Catallaxy Files

polymathic pontification, bleeding heart economic rationalism and liberal secularist contrarianism

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    Saturday, June 29, 2002
    Quote of the day
    "I don't mind if strippers become unionists ... just so long as unionists don't become strippers."
    ~Tim Blair (a Tory but not a fuddy-duddy Tory).
    Being Arthured
    Don Arthur has a very thoughtful response to my post on higher education. I've promised a more detailed reply and I will get around to it. I will say at this stage that Don is overstating his case and furthermore, to the extent that there is a 'human capital' component to higher education I think my arguments still apply. True, universities are to some extent a reputational business - so are car mechanics and plumbers. In the US where private universities flourish you see a whole stack of thick publications advising people on which is the best college to go to, stacked with various indicators.

    I would also like to coin a phrase in Don's honour. The term 'being Fisked' was named after a certain Robert Fisk who had been known of late for making various silly and outrageous comments.'Fisking' someone to me almost connotes hitting an easy target, refuting the silly argument of someone who has not thought through things carefully. Fisking is a popular sport in the Blogosphere, something which lends it its Lathamesque bovver boy quality. I'm not averse to Fisking myself, being as human as anyone else.

    However what we need more of the in Blogosphere is 'Arthuring' - crafting a thoughtful and civil but nonetheless powerful argument in response to one with whom you fundamentally disagree. I shall have a think and do my best to 'Arthur' Don Arthur and various others who merit 'Arthuring' rather than 'Fisking'.
    Welcome to Quiggin

    A big blogging community welcome to John Quiggin. In my economic research I’ve come across the name John Quiggin on articles from everything to do with protectionism and tariffs, to public choice theory and more recently even telecommunications policy. It seems John has an opinion on everything, which makes him well suited to joining the political blog sphere. I may often disagree with what he has to say, but I think the launch of a blog by John Quiggin will be good for political debate amongst the Australian politi-blog community.
    My political odyssey or a life in books - Part I (Warning: self-indulgent autobiographical post)

    Don Arthur's exchange with Greg Lindsay on how the Centre for Independent Studies should be labelled which Don relates here set me thinking about how and why I've labelled my own political beliefs through the years. Names are important, definitions help set the boundaries of thought. When Confucius was asked what his first act would be if he ever attained some position of political power, I think he said that his first act would be to 'rectify the names' or something like that - to ensure definitions were used properly.

    My first introduction to the dismal science of economics was probably Robert Heilbroner's Worldly Philosophers which I probably read when I was about 16. For some reason I found the chapter on Malthus the most interesting one but it certainly was the first book to draw my attention to this whole field called economics though I didn't know enough about it to 'connect' completely yet.

    Until then I hadn't thought seriously about issues of public policy. I'd read Plato and Nietzsche but contrary to Popper, Plato didn't turn me into some teenage totalitarian. I simply enjoyed the sense of play in his dialogues while Nietzsche with his deconstruction of the psychological roots of Judeo-Christianity merely confirmed my then already strong militant atheist tendencies (nowadays I call myself an agnostic to be more exact but I suppose when it push comes to shove, my agnosticism isn't terribly different from atheism). However, Nietzsche is not best appreciated in one's teenage years - at best it's like the highbrow equivalent of listening to heavy metal. I was to later put Nietzsche aside and not come back to him again for many, many years until my second and deeper phase of appreciation of his works in my twenties. I also came across the works of John Kenneth Galbraith and was bewitched by his elegant writing and his arch put downs and witticisms. I also found his portrayals of a somewhat wasteful and uncouth capitalism that needed some civilising and rational direction to be quite compelling - he was some storyteller but what are economic models ultimately but stories well told, as Deidre McCloskey would probably agree?

    Spurred on by learning about Keynesian demand management in high school economics (unfortunately then portrayed using a highly sterile 'hydraulic' depiction of the economy - the so called circular flow which I'm sure still bores students shitless today) I sought out and checked out his General Theory from the public library. As anyone who has ever tried to grapple with the General Theory would testify I found a large chunk of it quite incomprehensible (I would study it again many many years later in a more indepth manner in Economics Honours in uni). However there were some pretty good bits towards the end, especially chapter 24 'Concluding notes on the social philosophy towards which the General theory might lead' and I sought of got the basic idea which was that he appreciated the enterprise and vigour of the capitalist system and the individualist values that underlay it and wouldn't want to tamper with that too much, but that didn't mean you couldn't channel it a bit better to get full employment and reduce its savage instabilities. From that book I moved on to Volume 2 of Robert Skidelsky's biography of Keynes, subtitled 'The economist as saviour'. This was probably the book that capped off my transformation into policy wonk.

    Just after reading Keynes himself, reading about Keynes the man filled me with admiration and even a secret ambition to emulate his life (err, except for the homosexuality, that is). Here was a man who moved effortlessly from the intricacies of academia to high finance to conferring with major political decision-makers. Whereas for many people an economist was some anal-retentive in Gordon Gecko braces and a suit talking about interest rates (for the record such things have always bored me to tears), to me an economist was the contemporary equivalent of a philosopher-king (so maybe Plato got to me after all) - someone who was an intellectual and yet of this world, someone who could design his system and then test it on the world. And I was especially struck by the way Keynes himself described the ideal qualities of an economist

    "... the master economist must possess a rare combination of gifts ... He must be mathematician, historian, statesman, philosopher - in some degree ... as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician."

