Club Troppo

In the American Scholar, George Watson writes about the forgotten Churchill — the Liberal who helped lay the foundations for Britain’s welfare state. Churchill was president of the Board of Trade in the Asquith government — a Liberal government that favoured free trade, a more regulated labour market and a government run system of social insurance. As Watson observes, it was not socialists or social democrats who conceived the welfare state:

In 1908, when Asquith became prime minister, there were almost no models of state welfare anywhere on earth. The exception was Bismarck’s Prussia, which to the dismay of German Social Democrats had instituted compulsory health insurance in 1883. That created a sudden panic on the left. Karl Marx had died weeks before, so the socialist leader August Bebel consulted his friend Friedrich Engels, who insisted that socialists should vote against it, as they did. The first welfare state on earth was created against socialist opposition.

By the new century Prussia was setting an example. Lloyd George and Churchill, as members of Asquith’s cabinet, went there to watch state welfare in action; Churchill, the more studious of the two, read published reports. In 1909 he collected his speeches in Liberalism and the Social Problem, where he made a case for seeing state welfare as an essential prop to a free economy. The Left had good reason to fear it, as he knew. Welfare promotes initiative, initiative promotes growth, and “where there is no hope, be sure there will be no thrift.”

While he supported free markets, Churchill rejected the idea that state intervention necessarily undermined self reliance. Many of his policy ideas would be considered left wing today. For example, in Liberalism and the Social Problem he argues that government should run job creation programs during recessions. "There is nothing economically unsound in increasing temporarily and artificially the demand for labour during a period of temporary and artificial contraction", he insisted.

I ran into this excerpt from Q&A a day or so ago and it struck me. I’m actually not sympathetic to the general wailing and gnashing of teeth from the left about how right wing terrorists come out of intemperate language on the right. On the other hand Alan Jones did actually incite a riot at Cronulla and his hatespeech about Julia Gillard is outrageous. So it’s a legitimate topic.

Anyway what struck me about this except was that here was a senior politician arguing as if what she was saying mattered. She wasn’t rehearsing talking points which alas, virtually all the others do, and are seen to do. All the super politicians are able to speak as if they actually mean it. Don Chipp, Bob Hawke, Paul Keating, John Howard could all do it. Cheryl could do it until she swapped parties and it somehow all went wrong. Tony Abbot can kind of do it – in the sense that he has the manner of someone who believes what he’s saying – the main problem being that what he’s saying is pretty empty and changes every now and again. Julia and Wayne – well they don’t really seem to be able to do it at all . . .

Most ‘shouts’ for movies – those quotes you see promoting movies have the quoted person saying something like “plumbs the depths of human emotion” or whatever. A 1974 film by left wing Italian feminist Lina Wertmulla, had this ‘shout’ on the Walhalla poster that hung in our living room when I was a student. “Don’t tell me I can’t make films about sex and violence you arsehole”. Well it certainly got my attention. And it was one of the most confronting movies I ever saw. It’s title is “Swept Away… By an Unusual Destiny in the Blue Sea of August” usually abbreviated to “Swept Away” and reprised by Madonna a few years ago in a disastrous remake. Having wanted to watch it again for a long time, and having not found it in video stores, I discovered the original, complete in 12 parts on YouTube. Part 1, which leads you to part 2 and so on, is here. Amusingly the number of times each video’s been watched falls from 13,962 to 2,843 for Part 12 – the last installment.

You can even watch the whole thing in somewhat better shape dubbed into English here, but I suspect the Italian version I watched last night is better to watch.

Anyway, it would be fair to say that opinions differ about the merit of the film! You’ll understand why if you watch it.

The recent debate over Matt Yglesias’ ‘left neoliberalism’ reminded me what an ambiguous term neoliberalism is. There are at least five political movements or schools of thought that are called neoliberal. While they are distinguishable, they are not entirely separate.

According to Taylor Boas and Jordan Gans-Morse the term neoliberalism was first coined in the 1930s "by the Freiberg School of German economists to denote a philosophy that was explicitly moderate in comparison to classical liberalism, both in its rejection of laissez-faire policies and its emphasis on humanistic values". This ‘German neoberalism’ or ‘ordoliberalism’ went on to influence economists and politicians in Spain and Latin America.

In the United States, economists at the University of Chicago developed a school of thought that opponents now refer to as neoliberalism. This Chicago School is most closely identified with the work of Milton Friedman. Through a group of Chilean economists known as the Chicago Boys, Chicago School ideas had a major influence on the economic policies of the Pinochet dictatorship in Chile. As Boas and Gans-Morse explain, once the term neoliberalism became associated with the Pinochet regime, supporters of free market reforms no longer identified with it. Neoliberalism became a derogatory term. I’ll call this sense ‘bad neoliberalism’.

While many Europeans and Latin Americans adopted the term in this derogatory sense, North Americans did not. Then in the late 70s and early 1980s some writers started to use neoliberalism as a label for a new kind of American liberalism — a kind of precursor to the Third Way. Since this neoliberalism was promoted in the Washington Monthly, I’ll call this ‘Washington Monthly neoliberalism’.

