Like lots of other people, I’m sure, I’m getting more and more impatient with the stream of articles about the merits or otherwise of different generations. The main focus is on the Boomers born between 1945 and the early 1960s, and their successors, denoted X and Y, with an occasional nod to the generation who fought in WWII. Those born in the ‘Baby Bust’ between 1930 and 1945 are usually not mentioned, but are, in practice, treated as if they were Boomers (for example, it was the Busters who were the first teenagers and who pioneered rock-and-roll.

My impatience is heightened by the fact that I’ve already published what I immodestly regard as the definitive refutation of the ‘generation game’.

My general point is that, most of the time, claims about generations amount to no more than the repetition of unchanging formulas about different age groups ­ the moral degeneration of the young, the rigidity and hypocrisy of the old, and so on. This is true in spades at present.

I also point out that the use of generational arguments is particularly silly in relation to Baby Boomers because economic and social conditions changed radically over the period when the boomers entered adulthood (the only time at which membership of a given age cohort makes a significant difference). Those born before about 1955* had experiences very similar to those of the preceding Baby Bust generation, entering a booming labour market where not much education was needed to get a good job. Those born towards the end of the baby boom had experience much more like that of the succeeding generations X and Y – in some respects worse, since youth unemployment reached its peak in the late 1970s.

Most pundits who play the generation game simply ignore these inconsistencies. To have all the traits that are commonly attributed to Baby Boomers, for example, you would have to be simultaneously over 65 (to have been around at the beginning of teen rebellion) and under 35 (to have been among the last to get a free university education).

* It’s easy enough to check out my birthdate, but I’ll leave it to readers to do so.

If the Australian Democrats weren’t already doomed, the apparently alcohol-fuelled fracas involving Andrew Bartlett is surely the last straw. Rather than rake over the coals of the last few years, I thought it might be worth assessing their contribution.

The biggest single thing the Democrats have done is to give the Senate a constructive role when it seemed, after 1975, that this was impossible. After 1975 Senate without a government majority seemed like a guarantee of chaos with the axe poised to fall the moment the government’s popularity slipped. And a Senate with a government majority would be waste of space (not to mention money).

Although they didn’t always get it right, the Democrats used the balance of power well, both in their initial phase as a centrist party and subsequently when they became, on most issues, a left alternative to Labor. With luck, the Greens will succeed them in the balance of power and will follow this tradition, driving tougher bargains than the Democrats have done, but still being willing to make the system work.

The pity is that they didn’t merge with the Greens ten years ago. A merger would have been good for both sides. I believe it was considered but was derailed by personal rivalries and party bickering.

The rapid decline of Boeing, until recently the world’s dominant firm in both commercial and military aviation has attracted relatively little attention until it recently attracted the added element of scandal. Writing in Slate, Douglas Gantenbein gives an analysis focusing on top-level mismanagement.

This story fits into, all sorts of economic narratives, but not always neatly. For instance, the ease with which Airbus has captured most of the commercial aviation market from Boeing runs against standard claims about the resurgent US and sclerotic Europe. Airbus looks like a success for industry policy, but then it turns out that Boeing is just as deeply enmeshed in the government trough.

Anyway, what struck me was this observation from Gantenbein

the Boeing 747 stands with Coca-Cola and the Golden Arches as the best-known American products around the globe …. the sheer visibility of Boeing’s products has a kind of halo effect, enhancing America’s status in a way that hamburgers and soft drinks do not. The sight of a European or Asian airport packed with 747s and 777s says one thing about the United States. Those same airports crammed with Airbus A340s—and, before long, with mammoth A380 superjumbo jets—say another.

This meshes quite neatly with a point raised in my discussion of soft power, namely that the success of American cultural exports, like movies and McDonalds

partly comes at the expense of other exporters. In talking about American ‘soft power’, it’s not often noted that, with some important exceptions such as computers, it’s rare nowadays to encounter American manufactured products outside the US.

Gantenbein quotes some economists who assert that

“the single most important sector in the U.S. economy in terms of skilled production jobs, value-added [to products] and exports

. You don’t have to accept this in full to recognise the limitations of claims that the ubiquity of McDonalds and Hollywood movies are a guarantee of global hegemony.

I’m attending a conference on outsourcing at the Centre for Applied Economic Research at the University of NSW*. It’s been very interesting so far and the program for today also looks good (at the Rupert Myers theatre if anyone wants to drop in).

In talking with organiser Kevin Fox, though, it turned out, to my surprise that he was unable to get a speaker, or even any delegates, from the Commonwealth government. The Productivity Commission, which pushed competitive tendering very hard in the early 1990s, is no longer working on the topic, and the Department of Finance showed no interest at all.