    Ironically about the same time I came across a strange little book by a cranky old Austrian by the name of Friedrich Hayek. Called The Road to Serfdom, this book did not make a very positive first impression on me. It seemed to argue that the welfare state favoured by social democrats would logically lead towards totalitarianism if its tendencies were left unchecked. Around this time I had also started categorising myself interchangeably as a 'Keynesian liberal' or a 'social democrat' so I found this thesis to be substantially overstated.

    Just as ironically, despite my now established social democratic beliefs, Ayn Rand made a better initial impression than me. Though I found her writings on capitalism to be occasionally grotesque I would have virtually agreed word for word with her condemnations of racism, nationalism and religion as a manifestation of irrational, atavistic tribalistic instincts. There were of course shades of Nietzsche in Rand which made me more favourably disposed towards her non-economic writings. To this day I regard nationalism (to be distinguished from patriotism) as an abhorrent belief almost on a par with racism. Criticisms of cultures are on the other hand quite different for I suppose at some level I hold the belief that cultures are ultimately malleable and that people can pick and choose their cultures and that therefore all people are ultimately redeemable regardless of some abhorrent aspect of the cultures they profess to belong to.

    It was in my final year of high school that I decided it was time for me to get more politically active. I had learnt a bit more economics by then and knew all about supply and demand curves and thought this was a great tool for analysing things at least insofar as the usual goods and services were concerned. At the same time I was rather sceptical of how these pressures to equilibrate supply and demand could be applied to labour markets. On the other hand I was probably even then, with the usual Keynesian caveats about depressing demand from cutting wages, broadly sympathetic to what was then called 'enterprise bargaining'. However because I did have caveats I thought the gradualistic approach to making labour markets more flexible was a better approach than the trial by fire advocated by a Dr John Hewson.

    I also didn't like the idea of abolishing Medicare or this new fangled idea called 'university vouchers' which I'd read about. I didn't understand exactly how supply and demand in these areas worked, all I knew was that Medicare seemed to work fine, for instance. Lots of these strange and, in my eyes, radical ideas were coming out in the lead up to the election campaign around that time - the contest between Keating and Hewson. My scepticism on all these fronts was reinforced when I decided to sign up with Young Labor and the Labor party to help in the ensuing campaign.

    To be continued

    Friday, June 28, 2002
    Three cheers for the feminist career woman

    At least the SMH is trying to be more diverse in its opinion pages. It publishes this anti-feminist screed predictably titled "The feminists kept mum on the real story of motherhood". The writer laments:

    I stupidly waited until my 30s to have a child. Naturally I consider myself lucky because 25 per cent of my friends who think they will have children "some day" probably won't be able to have them at all, or so says the Bureau of Statistics and our good friend, Family Services Minister Ross Cameron.

    But I wish I'd done it earlier. I wish I'd spent my 20s knee deep in nappies and poverty. That way I wouldn't be in my 30s knee deep in nappies and poverty. And I'd have more energy.

    No woman in her right mind would wait until her 30s or 40s to start having children if she thought about it properly. Having an extra decade or so to spend your hard-earned professional salary on such glamorous things as designer clothes, expensive haircuts, restaurants once or twice a week and yearly holidays only makes it worse when you have to give them all up.

    The feminists forgot to tell me to save some of that money I earned. Maternity doesn't come cheap; you have to give up your income and your right to all the material wealth you enjoyed in your 20s, unless you're one of the unliberated ones relying on a high-earning husband. Feminists made us far too smart and rich for our own goods.

    To each her own. However don't attempt to generalise your experiences to others especially when you are guilty of false comparisons. For the writer quoted above, having a job is all about spending money on "such glamorous things as designer clothes, expensive haircuts, restaurants once or twice a week and yearly holidays" and therein lies her false comparison against which the glowing psychic utility of bringing up a child holds no comparison. This isn't true of all career women or career men for that matter. I am sorry for the writer that she dived into her career for such obviously superficial reasons but she is wrong to indict the feminists.

    Many people enjoy the intellectual stimulation and the sense of achievement that they derive from their careers. The life of the mind and achieving things through intelligence, exploring one's curiosities and constantly improving one's skills and professional capacities, being challenged for the sake of being challenged and for the fun of the work, pride in achievement and self-improvement - this is what many career minded people and workaholics work for and it is a most sublime feeling. See the work of Mihaly Csikszentmihalyi. Personally, women who share these values and thrive on these motivations are the ones I am most likely to see as potential mates and I have a feeling a lot more people of my gender and age feel this way nowadays, so contrary to the hopes of the New Traditionalists there is no turning back because - it takes two to tango. I know, I know, it takes all types to make the world and the nurturing types are needed too. To each their own.

    Many women delay childbirth because they think they may miss their career trajectory if they take on this responsibility too early. Hopefully as companies evolve from hierarchical bureaucracies to loose networked adhocracies which are more concerned with output and results than with being obliged to be seen in the office putting in the hours, and as a greater proportion of the workforce become free agents, this will change for the better and such sacrifices will be unnecessary. However my point is that if you don't share these values, fine, but I say to all the Angela Shanahan clones out there - let's not get all uppity and mystical and claim that the great sentimental satisfaction you get from having a family or being a housewife means that other women are soulless materialist brutes. They just have other equally non-materialist but more inner directed priorities.
    More Oz blogger feuds
    Take a break from my rather dry skirmishes with Professor Quiggin. Sit back and enjoy James Morrow's fisking (well deserved) of Islamic fundamentalist apologist Amir Butler, whose blog resides in that Bizzaro world where the increasingly paranoid and anti-Semitic rantings of Justin Raimondo attain Biblical, sorry, Koranic status. (Does Mr Butler know that Raimondo is not only a big slob, but a big Slobo fan who would've been happy to have left Mr Butler's fellow Muslims to be slaughtered in Kosovo?)
    WorldCom and the US model II
    Here is a cogent take by those hard-core radicals over at Libertarian Samizdata on the implications of the WorldCom collapse:

    First off, what has happened in nearly all the cases mentioned above is fraud, albeit fraud on a scale to make one's eyes water. In a capitalist system run by fallible, gullible and weak human beings, such fraud is going to happen occasionally, human nature being what it is. The law must take its course and the malefactors in these cases must be punished severely, and seen to be punished severely. Already the chill winds of the market are exerting their effect. Investors increasingly demand a premium for holding U.S. stocks and especially those in the technology sector, which has been at the centre of these recent shenanigans. The shakeout will be brutal for some, while those of us with stock portfolios are bound to suffer as well ...

