As a past resident of Thailand a number of people have asked me what I think of the Harry Nicolaides case. Nicolaides has just been jailed for 3 years for lèse majesté - specifically for insulting the Thai monarchy. Generally I am puzzled at what has occurred as Nicolaides has worked in Thailand since around 2003 - he should clearly have understood the reverence and respect Thais place on their monarchy. I find it difficult to believe his claim that he didn't understand the law since any foreigner working in the country finds about about this very quickly.
Moreover, it is not just a question of law. The fact is that the Thai do hold the monarchy in intense respect. They have an almost religious significance. Almost every household in this Kingdom has pictures of His Majesty the King (King Bhumibol) and other members of the Royal Family. There is affection and respect for the Royal Family. In addition the Monarchy are seen as unifying the nation.
Australians who are republicans or luke warm royalists might find it difficult to appreciate these attitudes but for the Thais they are genuine and heart-felt. Thailand is a very free and easy society - I don't believe it is too much to expect foreigners to appreciate these significant Thai attitudes.
Nicolaides seems at least to have been most unwise. As some have pointed out he seems to have even sought to draw attention to his poorly-written novel through his own actions. On the other hand life in a Thai jail is a fearful outcome and, given that he has already served some time in jail, I can only hope that His Majesty the King grants him a pardon. This has happened in the past in other cases of lèse majesté . I am uncertain that public protests outside of Thailand are the best way of achieving this outcome.
If you are travelling or living in Thailand you need to be respectful of the monarchy. And of course keep away from illegal drugs.
Tuesday, January 20, 2009
First sharkgull spotted in Australia
The single bird was seen and photographed by C. Marter and seen by most members of the Mid Coast Birdwatchers Guild on 12/1/2009. The sighting needs to be officially recognised by BARC before it can be added to the Australian lists.
Monday, January 19, 2009
This little girl wants more Nazis
Despite the ceasefire (which now even the Hamas terrorists have agreed to) thousands of Palestinians marched in Melbourne yesterday condemning Israeli violence. I wonder if the caped crusader to the left of the little girl is her history teacher. For the following photo HT Tim Blair.
Meanwhile despite the usual pathetic claims Hamas do in fact seem likely to be restained by angry Palestinians who, while hating Israel, fear her. That's about all Israel could hope to achieve. The cost - around 1300 Palestinians dead and 13 Israelis. Hamas has already declared victory (!) and announced its its intention to replenish its arms stockpiles. They will continue their mission to secure 'holy weapons'.
Optimism & the Obama Presidency
Barack Obama will become the 44th President of the United States tomorrow. Despite the exceedingly tough economic times Americans overwhelmingly see Obama as something positive for America.
'a New York Times poll found 79% think Barack Obama will improve the nation – a level of support that is higher than for any incoming president in 3 decades'.Cynics might say that this optimism partly reflects disaffection with the current President George Bush. Maybe true and, in any event, optimism can feed disappointment. It is wonderful news that a black man is entering the White House but we should not assume that a public works program will resolve America's intractable soccial and economic problems:
Ten trillion dollars have evaporated in the greatest stock market crash since the 1930s. Twenty million Americans face negative equity, 30 million Americans are in poverty, 40 million have no health insurance. The numbers just keep piling up.....Americans must be realistic and demand only the possible. Obama has already begun the difficult task of trying to hose down expectations.
And so, pretty soon, we will all probably start to complain that Obama is a man of straw, a media creation, a triumph of style over substance; more a celebrity than a politician - a "polebrity" to use the latest ugly neologism.
Saturday, January 17, 2009
Confused thinking on the environment at Catallaxy
A post over at Catallaxy suggests that policies of preventing the exploitation of oil and gas reserves near national parks in the US harm the poor (mainly blacks) and are therefore unacceptable - there is even the suggestion in the original news story* that such policies are racist . It is at best a partial story and in conceptual terms highly misleading. The general intent by Catallaxy is to poke fun at the middle class affluent in a way reminiscent of populist left-wing attacks on reason.
The decision to limit exploitation of oil and gas reserves (or any other marketed good) because of conservation concerns (or concerns over any non-marketed good) is one that revolves around a social cost benefit analysis of the respective options. Oil and gas products are marketed whereas conservation values are not so it is more difficult to get a feel for the present value of the latter types of outputs.
More effort is involved in valuing conservation assets but various indirect procedures can be used (advice from experts and scientists, travel cost method, contingent valuation and so on). A premium should, of course, be added to the conservation values - a quasi-option value - since the decision not to proceed with development of the oil and gas deposits is reversible while the decision to proceed with these developments is much less readily reversed to reinstate conservation values. In addition, technical progress in the future will yield new sources of energy but not new conservation assets and, if you believe the environmental luxury good hypothesis, people's values switch toward conservation as they become more affluent. Environmental red necks tend to be working class. Both of these factors intensify the case for taking care with the destruction of already over-exploited natural environments.
All this is basic resource economics and provides a rational basis for being conservative about certain natural resource destructions.
The cost benefit comparison proposed involves ignoring distributional impacts and is largely efficiency-based. This is essentially the 'second theorem of welfare economics' - maximise the value of society's outputs first and then (if necessary**) make transfers to accommodate the specific interests of particular disadvantaged groups such as the poor. One can raise qualifications about the general applicability of this result but it works well in the current setting.
If it is mainly middle class affluent people who seek conservation outcomes then, on this account alone, they should pay for those outcomes and transfers should be made to those suffering the costs. But this has nothing to do with the case for making the conservation versus development issue using efficiency-oriented cost-benefit analysis.
The point is to value things at their social worth something a libertarian blog like Catallaxy should understand. Economics is, in my view, a discipline which sensibly protects the environment.
* It is a generally ignorant account which suggests that poor inner city blacks will suffer most the effects of higher energy prices if the deposits are not developed. This fails to recognise that energy prices are globally determined with the local developments being discussed having only a limited, short-duration impact on prices. Both rich and poor are impacted on by any higher prices.
** The poor do not need to be compensated for every policy that runs against their interests if they already receive huge transfers from those more wealthy in order to effect general redistributive concerns. In the present setting specific benefits to the wealthy of conservation might be consider a payback for redistributive taxes. This is an important since it is generally not necessary to provide specific compensations for every project.
The decision to limit exploitation of oil and gas reserves (or any other marketed good) because of conservation concerns (or concerns over any non-marketed good) is one that revolves around a social cost benefit analysis of the respective options. Oil and gas products are marketed whereas conservation values are not so it is more difficult to get a feel for the present value of the latter types of outputs.
More effort is involved in valuing conservation assets but various indirect procedures can be used (advice from experts and scientists, travel cost method, contingent valuation and so on). A premium should, of course, be added to the conservation values - a quasi-option value - since the decision not to proceed with development of the oil and gas deposits is reversible while the decision to proceed with these developments is much less readily reversed to reinstate conservation values. In addition, technical progress in the future will yield new sources of energy but not new conservation assets and, if you believe the environmental luxury good hypothesis, people's values switch toward conservation as they become more affluent. Environmental red necks tend to be working class. Both of these factors intensify the case for taking care with the destruction of already over-exploited natural environments.
All this is basic resource economics and provides a rational basis for being conservative about certain natural resource destructions.
The cost benefit comparison proposed involves ignoring distributional impacts and is largely efficiency-based. This is essentially the 'second theorem of welfare economics' - maximise the value of society's outputs first and then (if necessary**) make transfers to accommodate the specific interests of particular disadvantaged groups such as the poor. One can raise qualifications about the general applicability of this result but it works well in the current setting.
If it is mainly middle class affluent people who seek conservation outcomes then, on this account alone, they should pay for those outcomes and transfers should be made to those suffering the costs. But this has nothing to do with the case for making the conservation versus development issue using efficiency-oriented cost-benefit analysis.
The point is to value things at their social worth something a libertarian blog like Catallaxy should understand. Economics is, in my view, a discipline which sensibly protects the environment.
It is foolish to sling-off at environmental activists because they are middle class or rich and because some of those bearing the costs of development restrictions have lower incomes. To a very large extent environmental equity and efficiency issues are separable and those committed to free markets should always target efficiency leaving the tax and transfer mechanism to address distributional issues.
* It is a generally ignorant account which suggests that poor inner city blacks will suffer most the effects of higher energy prices if the deposits are not developed. This fails to recognise that energy prices are globally determined with the local developments being discussed having only a limited, short-duration impact on prices. Both rich and poor are impacted on by any higher prices.
** The poor do not need to be compensated for every policy that runs against their interests if they already receive huge transfers from those more wealthy in order to effect general redistributive concerns. In the present setting specific benefits to the wealthy of conservation might be consider a payback for redistributive taxes. This is an important since it is generally not necessary to provide specific compensations for every project.
Update: In a comment Tim Lambert points out that the source of the claim that protecting conservation areas is racism is CORE (Congress on Racial Equality) which receives funding from ExxonMobil. CORE has been an active supporter of climate change denialism and opposed (for example) the listing of polar bears as endangered species on the grounds that such protection damaged poor black Americans.
Tuesday, January 13, 2009
A break in Syd
I am relocating to Sydney for a few days R&R – escaping forecast temperatures in Melbourne of 39oC tomorrow for a more moderate 29oC in Syd. I’ll post if Bondi beckons less than I anticipate it will but I doubt it.
Son William: ‘Dad, those ladies over there are missing the tops to their bikinis’.Back Monday.
Dad: ‘For God’s sake don’t stare. Where was that, son?’
Update: It was stinking hot in Syd and, from reports, no worse in Melbourne. Cooled a bit on Saturday but looking forward to regaining the civilised Melbourne lifestyle.
Keep wages high to increase misery
As unemployment in Australia looks ominously set to soar the mindless are at it again endorsing preservation of real wages in the face of the most serious threat to employment Australia has faced since the Whitlam and Keating years. The reason they claim – keeping wages high will stimulate aggregate demand and the role of wages as a cost of production is exaggerated. It is also, they claim, socially just. Employers can deal with reduced demand for their output by means other than shedding labour – for example by investing in skills. Of course if this argument is valid then why not increase wages when the demand for labour falls – this will really get unemployment increasing at a time of falling Labor demand! Indeed that is the ‘strategy’ (to stretch a term) of the ACTU that I have recently discussed.
Of course, the reason this is so daft is that firms employ workers in terms of the value of their additional contribution to output the workers generate so that when this value falls employment will fall. The extra demand from higher incomes will only reflect extra spending from the diminished pool of those who hang onto jobs. Not from that pathetic lot forced to join the dole queues whose diminished incomes are paid for by transfers from those lucky enough to retain their jobs.
The notion that keeping wages high is 'socially just' is economic illiteracy. It is behind the nonsensical notion that whatever happens the real wage should only ever remain fixed or increase. A social wage can be sometimes preserved by means of government transfers but, in market economies - all economies other than North Korea and Cuba - privately paid wage signals determine employment decisions. The notion that wages themselves should reflect what dreaming lefties believe are appropriate living standards essentially denies the existence of labour markets.
Of course, the reason this is so daft is that firms employ workers in terms of the value of their additional contribution to output the workers generate so that when this value falls employment will fall. The extra demand from higher incomes will only reflect extra spending from the diminished pool of those who hang onto jobs. Not from that pathetic lot forced to join the dole queues whose diminished incomes are paid for by transfers from those lucky enough to retain their jobs.
