About David Walker

David Walker edits INTHEBLACK magazine (intheblack.com), Australia's largest-circulation business magazine, and runs publishing consultancy Shorewalker DMS (shorewalker.net). David has previously been chief operating officer of publishing firm WorkDay Media, director of communications and advocacy for the Business Council of Australia, director of policy and communications for the Committee for Economic Development of Australia, site director for online finance start-up eChoice and an editor and columnist at The Age. He has written professionally on economics, business and public policy since 1987 and spent three years in the Canberra Press Gallery. Contact him on 03 8899 7790 or email [email protected]

The great globalisation slowdown mystery

Here’s something I only noticed while writing a short piece for INTHEBLACK magazine: the rise of globalisation is not only slowing down almost to a halt, but in some places (like the Netherlands) may have been slowing down since around the turn of the century. That’s well before the global financial crisis and indeed before the global economic boom of the early 2000s.

It’s obviously very hard to measure globalisation; we don’t even have a clearly accepted definition of the phenomenon. The best measure may come from the KOF Swiss Economics Institute, which tries to incorporate social, economic and political data. The figures in the graph below come from there.

What’s going on here? I really don’t know, and expert commentary seems to be thin on the ground. A few observers have suggested a post-GFC increase in trade protection, but that doesn’t fit the timing shown in the KOF data – and anyway, the post-GFC protectionist surge hasn’t really happened.

Feel free to read the more detailed piece at INTHEBLACK.com, and make suggestions (and/or point to relevant research) in the comments section below.

Globalisation slowdown graph

The globalisation slowdown began as early as the start of this century

Doing over the creditors, Greek style

As Greece’s situation has gone in recent days from bad to worse to worser to even-worserer-than-that, I’ve seen a lot of claims that the European authorities treated Greece’s private creditors too generously back in 2010-2012. My natural tendency was to accept those claims, partly because I wasn’t paying close attention to Greece back then, and partly because creditors have a long history of getting off lightly in these situations.

Let me explain for a moment. The fate of creditors is important in financial disasters, and usually under-examined. People talk about the bailouts of banks and insurers in the 2008 crisis, but it was typically their creditors rather than the institutions and their shareholders that got most of the benefit of those US interventions. Goldman Sachs and Societe Generale, for instance, seem to have won most from the huge AIG bailout, due to regulators’ fears that they would collapse and take the entire world financial system with them. By the time the rescue was done, Goldman Sachs and Societe Generale and their shareholders and management escaped with remarkably little penalty, and Goldman Sachs today is not a charred, smoking corpse but a live colossus of world finance.

That’s a problem. If you really want to avoid moral hazard, you want to make sure in these situations that the creditors get royally ****ed over, in a way that will forever remind the next generation of creditors not to be so ****ing stupid as to lend to organisations like AIG that are taking a bunch of dumb ****ing risks. That will make it more expensive for dumb ****s to borrow money, which is a good thing. But in the process of trying to prevent collapses from taking the whole financial system with them, the regulators often end up saving the creditors.

My view, for what it’s worth, is that regulators save the private creditors far too often. But it’s easy to say this from my comfortable viewpoint. When you have a weekend to make a decision that might end up destroying a piece of the world financial system and ruining a lot of ordinary people’s lives, there is a certain pressure to err on the side of caution.

So when I heard the likes of Steve Randy Waldman saying Greece’s private creditors had gotten off lightly, I assumed he was right.

But it turns out, maybe not.

So far I’ve found only one study of the 2010-2012 Greek bailout’s effects on private creditors whose authors seem really powerfully qualified to make judgements. That study is the 2013 paper “The Greek Debt Restructuring: An Autopsy“, by Jeromin Zettelmeyer, Christoph Trebesch and Mitu Gulati. Trebesch, who wrote an AEJ paper called, irresistably, “The Price of Haircuts”, also maintains a terrific Haircut Dataset of 187 government debt restructurings. 

And this study says Greece’s private creditors got done over pretty good. Indeed, the authors calculate that the 2010-2012 Greek bailout established a new world record for creditor losses.