Eventually, US leftists with an interest in Latin American politics adopted the derogatory sense of the term neoliberalism. As this use became more widespread, it became confused with the non-derogatory American sense of the term (ie Washington Monthly neoliberalism).

Recently, US bloggers have started to talk about something called ‘left neoliberalism’. The neoliberalism in left neoliberalism seems to be a blend of bad neoliberalism and Washington Monthly neoliberalism.

Below the fold, I’ve posted more information on each of these neoliberalisms: 1. bad neoliberalism; 2. German neoliberalism; 3. Chicago School neoliberalism; 4. Washington Monthly neoliberalism; and 5. Left neoliberalism.

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HT: Skeptic Lawyer

ASIC, one of our main financial markets regulators, has today declared that short-selling is a “legitimate business in the market”. Good on them. Markets need short-sellers, far more than most people realise.

The reason is that financial markets are markets in ideas – ideas about what will be valued in the future. And so they need people who are able, every so often, to loudly yell “Bullshit!”

It was short-seller James Chanos who called “bullshit” on Enron in 2001. And it was short-sellers who identified the problems with the US mortgage market a few years later, a story well told in Michael Lewis’s book “The Big Short”. In both cases, the short-sellers explained why the rest of the market was wrongly over-valuing those investments.

If only there were more such people, Enron and the US mortgage market might both have failed earlier and done far less damage.

In fact, if financial markets are to operate calmly rather than in the boom-and-bust mode that does so much damage, short-sellers should be encouraged. In the absence of short-sellers, markets will be full of people with an incentive to overstate the merits of particular investments.

Calls to limit short-selling featured prominently in the 2008 crisis, but they go back to at least the 1600s. People making money out of selling over-valued investments don’t like seeing their tall stories exposed. Their objections tend to be effective, because not enough people value the role the short-sellers play.

Bullshit in financial markets is too dangerous to be left alone. People need to call it early and often. We need more short-selling, not less.

Footnote: The only reason I’ve posted this is that it seems to be an extreme minority opinion. Almost everyone I talk to sees short-selling as sinister. Does anyone know why?

A modest proposal for debt ceiling reform: It’s spending on Medicare that’s driving up the deficit, writes Noah Millman. So at the American Scene he suggests replacing the debt ceiling with a ceiling on Medicare spending.

Austerity and Social Protest: Governments might not be punished for budget cuts in the polls, but austerity measures are not cost free, argue Jacopo Ponticelli and Hans-Joachim Voth. In a recent paper they argue that "Expenditure cuts carry a significant risk of increasing the frequency of riots, anti-government demonstrations, general strikes, political assassinations, and attempts at revolutionary overthrow of the established order." (Via: Henry Farrell at Crooked Timber.)

Rioting for fun and profit: "A riot can bring out both the best and the worst in people", writes Johnney Void. While setting fire to shops with flats above them might be "really f#*@%g stupid", Void thinks the riots were mostly good fun. Most of the kids "were caught up in the delirium that came with showing, if only for a few nights, that they were not powerless. Kids with little to lose and little to hope for owned London, just for a while. And they can do it again".

Fierce inarticulate aggression: "Dating back to the first time I was mugged as a 16-year-old, by children my own age in a daylit Dalston street, I have never feared any adult as much as I’ve feared children on London’s streets", writes Will Davies at Potlatch.

Many Londoners aren’t surprised by the riots, he says. Isolated incidents have been happening for some time. There’s a surreal form of cultural apartheid flowing from gentrification, he writes. "The symptoms are familiar: fierce inarticulate aggression bordering on sadism, destruction as a form of creativity, sufficient boredom that an entire evening can be dedicated to hounding a single innocent individual, terrifying group norms whereby a 16-year-old is leading a pack of 14-year-olds." (Via: Mark Bahnisch at Larvatus Prodeo.)

Words can hurt: Gossip is dangerous says Robin Hanson. But many libertarians insist" that law should limit its attention to ‘physical’, not info, property and harms".

Hanson wonders "if, as kids, libertarians tended to be witty weaklings – losing most fair physical fights, but winning most fair verbal sparring. Perhaps such kids prefer everyone to embrace the slogan ‘Sticks and stones may break my bones but words will never hurt me,’ because then the people they hurt via words can’t complain, because they can’t even admit they were hurt."

(Un)making your own luck: You’d think that winning big in the lottery would help indebted people avoid bankruptcy. But according to a group of US researchers: "A comparison of Florida Lottery winners who randomly received $50,000 to $150,000 to small winners indicates that such transfers only postpone bankruptcy rather than prevent it". (Via: Alex Tabarrok at Marginal Revolution.)

It pays to be fat? A recent post by Marina Adshade stirs up controversy. Citing a paper by health economist Heather Brown, she writes: "Employers may punish women who are obese with lower wages, but not all women are paying a penalty. Single women who are obese earn higher wages because they invest more in unobservable job skills. Why? Because heavy women have to plan on never having a husband to help pay the bills."

Wood tape: Sometimes it feels great to be able to listen to your children, writes Spilt Milk. "I’m not so great at it, sometimes, but when it works — well, those are the nights I go to bed knowing I have loved and been loved well", she says. Wondering about the ‘wood tape’? Click through Spilt Milk to the story by Scott and all will be revealed.