The notion that keeping wages high is 'socially just' is economic illiteracy. It is behind the nonsensical notion that whatever happens the real wage should only ever remain fixed or increase. A social wage can be sometimes preserved by means of government transfers but, in market economies - all economies other than North Korea and Cuba - privately paid wage signals determine employment decisions. The notion that wages themselves should reflect what dreaming lefties believe are appropriate living standards essentially denies the existence of labour markets.
Sunday, January 11, 2009
The Brothers Karamazov
I have re-read Fyodor Dostoyevsky’s The Brothers Karamazov after more than 30 years. I remember being almost spellbound by the novel when I first read it – it led me into The Idiot which I also found a revelation. A curious feature of my reading of both books is that, after such a time, the plots had faded almost entirely in my memory. I did remember a pervading sense of delirium yet a strong sense of realism in the writing. Obviously the impact was on me was emotional not narrative. Let’s face it the human condition seldom gets described accurately by popular culture and Hollywood - when we come across a quality portrayal the description sticks. Particular emotionally-charged passages I recall vividly as if I read them yesterday. One terrifying image that stuck is of a peasant beating a horse around its ‘gentle eyes’. Yet I had forgotten almost entirely about Fyodor Karamazov, his death and the prosecution of Dmitri which provides the bulk of the second half of the story.
In the chapter before that titled the ‘Grand Inquisitor’ Dostoyevsky exposits what, as far as I know, is one of the earliest versions of the ‘ticking bomb’ problem that I recall discussing on John Quiggin’s blog a few years ago. In the version I discussed the question was whether one should torture a terrorist who knew where a ticking bomb was concealed if the discovery of the bomb would prevent the deaths of millions. Dostoyevsky poses this problem much more dramatically. Should you torture to death a young innocent child if by so doing you could bring eternal happiness to all in the world? Our hero, Alyusha* Karamazov, thankfully says ‘no’! I thought I might have been the first to recognise this literary connection to a contemporary problem of ethics but Dostoyevsky’s argument, and its link to the ticking bomb issue, is, in fact, widely- known.
The Brothers Karamazov is not all gloom and pessimism and it does capture real life in all its complexity. I am intrigued by the initially peripheral figure Grushenka who is initially portrayed as a conniving slut but who gradually is revealed as a highly intelligent free spirit and ultimately as the ideal Russian woman. Indeed the whole novel is fascinating writing. Freud described it as the most ‘magnificent novel ever written’. In the absence of evidence to the contrary - and given my limited literary experience - I concur.
I was lucky enough to read this book in a beautiful Folio edition illustrated with wood engravings. It does make a difference reading an enjoyable novel that is so elegantly presented - hard cover, heavy high-quality paper and attractive non-miniscule fonts.
*Incidentally Alyusha was the name of Dostoyevsky’s young son who died aged 3 from epilepsy – a disease his father inflicted on him through his genes.
In the chapter before that titled the ‘Grand Inquisitor’ Dostoyevsky exposits what, as far as I know, is one of the earliest versions of the ‘ticking bomb’ problem that I recall discussing on John Quiggin’s blog a few years ago. In the version I discussed the question was whether one should torture a terrorist who knew where a ticking bomb was concealed if the discovery of the bomb would prevent the deaths of millions. Dostoyevsky poses this problem much more dramatically. Should you torture to death a young innocent child if by so doing you could bring eternal happiness to all in the world? Our hero, Alyusha* Karamazov, thankfully says ‘no’! I thought I might have been the first to recognise this literary connection to a contemporary problem of ethics but Dostoyevsky’s argument, and its link to the ticking bomb issue, is, in fact, widely- known.
The Brothers Karamazov is not all gloom and pessimism and it does capture real life in all its complexity. I am intrigued by the initially peripheral figure Grushenka who is initially portrayed as a conniving slut but who gradually is revealed as a highly intelligent free spirit and ultimately as the ideal Russian woman. Indeed the whole novel is fascinating writing. Freud described it as the most ‘magnificent novel ever written’. In the absence of evidence to the contrary - and given my limited literary experience - I concur.
I was lucky enough to read this book in a beautiful Folio edition illustrated with wood engravings. It does make a difference reading an enjoyable novel that is so elegantly presented - hard cover, heavy high-quality paper and attractive non-miniscule fonts.
*Incidentally Alyusha was the name of Dostoyevsky’s young son who died aged 3 from epilepsy – a disease his father inflicted on him through his genes.
Saturday, January 10, 2009
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:
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.
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.
Friday, January 09, 2009
Promoting test cricket
My colleague Dr Liam Lenten has some controversial ideas on promoting Test Match cricket.
" it may be that what we need is more draws, or at least the chance of more draws...
...the modern-day version of Test cricket is characterised by quicker scoring and wicket taking, more frequent dismissals due to third umpires, a steep fall in the frequency of draws and fewer matches going into the fifth day.
...the side that struggles early in the Test and is no longer in a position to win the Test finds it harder to hold on for a draw.
Dr Lenten believes administrators need to reduce the number of overs bowled each day and consideration should be given to Tests lasting four days rather than five".
Most Tests that finish with a result in the final session of the fifth day are highly absorbing matches, and currently there are not enough Tests going into the fifth day,"
A full analysis is contained in the December Economic Papers published by the Economic Society of Australia - unfortunately not yet available online.
" it may be that what we need is more draws, or at least the chance of more draws...
...the modern-day version of Test cricket is characterised by quicker scoring and wicket taking, more frequent dismissals due to third umpires, a steep fall in the frequency of draws and fewer matches going into the fifth day.
...the side that struggles early in the Test and is no longer in a position to win the Test finds it harder to hold on for a draw.
Dr Lenten believes administrators need to reduce the number of overs bowled each day and consideration should be given to Tests lasting four days rather than five".
Most Tests that finish with a result in the final session of the fifth day are highly absorbing matches, and currently there are not enough Tests going into the fifth day,"
A full analysis is contained in the December Economic Papers published by the Economic Society of Australia - unfortunately not yet available online.
Thursday, January 08, 2009
Trade union policies for increasing unemployment
The Whitlam-inspired wage breakout in the 1980s drove unemployment to 10.4%. Another Labor-driven wage breakout in the 1990s exacerbated the recession we 'had to have'. This was Labor's economic legacy. I remember my left-wing mates at the time telling me that 30% wage increases given to metal workers would boost purchasing power and stimulate the economy! They didn't - these sorts of decisions created high unemployment and high inflation - stagflation.
But from December 1995-December 2005 the Howard Government created 1.7 million jobs. In the 18 months to September 2007 another 500,000 jobs were created in an astonishing burst. Inflation was almost eliminated. Howard's reward was to be voted out of office.
Now the Labor Party is at the helm again and, in the face of a looming recession, the real contribution John Howard made to reducing human misery in Australia by driving unemployment to a 33 year low faces the prospect of being destroyed not, in the main, by economic circumstances as much as by idiot trade unions.
According to The Age:
If anything real wages need to fall in industries experiencing hard times and reduced demand just as they rose during the good times. This flexibility is the best guarantee we have against another emerging unemployment catastrophe. 5-10% wage claims in a time of depressed demands when productivity growth is less than 2% is a recipe for disaster.
The contrary suggestion that higher wages act only to boost aggregate demand is really too stupid to warrant serious analysis but it does show the forces that our intellectually-challenged Treasurer Swan is up against in trying to manage the economy. It is not just a few CFMEU ratbags but the ACTU - those dinosaurs whose contributions funded the current mob of nitwits into Federal power and whio are now baying for payback - who endorse this sad idiocy.
Watch the left of politics duck this issue! Silence will prevail! They cannot challenge this stupidity even though they recognise its craziness because of their blinkered ideological priors and hypocrisy. Their integrity is close to zero in these areas.
Richard Posner recently made the following remarks about US trade unions – they are appropriate to Australian unions as well:
And chardonnay socialists will declare Kevin Rudd a Great Leader because he has apologised to aboriginees on behalf of us all for claimed sins we had no part of and ratified the impotent Kyoto Protocol but done little to address climate change. November 2007 was an eventful moment in Australian history.
But from December 1995-December 2005 the Howard Government created 1.7 million jobs. In the 18 months to September 2007 another 500,000 jobs were created in an astonishing burst. Inflation was almost eliminated. Howard's reward was to be voted out of office.
Now the Labor Party is at the helm again and, in the face of a looming recession, the real contribution John Howard made to reducing human misery in Australia by driving unemployment to a 33 year low faces the prospect of being destroyed not, in the main, by economic circumstances as much as by idiot trade unions.
According to The Age:
"The union movement is pushing ahead with wage claims despite the Rudd government calling for restraint in difficult times.Apparently Burrows sees the role of wages as a source of aggregate demand but does not want to understand that they constitute a cost for firms and will influence employment because they are a cost. The Burrows policy position is that in times of emerging unemployment wages should be prevented from falling. Her claim is that wage reductions to reflect reduced demands for such things as our mineral exports will damage Australia! This is precisely analogous to the remarks of my friends in the 1980s on the metal worker wage claims.
The slowing economy will suffer further if the real incomes of workers are not protected, the ACTU says.
Unions are under pressure to moderate their positions during bargaining negotiations with employers after it was reported the CFMEU will ask aluminium giant Alcoa to strike a new deal giving power plant workers at its West Australian operations an immediate pay rise of up to 33%.
ACTU president Sharan Burrow defended the union saying the claim amounted to annual pay rises of between 5-10% over several years.
It was important real incomes were maintained because the economy would suffer if workers could not pay their bills.
"If you don't protect incomes, then that's a negative for the economy as well," she said.
"If working people can't pay their bills, if in fact their mortgage is threatened ... then that's not going to help the economy survive, nor indeed recover."
If anything real wages need to fall in industries experiencing hard times and reduced demand just as they rose during the good times. This flexibility is the best guarantee we have against another emerging unemployment catastrophe. 5-10% wage claims in a time of depressed demands when productivity growth is less than 2% is a recipe for disaster.
The contrary suggestion that higher wages act only to boost aggregate demand is really too stupid to warrant serious analysis but it does show the forces that our intellectually-challenged Treasurer Swan is up against in trying to manage the economy. It is not just a few CFMEU ratbags but the ACTU - those dinosaurs whose contributions funded the current mob of nitwits into Federal power and whio are now baying for payback - who endorse this sad idiocy.
Watch the left of politics duck this issue! Silence will prevail! They cannot challenge this stupidity even though they recognise its craziness because of their blinkered ideological priors and hypocrisy. Their integrity is close to zero in these areas.
Richard Posner recently made the following remarks about US trade unions – they are appropriate to Australian unions as well:
"The goal of unions is to redistribute wealth from the owners and managers of firms, and from workers willing to work for very low wages, to the unionized workers and the union's officers. Unions do this by organizing (or threatening) strikes that impose costs on employers. ... Because the added cost to the employer of a unionized work force is a marginal cost (a cost that varies with the output of the firm), unionization results in reduced output by the unionized firm and, in consequence, benefits nonunionized competitors. Unless those competitors are too few or too small to be able to expand output at a cost no higher than the cost to the unionized firms, unionization will gradually drive the unionized firms out of business.Indeed this describes what happens in normal economic times not in the current severe economic situation. Alcoa, the firm subject to the above-mentioned 33% pay claim, is already planning to cut 15,000 jobs. The union stance is madness. Unemployment will be much higher than it would otherwise be because of union and complicit Labor Party stupidity. Without wage restraint now we will have an appalling recession with hundreds of thousands of additional people on the dole.