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Against decentralisation: why crowded is good

From time to time you hear the argument that Australia would be a much better place if only we could actively “decentralise” population. The argument is we should encourage people out of our big cities – notably Sydney and Melbourne – and into smaller cities, like Wollongong and Ballarat. In pursuit of this, various governments over the years have tried to move departments out to regional cities. The Victorian government under John Brumby even ran an advertising campaign in Melbourne encouraging people to move out and resettle in regional Victoria.

This sort of argument has often been based on the idea that these regional areas have lots of existing infrastructure that we can exploit at little cost. It has been encouraged by talk of the “Death of Distance” and “The Flat World” – the idea that globalisation and modern telecommunications are making location obsolete, so you might as well live in the countryside. It’s particularly popular wherever there are plenty of marginal regional electorates.

And this argument seem to be spreading. So here’s the case against spending government resources to actively encourage decentralisation.

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Fact check: The Iran Air Flight 655 non-apology

There are reports today (12 November 2014) from Fairfax and News Ltd that Prime Minister Abbott is urging Vladimir Putin to follow the example of the US government after the Iran Air Flight 655 shootdown — and that he has said the US both paid compensation and apologised. In particular a spokeswoman for the prime minister is quoted thus:

“The Prime Minister observed that when the United States had inadvertently shot down a civilian aircraft it had duly apologised and made appropriate restitution …”

I am hoping the spokeswoman erred on this point. Because I cannot find any reliable reports that the US ever formally apologised or made any payment which it was willing to describe as compensation.

Indeed, based on the reports I can find and my own faulty memory of the time, the US very pointedly avoided apologising or paying compensation.

All I can find in reports is that the US “expressed regret” over the shootdown and made an ex gratia payment. These are the words you use when you are not admitting anything. And this all happened as part of a settlement at the International Court of Justice in 1996, eight years after the shootdown took place – a shootdown unequivocally, albeit mistakenly, launched by the US military.

The PM is said to have “commended the precedent” of the US Flight 655 actions to Putin. It’s a lousy precedent. George H. W. Bush (i.e. Bush the elder), vice-president and campaigning for the presidency at the time, was moved by the shootdown to say in August 1988:

“I will never apologize for the United States – I don’t care what the facts are … I’m not an apologize-for-America kind of guy.”

We are holding Russia to a higher standard than that to which the US was held in 1988. That’s entirely appropriate.

It would be preferable, though, to end the pretence that the US behaved impeccably over Iran Air 655 or that it set an example Russia should follow. On the available facts, the US behaved shamefully.

Twisting the truth is one of the things that has gotten Putin regarded as a thug. Australia and its leaders should be able to adopt a higher standard.

The Rocket Equation’s never-ending tyranny


A Soyuz spacecraft docking with the International Space Station. As the picture makes plain, typical human-occupied spacecraft orbits are very close to Earth; SpaceShipTwo wouldn’t get even this high. NASA photo.

So the latest Scaled Composites/Virgin Galactic SpaceShipTwo test flight has ended badly, killing one of its two test pilots.

Meanwhile Orbital Sciences, another private space firm, suffered an expensive accident this week as well when one of its (unpeopled) Antares cargo rockets blew up seconds into an ISS resupply mission. Of the three main private human space travel players, only Elon Musk’s SpaceX has survived the week unscathed.

These are testing times for human space travel. When Scaled Composites’ SpaceShipOne won the Ansari X Prize for private spaceflight a decade ago, it gave the field a huge shot in the arm. There was a feeling that private enterprise might triumph where government investment was faltering.

Scaled Composites/Virgin Galactic is a notable pioneer, the first organisation ever to send people to space with a hybrid engine. SpaceShipOne literally burnt rubber, while SpaceShipTwo had recently switched to a new design burning, essentially, nylon. Hybrids don’t pack quite as much energy into each gram of fuel as the traditional rockets that have powered the Soyuz (kerosene-oxygen) and Saturn (kerosene-oxygen/hydrogen-oxygen) launch vehicles. However, hybrids are simpler, which seems like a useful advantage.

But hybrids may just not work at scale. Virgin Galactic was once scheduled to start taking passengers up as early as 2010, and there was talk of doing it by this year, and last week the schedule said 2015, and that’s not going to happen now either. (And in a sense they were not going to space anyway: their sub-orbital flights have recently been planned to fall well short of the Kármán line, 100 kilometres up, which is generally treated as the start of “space”.) With the only existing SpaceShipTwo craft destroyed, the project may chose to substantially change their design. Or Virgin may walk away from what remains a risky and expensive exercise. Continue reading

Happy 20th birthday to blogging!

