Catallaxy Files

polymathic pontification, bleeding heart economic rationalism and liberal secularist contrarianism

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    Saturday, October 11, 2003
    Blog highlights
    Martin over at Gene Expression writes:

    Rush Limbaugh is a junky and has checked into drug rehab. No link necessary-that's the declarative fact. That's the most valuable public service he has ever performed. Mark this date as commencing the United States' treatment of drug addiction as a genetic/medical issue rather than a matter for the criminal justice system.

    Hear! hear!

    Meanwhile the infrequent blogger Eric Lien (maybe sending some hits his way will encourage him to write more often) has an interesting post on the phenomenon of Asian Americans going Evangelical. I must say I've noticed this in Australia too and it's quite freaky. I knew a Korean girl in high school who got good marks in maths and seemed pretty intelligent and all, but she'd seriously talk about the second coming of Christ (lord knows what branch of Christianity she was in). Then in uni the clubs and societies scene was filled with 4 or 5 different Asian Christian fellowship groups. Many of these folks were more serious and literal Bible imbibers than your average North Shore churchgoer and I recall one enthusiastic Vietnamese evangelical at Law School with whom I used to try to have philosophical conversations with who kept trying to convert me (of course it didn't work).
    The mid-life crisis

    The Australia Institute's Clive Hamilton gets another uncritical Fairfax press profile today, this time in the Good Weekend magazine (no link, but you will eventually find it buried in the SMH and Age classifieds.)

    The main point of interest, for us leftist watchers, is the role of a mid-life crisis in coming to muddle-headed leftist ideas (discussed briefly a few weeks ago in relation to Lindsay Tanner's new book). Though as a child of the '60s and '70s protest movement Clive was always susceptible to believing wacky things, by the late 1980s he was working for the Bureau of Industry Economics, which must have provided some intellectual discipline.

    But according to the Good Weekend he lacked contentment in that role and ended up in an 'encounter group'. Then, it seems, he had an 'epiphany of some sort', and what happened was 'beyond emotion, beyond thought, beyond everyday consciousness'. No wonder he writes the kinds of books he does.

    I am heading through my late thirties toward forty - please let me know if I show any signs of meeting the fate of Clive, Lindsay, etc.

    In the profile, Hamilton claims that the Australia Institute's 2001 claims of soft-marking fee-paying students at Australian universities have been 'completely vindicated'. In fact these claims were completely demolished. In their survey of academics they could find only four anonymous individuals who claimed to have been pressured to pass fee-paying students, and even then it wasn't clear whether it was pressure from the students (who could be easily rebuffed) or a university. The Victorian Ombudsman looked into the issue at the three largest Victorian universities and could find no evidence of it. I looked at the statistics on pass rates and found them completely unchanged over a period in which fee-paying students went from 6% to 14% of the student body. Dodgy things do happen at universities, such as the Newcastle University plagiarism scandal earlier this year. But isolated incidents are not evidence of any systematic problem. The Australia Institute's report caused all Australian universities entirely unwarranted reputational damage.

    Friday, October 10, 2003
    How the hell did he know?

    Madsen Pirie, the president of the Adam Smith Institute, is feeling pretty smug. Three years ago he wagered £100 at 25-1 on Arnold Schwarzenegger becoming the next governor of California.

    The best price you can get now is even money and Pirie is already dreaming of spending his winnings. "I'm going to have an absolutely great party," he says, before adding, "and I'm going to ask Sir Clive Sinclair to host it."

    Pirie and Sinclair have been mates since they ran Mensa together and our gambler is particularly impressed by his friend's pad in Trafalgar Square. "Nelson's his nearest neighbour," he gushes. "Clive has lots of gadgets so we will be able to show clips of The Terminator."

    So will Arnie make a good governor? "Maybe California needs someone with an economics degree," Pirie replies. Arnie has one, by the way.

    My boss Henry Ergas is featured in a short profile in AFR's Boss Magazine today on p. 69. No online link available but here's an excerpt. It provides a nice snapshot of the economic consulting business and new business models:

    THE SIGNS are on the door of Henry Ergas' Canberra office: Due to Old Age and a Nagging Wife - I will Close Mondays, and: Hippies Use Side Door. Inside, art from students at the city's School of Art fills the walls. Ergas works amid a pile of CDs and computer gear, paintings by his son and niece, and a poster of 20 anti-trust "heroes". It's not your average work environment, but Ergas is not your average economist - even though he has been closely involved in many of the big micro-economics debates of the past 20 years.

    Ergas runs his consulting group like a true knowledge company: there's a premium on human capital formation, but he doesn't dictate where or how that intellectual output is produced.

