John Quiggin

From The Onion, naturally

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I was in Sydney for a fascinating conference on Evidence, Science And Public Policy. It was worth the trip just to hear John Worrall on evidence-based medicine point out this paper on remote retroactive intercessory prayer

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[1]. Assuming, as appears to be the case, that the study was totally legit (no data mining etc), the obvious question for me was why anyone would think it worthwhile (ex ante) to test this out.

But that’s not the subject of this post.

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Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

For the last time in my life I am prime-aged in both the mathematical (prime number) and labour-market (25-54) senses of the term.

I was in Sydney last night for Earth Hour and the difference from the usual city lights was impressive. This exercise is certainly helpful in reminding people of the issue.

On the other hand, I think the implied message of virtuous self-denial is the wrong one. A typical household would save more CO2 emissions by laying out a few dollars to replace one incandescent light bulb with a compact fluorescent than by turning everything off for Earth Hour once a year, not to mention coming out ahead financially. And what’s true for lighting is true for consumption in general. Efficiency improvements and substitution (videoconferencing for business travel, for example) can do a lot more than any plausible reduction in living standards.

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That’s the title for my article in yesterday’s Fin, reposted over the fold

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It’s time once again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.

My piece in today’s Fin is about the Geithner plan to bail out US banks. I’ll post the whole thing tomorrow (given that the Fin is pay-only, I wait until today’s issue is off the stands), but there’s one point I want to stress.

Most of the debate about alternative bailout plans has been framed around the equivalent pair of questions: liquidity crisis or solvency crisis? and book value or mark-to-market? The Geithner plan assumes that the true long-term value of ‘toxic’ [1] asset-based securities greatly exceeds their current market value, and that the banks are therefore solvent but illiquid. Critics like Krugman don’t buy this.

But the really big question, it seems to me, is what kind of financial system will emerge from the current crisis. Geithner, Summers and Bernanke clearly envisage something very like the pre-2008 system, with a few less players (all the better for Goldman Sachs!) and some tighter regulation to prevent unfortunate occurrences like those of the last year. The advocates of nationalisation implicitly accept that something very different is going to be needed; not permanent public ownership, but a much smaller, more conservative and less profitable financial sector, providing necessary services in the manner of other utility and infrastructure businesses. An obvious dividing point is financial innovation: advocates of Geithner style bailouts are much concerned to avoid discouraging financial innovation, while the critics see uncontrolled innovation as a large part of the problem.

fn1. A side issue I’ve been meaning to raise for a while concerns the salience of “toxics” in US culture generally. As an example, food safety seems to be regarded as a major environmental issue in the US, while in Australia it seems to me to be seen as a minor local government issue, with the archetypal instance being dirty restaurant kitchens suitable for hidden camera current affairs exposes. But it’s hard to tell if my perceptions on this are accurate.

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Just about everyone has already piled on to the latest development in the George Will saga – the Washington Post’s belated publication of an opinion piece by Chris Mooney and a letter from the World Meteorological Association pointing out (very politely) that Will was lying in every paragraph of his notorious piece on global warming. And just about everyone has the same take: in the absence of a retraction or correction, the Post is taking the view that Will is entitled to his own facts. (Here’s Matthew Yglesias, for example, and Mooney has a huge list of links at his site).

The absolute refusal of the Post to take a position on the truth or falsity of what it publishes (along with the continued scandal of anonymous sourcing Can't Buy Me Love move

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) leads me to a steadily more negative view of the question of whether we actually need newspapers and whether we should regret their seemingly inexorable decline. The standard claim is that without reporters, we in the blogosphere would have no material to work on. But Will’s recycling of long-refuted Internet factoids (something very common among rightwing pundits in particular) shows that, in important respects, the opposite is true.

More importantly as far as political and business news goes, there is almost always someone with an interest in having any given story published. If newspapers are unwilling to take a stand on which stories are true or false, their only function is that of gatekeeper – determining which stories see the light of day and which do not. The potential for corruption in this role is clear, and the reality was obvious particularly in relation to the Iraq war.