Just a note to record the fact that blogging is 20 years old this month, maybe. New media legend Dave Winer, a rare combination of great writer and programmer, started posting at DaveNet on 7 October 1994, as Philip Greenspun points out. There was no announcement that Winer had invented a new genre, but I can’t really find anything that looks like a blog going back much earlier than that – though writer Jerry Pournelle’s Chaos Manor got started around the same time and Justin Hall was also getting busy.

DaveNet started as the web version of Winer’s email newsletter, but having found the web-based format was popular, he started pushing through classic weblog fodder – short thoughts, links, and reflections on stuff other people were saying.

Having invented the weblog, Winer then helped to develop RSS and co-invented podcasting, proselytised for proper web content management systems, built outliners and basically helped invent the media landscape we have today. What a guy.

As Greenspun puts it:

The standard HTTP/HTML Web was and is great for 3-30-page ideas. Winer was perhaps the first person to see that the world needed some different technical standards to deal with three-paragraph ideas.

People frequently see blogging as something completely new. In fact, though, it has quite a few media predecessors, notably the personal diary. From one perspective, a blog was simply a way of publishing your own diary to a mass audience. But it also had a number of new aspects: for instance, it frequently used links to exploit the availability of huge numbers of online media sources.

Blogging was also one of the first online media products to showcase online brevity. Facebook and Twitter* then came along and underlined this unexpected development. Indeed, for all the talk about the wonders to come from ultra-fast broadband, the big online media developments of the past two decades have to a surprising degree been about short written content.

* Fun online media “fact”: I read somewhere long ago – and perhaps it’s even true – that the average Victorian-era diary entry would fit comfortably within Twitter’s 140-character limit.

Matt Levine helps you understand the bank regulation problem in 1800 words

If you want to understand what bank regulators were doing in 2008, and what people like APRA and the Reserve Bank worry about here, try reading Matt Levine’s latest column.

Leviine’s piece is nominally about a weird court case involving AIG, the insurance behemoth which almost blew up the world financial system in 2008. But in the process of explaining the court case, Levine sets out with admirable clarity why our current banking system doesn’t allow easy, perfect regulatory solutions to banking problems like we faced six years ago. (A different banking system might do that, but so far no-one has come up with anything even faintly convincing enough to make us re-architect the entire financial world.)


Simplifying a lot, a bank is a thing that allows some people (“savers”) to put money somewhere, get paid interest on it and be confident that they’ll get it back, and that allows that money to be invested in the real economy. That is: Banks have risky claims on the real economy and hand out risk-free claims to their savers.

This is a bit of magic that works most of the time, but not all of the time. Sometimes people realize that their risk-free claims are backed by risky assets, and might be riskier than they thought, and then they panic and pull their money out of the banks and that’s a big problem for the rest of the economy. This has been an extremely well-known problem for centuries, and the solution has been extremely well-known for about 140 years. It’s for the central bank to lend the banks money until the crisis passes.

This has nothing to do with subprime, or derivatives, or too-big-to-fail banks. It’s just a feature of banks, which are where the money is, but only in a probabilistic sense. Sometimes they are not where the money is, and that’s a crisis. But if the central bank (or, sort of equivalently, the government) lends them money, then the crisis will pass, and they’ll be able to pay it back with interest.

Many people dislike this, and it is sort of unseemly, but it really is a well-known set of facts. You can reduce the risk of banking crises happening, but not to zero, because of that core mismatch between banking’s risky assets and savers’ expectations of safety. And if crises do happen, central-bank support seems to be the only effective way to solve them.

Among other things Levine points out, in his copious and typically excellent footnotes*, that what we call “bail-outs” are less about helping bankers and more about helping the people (“bank creditors”) who have lent a lot of money to banks. In Australia these days, of course, people who have lent a little bit to banks are generally covered by a government guarantee.

Read the whole thing.

* I have no idea why so few journalistic articles in online-only publications have footnotes. They seem like a terrific idea for dealing with thoughts that aren’t core to your main narrative. Levine’s footnotes are a series of tasty hors d’ouevres sprinkled through the main meal.

