A snippet on foreign currency loans

John Quiggin13 Comments

I’m always thinking about new things to do with the blog. Some ideas, like the Monday Message Board, have been successful, others haven’t worked quite so well. What I’m doing here is posting a couple of paras I was going to put into an opinion piece, but which I’ve had to cut for space reasons. I hope the blog will provide a way of implementing an idea I’ve had for many years and never fully realised, that of a text database of thoughts on various topics, useful quotes and so on, that I can dip into as needed in my work. Of course, even though a lot of the material won’t be of general interest, I still welcome comments – in fact, comments on esoteric topics are often more useful to me than debate on current issues. I’d also welcome thoughts about the merits or otherwise of this idea and proposals for other uses of the blogging medium.

The idea of offering loans denominated in Swiss francs, pushed vigorously by the major banks received a rapturous receptionin the mid-1980s . What could be more natural as a consequence of financial deregulation than that Australian borrowers should gain the benefits of low interest rates prevailing overseas. No-one bothered to do the elementary risk analysis that would have shown this to be a fundamentally unsound idea, and even in retrospect, its failure was widely seen as the result of bad luck.

In reality, the product was equivalent to the combination of an ordinary Australian-currency loan with an unhedged bet on the foreign exchange market. The interest rate differential between franc-denominated and dollar-denominated loans reflected a market expectation that the dollar would depreciate. Borrowers were invited to bet that the market was wrong. Such a bet made no sense for the vast majority of borrowers and in fact the depreciation was even greater than the market forecast.

Despite the obvious impropriety of advising financially unsophisticated customers to take on gratuitous risks, the banks were generally successful in enforcing their contracts, except where their initial incompetence was compounded by subsequent wrongdoing, such as the suppression of evidence. Judges and the legal system more generally proved incapable of coming to grips with the basic issues.

Another counterexample to consequentialism

John Quiggin7 Comments

Jason Soon alerted me to this obituary for Sir Bernard Williams in which he is said to have refuted utilitarianism, or rather consequentialism, with arguments such as the following

Williams pointed out, a very quick way to stop people from parking on double yellow lines in London would be to threaten to shoot anyone that did. If only a couple of people were shot for this, it could be justified on a simple Utilitarian model, since it would promote happiness for the majority of Londoners.

I guess one shouldn’t try to refute an obituary, but it’s better for an intellectual to be criticised than ignored, so I will respond with the observation that I hope this wasn’t really one of Williams’ strongest criticisms of utilitarianism. Does anyone really think such a policy would actually work in the way claimed?
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Getting and spending

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Via Jeremy Osner a nice post by Mark Kleiman with a critique of the Protestant Work Ethic.
Tom Runnacles has more. In particular, I agree with his view that the growth in American and Australian (standard fulltime) working hours over the past twenty years has more to do with labour market (de/re)regulation than with ingrained cultural preferences. After all, who would have believed in the 1970s, that the British would be criticising the Germans for laziness. And although the cultural stereotypes haven’t caught up, Americans now work harder and longer than Japanese or Koreans.

What I'm reading, and more

John Quiggin15 Comments

The Pope’s Battalion’s: Santamaria, Catholicism and the Labor Split by Ross Fitzgerald. Not surprisingly, perhaps, I’m more sympathetic to Santamaria now than I was twenty-five years ago, which was about the end of his period as a politically influential figure. Still, reading this book reminds me how much there was to disagree with as well as to agree with in his thought and actions.

On the movie front, I’ve on a thematic kick and am looking at movies set in Brisbane or, more generally, in Queensland. So far in the last month or so, I’ve seen Swimming Upstream an autobiopic by Tony Fingleton, He Died with a Falafel in his Hand (claimed as) autobiopic by John Birmingham and Praise, a quirky but enjoyable film about an odd couple. When I lived in NQ I watched and enjoyed All Men are Liars, filmed in South Johnstone. Any further recommendations much appreciated.

I’m also thinking about trying to watch all the Oz movies with one-word titles, Praise, Proof, Innocence and Lantana come to mind from recent years, but there must be many more.

New on the website 3

John Quiggin7 Comments

Another Fin article is up on the site Voters favour better services from 22 May. Here’san excerpt.

