Club Troppo

I don’t have time to make the point I want to make at any length, but Chris Berg reminds us that dynamic tension can be a good thing in government and is, I think absolutely necessary to really good government. He is optimistic about Clegg and Cameron in the UK and in their ability to deliver ‘liberal, conservative’ politics which is to say socially liberal, economically dry policy.  Time will tell, and those guys really do have some heavy weather to get through (though five years until the next election is a long time and – perhaps – time enough to allow the members of their party to allow their leaders to get through the political fire that they’re walking into).

It’s more than just a personal relationship. Surprisingly, the coalition seems a lot stronger than you’d expect from a marriage of convenience. . . . David Cameron’s project to soften the Tory image was about more than just looking green and modern.

No party calling itself ”conservative” will ever be a fully libertarian one. Social conservatives who’ve voted Tory forever would not look kindly upon mixing social liberalism (gay marriage, for example) with its Margaret Thatcher-style economics (lower taxes, smaller government). But while the Tories are in coalition with the Liberal Democrats, the government could get close to that philosophical union. At their best, the Liberal Democrats are socially liberal and civil liberty-minded.

The dynamics of coalition with the Liberal Democrats gives influence to social liberals in the Conservative Party. It also gives power to those Liberal Democrats who want to cut down the size of government and deregulate.

So the coalition could be a generally centrist, modest and mainstream government, but one that cares about individual liberty – a new ”liberal conservative” government. That’s what seems to be happening. . . .

The Cameron-Clegg alliance is a real-world test of the marketability of a government that cares about individual liberty in both economic and social spheres. It’s a style of government with promise. The Australian population is becoming more liberal on social issues every year. Gender and sexual equality are no longer debatable. Even multiculturalism, so controversial in recent decades, is widely accepted.

Yet many on the Australian right believe the reason David Cameron didn’t win big enough against Gordon Brown to hold government on his own was because he was insufficiently conservative. He could have talked more about immigration, for instance. The lesson from Britain, they argue, is that Tony Abbott needs to tack right, and tack right hard, to be credible.

But the new British coalition could offer a very different example for the Australian Liberal Party. If Cameron and Clegg can make it work, the combination of social and economic freedom may not be such electoral poison after all.

I think the dynamic tension between the ALP, an enthusiastic Treasury after the disappointments of the Fraser/Howard years and the unions and to a lesser extent business in the pre-recession Hawke/Keating years was a foundation of its success and argued as much in this essay for the AFR’s Friday Review in early 2008. They achieved something that looked exceedingly difficult to achieve at the outset.  It would be nice if Cameron and Clegg could do something as wonderful. I think it’s unlikely, but stranger things have happened.

Jorg Guido Hulsmann, professor of economics at the University of Angers in France has written a magesterial biography of Ludwig von Mises, running over 1100 pages. This allows sufficient space to permit generous coverage of  the historical and intellectual background with close attention to his major works and the salient features of his life and social relations.

Mises (1881-1973) is one of the sleeping giants of the 20th century. For many decades he was the leader of the “Austrian school” of economics and social thought but he is scarcely a household name, even among economists and classical liberals where he should be well known and appreciated.

It is appropriate that he lived almost from the time that Carl Menger published the book that launched the Austrian school  to the year before the conference at Royalton in the US that signaled the revival of the tradition. 

The Austrians adopt an evolutionary or ecological approach to social and economic systems to emphasise the role of individual initiative and planning in a framework of  traditions and institutions. They were virtually buried in professional circles by the rise of Keynes and mathematical economics. The Austrians are skeptical of mathematics and they tend to be robust free traders and so they were dismissed for many years as unscientific and reactionary. A head count in the professional association in the US indicated that they are out-numbered by other schools by 50 to 1, despite robust growth since the revival of the 1970s. 

(Continued)

Ed Prescott’s a very clever fellow.  Far cleverer than me. Then again it’s pretty clear, it has been pretty clear for a long, long time, that he’s crazy. But don’t take my word for it.  Take our friend Paul Krugman’s.

Yes folks, it’s on again!  Well it’s probably not on, but someone wants me to pontificate on tax reform as one of a range of issues in some ‘vision’ pieces. I get to paint my own picture.  But I wanted to throw things out to the crowd.  What things did Henry get right, what wrong?

Just rereading the executive summary, I think it’s a very impressive document and it will be a useful blueprint for the future. (As an aside, the whole cockamamie idea of an 18 month review to be served up six months before an election beggars belief for political ineptitude. The motivating idea of some comprehensive (root and branch – yada yada) review is not much closer to reality either.

Tax policy is always and everywhere a matter of profoundly difficult political management. So while some basic architecture is important for people to know where they’re going and how things fit in, a great deal of the task is known in advance and broadly able to be quarantined into parcels – land tax is better than stamp duty, there either is or is not a strong case for abolishing dividend imputation and lowering company tax. GST input taxation on finance either should be replaced with some sector specific tax (as recommended in Henry) or it should not.  That’s not to mention a whole host of rats and mice that should always be bubbling up, and infact bubble up much too little. Henry had some of these – like removing duty free concessions on international travel for tobacco. None of this requires a comprehensive review.

