The problem of imperfect knowledge also applies to the consequences of deciding not to start a pre-emptive war. As I’ll argue though, the symmetry is only apparent and the case for caution is strong.
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Consequentialism for beginners

John Quiggin32 Comments

Now that, thanks to Kieran Healy and the Medium Lobster, we’ve all had our fun with Richard Posner’s case for pre-emptive war, complete with toy numerical example, it’s time for me to play straight man.

Posner’s starting assumption is consequentialism: that we should evaluate an action based on whether its probable consequences are, on balance, good or bad. I broadly agree with this, so I’ll try to explain why it shouldn’t lead to conclusions like those derived by Posner.

I’ll ignore a range of more complex objections and come straight to the first distinction learned by beginning students of the subject. Should we evaluate the consequences of general rules such as “don’t engage in pre-emptive wars” (rule-consequentialism) or should we evaluate each action on a case by case basis (act-consequentialism)

For perfectly rational decision makers, following the rules of Bayesian decision theory, the answer is easy and, in fact, trivial. It’s best to make the optimal decision on a case by case basis, and an optimal set of rules would be so detailed and precise as to yield the optimal decision in every case. Posner routinely assumes this kind of perfect rationality, which is why he doesn’t see any big problems with toy examples, or with claiming that this kind of reasoning can usefully be applied to improbable catastrophes with incalculable consequences.

There are two objections that can be made here

* Human beings are not perfectly rational and do not follow the rules of Bayesian decision theory

* Since war is a negative sum game, rational decision makers do not fight wars
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Multinationals, chains and coffee

John Quiggin39 Comments

My views about multinationals and chains are generally pretty nuanced, except when it comes to coffee. So I’m happy enough to go to Borders in a (successful) search for “The Nutmeg of Consolation” (Patrick O’Brian) especially since, as I recall, there’s quite nice little independent coffee shop in a corner of the store. I get the book and order my coffee. I’m vaguely aware that something is wrong, but, given my decaffeinated state, it’s not until I look around and see everyone drinking out of paper cups that I realise the awful truth – the place had turned into a Gloria Jean’s. I drank the coffee anyway, and it wasn’t as bad as my previous experience several years ago, but I certainly won’t be going back.

Then I come home to write this post on multinationals, flick to the SMH, and discover that GJ is about to become an Australian multinational. I don’t have any particular thoughts on this, other than to say that the idea that there might be 240 000 people willing to pay to drink this stuff every day is alarming.