    More generally, opponents of the market who cite present-day cases as proof of capitalism's weakness overlook a key point. Namely, fraud is not peculiar to capitalism or indeed business as a whole. Finance ministers perpetrate precisely the kind of accounting chicanery of which a number of these U.S. firms stand accused. Think, for example, about the financial fiddling in which European governments engaged prior to the launch of the euro. If politicians were subject to the same rules on accounting honesty as businessmen, a good number of our political masters would be behind bars.

    Finally, as Rand Simberg pointed out, the bulk of these offences happened during the 1990s, when a certain Bill Clinton was President, or so I recall. Makes it kind of hard for the left to taint George W. Bush with this, though that won't stop them trying.
    WorldCom and the US model:
    John Quiggin commends this piece by Polly Toynbee as a 'thoughtful' exposition of the implications of WorldCom. Toynbee crows:

    Old triumphalist free-market mantras that have filled the global air since the fall of the Berlin Wall will now freeze on rightwing politicians' lips. Neo-liberal rhetoric loses its savour as the very word "deregulation" sticks in political throats. Praise of all things "private" and "market" will be muted. "Cutting red tape" will no longer be a winning slogan among people who wish more red tape had been tied around their pension policies, endowment mortgages, savings and Isas. The magic of the market is over.

    It is unclear to me whether Professor Quiggin is commending this article based on his expertise as an economist or as a rhetorician and clutcher at straws. One can excuse Toynbee because of her ignorance but it should be clear to Quiggin that his bete noire 'microeconomic reform' has never involved an advocacy of shoddy accounting or shoddy prudential regulation standards. These are the institutional frameworks for competitive and well functioning markets including the market for corporate control which is so essential to keeping in check abuses. Indeed I and my colleagues would be out of our jobs if the need for constant tinkering of these institutional frameworks (market design, antitrust, prudential regulation) were unnecessary because these institutional frameworks were merely the black boxes that they are portrayed to be by some economists Incidentally the economists who have most devoted their time to studying these frameworks and how to improve upon them - people like the economists at the AEI-Brookings Joint Centre or economists of the New Institutional Economics school are the ones who are most likely to broadly favour regulatory reform while it is the macroeconomists and blackboard general equilibrium theorists (the latter with their precisely specified but irrelevant esoterica - read this) who have paid the least attention to these areas and more likely to think of them as 'black boxes'. (Alright, I realise this is a generalisation but I think a justified one). Quiggin is simply barking up the wrong tree.

    I speak as a microeconomist who works in the coalface of such issues who supports 'deregulation' (though 'regulatory reform' is a better word) but also supports a strong institutional framework including in antitrust. The two positions are not incompatible, nor are strong government and limited government as the following passage by Toynbee seems to imply:

    . Contrary to City and CBI protests, only strong government, strong regulators, heavy penalties, long prison sentences and lashings of red tape keeps capitalism functioning. They should be demanding double doses from the financial services authority. If the Tories thought they were going to sweep to power on the "deregulation" ticket, they have just lost that trick.
    Quiggin jumps the gun
    John Quiggin accuses the New Republic of endorsing death threats against anti-Israel writers based on this. Is it? Read it for yourself.

    1) Note the title of the article 'Sticks and stones' - clearly a reference to 'sticks and stones may break my bones'.

    2) Note that it starts off discussing the fact that Robert Fisk more or less approved of what his *actual physical attackers* did to him:

    One might imagine that Robert Fisk is the forgiving type. After all, who can forget the Independent writer's famous column last December in which he magnanimously recounted the savage beating he received from Afghan refugees along the Afghanistan-Pakistan border? "I couldn't see for the blood pouring down my forehead and swamping my eyes. And even then I understood," Fisk wrote. "I couldn't blame them for what they were doing. In fact, if I were the Afghan refugees of Kila Abdullah ... I would have done just the same to Robert Fisk. Or any other Westerner I could find

    3) Note the fact that Fisk is quoted in his own words as *endorsing physical attacks* on people simply for being Westerners

    4) Note the line:
    It turns out, however, that Fisk is a good deal less forgiving when it comes to verbal abuse. Consider his response to actor John Malkovich's recent appearance before the Cambridge Union, during which Malkovich blustered that he'd like to shoot Fisk, ostensibly for his vitriolic anti-Americanism

    5) Get the picture? TNR is making the perfectly obvious point that Fisk is being hypocritical on many levels.

    6) Does the fact that John Malkovich looks like this make his threat to shoot Fisk anymore credible? Obviously a face like that guarantees Mr Malkovich lots of psycho roles but he's an actor and no one would seriously regard his little burst of gung-ho bullshit as a serious death threat.

    7) What about the line:

    Fisk wrote. "If we want a quiet life, we will just have to toe the line, stop criticising Israel or America. Or just stop writing altogether." Hey, now there's an idea.

