According to The Guardian, Labour MP Tom Watson is the first UK MP to have a blog. In an example of the reverse process, Jim Capozzola of The Rittenhouse Review is planning a run for the US Senate.
I was also interested by this para
Currently Mr Watson is transferring content from the original site – tomatwestbrom.com – to his new blog, powered by transferable type, at tom-watson.co.uk.
I must investigate this “transferable type”.
There’s been a lot of talk about the microeconomic reform undertaken by the Hawke-Keating government and its claimed beneficial outcomes. It’s useful to compare the 20 years since the election of the Labor government with the 20 years that preceded it.
The period before 1983 encompassed the breakdown of the Bretton Woods system of fixed exchange rates, two major oil shocks, and two global recessions. In Australia, it includes the economic chaos that engulfed the Whitlam government and the failure of the Fraser government to cope with the wage push of the early 1980s. Despite this, average performance was as good as or better than the period since 1983.
One on measure, inflation, the period since 1983 comes out clearly ahead. Not only is the average rate lower, but inflation accelerated through the 1960s and 1970s. The inflation rate fell gradually during the Accord period, then rapidly during the ‘recession we had to have’ and has shown no sign of resurgence since then.
The rate of producitivity growth has been the focus of much recent attention. According to ABS estimates the annual rate of multifactor productivity growth over the last twenty years has been almost exactly equal to that the previous twenty years at around 1 per cent. Similarly the average rate of growth in GDP was about 3.6 per cent per year in both periods.
In two areas, performance since 1983 has been significantly worse than . The current account deficit rose rapidly to 5 per cent of GDP after the floating of the dollar, and has fluctuated around that level ever since. A comparison with the pre-float period (when deficits averaged around 2 per cent of GDP) is not really meaningful since, in a fixed-rate system, current account deficits are constrained by the availability of foreign exchange reserves, but deficits of this magnitude are widely regarded as being associated with the risk of a currency crisis.
Performance on unemployment has been even worse. The average unemployment rate for the period since 1983 has been 8 per cent, compared to about 4 per cent in the 1970s and less than 2 per cent in the 1960s In fact, the lowest unemployment rate realised since 1983 is higher than the highest rate reached at any time between World War II and the last few months of 1982.
A sad irony in the poor outcomes on unemployment and the current account is that the case for radical microeconomic reform put forward in the early 1980s depended largely on these two variables. Policies of Keynesian stimulus, aimed at reduced unemployment had been abandoned as a result of blowouts in current account deficits. It was claimed that structural reform would eliminate barriers to growth in exports and thereby permit sustained expansion without growth in current account deficits.
Of course, these comparisons are primarily of historical interest. What matters is the outlook for the future.
The unemployment rate, at 6 per cent, is as low as it has been at any time in the past twenty years. But this is largely a cyclical outcome. Most estimates of the structural rate of unemployment (often called the non-accelerating inflation rate or NAIRU) have remained stationary or even risen over the past two decades.
The productivity statistics give similarly little ground for optimism. According to the ABS estimates, there was a surge in multifactor productivity growth between 1994 and 1998, but the annual rate of productivity growth has since fallen back to the long-run average of around 1 per cent. The fact that rapid productivity growth has not been sustained suggests that the surge of the mid-90s was due to once-off factors like the increase in the pace and intensity of work and not to a fundamental transformation.
After a long lag, this popular (??) feature returns.
Various bloggers have posted more-or-less absurd theories on the psychological bases of leftwing and rightwing political views. In the same spirit, I conjecture that optimism about war may be driven by experience of video games. As reported in the song below, I was very bad at video games, notably including Battlezone a shoot-em-up with tanks and missiles. Those interested in dating it can get a clue from the last line.
I’m an overgrown delinquent, as easily can be seen
I spend all of my money on a video machine
I’ve hung round pinball parlours and I’ve seen big tallies run
But as long as I’ve played at Battlezone, I’ve never cracked the ton
Chorus
Hurrah me boys me pockes are full and I feel like going berserk
I’ll be down at me local poolhall soon as I get off from work
With me two-bob bits all piled up and both me sleeves rolled back
Today’s the day I makes me play for a century or the sack
I’ve blasted away at the supertanks, I’ve run them forward and back
I’ve dodged the flying missiles and I’ve peppered them with flak
I’ve copied the manoeuvres of the famous players I’ve met
But I’ve never succeeded in plastering up my own three initials yet
If I succeed as I mean to do I’ll make the effort pay
One coin’ll last for hours and I’ll play both night and day
Get me picture in the papers for everyone to view
And instead of dingoes you will read of the feats of JCQ
For some time, the Canadian government has been floating ideas for a new UN resolution consisting of a set of specific demands with which Saddam would have to comply or face war. This is the kind of thing I’ve been advocating for some time. It would get away from the fatal ambiguity of 1441, which turns on the interpretation of words like ‘active compliance’ and ‘serious consequences’.
