H.E. Seyed Mohammad Khatami

I heard this remarkable man - ex president of Iran 1997-2005 - speak at La Trobe University this evening.  Mr Khatami is a Muslim cleric whose main interest is political philosophy.  I found his prepared speech, which ran for half an hour, academic and rather dry.  For another 2 hours however he took good-natured, though often pointed questions from his audience with grace, animation and (most of all) an erudite humor that had even the stern-faced security guards in stiches of laughter.  It was the largest public meeting I have attended at LTU with about 1300 in attendance - the audience filled 3 lecture theatres to capacity. 

A most enjoyable evening which touched on the conservatives in Iran, fanatical Muslims, fanatical neocons, Iranian nuclear power, Palestine, Barack Obama.

Khatami's public presence did not support the Jewish Community Council of Victoria's image of him as a Jew-hating supporter of terrorism.  In his public statements tonight he expressed religious solidarity with the Jews - in terms of a common religious heritage - but opposition to their occupation of Palestine, total opposition to religious fundamentalism and absolute opposition to terrorism.  He saw Obama as a positive force that was nevertheless likely to be thwarted by US pressure groups.  He skillfully promoted the Iranian national image - no mean feat given the press it receives.

The JCCV condemned LTU for inviting him but in my view we should listen. In human terms I've got to say that I feel some bond with people such as Khatami. I probably would not agree with some of his specific religious views but to be honest, if I was organising a barbie, I'd like him to come.  Maybe I am gullible and falling for a skilled propagandist! Maybe not.

Einfeld goes to jail

Former head of Human Rights Commission and perennial liar Marcus Einfeld has gone to jail for at least two years.  The left loved him as a personality judge. But he lied about a $77 fine (he had lied about traffic convictions several times before), lied about his academic qualifications (he bought degrees) and his past directorships and plagiarised past legal judgements.  Einfeld made a career as a well-paid, blow-hard moraliser. Aborigines, refugees, Cornelia Rau ...Einfeld was a great defender of humanity.  I can't help wondering whether his claims in this regard were lies too or, as I often sensed when I heard him speak, just pompous insincerity.

No-one should dance with joy to see Einfeld cop his due.  There is tragedy here - he is 69 and his health is poor.  But for once the legal system worked reasonably well * and extenuating circumstances were not evoked for a favoured son.

* The qualification reasonably because his sentence was reduced because of the pain he has suffered on account of the press coverage received.   But the press didn't persecute him - they only identified his lies.

Martin Feldstein & AIG (& Mankiw)

The famous Harvard-based economist Professor Martin Feldstein is on the board of the American insurer AIG that received $200 billion in handouts from the US government and which has just paid over $160 million in bonuses mainly to those managers responsible for its massive financial failure.  The bonuses were 'justified' by AIG as retention bonuses designed to retain staff although 11 executives paid the bonuses quit AIG anyway. 

Feldstein is a conservative Reagan-backer who is now a member of Obama's 'economic recovery team'. Gulp.  A great man - Feldstein has won all sorts of awards and is still prospering.

(Feldstein's Harvard colleague Greg Mankiw argues that Americans shouldn't worry about the bonuses to AIG - they are only 0.001% of annual GDP anyway.  On this basis every criminal in the US justice system should be released from jail.  Disagree with you Greg and more than just emphatically.  Like Feldstein, Mankiw is one of those nominally skilled economists in the US universities who has no sense of the deep dilemmas that confront the US.  Mankiw has learned a little but his intelligence here does not roam beyond the glib and the cute. His views on this issue illustrate the poverty of academic sensibilities in US universities).

Rejected submission on lemons

In my youthful past when I sent an article to an academic journal and it was rejected my reaction was often one of fury.  This was often amplified by the fact that many referee reports are dismissive and careless*.  These days I still occasionally get angry but I have also become more philosophical as a product of what must be hundreds of interactions with editors and referees.

George Akerlof's paper on 'lemons' is one of the beautiful contributions I have come across in microeconomics. It shows depth of vision.  It changed the way we do microeconomics and the role we advocate for markets.

