My column in today’s Fin. I should say that I didn’t pick the headline, and am a bit allergic to the use of “flaws” in policy discussion. No policy is flawless, so describing one as “flawed” doesn’t really say anything.
Hello all, Jacques here.
John’s site is largely migrated. johnquiggin.com is being served from the Ozblogistan servers. You should notice a performance improvement.
Comment in this thread if you see any problems.
I’m taking a break until after Easter. I hope that, by the time of my return, the performance problems that have been affecting the blog will have been resolved. In the meantime, best wishes to everyone for a happy and safe holiday.
I’ve finally decided to move this blog from its current hosting service (who inherited me from a smaller service they took over) to Jacques Chester’s Ozblogistan which is home to many of the leading Oz political-economic blogs these days. The first attempt at the weekend didn’t go so well, taking the blog offline for a while. But I’m hopeful we’ll manage the transition and that service will be greatly improved in the long run.
* A reader suggests using that the term “Robin Hood tax” for the proposed tax on financial transactions is unfortunate, and that Global Financial Crisis Tax would be better. I agree. The ‘Robin Hood’ term applies to any redistributive tax, and is more directly descriptive of a progressive income tax. The ‘GFC tax’ term reminds everyone of the burden placed on the global community as a whole by excessive financial speculation.
* My colleague and co-author Grace Lordan, has an interesting post on health and discrimination
* Nine of ten authors on a list of “climate sceptical” papers have close links to ExxonMobil. Whocoodathunkit? [1]
** And surprise, surprise a large proportion of the “peer reviewed” articles are in sham journal Energy and Environment, while quite a few others are listed as “submitted”. Check the list here
fn1. Any commenters tempted to cry “ad hominem” at this point should look up “argument from authority” before making fools of themselves.
I’m thinking about doing another book, which would be a reply to Henry Hazlitt’s Economics in One Lesson a tract published in 1946, and available online, but still in the Amazon top 1000. It’s largely (as Hazlitt himself says) a rehash of Bastiat.
I’ll try to put up a prospectus soon, but I thought I’d start with something simpler, a response to Leonard Read’s 1958 I, Pencil. This essay is a description of the incredibly complex “family tree” of a simple pencil, making the point that the production of a pencil draws on the work of millions of people, not one of whom could actually make a pencil from scratch, and most of whom don’t know or care that their work contributes to the production of pencils. So far, so good. Read goes on to say that
There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work.
Hold on a moment!
Read’s first person pencil starts the story like this
My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon.
That would probably be in a forest managed by the US Forest Service or the Bureau of Land Management, or maybe a similar state agency.
It goes on to mention “all the persons and the numberless skills” that are involved in forestry and in the various subsequent stages of production. Most of those people would have acquired their basic skills in public schools, and learned more in colleges, trade schools and so on, mostly public or publicly funded.
Next up is the rail trip to San Leandro California. Read’s pencil doesn’t mention the line, but it’s presumably on the network of the Union Pacific Railroad, created by Act of Congress under Abraham Lincoln, with the plan of building a railway line across the US[1].
And, while we learn how the pencil is produced by sandwiching a graphite tube between two wooden slates, the pencil forgets to mention its invention and patenting by Nicolas Conte in the late 18th century. The patent system is a temporary government-created monopoly, and a classic example of the mixed economy[2].
Finally, let’s look at Eberhard Faber, the company that made the pencil. It’s now a subsidiary of Newell Rubbermaid, a multinational consumer goods conglomerate with over 20 000 employees and dozens of different brands. Obviously, someone sees a fair bit of benefit in “dictating and forcibly directing” the work of these thousands of employees, rather than relying exclusively on transactions in the marketplace. And the shareholders seem keen on organizing all this activity under the state-created protection of the limited-liability corporation, rather than acting as independent entrepreneurs.
What can we learn from all this? As Read argues, following Adam Smith, markets can indeed organize very complex production processes, to an extent that might well seem miraculous to anyone who tried to reason about it in the abstract. But that doesn’t mean that markets are the only, or invariably the best, way to organize production.
The majority of economic activity takes place without any direct connection to markets, undertaken in the household or government sector, or within large corporations that trade in the market sector, but use central planning to organize their own activities. The boundaries are constantly shifting as some activities shift between household, government and market sectors, and as households, governments and firms outsource some activities and integrate others.