Personally I’d favour the Treasury continually putting work into such a blueprint so that it can progressively feed it into budget considerations as they roll around and so that it’s ready for the next crisis.  Sadly it’s mainly crises which create the opportunity (indeed, the ‘window’)  in which governments are alive to the fact that they have to choose between one kind of political pain and another.  Most of the time they (wrongly) imagine that they can avoid political pain altogether. It is sad that such insightful periods are as rare as they are but when they occur we want wise advice being whispered into the ear of the prince.

Things that stand out for me are: (Continued)

From the NBER digest.

U.S. hospitals were excluded from collective bargaining laws for three decades longer than other sectors because of fears that strikes by nurses might imperil patients’ health. Today, while unionization has been declining in general, it is growing rapidly in hospitals, with the number of unionized workers rising from 679,000 in 1990 to nearly one million in 2008. In Do Strikes Kill? Evidence from New York State (NBER Working Paper No. 15855), co-authors Jonathan Gruber and Samuel Kleiner carefully examine the effects of nursing strikes on patient care and outcomes.

The researchers match data on nurses’ strikes in New York State from 1984 to 2004 to data on hospital discharges, including information on treatment intensity, patient mortality, and hospital readmission. They conclude that nurses’ strikes were costly to hospital patients: in-hospital mortality increased by 19.4 percent and hospital readmissions increased by 6.5 percent for patients admitted during a strike. Among their sample of 38,228 such patients, an estimated 138 more individuals died than would have without a strike, and 344 more patients were readmitted to the hospital than if there had been no strike. “Hospitals functioning during nurses’ strikes do so at a lower quality of patient care,” they write.

Still, at hospitals experiencing strikes, the measures of treatment intensity — that is, the length of hospital stay and the number of procedures performed during the patient’s stay — show no significant differences between striking and non-striking periods. Patients appear to receive the same intensity of care during union work stoppages as during normal hospital operations. Thus, the poor outcomes associated with strikes suggest that they might reduce hospital productivity.

These poor health outcomes increased for both emergency and non-emergency hospital patients, even as admissions of both groups decreased by about 28 percent at hospitals with strikes. The poor health outcomes were not apparent either before or after the strike in the striking hospitals, suggesting that they are attributable to the strike itself. And, the poor health outcomes do not appear to do be due to different types of patients being admitted during strike periods, because patients admitted during a strike are very similar to those admitted during other periods.

Hiring replacement workers apparently does not help: hospitals that hired replacement workers performed no better during strikes than those that did not hire substitute employees. In each case, patients with conditions that required intensive nursing were more likely to fare worse in the presence of nurses’ strikes.
“From Evidence on the Effects of Nurses’ Strikes” By Jonathan Gruber and Samuel A. Kleiner

One of the exciting things about Web 2.0 is the many ways in which it can cut through the rigidities and plain dysfunctional aspects of existing institutions.  In this post on the Kaggle website, Anthony Goldbloom draws attention to the many ways in which Web 2.0 ‘marketplaces’ can ‘turbocharge’ the way scientific work gets done and communicated. Pointing out how Kaggle managed to get to and slightly beyond the frontier of the existing literature within a week and a half Anthony goes on to discuss how this can be.  (The resulting text below includes my editings of and interpolations into Anthony’s text – his original is on the Kaggle website).

Scientific literature tends to evolve slowly (somebody writes a paper, somebody else tweaks that paper and so on).  Each step follows the other and months or even years are interposed between many of the steps. A competition inspires rapid innovation by introducing the problem to a wide audience.  There are an infinite number of approaches that can be applied to any modeling task and it is impossible to know at the outset which technique will be most effective.  By exposing a problem to a wide audience, competitions expose the problem to a range of different techniques.  This maximises the chances of finding a solution, and gets the most out of any particular dataset – given its inherent noise and richness.  Not only that but competitions generate a lot of discussion between participants – often there’s quite a bit of discussion and even collaboration between people who are notionally competing.

Competitions help correct a coordination problem in the wider research community.  Data is being collected in greater volumes and at greater speeds than ever before – Think the  human genome project, high-resolution camera-clad telescopes and and any number of other projects.  Yet how do those collecting the data work out how to analyse it.  Often they’re restricted to inhouse knowledge, talent and bandwidth. A single researcher or even research unit is unlikely to know the most advanced machine learning, statistical and other techniques that would allow them to get the most out of their datasets.  At the same time, many data mining and statistics researchers find it difficult to access real-world datasets, and develop their techniques on whatever data they have access to. (Continued)

Amazing picture. HT Alan Davies at The Melbourne Urbanist

This photograph, via Paul Romer, shows students in Guinea who go to the airport to study for exams because they don’t have electricity at home.