Update Lots of readers have inferred that I welcome/wish for the demise of newspapers or opinion columnists. Actually, having written (and been paid for) an opinion column in a national newspaper for the past fifteen years, I am deeply ambivalent on the subject. On the one hand, the deplorable handling of issues like climate change (particularly in opinion pages, but to a significant extent in news as well) the early years of the Iraq war (if anything worse in the news pages than the opinion section), and the ‘inside baseball’ approach to political news in general leads me to think we would be better off without them. On the other hand, there’s obviously a lot to lose here, and it’s not clear how, if at all, some of it can be replaced.

Of course, what will happen will happen, regardless of what I think about it. But maybe if those making decisions about how newspapers are run think more closely about episodes like this one, they might see the need for change, and that change might enhance their chances of survival.

The Monday Message Board is running late again, but it’s up now for comments on any topic. As always, civilised discussion and no coarse language, please.

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There was a bit of dispute a month ago over the claim, made here and elsewhere, that the design of the CPRS made both voluntary action to reduce CO2 emissions, and government initiatives such as the Rudd government’s home insulation scheme, have no effect except to reduce the price of permits.

The issue seems to have been settled by this Victorian government brief, leaked to the Age

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, which states:

The Victorian government’s policies to cut carbon emissions will make no difference in achieving national greenhouse targets …

The leaked brief, obtained by The Age newspaper, says the government must rethink policies including subsidising solar farms and buying hybrid cars for its fleet because they will not assist in meeting targets in the proposed federal Carbon Pollution Reduction Scheme (CPRS).

The Rudd government can and should fix this.

I was at the tally room on election night, in time to hear Lawrence Springborg’s concession speech and see Anna Bligh claim victory as the first woman to be elected as a State Premier. Not that I’m an election tragic, but we were having a farewell dinner for a friend at Southbank, and the Convention Centre was only short walk away, so we went on to take a look. The tally room itself was a little disappointing as the old days of a gigantic board with manually adjusted vote counts for every seat are gone (or maybe only ever happened at the Federal level). Instead we got a big screen with regularly updated results including (unofficial, I assume) projections of the preference distribution: more informative, but not much different to what we could have got at home.

The result was a much bigger majority for Labor than appeared likely, even though the two-party preferred vote (to the extent that this concept is meaningful when a lot of independent candidates are actually elected) was quite close. One possible interpetation was a highly effective marginal seats strategy, but that doesn’t appear to be the case.

Given the government’s vulnerabilities and what I thought was a more professional campaign from the Opposition, the result gives some support to the idea that Labor has become the natural party of government in most Australian states. Nevertheless, no party is guaranteed of office, and hopefully a stronger opposition will keep the Bligh government on its toes a bit more than in the past.

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It’s time once again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.

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After a fairly somnolent campaign, the LNP is going into tomorrow’s Queensland state election with a narrow lead in the polls. I haven’t paid much attention, since the capacity of state governments to make a difference, always limited, has been reduced further by the financial crisis. If I could choose an outcome it would probably be a minority Labor government, relying on a Green independent or two for its majority. As regards a change of government, it’s always beneficial to have alternation of power in a democracy. I’m not at all impressed by the apparent quality of the alternative government, but it’s more convincing as a united party than as the chaotic rabble that went under the name “Coalition”. The Bligh government has some reasonably strong performers (Bligh herself and Paul Lucas for example), but there have been plenty of duds or worse. And the involvement of proven disasters like Mike Kaiser in the campaign was a big mistake.

I’ve long promised a post on Austrian economics. To organise my thoughts and minimise the risk of attacking a straw man, I’ve taken as my starting point this encylopedia article by Peter Boettke. Boettke sets out ten claims and derives some claimed conclusions. I’ve responded point by point, and then given my own summary.

As I’ve had trouble with various fringe adherents of Austrianism, I’m setting out some strict ground rules for discussion here. Comment should stick strictly to discussion of economics. Anyone making personal attacks of any kind will have their comments deleted and be barred from this thread. Avoid anything that might be seen as insulting other participants in the discussion

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A reader has pointed me to this fascinating site showing the impact download The Arrival

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of the Mont Pelerin Society on Iceland. According to the material prepared for its 2005 conference in Reykjavik, the Society’s intellectual influence directly guided those responsible for making Iceland what it is today.