    It's called a put down, Professor Quiggin. Like the one I'm about to give you - take a bex and have a good lie down.

    Thursday, June 27, 2002
    Happy 90th, Dr Friedman
    It would be extremely remiss of me not to commemorate Milton Friedman's 90th birthday today without a post.

    In my opinion, though Milton Friedman is most famous for his theory of monetarism - the idea that the price level is dependent upon the money supply - he will be best remembered among his academic peers for his work on the theory on the consumption function.

    The only reason I have not listed Milton Friedman among my intellectual heroes on the left is that I have not read that many of his books, with the exception of his polemical works 'Capitalism and freedom' and 'Free to choose'.In saying this it is not my intention to devalue his polemical work which has arguably been just as important for public policy. He has a list of noble achievements in his contribution to public policy to be proud of including the following which I nominate as among his best:

    Some of Friedman's contributions to micro policy have been fully implemented, such as his persuasive advocacy of a voluntary army while serving on the Gates Commission set up to reconsider the draft after the Vietnam War ...

    School vouchers is the micro program most closely identified with Friedman. In the 1950s, he first proposed that governments give tuition vouchers to parents with school-age children that they could use at private or public schools of their choice as long as these met education standards. He was confident that even poor parents would generally select a good education for their children if they had real choices.

    Although voucher advocates have largely won the intellectual battle, vouchers have been effectively opposed by teachers' unions and by many suburban parents who fear vouchers would encourage poor children to attend schools in their communities. The U.S. Supreme Court will soon decide the legality of several voucher experiments.

    He continues his good work on extending school choice to the poor through the Milton and Rose D Friedman Foundation.

    Wednesday, June 26, 2002
    My higher education wishlist
    John Quiggin links to an article of his using sporting analogies to discuss economic reform at the end of which the essence of his argument seems to be stated thus:

    Some analogies with microeconomic reform are evident. Instead of pursuing the mirage of competitive markets for health services and education, we should recognise that Australia is in the business of producing a health and highly-skilled population. While some element of rivalry between institutions is no doubt desirable, the cutthroat competition that increasingly characterises the health and education systems is inimical to the achievement of our national goals.

    Similarly, instead of repeating the claim that globalisation forces us to obey the will of the markets, we should recognise that a sustainable community must control its own destiny. Market forces represent real constraints, but they should not be regarded as a straightjacket.

    I do not at this stage understand health markets and the proposals by reformers in that area to speak with any competence. Nonetheless there is room for reasonable disagreement in this issue - see for instance this.

    However it seems to me that when it comes to drawing concrete conclusions for policy on this score Quiggin is missing the point, at least in the case of education. It does not seem evident to me that the sorts of education reforms supported by my friend and guest blogger Andrew Norton have anything whatsoever to do with the imperatives of globalisation or cutting spending or needing to balance budgets and so on. Rather it is about demonstrating how various social needs can best be met (for instance through redistribution via means tested vouchers or scholarships) while still applying the competitive process where the competitive process can be harnessed - not for the sake of the 'financial markets' but for the sake of the very users (dare I say consumers) of education themselves. It does not strike me that though a degree of stricter regulation is needed in education markets for reasons of information asymmetry and so on, that there are no gains whatsoever from harnessing the competitive process in education to a greater degree than is currently possible - see for instance this or better yet, Professor Quiggin's ANU colleague Mark Harrison.

    The argument can be put on two levels, one on the ground of general principle and one with more particular application to the situation in Australia.

    On the more general level, what sorts of market failures can arise in markets for higher education?:
    1) information asymmetry - fine, various certification mechanisms can be created for this, for instance those by the Department of education itself.
    2) income constraints that may generate horrific intergenerational equity consequences - this seems to justify direct transfers to the poor to encourage them to invest in their education and emphasis on ensuring the poor do so
    3) perhaps most fundamentally that there is a market failure that may discourage even the relatively well off from investing in their education because one there are no private institutions that allow one to borrow against one's future human capital - fine, this seems to justify the provision of student loans by government
    4) in case I'm sounding too philistine here, let's say there may also be some market failure whereby a less than optimal number of degrees in subjects which impart values the market cannot appropriately capture are taken up. For instance even Adam Smith seemed to believe that there may be a case for some general education in the humanitieis which ideally everyone should have so that we do not all sink to some level of barbarousness.

    Fine, even taking account of all these complications let's go to the second level of our argument - is the current system *absolutely necessary* for addressing these complications. Does a situation whereby essentially universities go with their begging bowls every so often to the government and money is distributed every so often on the basis of this process by a 'middleman' so to speak even though the 'real' user is the student - is this process absolutely necessary? Or are the resulting distortions that all sides acknowledge this creates worth the benefits?:

    Each publicly-funded university receives a quota of undergraduate places from the Commonwealth government. There are penalties for taking too few students, and inadequate compensation for taking too many, so the incentive is to enrol the number the Commonwealth wants. About a decade ago, universities were funded according to their disciplinary mix, so that if they taught expensive courses, like Engineering, they would be paid more. This system has since broken down. New student places have mostly been funded at an average rate, and allowance has not been made for intra-university switches between disciplines.

    Over this time of untargeted subsidies, university costs have risen faster than government subsidies, but they must still fulfil government quotas. I’ve argued that this distorts disciplinary allocations within universities, a view now shared by the left of the debate, with a similar point being made in the recent Senate Universities in Crisis report.19 The most cost-effective way to fill the quota is to offer cheap courses like Arts, even if the demand is elsewhere

    *If* all the market failures I've just listed could be addressed while at the same time giving a freer play to the market process wouldn't this be a good thing - not for financial markets, not for the budget bottomline, but for the users of education themselves?

