Hayek – left right and centre

My friend Martin Stewart-Weeks points me to this piece by Simon Griffiths which argues that “an engagement with Hayek does not mean a capitulation to the market”. Quite. Indeed it’s always struck me that it’s a pity that Hayek pursued his ideas in such a tendentious way. He had a great critique of the necessary foibles of central planning and he won that debate, even if it took until the fall of the Berlin Wall to really drive the victory home.

I wonder how much this is actually typical of many political philosophers. They start with some ideological intuition they want to support and then produce a set of considerations that tend in that direction. Still I think Hayek’s ideas and sensibilities have plenty of implications that don’t point particularly clearly to the right, implications that Hayek, and sadly, so many of his followers show virtually no interest in. Continue reading

Syriza: the latest disaster for the left

I don’t have much time to offer anything very considered but want to just say how bemused I am at the carryings on of Syriza. The whole sorry business has been horrible to watch with creditors showing no interest in their own self-interest let alone a little enlightenment in their self-interest. But the Syriza Government? I was and remain a huge fan of how coherent and compelling Varoufakis was in articulating his case – of Syriza’s arrival as some kind of circuit breaker that might rescue Europe from itself as it rescued Greece from Europe.

But to negotiate properly, to negotiate as a broke borrower, you have to be able to show how you’re going to make your loan the creditor’s problem – not just your own. That requires a Plan A – in which the creditors and the borrower negotiate some mutually satisfactory settlement and this needs to be done with a Plan B clearly in view in which the creditors lose their shirts – and the borrower recovers.

I’ve always been kind of surprised at Syriza’s commitment to the Euro. Not that it wouldn’t be saying that it would strongly prefer an outcome in which the Euro remains its sole currency, but that that is all contingent on satisfactory negotiation. And to negotiate credibly in that situation one needs a clear Plan B. Perhaps it might make sense to conceal the plan for a while. But here we are at the end game and there’s no Plan B.

The referendum is a bizarre plebiscite on . . . well no-one really knows what it’s about. The Greek people get to vote on whether they will agree to the Troika’s terms. Those terms are not current. They’ve been withdrawn. Now they’ll probably be back on the table if they Greek’s vote ‘Yes’. But if they vote that way – presumably Syriza’s days are numbered – if it doesn’t resign immediately. And if they vote “No”. Well it’s completely unclear what that means other than that the Greek populace are where they were when they elected Syriza which is to say that they don’t want to pay their government’s debts. Well so what? The German populace want them to pay those debts. So where does that get us?

If BHP Billiton owes NAB a billion dollars, it’s not a very compelling result if a plebiscite of its shareholders say they’d rather not repay the loan. So we have Plan A which is that the Europeans offer Greece a deal that they won’t offer them, and Plan A with a tantrum, which is to say that the Greeks come back to the negotiating table saying “you know how we said we really don’t want to repay the loans. Well we really really don’t want to repay the loans. What do you say now?”

And the thing is that this seems of a piece with the left in so many instances – utterly lacking in the courage of what they claim are their convictions.

The generative commons of generalised social capital

Paul Krugman has an interesting blog post on the extent to which there might be contagion from one area of social capital (or lack thereof) to another. He’s responding to the claim CEOs made to him that they only started arcing up their pay demands when they saw sportspeople doing it. And we can all understand the micro-foundations for rises in superstar sportspeople – local sub-urban live audiences morphing into TV audiences at the city, national or global level.

One of the things that’s gradually been happening over the same period is a kind of leeching away of general social solidarity. The most striking aspect of this is a stat I heard on Radio National’s All in the Mind. Asked of the importance of “being very well off financially”

The latest data from 2013 for entering university students here in the US, 82% say that that is an important life goal. And back in the late ’60s and early ’70s only about 45% said that was an important life goal.

Continue reading

Politics in the Courtroom: Political Ideology and Jury Decision Making

by Shamena Anwar, Patrick Bayer, Randi Hjalmarsson. Publication is available here.

