It’s Monday again, and time for the Monday Message Board. Post your comments on any topic (civilised discussion and no coarse language, please). Any reactions to the latest Children Overboard news?
Marty Weitzman on the equity premium
Brad de Long points to a piece on the equity premium by Marty Weitzman and says,
Marty Weitzman is smarter than I am …This is brilliant. I should have seen this. I should have seen this sixteen years ago. I *almost* saw this sixteen years ago.
Weitzman’s idea[1] is the replace the sample distributions of returns on equity and debt with reasonable Bayesian subjective distributions. These have much fatter tails, allowing for a higher risk premium, lower risk free rate and higher volatility, in the context of a socially optimal market outcome. Here are some of the reasons why this is important
My immediate reaction is the same as Brad’s. Something like this has occurred to me too, but I’ve never thought hard enough or cleverly enough about it how to work it out properly. This is a very impressive achievement, and Marty Weitzman is very, very smart (which we already knew).
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Timing
The continuing speculation about the date of the Federal election, and the continuous state of semi-campaign, is getting really annoying. I’ve never been a fan of four year terms – the arguments in favour of them are generally anti-democratic, based on the idea that the further voters are kept away from policy, the better – but I’d happily accept a four-year term as long as it was fixed. While a four year term reduces accountability, the fixed term reduces the power of the Prime Minister, which is a good thing.
As regards the date, I think it would be really silly to run a campaign during the Olympics and Grand Final Season. If Howard tries this, I think (and hope) he will be punished for it by the voters.
If we rule out that option, our campaign will coincide with that in the US. This leads me to the suggestion that we could make a more informed choice if our election is held after the American election[1]. If Bush gets back in, that’s a significant argument in favour of re-electing Howard – relations between a Bush Administration and a Latham government are unlikely to be warm. If Bush loses, the credibility of Howard’s foreign policy is severely undermined.
fn1. Theirs is Melbourne Cup Day, first Tuesday in November, except when that falls on November 1 (the rule is “first Tuesday after first Monday“). Holding elections on a workday is one of the many ways in which the world’s leading democracy discourages voting.
Free riding
Ken Parish has reorganised his blogroll with a rough classification of ideological categories. If you hover your cursor over a blogger’s name, you’ll get a popup description. Unfortunately I don’t know how to link or cut and paste it, but he’s very positive about the comment threads here “sometimes better than the posts”, and I’m happy to agree with him.
Ken’s comprehensive list, along with that of Tim Dunlop leaves me free to be both slacker and choosier with my blogroll. Generally, I’ll link to any Australian political blogger who links to me (if they remind me and when I get around to it), but I feel free to make arbitrary exceptions to this rule.
The new migration
Yesterday, I was at a conference put on by the Foundation for Development Cooperation. I was talking about Tobin taxes and emissions trading, but the really interesting development for me was one that came up after the speech given by Kevin Rudd, and was also mentioned at the Pacific Forum last week.
This was the idea that the only way to resolve the problems of the Pacific is to allow access for citizens of Pacific island states to the Australian and New Zealand labour markets. Howard said something along these lines last week, and Rudd promised a more substantial review, which would of course, involve negotiation with the ACTU.
I’ve long held the view that traditional models of economic development were unlikely to work in the islands. If we disregard the fact that these are sovereign countries, and look at the actual economics, they look a lot like Australian country towns. In the absence of barriers to migration, you’d expect to see young people going to the city to work, though perhaps returning home at some later point. In this context, for “the city” read Australia and New Zealand.
There’s a sense in which this is the Pacific solution, operating in reverse. Having bribed and bullied our neighbours into acting as detention centres for our unwanted visitors, we’re now in a much weaker position to put them outside the fence that says “We will decide who comes here, and under what circumstances”. So perhaps some good will come of the whole sorry process.
An asideAlthough it’s not strictly relevant, I thought I’d observe that the family reunion category of migration, much criticised in commentary on migration policy, now consists primarily of the spouses of Australian citizens (at least, this is what Deirdre Macken said in Saturday’s Fin). Certainly there are quite a few cases of this kind among my immediate acquaintance and extended family, and they give the lie to the “mail-order bride” stereotype that will undoubtedly be invoked. This is worth thinking about, and I will have some more to say about it sometime.
