The Economist magazine has been an enthusiastic backer of the Castles critique (now joint with David Henderson) of the economic projections used by the IPCC in modelling the impact of Kyoto. It’s also been an enthusiastic backer of the use of purchasing power parity measures, notably through its Big Mac index.

Its surprising then that they endorse an argument by Castles which gets the crucial issues precisely backwards. The crucial para

The IPCC’s procedure relied, first, on measuring gaps between incomes in poor countries and incomes in rich countries, and, second, on supposing that those gaps would be substantially narrowed, or entirely closed, by the end of this century. Contrary to standard practice, the IPCC measured the initial gaps using market-based exchange rates rather than rates adjusted for differences in purchasing power. This error makes the initial income gaps seem far larger than they really are, so the subsequent catching-up is correspondingly faster. The developing-country growth rates yielded by this method are historically implausible, to put it mildly. The emissions forecasts based on those implausibly high growth rates are accordingly unsound.

To see what’s wrong here, suppose you use the PPP-adjusted estimates of income in poor countries. Then the growth required for convergence is lower, and the estimates become more plausible not less.

What is the impact on projections of energy consumption. None whatsoever, as far as I can see. The projections assume that energy use in the poor countries will converge to that in the rich countries as income converges.

The only potentially valid criticism Castles has is that the assumption of convergence is overoptimistic. I don’t think there’s a lot of weight in this, as I argue here/

If you want to know where Australia rates in the perceptions of US business, this story speaks volumes*. The opening para

Breaking ranks with other leading central banks, the Bank of England raised its benchmark interest rate by one quarter of a percentage point Thursday

* Non-Australian readers may want to look at this story from the previous day.

The AFR (subscription required) is running a new series called C21 Australia trying to restart reform. It doesn’t get off to a promising start. The first column by Vern Hughes starts off with a reference to :”Australia’s ballooning hospitalisation rates, now the highest in the Western world”. This sounded like a factoid in the making, so I chased down data from the Australian Institute of Health and Welfare, which is here (PDF file).

The data shows that beds per 1000 population, patient days per 1000 population and overnight stays per 1000 population are all declining. The only thing that is going up is the frequency of single-day treatment episodes, particularly in private hospitals, that is, of cost-effective day surgery.

There are no international comparisons in the file I’ve got, but the AIHW notes that “In most countries of the OECD, same day patients are not counted as admitted patients”.

In other words, hospitalization rates are not ballooning (except in the manner of Dick Rutan) and international comparisons need to be handled with care.

The release of Pauline Hanson, coinciding with some offline discussions with Jack Strocchi have led me to try to crystallise my thoughts about the role of racial, religious and ethnic prejudice in Australian and international politics (I’ll mostly avoid, as too contentious to be useful, the term ‘racism’, and will use ‘racial prejudice’ to encompass religous and ethnic prejudice). I begin with the paradox that appeals to racial prejudice were successful in 2001, whereas previous attempts by Howard and others to exploit such prejudice were notably unsuccessful. Another fact I want to look at is that parties and politicians appealing to racial prejudice have done very well in Europe recently, at the same time as the American Republicans have abandoned (or at least played down) the same kind of appeal, exploited very successfully in the 70s and 80s.

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The fraud convictions of Pauline Hanson and David Ettridge have been overturned on appeal. This is a good result because the original conviction was unfair and unjust.

On the other hand, I hope Hanson doesn’t mistake the sympathy generated by her legal mistreatment as support for her political views, which range from simplistic and misguided to frankly repellent. Now that the “Free Pauline” campaign has succeeded, it’s time for another round of “Put One Nation Last!”

Via Ken Miles, I noticed this piece by Michael James who argues that the conservative parties in Britain and New Zealand are ‘victims of their own successes’. Money quote

The irony is clear. The Labour parties have appropriated the electoral benefits of the economic stability and growth flowing from the economic reforms introduced in the 1980s and early ’90s: in Britain by the Conservative governments of Margaret Thatcher and John Major; and in New Zealand first by a reforming Labour government centred on Roger Douglas, and then by a National government centred on Ruth Richardson.

Ken points out that the NZ experience of micro reform was not exactly as prosperous as this quote implies. And James himself concedes that the Tories’ macroeconomic mismanagement in the early 90s contributed to their loss of office.

Nevertheless, there’s an important element of truth in James’ argument, though not as much as he wants to claim.

Update There’s a great discussion in the comments thread – at least as well worth reading as the post itself. In response, I’ve expanded a very short allusion to Walsh and Keating as the Australian equivalents of Douglas and Prebble into a longer and, I hope, more balanced assessment.

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This doesn’t seem to be the sort of thing that usually goes on blogs, but given the diversity of my readers, at least some might be interested. As a consequence of my Federation Fellowship and the associated funding, I’ll be advertising a number of scholarships, fellowships and other jobs. The first ad is in todays Oz Higher Ed supplement and is also online here.

There’s a well-known factoid that “Of the world’s 100 biggest economies, 51 are multinational corporations”. As most economists know, this is a dodgy one, because it’s based on a comparison of total sales of corporations with GDP (a value added measure). In World Economics (not online as far as I can tell), de Grauwe and Camerman how done the more reasonable comparison of GDP and the value added by corporations. Only37 corporations make it into the top 100 and only two (Walmart at 44 and Exxon at 48) into the top 50.

This is correct in principle, but I was a bit surprised at how low the value of value added to sales came out (around 25 per cent for big companies like GM) and it struck me that there is one significant qualification to make to these results. A lot of multinational companies have large numbers of ‘tied’ subcontractors. Purchases from these tied subcontractors appear in the sales measure but not in value-added. For most of the purposes for which comparisons with GDP are appropriate, tied subcontractors should be included. If contracting out has increased substantially over the past twenty years, then the second conclusion of de Grauwe and Camerman, that the share of the biggest multinationals in world GDP hasn’t changed much in that time, might also need revision.

I drew Schumpeter in the office sweep. Hmmph!

Paddy McGuinness offers a well-reasoned and balanced response to Max Corden’s call for higher immigration. With very minor exceptions, the article is free of the omnidirectional vitriol I’ve come to associate with McGuinness’ work, and there’s even a modest hint of idealism in the conclusion. Reading this piece reminds me of why I admired him so much back in the 1970s. It would be good to see more like this from him.

I’m more favorable to migration than McGuinness, though not as much so as Corden. My main argument is a liberal/libertarian one namely that, if people want to come here, and the effects on the welfare of those of us who are already here are small and ambiguous, then we should let them come. For those with a more narrowly-defined welfare function, I’ll add the observation that most intending immigrants have family members and friends here in Australia who want them to come, and that refusing them entry therefore reduces Australian welfare.

Update Carrying on my recent display of fallibility, I omitted the link, which is here. I’ve now included it where it should go