This paper uses data from the Gothenburg District Court in Sweden and a research design that exploits the random assignment of politically appointed jurors (termed naemndemaen) to make three contributions to the literature on jury decision-making: (i) an assessment of whether systematic biases exist in the Swedish naemndemaen system, (ii) causal evidence on the impact of juror political party on verdicts, and (iii) an empirical examination of the role of peer effects in jury decision-making. The results reveal a number of systematic biases: convictions for young defendants and those with distinctly Arabic sounding names increase substantially when they are randomly assigned jurors from the far-right (nationalist) Swedish Democrat party, while convictions in cases with a female victim increase markedly when they are assigned jurors from the far-left (feminist) Vaenster party. The results also indicate the presence of peer effects, with jurors from both the far-left and far-right parties drawing the votes of their more centrist peers towards their positions. Peer effects take the form of both sway effects, where jurors influence the opinions of their closest peers in a way that can impact trial outcomes, and dissent aversion, where jurors switch non-pivotal votes so that the decision is unanimous.

Professionalism as tyranny: a liberationist fantasy

‘People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public’ - Adam Smith

Adam Smith put it memorably above. I’ll be forever grateful for my time at the Australian Centre for Social Innovation because it has shown me the generality of that statement. Whether Smith intended it or not, it applies not just to businesspeople of the same trade, but to professions. And it applies not just to the professions whose anti-competitive practices are familiar to us all – lawyers and medical specialists for instance. The behaviour of these high status professions is consistent with the entire sentence from Smith which ends “or some contrivance to drive up prices”.

Some of the lower status professions also try to use their political power to drive up their own wages and, leaving aside the vexed question of the political and economic means by which their campaigns might be waged, I have a lot of sympathy for their desire to be paid and treated better than they are.  I’m talking of teachers and nurses most particularly, but I could be tempted to add academics and various others. However, often in an almost thoroughly well-intentioned way these professions exercise a kind of tyranny in the way they work. They see things in a particular way and, because they are either in charge of or an integral part of the functioning of some important social institution, it gets built around their world view. This is the meaning of the marvellous French expression déformation professionnelle

As I recounted in my speech launching the Centre’s family mentoring programme in Mt Druitt:

These are the words of Mystic (pronounced Mystique). She’s 21 now but was in out of home care since she was 3.

It happened so quickly. Once I turned 18, they sort of kicked me on my arse. They said ‘here’s $750, see you later, thank you’. And I’m just like ‘what the hell?’. A book and $750. That’s for being in care all your life.

Actually it makes you feel like an outsider. It makes you feel non existent on this earth. Like you are an alien. It does. It affects when you go to school too. You’re so used to being called ‘client’ and stuff that you start looking at yourself different to everyone else.

That ladies and gentlemen of the Tropposphere is, to purloin and marvellous expression of William Easterly’s the “cartel of good intentions”, or do-good professionalism as tyranny. Why is this tendency so strong and what could be done about it. Both good questions, but this post is dedicated to a fantasy of how it could be – to a bit of rhetoric. The sentiment might be said to be utopian I guess, but it’s not devoid of seriousness, or even practical import of some kind. Recall that, not only are the professions full of people who have taken them up for real love of the texture of the work, the intrinsic reward for doing it well and for the good they do, but professions are all built implicitly and often explicitly on noble ethical commitments – like the doctor’s to do no harm, the lawyers to uphold the rule of law ahead of the rule of men and the generalised duties of care of the many caring professions.

In any event, when I read Albert Camus’ magnificent lecture accepting the Nobel Prize for Literature for the first time, inside my brain the speech morphed into one in which Camus used the word ‘professional’ wherever he had used the word ‘artist’ and mutatis mutandis for all the associated derivatives of both words. This is what I read: Continue reading

Neoclassical economics: what is it good for?

Michael Leunig says the tough economic times will plant seeds of change and happiness.I sent the passage below to my friend Alex Coram noting “I like this post from Brad Delong – though you may not”. Alex, you see, has a deeper understanding than me of these things. I was right – he wasn’t that impressed – but for reasons that I also agreed with and might have offered if I were not a thirsty man in a desert.

I think that modern neoclassical economics is in fine shape, as long as it is understood as the ideological and substantive legitimating doctrine of the political theory of possessive individualism. As long as we have relatively self-interested liberal individuals who have relatively strong beliefs that things are theirs, the competitive market in equilibrium is an absolutely wonderful mechanism for achieving truly extraordinary degree of societal coordination and productivity. We need to understand that. We need to value that. And that is what neoclassical economics does, and does well.