    "We say it doesn't matter where you work, how you work, how you dress, whether you work at home. Whether you work in Sydney or you want to live in Dubbo is fine with us," says the founder and managing director of Network Economics Consulting Group Pty Ltd (NECG). Since launching five years ago as a loose network arrangement of consultants, it has developed a reputation for innovative solutions to economic problems. Clients include companies, governments and regulators in Australia, New Zealand, Europe and the US ...

    Aside from the deregulation of telecommunications and the airlines, since 1995 local, state and federal government services and legislation have been exposed to the Hilmer National Competition Policy reforms. Large chunks of once-protected economic infrastructure ($150 billion worth of assets, according to Ergas's estimates) such as electricity, water, gas, rail, airports - even retail trading hours - are now subject to independent regulatory scrutiny, competitive pricing and third-party access regimes. That has created a substantial demand for the economist's "tool kit" as he calls it, from governments, regulators and companies who either have to come to grips with new regimes or grapple with aspects of the Trade Practices Act. "That's made the community stake in good economics much more important than it used to be," he says. And it has drawn the big US consultancies such as National Economic Research Associates, Charles River Associates and the Law & Economics Consulting Group to the Australian market.

    Ergas is perhaps best known for his work on telecommunications and intellectual property. Telstra is a client, but telecommunications work now accounts for just under a third of his business. Clients have included Visa, CSL, Toll Holdings, Duke Energy, Singapore Airlines and the ACCC. Ergas recently spent time across the Tasman, arguing the case (unsuccessfully) for Qantas and Air New Zealand to be allowed to proceed with their proposed alliance. (He's also a lay member assisting the New Zealand High Court on Commerce Commission decisions, and a member of the regulatory supervisory panel of Telecom Italia.)

    He is a true globalist. Born in Switzerland to Turkish and Egyptian parents and raised in Italy, he studied economics at Sussex University in the UK, then took a tutoring job at Macquarie University in his early twenties, initially for a year (chasing the woman, as he puts it). Soon after he took Australian citizenship and did his masters at the University of Queensland.

    For 15 years he worked at the OECD in Paris, and wrote the OECD's first report on liberalisation of the telecommunications sector. Ergas says it was a tremendously stimulating time, a period when the OECD began to switch focus from mainly short-term macro-economic analysis and realised the importance of structural reforms.

    Strocchi in paleo spotlight
    I see my MIA fellow catallaxy blogger Jack Strocchi has scored yet another article in the latest issue of the American Conservative :

    I Was Wrong
    By Jack Strocchi
    A repentant hawk trades his arrows for an olive branch.

    Unfortunately it's not available online.

    Thursday, October 09, 2003
    White collar blues
    On October 3, the Federal Government announced a working party to examine criminal sanctions for cartel behaviour, following on from the nod given to the idea by the Dawson Committee. We should be due to hear back from them at the end of the year. I think jail terms for price fixers is an idea worth taking on board, and not a particularly radical one, given that even the world's capitalist superpower, the US, also has such provisions in place. I argued as follows in a piece for the Financial Review almost two years ago (see here for a copy of the article):

    It is unlikely that even if all offending cartels could be convicted, current penalties are sufficient to deter price-fixing given the potential rewards. This consideration is heightened by the difficulties of detecting and prosecuting cartels given the trouble to which cartel organisers go to ensure the secretiveness of such arrangements. These difficulties translate into a low probability of conviction. Thus, even if a penalty has a high monetary value, a potential offender will accordingly discount the value of this penalty. To take a hypothetical example, if a penalty of $10 million is imposed for committing an offence but only 10% of offenders will ever be caught and convicted, then the penalty really only has a 'bite' or deterrent effect of $1 million.

    This analysis makes a case for substantially increasing current penalties; but would it justify the introduction of criminal penalties?

    After all, levying a fine (which ultimately goes to the government) has at least the benefit of adding to the public treasury. Incarceration can be costly, not only because of the costs of constructing jails and accomodating offenders, but also because of the loss of human capital of offenders who are locked up and could be better put to use elsewhere.

    However, while these costs should not be ignored, it is not determinative of the issue. There may be a case for using criminal penalties in addition to pecuniary ones if the minimum fine (taking into account the low probability of conviction) that would deter a cartel and its organisers would lead to the offending firm's bankruptcy. This would have the perverse effect of lessening competition in the market because of the exit of that firm. Additionally, fining an offending firm into possible bankruptcy would place a disproportionate cost on the firm's shareholders who cannot perfectly monitor the activities of its managers.