    This is essentially the vision I share for higher education which is not really much different from the proponents of the Third Way like Mark Latham with their enthusiasm for lifelong learning accounts:

    1) the department of education to focus its role primarily on certifying institutions of higher learning, creating a framework whereby the quality of such institutions can be assessed by their users, and regulating against unethical practices that may devalue the particularlyl important 'reputational' investment of the education sector in general
    2) a system whereby some combination of student loans and vouchers is provided as an entitlement to each Australian adult. If social democrats are concerned with the poor the value of the vouchers can be weighted according to family income. The 'student loan' to take care of the 'market failure in allowing investment in human capital. The vouchers which are effectively a subsidy to offset the amount of loans that have to be repaid to take care of the equity problem. If the proponents of New Growth theory think there are substantial externality effects which justfy more subsidy of education regardless of income then this is a case of increasing the level of subsidy via increasing the voucher value.
    3) if there is an argument that particular degrees need to be subsidised for the 'cultural' reasons discussed, this could be done through a limited number of scholarships for those intrinsically valuable degrees or even direct and transparent subsidises towards particular institutions of higher learning whether it be for pure sciences or classics or whatever
    4) in all other respects, free entry and student choice and institutions to stand or fall based on how they cater to students. Each Australian adult's entitlement of student loan plus voucher to be redeemable at any certified institution whether it be a university, TAFE, other vocational training institute. Institutions allowed to charge whatever they think their potential users will tolerate. *Possibly* if there is a concern with incumbent advantages (i.e. the sandstone universities) and market power concerns, full deregulation of higher education fees can be phased in as deregulation of *entry* (because entitlements can be redeemable at any certified institution) gradually takes effect. For concerns regarding unethical practices that may have an 'externality' on the sector as a whole see (1).

    Now it strikes me that any disputes over the desirable level of subsidy can be fought over by fine tuning this essentially market based framework that still allows for more diversity, choice and equity (as between high and low income groups) than the current system and certainly more so than any return to Whitlamesque policies fondly lamented by those ultimate conservative nostalgists, the Australian Democrats..

    Update: In case I have not been sufficiently explicit, what I am proposing here of course implies no more direct government funding of universities. The middleman is eliminated. This does not mean of course that there is no education spending, merely that it is chanelled through the decisions of students on where to use their 'portable learning entitlements' to reflect their preferences. There is also no reason in principle why the scheme could not be extended with extra entitlements being given to displaced workers from industries that do not survive the competitive pressures of globalisation.
    What would Ayn Rand say?
    Want one reason why some of my good liberal New Yorker friends don't believe in radical multiculturalist bullshit anymore? Why so many otherwise cosmopolitan and tolerant people of leftish or libertarianish hues are really pissed off about Islam and Arab culture in its current state? Here's one reason: (link found via James Morrow)

    Mariam Farahat interrupted the somber greetings offered by a visitor. "I don't want condolences, I want congratulations," she said. "I encouraged my son to sacrifice himself. It is a victory." ...

    She has taken on the name Um Nidal, Mother of Struggle. Arab reporters flock to her door (when she is not in hiding, for fear of Israeli reprisals). Her stand in the face of a son's death is a topic of conversation in Palestinian cities already infused with the glorification of death.
    VP on TCE
    For all non-economists I highly recommend this article by the ever versatile Virginia Postrel on the application of transaction cost economics to antitrust policy. Virginia, who does not have an economics degree, understands and explains industrial organisation better than many Australian business journalists who cannot see the distinction between a joint venture and a cartel (see recent coverage on the credit card reform issue). Note: unfortunately the article is on the NY Times and therefore requires registration. Here is a snippet:

    Just because a contract is unusual or exclusive doesn't mean it hampers competition. The important question is whether competition existed before the contract. The unusual terms may provide a way to avoid enforcement problems.

    Consider Chicken Delight, a franchise operation that was the subject of a 1971 antitrust case. Instead of collecting a percentage of store revenue, Chicken Delight required franchisees to buy all supplies from the parent company. From a transaction-cost perspective, this was an elegant solution to a basic problem: in a cash business, it is easy to lie about sales.

    Supplies made a good proxy. If business was good, a store would need more supplies, and it would be harder to cheat.

    Some franchisees sued, and a federal appeals court ruled that Chicken Delight had engaged in an illegal so-called tie-in arrangement.

    But, Professor Joskow notes, the franchisees didn't have to sign up with Chicken Delight in the first place. There was plenty of competition. He teaches the case as an example of bad antitrust policy.
    John Quiggin enters the fray
    Social democrat and Keynesian economist John Quiggin enters the world of blogging. Is he the first Australian academic to make this step thus far? More public intellectuals are to be welcomed, of whatever persuasion, so get a move on it, the rest of you uni professors.

    Tuesday, June 25, 2002
    Even handed criticism
    I found this interview with Paul Kurtz, founder of CSICOP (Committee for the Scientific Investigation of Claims of the Paranormal) interesting because of Kurtz's thoughts on Islam which I suppose is more even-handed than most but still gives out good dollops of well-deserved criticism:

    Today one of Mr. Kurtz's biggest challenges, in addition to the proliferation of people talking to the dead in movies and on television, is Islam. "Islam is a great religion, a great culture," he said. "It contributed to the preservation of science in the 8th, 9th and 10th centuries." But there is a need for a scientific analysis of Islam's claims, such as the belief of some Muslims that religious martyrs are greeted by 72 virgins in Paradise.

