A lucky boy from a golden age of economics

When the financial crisis struck, it was back to the economics Max Corden learned in the 40s and 50s — a golden age of economics in which conceptual simplicity was a feature not a bug and the central criterion of good work was its generality and usefulness — rather than the conspicuous cleverness that defined later economics.

(Cross posted from The Mandarin) This has been adapted from Nicholas Gruen’s address at the launch of Max Corden’s memoirs Lucky boy in the lucky country at Queens College, University of Melbourne on May 29.

The German philosopher Hegel said “the Owl of Minerva spreads its wings at dusk”. It’s an oracular way of putting an arresting and, if the truth be told, deeply melancholy thought.

In our fallen world, so much of life is revealed to us in retrospect. Reflection and wisdom come too late to be useful. In some ways, Max’s penchant for economic theory is an assertion of optimism against that melancholy. For by the fragile and imperfect construction of theory we try to build bridges between the events of the past and those of the future. We want to be ready next time. But therein lies a challenge. We want our theory to be useful, a point to which I’ll return.

The owl has been visiting Max lately. In an earlier discussion with Ross Garnaut to try to coordinate what we’d each speak about, I mentioned to him that my father was less conscious of his Jewish roots and less reflective of his past than Max. “Exactly like Max” said Ross. My father died twenty years ago and Ross says that Max’s deeper interest in his past has grown considerably since then.

Still that owl has a habit of creeping up on one. It was only towards the end of my father’s life that I gained any real interest in his history. It was much later again when I realised that all those things that migrants’ kids said – for instance about the strange food they ate at home – were also true for me, at least in small ways. A couple of decades ago I wouldn’t have noticed Max’s Europeanness. I barely noticed my father’s. But I do now.

I was invited to speak at this launch because of my father’s friendship with Max and the similarity between Dad’s and Max’s stories. I don’t know if Max knows some of the eerie similarities. I’ll tell you one. As Max tells us, in May 1938 he started two terms at the Streete Court School in Westgate-on-Sea in Kent.

He would meet Dad in Australia twenty years later at Monash University and write a paper together. They’d become closer friends another twenty years after that as respective heads of their centres at the ANU. Indeed Max writes in his memoirs “I don’t think I have met anybody in my life whom I have admired so much for his personality and balanced judgement”. But all those years back at Streete Court School, Max was just six miles or so up the road from Herne Bay College where my father had been boarding since 1936. Continue reading

Posted in Economics and public policy, History, Science | 1 Comment

The central bank payment system would survive any crisis: My letter to the FT

The first time I’ve ever had something published with the graphic being a cockroach. And hopefully not the last. From the FT.

Bob Sleeper (Letters, June 15) is concerned that if central banks embraced competitive neutrality and extended to us all the utility banking they provide commercial banks, that would leave high-risk loans to the private sector. For me that’s a feature, not a bug.

He claims it would make the system more crisis prone. Why? Currently bank depositors are forced to cross subsidise both low- and high-risk lending. Central bank lending against super-collateralised mortgages (at no more than 60 per cent of the value of mortgages) would slash the resource cost of low-risk lending.

It effectively transfers it from the financial system, in which each link in the supply chain does “due diligence” on the previous one, to the monetary system which is adapted to minimise transactions costs. High-risk debt would then be (properly) repriced — with a little more “due diligence” going on. Borrowers would substitute towards more equity funding and lower spending.

There would still be the usual mistakes and herd behaviour, but it would be on a smaller scale and with lower leverage against collateral. And the central bank payments system would survive any crisis, just as we are told cockroaches will survive a nuclear winter.

That removes one central driver of bailouts. So wouldn’t asset bubbles, and the crises to which they can lead, be rarer? And milder? If existing prudential regulation of systematically important players — banks, insurers and pension funds — works now, it would work in this new world.

If it’s defective, we should fix what we can. And to the extent that we can’t, there would be less to go wrong, not more.

Nicholas Gruen Port Melbourne, VIC,
Australia Visiting Professor, King’s College London Policy Institute

Posted in Economics and public policy | 3 Comments

My letter to the Financial Times: All finance requires is an upgrade for the internet age

All finance requires is an upgrade for the internet age

From Nicholas Gruen, VIC, Australia

Given the resounding “No” from the Swiss in the Vollgeld or “sovereign money” referendum, and despite Bob Sleeper’s relief (Letters, June 12), Martin Wolf’s central question remains (“Why the Swiss should vote for ‘Vollgeld’”, June 6). A decade after the devastation, where’s the “radical rethink” of finance?

Mr Wolf kindly mentioned my own alternative plan, which does nothing more than upgrade the existing public-private partnership that is banking for the internet age.

