Bertram is back after a hiatus of a couple of months, with a new software setup called Bloxsom. And d-squared digest is allegedly produced by a “A fat young man without a good word to say for anyone”. Check out his one-line summaries of mammoth posts by Steven Den Beste
Whopper of the week
I’ve nominated Ari Fleischer for Slate’s Whopper of the Week feature. His latest big lie is even bigger than the one that won him last week’s award. In referring to Iraq’s Al-Samoud missiles, Fleischer says
Well, here’s the Catch-22 that Saddam Hussein has put himself in: he denied he had these weapons, and then he destroys things he says he never had. If he lies about never having them, how can you trust him when he says he has destroyed them? … It also contradicts the fact that he said he doesn’t have any weapons in violation of the United Nations resolutions.
Every part of this is untrue. Saddam openly admitted having the missiles and has consistently maintained that they don’t violate the resolutions and that, in destroyng them, he is simply deferring to the judgement of the UN inspectors that they do. This is all on the public record, as Hans Blix observed (quote from NYT)
In another sign of the poisoning of relations between the inspectors and the United States, Mr. Blix directly contradicted the White House spokesman, Ari Fleischer, who said on Monday that Mr. Hussein had earlier denied he had “these weapons,” meaning the missiles. Mr. Blix said the missiles “were declared” and that “they were not clandestine.”
He was referring to Iraq’s original arms declaration in December. “
And from Fleischer’s own mouth in response to Saddam’s interview with Dan Rather
Fleischer said Saddam’s comments about the Al Samouds represented “open defiance” of the United Nations. “He refuses even to acknowledge that the weapons are prohibited,” Fleischer said.
The fact that Fleischer is a blatant liar is not surprising and does not mean that Saddam is truthful. But how can anybody advocate following people like Fleischer (and Bush and Rumsfeld and Cheney) to war. And regrettably, the only credible person in the Administration, Colin Powell, now seems to have signed on to the Fleischer line that whatever is convenient to the demands of the day is true.
Free speech vs free markets
A US case in which a man was arrested for wearing a T-shirt bearing the slogan “Give Peace a Chance” has attracted a fair bit of attention. To be more precise, the man in question went to a T-shirt shop in a mall, had the shirt made to order and put it on. He was then approached by mall security guards who asked him to leave. On refusing, he was arrested for trespass. There’s a news story here. This kind of incident reinforces one of my main reasons for opposing privatisation of public spaces, including universities. In a piece entitledFree speech sits ill with a free market, I observed
Freedom of speech, in universities, public spaces and elsewhere, is ultimately incompatible with privatisation and unfettered freedom of action for corporations.
The piece was motivated by an article by CIS board member Steven Schwartz, attacking academic freedom.
Kevin Drum has more on this, noting that in California, shopping malls are required to allow reasonable exercise of free speech. I’m more and more inclined to the view that Australia needs an equivalent to the First Amendment.
No compromise
This NYT report on a compromise being floated by the British is consistent with the analysis I’ve been pushing for some time. The difficulty is of course that the US Administration will do its best to rule out any compromise in the form of a clearly stated final demand “Do this, or else”, no matter how stringent the conditions, for fear that Saddam will actually do it. By contrast, the French want a compromise of this form, but would prefer one with conditions that have a fair probability of being met (unrestricted interviews, production of documents etc).
But game-theoretic reasoning helps us here. If the French believe that the US will reject any compromise in the form of a clearly stated final demand, they have no reason to quibble about the precise wording of the demand. This in turn increases the likelihood that any compromise proposed by the British will be accepted, with the result that the US will be forced to veto (or kill with the threat of veto) a British proposal.
Two possible inferences. The first is that the British government is prepared to pull out of war if necessary. The alternative is that they think they can persuade the US to accept a “final demand” compromise. The second seems more likely as a statement about British beliefs, but Bush has disappointed them before, and is likely to do so again.
Update The Guardian also has this story, supporting the second interpretation
The British government, which expects to secure the backing of the US for the change, is to offer a reworked resolution that would give Iraq “a little more time” and set a deadline on which most of the UN security council could agree.