Akerlof considers a car vendor selling second-hand cars that may either be 'quality vehicles' or 'lemons'. It is a standard market situation except for one thing - the vendor has better information about the quality of the cars sold than potential purchasers. This is asymmetrical information. Potential customers will drop their bid for a car below the price of a 'quality car' because they will suspect there is some probability the car might be a 'lemon'. On the supply side fewer people will wish to trade in their 'quality' vehicles if bidders offer a reduced price.  Thus iterating again the thought process of the buyer there will be an increased probability that any car is a lemon.  Again this will influence the decision to sell a 'quality' used car and so on...... 

The upshot might be that the market for second hand quality cars disappears completely - or is greatly dinminished - as a consequence of the knowledge advantage of the car vendor.  It is a brilliant insight with a host of applications in real markets - in health, education and in various professional services for example.

Akerlof made many valuable contributions in economics apart from the 'lemons' problem. Indeed I referred to his interesting work on behavioural macroeconomics on this blog.  He was awarded the Nobel Prize in economics.  In this interesting note Akerlof discusses the process of writing and submitting the 'lemons' paper. It was repeatedly rejected by leading journals in economics as 'trivial' but was anything but that.

* This carelessness doesn't always prevent publication. I have submitted one paper that I am now convinced was wrongly accepted. I am not saying where this is.

Suntech's Shi Zhengrong

From being the son of a dirt-poor Chinese peasant, Shi has built one of the world's biggest solar power companies, Suntech. He learnt his stuff at the University of NSW. Suntech is threatened somewhat by the global financial crisis and by entry from competitors but still a great force.  This Fortune article is a fascinating story and a good illustration of how the market can help to tackle climate change issues.

Shi was (and perhaps still is) China's richest man. He holds an Aussi passport but lives in China - its a pity we could not hold him more firml;y here. However he is making financial contributions to Australia's underfunded solar program and initiating developments of solar power in Australia.

Bushfire tragedy hits home

La Trobe University academic Dr Richard Zann - an internationally reknown ornithologist - his wife Eileen and their daughter Eva all perished in the bushfires in their Kinglake home. RIP.

Five La Trobe staff have seen their homes destroyed and nine students have been left with no housing.

Meanwhile police believe arson was responsible for the death of 100 people at Marysville.  A fire was deliberately lit this afternoon in my home suburb of Ivanhoe.

This nightmare will stick around for quite a while.

Sunday night & medical cannibalism

Western civilised countries routinely used human body parts in pharmaceutical preparations up to the end of the 18th century.  The practise was widespread. Blood, meat the lot was tried with varying success. The potions didn't always work:

"In 1492, when Pope Innocent VIII was on his deathbed, his doctors bled three boys and had the pope drink their blood. The boys died, and so did the pope".

Not quite the flesh and blood of Jesus but I guess it was tasty enough.

Pity about those boys though. The pope was a slave trader, an adultera and a strong supporter of the Spanish Inquisition.  On the basis of that last sin the world was a better place with him dead.

HT John S.

People who caused the global financial crisis

This Guardian survey sounded at first to me like a dumb idea but it is interesting. The wide range of people surveyed suggests the diverse origins of the current mess.

I'd foregotten all about Abby Cohen - the perpetual stock market 'bull'. But, yes, she makes the list.

At the end of the list there are 6 more who saw the whole thing coming.  I was interested in the inclusion of Kathleen Corbet, former CEO, Standard & Poor's.  I don't understand why.

Buffett's Snowball

I have just read the massive 900 page biography of Warren Buffett, by Alice Schroeder, The Snowball, Warren Buffett and the Business of Life. I was thinking of reviewing it but after as couple of drafts I gave up because my review seemed so narky and negative in what I gleaned as the character of Buffett*. Yet I didn’t quit reading the book and, indeed, enjoyed it thoroughly. This review says what I wanted to say much better than I could. Quote:

Over 900 pages about a man who loves money so much that he has no interest in religion, the arts, literature, science, travel, partisan politics, his surroundings or fine living. Before the global recession (which reduced his fortune by around $16.5 billion), Warren Buffett was said to be the richest man on earth, with an estimated net worth of $62.3 billion in March 2008. But he lives in a house in Omaha, Nebraska, which he bought in 1958 for $31,500, subsists on a diet of hamburgers, cherry Cola and potato chips and spends his days in a repetitive routine which most people would find mortifyingly banal.

