Welcome to the Dark Side

John Quiggin12 Comments

After discussing the absurdity of the capital-rich United States being by far the world’s biggest borrower and biggest debtor, Brad de Long observes

it is a Dark Night of the Soul for us neoclassical economists who believe in the long run and in the even partial rationality of international capital flows.

I went through the necessary loss of faith a few years ago. As I observed last October

If you accept that the $US has to depreciate at some time, then holding bonds denominated in $US, and receiving interest rates lower than those obtainable in other currencies, is a dumb idea. Unless you think either that European governments are likely to default on their debt or that euroland is poised for inflation, eurobonds are a better bet, and similarly for Australian government bonds denominated in $A. But I’ve given up even the residual belief in the efficient markets hypothesis that would lead me to try and work out a coherent explanation of perverse asset prices. (Emphasis added)

Despite the stunning contrary evidence of the past five years, residual belief in the idea of efficient capital markets continues to shape the thinking of most economists (including me, when I let myself be guided by instinct rather than careful reasoning). Only when we have freed ourselves of this incubus will we able to make progress in understanding the global economy. Because this is akin to a loss of religious faith it will be a difficult and painful process.

A snippet on higher education

John Quiggin6 Comments

As I mentioned a while ago, I’m using the blog as a database of snippets that seem likely to be useful, but need to be cut from articles for space or other reasons. Comments are appreciated as always

The recent higher education policy paper Backing Australia’s Future has estimated that students are currently contributing about 25 per cent of the cost of their education. However, this is a gross under-estimate. It involves an overstatement of the subsidy associated with HECS, ignores the tax deductions that would apply for alternative investments, and fails to take account of the cross-subsidies inherent in the university system, from undergraduate education to research and supervision of graduate students (far from recognising these cross-subsidies, Backing Australia’s Future tries to claim that research funding Îsupports individual [undergraduate] studentsâ.)
For undergraduate students in areas like commerce and business, the contribution is closer to 100 per cent of the resources allocated to them than 25 per cent. For law students the contribution may already exceed 100 per cent, and will certainly do so under new proposed arrangements.

Meanwhile, back in the Middle East

John Quiggin5 Comments

I haven’t had time to comment on events in the Middle East since a relatively optimistic post on Israel/Palestine a couple of weeks ago. Since then we’ve had a full cycle of pessimism and optimism, with things currently looking as good as they have in a long time – a ceasefire from the main militant/terrorist groups and the withdrawal of Israel troops/Zionist occupation forces from much of Gaza (readers take their pick regarding preferred terminology. But as the pessimists, notably including regular commentator PM Lawrence will no doubt point out, we’ve been here before and gone nowhere but backwards.

In Iraq, things are turning out much as I thought they would before the war, though the extent of looting has surprised me. Some pro-war commentators gloated when it was reported that many of the treasures of the National Museum had been removed for safe keeping before the fall of Baghdad, and that the total loss was ‘only’ 6000 items rather than the 60 000 initially estimated. This seems bizarre to me, in view of the fact that it was also reported about the same time that Iraq’s main nuclear facility had also been looted. The absence of any attempt to secure this facility is a pretty clear indication that the Administration knew there weren’t any weapons there, but the resulting spread of radioactive material is still a disaster.

The central question now is whether, having largely conceded that the pretext for the war was incorrect, if not bogus, the Coalition will deliver on the promise implicit in claims about a war of liberation, that is, a genuinely democratic and prosperous Iraq. I opposed the war because I did not think Bush would deliver, but I still hope to be proved wrong.

Putting his money where his mouth is

John Quiggin1 Comment

The SMH has the news that Malcom Turnbull has managed to interest Wizard Home Loans in the idea of home equity loans. I was a member of the academic panel of the PMs Task Force, organised by Turnbull looking into this idea. Most of the actual work was done by Christopher Joye, a livewire young economist who’s currently with the Menzies Institute.

The home equity proposal has been widely criticised as likely to further inflate the housing bubble. This is only true if financial institutions are willing to buy equity at inflated prices, as opposed to lending to individuals.I commented on all this in my most recent opinion piece in the Fin, which I have now posted on the Website. An excerpt

The home equity proposal put forward by the Taskforce may also be seen as a kind of insurance [against falling house prices]. Instead of paying a cash premium, homebuyers would forgo part of any possible gains in return for sharing the risk of declining prices with an equity partner. Once again the willingness, or otherwise, of banks to enter such deals may be seen as a financial market judgement about the sustainability of current prices.

It now appears that Turnbull is going to put his money where his mouth is on this one.