The BBC reports that petrol stations, airports and even spaces under security lamps outside upmarket homes have become pockets of learning, where determined students are to be found in large numbers. Access to light is a serious problem due to the “deterioration of power supplies, which started in 2003 when the country’s economy went into freefall:

The national power company, Electricite de Guinee, provides light to consumers on a rotational basis of 12 hours a day – but even so, these schedules often prove erratic, with dozens of outages before dawn…..

Between 1999 and 2002, schools in Guinea had a modest pass rate of 30-35%. Since 2003, that has dropped to between 20 and 25%”.

Paul Romer says he displays this photograph on his web site because “images of extreme deprivation often obscure the fact that many of the world’s poorest residents attempt to help themselves, only to be stymied by bad rules”. He says some of the rules that “keep people in the dark are:

• Electricity is provided only by a government-owned firm
• Government employees can’t be fired, regardless of how poorly they do their jobs
• The low subsidized price of electricity for the lucky consumers who have access is determined by political considerations”

I wrote up my own views about the power of ‘consensus politics’ here. Specifically I suggested that three aspects of a leader’s performance involve whether:

• unity or division is emphasised
• there is a cult of the strong leader as opposed to the leader being seen as an orchestrator of wider forces
• populist themes dominate political rhetoric

I’m hopeful regarding Julia Gillard on each of these scores, though more confident of the first two than the third.  Anyway, in Monday’s column for the Sydney Morning Herald I tried to argue that consensus was the only way through the kinds of impasse we’ve seen mar the Rudd Government.

Where is politics headed after the ALP’s near-death resources rent tax experience?

Bold change looks increasingly difficult – even if you’re popular (ask our latest former PM), and even if you control the Senate (ask our previous former PM). Yet at least at the national level, complacency and inaction don’t play too well either. We want to understand and believe in where our national government is taking us.

The three defining policies of Kevin Rudd’s government were the fiscal stimulus, emissions trading and the resources rent tax. In each case the government’s policies were adapted from independent advice embodying the broad consensus of experts. Each left the vast majority better off.

Yet their political fallout culminated in the removal of a prime minister. There’s a common pattern to the way in which the headwinds mounted with each initiative, and there’s a way of doing things better. (Continued)

With Gillard as our new PM, a compromise has been done on the RSPT, rewarding the big mining companies for their negative campaigning. In this first post-mortem, I have some mopping up to do regarding two as yet undiscussed ‘reports’ brought out on the old RSPT, one by Ernst and Young and one directly brought out by BHP.

Ernst and Young, paid by the Chambers of Minerals and Energy of Western Australia, put out a report in June by two relatively unknown American economists that is completely devoid of any new calculations on the RSPT but nevertheless talks loudly about potential job losses in mining. Its main point is that the RSPT reduces the pay-off on mining projects and that this might mean mining companies put greater priority on other investment projects overseas. Even if this were true, it would merely mean that the projects would be postponed, not cancelled, but it is in any case an empirical question relating to how profitable future projects actually are.

The KPMG reports from May, using data on actual projects obtained from the Mining Council, basically finds that with a properly implemented RSPT, nearly all currently planned Australian mining projects remain too profitable to walk away from.

BHP wielded out a short paper by Professor Jerry Hausman, an econometrician from MIT. Professor Hausman also doesn’t calculate anything new, but nevertheless calls for adjustments to the implementation of the RSPT. Professor Hausman does not take a stand on whether he thinks the RSPT is going to lead to more or less mining activity, but wants to make the RSPT far more complicated by taking account of ‘option values’. Professor Hausman essentially recycles an old 1997 paper of his on the optimal taxation of profits that has been roundly ignored in policy circles.

What is Professor Hausman on about and are there any merits to what he says?

(Continued)

At Foreign Policy’s Passport blog, Joshua Keating writes: "In a too-good-to-check item, the Daily Mirror reports that rapper Snoop Dogg recently attempted to rent the entire nation of Liechtenstein for a music video".

Anyone prepared to do a bit of Googling will find the rent-Liechtenstein story isn’t new. Back in 2003 newspapers including the New York Times and The Times reported that the "tiny principality of Liechtenstein is putting itself up for rent in a bid to attract corporate conferences and bolster its tourism industry".

That year AAP reported that Xnet’s Karl Schwärzler and the nation of Liechtenstein had been awarded an Ig Nobel prize in Economics "for making it possible to rent the entire country for corporate conventions, weddings, bar mitzvahs, and other gatherings."

The New York Post didn’t think the Snoop Dogg story was too good to check and gave the ambassador a call. "There is no ‘For Rent’ sign on our country," ambassador Claudia Fritsche told The Post. "No part of any government agency is involved in this."

Xnet’s online ‘For Rent’ sign for Liechtenstein appears on their Rent a Village web site. According to the Mirror, Schwärzler was surprised by Snoop Dogg’s request: "Local property lease agent Karl Schwaerzler said: ‘We’ve had requests for palaces and villages but never one to hire the whole country before.’"