Of course, there are all the caveats to Arrow-Debreu-Mackenzie:

  1. The market must be in equilibrium.
  2. The market must be competitive.
  3. The goods traded must be excludable.
  4. The goods traded must be non-rival.
  5. The quality of goods traded and of effort delivered must be known, or at least bonded, for adverse selection and moral hazard are poison.
  6. Externalities must be corrected by successful Pigovian taxes or successful Coaseian carving of property rights at the joints.
  7. People must be able to accurately calculate their own interests.
  8. People must not be sadistic–the market does not work well if participating agents are either the envious or the spiteful.
  9. The distribution of wealth must correspond to the societal consensus of need and desert.
  10. The structure of debt and credit must be sound, or if it is not sound we need a central bank or a social-credit agency to make it sound and so make Say’s Law true in practice even though we have no reason to believe Say’s Law is true in theory.

An adequate undergraduate economics major will spend due time not just on the excellences of the competitive market equilibrium, but on these 10 modes of market failure, and in so doing become, effectively, a history and moral philosophy major as well.

A first-rate undergraduate economic major will also spend due time on government failure and bureaucratic failure, and thus reach the very economic conclusion that there are substantial trade-offs, and we must pick our poison among inadequate and imperfect alternatives, even in institution design.

In any event Alex disagreed in terms that I completely agree with as below: Continue reading

A film and a couple of poems in the lead-up to Anzac day

Regular readers will know of my enthusiasm for the recent movie adaptation of Vera Brittain’s Testament of Youth about the disaster that was WWI and how it blighted the lives of a generation. It’s opening in Australia today – read my review on the link above and go and see it if you can.

A month or so ago I was in the bookshop of the NSW State Library and flicked through a marvellous fat book of war poetry – in Penguin’s new very cheap collection of books in old original Penguin covers – in this case the beigy-puce colour which seems to have been set aside for war literature. In it I read a remarkable poem. But before setting it out, I also read – I think later on on the net – a poem by Rupert Brooke: he of “If I should die think only this of me, that there is some corner of a foreign field that is forever England”.

Here is the poem “Peace“.

Now, God be thanked who has matched us with his hour,
      And caught our youth, and wakened us from sleeping!
With hand made sure, clear eye, and sharpened power,
      To turn, as swimmers into cleanness leaping,
Glad from a world grown old and cold and weary;
      Leave the sick hearts that honor could not move,
And half-men, and their dirty songs and dreary,
      And all the little emptiness of love!
Oh! we, who have known shame, we have found release there,
      Where there’s no ill, no grief, but sleep has mending,
            Naught broken save this body, lost but breath;
Nothing to shake the laughing heart’s long peace there,
      But only agony, and that has ending;
            And the worst friend and enemy is but Death.

Brooke is suggesting that the crucible of war might make essences visible to our jaded ordinary selves otherwise tangled up in the mundane surface appearances of everyday life. The poem I read in the Penguin anthology contains the very same idea as Brooke’s – that there’s a surface reality and then a deeper one beneath it. But their treatment of this ‘reality exposed by war’ theme is diametrically opposed. In “To A Conscript of 1940″ the poet and WWI veteran Herbert Read suggests that reality lying beneath the surface is altogether different. His message is not so dissimilar to that of Vera Brittain. That the worthiness of pre-war aspirations were a mirage, not just a trap, but a trap for those of good heart but without their wits about them – the wits that Vera Brittain slowly come to through experience.

A soldier passed me in the freshly fallen snow,
His footsteps muffled, his face unearthly grey:
And my heart gave a sudden leap
As I gazed on a ghost of five-and-twenty years ago.

I shouted Halt! and my voice had the old accustom’d ring
And he obeyed it as it was obeyed
In the shrouded days when I too was one

Into the unknown. He turned towards me and I said:
`I am one of those who went before you
Five-and-twenty years ago: one of the many who never returned,
Of the many who returned and yet were dead.

We went where you are going, into the rain and the mud:
We fought as you will fight
With death and darkness and despair;
We gave what you will give-our brains and our blood.