    "There is a rich tradition of inquiry into Islam dating back to the 19th-century French and German scholarly critiques," Mr. Kurtz said. "There are many versions of the Koran. We don't know if we have the authentic one. Muhammad never wrote anything down. Some of it was written 150 years later." As in the Bible, the prophet's words in the Koran and the Hadith, his collected sayings, were recorded by followers.

    "Islam desperately needs a Protestant-like Reformation," he continued. The Islamic system is the product of "a nomadic, agrarian society, pre-modern and pre-urban, which they are trying to apply to the contemporary world."

    Mr. Kurtz is well aware of the dangers of criticizing Islam. "Anything critical of Islam, you can get a fatwa," he said. But no matter, he said. "My main interest is defending humanism as an alternative morality, of happiness here and now, of autonomy and individual freedom and dignity, and of the value of the exuberance of this life."

    He concluded, "Islam and Judaism and Christianity are false."

    Who dares play Galileo to Leon Kass?
    Reader Scott Anderson reminds me, amidst my recent blogging on embryonic stem cell research that I am at least lucky not to be a scientist working in the US on cloning technology where a certain bioethics czar Leon Kass helps dictate public policy. This article explains it all:

    Scientists around the world are virtually unanimous in their belief that cloning human beings is a bad idea. The kinks need to be thoroughly worked out -- with animal research -- before human cloning can even be contemplated ....

    In other words, scientists -- being rational people -- would prevent human cloning by corking up the essential bottleneck: pregnancy. This is why they have worked out protocols designed explicitly to prevent the implantation of a blastocyst into a womb.

    But these protocols are not good enough for Kass, who maintains that we must quash any science, regardless of its utility or application, that might lead to human cloning. He is particularly worried about a procedure called nuclear transfer, an essential technique in both reproductive and therapeutic cloning. In this procedure the DNA is removed from an egg, and the DNA of the donor is substituted. The egg cell divides, creating a small clump of identical stem cells that could be used therapeutically to cure diseases as diverse as cancer, heart disease, Alzheimer's and diabetes, among others

    Kass is worried that we won't be able to control these blastocysts once they're created. And he is right; the procedure could be performed by any qualified technician. But this is a free country, which means we don't ban something that isn't inherently bad merely because it might lead to something bad. This concept is at the heart of the Ninth Amendment. For instance, Americans should not run over people with their cars, so we passed a law against it. But even though it is simple to run people over and no one can prevent it, we still let people drive. And we still arrest them when they run people over.

    Quote of the day
    "In his world, working families should be able to "step off the materialist treadmill, to discard the DVD player, the second house, the luxury car, the holidays abroad, the meaningless acquisitions." . . . He wants working class people to hold middle class environmental values without the benefits of middle class incomes and assets. This is the ultimate betrayal of the green left: post-materialist basket-weaving for gentrified inner city types such as Hamilton . . . "Let them eat lentils" is the Hamilton mantra' "
    ~Labor MP Mark Latham on anti-growth economist Dr Clive Hamilton
    Don Arthur on religious vilification
    Don Arthur explains why he was upset with the recent reference to Mohammad's 9 year old wife by some Christian preacher in the US. He mentions the fact that I don't see a problem with the preacher's comments. Insofar as the preacher was referring to Mohammad's wife to prove that he was a pedophile I don't - as for the demon possession bit I don't believe in such things. Don is afraid that the comments might be taken to imply that Muslims approve of pedophilia. I don't see how - all the preacher was doing was ridiculing the suggestion that a pedophile could be a prophet who spoke to God. I can't comment on the veracity of that statement since I find the whole concept of speaking to God rather hard to swallow to begin with.

    One could question the preacher's motives for saying all this but I don't see what's wrong with it being said in general even by other people. What exactly is wrong with holding up a system of religious thought to ridicule and pointing out the absurdities and hypocrisies inherent in that thought when people don't find anything with ridiculing and subjecting to intense scrutiny secular systems of thought? Does the fact that lots of people believe in one or other religion or the fact that it uses supernatural explanations mean it should be exempt from ridicule, satire, etc which people don't have a problem applying to other systems of thought?

    Should Islam be picked on whereas there were probably also pedophiles depicted in other books like the Old Testament? Well, I think it's perfectly legitimate to highlight this. Lots of figures in the Old Testament were also into what today could be called incest and child molestation but none of then have their lives held up as a shining beacon like Muhammad's life is in Islam. Whole rules and taboos are spun out of what Muhammad did and said. I think it's a fair call. None of this should imply that Muslims are child molesters of course, but that isn't the point of such critiques anyway.

    Recently the Australian Muslim Public Affairs C'tee got all hot and bothered because Andrew Bolt made the same inconvenient points about Muhammad. In defence they link to this article and what does it argue? That the marriage wasn't consummated till puberty, that lots of other people at that time did it and so on. Fair enough. But that still makes him a pedophile. Then there's this which basically equates all marriage involving large age differences with marriage to young teens and praise for early marriage- a fairly spurious argument I think

    It should be mentioned that from an Islamic point of view, many problems in society today can be traced back to the abandonment of early marriage. Due to the way that Almighty God has created man and woman, i.e. with strong sexual desires, people should marry young. In the past, this was even more true since life expectancy was very low (i.e. you were considered "old" if you made it to 40!). Not only does marriage provide a legal outlet for people with strong sexual desires, but it usually produces more children. One of the main purposes of marriage is to produce children—"be fruitful and multiply" as the Bible says (Genesis 8:17). This was especially important in the past, when people did not live for as long as they do now and the infant morality rate was much higher ...

