In this post a while back I explored an idea as follows:

I was driving through the Burnley tunnel today. It has three lanes. As you go into it travelling east, the three lanes I was on had to become two to make way for another lane entering from the left. Normally what happens in such a situation is that the three main lanes become two and to remove the scope for ambiguity, the space previously taken up by the left most lane (before the new lane enters) becomes a traffic isle. The third lane then feeds in from the left.Its all pretty fail safe. You cant end up in the wrong (terminating) lane unless you dont notice the fact that youve driven onto a traffic island which is itself preceded by lots of white lines and things that would have you wondering if something was going wrong.

But in this case (I presume because this lane was doubling as an emergency lane until cars entered it from the new ramp), no such arrangement had been made here. I found it quite confusing and ended up in the emergency lane for a while before realising what was intended and making my exit into the two correct lanes to allow cars to enter into the lane I had vacated.

Given my confusion I thought that someone ought to do something about it. But I know government well enough not to bother. Id be asked to put the thing in writing – as sure a sign as any that someone isnt regarding your input as a potentially valuable resource. Then my communication would go into a queue and Id receive a polite letter.

Is there a better way? Well heres a fantasy. I get home and e-mail a government suggestion box mentioning the problem – and if I can think of one a solution. (I have one – which is that for the length during which the status of the lane becomes unclear there be at the very least striped white lines on the emergency lane and perhaps the writing emergency lane to explain to drivers whats going on. Its part of my brave new world that, wherever possible explanations for why things are being done are offered. That way people know why theyre doing what theyre doing. This has two great benefits. I expect it helps them learn what they should do and to remember it. And it also helps them respond if they have some objection to what is being done and/or if they have some improvement.) . . .

The Poms are now having a crack at something pretty similar – welcome to Fixmystreet.

A short column in the Age published today

Reduce the bugbears with some beta-tested policies

THERE’S a saying made famous by Eric S. Raymond, the author of the landmark book on Web 2.0, The Cathedral and the Bazaar. In computer geek speak, it’s this: “given a large enough beta-tester and co-developer base, almost every problem will be characterised quickly and the fix will be obvious to someone”.

Raymond went on to put it more memorably as Linus’ Law: “given enough eyeballs, all bugs are shallow”.

As it is putting what it hopes are the finishing touches to its next stimulus package, the Government would do well to remember Linus’ Law. Continue reading →

Carmen M. Reinhart, Kenneth S. Rogoff

NBER Working Paper No. 14656
Issued in January 2009

This paper examines the depth and duration of the slump that invariably follows severe financial crises, which tend to be protracted affairs. We find that asset market collapses are deep and prolonged. On a peak-to-trough basis, real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Not surprisingly, banking crises are associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls an average of over 9 percent, although the duration of the downturn is considerably shorter than for unemployment. The real value of government debt tends to explode, rising an average of 86 percent in the major post-World War II episodes. The main cause of debt explosions is usually not the widely cited costs of bailing out and recapitalizing the banking system. The collapse in tax revenues in the wake of deep and prolonged economic contractions is a critical factor in explaining the large budget deficits and increases in debt that follow the crisis. Our estimates of the rise in government debt are likely to be conservative, as these do not include increases in government guarantees, which also expand briskly during these episodes.

Here’s my AFR column for today

Making an exception

As Groucho Marx said to some unfortunate, I never forget a face, but in your case, Ill make an exception. In policy, as in life, it matters when and how you make exceptions.

If you want to free up trade, economic textbooks and our Treasury and Tariff Board (now Productivity Commission) tell us to either reduce tariffs across the board, or reduce them from the top down. And when our politicians finally bit that bullet in the late 1980s, we reaped the economic benefits.

But in Asia lots of trade reform was done by making exceptions. The Taiwanese and Koreans were highly protectionist but wanted their protected industries to export. So while they continued their efforts to keep imports out, in exporters case, they made an exception. They provided exporters with lavish access to duty drawback (tariff refunds on imports) and establishing export processing zones with completely open access to imports all to help exporters compete internationally.

As Taiwanese Minister Li observed decades later When the liberalisation efforts were made, no one had any inkling that a more prosperous growth epoch was in the making.

This pragmatic improvisation also had political implications. Channeling the rents from import liberalisation towards exporters meant that manufacturing exporters were a political counterweight to the inevitable opponents of liberalisation (for instance the less competitive manufacturers unable to export). And favouring exporters sent a message to all manufacturers dont expect too many favours if you dont learn to export.

Thus the politics of protection was gradually transformed creating a powerful organisational and political dynamic of continuing reform, not just in trade policy but elsewhere, for instance in tax and labour relations as barriers to export surfaced.

Economists were instinctively suspicious of all of this but prominent trade theorist Jagdish Bhagwati was one of several in the 1970s who hypothesised that the key to success for developing countries might be the speed and energy with which tariff protection was focused outward rather than the uniformity with which it was dismantled.

In Australia weve got a different tradition, perhaps best captured in Keatings enthusiasm for policy with long clean lines. Theres a lot to be said for it. If it had been given too free a rein in Australia, Asias higgledy-piggledy trade reform would have been transformed by our political system into piggledy reform a carnival of pork for vested interests. Continue reading →