New on the website
I’ve added a bunch of book reviews. Feel free to review my reviews. If there’s any interest, I will post some extracts from the reviews over the next few days. Also, I’ve been updating the recent journal articles and working papers, reflecting a few acceptances and some long-awaited publications. Here’s a list of reviews I’ve added:
John Quiggin on progressive reform: review of Boris Frankel’s When the Boat Comes in, Pluto Press, 2002′, Arena 60(August–September), 47–49.
Myths of the Market; Review of: Thomas Frank, One Market Under God, Sydney, Vintage, 2001 & William Baumol, The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism, Princeton, Princeton University Press, 2002 ‘, The Drawing Board (Digest)
Economics of the Dark Side: Review of Jack Hirshleifer, The Dark Side of the Force: Economic Foundations of Conflict Theory, Cambridge University Press, Cambridge, 2001′, The Drawing Board (Digest)
A rough ride to freedom for information. Review of The Future of Ideas: The Fate of the Commons in a Connected World, by Lawrence Lessig, Random House (US), Australian Financial Review, 8 November
Review of Refashioning the Rag Trade: Internationalising Australia’s Textiles, Clothing and Footwear Industries by Michael Webber and Sally Weller, UNSW Press, 2001′, 21(1), 56–7.
Review of Debunking Economics: The Naked Emperor of he Social Sciences by Steve Keen, Pluto Press, 2001′, Economic Record 78(241)
Review of At the Crossroads – three essays by Jane Kelsey, New Zealand Economic Papers.
The A team
Most of the discussion on Monday’s Message Board concerned various personalities of the Hawke-Keating Labor government, elected 20 years ago. Yesterday’s Fin ran a picture of the incoming Cabinet in 1983, along with a ‘where are they now’ feature. While, as I’ve noted, I have mixed feelings about this government’s policies, the quality of the Ministry was exceptional. Position for position,I don’t think any member of the current government outclasses the corresponding minister in 1983. Even without considering positions, it’s hard to see many of the current ministry justifying a place. You’d have to include Howard himself, but that’s about it.
Another striking observation is how little renewal there was. The ministry that went out in 1996 was a lot weaker than the one that came in 1983. The effects can be seen on Labor’s frontbench today. Although it’s only seven years since they were in office, most of the prominent figures (with the exception of Crean himself) are newcomers who were not ministers in the last Labor government.
Turning to a more detailed assessment, I agree with the bulk of the recent commentary in ranking Hawke ahead of Keating. It’s often suggested that Keating was the ideas man while Hawke was the ‘chairman” but I think this was wrong. Hawke’s focus on consensus was an idea about process rather than policy, and it was what enabled Australia to implement a more moderate and sustainable version of the neoliberal policies that were pretty much inevitable in the 1980s. Keating, on the other hand, was not fundamentally driven by ideas. Rather, he picked up whatever ideas seemed useful to him at the time (neoliberalism or ‘economic rationalism’ in the 1980s, reconciliation and the republic in the 1990s) and expounded them with his characteristic vigour and intensity.
Keating’s case is helped by the fact that he was by far the most able Australian politician of the past thirty years and by the fact that, out of office, he has conducted himself, in private and public, with dignity and good sense, in marked contrast to Hawke’s personal follies (for example, doing the remarried celebrity bit for the women’s magazines) and sleazy political conduct like doing PR for Burmese dictators.
Of the others, my favorite was probably John Button. An engaging character, and someone who managed to maintain Labor principles while adapting them to new conditions. My least favorite of the major figures was probably Peter Walsh. Politically, I agree with him on a lot of things and disagree on even more, but, as was observed in the Monday comments thread, he is basically driven by hate. ‘Good haters’ can be an asset in politics at times, but over time the hate tends to drive out the positive concerns that originally generated it.