    Putting aside the modern Western notions of "happiness" for a moment, the marriage of 'Aishah and the Prophet was a mutually happy and loving one as in expressed in numerous hadeeth and seerah books. That happy marriages occur between people with a fairly large difference in ages is known among psychologists

    And notice the reference to various hadeeth and seerah which emphasise the happy marriage? It seems that Islam does make a point of making this marriage an issue as well.
    Shanahan and those evil pharma companies
    As I predicted that self-appointed journalistic ambassador from the Vatican, Angela Shanahan, launches yet another half-mad attack on pharma companies for their supposed complicity in pushing for embryonic stem cell researarch:

    ... the picture that has emerged from the media has become deliberately blurred by a group of opportunistic scientists.

    There are two sources for stem cells. The first source is our own bodies, where stem cells can be found in bone marrow, cord blood – even fat, which is medically the better source.

    But live embryos are the easier source, and lots of them are left on laboratory benches to die. The stem cell lines are valuable and can be sold.

    Also, a whole live embryo isn't just tissue so they can also be used for new experiments in assisted reproductive techniques and pharmaceuticals.

    This will make the Australian IVF industry a lot of money.

    But convincing the public that experimenting on human embryos is acceptable was always going to be difficult.

    But they've done it by failing to disabuse the public of the misconception that embryos are the only source of stem cells. So the public still equates stem cell research with embryo research.

    So it seems the only reason scientists are pursuing two lines of research is *not* because two lines of research are better than one, but because the IVF industry stands to benefit. I wonder if her strictures about 'opportunistic scientists' apply to the very same scientists who only just made the recent breakthrough in adult stem cells? What do these scientists have to say?

    Scientists have discovered a rare stem cell in adult bone marrow that can turn into all the types of tissue needed to repair damaged bodies, and can be grown indefinitely in the laboratory without aging ...

    They may be an ideal cell source for therapy of inherited or degenerative diseases," the University of Minnesota team, led by Catherine Verfaillie, reports today in the journal Nature ...

    Professor Verfaillie also believes it is critical that research on embryonic stem cells continue, because the two types of cells may have different benefits for different diseases.

    Sorry, Professor Verfaillie, according to Dr Angela Shanahan you're an 'opportunistic scientist' since you continue to believe in pursuing emrbyonic stem cell research so your research on adult stem cells must be wrong too.

    This article was also written by an 'opportunistic scientist' according to Dr Angela (is that like Dr Laura?) Even though he is a winner of the US 1997 Medal of Science, he must be getting kickbacks from the Australian IVF industry.

    Of course, Dr Angela's husband, Dennis Shanahan, backs her up by finding one lone doctor to accuse embryonic stem cell research backers of being

    individuals, often with doubtful scientific credentials, who will be seeking to gain commercial benefit from their work while claiming to pursue altruistic goals."

    and making his statements National news.
    Say it isn't so, Greg, say it isn't so
    Greg Barns, a sometimes muddled but widely read thinker who is probably the only Australian politician I know of who has ever referred to Robert Nozick has quit the Liberals to join the Australian Democrats! (for all you US readers, Australian Liberals = Republicans, Australian Democrats = Hilary Clinton Democrats):

    In announcing he was joining the party, Mr Barns said the federal government's decision to slice 3,000 northern islands from the migration zone was the last straw, and the Democrats represented a liberalism with which he was comfortable.

    But he still needed to sit down with the Democrats and work out what was best for the party and for himself before deciding whether to stand.

    'the Democrats represented a liberalism with which he was comfortable'?? Boyo boy, am I a bad judge of character. We're talking about the party of economic interventionism, 'fair trade' (i.e. protectionism), middle class welfare, and no Sunday trading! That's right - no Sunday trading. Talk about John Howard being stuck in a time warp ...
    Why economists are social science imperialists
    Don Arthur responds to my posting on GDP as follows:

    Ideas about fairness or justice, in the ways that they are understood by lay people, are also foreign to this type of framework. Some people believe in the idea of fairness as people getting what they deserve - that society's allocation of goods and burdens ought to bear some relation to the merit of people's actions. This is the kind of thing Bill Clinton campaigned on in 1992 when spoke about the entitlements of 'people who work hard and play by the rules.'

    There are other people who believe that the natural environment has intrinsic value - that it shouldn't be degraded regardless of how this relates to the satisfaction of human preferences. Many environmentalists hold this view and it's not one that can be dealt with using a contingent valuation technique. Instead it's a challenge to the framework on which such techniques rest.

    Too many people with training in economics have little understanding about how controversial their assumptions are. Instead they think they're just being rational. They know little about the thousands of years of debate over what it means to live a worthwhile life or what a good society is. They don't know much about recent debates in the philosophy or the sociology of science (most still assume that there's a hard and fast distinction between fact and value). And they don't know how to have an argument about their own methodology and its ethical assumptions

    Some quick responses on this:

    1) Far from having an understanding of welfare that is un-intuitive and distant from most peoples' lives, I would in fact argue that insofar as people's daily actions are concerned the economic/utilitarian understanding is very relevant. People accept tradeoffs everyday and action speaks louder than words. People want a clean environment, but not if it costs them their jobs or involves discomfort past some threshold. No one demands safety at any price - most people are prepared to cross the street to buy a newspaper and therefore accept that the implicit price of the newspaper is some increased probability that they will get hit by a car. Contingent valuation which is essentially based on the theory of preference satisfaction would capture all quirks of human taste but the outliers (Earth First! activists perhaps). The fact that contingent valuation is measured on the basis of money means nothing - money in this case is simply the measuring unit used - you could use cans of baked beans, I suppose, it'd just make things a little harder.