Also on the website is a piece on road safety from 5 June much of which I roadtested here on the blog before taking it out for a spin in print. Thanks again to everyone who commented.

Update The SMH story has caused a bit of a fuss about whether it is (or would be) appropriate to use the results of publicly-sponsored research in this way. I don’t see a problem myself. In any case, I got the following email from Malcolm Turnbull indicating that the issue may be moot

The SMH story is quite a beat up I am afraid. The position is that Wizard is keen to investigate whether a commercial product can be developed which implements some of the ideas in the MRC paper. I have not offered to finance Wizard products nor, as the story stated, am I negotiating to do so.

Monday Message Board

John Quiggin14 Comments

It’s time for the regular Monday Message Board when you have your chance to have your say on any topic whatsoever (as always, civilised discussion and no coarse language, please).

I’d be interested if any readers wanted to say something about where and why they read this blog.

Philosophical fictions

John Quiggin

Brian Weatherson links to a paper he’s written with the title ‘ imaginative resistance”. It’s about the fact that, whereas it’s easy to imagine fictional events, people and so on, or to imagine real people and things having properties different from those they actually have, it’s very hard to imagine things as morally right if we believe them to be morally wrong.

It seems to me that there’s an ambiguity here and that it’s precisely this ambiguity that is being used in the majority of the fictional examples that are presented as arguments against consequentialism (and, in particular, utilitarianism). The way these examples work is that we are asked to imagine a situation in which a given action has good consequences (when we know that, in reality it has bad consequences). Since this kind of factual shift seems like what we normally do in fiction, it’s assumed [falsely, I claim] that we can do this without damaging our capacity to reason intuitively. But now, it’s pointed out, acceptance of consequentialism would imply that the action is good, when our intuition tells us it’s bad. Hence, consequentialism must be wrong.

All of this is telling us more about the limits of intuitive moral reasoning than about the reasonableness or otherwise of consequentialism.

Plagiarism or hommage?

John Quiggin1 Comment

This Salon review of horror flick 28 Days Later asserts that whereas

. the classic British dystopian sci-fi novels of J.G. Ballard and John Wyndham as influences, and they’re in there, all right …. [but] George A. Romero’s “Living Dead” trilogy, specifically the underrated third entry “Day of the Dead,” is so closely emulated here that parts of “28 Days Later” feel like a shameless rip-off.

In fact, the plot, as described in the review, is a carbon copy of Wyndham’s Day of the Triffids (except with zombies instead of carnivorous walking plants). The film version of this was pretty lame as I recall, but the book was excellent.

My question is, can a film be a shameless ripoff of two completely different sources at the same time? I guess it can be if it takes the plot from one and the cinematography from another. I don’t think I’ll bother going to find out, though.

Regularisation

John Quiggin11 Comments

On the cover of today’s Sun-Herald magazine is a story about the Crown Prince of Nepal who slayed his entire family. My immediate reaction was that the subeditor was asleep on the job, but then I thought that perhaps the language had been regularised and I hadn’t noticed. A search on the Fairfax site showed a dozen other instances of slayed, and Google produced 25 000.

I looked for the formerly standard slew and came up with another problem. There were over 700 000 hits, but most of those on the front page used the word as a synonym for large number. Along with raft used in this way, this is something I don’t remember until recently. My guess is that it comes from idiomatic American usage, and has been popularised by journalists looking for short and snappy synonyms. Rather than do any work to check this, I’ll wait for my readers to set me straight (isn’t blogging great!). Just to complicate things further, there’s an engineering use as a verb roughly equivalent to slide around which has gone through the usual processes of adjectivalisation and nominalisation so that it’s now a generic part of speech.

After this, I checked on slain which is unambiguous and, as a past participle, more prone to regularization than the past tense slew. I got 750 000 hits there, suggesting that slayed is still a minority usage.

What I'm reading

John Quiggin7 Comments

Bad Company: The Cult of the CEO by Gideon Haigh. It’s the latest Quarterly Essay and the first to cover an economic policy issue. Until now, the focus has been on the concerns of the cultural Left (environment, foreign policy, Aboriginal issues). QE encourages responses, and I’m going to submit one on managerialism in general. It’s long, so I’ve included it in the extended entry below. Comments from readers would be much appreciated.

I’m also reading Teach yourself Perl in 21 days by Laura Lemay. I’ve made numerous efforts of this kind over the years, with mixed outcomes. My most successful has been with HTML, also using Lemay’s books. I’m hoping that knowledge of Perl will enable me to improve my blog and even perhaps revive the lost comment threads of past incarnations.

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