Unions, in other words, are worker cartels. Workers threaten to withhold their labor unless paid more than a competitive wage (including benefits and work rules), but unless their union is able to organize all the major competitors in a market, the cartel will be eroded by the entry of nonunionized firms, which by virtue of not being unionized will have lower labor costs. The parallel to producer cartels is exact--workers are producers.....
I don't think there's much to be said on behalf of unions, at least under current economic conditions. The redistribution of wealth that they bring about is not only fragile, for the reason just suggested, but also capricious, as it is an accident whether conditions in a particular industry are favorable or unfavorable to unionization. By driving up employers' costs, unions cause prices to increase, which harms consumers, who are not on average any better off than unionized workers are. Unions push hard for minimum wage laws and for tariffs, both being devices for reducing competition from workers, here or abroad, willing to work for lower wages.....And by raising labor costs, unions accelerate the substitution of capital for labor, further depressing the demand for labor and hence average wages. Union workers, in effect, exploit nonunion workers, as well as reducing the overall efficiency of the economy".
And chardonnay socialists will declare Kevin Rudd a Great Leader because he has apologised to aboriginees on behalf of us all for claimed sins we had no part of and ratified the impotent Kyoto Protocol but done little to address climate change. November 2007 was an eventful moment in Australian history.
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!
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!
Tuesday, January 06, 2009
Windy gets hoaxed
My paper on climate change correcting the climate change denialist drivel Quadrant has been publishing over recent months may not have been rejected as much for its content than because of the lack of judgement of its editor Keith Windschuttle. Windschuttle has been comprehensively hoaxed by a fictitious author 'Sharon Gould' who wrote a piece of preposterous drivel on genetic engineering which Windschuttle accepted as legitimate science. The hoax is described in detail at Crikey. In the tradition of Ern Malley – the famous literary hoax perpetrated by Quadrant’s first editor, James McAuley – the 'Sharon Gould' persona is entirely fictitious and the article is studded with false science, logical leaps, outrageous claims and a mixture of genuine and bogus footnotes*.
Windschuttle to 'Sharon Gould' on the article:
That in itself is not a crime. I edit a journal myself and am not expert on more than half the submissions made. But that is why all articles undergo a refereeing process. Quadrant might think of doing much the same. Its output on climate change issues (in particular) could not fail to improve.
It might also think about checking the bona fides of its contributors.
* Example (quote from the hoax Quadrant article)
"Let us suppose Australia had plans to commercialise a variety of wheat engineered with human genes.
Too far-fetched a scenario? Not at all. Human genes are at present engineered into tobacco plants in order to produce a protein called Factor VIII, and into rice crops to produce a protein that when consumed triggers human immune responses.
In July 2003, buried within a footnote of an article in the Plant Biotechnology Journal was an astonishing revelation. Researchers at the CSIRO had, according to the reference, abandoned plans to commercialise a variety of wheat that had been engineered with human genes. The genes were responsible for helping trigger immune responses in humans. When eaten, the wheat could potentially trigger a body’s immune response to fight pre-cancerous cells, but the company’s annual report, according to the footnote, stated: “the transgenic wheat was abandoned because of the potential of perceived moral issues among the public”."
Yep, Keith, I strongly recommend refereeing science-based articles or articles claiming to state facts. What confidence can anyone otherwise have in the content of Quadrant?
Windschuttle to 'Sharon Gould' on the article:
"I really like the article. You bring together some very important considerations about scientific method, the media, politics and morality that I know our readers would find illuminating… if you could re-work the intro along these lines, we would be very pleased to publish the article in our January edition. I would need to hear back from you as early as possible next week".A blogsite has been compiled to describe the origins of the hoax. Windschuttle has admitted the hoax but has described the article as 'fraudulent journalism'. That is one interpretation - another is that Windschuttle in making editorial judgements is not good at discriminating between sense and outrageous stupidity.
That in itself is not a crime. I edit a journal myself and am not expert on more than half the submissions made. But that is why all articles undergo a refereeing process. Quadrant might think of doing much the same. Its output on climate change issues (in particular) could not fail to improve.
It might also think about checking the bona fides of its contributors.
* Example (quote from the hoax Quadrant article)
"Let us suppose Australia had plans to commercialise a variety of wheat engineered with human genes.
Too far-fetched a scenario? Not at all. Human genes are at present engineered into tobacco plants in order to produce a protein called Factor VIII, and into rice crops to produce a protein that when consumed triggers human immune responses.
In July 2003, buried within a footnote of an article in the Plant Biotechnology Journal was an astonishing revelation. Researchers at the CSIRO had, according to the reference, abandoned plans to commercialise a variety of wheat that had been engineered with human genes. The genes were responsible for helping trigger immune responses in humans. When eaten, the wheat could potentially trigger a body’s immune response to fight pre-cancerous cells, but the company’s annual report, according to the footnote, stated: “the transgenic wheat was abandoned because of the potential of perceived moral issues among the public”."
Yep, Keith, I strongly recommend refereeing science-based articles or articles claiming to state facts. What confidence can anyone otherwise have in the content of Quadrant?
Pessimistic views on the global economy
Stock markets have been strong in recent weeks – in anticipation of an Obama fiscal-led recovery - and many financial analysts are predicting the end of the panic and a reversal toward economic normality. That is a false perspective – the US, Chinese and European economies are in free fall. As with the Great Depression the dramatically low interest rates are not doing the trick and there are inevitable political difficulties in getting an effective fiscal stimulus package to work.
US job losses in 2008 are the worst since the end of WW2 – 2.4 million Americans lost their job in 2008 and yet the severe financial jolts occurred late in the year. Clearly the worst is yet to come as deleveraging throughout the economy occurs to offset decades of excessive borrowing.
Paul Krugman has come out and said it plainly* – this looks like a ‘second’ Great Depression. Janet Yellen has described the downturn as likely to be the longest and most severe since the Great Depression.
I am a pessimist and view the current stock market mini recovery not as a leading indicator of future prosperity but as a false dawn. The real effects of the disastrous financial crisis are only beginning to be felt.
* Excerpts of Krugman's views:
" Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.
... We weren’t supposed to find ourselves in this situation. For many years most economists believed that preventing another Great Depression would be easy. In 2003, Robert Lucas ... in his presidential address to the American Economic Association, declared that the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”
Milton Friedman, in particular, persuaded many economists that the Federal Reserve could have stopped the Depression in its tracks simply by providing banks with more liquidity, which would have prevented a sharp fall in the money supply. Ben Bernanke, the Federal Reserve chairman, famously apologized to Friedman on his institution’s behalf: “You’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”
...Yet credit remains scarce, and the economy is still in free fall.
Friedman’s claim that monetary policy could have prevented the Great Depression was an attempt to refute the analysis of John Maynard Keynes (but) The failure of monetary policy in the current crisis shows that Keynes had it right the first time. And Keynesian thinking lies behind Mr. Obama’s plans....
But these plans may turn out to be a hard sell. News reports say that Democrats hope to pass an economic plan with broad bipartisan support. Good luck with that.
In reality, the political posturing has already started, with Republican leaders setting up roadblocks to stimulus legislation while posing as the champions of careful Congressional deliberation — which is pretty rich considering their party’s behavior over the past eight years.
More broadly, after decades of declaring that government is the problem, not the solution, not to mention reviling both Keynesian economics and the New Deal, most Republicans aren’t going to accept the need for a big-spending, F.D.R.-type solution to the economic crisis.
The biggest problem facing the Obama plan, however, is likely to be the demand of many politicians for proof that the benefits of the proposed public spending justify its costs — a burden of proof never imposed on proposals for tax cuts.
This is a problem with which Keynes was familiar: giving money away, he pointed out, tends to be met with fewer objections than plans for public investment “which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles.” What gets lost in such discussions is the key argument for economic stimulus — namely, that under current conditions, a surge in public spending would employ Americans who would otherwise be unemployed and money that would otherwise be sitting idle, and put both to work producing something useful.
All of this leaves me concerned about the prospects for the Obama plan. I’m sure that Congress will pass a stimulus plan, but I worry that the plan may be delayed and/or downsized. And Mr. Obama is right: We really do need swift, bold action.
Here’s my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy — well, you can see where this is going.
So this is our moment of truth. Will we in fact do what’s necessary to prevent Great Depression II?"
Update: earlier views that the recovery of US employment reflected spurious seasonal effects are confirmed. In December US unemployment jumped by 525,000 to 7.2% of the workforce. This is a 16 year high. 2.6 million Americans lost their jobs in 2008. In total 11 million Americans are unemployed. My earlier forecast that US unemployment will hit 10% looks close to the mark - official forecasts are around 9% by end of 2009. The US economy is in freefall.
US job losses in 2008 are the worst since the end of WW2 – 2.4 million Americans lost their job in 2008 and yet the severe financial jolts occurred late in the year. Clearly the worst is yet to come as deleveraging throughout the economy occurs to offset decades of excessive borrowing.
Paul Krugman has come out and said it plainly* – this looks like a ‘second’ Great Depression. Janet Yellen has described the downturn as likely to be the longest and most severe since the Great Depression.
I am a pessimist and view the current stock market mini recovery not as a leading indicator of future prosperity but as a false dawn. The real effects of the disastrous financial crisis are only beginning to be felt.
* Excerpts of Krugman's views:
" Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.
... We weren’t supposed to find ourselves in this situation. For many years most economists believed that preventing another Great Depression would be easy. In 2003, Robert Lucas ... in his presidential address to the American Economic Association, declared that the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”
Milton Friedman, in particular, persuaded many economists that the Federal Reserve could have stopped the Depression in its tracks simply by providing banks with more liquidity, which would have prevented a sharp fall in the money supply. Ben Bernanke, the Federal Reserve chairman, famously apologized to Friedman on his institution’s behalf: “You’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”
...Yet credit remains scarce, and the economy is still in free fall.
Friedman’s claim that monetary policy could have prevented the Great Depression was an attempt to refute the analysis of John Maynard Keynes (but) The failure of monetary policy in the current crisis shows that Keynes had it right the first time. And Keynesian thinking lies behind Mr. Obama’s plans....
But these plans may turn out to be a hard sell. News reports say that Democrats hope to pass an economic plan with broad bipartisan support. Good luck with that.
In reality, the political posturing has already started, with Republican leaders setting up roadblocks to stimulus legislation while posing as the champions of careful Congressional deliberation — which is pretty rich considering their party’s behavior over the past eight years.
More broadly, after decades of declaring that government is the problem, not the solution, not to mention reviling both Keynesian economics and the New Deal, most Republicans aren’t going to accept the need for a big-spending, F.D.R.-type solution to the economic crisis.
The biggest problem facing the Obama plan, however, is likely to be the demand of many politicians for proof that the benefits of the proposed public spending justify its costs — a burden of proof never imposed on proposals for tax cuts.
This is a problem with which Keynes was familiar: giving money away, he pointed out, tends to be met with fewer objections than plans for public investment “which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles.” What gets lost in such discussions is the key argument for economic stimulus — namely, that under current conditions, a surge in public spending would employ Americans who would otherwise be unemployed and money that would otherwise be sitting idle, and put both to work producing something useful.
All of this leaves me concerned about the prospects for the Obama plan. I’m sure that Congress will pass a stimulus plan, but I worry that the plan may be delayed and/or downsized. And Mr. Obama is right: We really do need swift, bold action.