Of course we all want Buffett’s wealth but I doubt many would enjoy the miserable existence that he calls a life. On cost benefit grounds even if I could mimic his financial genius I couldn’t bring myself to live what to me would be an extremely tedious and narrow obsession with the almighty buck.

Essentially the flaw in the Buffett view of the world is mercantilist. His object in life is to accumulate piles of silver not to spend it or even to leave it to his kids. The world’s richest man provides a living contradiction to the basic idea of economics that it is consumption not income that should matter.

Did I learn anything about investing from this book? I think so. Common sense ideas about trying to understand a business and taking advantage of the ‘madness of crowds’ were appealing. Buffett’s idea of a ‘safety margin’ and his obvious disdain for tricky financial engineering were refreshing.

Buffett is interested in accumulating wealth not in spending it. His recent stated intended philanthropy via the Gates Foundation is partly just a manifestation of this – Buffett just wants to control the distribution of his wealth beyond the grave. I guess too that GF’s ethical view that all human lives have equal worth would be supported by Buffett – he strongly believes that kids should not receive a meal ticket for life because they win a genetic lottery. That’s sensible.

*On a positive note he is honest and values hard work.

Way of the Tao

Professor Terry Tao (born 1975) is an Australian mathematician now working in the US. Tao was a child prodigy who taught himself arithmetic at age 2. He received his PhD at age 20, was appointed a full professor at UCLA at age 24 and won the Field’s Medal in mathematics at age 31. This award is something analogous to a Nobel Prize in maths. (There is no Nobel Prize in mathematics though this is not because Nobel’s wife ran off with a mathematician).

Gregory Mankiw (and Joshua Gans) recently discussed a delightful version of the ‘airport problem’ a problem Tao conceived while manoeuvring around a long airport terminal. The apparently self-evident answer to the first part of this easy-to-state problem* is wrong but thinking clearly about the issue clearly resolves things quickly**.

Anyway I happened to see some classes given by Tao that have been recorded on YouTube. He is not only an obviously brilliant mathematician but an extremely able teacher. This introductory class on the prime numbers is beautifully presented.  Poetic, insightful, simple.

It is a pity – from Australia’s perspective if not his own - that he is not working in Australia building up a great mathematics department and attracting scholars of renown here. I’d make the same observation about notable scholars in my own field of economics. That’s definitely not a criticism of any individual – purely an observation that academe here would be better-off with their presence.

By the way Terry Tao is also a blogger – I added his site to my list of blogs a few weeks ago.

*You wish to get from one end of a long airport terminal to the other in minimum time by walking and taking motorised walkways where you can also walk. But you need to stop to tie your shoelaces. Should you stop on or off the walkway?

** Consider two people taking the walking journey. They leave at the same time and one stops to tie his shoelace just before he gets on the walkway while the other takes one more step and gets on the walkway where he then ties his shoelace. It is easy to see who gets to the other end first!

Vale Paul Newman 1925-2008

Paul Newman has died from cancer. A comprehensively decent man whose acting performances have entertained me for as long as I have been watching movies. This interview with him was made in 2007. 

I most remember him best from The Sting, Butch Cassidy and the Sundance Kid and a compelling, very different sort of performance, in The Verdict.   He made movies for 50 years.  I also enjoyed the early versions of his 'industrial strength spaghetti sauce' which he released in the US on my first visit there about 30 years ago. He made a fortune with his food products and gave the lot to charity.

Winning isn't everything

Joshua Gans is 'over the moon' because his daughter won a sports event. With some qualifications he asserts winning is everything. Its a very American attitude and one I don't agree with particularly in relation to kids sport where I think the key objective for the vast majority of kids is to participate - to enjoy participating in a healthy activity. Assuming Joshua's type of elation feeds back into the incentives influencing sports participation decisions by youth it seems to me unhealthy for those who don't really need to win and don't in fact win. The key reward from sport is to the individual in terms of enhanced individual physical potentiality not their ability to rank themselves ahead of other competitors.

Nor, for that matter, am I overly concerned with the signalling function of education - the important issue is to add value not to order students 1,2,...N. Again the ordering is irrelevant because it does not map into something that reflects significant value in any field of life. From an individualistic perspective the point is to realise individual potential not to be ahead of the other guy.