We think we gave in vain. The world was not renewed.
There was hope in the homestead and anger in the streets,
But the old world was restored and we returned
To the dreary field and workshop, and the immemorial feud

Of rich and poor. Our victory was our defeat.
Power was retained where power had been misused
And youth was left to sweep away
The ashes that the fires had strewn beneath our feet.

But one thing we learned: there is no glory in the dead
Until the soldier wears a badge of tarnish’d braid;
There are heroes who have heard the rally and have seen
The glitter of garland round their head.

Theirs is the hollow victory. They are deceived.
But you my brother and my ghost, if you can go
Knowing that there is no reward, no certain use
In all your sacrifice, then honour is reprieved.

To fight without hope is to fight with grace,
The self reconstructed, the false heart repaired.’
Then I turned with a smile, and he answered my salute
As he stood against the fretted hedge, which was like white lace.

In fact Testimony of Youth’s Australian release coincides with the centenary of another event. Already the feted poet of the British War effort, Rupert Brooke died on April 23, 1915. In sad contradistinction to the ardour of his poetry, he never saw a shot fired in anger, dying of sepsis from an infected mosquito bite on a French ship, moored at Skyros, a Greek island in the Ionian sea a good way off from the looming battle for the Dardanelles.

And just as I mentioned John Maynard Keynes in the thick of things in the previous post about the film, the contrast between these two poems puts me in mind of something that Keynes said that stuck with me the moment I read it. Writing to a friend in 1943 – back at the Treasury as he had been in WWI while Vera Brittain’s friends and brother were being blown to pieces – he wrote this to a colleague:

Here I am back again in the Treasury like a recurring decimal – but with one great difference. In 1918 most people’s only idea was to get back to pre-1914. No-one today feels like that about 1939. That will make an enormous difference when we get down to it.

And so it did. WWI, a four year catastrophe on a hitherto unimaginable scale killing 17 million people or whatever it was wasn’t enough to make people really want to try hard to avoid the problems of the past. It turned out that it required a lot more than that. It required that, followed by the desperation of depression and then another world war of a far larger magnitude to get people to really want to get things right for a new generation.

And that’s the situation we’re in all over again. Deep in the grip of VerySeriousPersononomics, with a banking system that, having destroyed the prosperity of a generation, snaffled itself a couple of trillion dollars to pay its uberlords for their continuing fine work at the helm and is now reformed in a sufficiently mild way that it will happen again once the memories fade. I keep thinking of W. H. Auden lamenting that ”low dishonest decade” that had just steered his own world back into world war in Sept 1939.

Fair trade coffee: so much more (or less) than it seems, depending on your point of view

From the latest Journal of Economic Perspectives

Fair trade coffee is a cup half full, according to
Raluca Dragusanu, Daniele Giovannucci, and
Nathan Nunn in “The Economics of Fair Trade”
(Summer 2014, vol. 28, no. 3, pp. 217–36). We are
not persuaded.
The authors barely mention the fees imposed
upon current and prospective fair trade coffee
growers by FLO-CERT, the organization that
verifies and certifies fair trade products. By not
spelling out the fees, the authors may leave readers
with a mistaken impression that the fees are
trifling. Elliott (2012) summarizes nicely the latest
fee structure. For cooperatives of poor producers,
the initial application fee is €525, and fees for the
first inspection vary from €1430 to €3470 depending
upon a cooperative’s size. While certifications
are good for three years, annual fees range from
€1170 to €2770 and include interim surveillance of
growers’ practices. In short, Fairtrade International
requires farmers in low-income countries to pay
thousands of dollars in order to participate in a network
presumably intended to offer poverty relief
to its producer organizations as well as protection
from allegedly ruthless local monopsonist coffee
buyers, called coyotes. The existence of these large
and explicit costs to growers casts some doubt on
the relatively optimistic conclusions of this paper.
As the authors acknowledge, only a small fraction
of coffee grown by fair trade producers is able to be
sold as fair trade coffee, but readers should also
be clear that applying to join the fair trade network
does not guarantee a willing buyer on the other
side of the market. As Fridell (2007) notes, newcomers
to fair trade production are the least likely
to benefit because they cannot compete on an
equal footing with established cooperatives in
an already saturated market. Fridell cites Martinez
(2002), who in turn describes the plight of a certified
producer organization that searched for eight
years to locate a willing buyer.

There’s plenty more here in the whole letter to the JEP.