Here’s my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy — well, you can see where this is going.
So this is our moment of truth. Will we in fact do what’s necessary to prevent Great Depression II?"
Update: earlier views that the recovery of US employment reflected spurious seasonal effects are confirmed. In December US unemployment jumped by 525,000 to 7.2% of the workforce. This is a 16 year high. 2.6 million Americans lost their jobs in 2008. In total 11 million Americans are unemployed. My earlier forecast that US unemployment will hit 10% looks close to the mark - official forecasts are around 9% by end of 2009. The US economy is in freefall.
Monday, January 05, 2009
Israel launches ground attack into Gaza
The widely-predicted ground attack by Israel into Gaza occurred on Sunday. The response of the media and mealy-mouthed politicians has been predictable. On the one hand a section of the media, backed up by supporters of terrorism around the world, has been to attack the immorality of the Israeli attack often without mention of the past and continuing bombardment of Israel by missiles from Hamas. This is one-eyed hypocrisy given the avowed intent of Hamas to wipe-out Israel. A milder version of this critique is to assert that the Israeli punishment (in terms of military attack or casualties inflicted) exceeds the crimes of Hamas so that Israel is 'overreacting'. But Israel is not merely trying to inflict reciprocal damage on Gaza as a payback but trying to prevent the missile attacks. It can only do this by seriously damaging Hamas.
Mealy-mouthed politicians (including our own Julia Gillard and the toothless UN - this is particularly disgraceful) have participated widely in these forms of hypocrisy as well as by launching the standard response that both sides should stop the conflict, kiss and go home. This is unhelpful.
The more serious complaint about Israel's ground actions are that it might experience substantial losses in terms of casualties as it did in its conflict with Hezbollah in Lebanon. The Hamas terrorists it is claimed have greater knowledge of the local geography and will, in their usual cowardly fashion, conceal themselves in heavily populated areas - not difficult in densely populated Gaza. The body bags created by the Hamas cowardice will weaken public resolve in Israel to continue to prosecute it.
While this is a serious problem it is difficult to come up with alternative viable responses from Israel. Hamas is employing the standard technique of terrorists by holding a civilian population to ransom and then provoking an attack. The Palestinian casualties are due to Hamas (and its backers in Syria and Iran) not to Israel. The Palestinian deaths are a human input to the military objectives of Hamas and provide a further radicalisation of the local surviving population in its resentment of Israel. The predicted Israeli deaths are a problem because Israel's government - like most other civilised governments - is concerned with deaths of its citizens. Hopefully Israel's retrained and better-equipped army will do a better job than it dis against Hezbollah.
But despite the real probability of substantial Israeli costs I do not believe it is possible to deal in a reasoned way with Hamas. Israel needs to make it clear to the Palestinians that electing terrorists and prosecuting an ongoing conflict with Israel is a costly strategy for Israel's enemies. Above all Israel needs to establish its military credibility and not be black-mailed by the terrorists.
Mealy-mouthed politicians (including our own Julia Gillard and the toothless UN - this is particularly disgraceful) have participated widely in these forms of hypocrisy as well as by launching the standard response that both sides should stop the conflict, kiss and go home. This is unhelpful.
The more serious complaint about Israel's ground actions are that it might experience substantial losses in terms of casualties as it did in its conflict with Hezbollah in Lebanon. The Hamas terrorists it is claimed have greater knowledge of the local geography and will, in their usual cowardly fashion, conceal themselves in heavily populated areas - not difficult in densely populated Gaza. The body bags created by the Hamas cowardice will weaken public resolve in Israel to continue to prosecute it.
While this is a serious problem it is difficult to come up with alternative viable responses from Israel. Hamas is employing the standard technique of terrorists by holding a civilian population to ransom and then provoking an attack. The Palestinian casualties are due to Hamas (and its backers in Syria and Iran) not to Israel. The Palestinian deaths are a human input to the military objectives of Hamas and provide a further radicalisation of the local surviving population in its resentment of Israel. The predicted Israeli deaths are a problem because Israel's government - like most other civilised governments - is concerned with deaths of its citizens. Hopefully Israel's retrained and better-equipped army will do a better job than it dis against Hezbollah.
But despite the real probability of substantial Israeli costs I do not believe it is possible to deal in a reasoned way with Hamas. Israel needs to make it clear to the Palestinians that electing terrorists and prosecuting an ongoing conflict with Israel is a costly strategy for Israel's enemies. Above all Israel needs to establish its military credibility and not be black-mailed by the terrorists.
Saturday, January 03, 2009
Frost/Nixon
Yesterday I saw my first movie of 2009 - Frost/Nixon - the stylised account of the lead-up to and the actual interviews between the British interviewer David Frost and disgraced US President Richard Milhous Nixon. There were a few much-criticised historical inaccuracies in the film (many relating to the claimed priority Frost enjoyed in getting admissions from Nixon) but it is a dramatic and suspenseful movie. There is also much grim humour. Frank Langella is superb as Nixon and must be a contender for an Oscar – the film has been nominated for Golden Globes awards for best dramatic picture, best actor in a drama (Langella), best director (Ron Howard), best screenplay (Peter Morgan) and best original score (Hans Zimmer).
I also thought Michael Sheen was a more than capable David Frost - some critics found his smile wooden but his frivolous easy-going character was the exact counterweight to the neurotic intelligence of Nixon. Both lead actors previously participated in performances of a play with the same title.
By the way my sympathies during the film were almost entirely with Nixon – an imperfect, difficult although obviously highly intelligent man. In the film he runs rings around Frost until the final 2 hours of 30 hours of interviewing when finally and climactically Frost induces Nixon to spill the beans on his complicity in the Watergate scandal. The final admission almost seems cathartic for Nixon who finally realises it is over for him.
An enjoyable dramatic film.
I also thought Michael Sheen was a more than capable David Frost - some critics found his smile wooden but his frivolous easy-going character was the exact counterweight to the neurotic intelligence of Nixon. Both lead actors previously participated in performances of a play with the same title.
By the way my sympathies during the film were almost entirely with Nixon – an imperfect, difficult although obviously highly intelligent man. In the film he runs rings around Frost until the final 2 hours of 30 hours of interviewing when finally and climactically Frost induces Nixon to spill the beans on his complicity in the Watergate scandal. The final admission almost seems cathartic for Nixon who finally realises it is over for him.
An enjoyable dramatic film.
Friday, January 02, 2009
Denialist stupidity
I am astonished at the The Australian newspaper for suggesting that cool temperatures in 2008 might provide a ‘serious blow to global warming alarmists’. It is my bolding on the word ‘alarmists’ – an unusual turn of phrase since it includes almost all figures in climate science and the Australian Bureau of Meteorology.
The Australian's judgement is wrong on two counts. First, climate is not determined by a single year’s average observed temperature. To suppose otherwise is just incorrect. Keith Colls and Richard Whitaker’s excellent, The Australian Weather Book, Second Edition, 2001 define climate as the probability distribution of the various elements of day-to-day weather. To determine this probability distribution, for weather patterns as variable as those for Australia, the authors suggest that it is necessary to draw on rainfall records dating back 150 years and temperature records drawing on 50 years (page 156). Second, there may well be medium term deviations from warming trends due to climatic effects related to cooling of the oceans. This is the reason I am strongly opposed to viewing the current drought as a reflection of climate change. If the public come to accept that medium term droughts reflect climate change they may falsely believe that medium term reductions in average temperatures imply that anthropogenic global warming arguments are false.
The difficulty with the foolish reasoning presented in The Australian is that it may cast sufficient doubt in the minds of the public and in politicians to forego activist climate change policy particularly given the current economic difficulties.
In fact the current cooling trend has been analysed at length by the Bureau of Meteorology. Their December 23, 2008 ENSO Wrap-Up states:
Further comments on The Australian’s arguments are provided at Deltoid.
The Australian's judgement is wrong on two counts. First, climate is not determined by a single year’s average observed temperature. To suppose otherwise is just incorrect. Keith Colls and Richard Whitaker’s excellent, The Australian Weather Book, Second Edition, 2001 define climate as the probability distribution of the various elements of day-to-day weather. To determine this probability distribution, for weather patterns as variable as those for Australia, the authors suggest that it is necessary to draw on rainfall records dating back 150 years and temperature records drawing on 50 years (page 156). Second, there may well be medium term deviations from warming trends due to climatic effects related to cooling of the oceans. This is the reason I am strongly opposed to viewing the current drought as a reflection of climate change. If the public come to accept that medium term droughts reflect climate change they may falsely believe that medium term reductions in average temperatures imply that anthropogenic global warming arguments are false.
The difficulty with the foolish reasoning presented in The Australian is that it may cast sufficient doubt in the minds of the public and in politicians to forego activist climate change policy particularly given the current economic difficulties.
In fact the current cooling trend has been analysed at length by the Bureau of Meteorology. Their December 23, 2008 ENSO Wrap-Up states:
The equatorial Pacific has continued to cool during the past fortnight, with large areas in the east and centre of the basin between 0.5°C and 1.5°C cooler than normal. This raises the possibility of indicators reaching La Niña levels, even if only briefly, if the cooling persists. In the atmosphere, Trade Winds have been persistently stronger than normal for some months across the western half of the basin, cloudiness is suppressed along much of the central and eastern equatorial Pacific, and the SOI remains strongly positive, with an approximate 30-day value of +13 as of 21st of December.Thus there is the possibility of a cooling related to a La Niña event during the current summer.
Given current conditions and recent trends, the development of a La Niña during the southern summer cannot be ruled out. However, for the first quarter of 2009 the majority of climate models forecast neutral conditions, but with a cooler than normal equatorial Pacific. Historically, it is unusual for La Niña thresholds to be reached during the southern summer, though this did occur as recently as the summer of 1999/2000.
Further comments on The Australian’s arguments are provided at Deltoid.
Thursday, January 01, 2009
Recessions & depressions
This Economist piece pins down the distinction between recessions (2 consecutive quarters of negative growth) and depressions (declines of GPD which either exceeded 10% in a year or which persist for more than 3 years) and analyses when and where they each occur. Depressions were more common in the past because bank failures were more often permitted and because the share of government in the economy was smaller. These days depressions are much more common in emerging economies - Russia had a dozy 1989-1998 when GDP fell 45%. ASEAN countries experienced depressions following the 1997 Asian crisis.
It remains an open question whether the US will experience a depression now. Most economists say not (fiscal actions and support of financial institutions the reason) but in the current disturbed environment these forecasts have limited (I would say close to zero) value. Model-based forecasts are only valid in the range of experience the models are based on and the current situation is something distant from recent experience. What is true is that the US economy declined 6% on an annualised basis in the December quarter.
The price paid at Intrade for a US depression outcome implies a depression probability of about 30% compared to a probability of 10% in November 2008. See:
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It remains an open question whether the US will experience a depression now. Most economists say not (fiscal actions and support of financial institutions the reason) but in the current disturbed environment these forecasts have limited (I would say close to zero) value. Model-based forecasts are only valid in the range of experience the models are based on and the current situation is something distant from recent experience. What is true is that the US economy declined 6% on an annualised basis in the December quarter.
The price paid at Intrade for a US depression outcome implies a depression probability of about 30% compared to a probability of 10% in November 2008. See:
Tuesday, December 30, 2008
Iranian Presbyterians to fight in Gaza against Zionism
HT: Jihad Watch.
