Club Troppo

Tomorrow evening, as I’ve done on this date for the last two years, I’ll put this sign on the front door:

Trick-or-treaters:
If you’ve come in a scary costume, please ring the bell.
Otherwise, try again next year!

It worked last year and the year before.

In the preceding years, half a dozen kids, ten-year-olds on average, usually in pairs, would present themselves at the front door and cry ‘trick or treat!’.

When it comes to American cultural imperialism, I’m as indignant as the next red-blooded Australian. But I have very fond memories of this particular Halloween ritual, from some childhood years spent in the U.S. (spot me in the picture). So, when the crunch came, I couldn’t bring myself to be a complete wet blanket: on those problematic occasions, I would scrounge up an assortment of treats — from lolly bags confiscated after parties, from chocolate boxes brought by dinner guests of bygone years, and maybe throw in a ginger-nut biscuit to give it an Aussie touch — and distribute them in brown-paper sandwich bags.

But I always seethed with resentment. It wasn’t right. The essence of trick-or-treat is the scary costumes, and these local urchins weren’t playing the game, either through ignorance or laziness. In any case most of them were too old.

I can’t bring myself to tell this to their cute little faces, so my sign is a good solution. It saves embarrassment on both sides and establishes that, far from being a Halloween grinch, I’m a heroic defender of standards and traditions. If the effect is to squash trick-or-treating down under, that’s the ideal outcome; if it forces the current crop of globalised, wired-in children to do the thing properly, I’ll settle for that.

I’ve never been much of a fan of Lionel Robbins 1932 Essay on the Nature and Significance of Economic Science. It smacks of what I’d call ‘authoritarian methodology’ which had its sterile apotheosis in Popper’s efforts to demark ‘science’ and ‘non-science’. To cut a long story short, even one of Poppers more rusted on fans, Troppo’s own Rafe, concedes that at least in this regard Popper is a little like the logical positivists, with whom he sympathised but disagreed on method, who IMO are the philosophical equivalent of the Titanic, sinking on their maiden voyage. (If one applies their own criterion of truth to itself, it diagnoses itself as nonsense – at least David Hume could rightly argue that he didn’t have someone else’s mistake to learn from).

In any event, though I’ve dipped into the book in quite large doses, I usually recoiled from it because it smacked of this, and because I can’t really see the point. In any event it was part of a great contraction in economics which hugely hollowed out what was considered as ‘real economics’. In short, if it doesn’t have formal theory it ain’t economics and if it’s empirical if it doesn’t have statistics or some other formal empirical method it ain’t really economics. The body of economics or at least micro thereafter slowly shrivelled up into various elaborations and footnotes of ‘the pure theory of choice’.

Robbins was particularly associated with the idea that ‘economics’ should be devoid of value judgements.  Of course we all know what he’s getting at. If you like, science is an enterprise based on the metaphysical presupposition that the truth is ‘out there’ whatever our values are.  But it turns out that there is lots wrong with the idea that economics really can be value free if one really wants to make the case in a philosophically rigorous way, and if it is seeking to describe how economic practice either is or should be, a little reflection suggests it to be a very unfortunate idea.  Of course there is a kernel of truth to it, which Robbins was extrapolating from, which is that when one is in the realm of formal method, one’s values might guide your choice of problem, or your framing of the question, but the formality of your method defines the results you get, not your values.

In any event, So I was intrigued to read of this essay – by historian and philosopher of economics David Colander. Again I’m too busy to read it, but it is going into my Christmas pile. But I’ll leave you with the abstract. Anyone with the time might like to have a squiz – please let us know what you think in comments.

This paper argues that Robbins famous definition of economics was of economic science which he saw as only a narrow branch of the field of economics. The field of economics included both economic sciencewhich his definition dealt with, and political economy–which his essay did not deal with. His prescriptive message was that policy belonged in the political economy branch of economics. He believed that while the science of economics should avoid value judgments as much as possible, the political economy (applied policy) branch of economics should, and must, include value judgments. That prescriptive message has been lost.

One of the problems of mechanisms of ‘regulation review’ – for instance the requirement for new regulations to be accompanied by regulation impact analysis, is that this constraint is itself regulation – it’s regulation of the regulators. An infinite regress beckons. I’m not against this kind of thing, but it does need to be implemented with some understanding of what it is. One of my favourite illustrations of this the following section of a transcript describing an exchange between me and the Federal Office of Road Safety many years ago (in 1994 or 95).

Industry Commission: Why do you specify that the compliance plates must be metal when there are now products – such as self voiding plastic – which would be cheaper and more effective.
FORS: Its not that easy. We would have to do a regulatory impact analysis and that takes time and resources we dont have.

Here’s another (pdf) one I’ve just found.