The fact that a particular form of organization exists and functions does not prove that it is optimal. It is certainly possible to imagine forms of modern society in which markets and private property play no role, or forms in which there are “markets in everything”. And, within the broad class of mixed economies, there’s a wide range of possibilities – most goods and services have somewhere and sometime been provided by governments, and somewhere and sometime by private markets.
Nevertheless, the broad outlines of the mixed economy have remained broadly stable since the 1940s, surviving both the challenge from comprehensive central planning in the Soviet Union and the push for privatisation that began in the 1980s and ended (as a program with a credible theoretical foundation, if not as an ideological agenda) in the Global Financial Crisis. Any serious policy program has to take account of this fact.
fn1. Actually when Read was writing, it was probably the Southern Pacific, successor of the Central Pacific, which built the western half of the line, meeting the Union Pacific line halfway in a marvel of successful planning.
fn2. Libertarians and other free market advocates are divided in their views on patents and other forms of ‘intellectual property’. But their logic-chopping style of argument tends to push them to one or other of the extreme positions, either opposing any patent protection or treating intellectual property similarly to other property, with no time limits. Nozick (and Rothbard) finds an intermediate position, supporting protection against direct copying, but not against independent invention.
I’m thinking about doing another book, which would be a reply to Henry Hazlitt’s Economics in One Lesson a tract published in 1946, and available online, but still in the Amazon top 1000. It’s largely (as Hazlitt himself says) a rehash of Bastiat.
I’ll try to put up a prospectus soon, but I thought I’d start with something simpler, a response to Leonard Read’s 1958 I, Pencil. This essay is a description of the incredibly complex “family tree” of a simple pencil, making the point that the production of a pencil draws on the work of millions of people, not one of whom could actually make a pencil from scratch, and most of whom don’t know or care that their work contributes to the production of pencils. So far, so good. Read goes on to say that
There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work.
Hold on a moment!
My piece in yesterday’s Fin. The write-off and headline didn’t quite capture the distinction I wanted to make between Gillard (total embrace of neoliberalism) and Swan (Keynesian but not Keynesian enough).
For at least the last decade, there has been a boom in work on the economics of happiness. But following Tolstoy[1], I’ve always wondered why we don’t study the economics of unhappiness instead: after all, there’s so much more data.
For the last year or so, I’ve been planning a paper in which I took off from this point and made the case for unhappiness as a driver of economic activity and particularly of economic change (including ‘growth[2]’). But, as usually happens[3] with my thoughts along these lines, it looks as if someone has beaten me to it.
Chris pointed me to this piece by Stefano Bartolini, which argues that people strive to increase their wealth as a response to the negative externalities generated by positional externalities[4] and the destruction of social capital.
I’ve also been reading a translation of Sedlacek’s Economics of Good and Evil, a surprise hit in the original Czech, which discusses many of the same issues, focusing on the contrast between the economics of the ancients and that of Adam Smith.
I have a more positive take on unhappiness. It’s possible, I think, to want something better than what you have (for many different values of “better”) without being actively miserable. In a world where change, both good and bad, is inevitable, cultivating a position of stoical detachment seems to me to be something of a copout[5}
fn1. Tolstoy had his own economic ideas, which drew (not surprisingly for the time, and for a dissident landowner on Henry George)
fn2. Growth, like GDP is a tremendously unsatisfactory and misleading concept when dealing with complicated economic aggregates, some components increasing and others decreasing. But that’s another post.
fn3. Often by a fair stretch of time, as I’m very slack about reading the literature. I was very pleased with my discovery of Ramsey’s Rule of Saving until I discovered that Ramsey had got there first.
fn4. To translate from the economese, the fact that some social benefits depend more on your relative position than your absolute wealth means that if one person becomes better off, others are worse off.
fn5. Does this useful slang term have an equivalent in formal English? I can’t think of one that isn’t a paraphrase.
Wayne Swan has a Fabian Essay defending the Keynesian credentials of the Rudd and Gillard government. The central argument is sound enough
if we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again. That means a speedy return to surplus.
But there are a couple of big problems. The first is one of timing. The 2009-10 Budget, which included a large deficit as a Keynesian stimulus, proposed a return to surplus by 2015-16. This was seen at the time as quite ambitious – most developed countries have no obvious path back to surplus.
Nevertheless, by May 2010, with economic conditions much stronger than expected, it seemed as if the government had not been ambitious enough and the target date was brought forward to 2012-13.