    2) The problem with theories of fairness and justice is that everyone has their own. In theory these could be translated into 'psychic externalities' that are then made to form part of people's utility functions but in practice it's probably not workable I have to admit. For instance envy could be said to decrease an individual's utility and this envy could be caused by a particular distribution of income. On the level of operationalisability I shudder to think how this would work. Such preferences could probably not even be contingently valued. But should they? One could argue an implicit utilitarian calculation is involved here not to value them because of the obvious 'political economy' or 'public choice' problems they would cause - for instance one would have to take account of Adolf's disutility at the presence of Jews as well as Karl's disutility from the presence of inequality . I would argue that on net utilitarian grounds one would rationally agree to ignore these 'psychic externalities' because they would prevent any society from forming in the first place (and therefore no prospect of welfare gains at all).

    3) Think of utilitarianism as the lowest common denominator - a rusty tool is better than none is my belief.

    Monday, June 24, 2002
    Self parody award
    Is this just about the most idiotic article I've read recently or what?:

    I am convinced that the ordeal of soccer teaches our kids all the wrong lessons in life. Soccer is the Marxist concept of the labor theory of value applied to sports -- which may explain why socialist nations dominate in the World Cup. The purpose of a capitalist economy is to produce the maximum output for the least amount of exertion. Soccer requires huge volumes of effort but produces no output.

    What makes peewee soccer particularly insidious is that boys and girls play together. At this level, the sport has become a giant social experiment imposed upon us by the same geniuses who have put women in combat. No one seems to care much that co-ed soccer is doing irreparable harm to the psyche of America's little boys.

    Stephen Moore, the writer of the piece above which I hoped was a parody but doesn't seem to be, usually writes endless monographs on lower taxes for the Cato Institute. Geeezus, Stephen, do us a favour and stick to writing your 'lower taxes" articles. I'm no fan of soccer, hell, I'm no fan of sport, and yet even the rant above pisses me off. Aren't we suppose to be libertarians because we object to the politicisation of everything? Yet here he is reducing a benign game to a contest between capitalism and socialism. This reminds me of Ayn Rand who thought that anyone who didn't share her aesthetic preferences was an 'evil altruist' (sorry, Heath, but it's true). Incidentally this is one of the reasons why I link to The New Republic but not to National Review. Even though NR has its share of fine writers it also has the likes of Derbyshire and now this hysterical nonsense.

    Update: Alright so a valued US correspondent points out that this is in fact mild satire so I suppose it does count as self-parody. Insults against Stephen Moore withdrawn - a mild case of Contextual Disability or whatever Tim Blair calls it.

    Sunday, June 23, 2002
    GDP and GPI
    Does Don Arthur cite things without reading them? I ask this question because he basically accuses the Centre for Independent Studies of being inconsistent in criticising the ABS's 'Genuine Progress Indicator' for being politically loaded while not taking account of the fact that GDP may also be politically loaded. (It should be noted at this point that I have had a long association with the CIS and used to be on its editorial staff. With that in mind, read the rest of my critique of Don).

    He notes:

    but the official line CIS line is that the ABS statistics should be uncontroversial and value free. Mind you, you won't find anyone at the CIS complaining about the values buried in the GDP. Gross Domestic Product is a perfectly objective measure

    He links to this article by Helen Hughes which explains precisely why she thinks GDP is a better approximate measure of human welfare than the new fangled ones.

    Now Don, you can take this argument or you can leave it. You can come up with your own arguments about why you don't think GDP is such a good measure - but what you can't do is
    1) assert that the GPI is no more politically loaded than GDP
    2) argue that the CIS is being inconsistent.

    Why? Don makes the sarcastic aside that 'Gross Domestic Product is a perfectly objective measure'. Well, you've just said it, Don, it is. It is a measure of Gross Domestic Product - the very same article that Don links to by Helen Hughes notes perfectly transparently that:

    GDP is, of course, an imperfect measure of 'welfare'. Its purpose is to measure output. It does so objectively, at market prices that express people's choices of goods and services.

    GDP does not claim to be measuring anything more than what is implied in its name - goods and services. Are these not objective in a way that arbitrary weights assigned to various favoured outcomes topped off by a grand sounding name isn't? (Incidentally if the ABS really wanted to try to capture the value of environmental amenity there are sensible contingent valuation techniques for doing that. Instead, the measure of environmental amenity in its GPI seems to be involve assigning some wishy washy weighting based on what the designers of the GPI think are merited by opinion polls.) The GPI on the other hand arrogates to itself the measure of 'Genuine Progress' whatever that is.

    The debate between the pro-GDP and the anti-GDP welfare measurers is a perfectly legitimate one. I for one admit the failings of GDP. It may be that if marijuana were legalised GDP would go down because more people would be stoned (or maybe not, it might be captured by the output of a healthy marijuana industry) but I for one as a libertarian and a utilitarian would not see this as a bad thing - if more people who want to smoke marijuana get to smoke marijuana that to me represents an increase in human welfare. (However I do believe that overall GDP is the best measure of human welfare available insofar as it is the one that best captures mutually beneficial trading opportunities which are to me a good proxy for all the welfare enhancements that can be feasibly measured - and for those that can't be measured directly something like the contingent valuation techniques I alluded to below would supplement this. For why I hold this view, see this excellent exposition by David Friedman of efficiency.)

    Nonetheless the CIS is making a perfectly legitimate point insofar as its point is that GPI is arrogating to itself a normative significance that is assumed rather than argued. The GDP measure is imperfect but is value free in the sense that controversies over the technicalities of the measure itself involve precisely that - controversies over the technicalities of whether it is properly capturing all output. What isn't value free is the debate over whether GDP is the best measure. and the very article that Don links to engages in this debate.




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