Goodies and baddies
One of the things that’s really bizarre about much pro-war discussion is the way in which various nations are being characterised as good or bad, depending on who happens to be making critical decisions. Thus, Australia, Britain, Bulgaria, Italy and Spain are “good”, Germany and France are “bad”, and Turkey was “good” until the weekend but is now “bad”. The fact is that there is no country in the world (not excepting the US) where a majority of the population supports the view that an invasion of Iraq should be undertaken when and if George Bush decides it is appropriate. The only thing separating the “good” from the “bad” is the existence of a government that can ignore public opinion for one reason or another. The Turks were “good” because everyone assumed Turkish democracy was a sham, but now that it turns out not to be a sham they are “bad”
In an update on previous discussion of the odds, this piece in The Guardian says
British troops are now so embedded into American war plans that there would be huge operational problems if the government let the US go it alone against Iraq, according to senior military sources.
“I don’t think the prime minister’s got any choice now. He’s gone too far to go back,” said a senior military official. “We are so embedded in this structure, so integral, that it would be very difficult for the Americans if we pulled out.”
This tends to confirm part of my argument, that Bush is unlikely to go ahead without Blair, but with the counterspin that, therefore, Blair is unlikely to refuse. What this means, though, is that Blair has immense leverage if he chooses to use it, for example, to support the Canadian compromise of a set of clear demands to be imposed on Saddam.
The equity premium: puzzle and policy
Brad DeLong has a piece linking to Rajnish Mehra’s survey of the literature on the equity premium puzzle, that is, the fact that the risk premium demanded by investors in private equity is much higher than seems reasonable on the basis of standard assumptions about individual preferences and capital market efficiency. My view is that no monocausal explanation can work but that the puzzle implies that the obvious gaps in financial markets (the absence of private unemployment insurance and the big wedge between borrowing and lending rates for individuals) have profound effects on the supply of equity capital.
To misquote Marx, the problem now is not to explain the equity premium but to derive its policy implications. To some extent, of course, the implications depend on the explanation. Still the framing of the problem as a puzzle has led to an excessive focus on puzzle-solving. Simon Grant and I have been looking at this question for a number of years. You can read our survey article here (PDF file).
Some of the implications reinforce common ideas. For example, the common view that recessions are socially very costly (compared to a stable rate of output growth with no booms and no recessions) is hard to sustain on a standard welfare analysis assuming efficient capital markets. Consideration of the equity premium implies that recessions are indeed socially costly.
Other implications are more surprising at least to those who have imbibed the current conventional wisdom. In this piece (PDF file), which just came out in Economica, we show that, if explanations of the equity premium based on market imperfections are accepted, the rate of return for public investments should be lower than the rate demanded by private investors in projects with similar risk characteristics. An immediate implication is that, other things (such as operational efficiency) being equal, privatisation will reduce welfare and nationalisation will increase it. Of course, other things are rarely equal, so the analysis supports a mixed economy with some services being provided by public enterprise and others
In this piece, which came out in the American Economic Review last year, we show that market failure explanations of the equity premium puzzle support the Clinton plan to invest some of the Social Security fund in stocks as opposed to the Bush plan of creating individual accounts.
The struggle for economic literacy
The struggle for economic literacy goes on. At the Age Ken Davidson points out, again, the nonsensical thinking behind the use of “net debt” as a policy target. Meanwhile, at the SMH, Ross Gittins gives a good explanation of movements in the exchange rate, pointing out that the $US/$A rate fluctuates around the “purchasing power parity” value of $A1.00 = $US0.70 and that an appreciation in the exchange rate is not good for everyone, particularly not for exporters.
I have two small quibbles with Ross. First, he misses the chance to point out that the $US/$A rate is not “the” exchange rate, or even the most important one.
Second, he says that we’ll never see a return to parity ($A1.00 = $US1.00) noting that the PPP rate of $A1.00 = $US0.70 is below parity because Australia had higher inflation than the US in the 1980s. But when it hit $A1.00 =$0.48, the $A was about 40 per cent below PPP. It’s just as likely, in the long run, to fluctuate 40 per cent above PPP which would reach parity. (I confess that I took a small bet on this some time ago, at long odds, but, as I often do, underestimated the time it would take to return to, and overshoot, the long run equilibrium value).
Simulated budgets
While I’m catching up on my email, I’ll point to this updated Budget simulator from Nathan Newman.