John Quiggin

Update 30/4As this one still seems to be alive, having veered from the Murray to libertarianism to the appropriate mode of address for yours truly, I thought I’d move it back up to the top of the page

The most important representative of party-line science in Australia is the Institute of Public Affairs[1], which models its approach closely on that of rightwing thinktanks in the US[2]. It has promoted critics of scientific research on passive smoking , funded by the tobacco industry, (for an IPA defence of this practice, read here), critics of scientific research on global warming (funded by the fossil fuel industry), and has more generally bagged scientists and research organisations whose research produces commercially inconvenient findings. Targets have included the World Health Organization, the National Health and Medical Research Council and of course, the International Panel on Climate Change, as well as many individual scientists.

The mode is identical to that of Milloy and Tech Central Station. Where the general scientific basis is strong (as in arguments about the safety of GM foods) opponents are assailed as anti-scientific irrationalists. Where it is weak (as in the cases of smoking and global warming) the IPA demands equal time for sceptics, even sceptics who have done no original research and have no relevant qualifications. The strategy is one of selective citation of evidence that supports a predetermined outcome, mixed with protestations of support for open inquiry and the scientific method. As far as I know, the IPA has never found a case where the evidence supports more environmental regulation, or even a continuation of existing regulations.

The latest target of the IPA, and one close to home for me[3], is the sustainable management of the Murray-Darling Basin.
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The Google IPO has now been announced, and there are some more figures to analyze. In addition, I wanted to talk a bit about the option, suggested by one of the commenters on Kevin Drum’s blog of arbitraging by short-selling overpriced dotcoms and buying those with more reasonable valuations.

Looking at this NYT report, that doesn’t seem likely to be an option.

In 2003, Google reported an operating profit of $340 million on sales of $960 million. But the 2003 figure appears to understate the company’s cash profit margin, since it includes very high expenses related to stock options that will probably decline in future years. On a cash basis, Google had an operating profit of $570 million in 2003, and an operating margin of 62 percent.

Given those figures, Google will easily command a market valuation of at least $30 billion, and perhaps much more. EBay, which had an operating profit of $660 million on sales of $2.2 billion last year, is valued at $54 billion; Yahoo, with sales of $1.6 billion and operating cash flow $428 million, is valued at $36 billion.

I’m not an accountant, but I think the “operating profit” referred to here is EBITDA (earnings before interest, tax, depreciation and amortisation): in any case, it’s more than the profit accruing to owners of equity. So it appears that all of these well-established businesses are valued at more than 100 times annual earnings.

As I recall, the ratio for profitable companies during the hyperbubble was around 400, so some progress has been made. But these values still look bubbly to me. To match an investment in 10-year bonds, without allowing for any risk premium or for the inevitable increase in long-term interest rates, all these companies need to more than quadruple their earnings, then maintain those earnings for at least 20 years. Maybe Google can do this, and maybe Yahoo can do it, but it’s most unlikely that both of them can.

At one time, I would have tried hard to think of an explanation consistent with some notion of aggregate market rationality, in which capital markets allocate capital to its most productive us. In the light of the evidence of the last ten years – the dotcom bubble, the US dollar bubble, the (still continuing) bond bubble – I no longer bother. Capital markets are driven by fashion (in this case, the continuing desire to be part of the Internet happening, in the face of mounting evidence that it provides almost exclusively public goods), fear and greed. On average, capital markets do a better job than Soviet central planners, but I think they do less well than the mixed economy that was dominant during the postwar Golden Age.

Eventually, no doubt, reality will prevail. If I knew that was going to happen within the next twelve months, I’d be shorting the remnants of the dotcom sector for all I was worth. But, as Keynes apparently didn’t say, the market can stay irrational longer than you can stay solvent.

I’ll be participating in a Senate Roundtable on the proposed FTA with the United States next week, and things have been livened up with the release of a new study from the Centre for International Economics with the following optimistic bottom line

The most probable effect on macroeconomic welfare after a decade, as represented by real gross national product (GNP), is an increase of $5.6 billion per year above what it might otherwise be.