For the same reasons I try not to be particularly interested in social star rankings based on power and wealth. Trying to have more money than the next guy is the source of 'rat race' externalities in work effort while the pursuit of power helps create that class of psychopaths who have miserable lives (they can never be happy themselves) and impose misery on their subordinates in business and administration.

Winning isn't everything. The point is to enjoy yourself - to realise your own potential - and not to concern yourself unduly with how you compare with others in terms of running races - either sporting or economic. This is, of course, an ideal and difficult to achieve.

Stephen King leaves ACCC, goes to Monash

The ACCC's Stephen King has been appointed Dean of the Faculty of Business and Economics at Monash University.  Joshua Gans provides praise for the appointment of his co-author and business partner.

I hope this appointment is a success story for Monash - a university which, in my view, has not quite lived up to its considerable potential in the economics and business areas.   In the late 1970s I visited Monash and came to the view that it would likely become one of the top economics department in Australia.  It then had resources plus a youthful dynamism but the positive outcome didn't happen. Monash has had similar opportunities since then but has suffered under a load of administrative philistinism.

Today Monash has outstanding academics including Professors Yew-Kwang Ng and Peter Dixon.  It needs to be driven in a direction that encourages scholarship and which abandons values of academic entrepreneurship and managerialism.  Stephen King probably has the required values - it remains to see what changes he can make given administrative structures that often promote administrative rather academic values.

If Stephen can achieve success in putting competitive pressures on other universities, the business and economics areas throughout Australia - including my own - will derive benefits.  It is up to the Dean incumbent to be cautious and calculating but not to lose sight of core academic goals - good teaching, good research not administrative empire building.  Overall I am reasonably optimistic that the outcome with Stephen will be an improvement that will advance business and economics education in Australia.

But time will tell.

Update: I learnt today that Professor Gael McDonald has been appointed Dean of the Faculty of Business and Law at Deakin University. Professor McDonald undertook her PhD at the London School of Economics in 1989 on 'cross cultural issues in ethics management'. She has published in 'sports management' and on 'character education in NZ schools' - I could not locate a comprehensive CV online. Professor McDonald is currently Vice-President (Research) at Unitec in New Zealand. She has held a number of senior positions, including Vice-President (International) and, before that, Dean of the Faculty of Business at Unitec. Here are some more of her recent publications.

Birthday bash

Friend Jack R, is having his 60th birthday party soon - in Forestville, Sydney. I will be there but it seems the acceptances have been slow. This has got to be the YouTube of the decade.

Celibate soldiers?

I am stunned by the media interest in whether soldiers had sexual intercourse with a visiting female entertainer. It seems that she did not but even if she did who cares?

Why would such sexual intercourse be a 'scandal' even if it did occur? Are soldiers intended (or ordered) to remain celibate while on duty? Are women not permitted to select soldiers as sexual partners? The whole episode is a stunning non-event.

Update: In a separate incident an MP from Western Australia has become the 'lastest casuality in the state's political sleaze scandal'. His alleged offence - he invited a woman with whom he was apparently on friendly terms to join in a sexual threesome. He didn't do anything other than ask her. I am bewildered as to what the 'offence' here was.

Are 'threesomes' illegal in WA? Is it disrespectful of women to invite them to join in consensual sexual activity? Is the presumption that not only do women wish not to participate in sexual activities but that they also resent even being given the opportunity to do so?

A person cannot be made worse off if they can accept or costlessly decline any offer. They get choice. I can understand that offers can be put to people in terms that are offensive but then that should be the offence not the offer itself.

Australians are becoming very American in their attitudes - on the one hand many aspects of life are becoming sexualised via a media focus on sex and, at the same time, there is an underlying puritanism about sex in the media and the women's movement.

Pigs can fly - Harry Clarke in agreement with Paul Keating

Paul Keating expresses support for Morris Iemma in NSW. I agreewith Keating's remarks. His comments on the 'natural monopoly' character of the distribution network but the competitive character of the generation network in an integrated eastern seaboard market shows that he understands the main issues. Provided electricity can be sold in a connected, competitive market we don't need a 1930's-style Stalinist state supplying us with power.

Barry O'Farrell, who I knew as a very decent fellow student at the ANU in the 1970s, should be ashamed of his fence sitting. His duty is to NSW - not to scoring a few cheap political points. On this one my old cobber Barry - back Iemma.