The idea had no hope while Bush thought he could get a resolution that effectively authorised war. It’s been revived by what initially seemed a clever move on Blair’s part – an ultimatum modelled on the 1914 Austrian demarche to Serbia, written so that Saddam couldn’t possibly accept it (the only important element was the first one, that Saddam should admit to having the weapons he has so far denied having). The difficulty for Blair is that he did not of course, admit that his proposal was designed to fail. Hence, he will find it hard to reject proposals for an ultimatum that incorporates many of his key demands, such as out-of-country interviews with scientists, but doesn’t contain anything guaranteed to be rejected. The ‘middle six’ countries are obviously keen for something like this, and the French are already hinting that they could be persuaded to accept a specific ultimatum backed by the threat of war, as long as it didn’t give the US the right to make a unilateral judgement that the conditions had not been met.
Blair’s big problem would then be persuading Bush to go along with such an approach. All the evidence is that Bush would refuse, but the arguments in favor are strong. Assuming Saddam is hiding weapons, he might reject the ultimatum, in which case Bush would get everything he wants – UNSC authorisation, British participation and almost-certain access to Turkish bases. Alternatively, out-of-country interviews might produce the long-sought ‘smoking gun’, again giving Bush a legitimate case for war.
On the other side of a coin, the alternative looks unattractive. Unless he could stop a vote altogether, Bush would be in the position of vetoing a UNSC resolution which would wipe out any pretence of a legal basis for the war and (if the opinion polls are right) leave him without majority support even in the US itself.
By far the best outcome for the world would be another six months of stepped-up inspections, during which time the great powers could turn their attention away from Iraq to the much bigger problem of North Korea. (Ideally, they’d do something about Israel/Palestine as well, but that would take the scenario from highly optimistic to totally fantastic).
I didn’t get around to blogging on Warren Buffett’s comments on derivatives when he made them a week ago, but I think that bloggers (including me, I admit) tend to be too concerned with immediacy. In this spirit, I’m reprinting a post from last year, with some topical bits deleted.
Another look at possible disaster scenarios for the world economy, this one perhaps the scariest of all. The starting point is a crisis in derivatives markets arising when ‘counterparties’ (those owing money on the transaction) for one of the big New York banks, such as J.P. Morgan Chase, refuse to pay up, either because they can’t or because they allege fraud. This has already happened in a small ($1 billion) way in the case of Mahonia, one of the shonky subsidiaries set up by Enron with the aid of JP Morgan. If it happened on a large scale it could cause a cascade of defaults. How big could it get? The short answer is “Huge”
“At the end of 2002’s first quarter, the notional value of derivatives contracts involving U.S. commercial banks and trust companies was $45.9 trillion, according to the Office of the Comptroller of the Currency’s bank derivatives report. ”
That’s trillion , not billion. For comparison, annual US GDP is around $10 trillion.
The ratios involved are staggering. JP Morgan alone is involved in assets with a gross value of 23.2 trillion, or around 500 times the firm’s capital base. This is comparable to the leverage exercised by Long Term Credit Management before its collapse. But before you panci too much, virtually all of this is hedged in some way.
(“Notional value” is the total value of the contract, and J.P. Morgan’s direct exposure to those derivatives was $51 billion as of Dec. 31, or less than 1% of the notional value, according to the firm. About 80% of the company’s exposure was with investment-grade counterparties.)
The bulk of the exposure is in interest rate swaps, which are fairly well understood and seem to pose only modest risks in themselves. But there’s still around $1 trillion in more recent derivatives involving securitisation of various kinds of debts. This securitisation is sound only if the credit rating agencies have got their risk assessments right, which in turn requires that the accounts on which those assessments are based should be valid. A few years ago, when the market in debt derivatives was starting up, this assumption seemed safe enough, but now it looks a lot more dubious. The big danger is that defaults in the debt derivatives market could spread to the much larger interest rate derivatives markets.
How likely is it to happen? In view of the extent to which standards have been compromised in the financial world, some significant breakdown in derivative markets, leading to the failure of at least some players, seems more likely than not. On the other hand, the full-scale meltdown scenario, while far more plausible today than even a year ago, remains a low probability event.
[A side issue in all this is that ‘gold bugs’ (that is, supporters of a gold standard with a conspiratorial view of the world) are prominent in promoting concerns about derivatives. The link as far as I can tell, is the belief that central banks and/or big institutions like JP Morgan are using futures contracts (one of the most basic forms of derivative) to keep down the price of gold. I don’t buy this, but I’d be interested if anyone has any related angles of which I’m unaware]
There’s a growing controversy over the role of a group in the Administration that is generally described as “neoconservative” and “strongly pro-Israel”, and which is pushing for war with Iraq. The leading figures are Perle and Wolfowitz – like the majority of neoconservatives, both are Jewish. Criticism of this group naturally raises the spectre of anti-Semitism, leading to a good deal of consternation about how, if at all, their role can legitimately be discussed Kevin Drum at Calpundit asks
What I’d like to see are some reasonable guidelines for discourse, guidelines that suggest which lines of attack on neoconservatism are reasonable and which ones aren’t, and what kinds of criticism of Israel are legitimate and which ones aren’t. If there were any consensus on this, it would make both criticism and defense of neocon theology a lot easier and a lot less polemical. It would make it a lot easier for me, anyway.