Not surprisingly I think this is estimate is way of the mark (warning: big JPEG coming up).
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Like nearly everyone else, I’ve been deeply disappointed by David Brooks’ Op-ed columns in the NYT. But it’s not only out of a sense of fairness that I’m giving a favorable link to his latest – it’s not only good relative to the other stuff he’s written but better than most other commentary[1]. Referring to the debates over the Clarke and Woodward books, occurring at a time when Iraq looks like sliding into chaos, he says

This is like pausing during the second day of Gettysburg to debate the wisdom of the Missouri Compromise.

Right though this is, it’s obviously helpful to the Republicans, as is the observation that

many Americans have decided that it’s time to persevere and win.

But his final para raises the real issue

Over the next weeks, U.S. forces are going to jump from the fires of unilateralism to the frying pan of multilateralism. What’s going to happen when our generals want to take on some insurgents but Brahimi and the sovereign Iraqi appointees say no?   

Brooks might want to ponder the point that the Bush Administration appears to have no answer to the question he has posed here. They have set up rules that let them ignore the supposedly sovereign government they plan to establish, but it’s obvious that any such action will bring the whole structure crashing around their ears.

fn1. Obligatory blogplugging: That’s old-media commentary, of course. This whole post is a subtle reminder that blogs, including this one, have already moved on from point-scoring and asked the questions that are now being raised by Brooks.

One of the most pleasant aspect of being a Research Fellow is guest lectures. I give guest lectures in a number of different courses, ranging over several faculties and sometimes different universities. This gives me all the things I like about teaching, including (since a change is as good as a holiday) generally attentive audiences, and a chance to present material that’s not the standard textbook, but not new or rigorous enough to justify an academic seminar. On the other hand, all the unpleasant stuff – booking rooms, litigious students complaining about their grades, administrators trying to promote customer-centric shareholder value in a dynamic enterprising university, and so on – is taken care of for me.

I tend to do most of my guest lectures around mid-semester, since this is what fits the standard course structure best, and I’ve got quite a heavy load (by my very relaxed standards) this week. I’m just between lectures, then rushing off to a seminar in town[1], but I thought I’d pass on the reaction to my lecture today on the economics higher education.

I started with the human capital and screening theories. I’m a violent partisan of human capital theory and opponent of screening theory, and didn’t try to hide this, but my success rate in convincing the students was, based on a small sample, only 50 per cent.

One student came up to me at the end and said “Thank you. I learned a lot”. Another came up to the lecturer responsible for the course and asked “Will this be on the exam?”.

fn1. For those interested, it’s The US-Australia free trade agreement: folly or our future? at a meeting of the Australian Institute for International Relations from 6-7.30pm, April 28 at 46 George Street, Brisbane. For details, contact Colin Kennard (telephone 3371 2454, email [email protected]).

From ABC News (slightly rearranged for readability)

Prime Minister John Howard’s office has denied allegations that he took instructions from broadcaster Alan Jones to reappoint Professor David Flint as head of the Australian Broadcasting Authority (ABA). ..Rival broadcaster John Laws has aired an allegation that Mr Jones told him he had pressured the Prime Minister to have Professor Flint reappointed. John Laws said on Southern Cross radio in Sydney this morning that he was at a dinner party with Mr Jones and others on November 28, 2000, when Mr Jones warned him not to criticise Professor Flint…. “Alan Jones then went on to say in fact, ‘I was so determined to have David Flint reelected that I personally went to Kirribilli House and instructed John Howard to reappoint David Flint or he would not have the support of Alan Jones in the forthcoming election’,”

“The Prime Minister does not take instructions from anybody in the media about appointments or indeed anyone else in the discharge of his responsibilities as Prime Minister,”

the spokeswoman said.