Progressive (often nappy-crested*) idealist followers in Syria, Yemen, southern Beirut and Sydney have voiced their support. Shaking their fingers they have warned the Zionists not to respond provocatively to freedom-fighting missiles directed at them. If the Zionists continue to fight back the Presbyterians warn that they will jump up and down and get annoyed. They won't like the Zionists any more and will whip their asses like they did last time....err the time before that...well you know when.
* Mr Natural - below - forgot his nappy and has not yet learnt how to goosestep.
Pharmaceutical market failures?
This review in the New York Review of Books shows how drug companies pay bribes to medical doctors and psychiatrists to have new drugs publicly endorsed and promoted and how research activities into new drugs are given a positive spin through the input of drug company money. Quote:
The conflicts of interest here are clear enough for prescribing doctors and pharmaceutical regulators to appreciate.
Update: This article in NYT records that US pharmos have agreed to stop issue branded trinkets - Vioxx pens and so on. Quote:
'No one knows the total amount provided by drug companies to physicians, but I estimate from the annual reports of the top 9 US drug companies that it comes to tens of billions of dollars a year. By such means, the pharmaceutical industry has gained enormous control over how doctors evaluate and use its own products. Its extensive ties to physicians, particularly senior faculty at prestigious medical schools, affect the results of research, the way medicine is practiced, and even the definition of what constitutes a disease'.Consider Dr. Joseph L. Biederman, professor of psychiatry at Harvard Medical School and chief of pediatric psychopharmacology at Harvard's Massachusetts General Hospital.
'Thanks largely to him, children as young as 2 years old are being diagnosed with bipolar disorder and treated with a cocktail of powerful drugs, many not approved by the FDA for that purpose and none of which were approved for children below 10 years of age.
Legally, physicians may use drugs that have already been approved for a particular purpose for any other purpose they choose, but such use should be based on good published scientific evidence. That seems not to be the case here. Biederman's own studies of the drugs he advocates to treat childhood bipolar disorder were, as The New York Times summarized, "so small and loosely designed that they were largely inconclusive."
In June, Senator Grassley revealed that drug companies, including those that make drugs he advocates for childhood bipolar disorder, had paid Biederman $1.6 million in consulting and speaking fees between 2000 and 2007. Two of his colleagues received similar amounts'.In an interesting twist after this was revealled the president of the Massachusetts General Hospital and the chairman of its physician organization sent a letter to the hospital's physicians expressing not shock over the enormity of the conflicts of interest, but sympathy for the beneficiaries! "We know this is an incredibly painful time for these doctors and their families, and our hearts go out to them."'
The conflicts of interest here are clear enough for prescribing doctors and pharmaceutical regulators to appreciate.
Update: This article in NYT records that US pharmos have agreed to stop issue branded trinkets - Vioxx pens and so on. Quote:
“We have arrived at a point in the history of medicine in America where doctors have deep, deep financial ties with the drug makers and marketers,” said Allan Coukell, the director of policy for the Prescription Project, a nonprofit group in Boston working to promote evidence-based medicine. “Financial entanglements at all the levels have the potential to influence prescribing in a way that is not good.”
Monday, December 29, 2008
Israel attacks terrorist bases in Gaza
The UN have condemned Israel for 'overreacting' in their airstrike attacks on the Gaza Strip*. I think in fact that Israel have acted decisively and have not overreacted at all. The attacks have real ferocity and regrettably have killed an estimated 290 Palestinians - many of them civilians. It is a miserable outcome for a poverty-stricken people living in what amounts to a large prison camp.
Hamas provoked the airstrikes by launching sustained missile attacks on Israel. The horror of civilian deaths is real but irrespective of any moral arguments the core issue is how else a country like Israel could respond to missile attacks from a group which seeks to anniliate it?
Likewise while the Palestinians grizzle about travel restrictions into and out of Gaza the culprit here is Hamas which sends suicide missions into Israel.
Residents of Gaza gave a political victory to the Hamas terrorist group which seeks the destruction of the neighbouring state that, in fact, exited the occupied Gaza in 2005. The Gaza residents are now paying a terrible price for their choices. The Hamas cowards are launching their missile attacks from civilian areas inside Gaza essentially using the civilians as human shields. To some Hamas seem to be preventing the treatment of injured Palestinian civilians in Egypt while to others Egypt has closed the border with Gaza. Both Egypt and Jordon generally don't have much of a stomach for the short-sighted and callous Hamas stupidity.
Israel is asserting a display of military might that reminds its enemies that it does have teeth after the seemingly bungled dispute with Hezbollah in Lebanon in 2006 - hence the decisiveness of the current attacks. Hezbollah like Hamas is a terrorist organisation committed to the destruction of Israel. Indeed the current Israeli successes are reminiscent of the early claimed successes against Hezbollah. Hopefully the current tit-for-tat efforts will have the longer-term conclusion of forcing Hamas to negotiate a new more binding peace. The more damage that can be inflicted on Hamas the greater the likely success. indded the more damage that can be inflicted on the terrorist Hamas the better the prospects for the Palestinian people.
* Our acting PM Gillard has unhelpfully urged both sides to avoid fighting although, to be fair, she does recognise Hamas as the origin of the current problems. The real morons of the left adopt the usual 'sins on both sides' posture which again suggests Israel has no right to oppose those who seek to destroy it.
Hamas provoked the airstrikes by launching sustained missile attacks on Israel. The horror of civilian deaths is real but irrespective of any moral arguments the core issue is how else a country like Israel could respond to missile attacks from a group which seeks to anniliate it?
Likewise while the Palestinians grizzle about travel restrictions into and out of Gaza the culprit here is Hamas which sends suicide missions into Israel.
Residents of Gaza gave a political victory to the Hamas terrorist group which seeks the destruction of the neighbouring state that, in fact, exited the occupied Gaza in 2005. The Gaza residents are now paying a terrible price for their choices. The Hamas cowards are launching their missile attacks from civilian areas inside Gaza essentially using the civilians as human shields. To some Hamas seem to be preventing the treatment of injured Palestinian civilians in Egypt while to others Egypt has closed the border with Gaza. Both Egypt and Jordon generally don't have much of a stomach for the short-sighted and callous Hamas stupidity.
Israel is asserting a display of military might that reminds its enemies that it does have teeth after the seemingly bungled dispute with Hezbollah in Lebanon in 2006 - hence the decisiveness of the current attacks. Hezbollah like Hamas is a terrorist organisation committed to the destruction of Israel. Indeed the current Israeli successes are reminiscent of the early claimed successes against Hezbollah. Hopefully the current tit-for-tat efforts will have the longer-term conclusion of forcing Hamas to negotiate a new more binding peace. The more damage that can be inflicted on Hamas the greater the likely success. indded the more damage that can be inflicted on the terrorist Hamas the better the prospects for the Palestinian people.
* Our acting PM Gillard has unhelpfully urged both sides to avoid fighting although, to be fair, she does recognise Hamas as the origin of the current problems. The real morons of the left adopt the usual 'sins on both sides' posture which again suggests Israel has no right to oppose those who seek to destroy it.
Friday, December 26, 2008
Capitalist fools
Who is to blame for the current global financial mess? Joseph Stiglitz in this Vanity Fair classic identifies 5 key mistakes made by 3 US Presidents.
(i) Appointing an anti-regulator (Alan Greenspan) to the position of Federal Reserve Chairman was a basic error - Greenspan did nothing to prick two asset market bubbles and refused to intervene to regulate derivative markets when many knew they were instruments of financial mass destruction. Spiv economic culture was promoted.
(ii) Tearing down the walls and repealing the Glass-Steagall Act which separated commercial banks (which lend) from investment banks (which organise the sale of bonds and equities). More spiv culture.
(iii) Applying the leeches - providing tax cuts to mainly upper income earners did little to stimulate the economy which was driven by a wash of liquidity and incentives which favoured capital gains over hard work. Giving the spivs a chance in life.
(iv) Faking the numbers proceeded partly through gaps in the Sarbanes-Oxley Act which excluded executive options gave firms incentives to fiddle the books and partly through the operations of rating agencies who were paid by firms whom they were rating - financial overseering failed. Spiv-related industry assistance.
(v) Letting it bleed - the bailout package is a confidence trick that forces ordinary Americans to bailout the rich but which will fail to restart lending - the core issue. The spivs did well.
The issue to Stiglitz revolves around the need for regulation and for what I have elsewhere called the failure of free market fundamentalism:
(i) Appointing an anti-regulator (Alan Greenspan) to the position of Federal Reserve Chairman was a basic error - Greenspan did nothing to prick two asset market bubbles and refused to intervene to regulate derivative markets when many knew they were instruments of financial mass destruction. Spiv economic culture was promoted.
(ii) Tearing down the walls and repealing the Glass-Steagall Act which separated commercial banks (which lend) from investment banks (which organise the sale of bonds and equities). More spiv culture.
(iii) Applying the leeches - providing tax cuts to mainly upper income earners did little to stimulate the economy which was driven by a wash of liquidity and incentives which favoured capital gains over hard work. Giving the spivs a chance in life.
(iv) Faking the numbers proceeded partly through gaps in the Sarbanes-Oxley Act which excluded executive options gave firms incentives to fiddle the books and partly through the operations of rating agencies who were paid by firms whom they were rating - financial overseering failed. Spiv-related industry assistance.
(v) Letting it bleed - the bailout package is a confidence trick that forces ordinary Americans to bailout the rich but which will fail to restart lending - the core issue. The spivs did well.
The issue to Stiglitz revolves around the need for regulation and for what I have elsewhere called the failure of free market fundamentalism:
The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today. (my bold)
HT to Sir Henry Casingbroke
Wednesday, December 24, 2008
Harry's Xmas message
I’ve been slack over recent weeks with meandering posts and important issues (such as Rudd reneging on meaningful climate change targets) going undiscussed*. In part this is because it is Xmas and I feel like being non-committed and because pissing into the wind has often in the past involved my boots getting splashed. It’s what I’ve described in the past as the need to go dum-dum. The blogosphere (and the press) tend to slow down at this time of year which is probably as it should be. It is a ‘don’t-need-to-do’ period.
I also feel dum-dum because I am on holidays, playing golf and really enjoying the prospects of Xmas. I wonder if I am the only atheist in Ivanhoe who loves Xmas carols – this is my favourite Xmas carol and a great performance. This version of Silent Night moves me.
Generally last years’ post on the meaning of Xmas expresses my attitudes toward this happy time.
Happy Xmas to all my readers! With probability p = 0.9998 I’ll be back in force in a week or so rejuvenated, replenished and with a long list of soon to be foregotten resolutions.
*I stopped on this one though I did give warnings to all and sundry that it would happen.
I also feel dum-dum because I am on holidays, playing golf and really enjoying the prospects of Xmas. I wonder if I am the only atheist in Ivanhoe who loves Xmas carols – this is my favourite Xmas carol and a great performance. This version of Silent Night moves me.
Generally last years’ post on the meaning of Xmas expresses my attitudes toward this happy time.
Happy Xmas to all my readers! With probability p = 0.9998 I’ll be back in force in a week or so rejuvenated, replenished and with a long list of soon to be foregotten resolutions.
*I stopped on this one though I did give warnings to all and sundry that it would happen.
Rudd greets world at Xmas.