I begin with the observation I’ve made in my own defence against accusations of anti-Americanism
A government, even a democratically-elected one, is not the same as the country it governs. Both citizens and non-citizens can oppose the policy of a government without being hostile to the country it governs
With this point in mind, it’s easy to see that “pro-Israel” is not a very accurate description of the neoconservatives. Most people in most Western countries are pro-Israel in the sense of supporting Israel’s right to exist within secure boundaries and hoping that Israelis and Palestinians will reach a peaceful settlement of their differences. What distinguishes the neocons is not their support for Israel, but their support for the Likud Party, its leader Ariel Sharon and its policy of aggression. A few neoconservatives are unconditional supporters of whatever Israeli government holds office, but the majority are active partisans for Likud, and welcomed the failure of the Barak-Clinton peace initiative (due to a piece of unconscionable bungling on Arafat’s part).
The worst thing about the Perle-Wolfowitz group is not their support for war with Iraq per se, but their advocacy of a strategy in which an American-controllled, but nominally democratic Iraq is supposed to pressure the Palestinians and their supporters into a peace with Israel on terms acceptable to Likud. These haven’t been spelt out, but Sharon’s past performance shows that it will mean a Bantustan-style state with Israel annexing much of the West Bank and probably maintaining some sort of hegemonic right to intervene.
This policy is wrong, and it’s doomed to failure. Hence, it’s bad for Israel.
More importantly in the short run, of all the conflicting agendas that will emerge following an American conquest of Iraq, this is the one that will do most to ensure a disastrous outcome. The idea of a democratic Iraq involves a lot of wishful thinking, but, as Daniel Drezner argues, it might just be possible given a strong US commitment to nationbuilding. The idea of a democratic, pro-Likud, Iraq is a chimera.
Until the prospect of war with Iraq came up, I avoided commenting on the Israel-Palestine situation since it’s complex, emotionally charged and didn’t directly involve Australia. But Australia is now involved and our troops are likely to be enmeshed in attempts to implement a disastrous policy.
My final point is the converse of all the others. Suppose that instead of pursuing the policy he’s actually adopted, Bush had acted first to impose on both Sharon and Arafat a peace settlement along the lines of the Clinton-Barak plan, with US peacekeeping forces to ensure that both sides adhered to the settlement, then demanded international support for the removal of Saddam as a quid pro quo. Would anyone in the Arab world or in Europe have resisted him? I doubt it.
Update Ken Parish and Gary Sauer-Thompson both have useful, and independent, contributions on this topic. As Ken notes the BlogGeist is at work
Update 15/3Maybe Bush is attuned to the BlogGeist. He announced a new (but v sketchy) initiative on this topic today.
The assassination of Zoran Djindjic, Prime Minister of Serbia and the leader of the democratic forces there, apparently by paramilitaries/mobsters (the two groups are much the same) is bad news. The NYT gives pretty good coverage. Hopefully the people of Serbia won’t let the mobsters win.
According to the International Biographical Centre of Cambridge, England, I have been nominated as International Man of the Year. I join such luminaries as Professor Emmanuel Bosanquet, formerly (I am not making this up!) Senior Lecturer at the University of Outer Mongolia Astronomy Research Department.
There’s no prize money, but the commemorative plaque and medal are excellent value at $US580. This should be no problem as I expect shortly to receive a substantial commission for a transaction involving the export of gold from Nigeria.
One thing I’ve discovered in blogging is that irony is a dangerous weapon. Even after I started bracketing it with warnings [irony alert on] … [irony alert off] people persisted in reading me literally.
But after all, this is an Australian blog and irony is not exactly an archetypical Australian trait. Surely New York sophisticates, not to mention the British masters of irony, would handle this kind of thing better. Apparently not. Andrew Sullivan, a Brit living in New York (I think) and seemingly as sophisticated as they come, responds to Paul Krugman on the Budget deficit, saying
here’s the economic expert, Krugman , on the looming deficit:
[R]ight now the deficit, while huge in absolute terms, is only 2 — make that 3, O.K., maybe 4 — percent of G.D.P.
I take Krugman’s broader point about the deficit, and agree with it. But why such contemptuous sloppiness? There’s a critical difference between 2 and 4 percent of GNP. Isn’t there?
Sullivan probably doesn’t follow the economic debate all that closely. But surely he must have noticed that estimates of the US Budget deficit have been rising steadily, with a new higher estimate announced every six months or so.
I apologise for laboring the point, but rather than risk any reliance on irony I’ll spell it out in excruciating detail. Krugman is not making a series of guesses, but giving an ironic description of the steadily deteriorating outlook. The US Budget deficit for this year was first estimated at around $US 200 billion (2 per cent of GNP), then around $US 300 billion and now looks likely to be closer to $400 billion. Krugman is hinting that this trend is likely to continue.
My piece in today’s Fin (subscription required) on US deficits and the approach of “banana republic” status develops arguments thrashed out on the blog. I’m finding this a very useful way of clarifying my ideas. It’s headed US debt will come back to bite and is paired with a piece from Robert Bartley of the WSJ supporting Bush’s tax cuts.
John Quiggin 