He has no knowledge of any conversation that may have taken place between Mr Laws and Mr Jones at a dinner party.”

Now suppose that (most improbably) a videotape turns up showing Alan Jones telling Howard that he should reappoint Flint or lose his (Jones’) support. Howard could perfectly plausibly say that he doesn’t take orders (instructions) from Jones, and that he was going to reappoint Flint anyway. And of course, there’s no reason to suppose that Howard has any knowledge of what Jones said to Laws. No-one ever suggested he did.

Update 29/4 It didn’t take long for the nondenial quoted above to be subject to the same kind of close reading I offered – people are used to the need for this kind of thing now. After a pointless round of “not to my recollection” and “I don’t recall”, Howard has finally produced a clear denial.

I specifically deny any conversation remotely resembling what has been alleged,” Mr Howard said.

“If somebody approached me, somebody from the media with a threat that they would withdraw support from me if I didn’t do such and such I would to use the Australian vernacular tell them to get lost.”

The only problem is that Laws has witnesses who recall Jones’ statement to him. Of course, it’s entirely possible that Jones lied to Laws when he claimed to have spoken to Howard. Equally, it’s possible that Jones and Howard are both lying now. In the light of his thirty years in political life, are there any readers who have sufficient faith in Mr Howard’s word that they are willing to dismiss out of hand a second-hand report from a dinner party three years ago?

According to this report, the widely-predicted Google IPO is likely to value the equity in Google at more than $20 billion – others suggest $25 billion. I immediately wondered whether Google was really worth $25 billion.
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The problem with, and the virtue of, referendums is that, in the absence of armed guards at the ballot box, you can never be sure of the result. The curious politics of the European Union are such that referendums are of particular importance. The big news at present relates to the twin referendums just held in Cyprus, on the UN plan for reunification, and the commitment by Tony Blair to hold a referendum on the EU ‘constitution’.
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My recent posts on the Republican/rightwing campaign against science have led to reminders that this kind of thing isn’t confined to the political right – I mentioned this in a footnote, but the subsequent correspondence has raised some examples I can’t resist, as has a mildly spooky coincidence.
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Another Monday, another Message Board. Post your thoughts on any topic (civilised discussion and no coarse language). I’ll be travelling a bit this week, as noted above, so this is a good chance for readers to talk among themselves.

As a 19th century bishop is supposed to have said, there’s no better way to spend Sunday afternoon than curled up in bed with a good Trollope. I’ve just been given a beautiful Folio edition of the Barchester novels and am rereading them, beginning with The Warden which, despite some obvious defects, is probably my favourite.

I’m looking ahead to the June 30 “handover” of power in Iraq with increasing trepidation. As this NYT story indicates, the handover is shaping up to be a complete sham (more on this from Nathan Brown, guest commentator for Juan Cole). Anybody silly or corrupt enough to join the new “government” will be in the same position as the Iraq governments of the British Mandate/Treaty period, taking responsibility for policies dictated by a foreign occupying force, while having no effective power over anything that matters.
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Following up on my previous posts, I thought it might be useful to summarise my objections to the claims put forward by Jennifer Marohasy of the IPA, supporting the conclusion that scientists have “greatly exaggerated their claims that the Murray River’s health was declining.” You can read her full paper here (1.5 Mb PDF).
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The big Oz political news of the week was the flap over Mark Latham’s remarks on education, which echoed similar remarks by Bill Clinton and led to claims of plagiarism from the PM. Chris Sheil rightly describes this as a terrific beatup, but asserts that “the Coalition has won the day so far on this one”, while in the comments box, Sedgwick rates it a nil-all draw. I count it as a 2-0 win for Labor, with J. Howard doing all the scoring (own goals in both halves).

First own goal: Latham is shown on TV over and over, making commitments to education. He would never have got such publicity on the strength of the speech itself.