    The solution to this dilemma is to shift the remaining 'sting' of deterrence onto the individuals who played a senior role in initiating and organising the commission of the offences. But in this case, why wouldn't a sufficiently high fine on these individuals be preferable to criminal penalties? One reason is that personal bankruptcy laws would place an upper bound on the amount that these individuals would lose, so that the desired deterrent effects of the penalty would be muted. For example, the value of the fine that would appropriately deter the individual might be substantially above what the individual would end up paying given personal bankruptcy laws.

    By contrast, even a short period of incarceration and its associated stigma could be a strong deterrent to participating in price-fixing

    One point I forgot to mention was that putting the fear of jail time into the hearts of price fixing managers would also go hand in glove with a good 'leniency' policy that encourages price fixers to squeal, another idea endorsed by the Dawson Committee. One thing is for certain - whatever the Working Party decides, current monetary penalties are the equivalent of getting slapped by a wet cabbage leaf, given the vast rewards from price fixing.

    Wednesday, October 08, 2003
    Quote of the day
    I've never understood why environmentalists are so angry about Lomborg's book. Isn't more information always a good thing and doesn't Lomborg deserve some credit for drawing together all the data in his book and presenting it in an accessible form? Isn't Lomborg's 'spin' in the text of his book easily distinguishable from the statistical findings he presents and can't people be trusted to be smart enough to read his book critically discounting the spin where appropriate? This comment by Russell Brown echoes my own thoughts on the Lomborg affair:

    It is not that Lomborg is a charlatan. His book, The Skeptical Environmentalist, offers a fresh - and possibly very useful - perspective on environmental management. Employing the tools of his trade - he's a statistician - he attempts to set environmental problems in a broader context, and suggests both that some problems aren't as bad as they appear, and that we need to reassess our priorities.

    Well and good. But the tendency of some people to treat the Dane like the Second Coming - and dismiss various bodies of genuine scientific expertise while they're at it - is actually quite embarrassing.

    Tuesday, October 07, 2003
    The carnivore, the slaughterhouse and metaphysical babble
    Justice Kirby has a well-deserved reputation as a judge with a fine appreciation for the need to be vigilant against abuses of the State. However skepticism about the State and reluctance to allow it to overgrow its most necessary functions should not blind us to the fact that it is a necessary evil nor should it blind us to the true nature of the unpleasantness on which the discharge of its functions ultimately depends. In that light, I found Justice Kirby's recent comments on the death penalty to be silly in the extreme, most especially this:

    the death penalty brutalises the state that carries it out. Public servants must prepare the messy business of termination of a human life. They must act with the greatest premeditation. They must clean up the mess when it is accomplished. Many lawyers object to being part of this process – the sole profession that would be involved in deliberate, planned homicide. Like much else, it is a leftover from an earlier and more barbaric time.

    We have set ourselves upon a path to a higher form of civilisation. It is one committed to fundamental human rights. Such rights inhere in the dignity of each human being. When we deny them we diminish ourselves. We become part of the violent world.

    There is a good rational case for opposing the use of the death penalty under 'normal' circumstances like your everyday homicide and to be fair he makes some of these points in his article. Because human error is unavoidable and when one multiplies even a very small error rate over many homicides a year then one ends up with a non-trivial number of innocent people executed unless we are willing to pour more resources into reducing the error rate to zero. Paradoxically the net effect may be to reduce the deterrent effect of punishment for the most serious crimes which have been selected for the death penalty if instead of tolerating a non-trivial number of erroneous executions we choose this alternative because people may then be reluctant to convict in case the person is not guilty. The death penalty for extraordinary crimes like terrorism is arguably more tolerable because though the error rate is also not zero, the number of such cases is smaller so the number of erroneous executions can be reduced to close to zero with appropriate resourcing. In other words, the death penalty is alright if we are prepared to be damned careful we kill the right people. I personally wouldn't have a problem with introducing the death penalty for specified terrorist acts.

    However Justice Kirby seems to think that the mere fact that the State kills demeans us all. This is reminiscent of the person who eats meat and can't bear to see a slaughterhouse. The force of the State and in fact its utility to us is derived precisely from the threat to kill, to imprison - when the State sends people to war it is actively engaged in killing? Justice Kirby seems to think that the element of 'premeditation' makes the death penalty worse. So does that imply mob violence is better? Isn't he missing the point that the element of 'civilisation' that redeems State acts of punishment is that they are forced to adhere to due process, objective rules of evidence and calm reasoning?