In a Xmas message released yesterday:
Rudd urged Australians to spare a thought for troops serving overseas as they enjoy their Xmas break. People should remember Australia's troops serving in Iraq, Afghanistan, the Solomon Islands, East Timor and elsewhere. Many of them have little kids of their own but they won't be with them this Christmas. "We acknowledge the sacrifices they make and thank them for serving our nation with such courage and distinction abroad".
Rudd paid tribute to police, firefighters and other emergency service workers who are on duty and away from their family to help the community on this most special of days.
Rudd said Christmas was a wonderful time of celebration and recuperation with family – a time of reunion for families that have been separated for reasons of work, study and travel.
Rudd said it was a special time for kids, whose experiences of Christmas are among the happiest memories they carry throughout their lives. It was for him.
Rudd urged compassion for people dealing with the death of loved ones.
Rudd said people should support those around them and take care if they were travelling. "Please, please, drive carefully and please be considerate in sharing the road with others”.
Rudd said whether you are in a city or the suburbs, the beach or in the bush, at home or abroad, that he wishes all Australians a very safe Christmas, a very happy Christmas and a very happy and peaceful new year.
The world listens to your every banality Kevin. The world will vote for you Kevin. Your winning smile and hyoperactivity provide a model for us all Kevin.
Rudd urged Australians to spare a thought for troops serving overseas as they enjoy their Xmas break. People should remember Australia's troops serving in Iraq, Afghanistan, the Solomon Islands, East Timor and elsewhere. Many of them have little kids of their own but they won't be with them this Christmas. "We acknowledge the sacrifices they make and thank them for serving our nation with such courage and distinction abroad".
Rudd paid tribute to police, firefighters and other emergency service workers who are on duty and away from their family to help the community on this most special of days.
Rudd said Christmas was a wonderful time of celebration and recuperation with family – a time of reunion for families that have been separated for reasons of work, study and travel.
Rudd said it was a special time for kids, whose experiences of Christmas are among the happiest memories they carry throughout their lives. It was for him.
Rudd urged compassion for people dealing with the death of loved ones.
Rudd said people should support those around them and take care if they were travelling. "Please, please, drive carefully and please be considerate in sharing the road with others”.
Rudd said whether you are in a city or the suburbs, the beach or in the bush, at home or abroad, that he wishes all Australians a very safe Christmas, a very happy Christmas and a very happy and peaceful new year.
The world listens to your every banality Kevin. The world will vote for you Kevin. Your winning smile and hyoperactivity provide a model for us all Kevin.
Pope's Xmas Message
Homosexuality is a bigger threat than climate change. My question: Why do people listen to this sanctimonious old shit? I'd say ratbag religions and the bigots who promote them are a bigger threat to the planet than people who prefer to have sexual relations with their own gender because that is the orientation established in them on the basis of their genes. But maybe some corpse-like ex-Nazi who's never had a root in his life knows better.
The Pope (and the Catholic Church) are far from espousing the message of love preached by the man Jesus Christ. The values of Christ provide a possible, useful moral code for humanity. The message of the Catholic Church is one which glorifies the pale virgin shrouded in snow. The Corpse Hour with Commandant Benedict. Arise from your graves you ignorant bigots and go where the sunflower wishes to go!
Update: the relevant section of the Pope's message.
"What is necessary is a kind of ecology of man, understood in the correct sense. When the Church speaks of the nature of the human being as man and woman and asks that this order of creation be respected, it is not the result of an outdated metaphysic. It is a question here of faith in the Creator and of listening to the language of creation, the devaluation of which leads to the self-destruction of man and therefore to the destruction of the same work of God. That which is often expressed and understood by the term “gender”, results finally in the self-emancipation of man from creation and from the Creator. Man wishes to act alone and to dispose ever and exclusively of that alone which concerns him. But in this way he is living contrary to the truth, he is living contrary to the Spirit Creator. The tropical forests are deserving, yes, of our protection, but man merits no less than the creature, in which there is written a message which does not mean a contradiction of our liberty, but its condition. The great Scholastic theologians have characterised matrimony, the life-long bond between man and woman, as a sacrament of creation, instituted by the Creator himself and which Christ – without modifying the message of creation – has incorporated into the history of his covenant with mankind. This forms part of the message that the Church must recover the witness in favour of the Spirit Creator present in nature in its entirety and in a particular way in the nature of man, created in the image of God. Beginning from this perspective, it would be beneficial to read again the Encyclical Humanae Vitae: the intention of Pope Paul VI was to defend love against sexuality as a consumer entity, the future as opposed to the exclusive pretext".
The Pope (and the Catholic Church) are far from espousing the message of love preached by the man Jesus Christ. The values of Christ provide a possible, useful moral code for humanity. The message of the Catholic Church is one which glorifies the pale virgin shrouded in snow. The Corpse Hour with Commandant Benedict. Arise from your graves you ignorant bigots and go where the sunflower wishes to go!
Update: the relevant section of the Pope's message.
"What is necessary is a kind of ecology of man, understood in the correct sense. When the Church speaks of the nature of the human being as man and woman and asks that this order of creation be respected, it is not the result of an outdated metaphysic. It is a question here of faith in the Creator and of listening to the language of creation, the devaluation of which leads to the self-destruction of man and therefore to the destruction of the same work of God. That which is often expressed and understood by the term “gender”, results finally in the self-emancipation of man from creation and from the Creator. Man wishes to act alone and to dispose ever and exclusively of that alone which concerns him. But in this way he is living contrary to the truth, he is living contrary to the Spirit Creator. The tropical forests are deserving, yes, of our protection, but man merits no less than the creature, in which there is written a message which does not mean a contradiction of our liberty, but its condition. The great Scholastic theologians have characterised matrimony, the life-long bond between man and woman, as a sacrament of creation, instituted by the Creator himself and which Christ – without modifying the message of creation – has incorporated into the history of his covenant with mankind. This forms part of the message that the Church must recover the witness in favour of the Spirit Creator present in nature in its entirety and in a particular way in the nature of man, created in the image of God. Beginning from this perspective, it would be beneficial to read again the Encyclical Humanae Vitae: the intention of Pope Paul VI was to defend love against sexuality as a consumer entity, the future as opposed to the exclusive pretext".
Tuesday, December 23, 2008
A Xmas present from America?
The insincerity and deceit of PM Grub Rudd partly mirror the views of the Australian electorate and also Rudd’s perception of international political opinion. Politicians like Rudd just don’t get it – we need massive cuts in carbon emissions and an end to the use of carbon based fuels soon if the earth is not to very likely to experience catastrophic (2 degrees plus) climate change*. Rudd is not alone in his stupidity. The Europeans have reneged on commitments to address climate change seriously despite the leadership role of Germany’s scientist leader Angela Merkel.
French climate scientist Philippe Ciais argues the earth will experience 2 degrees warming even if all emissions stopped today. There is even one notable forecast by NASA scientist James Hansen of record global temperature highs during the first term of President Obama’s office and of the possibility of runaway warming with the destruction of all life on earth and in the oceans.
These are fearful scenarios and will be derided by climate change sceptics but the outcomes they point too as serious scientists are very adverse and are worthy of weight on that account alone. It is not alarmism but prudent regard for a serious risk that endangers life on earth.
Some of Obama’s appointments suggest a new US respect for science. Obama is committed to serious climate change policies and has:
The old US ‘enemy’ may yet arise to save the day - I have already posted that there is a conceivable economic rationale for doing just that. It would be a great Xmas present for the world for Obama to establish his position as a great US President by getting the world’s political leaders to take seriously climate change.
* My own work as an economist interested in climate change policy will emphasise adaptation policies on the assumption that (regrettably) mitigation policies are likely to be ineffectual. I am also completing work on strategic aspects of mitigation policy.
French climate scientist Philippe Ciais argues the earth will experience 2 degrees warming even if all emissions stopped today. There is even one notable forecast by NASA scientist James Hansen of record global temperature highs during the first term of President Obama’s office and of the possibility of runaway warming with the destruction of all life on earth and in the oceans.
These are fearful scenarios and will be derided by climate change sceptics but the outcomes they point too as serious scientists are very adverse and are worthy of weight on that account alone. It is not alarmism but prudent regard for a serious risk that endangers life on earth.
Some of Obama’s appointments suggest a new US respect for science. Obama is committed to serious climate change policies and has:
...pledged to create 5 million green jobs and break U.S. dependence on foreign oil, investing $150 billion in the next decade to build an energy economy that relies on renewable sources such as wind, solar and geothermal energy.Moreover, despite US economic problems these sorts of policies seem like a plausible and reasonable vision. Already the appointment of serious climate change scientists to key positions in his administration has led to forecasts that this will have a positive effect of Indian, Chinese and Brazilian climate policies.
The old US ‘enemy’ may yet arise to save the day - I have already posted that there is a conceivable economic rationale for doing just that. It would be a great Xmas present for the world for Obama to establish his position as a great US President by getting the world’s political leaders to take seriously climate change.
* My own work as an economist interested in climate change policy will emphasise adaptation policies on the assumption that (regrettably) mitigation policies are likely to be ineffectual. I am also completing work on strategic aspects of mitigation policy.
Sunday, December 21, 2008
Chinese biodiversity
I've got in trouble before commenting on Chinese attitudes to nature and non-human life but, to return to a theme, many Chinese attitudes are, from a Western perspective, appallingly destructive despite official Chinese ideological claims about the need to live in 'balance with nature'. Historically many of the forests of China were cleared in the 'great deforestation' and animal and plant species are often seen in Chinese culture purely in instrumental terms as things that can 'serve' people in the narrow sense of providing food or material products or caged amusements. This has had dramatic consequences for the environmental history of China. China has also long been intensively cropped rather than ranched - an activity particularly inimical to biodiversity.
Marine and aquatic environments have been subject to particular damage. The probable extinction of the Yangtze River Dolphin was a notable loss. Historically Chairman Mao's policy of wiping out bird species because they ate grain was a supreme example of short-sightedness since a disasterous locust plague immediately followed as well as an errie bird-free silence in many Chinese cities.
China has high intrinsic biodiversity - for example 1329 bird species out of a global total of about 9000 - but a biodiversity which is under severe threat from rapid Chinese economic development, harvesting and pollution. This affects non-Chinese because existence values on biodiversity are global. Non-Chinese experience discomfit when biodiversity is wiped out in China. In a more immediate sense the conversion of mudflats and wetlands into commercial sites is endangering bird species that migrate between the northern and southern hemispheres along the East Asian-Australian Flyway.
A colleague working on conservation issues in the Flyway told me how angry he got when fellow Chinese 'conservationists' immediately discarded into the environment any litter they had generated - this view of the environment as an inexhaustible sink is clearly inappropriate in a Chinese setting. I winced when he told me that the migratory waders the Chinese collect as food are attracted into nets by posting captured birds in wetlands with their eyes stitched together so they do not make alarm calls. OK these practises do reflect different values but, for sure, Chinese attitudes towards nature, create external costs for many non-Chinese.
This article on the critically-endangered Chinese crested tern (pictured above) sets out the issues well in terms of issues surrounding the conservation of an individual species. It is a good general read.
Things are improving in China due to official government policies but I question whether the improvements will offset the pace of so-called 'progress'. It is pointless for the Chinese people to seek to become rich by living in a barren rubbish dump.