Second own goal: Rather than using one of his taggers, ideally a snarky journo or even a blogger, Howard went for the king-hit himself, thus casting himself in the classic negative role of the carping critic with no substantive policy to offer. Opposition leaders, by virtue of their position, find it hard to avoid this role – for a PM to take it on voluntarily is stupid.

As it happens, I can apply the taxi driver test to this one. I heard this on the radio going to the airport and the taxi driver (middle-aged and not obviously a lefty) said exactly what I thought “So What”.

An obvious logical objection, that doesn’t seem to have occurred to those debating this issue is that any politician who uses a speechwriter is automatically guilty of plagiarism. The implication, I think, is that the term has no real applicability in politics, except in cases where a speaker explicitly claims words as their own (the opposite of the situation in the academic world).

Update: There’s a bit more about this over at Catallaxy. Showing yet again that it’s possible to agree on particular points despite important disagreements on values, Andrew Norton agrees that the kind of plagiarism undertaken by Latham is a trivial offence if it’s an offence at all. On the other hand, writing in the comments thread, Geoff Honnor makes the point that Latham also scored an own goal by denying the obvious. I’ll restate the score as 2-1.

Further update In the comments thread, reader TJW suggests that the story began with Laurie Oakes, who certainly fits the billl as a snarky journo. If this is correct, Howard’s own goal looks even worse. He would have been sensible to leave it with Oakes, rather than to jump in and open himself up to the inevitable finding that he’d done just the same thing himself.

It’s the fate of market innovators to be undercut by new entrants. Bill Tozier has hit on the idea of auctioning co-authorship rights, including the acquisition of an Erdös number of 5. As of this posting, the Ebay high bid stands at $US 31. 354

But Bill has apparently failed to learn the lessons of the dotcom era. The first is to patent everything. As far as I can tell, Bill has failed to file for a business methods patent on his idea, leaving it open to new entrants to imitate him, or even to patent the idea themselves.

The second is that the best way to undercut the competition is to give your product away. Following on this lesson, I’ve decided to set my co-authorship price (including *free* Erdös number of 4) at zero. That’s right, potential co-authors! Send your paper to me with a space for my name on the front page, after yours[1]. SEND NO MONEY! If I like it, I’ll insert my official stamp, and send it off to an appropriate journal. I don’t know why I didn’t think of this earlier!
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Among my various activities, I’m a member of the Queensland Competition Authority, which is responsible for regulating a range of private and public monopoly enterprises[1]. I’ve spent the day in and around Mackay, looking at railway yards and coal-loading ports. I’ll be back tomorrow with more posts, and responses to the lively comments threads.

fn1. Just to be on the safe side, I’ll mention that nothing written on this blog purports to represent the position of the QCA, the University of Queensland, the Australian Financial Review or anyone else for whom I might do some work at some time or another.

There have been quite a few interesting posts at Catallaxy recently, and I haven’t got around to linking them. I meant to post a response to Jason’s discussion of flat taxes, but haven’t had time to polish it yet.

Instead, I’ll link to Andrew Norton’s response to Alan Wood’s claim that the way to voters’ hearts is via big tax cuts (which includes a further link to Stephen Kirchner. Andrew and I have both discussed this previously, and we agree that Wood is wrong, though of course I’m happy about this and Andrew is not.

One point I’ll make is that Sol Lebovic is quoted, endorsing the Oz party line, and claiming that “while health and education routinely top the list of issues of concern to voters, they don’t swing elections unless there is a clear difference between the parties.” I think this is silly (obviously, there is a clear difference, since Labor is invariably more favorably disposed to public expenditure in these areas). More to the point, I think it’s very unwise for a pollster to run down his own poll results when they yield a conclusion that’s inconvenient to his employer, as Lebovic now seems to do regularly.

If the poll answers were genuinely misleading, the correct response would be to change the questions, the sample, or both. It’s clear that the kinds of changes needed to give the answers the Oz wants to hear would involve blatant rigging that would destroy Newspoll’s credibility for all time. So Lebovic is unwilling to tamper with the polls, but he is willing to tell us to ignore some of the results.