    Why the sudden cringe just because it's more visible and more one-to-one? Do people who oppose the death penalty on the basis that it 'demeans us all' think we have been living in a Proudhonian utopia all this time? Do they think people would voluntarily pay taxes, and voluntarily turn themselves in after committing a crime? Indeed why doesn't Justice Kirby then go all the way that the State also demeans and brutalises us all when it is engaged in imprisoning people which implicitly involves using the threat of force against them? Wouldn't life be more wonderful if it were just a happy clappy world where criminals waltzed into jail cells voluntarily? If not, then shouldn't a civilised State try to talk them into jail? Isn't it also demeaning that the State has to, for our sake, use force against our fellows? Or isn't that just a fact of life? The sort of aesthetic argument against the death penalty on the basis of being against 'barbarism' and not wanting to be indirectly 'brutalised' because you pay taxes to an institution that sometimes has to do nasty things invites the response 'grow up'... we are part of the violent world.

    Monday, October 06, 2003
    The State against Blacks and Asians: Northern Australia, catallaxy and the White Australia Policy

    Take a view of the Royal Exchange in London, a place more venerable than many courts of justice, where the representatives of all nations meet for the benefit of mankind. There the Jew, the Mahometan, and the Christian transact together, as though they all professed the same religion, and give the name of infidel to none but bankrupts. There thee Presbyterian confides in the Anabaptist, and the Churchman depends on the Quaker’s word. At the breaking up of this pacific and free assembly, some withdraw to the synagogue, and others to take a glass. This man goes and is baptized in a great tub, in the name of the Father, Son, and Holy Ghost: that man has his son’s foreskin cut off, whilst a set of Hebrew words (quite unintelligible to him) are mumbled over his child. Others retire to their churches, and there wait for the inspiration of heaven with their hats on, and all are satisfied.

    ~ Voltaire

    What does the above quote from Voltaire have to do with Northern Australia? Yesterday I read a book by Henry Reynolds, that made me very angry. The book was 'North of Capricorn', his most recent work about the dynamic, capitalist, multiracial society that was in the process of being formed in Northern Australia at the turn of the century but which was legislated to death by Australian federation and the White Australia policy. This was a world of Melanesian caneworkers, Chinese shopkeepers, Japanese pearlers, Aboriginal stockmen and women, all more or less peacefully interacting, trading with and marrying each other and the surrounding white community, destroyed at the stroke of a pen, and with it a genuine melting pot, creole, dynamic and united Australia delayed for decades. This was a world where in the absence of government fiat, people were being brought together and learning to get along with each other through trade and economic opportunity (i.e. the process of catallaxy).

    I was not angry at Henry Reynolds, mind you. I think this is a far more significant work than any Gradgrindesque dissections of the exact number of Aborigines massacred, because what Reynolds documents was so avoidable and so close to our own times and also because what he documents was at least partly responsible for the documented failure of so many Aboriginal Australians to adapt to and participate in today's economy. I think Reynolds deserves congratulations and thanks for undertaking this work and I think every classical liberal should read it in part because it proves so many of our points and our scepticism about the evils of over-activist nationalistic government and yes, even, the virtues of a decentralised federalism.

    What I was angry at upon reading this book was at the stupidity and tragedy documented by Reynolds, as well as the opportunities lost to this great land of manifold possibilities for decades under the stranglehold of what, effectively, was the political heritage of National Socialism bequathed on it by its founding fathers until gradually the Liberal Holt government toppled over one its pillars (the White Australia policy) and then the Hawke-Keating governments consigned the whole ugly, insular package to a bonfire and ushered in the first breath of classical liberalism and the Open Society into Australia by its unapologetic espousal of globalisation, free trade, reform of centralised industrial relations and recognition of prior property rights of Aboriginals. (Call this my Whig theory of Australian history if you must).

    And yes, I make no apologies for describing the legacy of Federation as one of National Socialism, even though it wasn't of the brutally genocidal variety, for that was effectively what united the policies of Protectionism, Centralised industrial relations and the White Australia Policy, all to keep Australia safe for the 'white worker' from imagined hordes of competitive Asian and Pacific Islander labour. People celebrated today as visionary progressives such as Deakin and Barton and Higgins were 'blood and soil' racialists who abhorred mongrelisation [1] as much as any Nazi stormtropper even though all this mongrelisation was going on up in the north where most people seemed to accept it, and it really shouldn't have been the concern of their nosey parkers.