It can scarcely be supposed that the issues have all been resolved. On the face of things, efforts at competitive tendering have produced both some big successes (the Productivity Commission claims this for the Job Network) and some glaring failures (the program to outsource Commonwealth IT). It would surely be useful to consider what worked and what didn’t.

This is, I suppose, part of the general problem that a lot more time is spent on making the case for (and against) policy initiatives than on evaluating them after they are implemented.

*If academics had any market power, these would be the ideal occasions to organise a cartel!

Virginia Postrel has an interesting piece on the work of Chicago economists Rajan and Zingales saving capitalism from the capitalists. Essentially, their claim is that where that where finance is allocated on the basis of personal relationships, it becomes a tool for creating and protecting monopoly. This is what they call “relationship capitalism”. Others have used the more pejorative phrase “crony capitalism”.

Postrel uses these ideas to attack the idealised, and largely mythical, small-town bankers of the past in favor of today’s more impersonal system. It’s certainly true for retail borrowers that relationships with bankers are no longer important. But she misses the irony that while distancing themselves from most of their customers, members of the financial sector have gathered together ever more closely in centres like New York and London.

As I observed a couple of weeks ago, quoting Adam Smith from memory

Men of the same trade seldom gather together, even for innocent merriment, but the meeting ends in some conspiracy against the public.

The work that financial institutions are supposed to perform, trading assets and allocating risk in transparent markets, can be done anywhere on the planet. It’s the stuff they want to do without any inconvenient records, and with the kind of trust that’s needed for conspiracy that requires clustering in a central location where social bonds can be cemented by eating, drinking and sleeping together.

A few days ago, I argued that of the (generally unattractive) outcomes that could arise in Iraq, the one with the best chance was a two-state solution, in which a Shiite majority ruled Iraq as a whole, while the Kurds maintained the effective autonomy they have now.

Now that Ayatollah Sistani has spoken, I think the probability of this outcome is very high. The announcement that power will be handed to an Iraqi government on a set date (July next year) has created a dynamic over which they have no control, and which naturally leads in the direction of a majority vote rather than the convoluted system of caucuses proposed by the occupying authorities. The latter is typical of what an absolute ruler comes up with when seeking to provide a democratic facade while maintaining control over the outcome, and has rarely worked. Either the process is carried through, but has zero credibility, or it leads to genuine democratisation and the overthrow of the ruler (the French revolution provides the template).

In the case of Iraq, it’s clear that all Sistani has to do from now is hold his ground. The caucuses can’t go ahead with substantial Shiite opposition and the occupiers can’t sustain for long a position in which they are arguing for rigged elections and against democracy. Hence, I foresee an outcome in which Shiite parties win something close to an outright majority and in which Islam is enshrined as the official religion.

* As I understand things (I’m drawing on Juan Cole here), it won’t be an Iran-style theocracy, because Sistani doesn’t favor the idea of clerics exercising political power directly.

How will all this turn out? Obviously, there are a lot of problems. First, if the government overreaches itself in terms of monopolising power or avenging past injuries, things could really bad. Second, even assuming good sense on the part of the government, it’s difficult to run a country well when the capital and the administrative class are strongly hostile, which is bound to be the case. Third, the guerilla war will only intensify, and the counterinsurgency measures adopted by an Iraqi government are bound to be more brutal (but probably more effective) than those of the Americans. Fourth, there could be problems with the Kurds, though these are likely to be less with a government whose support base is among southern Shiites (who, I imagine, don’t care that much about the distribution of power in the north) than with a more broad-based coalition, Finally, there will be a lot of pressure on both sides for a quick US pullout. In particular, the neocons will, I imagine, lose interest in the whole project once it becomes clear that the nation they are building is, at best, a more moderate version of Iran.

Despite all these problems, this is the approach that has the best chance of producing a stable, and at least partially democratic, Iraq, and of permitting the withdrawal of most US troops without a descent into chaos. In response to the objection that the odds are not what we might want, I can only paraphrase the Irish farmer in the story “In that case, we shouldn’t be starting from here”.

Update 1/12 The dynamic is working even more rapidly than I expected. Judging by this report from the NYT, the caucus plan is already dead.

Further update 4/12The occupation authority isn’t doing itself or the cause of democracy any good with dishonest evasions about the impracticality of a proper democratic elections. These claims were false and both Iraqis and Americans have known it for some time. Any government “elected” under the caucus system will have the same credibility as the current Governing Council, less six months more erosion caused by the inevitable unpopularity of occupation. That comes to less than zero in my judgement.

If Bremer thinks Iraqis are not ready for democracy (and it’s obvious he does think that) he’d be better off imposing a constitution with undemocratic safeguards such as a nominated upper house or a requirement for predetermined ethnic power-sharing than going ahead with the charade he has proposed. And if Bush doesn’t agree with Bremer why is he still there? Jay Garner was sacked after one month, and that was about the best month the occupation forces have had.