Following up the links on a post by Eszter at Crooked Timber, I discovered that she shares with me an Erdös number of 3 (Eszter via Aronov and O’Rourke, mine via Fishburn and Wakker). This is pretty good for social science academics.

We thought this was worth a CT post, and came up with another issue. Although Movable Type and other systems encourage group blogging, they don’t, it seems, allow for jointly authored posts. This is of particular interest since it’s at least arguable that a joint post would count as co-authorship for Erdös number purposes (this comes back to the question, frequently discussed on this blog, of whether and how blog contributions should be listed on vitas). But more generally, it would seem as if joint posts would be worthwhile for at least some purposes.

The Erdos number site asserts that numbers as high as 15 have been found, but that, at least for mathematicians nearly all finite Erdös numbers are below 8. This seems about right, though mean, median and modal numbers must grow as those with low numbers die or retire, becoming unavailable for collaboration.

While on my way to the airport, I saw an ad for Wild Turkey bourbon, which said “Anything less is a waste of good ice”. I had that uneasy feeling that something was wrong, but I couldn’t quite say what. Then it struck me that the claim was logically equivalent to “Any worse, and it would be undrinkable”.

I’ll be in Adelaide tonight, talking at the Elder Hall, University of Adelaide, 6;00pm to 8:00pm in a forum organised by the Don Dunstan foundation on ‘The Electricity Crisis: What Can be Done?’

It’s time, as usual, for the Monday Message Board. Please post your comments on any topic (civilised discussion and no coarse language, please). I’d be interested to hear how long people have been reading this blog (any claims in excess of two years will be viewed with great suspicion) and how they first heard about this blog or blogging in general.

Ahmed Chalabi, being interviewed by the Australian Broadcasting Commission, and urging that Australian troops remain in Iraq had this to say (emphasis added).

I think that we wasted a year now. The security plan for Iraq that was put forward by the Coalition has collapsed. We must face this fact and we must involve Iraqis right away in the training and the recruitment of the police. I believe that a year to 18 months of hard work on the right track will be sufficient to train an important and significant security force.

Obviously, this assessment suited Chalabi’s argument on the day, but it’s closer to the truth than anything anyone else associated with the Administration has been willing to say.

Following up on a discussion at Crooked Timber, I looked at this much-linked piece by Camille Paglia, and was struck by its dated references to television and the 60s[1]. She goes on to talk about computers, but apparently sees the computer as nothing more than a turbocharged TV set. This impelled me to dig out a piece I wrote nearly ten years ago, making the point that far from privileging visual media, the computer, and particularly the Internet are contributing to a new golden age of text. Blogs weren’t thought of when I wrote this piece, but the argument anticipates them, I think.

fn1. Oddly enough, although the main argument is a restatement of positions that were familiar 50 years ago, the piece is full of references to the young, as though the current generation of young adults has been, in some way, more saturated in TV than were the baby booomers.
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I’ve previously observed that it’s now virtually impossible to be an orthodox Republican (or an Australian follower of Republican ideology) and believe in science. To be counted as one of the faithful, it’s necessary to take a party-line view on scientific issues ranging from global warming to epidemiology to evolution. One aspect of this, which I’ve pointed to in the past, is the proliferation of “junk science’ sites, which, while purporting to defend science, act like trial lawyers, selecting (and if necessary distorting) the evidence that supports the party line, while ignoring or libelling any researcher whose findings are politically inconvenient[1].

The eponymous Junk Science site of Stephen Milloy sets the pattern here, but it has largely been eclipsed by Tech Central Station, an Astroturf operation, run by James K. Glassman and featuring such luminaries as David Legates, Willie Soon and Sallie Baliunas. A pretty good list of other party-line sites can be found by looking at Stephen Milloy’s recommended links, though by some mistake the list of recommendations includes the (entirely reputable) American Meteorological Society [I didn’t check every single recommendation, so there may be other similar cases, but the majority are clearly advocacy sites].
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You are Paul Krugman! You’re a brilliant economist
with a knack for both making sense of the
current economic situation and exposing the
Bush administration’s lies about it. You
somehow came out as the best anti-war writer on
the Op-Ed staff. Other economists hate your
guts for selling out to the liberals. To hell
with ’em.