Over the past year, however, the economic news, both locally and globally, has mostly been bad, with natural disasters producing short-term shocks, and the US and Europe mired in heavy debt and sluggish recovery. The economy has slowed a bit and tax revenue has fallen short of expectations. Unsurprisingly, on the government’s current policy settings, the return to surplus would be delayed, though probably still ahead of the original 2015-16 target.
From a Keynesian point of view, that’s exactly what should happen. Although the slowdown isn’t enough to justify an active fiscal stimulus, the standard Keynesian prescription would be to allow the automatic stabilizers to work, smoothing the path back to full economic recovery. Unfortunately, that’s not what the government is doing.
Among the many anti-science talking points, a striking one is the widely repeated claim (originating with Richard Lindzen) that there has been no significant warming since 1995. In his original statement, Lindzen was careful to refer to “statistically significant” warming, but he must have known that most of his readers would understand “significant” in its ordinary sense, and in fact Lindzen fell into the same trap himself in this Quadrant article. Sinclair Davidson cites the BBC interview leading to the famous Daily Mail article that got this utterly wrong, but doesn’t point this out to his audience (most of whom wouldn’t know a t-statistic if it bit them, but nevertheless feel qualified to “make up their own “minds”” in accordance with their political prejudices.)
As I pointed out, all Lindzen’s claim means is that, given the noise in the data, you need more than the 14 annual observations from 1995 to 2008 (when he made the claim) to get statistical significance. Of course, we had the additional observations, namely those before 1995, so Lindzen’s statement was trivial. It was also safe to predict that, given a few years more data, the trend for the period since 1995 would be significant, and so it has proved.
Read more…
It’s time again for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.
I got an email the other day, trying to set up an interview about Zombie Economics: How Dead Ideas Still Walk Among Us. Shortly afterwards there was a cancellation – they actually wanted the author of Zombie Economics: A Guide to Personal Finance, due to be released in May.
I’m well aware that there’s no copyright in book titles (Zombie Econ was originally going to be called “Dead Ideas from New Economists, and back in the 90s I wrote one which the publisher insisted on calling Great Expectations), but I can’t help wondering about the implications for sales. At least for the moment they don’t look too bad. According to Amazon, 12 per cent of people who viewed the doppelganger ultimately bought my book, while the proportion going the other way is zero (although some zombie fans go for Chris Harman’s Zombie Capitalism). But I imagine that’s the result of bad search results among people looking for mine, rather than a spillover from those looking for the doppelganger. If so, I imagine the flow will reverse when the new one is released.
Are there other interesting examples of book title recycling, or interesting ideas for new takes on classic titles?
Not long ago, I noted that Opposition Environment spokesman Greg Hunt was out by a factor of five in his estimate of the effects of a carbon price on the average household’s electricity bill. Now Tim Lambert at Deltoid catches him out by a factor of (at least) 100. And last week Lenore Taylor caught him circulating the latest delusionist talking point (about France dropping a carbon tax) in a press release, hastily correcting it an hour later when he realised that his “news” was a year old.
Three absurd errors in the space of a few weeks is starting to look like a pattern. What gives here? Hunt is one of the less silly members of the Opposition front bench, so I think the only explanation is that he is, as they say in the movie business, “phoning it in”.
If Hunt wants to stay in his job he has to oppose a policy he knows to be the right one, while advocating a nonsensical supposed alternative which exists only because Abbott can’t afford to say he will do (next to) nothing about climate change if he gets in, though of course that’s exactly what will happen.
And those on the Liberal side of politics who are paying any attention to this issue are mostly “sceptics”, that is, credulous fools who’ve already swallowed bucketloads of nonsense from Monckton, Carter, Plimer and others, despite ample and easily accessible refutations from scientists who know what they are talking about[1]. While they would scream blue murder about a misplaced comma in an IPCC document, or an out-of-context phrase lifted from an email, nothing as trivial as an error of a factor of five (or a hundred or a thousand) will worry them as long as it comes from their side of the fight (I was going to write “debate”, but this would imply that there was some element of rational argument).