Friday, December 19, 2008
Madoff economies
Paul Krugman asks a basic question. While everyone is tutt-tutting about Bernard Madoff's amazing fraud (how come the SEC never saw it even though it had been denounced as a Ponzi scheme in 1999? How come knowledgeable investors fell for it? etc etc etc) isn't Madoff not really just a symptom of what is endemic in the US (and perhaps global) finance industry? Madoff was an explicit crook but large sections of the US finance industry as a whole are crooked. They have destroyed value, distorted individual incentives (including those of politicians!) and ruined lives while making those who operate the industry incredibly wealthy.
Spivs invest in worthless mortgage contracts (or ultra-high risk investments) and make millions just before the contracts turn toxic. Doing this yields the practitioners more wealth in a short period than a skilled scientist or engineer can earn in a lifetime. Indeed, American wages generallly have stagnated over the past few decades while the salaries of the spivs and bankers have exploded. Moreover, it is not the equity issues that are of major concern but the sheer illogic of believing that such outcomes have economic rationality.
Spivs invest in worthless mortgage contracts (or ultra-high risk investments) and make millions just before the contracts turn toxic. Doing this yields the practitioners more wealth in a short period than a skilled scientist or engineer can earn in a lifetime. Indeed, American wages generallly have stagnated over the past few decades while the salaries of the spivs and bankers have exploded. Moreover, it is not the equity issues that are of major concern but the sheer illogic of believing that such outcomes have economic rationality.
Thursday, December 18, 2008
Real bonuses & phoney profits
For years in business school courses I have taught that incentive contracts - fancy language for 'bonuses' or 'performance pay' - are a way of motivating extra effort from business managers or of elimating principal -agent problems between managers and shareholdersw. Sometimes this is true but the devil is in the detail of how such contracts are designed. Sometimes the contracts increase risk-taking unreasonably particularly in an investment setting where rewards from sound decision making accrue through time and where the costs of poor investment decisions are not identified immediately.
The NYT discusses the interesting recent case of Merrill Lynch. To quote their former CEO E. Stanley O'Neal in March 2008:
Moreover, benefits of huge magnitudes were made further down the line. For one employee in 2006, on a salary of US$350,000, total compensation was 100 times that at US$35 million. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million. Many of these bonuses were in cash not equity so employees had little reason to take a longer-term view.
These huge payouts were intended to reflect huge earnings but they did not. Quoting the NYT:
Furthermore banks like Merrill will dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers’ money.
These bonuses should never have been so big because they were based on 'ephemeral earnings'. They encourage employees to act like gamblers at a casino who can collect their winnings while the roulette wheel was still spinning. Employees contiunued to pursue risky deals even as the housing and mortgage markets weakened because what happened to their investments was of no interest to them - they have already been paid.
Sir Henry Casingbroke's amusing - though pointed - account of the US auto bailout provides further observations on crazy US incentive contracts. I assuime the business school gurus will publish a whole rash of learned papers pointing out that refining the way incentive contracts are designed can perfect their operation. But something more fundamental seems lacking - corporate morality for one thing.
The NYT discusses the interesting recent case of Merrill Lynch. To quote their former CEO E. Stanley O'Neal in March 2008:
“As a result of the extraordinary growth at Merrill during my tenure as C.E.O., the board saw fit to increase my compensation each year.”When he left Merrill, O'Neal was awarded an exit package of US$161 million.
Moreover, benefits of huge magnitudes were made further down the line. For one employee in 2006, on a salary of US$350,000, total compensation was 100 times that at US$35 million. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million. Many of these bonuses were in cash not equity so employees had little reason to take a longer-term view.
These huge payouts were intended to reflect huge earnings but they did not. Quoting the NYT:
'...Merrill’s record earnings in 2006 — $7.5 billion — turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.The losses Merrill made exceeded all the profits they had made for 20 years.
Unlike the earnings, however, the bonuses have not been reversed'.
Furthermore banks like Merrill will dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers’ money.
These bonuses should never have been so big because they were based on 'ephemeral earnings'. They encourage employees to act like gamblers at a casino who can collect their winnings while the roulette wheel was still spinning. Employees contiunued to pursue risky deals even as the housing and mortgage markets weakened because what happened to their investments was of no interest to them - they have already been paid.
Sir Henry Casingbroke's amusing - though pointed - account of the US auto bailout provides further observations on crazy US incentive contracts. I assuime the business school gurus will publish a whole rash of learned papers pointing out that refining the way incentive contracts are designed can perfect their operation. But something more fundamental seems lacking - corporate morality for one thing.
Wednesday, December 17, 2008
The US Auto Bailout....
Guest post by Sir Henry Casingbroke
A Japanese company (Toyota) and an American company (General Motors) decided to have a canoe race on the Missouri River.
Both teams practiced long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, discouraged and depressed, decided to investigate the reason for the crushing defeat. A team made up of senior management was formed to investigate and recommend appropriate action.
Their conclusion was that the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.
Feeling a deeper study was in order; American management hired a consulting company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 2 area steering superintendents and 1 assistant superintendent steering manager.
They also implemented a new performance system that would give the 2 people rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses.
The pension program was trimmed to 'equal the competition' and some of the resultant savings were channeled into morale-boosting programs and teamwork posters.
The next year the Japanese won by two miles.
Humiliated, the American management laid off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses.
The next year, try as he might (and having no paddles), the lone designated rower was unable to even start the race, so he was laid off for unacceptable performance, all canoe equipment was sold, and the next year's racing team was outsourced to India.
The End.
PS: General Motors has spent the last thirty years moving its factories out of the US , claiming they can't make money paying American wages. Toyota has spent the last thirty years building more than a dozen plants inside the US.
The last quarter's results: Toyota made 4 billion in profits while General Motors racked up 9 billion in losses.
A Japanese company (Toyota) and an American company (General Motors) decided to have a canoe race on the Missouri River.
Both teams practiced long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, discouraged and depressed, decided to investigate the reason for the crushing defeat. A team made up of senior management was formed to investigate and recommend appropriate action.
Their conclusion was that the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.
Feeling a deeper study was in order; American management hired a consulting company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 2 area steering superintendents and 1 assistant superintendent steering manager.
They also implemented a new performance system that would give the 2 people rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses.
The pension program was trimmed to 'equal the competition' and some of the resultant savings were channeled into morale-boosting programs and teamwork posters.
The next year the Japanese won by two miles.
Humiliated, the American management laid off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses.
The next year, try as he might (and having no paddles), the lone designated rower was unable to even start the race, so he was laid off for unacceptable performance, all canoe equipment was sold, and the next year's racing team was outsourced to India.
The End.
PS: General Motors has spent the last thirty years moving its factories out of the US , claiming they can't make money paying American wages. Toyota has spent the last thirty years building more than a dozen plants inside the US.
The last quarter's results: Toyota made 4 billion in profits while General Motors racked up 9 billion in losses.
Monday, December 15, 2008
Golf & the Australian Open Championship
I attended the final day's play of the Australian Open at Royal Sydney Golf Club. I endorse entirely Robert Allenby's criticisms of the organisers of this event and of the attending Aussie print media. The hounding of the visiting American professional John Daly because he smashed a spectator's camera against a tree was stupid. The foolish fan rammed the illegally-held camera (cameras were supposed to be banned at the event) in Daly's face while Daly was taking a difficult shot. Also stupid was the positioning of a booze-centre at the back of the 17th green from where offensive, drunken louts hurled insults and hooted at players who hit bad shots or indeed anyone who they took a dislike to. It was an ugly interlude in what was otherwise a fascinating day.
I followed Allenby for a while that Sunday. What a great golfer and what a genuinely decent guy he is. He chatted amiably with spectators and played entertaining, aggressive golf - Allenby is a star and hardly a prude. His comments should be taken seriously by golf officialdom and the gutter press.
Why is it that so many Australians cannot enjoy watching sports without getting aggressively and moronically drunk? Why cannot the Aussie media ever resist the temptation for a bit of cheap scandal?
I followed Allenby for a while that Sunday. What a great golfer and what a genuinely decent guy he is. He chatted amiably with spectators and played entertaining, aggressive golf - Allenby is a star and hardly a prude. His comments should be taken seriously by golf officialdom and the gutter press.
Why is it that so many Australians cannot enjoy watching sports without getting aggressively and moronically drunk? Why cannot the Aussie media ever resist the temptation for a bit of cheap scandal?
Saturday, December 13, 2008
Keith Windschuttle on acceptable climate change papers for Quadrant
My paper criticising what I saw as the foolish climate change 'denialist' views that have been repeatedly put forward in Quadrant magazine was rejected by its editor Keith Windschuttle on the grounds that an earlier draft of the paper had been published on this blog. This seemed to me a totally spurious grounds for not publishing the paper - there may have well been non-spurious grounds not set out in the email to me by Keith - so I emailed Keith requesting a rethink. Everything I publish in academic and popular journals I pre-circulate first in working paper form or as a post on a webpage. Most academics I know do the same. For whatever reason Keith did not respond at all to my email.
Now I learn from Tim Lambert's Deltoid that Keith has rejected another paper by David Karoly criticising the same 'denialist' climate change views without any apparent review or consideration on the grounds that:
But, as a fellow conservative, I am really just really disappointed in Keith Windschuttle. The disappointment goes well beyond not having my article reviewed and considered for publication in Quadrant. It is the festive season so I'll simply say to Keith that his behaviour seems to me appalling and short-sighted and hope that eventually he will see this and allow Quadrant in the future to present a more truthful, balanced and accurate picture of the consequences of anthropogenic climate change. I wonder had I not published the draft on my website whether Keith would have applied this alternative reason for rejecting my article. If he had I would still have rejected his view as inappropriate. Journals such as Quadrant are misleading the public by presenting only climate change 'denialist' views and ignoring the overwhelming alternative views of mainstream science. Moreover, the consequences of Quadrant getting it wrong are serious.
Now I learn from Tim Lambert's Deltoid that Keith has rejected another paper by David Karoly criticising the same 'denialist' climate change views without any apparent review or consideration on the grounds that:
...at the moment Quadrant is focusing on offering a platform for the sceptical position on this issue. We find that the pro-IPCC position is very well represented in almost every media outlet in the country, including academic journals and websites, but it is very difficult for sceptics to find any outlet for their voices to be heard. Hence, in the interests of balance, we believe the sceptics deserve a fair go in a little journal like ours. If the current position changes, we will be glad to consider pro-IPCC articles such as yours.
But, as a fellow conservative, I am really just really disappointed in Keith Windschuttle. The disappointment goes well beyond not having my article reviewed and considered for publication in Quadrant. It is the festive season so I'll simply say to Keith that his behaviour seems to me appalling and short-sighted and hope that eventually he will see this and allow Quadrant in the future to present a more truthful, balanced and accurate picture of the consequences of anthropogenic climate change. I wonder had I not published the draft on my website whether Keith would have applied this alternative reason for rejecting my article. If he had I would still have rejected his view as inappropriate. Journals such as Quadrant are misleading the public by presenting only climate change 'denialist' views and ignoring the overwhelming alternative views of mainstream science. Moreover, the consequences of Quadrant getting it wrong are serious.
Friday, December 05, 2008
The end of free market fundamentalism not of the mixed economy (revised)
My earlier lengthy post under this title has been published in terser form over at Online Opinion.
Proposed Qantas BA merger
The predictable outraged sense of nationalism of Labor toward the proposed merger between Qantas and British Airways is only exceeded in stupidity by its commercial stupidity.