Forgetfulness & neurosoftware

I have used a 4-digit code on my office phone to access stored phone messages at least once a day for the past three years. On Thursday I forgot it. Should I take up brain calisthenics? Where did I put my Nintendo?

I had to use the search function on my blog to recall the name of the singer, you know, what's-his-name, who dealt with the issue of, what was that again, oh yeah, forgetfulness.

......and thinking of Tom Rush and the songs I really liked of his (here) I found a version of "Urge for Going' by Joni Mitchell (she wrote this beautiful song) recorded around 1965 that was even better than Tom's version. How come I remember all this old stuff?

Seat-sniffing in the west

I would be astonished if Troy Buswell gets a kick out of smelling the seat that a woman has recently sat in. I assume his actions in sniffing the chair seat of a female Liberal Party staffer (in her presence) were a questionable joke that has gone seriously wrong. You wonder about the motives of the woman concerned in making her outrage public and in thereby publicly crucifying Buswell in front of his colleagues and his family. It seems to me these disclosures are marginally more destructive than putting a clip of Kevin Rudd on YouTube chewing his earwax which, in my view, wins the party-political grossness stakes hands down.

Seat-sniffing on the face of it would seem to be a more innocent perversion and indeed derriere and yeast devotion has been the subject of helpful advice from YouTube – ‘prepare an explanation lest you get caught’.

By the way I have a leather chair for sale that I’ve sat in for over 20 years. The leather in the chair is a bit, well, worn, but it does have the wholesome bouquet of a Vitamin B Berocca. There are a few inconspicuous tooth and nostril markings that mysteriously appeared deep in the leatherwork after some left-wing Labor Party types raided my cellar once I had departed my office but the chair is in otherwise excellent condition. All offers considered.

Australia 2020 Show

I waited for my invitation to the "Australia 2020 Summit" but it never came. I think someone spread the malicious rumour that I didn't vote for Labor in the last election and that I think Kevin Rudd is a peanut. And I think I know who started that story.

Anyway the 1002 'brightest minds in Australia' are getting together to help Australia 'think through' its future. I don't think that's a bad idea - it can't do any harm. Politicians definitely don't have a monopoly on knowledge and good ideas may surface.

It certainly has the effect of Labor cultivating an even greater attachment to intellectual elites and posers. That might generate a bit of much-needed internal party destruction among the comrades.

On the lighter side Cate Blanchett will be there in her jodphurs - she was the star at a pre-meeting photo session. Kevin Rudd and Glyn Davis will chair sessions and there will be lots of advertising types both with and without ponytails. Draped in her possum-fur coat Matilda House-Williams has already welcomed delegates on behalf of the traditional aboriginal land-owners. (I am tiring of the latter nonsense - we did it last night at a degree awarding ceremony!)

Anyway I will watch and listen and do my best to dispell cynicism - I don't want to get caught up in what Andrew Leigh calls 'sportsplay journalism'. Be positive (=don't be negative?), say nice things about everyone and smile. If you look hard at my photo logo to the right you can see that my grin has strengthened and in my eyes you can see a more enlightened, tolerant being.

Update. My spirit of tolerance and goodwill has waned.

Star attraction Cate Blanchett has praised the Government for putting creativity to the fore by forging links with the arts. While she stole the limelight her co-star Hugh Jackman made the scene too by urging expatriate artists to come home to be part of the emerging Australian paradise. Aging artists should teach and mentor said Foot-in-his-mouth Garrett to help stimulate Australian kulture. Australian content should be restored in the media, 1% of public funding should be allocated to the arts (oink, oink), a HECS scheme should be created for the emerging class of creative talent and politicians should be forced to attend cultural events declared these elitist porkers.

They might just get their wish list too judging by the sheer insanity of some other proposals – a doctor told the conference that all drugs should be legalised to ‘give drug addicts choices’ and to reduce the prison population.

Like Kevin Rudd himself – Summit 2020 is a show about nothing.

Kevin misses Button funeral

Kevin Rudd couldn't make it to the State funeral of Labor legend John Button yesterday. He was visiting Cate Blanchett and her newborn baby in hospital. Cate will make it to the 'ideas summit' just 6 days after giving birth to her third child even though Rudd told her not to attend if she 'didn't feel up to it'. Kevin loves celebrities.