I don’t generally take much notice of Henry Ergas’s op-ed pieces in the Oz, but even one-eyed Coalition shills sometimes have important things to say. So it was with Ergas’s article this morning drawing attention to actions by the Gillard government to diminish the role and effectiveness of Regulatory Impact Statements, especially by transferring responsibility for oversight of RISs from the independent Productivity Commission to the Department of Finance.

Troppo colleague Nicholas Gruen is a trenchant critic of the effectiveness of RISs in cutting bureaucratic red tape, but that doesn’t mean it’s a great idea to radically water down such checks and balances without putting something better in their place. As Ergas says, it doesn’t augur well for the Gillard government’s alleged commitment to boosting Australia’s productivity.

On the other side of the partisan pundit divide from Ergas, Ross Gittins has long been a cynic about the usefulness of micro-economic reform generally in boosting productivity. Gittins was on about it again the other day:

For the past 200 years, since the early days of the Industrial Revolution, the material living standards of people in the West have been rising almost continuously, thanks to continuing improvement in the productivity of labour and capital.

Have we had 200 years of continuing micro-economic reform to bring that improvement about? Of course not. So there has to be something seriously wrong with an economy that can’t achieve a satisfactory rate of productivity improvement without regular injections of reform.

Like most other things in the economy, micro reform is subject to diminishing marginal returns. And when we run out of things to reform, what do we do then? A counsel of perfection isn’t a lot of use.

We need to remind ourselves that governments don’t actually run the economy, business people do. So if businesses aren’t generating much productivity improvement, the obvious place to look is at the behaviour of business people.

Australia’s productivity surged at the rate of around 2 per cent per annum through the 1990s, mostly as a result of the Hawke/Keating government’s economic reforms. But since then productivity improvement has dropped back to a much more mediocre 1.4% per annum.  Gittins reckons that only technological advancement makes much long-term difference to productivity, and that economists know bugger-all about how to stimulate technological innovation. He might be right, then again it might be that politicians since Keating have simply lacked the “ticker” to make the necessary hard micro-economic decisions. I’d be interested in the opinions of the giant economics brains which regularly inhabit the Tropposphere.

Just to stimulate discussion, I’ve listed over the fold and in no particular order a series of possible micro-economic reforms that I reckon would have significant positive effects on productivity if implemented. Feel free to critique them, and add ideas of your own.  Of course, perhaps we shouldn’t take all  this too seriously, as the oxymoronic image at top right suggests.
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Adam Smith recognised that a well-ordered society can never develop "when a sizeable number of its members are miserable and, as a consequence, dangerous", writes Mary Riddell in the Telegraph. She argues that "social democracy, with its safety nets, costly education and healthcare" is the only solution to the recent disorders in London.

Those who oppose the welfare state might also quote Smith. For example, here’s something I found with Google Books:

… it is not so much the police that prevents the commission of crimes as the having as few persons as possible to live upon others. Nothing tends so much to corrupt mankind as dependency, while independency still increases the honesty of the people.

With tools like Google Books, it’s easier than ever to find and lift quotes from classic works by great thinkers. And with social media like Twitter, it’s never been easier to share them. But it’s just as difficult as ever to understand these quotes in context.

Riddell is drawing on a favourite quote from Smith’s Wealth of Nations: "No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable." But on its own and in context this isn’t exactly an argument for social democracy. Here’s a slightly longer version:

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Sinclair Davidson at Catallaxy has a post musing about whether carbon emissions trading permits would be regarded as property rights which would entitle the holder to compensation if abolished by a future federal government. The obvious context is the fact that Tony Abbott has promised that the Coalition would “roll back” Labor’s carbon pricing regime if elected. Apparently there’s been a debate about it in the AFR (to which I don’t subscribe).

Frankly, I think any such debate is misconceived at least to the extent that some (e.g. Labor’s Assistant Climate Change Minister Mark Dreyfus QC) seem to be suggesting that Abbott could not abolish carbon pricing without running the risk of incurring a large compensation bill to emitters whose permits were cancelled. My understanding of Labor’s proposal is that a tradeable carbon permits regime would not commence until at least 2015. The regime to commence next year as an interim measure is simply a carbon tax levied at a fixed price per tonne on particular emitters. It isn’t transferable nor does it set any specific limit on permitted emissions. The designated emitters simply pay the fixed price for whatever they emit. On no sensible view could that be regarded as a property right. It would be like suggesting that one’s income tax liability was a property right!

The carbon permits regime to be introduced in 2015 may well be a different matter, but if Abbott wins the next election (which currently looks long odds-on) it will never see the light of day. As far as I know the legislation to be introduced this year will not itself create the tradeable permits regime. In that situation I don’t see any constitutional impediments to Abbott abolishing Labor’s scheme following a 2013 election win.

Nevertheless, the question of whether carbon permits would be property for constitutional purposes is quite an interesting one in a purely abstract sense. I copy a relevant extract from my constitutional law study guide over the fold, followed by my tentative view about the constitutional status of carbon permits.

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