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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New on the website

John Quiggin1 Comment

I’ve put up my article, ‘Fairy gold’ turns to debt from the Fin of 10 April. Here’s the conclusion.

as long as financial innovation is seen to be good in itself, politicians will continue to pursue these [Public Private Partnership] schemes, not as a method of optimally allocating a complex set of risk, but as a source of fairy gold, from which valuable public assets can seemingly be spun out of thin air. Of course, just like fairy gold, this illusion will disappear in the light of day, leaving a mountain of debt and poorly-structured projects.

Economic policy under Howard

John Quiggin21 Comments

Jack Strocchi attacks what he takes to be the standard leftwing view of Howard as a free-market radical, quoting among others, Alan Kohler, Stephen Kirchner and Max Walsh to support his view of Howard as a crypto-socialist. This gives me the chance to have a test run for my own, more nuanced, assessment of Howard, which will be a book chapter in due course. Comments much appreciated. Here goes

Economic policy under Howard presents a contradictory picture. Sometimes the Howard government appears as a continuation of those of Hawke and Keating, implementing the reforms those governments were unwilling or unable to introduce. At other times, as in its ‘nation-building’ infrastructure exercises, it seems like a throwback to the developmentalist ideas of the 1950s and 1960s. Still more of the time, it appears content to drift, happily taking the credit for a long period of relative economic prosperity and putting forward economic reforms on a purely opportunistic basis, as and when the political climate demands an appearance of action rather than stability.
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Word for Wednesday: Rational (no definition offered)

John Quiggin22 Comments

The term ‘rational’ and its variants (rationality, rationalism) are used in a lot of contexts in economic debate, both positively and negatively, but nearly always sloppily or dishonestly. A specimen I’ve seen on more occasions than I can count is the line (usually presented with a sense of witty originality) ‘if you are opposed to economic rationalism, you must be in favor of economic irrationalism’.

In keeping with the idea of this regular feature, I thought about providing a definition that would clarify the issues surrounding this word and the reasons it causes so much confusion. In reflecting on the problem, however, I’ve come to the conclusion that the word ‘rational’ has no meaning that cannot better be conveyed by some alternative term and that the best advice is probably to avoid it altogether.
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Heroes and heretics

John Quiggin12 Comments

Keneth Miles (permalinks bloggered) reports that Lyndall Ryan has finally made a detailed reply to Keith Windschuttle’s attacks on her, conceding sloppy footnoting, but showing that she did indeed have evidence to back up the crucial claims on which Windschuttle based his claims of fabrication.

Also, at Surfdom, Chris Sheil reports on the Windschuttle vs Reynolds travelling circus. I gave my own take on the debate here. You can read ‘Gummo Trotksy’s take on Windschuttle’s ideas about the philosophy of science here.
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Now is the winter of our discontent

John Quiggin24 Comments

Linking to Ross Gittins’review of Clive Hamilton’s Growth Fetish, Ken Parish writes

The Buddha discovered this fundamental truth about happiness thousands of years ago, and not only about material possessions. All worldly striving and attachments, Buddha taught, are ultimately unsatisfactory. Happiness is transitory by nature.

But endemic human unhappiness and striving are the engines of growth and development, including in an intellectual and cultural sense. They have led us to decreasing levels of hunger, disease and malnutrition, as well as great discoveries in science and the arts.

Ken is right about this, but I don’t think this undermines Clive’s criticism of a system in which advertising and other social forces keep us permanently dissatisfied with our levels of material consumption.

Granted that striving is better than vegetative contentment, and even that there’s inherently nothing wrong with striving for more and better material possessions (I’m not sure Clive would grant this, but I will), it’s surely a problem when an entire society is premised on the assumption that everyone should be pursuing this limited and limiting goal. There may be nothing more noble in, say, striving for 10 000 unique visitors per day than in striving for a Ferrari, but at least I can feel that I’ve chosen the first goal for myself rather than having it foisted on me by the advertising industry. And some goals, for example curing diseases or saving the environment, are better than Ferraris or blog rankings.

Self-revelation

John Quiggin5 Comments

Lots of bloggers are joining the trend to add some appearance of corporeal substance to their posts in the form of a sidebar photo, often with surprising results. For a possible alternative to my current photo, you can look here.

Monday Message Board

John Quiggin21 Comments

As everyone is busy celebrating Queen Victoria’s birthday today, today’s Message Board will probably be a bit quiet, but that gives anyone who’s been waiting to post their first comment an ideal time to do so.

My attempted discussion-starter is a request for suggestions for more and better public holidays. For example, if we can have a holiday on a fictitious date the Queen’s Birthday who not the Horses’ birthday?

As always, please keep the discussion civilised and avoid coarse language.

Weekend antiglobalism

John Quiggin10 Comments

Brad de Long confesses to being a weekend antiglobalist.

I come down on the pro-mobility side on five days of the week (the other two I wake up in a cold sweat), but that is primarily because of my judgment that late-nineteenth century large-scale international capital mobility was profoundly helpful in spite of all its drawbacks, and I cannot see a difference between then and now that would lead to a different conclusion.

I guess, by the same token, that I’m a weekend globalist. My Golden Age is not the 19th century but the Long Boom from 1945 to the early 1970s, a period of unparalleled prosperity brought to a close by the pressures of capital mobility. Like Brad, but for the opposite reason, I wake up two days a week worrying that it was all an illusion and the capital mobility was the red pill that enabled us to see the truth.

But mostly, I think that the long boom failed because of avoidable mistakes, and that our best hope is a modernised and refurbished version of the Keynesian/social democratic policies that gave us that boom. In this context, the relevant issue is not so much capital mobility as the role of capital markets in general. I see capital markets as essential but dangerous, requiring tight regulation at all times. As Keynes said “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Brad’s views are confirmed by the experience of the 1980s, when capital markets acted as the enforcer of fiscal discipline on wayward governments, notably in Latin America, and broke down the power of entrenched interest groups. These experiences gave rise to the famous ‘Washington consensus’.

Mine are confirmed by the experience of the late 1990s, when financial market panics produced a string of apparently unnecessary financial crises in Mexico, Thailand, Indonesia, Argentina and so on. In every case, the countries affected had been financial market darlings up to the day the panic struck.

Even more, I’m struck by the failure of the world’s most sophisticated financial markets in their basic task, that of allocating funds for investment. Governments have wasted a lot of money on silly projects, but the dissipation of a trillion dollars in the space of a couple of years on valueless dotcoms and redundant optical fibre is a record that is not going to be matched any time soon. And as far as rent-seeking goes, the amount creamed off in this process by people whose contribution was entirely negative gives the Mobutus and Saddams of this world a fair run for their money.

Update “Jane Galt” replies. However, her most specific counter-point, the observation that during the 1990s, “Japan spent over 100% of its GDP on redundant construction projects and similarly ineffective stimulus” seems to me to be singularly ill-chosen as a response to my observation about speculative bubbles. However ineffectual Japan’s policies of stimulus may have been (they have, after all, kept the economy afloat and unemployment around 5 per cent) they were only adopted in the first place as a response to a speculative bubble and bust in land and stocks comparable to that of the dotcoms/telecoms in the US a decade or so later.