Today central banks provide wholesale utility banking services to commercial banks, which then retail them to all. Just as Barclays and Lloyds can now, in my plan anyone could deposit funds with the Bank of England and use those funds to pay other account holders. They could also borrow from the BoE if it entails minimal risk. I’ve suggested lending up to just 60 per cent of the value of a home mortgage. As with Barclays and Lloyds, interest would be paid on deposits and loans at Bank Rate.

These arrangements:

  • Generate tens of billions of pounds in government revenue from mortgage payments to the central bank;
  • Slash home loan interest rates on super-safe lending (while increasing them for the — still privately provided — riskier lending over 60 per cent of a property’s value);
  • Help develop a payments system less vulnerable to commercial bank insolvency and the attendant giveaways to plutocrats;
  • Give monetary policy far more traction near zero interest rates. We’ve been here before.

In 1844 only commercial banks issued retail banknotes. Despite one parliamentarian’s warning of the “disastrous consequences” of government involvement in banking, Bank of England banknotes largely displaced the risk, fragmentation and cost of the alternative. This led commercial banks to focus on where they could add the most value — in funding and pricing commercial credit and pricing the attendant risks. A

All we need do now is replicate that move for the internet age.

Nicholas Gruen Chief Executive, Lateral Economics, Port Melbourne, VIC, Australia Visiting Professor, King’s College London Policy Institute

Posted in Economics and public policy, Innovation, Political theory | 5 Comments

The final chapter of John Gray’s Seven Types of Atheism

Image result for seven types of atheismThe God of monotheism did not die, it only left the scene for a while in order to reappear as humanity – the human species dressed up as a collective agent, pursuing its self-realization in history. But, like the God of monotheism, humanity is a work of the imagination. The only observable reality is the multitudinous human animal, with its conflicting goals, values and ways of life. As an object of worship, this fractious species has some disadvantages. Old-fashioned monotheism had the merit of admitting that very little can be known of God. As far back as the prophet Isaiah, the faithful have allowed that the Deity may have withdrawn from the world. Awaiting some sign of a divine presence, they have encountered only deus absconditus – an absent God.

The end result of trying to abolish monotheism is much the same. Generations of atheists have lived in expectation of the arrival of a truly human species: the communal workers of Marx, Mill’s autonomous individuals and Nietzsche’s absurd Übermensch , among many others. None of these fantastical creatures has been seen by human eyes. A truly human species remains as elusive as any Deity. Humanity is the deus absconditus of modern atheism.

A free-thinking atheism would begin by questioning the prevailing faith in humanity. But there is little prospect of contemporary atheists giving up their reverence for this phantom. Without the faith that they stand at the head of an advancing species they could hardly go on. Only by immersing themselves in such nonsense can they make sense of their lives. Without it, they face panic and despair. Continue reading

Posted in Cultural Critique, Philosophy, Political theory, Religion | 40 Comments

Could Obamacare have lead to lower fertility?

[just a thought]

US total fertility rates were bobbing along very placidly around 2.05 live births per woman from 1990 to 2010, when suddenly there was a clear drop to 1.8 in 2010-2017. That drop has even continued to 1.76 births per woman in 2017. When I asked myself what could possibly explain this, the only real candidate I come up with is Obamacare, which became active in 2010 and was successful at insuring more than 20 million people. Fertility rates peaked in 2010 at 2.1 and then steadily came down in 2011 (1.9) to 1.76 now.

Its an uncomfortable hypothesis, but it has to be the front runner because there is no other obvious culprit. The 2008-2010 recession had no effect on fertility, and the subsequent recovery after 2010 didn’t push employment levels above those of the early 00s. So its unlikely to be the economy. Its also unlikely related to the huge incarceration levels in the US (around 2.1 million in prison and jail in 2017), simply because those levels peaked just before 2010 and have actually gone down since then, without leading to a glut in new babies.

There is also a possible mechanism, which is that ‘the package known as Obamacare’ included increased availability of contraception and a lower barrier to entering the health system, both of which should be expected to increase use of contraceptives and more knowledge of reproductive health. This would have particularly mattered for those amongst whom pregnancy is a bit of an unwanted accident, ie teenagers. Interestingly, recorded abortions actually dropped 25% since 2008, so its not more abortions but simply less pregnancies that are causing the drop in fertility.

Surely not, I hear you scream! How could you think such a thing!

Well, there are actually papers which say pretty much the same thing. One is a 2016 paper looking at the effect of school-based health centers, finding a big drop in teenage fertility amongst the poor. There is also evidence that the cost of contraceptives reduced a lot. And you indeed see record lows in teenage pregnancies in the US.