The Paperwork Reduction Act, subsequent OMB regulations, and OMB draft guidance require that agencies complete a lengthy process to obtain an OMB control number to survey and request information from the public. This requirement is interpreted by most agencies to include voluntary online surveys, polls, and other applications that are intended to improve customer service.

In a post a few weeks back, I raised the question of what additional production factor one would have to include into the current production function framework in order to have a plausible story about the recent crisis.

That post included a set of conditions any candidate would have to pass in order to fit the current crisis and be interpretable as a true factor of production. From the ensuing reactions, two main candidates emerged: a mystery factor that gives a role to lines of credit (suggested by James A); and input and output linkages (suggested by doctorpat, Ian King, and, implicitly, _Tel).

Let us now add more information to this question and see whether the proposed production factors have something to say about other major economic crises that we have known in relatively recent economic history. The hope is that we need only one factor to generate a reasonable story for several major downturns. If wed need a very different new factor to explain each different major economic downturn, then the exercise of looking for new production factors becomes more futile because there is then less hope that having a good explanation for each of the previous downturns will say anything of much use to inform us about what to do to prevent or cope with the next one.

The blue line shows the Great Depression, in which case the 0 point on the X-axis denotes 1929; the red line shows the collapse of the Russian economy after the changes in 1990; and the green line shows the Indonesian collapse after the Asian Financial Crisis of 1997. In each case, GDP is normalised to be 100 at the start of the crisis and time is re-set to 0 at the start.

The first striking observation is that these three crises are far bigger in magnitude than the current crisis. Indeed, the Russian collapse was so spectacular that I have long wondered how it is possible that our macro-textbooks are not full of insights gained during such a spectacular macro-event. Stiglitz already noted in the 90s that the Russian collapse shouldnt have occurred under the conditions we still teach as good descriptions of the aggregate economy, but it clearly hasnt mattered for Western textbooks that a large economy on the periphery did something interesting.

The main question to briefly consider though, is whether the two candidate factors X are known to have been involved in these downturns too? Lines of credit were certainly important in the Russian case (as in the whole of the former USSR), where firms had large amounts of outstanding debt with other firms and the unwinding was a tricky business. Lines of credit were also important in Indonesia and the Great Depression. Hence credit lines can at least potentially fit, though it should still be worked out via which actual production factor they affect sold production.

Linkages are clearly of relevance in the Russian case where the whole central coordination mechanism fell away and the ensuing disorganisation (a phrase used by Blanchard and Kremer 1997) created many firms who had no suppliers and no clients. Campos and Coricelli in their 2002 Journal of Economic Literature article also point to within-sector reorganisation of links as a probable factor in the collapse.

Whilst linkages are probably relevant in the Asian Financial crisis, it is not well-documented how they might have played a role. We know many city labourers went back to the countryside, however exact numbers are unknown because most people who originally came from the country to find urban employment are unregistered and therefore not included in unemployment and migration data etc (an explanation paraphrased from a paper by Tran Tho Dat).

We also know that the capital embedded in collapsing firms was not quickly re-used by others, but theres no specific account I know of that discusses the collapse in terms of broken linkages. For the Great Depression, on which acres have been written, I also do not know of anyone looking at it through the lens of links.

One might say it is implicitly there when people talk about the issue of bankruptcy, as bankruptcy to a perfect market economist merely means the freeing up of previously inefficiently used production factors. From a link point of view, the importance of bankruptcy is that people and capital are idle for quite a while before they are re-linked.

Any ideas on how we should think of disruptions in lines of credit and its impact on the real economy via a production factor in these three crises? Any anecdotes on links?

It’s becoming increasingly clear that the only likely outcome of the current manoeuvrings over the Rudd government’s Emissions Trading Scheme is that it will either be rejected by the Senate or so drastically watered down as to be almost entirely useless.

If (like me) you accept that the likely correctness of the consensus of reputable climate scientists that human-generated global warming is a reality which is likely to have major real world impacts within the next 50 years, you would have to be worried.

Moreover, a new paper by the Australia Institute’s Richard Denniss suggests that, even without emasculation by Coalition amendments, the government’s current ETS model results in little or no reduction in greenhouse emissions from power stations (by far the largest source of Australia’s total greenhouse emissions) until at least 2033. And even then, as Glenn Milne observes in today’s Oz based on Denniss’s paper:

And the reason emissions from black and brown coal-fired power stations plummet in 2033 also has nothing to do with the CPRS. According to Denniss, Treasury has simply assumed that in 2033 we will invent clean coal and that, having invented it, it will turn out to be cheap. Further, it assumes that between 2033 and 2043 we can replace or retrofit every coal-fired power station in Australia. Despite the fact that it takes five years to plan and build a normal one, Treasury seems to think we can replace them all in 10 years.

Denniss’s paper is based on a close analysis of the calculations and assumptions underpinning Rudd/Wong’s ETS scheme projections, gleaned from FOI applications.