Get well soon
According to this AP report in the NY Times, Moqtada al-Sadr has been wounded by US shelling in Najaf. Sadr is an irresponsible demagogue, his political agenda is reactionary and authoritarian and his militia has been guilty of many acts of thuggery and violence. And we should all wish for his complete and speedy recovery from his wounds.
Update There is a ceasefire and negotiations have started for a truce. This is welcome news, and I hope the talks are successful. However, it only points up the fact that the bloody campaign to destroy Sadr was both morally indefensible (as well as being politically stupid). I restate the point I made when the fighting was at its peak.
Almost certainly, the current fighting will end in the same sort of messy compromise that prevailed before the first campaign started. Nothing will have been gained by either side. But 2000 or so people will still be dead. Sadr bears his share of the guilt for this crime. The US government is even more guilty.
The letter and the spirit
John Howard finally let the cat out of the bag, with his suggestion that Labor’s amendments aimed at preventing evergreening of patents might ‘violate the spirit’ of the Free Trade Agreement with the US. As I pointed out last week
The letter of the FTA gives a fair bit of room to move, allowing for interpretations more or less favorable to the pharmaceutical lobby on the one hand and the PBS on the other.The government has tried to have it both ways, assuring the Australian public that the FTA clauses relating to PBS are meaningless words inserted to placate the Americans, while promising their (very close) friends in the pharmaceutical lobby that they can expect more favorable treatment, consistent with Wooldridge’s efforts to stack the PBAC and so forth. Passage of the FTA without amendment would have made it easy for the government to deliver to its friends when the elections were out of the way and the electors conveniently on the sidelines. Adding amendments directed at specific possible abuses implies, more generally, that Australia is committed to ensuring that the drug lobby gets nothing more than its minimum legal entitlement under the FTA – a nonbinding review, and observation of patent law.
Howard even raised the prospect that the Americans might walk away from the deal. If only!
Keating, Howard and Hanson
Recent discussion has led me to start on a post I’ve been meaning to do asking the question: to what extent are the major parties and their leaders responsible for the resurgence of racial and religious prejudice in Australia, as represented by Pauline Hanson and the treatment of asylum seekers.
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Republicans voting sensibly
The most plausible argument against a directly elected president is that a nominee of one of the major parties would almost certainly get up. If the President and Prime Minister were of the same party, the President would be even more a rubber stamp than the GG. If they were of opposite parties, there would be an increased risk of partisan deadlock. This is certainly undesirable, but is it a likely outcome?
This argument depends on the assumption that a large majority of Australians would vote for the candidate of their preferred party. How large a majority is needed? The evidence suggests that no more than 30 per cent of voters are ‘rusted-on’ Labor voters who would vote a straight Labor ticket in all elections, and similarly for the Liberals/Nationals[1]. That leaves 40 per cent who can be swayed either way.
This means
* An appealing independent candidate could win in a three-sided contest
* If one party chooses not to run a candidate, the other party’s candidate would almost certainly lose
So, given a widespread belief that the President ought not to be a partisan, I think it is unlikely that the major parties would run candidates and win the first time around. Once the norm of an independent presidency was established, it would be almost impossible for either major party, acting alone, to break it.
Ken Parish has more, repeating the point that we can, if we choose, have direct election without, or prior to, a Republic. He also has some nice points about experimentation in a Federal system. It’s fair to say we’ve been experimenting with different gubernatorial models lately, and not having a very high success rate.
fn1. In the last Senate election Labor got 34 per cent of primary votes, and at least some of these must have been swinging voters. Similarly for the coalition in 1998.
Republicans behaving badly
The recent departure of Tasmanian Governor Richard Butler has let the monarchists, long embarrassed by the antics of our hereditary ruling family, get a bit of their own back. Lots of people see prominent republican Butler’s (alleged, I should observe) arrogant and erratic behavior as a prototype for a Malcolm Turnbull presidency.
I’d suggest that the real lesson here is Churchill’s – democracy is the worst system apart from all the others. Perhaps if a President were selected by popular vote, the office might occasionally be filled by popstars or sporting heroes. But does anyone suggest that Butler or Turnbull, or, for that matter, Prince Charles, would ever win a popular vote?
John Quiggin 