Keating was the first of Labor’s economic ‘geniuses’ to stamp his mark on Qantas’ adventurism by thwarting a tie up between Qantas and Singapore Airlines. He ‘saved’ Qantas by instead fostering Grandma BA’s acquisition of a 25% stake in Qantas (which they subsequently flogged off at a big profit to cover their own financial difficulties) and prevented Qantas from aligning itself with a star performer in the Asian region - the obvious choice was Singapore Airlines - that could perhaps have engineered real synergies and efficiencies. Now Qantas who were originally opposed to the BA move, and favoured an Asian connection, are clamouring to get into bed with unprofitable, debt-ridden Grandma once again.
Are there further realisable synergies on routes between ends of the world in Europe and Australia? Qantas and BA already coordinate fares and schedules on the Australia-London route. What synergies can Australia foster on flights between London and Stockholm? Between the UK and the US? You are joking. But, yes ’ll bet Grandma BA is hot to trot with the coltish flying kangaroo on this one. Wouldn’t you? BA would at least then gain the stupid protectionist advantages now assigned to Qantas on Australia-Japan and trans-Pacific routes.
BA and Qantas have comparable operational costs although BA’s are higher – a ludicrous op ed by Jemina Whyte in yesterday’s AFR suggested a basis for synergies lay in the fact that both carriers had unionised work-forces – but an carrier like Singapore Airlines has significantly lower costs. An Asian carrier would realise economies with Qantas in terms of being a regional hub and in terms of pressuring the featherbedding of the Qantas workforce. If a deal is not currently on then that is no reason to hop into bed with aging Grandma.
But whatever the stupidity of outraged Labor nationalism any moves to prevent the unseemly liaison between Qantas and BA can only be welcome.
Presumably there is a price at which the merger makes sense but it is a price that BA will not accept. Currently the proposed deal is said to involve ‘no premium’ and that in itself is revealing. The British are being generous enough to admit that low debt Qantas which will probably halve its profits to $250 million this year does not need to pay a premium to acquire heavily indebted BA which will be lucky to break even this year in intensely competitive international markets. BA are also ‘prepared’ to entertain the notion of a rotating CEO! The combined entity will thus be mis-managed at least 50% of the time.
I have often felt that many university bureaucrats should be offered memberships of local golf clubs or paid holidays for 48 weeks per year rather than ‘manage’ universities by trying to regulate how working academics teach or do research and in devising strategy documents that literally nobody reads. Given the political impossibility of sacking these cretins damages and costs would be smaller if these hapless bureaucrats could simply be kept off the street. Cannot new Qantas CEO Alan Joyce be offered something similar? Just run an airline Alan, pay Qantas’ bills in these difficult recessionary times and forget about trying to be a Master of the Universe -with an aging, crotchety and broke Grandma BA.
Since I wrote the above remarks the stock market has voted with a resounding thumbs-down to this foolish proposed deal.
Keating was the first of Labor’s economic ‘geniuses’ to stamp his mark on Qantas’ adventurism by thwarting a tie up between Qantas and Singapore Airlines. He ‘saved’ Qantas by instead fostering Grandma BA’s acquisition of a 25% stake in Qantas (which they subsequently flogged off at a big profit to cover their own financial difficulties) and prevented Qantas from aligning itself with a star performer in the Asian region - the obvious choice was Singapore Airlines - that could perhaps have engineered real synergies and efficiencies. Now Qantas who were originally opposed to the BA move, and favoured an Asian connection, are clamouring to get into bed with unprofitable, debt-ridden Grandma once again.
Are there further realisable synergies on routes between ends of the world in Europe and Australia? Qantas and BA already coordinate fares and schedules on the Australia-London route. What synergies can Australia foster on flights between London and Stockholm? Between the UK and the US? You are joking. But, yes ’ll bet Grandma BA is hot to trot with the coltish flying kangaroo on this one. Wouldn’t you? BA would at least then gain the stupid protectionist advantages now assigned to Qantas on Australia-Japan and trans-Pacific routes.
BA and Qantas have comparable operational costs although BA’s are higher – a ludicrous op ed by Jemina Whyte in yesterday’s AFR suggested a basis for synergies lay in the fact that both carriers had unionised work-forces – but an carrier like Singapore Airlines has significantly lower costs. An Asian carrier would realise economies with Qantas in terms of being a regional hub and in terms of pressuring the featherbedding of the Qantas workforce. If a deal is not currently on then that is no reason to hop into bed with aging Grandma.
But whatever the stupidity of outraged Labor nationalism any moves to prevent the unseemly liaison between Qantas and BA can only be welcome.
Presumably there is a price at which the merger makes sense but it is a price that BA will not accept. Currently the proposed deal is said to involve ‘no premium’ and that in itself is revealing. The British are being generous enough to admit that low debt Qantas which will probably halve its profits to $250 million this year does not need to pay a premium to acquire heavily indebted BA which will be lucky to break even this year in intensely competitive international markets. BA are also ‘prepared’ to entertain the notion of a rotating CEO! The combined entity will thus be mis-managed at least 50% of the time.
I have often felt that many university bureaucrats should be offered memberships of local golf clubs or paid holidays for 48 weeks per year rather than ‘manage’ universities by trying to regulate how working academics teach or do research and in devising strategy documents that literally nobody reads. Given the political impossibility of sacking these cretins damages and costs would be smaller if these hapless bureaucrats could simply be kept off the street. Cannot new Qantas CEO Alan Joyce be offered something similar? Just run an airline Alan, pay Qantas’ bills in these difficult recessionary times and forget about trying to be a Master of the Universe -with an aging, crotchety and broke Grandma BA.
Since I wrote the above remarks the stock market has voted with a resounding thumbs-down to this foolish proposed deal.
Wednesday, December 03, 2008
Thailand
The middle class radicals who have forced the end to democratically-elected governments* in Thailand have not done Thailand any long-term favours. Recent events in fact constitute a middle-class coup that has driven a popularly elected government from office. That is true even if the government was not entirely saintly.
When I lived in Thailand 20 years ago there were periodic military coups (2 in the 8 years I was there) which shuffled the deck chairs and occasionally produced significant violence. At about the time of my departure there was the optimistic feeling that the military would occupy a more traditional military role that largely lay outside of politics and business. For a few years this seemed to happen and the strong growth that Thailand enjoyed continued unabated up until the 1997 financial crash.
Now PM Somchai's party has been found guilty of electoral fraud and dissolved. Somchai has been barred from politics for five years and Deputy Prime Minister Chaowarat Chandeerakul has become acting prime minister. Anti-government protesters have declared victory and say they will vacate the airports that they occupied to force this issue. It is difficult to judge the extent to which the Thai military passively stood to one side to allow this to happen.
The best way for the Thai people to strengthen their democracy is to vote out poor politicians at election time. Coups whether launched by the military or by a Bangkok-based middle class are a short-cut that will never be a successful longer-term solution.
The Thais are one of the most pleasant of peoples. Friendliness is ingrained into the national character. But there is a dark side to the country - high murder rates and a proclivity to settle everyday disputes with the gun - that cannot be ignored. The current elitist coup may settle some immediate political scores but has disinfranchised a majority of the Thai population. It is a dangerous precedent that could lead to significant violence. Of course I hope I am wrong in this but I fear I will not be.
And of course the real development problems that Thailand still continues to face will not be improved by having a permanently threatened democracy.
*The recent PM (Mr Somchai Wongsawat) was admittedly nominated by the Thai Parliament but his party (and that of his predescessor Mr Thaksin), repeatedly were endorsed by a majority of the population.
When I lived in Thailand 20 years ago there were periodic military coups (2 in the 8 years I was there) which shuffled the deck chairs and occasionally produced significant violence. At about the time of my departure there was the optimistic feeling that the military would occupy a more traditional military role that largely lay outside of politics and business. For a few years this seemed to happen and the strong growth that Thailand enjoyed continued unabated up until the 1997 financial crash.
Now PM Somchai's party has been found guilty of electoral fraud and dissolved. Somchai has been barred from politics for five years and Deputy Prime Minister Chaowarat Chandeerakul has become acting prime minister. Anti-government protesters have declared victory and say they will vacate the airports that they occupied to force this issue. It is difficult to judge the extent to which the Thai military passively stood to one side to allow this to happen.
The best way for the Thai people to strengthen their democracy is to vote out poor politicians at election time. Coups whether launched by the military or by a Bangkok-based middle class are a short-cut that will never be a successful longer-term solution.
The Thais are one of the most pleasant of peoples. Friendliness is ingrained into the national character. But there is a dark side to the country - high murder rates and a proclivity to settle everyday disputes with the gun - that cannot be ignored. The current elitist coup may settle some immediate political scores but has disinfranchised a majority of the Thai population. It is a dangerous precedent that could lead to significant violence. Of course I hope I am wrong in this but I fear I will not be.
And of course the real development problems that Thailand still continues to face will not be improved by having a permanently threatened democracy.
*The recent PM (Mr Somchai Wongsawat) was admittedly nominated by the Thai Parliament but his party (and that of his predescessor Mr Thaksin), repeatedly were endorsed by a majority of the population.
Monday, December 01, 2008
Heroin on prescription
The Swiss have legalised the prescription of heroin to addicted users. The measure apparently has 68% Swiss community support although 63% oppose the legalisation of cannabis.
This move is poor policy since it reduces the user cost of heroin to addicts and therefore reduces their incentives to cease using. To the extent there is any inelasticity in supply of illegal heroin it will reduce the price and increase the incentives to use of new users. It will reduce the heath costs faced by the given pool of addicted users but - to the extent that demand curves slope downwards - will create a larger pool of users who will be exposed to lower risks. Even if supply is perfectly elastic - so Swiss users face an internationally given price - those selling illegal supplies face increased incentives to secure new users. At best new users face no immediate increased incentives not to use but increased incentives by virue of the fact that new users now have a low cost escape into government-provided heroin should they become addicted.
Those in the drug treatment industry will cheer at this legalisation partly because it secures the size of their long-term client base. The policy will fail to resolve the heroin abuse problem since it leaves unaddressed the usage incentives faced by new users. It simply ensures that existing users remain so.
Supporters will say that abolishing these laws reduce health and law enforcement costs. The first point is unclear for reasons advanced above while the second argument applies to any criminal activity. It is only sound if heroin use is considered victimless. I don't.
This move is poor policy since it reduces the user cost of heroin to addicts and therefore reduces their incentives to cease using. To the extent there is any inelasticity in supply of illegal heroin it will reduce the price and increase the incentives to use of new users. It will reduce the heath costs faced by the given pool of addicted users but - to the extent that demand curves slope downwards - will create a larger pool of users who will be exposed to lower risks. Even if supply is perfectly elastic - so Swiss users face an internationally given price - those selling illegal supplies face increased incentives to secure new users. At best new users face no immediate increased incentives not to use but increased incentives by virue of the fact that new users now have a low cost escape into government-provided heroin should they become addicted.
Those in the drug treatment industry will cheer at this legalisation partly because it secures the size of their long-term client base. The policy will fail to resolve the heroin abuse problem since it leaves unaddressed the usage incentives faced by new users. It simply ensures that existing users remain so.
Supporters will say that abolishing these laws reduce health and law enforcement costs. The first point is unclear for reasons advanced above while the second argument applies to any criminal activity. It is only sound if heroin use is considered victimless. I don't.
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