I’ve been wondering for a while how Rudd/Wong’s scheme could effect any meaningful reductions in existing greenhouse emissions from power generating plants, when permits to continue polluting at current levels are to be given away free.  Power utilities therefore have little or no commercial incentive to replace existing coal-fired generators with zero emission renewable alternatives (assuming that viable baseload alternatives can be found, other than nuclear which Rudd/Wong won’t countenance).  Even if they have to begin paying for their permits after the first few years, permit pricing would have to be very high to create a significant incentive for power utilities to decommission existing coal-fired generators and replace them with new low or zero emission ones.  Power companies have every incentive under Rudd’s ETS to continue operating their existing dirty coal-fired generators until they reach the end of their scheduled operating lives.  Hence the projections showing little reduction in greenhouse emissions before at least 2033.

Since Rudd’s ETS is a dud, with or without Turnbull’s additional emasculation, what can be done?

(Continued)

The decision to grant protection visas to all 42 Afghan asylum seekers from the SIEV36, the boat that exploded off Ashmore Reef on 16 April killing 5 people, may prove to be one of the biggest political and policy mistakes the Rudd government has made.  Presumably they were all assessed as genuine refugees, but  approving their applications sends precisely the wrong message to the people smugglers and their customers, at a time when almost 2000 illegal asylum seekers have been intercepted in the last 12 months trying to reach Australia with another six vessels apparently on the way.

Holding a well-founded fear of persecution for a Refugee Convention reason is only one factor in the decision whether to grant a protection visa.  The other key aspects are passing health and character tests.  The NT police have apparently been unable to ascertain exactly which asylum seekers set off the deliberate explosion on board SIEV36, but it’s reasonable to surmise that some of those granted visas were involved while others must have known who did it but have declined to co-operate with police.  In other words, some may be murderers while others are at least accessories to homicide, it’s just that we don’t know which.

Section 501 of the Migration Act 1958 (Cth) would certainly have permitted Immigration Minister Chris Evans to refuse protection visas in such a situation.  Evans should have done so, drawing a “line in the sand” in the same way John Howard did with his famous/notorious statement “We will decide who comes to this country and the circumstances in which they come” back in 2001.  Howard’s posture may in significant part have been electorally driven, but his remark also signalled to people smugglers and their customers a determination to stem a flow of illegal boat people just as large and worrying as the current situation, and along with resolute policy action it worked.

(Continued)

A recent version of the Taylor rule specifies that the Federal interest rate target should have a threefold aim: (a) to curb inflation (b) to avoid excess unemployment and (c) stop prospective asset prices.

With a rising Australian dollar (and with an under-utilised labour market), there is little prospect of inflation, at least for the next year or so. If anything, underlying inflation seems likely to range around 2%.

It is widely forecast that Australia will continue to have at least 1.5% to 2.5% of excess unemployment and under-employment over the next twelve months.

A rise in interest rate will do nothing to relieve housing prices, as it only hits demand and does nothing for capacity. It is more likely to have a significant effect on share prices but these are still well below their peak level of December 2007.

So why is the RBA tipped to put up interest rates by as much as 1 percent over the next 12 months?

It’s no secret that I don’t think very highly of journalists. Too many of them use lazy shortcuts dressed up as serious journalism. The most common is “two-soundbites-and-that’s-a-wrap” trick, where they just get two different people, who they’ve decided to label as rivals, to provide a soundbite each. Then they write it up and head down the pub.

Another favourite trick is to get people to respond to mangled quotes. Journalist rings with a line and asks you to respond. You’re put on the spot and “have to” say something, or they’ll exercise their divine right to accuse you of “evading”, “back flipping” etc. So you give a response to some wild, outlandish quote. Later you find out that the original person never said what the journalist quoted to you. Lovely.

In the USA The Daily Show acts as a kind of humorous Media Watch. They had a good go at CNN in their latest broadcast, which I found all too familiar.

Australia gets mentioned as a unit of measurement.

My local council, Port Phillip is holding a competition for young people to name this dragon which has just been built in a playground.  If you’re any of the 0-17 kids reading this site you probably have some ‘issues’ but perhaps you can show it to your kids.  If you get your entry in by tomorrow, you might win $50.

Your stimulus money working for you (I think it’s stimulus money, it looks and smells like stimulus money but there’s no sign up so perhaps it’s just BAU).  Anyway, it’s nice to see them going all Gov 2 about it (even if you still have to fill your name in on a printed pdf form :(

The little coloured knobs on the dragon look like they’re for climbing (pause for about 15 seconds until the council gets it’s first tort suit for someone falling off).  Click on the image and you should get taken through to a nice big version of it.

Another one of those articles I’d like to read.  I will in this case, but would be interested in others’ thoughts on the contents either when I’ve read it or before.  Looks interesting.