It is difficult to convincingly show this train of thought though, because these effects are not likely to materialise immediately but will slowly emerge, which makes them impossible to detect with the methodology social scientists now prefer to identify these things: we like to see immediate jumps to a new equilibrium if a large change has occurred.

Still, the deep tradeoffs involved between average happiness and population numbers if this hypothesis were true are painful. Let us not forget that France lost its pre-eminence in Europe in the 19th century because it was out-bred by Germany! If a welfare system indeed prevents many teenage girls from becoming professional mothers, and instead leads them to more productive lives with less children, then that would mean there is a long-run effect of Obamacare on the level of the US population, which in turn will affect its clout in this world.

No more than a thought though. Happy to be proven wrong!


Posted in Education, Employment, Geeky Musings, Gender, Health, History, Medical, Science, Social Policy | 8 Comments

Congratulations Neville Sillitoe

Tommie Smith and John Carlos making their protest in Mexico CityWe were thrilled at midnight last night to discover that Neville Sillitoe received an honour. Neville has been around for some time.

He ‘discovered’ Peter Norman as Norman was running in Princes Park in Melbourne in the 1960s. He won his heat of the 200 metres at the 1968 Olympic Games in Olympic an record time 20.17 which stood for one day before he ran 20.06 in the final, an Australian record that’s still not been broken. But of course a second earlier,  Tommie Smith’s arms were raised in victory as he cruised to a world record 19.83 seconds.

But of course that picture to our right has you remembering that Norman stood in solidarity on the victory dais with his fellow placegetters in the 200 metres as they gave their famous salutes in recognition of black oppression in civil rights America. As you may know, Australian officialdom never forgave Norman this transgression and he missed out on the next games in 1972. He wasn’t invited to the Sydney Games in 2000.

Lest we forget.

But I digress. Neville is still talent spotting. Each year he takes a group of the most talented Australian schoolkids he’s identified to Europe for seven weeks. How do I know? He spotted my son Alex in 2013. After going overseas with Neville, Alex has never lost his passion for middle distance running.

Neville is perhaps the last in a long line of Australian coaches going back at least to Percy Cerutty, and Dunera Boy Franz Stampfl who were builders of character first and foremost and on that basis help build the bodies of elite athletes. Should he take his kids to the US the men with whom Norman stood in 1968 Tommie Smith and John Carlos have made it clear they’d love to host them. They were pallbearers at Peter Norman’s funeral.

I discovered this thread on Facebook from a former pupil in the late 1970s.

Then there was Neville Sillitoe. He was a superb PE teacher. Not so if you didn’t bring your PE gear. Who remembers the “Sexy Reds” punishment?? hehe. On a serious note this bloke would bring people in like Peter Norman (1968 Mexico Olympic Silver medalist and infamous Black Power incident) Denise Boyd who we raced against in practice. They would speak to us about top-level athletics. I remember holding Norman’s silver Olympic medal. This gives you an idea into the class of Sillitoe. … I thank you so much for your work. I will never forget you.

Here he is in the Forres Gazette

Games honour for Aussie stalwart

FORRES Highland Games Secretary Mike Scott presents Neville Sillitoe, from Australia, with an honorary life membership on behalf of the Games committee. Mr Sillitoe is the coach of the travelling Australian Athletes squad and has been bringing a contingent of athletes to Forres to compete for the past 23 years at the event. The young athletes, aged from 10 to around 18 years of age, put up good performances at this year’s Games, winning many of the track and field events.

And Neville may have been taking young athletes to Europe for 23 years as a retired PE teacher and athletics coach. But that was written in 2008. So make that 33 years. And make Nevill 92. He’s in Europe now with another group of kids!

Congratulations Neville!

Australian representatives who Neville coached:

Peter Norman (1968 Olympics)
Gary Holdsworth (1964 Olympics)
Greg Lewis (1968 Olympics)
Aaron Rouge-Serret (2 x Commonwealth Games and 2 x World Cup)
Colin M’Queen (1977 IAAF World Cup)
Denise Boyd (1976 and 1980 Olympics; 1974, 1978 and 1982 Commonwealth Games; 1973 and 1977 Pacific Conference Games; 1977 World Cup and 1983 World Championships)
Richard James (1979 World Cup;
Bruce Frayne (1984 Olympics)
Tamsyn Lewis (1996 World Junior Championships; 1998 Commonwealth Games; 1999 World Indoor Championships; 2000

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Jordan Peterson: another take

Posted in Cultural Critique, Gender, Philosophy, Political theory | 30 Comments