Due to arcane problems with caches, users of Firefox (and maybe some other browsers) haven’t been able to read new posts at Crooked Timber for over a week. You can work around by using Safari, or by clicking on the comments thread of a post, then clicking Home in the expanded view (please don’t ask me why this works). RSS feeds also appear to work normally.

Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

This Bloomberg story gets the headline right., but the lead (or lede) wrong. The intro “Buying 30-year Treasuries is returning more than stocks for the first time since Jimmy Carter was president. ” is wrong – bonds have beaten stocks in quite a few years since then.

Bonds beat stocks (Bloomberg)

The finding in the chart is much more dramatic, to the point that “earth-shattering” is justifiable hyperbole. What it shows is that, over the entire period since 1979, a strategy of buying 30-bonds (trading so that the portfolio always holds the most recently issued bond) has outperformed the strategy of buying stocks and reinvesting the dividends.

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It’s time once again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.

The idea that central banks can and should act independently of governments is, fairly clearly, inoperative for the duration of the crisis in many countries. The combination of massively increased liquidity provision and large-scale bank bailouts requires close co-ordination between central banks and national treasuries, though the form of this co-ordination is inevitably different in different countries.

But the failure of central bank independence goes much deeper than this. The underlying idea was that monetary policy should be left to independent experts, and should be the main tool for macroeconomic stabilisation. Governments were expected to avoid active fiscal policy, focusing primarily on maintaining budget balance (there were some differences in view as to whether governments should target annual balance, or balance over the course of the macroeconomic cycle). The shift to independent central banking was closely associated with the adoption (implicit or explicit) of inflation targets as the primary focus of monetary policy, and with interest rates as the primary tool.

Not much of this appears sustainable in the light of the crisis. Inflation targeting failed to prevent unsustainable asset price booms, and it now seems clear that these could not have been prevented without much more direct control over unsound financial innovations. That’s a task where interaction between governments and central banks appears unavoidable. On the one hand, expertise is crucial. On the other hand, as with war, financial innovation is to important, and too dangerous, to be left to finance experts.

The idea that monetary policy alone is sufficient for macroeconomic stability might have looked appealing during the Great Moderation, but does not stand up when examined over a longer period. To put it bluntly, central bank independence appears to work well except when it is most needed.

A more difficult question relates to the separation between monetary policy and prudential regulation. The need to take systematic risk into account suggests that monetary policy must be closely integrated with prudential policy. On the other hand, Australia, with a clear separation between monetary and prudential regulators has done better than countries where central banks are more closely involved. My feeling is that the correct separation is between strategic issues, such as monitoring of systemic risk and the regulation of financial innovations, which belongs with the central bank, and institution-level supervision, which belongs with a specialist agency.

According the Wikipedia front page today “… author Guillaume Prévost created The Book of Time series to help children understand that history can be fascinating?”

I wonder how many readers, at the halfway point in this sentence, expected “econometrics” in the place of “history”? I think I need to get out more.

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Over the fold, my column in yesterday’s Fin. Not the final version, as I made some last minute changes in response to Lindsay Tanner’s defence of the Razor Gang yesterday.

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This month’s unemployment news was the worst so far in the recession, with the headline rate rising from 4.8 to 5.2 per cent and some of the components looking bad as well (part-time replacing full-time employment, for example). The main good point was that the participation rate rose, so that the increase in unemployment was (in an accounting sense) largely due to people entering the work force, rather than to net job losses.

We are still doing far better than most other countries, and, if a global recovery emerges towards the end of the year, could still get by with only a moderate recession.

The government has reacted promptly with the fiscal stimulus[1], and the relaxation of monetary policy has also helped. But there doesn’t seem to have been much action to develop direct labour-market policy responses to unemployment (I discuss responses to unemployment here). And there’s a real risk that a contractionary budget will wipe out much of the benefit of the surplus (My Fin piece on this will be up soon).

fn1. In this context, I thought Turnbull’s response, treating every piece of bad news as evidence that the government’s policies have failed, while offering nothing positive of his own, has been both incorrect and politically tin-eared.