If tax scales were indexed, the community would face a clear choice between private consumption and public services financed by taxation. As the opinion polls following the budget show, responses to such choices depend on the way in which they are framed, as well as the way in which they are reported
Newspoll found that 15 per cent of voters thought the budget would make them better off 38 per cent thought it would make no difference, and 32 per cent though it would make them worse off. This mildly negative result (fairly typical of responses over the 15 years Newspoll has asked this question) was spun by The Australian into a ringing endorsement ’53 per cent of voters thought the Budget would make them better off or no worse off (emphasis added)’.

The AC Nielsen Poll asked a clearer question and got a clearer answer. Asked whether they would prefer the tax cuts announced in the budget or improvements in health and education, 20 per cent opted for the tax cuts and 77 per cent for improvements in services.

Welcome !

John Quiggin1 Comment

My old mate Chris Sheil has joined the blogging team at Troppo Armadillo. His first post is a contribution to the debate on economic rationalism.

Someone else I’ve been meaning to mention for a while is Paul Watson, whose blog is devoted to “Comedy, media commentary and general bitterness”. Paul’s general bitterness is particularly savage when it comes to reform (scare quotes intentionally omitted) of the higher education sector. Despite having managed to secure my own escape from the general shipwreck (thanks Brendan!), I share Paul’s bitterness on this topic, and his posts are well worth reading.

Real jobs in remote Aboriginal communities (repost)

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Ken Parish has an excellent post responding to the recent speech by Pat Dodson on the violence endemic in Aboriginal communities, and linking to a piece by Rob Corr. Although he raises a number of points, Ken’s focus (correctly I think) is on the corrosive consequences of the absence of productive work. I don’t have any new thoughts on this, but I thought it might be worth reposting some old ones (first posted 17 Jan 2003).

Following my posts the Windschuttle controversy, I promised to put forward some ideas on the current policy problems facing Aboriginal Australians, and particularly the problem of economic development. It’s always problematic for white ‘experts’ to tell black communities what to do and I want to make it clear that I’m not trying to do this. Although I have given economic advice to Aboriginal organisations on a range of issues, I don’t regard myself as an expert on the problems facing Aboriginal communities. My perspective on the issue comes more from a consideration of the general economic problems of rural Australia and particularly the general decline in population and employment.
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New on the website 2

John Quiggin1 Comment

I’ve also posted my article Why war is bad for health from the Fin of 8 May. Here’s the conclusion.

In the absence of large-scale discoveries of weapons, attention has focused on the undoubted benefits of overthrowing an evil and oppressive dictator. This is a form of foreign aid and can usefully be compared to other aid programs. The total budget of the USAID, the main US agency for development and humanitarian assistance is $8.7 billion for the coming year. That is, the money already spent on the Iraq war could have doubled USAID’s budget for the next five years.

It seems certain, however, that the war will herald a sustained increase in military expenditure of at least $US100 billion per year. A more reasonable comparison, therefore, is the ambitious proposal of the Commission on Macroeconomics and Health, led by Harvard Economist Jeffrey Sachs. The Commission aimed to achieve, for all a poor countries, a two-thirds reduction of 1990 child mortality levels, a three-fourths reduction of 1990 maternal mortality ratios and an end to the rising prevalence of major diseases, especially HIV/AIDS.

As the Commission pointed out, in addition to the humanitarian benefits of saving as many as 8 million lives per year, reductions in mortality are directly correlated with a reduced frequency of military coups and state collapse. These provide the breeding ground for terrorism and dictatorship and ultimately lead, in many cases, lead to US military intervention. The estimated cost for the Commission’s seemingly-utopian program over the next decade is estimated at between $US 50 billion and $US 100 billion per year.

War is sometimes necessary in self-defence. But when war is adopted as an instrument of policy, it is often counterproductive and almost never cost-effective.

Economic rationalism

John Quiggin8 Comments

My Wednesday post on the term ‘rational’ has brought forward some discussion of the term ‘economic rationalism’, which is now most commonly used in a pejorative . One commentator voiced the widely held assumption that the term was coined by Michael Pusey. In reality, the term was used, mostly positively for about 20 years before Pusey wrote Economic Rationalism. And although the term evolved gradually, the person who did most to popularise it was Gough Whitlam. The history of this phrase tells us a lot about the evolution of the economic policy debate in Australia. Read on for a piece I wrote in 1997, describing this history.
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