Yet further update 5/12 After asking his readers Are you sitting down?, Thomas Friedman restates most of the argument of the original post above.

The use of Public-Private Partnerships, modelled on the British Private Finance Initiative has been all the rage in Australia lately, with Victoria leading the way. As Ken Davidson reports, a review undertaken by the Victorian Government has issued a draft report which, if it is accepted, will confine PPPs to a very minor role. You can get the report (PDF file) from the Partnerships Victoria website.

The crucial point in the report is that it recommends using the governments actual cost of capital (the real bond rate) and explicitly adjusting it for project risks rather than a notional private discount rate derived from the Capital Asset Pricing Model. The result will be to recognise the cost advantage in financing infrastructure assets using public debt rather than private equity. As a result, PPP projects are likely to show up as beneficial only for innovative, high-risk projects and not for routine public procurement of things like schools and hospitals. This has been the big growth area in the UK despite a string of negative reports.

The Victorian draft report quotes a lot of UK evidence, raising the possibility that there will be some flow of ideas back to the UK leading, perhaps, to a scaling down of the PFI there. This would mark a big step for the Blair government away from “The Third Way” and towards a modernised social democracy.

Coincidentally, I’ll be speaking at a conference on PPPs in Sydney next week. I believe Peter Fitzgerald, the report’s author will also be attending. It should be interesting.

While Kremlinology remains a dark art, it now seems unlikely that Russia will ratify the Kyoto Protocol. This means that, barring a reversal by the United States, the Protocol will not come into force. Obviously, this isn’t going to happen before the 2004 election at the earliest.

This is pretty grim news, but I’ll do my best to extract a silver lining from the clouds. A lot of critics of Kyoto, including Bjorn Lomborg and Warwick McKibbin, along with the Australian and US governments have not denied the reality of global warming but have argued that alternative policies could yield better outcomes. Now they have their chance to show that their policies represent both politically realistic and economically and ecologically sustainable alternatives to Kyoto. If governments that have opposed Kyoto are serious about alternatives, this is their chance.

I am not too optimistic about the alternatives – my guess is that, whatever their merits, the governments that have rejected Kyoto will continue with business as usual. But I’d be happy to be surprised.

As expected, the Reserve Bank has increased official interest rates again by 0.25 per cent. It seems safe to predict that, unless the housing bubble turns rapidly to a bust, there will be two more instalments in the New Year, bringing interest rates back to a ‘neutral’ position with a real rate for borrowers of around 5 per cent.

These prospects and the collapse of leveraged-investment promoter Henry Kaye should be enough to end the boom in house and unit prices. The question is, can current prices be sustained in the absence of prospects for capital gains, or the fear of being left behind by a rising market, and in a situation where renting is so much cheaper than buying.

I’m a notorious Cassandra on such matters, so feel free to ignore my prediction that Sydney prices are set to fall by 30 or 40 per cent, with less dramatic, but still substantial, falls in other capital cities.

Latham’s victory seems to have been reasonably well-received, and there are certainly a number of positives. First, while I’m not a fan of activism and innovation for its own sake, Australian politics is certainly in need of some new ideas.

The leaders on both sides of Australian politics have been people whose ideas were formed in the 1980s, and who haven’t seen much need for thinking since. Ross Gittins made this point about Howard a couple of days ago, but its true more generally. When they find that 1980s ideas won’t wash with the electorate, their instinct is to go back to the 1950s (this is particularly true of Howard and explains his long dalliance with Hansonism).

Although age obviously matters, it’s not the sole determinant here. Peter Costello is only a few years older than Latham, but his political views, formed in the unionbusting days of the Dollar Sweets dispute are even more anchored in the past than those of Crean and Beazley, who at least recognised the issues even if they did not come up with much in the way of new responses.

The big issue for the 21st century is that of balancing the needs of a knowledge-based economy, which naturally implies greater demand for publicly-funded services like health and education with the obvious problems of raising additional government revenue. In parallel with this is the conflict between the gift-exchange/common property model that has been the source of most of the productivity growth associated with the Internet and the demands of corporations for tighter control of ‘intellectual property’. In trying to respond to these issues, Latham has flailed about a bit, but at least he is trying.

A more tenuous ground for optimism is that Latham’s election might mark the last gasp of the faction system, at least at the level of the Federal Parliamentary Party. As Dave Ricardo pointed out in a comments thread, the factions in the ALP are now comparable to those that dominated the Japanese Liberal Democratic Party for decades. Any ideological element is long gone, replaced by personal power bases, typically cemented by family ties and inherited leadership positions.