The government’s ETS legislation came out yesterday, and I prepared a short response for the Australian Science Media Centre Here is is.

The draft legislation sticks fairly closely to the White Paper, which has proved to be a compromise that satisfies no one. The government proposed a watered-down scheme in the hope of attracting public support from industry, and the Parliamentary votes of the Coalition. This approach appears to have failed, leaving the options of allowing the bill to fail, or seeking the support of Greens and Independents.

By far the worst feature of the proposed ETS is the 15 per cent reductions target presented as the maximum we will offer, even if other countries agree to an effective global program to reduce emissions. If this target were raised to 25 per cent, the government could probably secure the necessary support to pass the Bill. Those who have argued that no such global agreement will emerge have no good reason to oppose such a change.

We may not have mutated beavers (jokes on this topic to CT, please!), but life in Australia is still interesting. I’ve never had a roo in the house, but I once had to remove a green tree snake which had come in through the window. And that reminds me of my favourite Australian tourist promotion.

Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

Every now and then back in the Dark Ages, I would have to deal with the late, unlamented MS-DOS operating system. It wouldn’t be long, as a rule, before I encountered the message “Abort, Retry, Fail?”

Of these, “retry” sounded the most hopeful so I’d choose it a few times, but I don’t think it ever worked. Usually the best thing was to shut down the machine and start again.

This trilemma struck me when looking at the options for US-based banks, and Citigroup in particular.

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Clive Hamilton has a piece in Crikey attacking the state of discussion on the Internet, in which the comments policy of this blog gets a moderately approving mention. As he says, maintaining a productive discussion isn’t easy, and a lot of blogs and other Internet sites don’t even try. But I don’t think that’s enough to support the conclusion that

If free speech means encouraging a free-flowing dialogue that draws the public into an exploration of alternative ideas and enriches civic culture, then the Internet is its enemy.

I’ll leave readers to point out the problems with this claim, or alternatively to defend it.

But I wanted to comment on one aspect of Clive’s piece, his claim that anonymity is the central problem. Although this seems plausible, my experience on this blog has been that the worst and most persistent trolls have been people posting under their own names (though commonly resorting to sockpuppetry to evade blocks, disrupt discussion and so on). And a couple have been academics.

Most of the attention in discussion of the December quarter national accounts was focused on the negative sign of the aggregate GDP number, combined with the seemingly unkillable belief that there exists a “technical definition” of a recession, namely two consecutive negative quarters. An aggregate number anywhere zero is pretty good by comparison with the world economy as a whole, so the real interest is in the components. Ross Gittins The Brothers Grimm move has a nice piece going through the details, and concluding, unsurprisingly that we are in a recession. The aggregate number has some negative bits that should be temporary (inventory rundown and the statistical discrepancy) but against that, we are bound to get more bad news on exports over the coming year. Our terms of trade, which rose consistently during the term of the last government (one reason things turned out so well in terms of the macroeconomy) have started turning down, but there is a long way to go.

The (possibly temporary) good news is that household savings have risen greatly, to 8 per cent of income. It’s reasonable to assume that this reflects a combination of precautionary saving as the prospect of recession hits home, reactions to the huge capital losses of 2008 (reversing the process by which illusory capital gains prompted people to run down household savings), less home equity loans (can anyone find me some data on this?) and the fact that some part of the money handed out in the stimulus package was saved. Unfortunately, as the recession hits home we are likely to see lots of households with declining income, raising the question of whether the improvement in savings can be sustained.

There’s been a lot of confused discussion about the stimulus in this context. On the one hand, it’s obviously desirable that the stimulus should increase consumption. On the other hand, the resolution of a financial crisis requires, among other things that household balance sheets are made sustainable, that is, that household debt should be brought down to manageable levels relative to income (not relative to inflated asset values). This is a tricky problem, but its obvious that if households are going to increase savings, and aggregate demand is not to decline too much, someone else needs to increase their net demand. Since private investment and export demand are almost certain to shrink, that leaves government as the only candidate.
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