Which New York Times Op-Ed Columnist Are You?
brought to you by Quizilla

The issue of whether the Howard government is, as the Labor party has claimed, the highest-taxing government in Australian history[1] is not only politically contentious, but statistically complicated. A couple of weeks ago, David Bassanese had a piece in the Fin using Australian Bureau Statistics data to argue in support of this claim.

I was disturbed today, to see a letter from Rob Edwards of the ABS, responding to Bassanese and supporting the government line. In particular, the letter accused Bassanese of unspecified errors and argued in favor of relying on cash measures of the deficit (Bassanese used accruals for recent years and “cash converted to accruals” estimates for earlier years). While the ABS has occasionally responded to direct criticism of its figures (for example, my own criticisms of its multifactor productivity estimates), I don’t recall a previous instance where it’s been involved in partisan controversy of this kind.

As readers of this blog will know, the issue is far too complex for simple answers like those put forward by Bassanese and Edwards to be regarded as definitive. But Bassanese is a journalist writing what’s clearly intended as commentary rather than news. He’s entitled to put forward his own views. Edwards is supposed to be a neutral public servant.

It’s been a long time since I took on trust anything coming out of policy departments like Treasury and the Productivity Commission. Under the present government, we’ve already learned we can’t trust statements from the armed forces, the Defence Department or the Electoral Commission. But until now, I’ve never seen any serious evidence of political interference with ABS. This letter suggests that the process has begun.

(The Edwards letter follows).
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The day before Tony Blair turns up in Washington to give yet another demonstration of support for the mess Bush is making of Iraq, we have the spectacle of Bush and Sharon tearing up the “roadmap for peace”, one of the key elements on which Blair sold the Iraq war to the British Labour Party, and Bush endorsing Sharon’s plans to annex most of the West Bank. It’s hard to imagine that Blair could stand for such a gratuitous insult, but equally hard to imagine him doing anything about it.
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At least one reader has asked for my views on the investment aspects of the proposed FTA between Australia and the US. The provisions aren’t that extensive. It appears that the threshold for Foreign Investment Review Board review will be raised, but this will have little direct impact since hardly any proposals are rejected.
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I’ve been interviewed by the 7:30 report regarding the resignation of Bob Mansfield, the Telstra chairman. Unless something more newsworthy bumps it, some of the interview should go to air tonight. Those who don’t care about the visual component can read my general views on Telstra here, here and here.

On the proposal that led to Mansfield’s downfall, that Telstra should buy Fairfax, my reaction is “What were they thinking!?” Obviously the majority of the board could see howinappropriate this idea was for a company owned by the Federal government and directly controlled by the shareholding ministers. But even if Telstra were fully privatised, it would be a terrible idea for a major regulated monopoly to own large chunks of the press or, as in the previous proposal to buy Channel 9, TV.

Thanks to reader Christoper Short for alerting me to this NBER Working Paper by Orley Ashenfelter and Michael Greenstone which gives more information on speeding and road deaths. Most of the article concerns statistical pitfalls in estimation, but I’ll focus on the bottom line which is their estimate that the implicit value of the time saved per life lost as a result of relaxation of rural speed limits in the US in the 1980s was in the range $1.2 million to $3.2 million in 1997 values.

This sounds like a lot, but it’s lower than most estimates of the value people place on risks to life (for example, looking at stated willingness to accept risk, wage premiums for risky occupations, or costs of medical procedures that are generally accepted as cost-effective). I discuss this a bit more here and you can find more discussion by searching the site for “speeding”[1].
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