Offences against good government: a Troppo list challenge

So the Senate will conduct an enquiry into the Queensland government – on the pretext that, to quote Senator Glen Lazarus, it has made “many questionable decisions”. Never mind that state governments are elected by the same people who elect senators, or that senators are elected to conduct national business. A bunch of senators is going to go poking around state affairs, because the Queensland government did things with which some of those senators disagree.

This silliness comes courtesy of a deal between the Palmer United Party, Labor and the Greens. The Greens’ Senator Larissa Waters was on Radio National this morning doing a great job of not answering questions about her party’s trampling of good governance while gabbling about Newman’s “brutal agenda” – but to her credit, she at least put her head up above the parapet. Labor initially seemed mightily embarrassed, as they should be.

The excuse they’re all using for this departure from convention is that Queensland has no upper house. (Back in the day, much of the left was dedicated to eliminating upper houses as unrepresentative, but apparently this is now Not Canon, as they say in the comic-book business.) In real life, a more important factor appears to be that Clive Palmer hates Campbell Newman’s guts.

The senators’ decision is a procedural obscenity not just because it is transparently payback but because it builds a path to a future where parliaments inquire endlessly into each other simply because they are run by different parties. I disagree with a bunch of the Newman government’s decisions, but the medicine for that illness is an election, which is actually not that far away.

This sort of convention-busting idiocy traditionally gets debated for a few days, decried by commentators from one side or the other, and then buried. There’s no real constituency for maintaining decent conventions and processes of government, compared to the constituency for, say, cutting taxes.

But it’s worth an occasional attempt to remind everyone that our existing system of government has its good points and that slowly degrading it does the country no favours. Especially since we seem to be getting more of these breaches of convention over time.

So here’s the challenge to Troppodillians: Name one or more actions of governments over recent years which have junked useful conventions and eroded the capacity of governments to simply govern prudently and well.

Nominations in the comments, please. Continue reading

Iraq: 10 things that seem to be true

As we head back to Iraq, I’m struck by the way in which those making the case both for and against are avoiding certain ideas which seem to me to be true:

This is not 2003 all over again. At least on a moral level, and at least as far as action in Iraq goes. We have been invited in by the Iraqi government, giving the military campaign a legal and moral basis for action that the 2003 war lacked, and IS is thoroughly dominated by murderous zealots. Tony Abbott has been careful to say that attacking IS in Syria would be very different to what we’ve signed up for so far, which it would, and he deserves credit for that.

IS is not an existential threat to Australia. No kudos to George Brandis, who claimed this week that IS “represents or seeks to be an existential threat to us”. Brandis’s statement avoids outright lying only by his addition of the phrase “or seeks to be”. This has strong echoes of the 2003 b.s. about how Saddam could threaten the world with nuclear weapons, It is not quite as stupid now as it was then, but that’s not saying much. Lots of loony zealots seek to be an existential threat to the Australian state. There’s a world of difference between the wish and the capability. IS currently appears weak on capability, though that could change. There’s more chance of Australia being seriously damaged by a mutated Ebola virus, and we react to that threat with a few million dollars every so often.

We have some responsibility to help make Iraqis’ lives better. In 2003 we invaded their country and failed to do what we said we’d do. The military did its best, but we needed other tools in the kit, didn’t have them, and like some blundering amateur, didn’t even know we needed them. We helped make their country vulnerable to the violent zealots. Those violent zealots are now trying to impose upon millions of Iraqis a particularly nasty brand of theocracy. We seem to have alarmingly little national shame about this, and remarkably little sense that by creating the mess, we created a lasting responsibility to fix it. This is what Colin Powell once explained to George W. Bush as the “Pottery Barn principle” – you broke it, you own it.

We will run into unintended consequences. The idea of unintended consequences is hard enough to keep in people’s minds in the economic debate. But in the foreign policy debate people seem ready to discard it at a moment’s notice. And when things go wrong, instead of reassessing, they defend the purity of their motivations. Chris Berg of the IPA has dubbed this the “it’s the thought that counts” school of humanitarian intervention. It is probably too much to expect, but we ought to conduct this debate with an honest acknowledgement that things are not likely to go to plan. To use Donald Rumsfeld’s admirable observation, we face both known and unknown unknowns.

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