So, from Hunt’s point of view, he might as well take it easy and churn out whatever nonsense comes to hand. As has been shown by the non-reaction to the absurdities I’ve listed, no one but a few bloggers will care.
fn1. Within this group, I guess I prefer those for whom “sceptic” means “I’ll believe whatever suits me politically” to those who, in the face of all this profess to be “still making up their minds” or “unable to judge”. Both are displaying absurd credulity regarding the nonsensical “evidence” put forward by the anti-science side and a massive over-estimation of their own reasoning powers regarding a mass of scientific literature they have never read and never intend to. But the first group are at least clearer about their motives.
The news from Yemen is grimly familiar – more protestors shot by President Saleh’s security forces and plainclothes thugs. But now the US government has shifted position, letting it be known in various ways that it’s time for Saleh to go. Their hope now is that a replacement will allow the operations against Al Qaeda in the Arabian Peninsula to continue as before. A few thoughts about this.
From my incoming email
Groups across the world are inviting economists who are qualified by post-graduate degree (Master or PhD) to sign a letter in support of a financial transactions tax (see below). The goal is 1000 signers by Friday, April 8th.
Economists can sign the open letter by entering their details in the comments box at this link: or emailing [email protected]Last year, 350 economists from all over the world signed a letter in support of a financial transactions tax, and over the past year there has been significant political movement towards implementing the FTT in Europe and some other countries. The campaign for the so-called ‘Robin Hood Tax’ is now hugely popular in many countries (www.robinhoodtax.org). The French have made an FTT a priority for their presidency of the G20 and there is a real chance of a breakthrough in the coming six months.
I’ve also had some contact with the organizers who would like some Australian academic economists (I take this to mean having an academic position in an Australian econ department) who would state their support as a group. If any of my readers fall into that category, please email me.
It’s time again for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.
Most of the press coverage of Julia Gillard’s Whitlam oration has focused on her partisan digs at the Greens, and even then only in an “inside football” way, that is, on the likely short-term political implications rather than the validity or otherwise of her criticism.
The only responses I’ve seen pay any serious attention to what is (or at least is presented as) a major restatement of Labor’s vision have come from bloggers, such as Trevor Cook, Kim at LP and Jonathan Green. It’s also worth rereading this piece by Mark Bahnisch responding to an earlier speech. I broadly agree with much of this commentary, but I thought it would be worth offering a response of my own.
Both implicitly, by omission, and explicitly, in rhetoric and substance, Gillard’s speech represents a repudiation of the Labor tradition exemplified by Gough Whitlam, and even, in many respects, of the market liberal reworking of that tradition under the Hawke-Keating government.
It is a speech that could have been given, with absolute sincerity, by John Howard on behalf of the Liberal party, and marks, in both large and small ways, Gillard’s acceptance and celebration of the values and beliefs of the Liberal party as espoused by its leaders from Menzies onwards. Indeed, with more historically apposite examples (Reid, Deakin and Lyons for example, instead of Barcaldine, Curtin and Chifley) this would have made quite a good Menzies oration.
Here’s a new sandpit for lengthy side discussion, rants on idees fixes and so on.
It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, and restatements of previous arguments, as opposed to substantive new contributions, to the sandpit(s). As always, civilised discussion and no coarse language please.
As a result of the events in the Arab world[1], I’ve been thinking some more about “international realism”, which I take to have the following central premises[2]
1. States have durable, long-term interests and their actions in international affairs are driven by the rational pursuit of those interests
2. The use or threat of military power is the pre-eminent way (or at least one of the primary ways) in which states pursue their interests
It struck me in thinking about recent events that this is essentially a theory for a world of autocracies. (Apologies to those for whom this is old news, but this is a blog, after all). In such a world, international realism reduces to the claim that individuals are driven by rational self-interest. While there are problems with this claim (it’s empirically problematic if self-interest is defined tightly, and tautological if it’s defined by “revealed preference”), it seems like a sensible starting point, at least for the kind of individuals who become successful autocrats.
Moreover, the idea that war is a central part of rational policy makes sense for autocrats. Although war is a negative sum game, it seems reasonable, under a wide range of circumstances to assume that the losses are borne primarily by the autocrat’s subjects, while the gains flow to the autocrats. Even a war that ends with the status quo ante can be beneficial to the rulers on both sides by providing a Malthusian check on a population that might otherwise prove restive, providing an excuse for increased taxation and so on. That implies the failure of the standard negative-sum game argument against war, namely, that both sides would be better off calculating the outcome of war, and agreeing to accept it without a fight.
Over the fold, my column from yesterday’s Fin
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