    Here are a few of Reynolds' findings
    1) Towns in Northern Australia from Mackay to Broome were attracting migrants from Asia and the Pacific Islands who came to seek their fortunes in ventures ranging from gold mining to pearling. Many were successful and the resentments these successes created laid part of the groundwork for White Australia which was as much an exercise in socialistic mollycoddling as it was motivated by racism. For instance, the Japanese dominated the pearling industry much to the consternation of 'native' white Australians who like all rent seekers ran cap in hand to the nanny state to protect them from 'unfair competition'. In response the government tried to break the stranglehold on the industry by encouraging the pearling companies to bring in 11 British Navy trained and certified white pearlers as an experiment. This experiment in industry policy/social engineering ended in tragedy. Three of these government certified pearl divers died of the bends and the others quit. In the end for a brief period at least, the government decided that the pearling industry was too economically important and the 'alien elements' should be tolerated.

    2) In many of these northern Australian towns, racial consciousness was being gradually broken down by daily interaction with these new Australians. Of course, racial relations weren't perfect and there were the occasional tensions but they were apparently better than they were down south. In other words, though Queensland today is regarded as more 'redneck' than Sydney, at the turn of the century it was Sydney and Melbourne which were the more 'redneck' societies:

    Even though relations between Chinese and Europeans were generally trivial and pervaded by racist overtones, the very fact of living at close quarters seems to have fostered an artmosphere of familiarity in which the more terrifying and lurid tenets of xenophobia had no place

    3) As noted above, the Southern part of Australia viewed what was going up north with profound distaste. By contrast, race mixing was even occuring the schools in Northern Australia without any significant community outcry. All this got up the arse of lots of people, including the (then) republican-labour-nationalist rag, the Bulletin. And it wasn't just relations between non-whites and whites which was objected to, but also interactions between Asians, Pacific Islanders and Aborigines (apparently pairings between Asian males and Aboriginal females were quite common) which, it was feared would create hybrid monsters (it goes without saying that Aborigines were also treated far better in the North than they were in the 'civilised' south). This was such a source of concern that special legislation was passed to break up and prohibit marriages between Aboriginal women and Asian and Islander men. Asian employment of Aboriginal labour was also frowned upon - apparently Aborigines preferred working for the newer 'aliens' than the older ones in part because they were less likely to be cheated by the newer aliens. Irate farmers tried to get laws passed preventing the 'aliens' from employing Aborigines.

    4) Aborigines had, long before the arrival of English settlers, been engaged in trade with the Macassans until the White Australia Policy:

    Long before white men settled at Port Darwin these sailors from Macassa had visited the Australian coast, and the Australian blacks had thus acquired a knowledge of Malay. In fact anyone who spoke Macassar ... had a good chance of making friends with the blacks of Australia ...

    There were stories that some Macassan captains had said in years they might not be able to come in future because the Balanda (Europeans) ... would not let them land (some Yolngu elders today remember their fathers in tears of disbelief when the Macassan captains told them this news.) But many Yolngu dimissed these stories. They said, 'Who are these Balanda? They have no say in the legal agreements between our clans and the Macassans.

    In the 1980s Australia reinvented the wheel to encourage economic engagement with Asia. At the turn of the century Aborigines were already engaged in such trade and if left alone to continue doing so, would have found their own societies, arguably disadvantaged in adapting to modernity and global capitalism, by centuries of isolation from the outside world would eventually have evolved towards facilitating such adaptation from continuous interaction with the Macassans and other South East Asian traders. Today, many Aboriginal communities are in a state of economic dependence arguaby because this evolution was cut short by the xenophobic policies of Australian Federation.

    5) As noted before, Aborigines were in high demand in the labour markets of Northern Australia, They were very important to the economic development of Northern Australia and were preferred by white farmers to white workers as more efficient, reliable and sober. What happened? Well take a guess:

    Town camps were frequently cleared away even though residents were often fully employed work skills in and around the suburban houses. Even Aboriginal men who were self-employed and working profitable and effectively in the European economy were swept up in drives that aimed to impose a White Australia in all but isolated reserves and missions and remote cattle stations

    6) To cap things off, Pacific Islanders who had been working and living peacefully and productively for years in Northern Australia were deported back home, resulted in many broken families.

    4260 Islanders were returned to their home island ...Extended families were pulled apart with some members remaining in Queensland and other remaining. Friendships were brought to an end

    [1] I think that just as homosexuals have reclaimed the word 'queer', we advocates of cosmopolitan, liberal capitalism should reclaim the word 'mongrelisation' - liberal capitalism is good because it promotes 'mongrelisation' of races, cultures and beliefs, a mix and match world where the Universal Solvent (US) of trade and free interaction dilutes irrational hatreds and insularities and leads to the synthesis of new forms of culture and society (of which Jazz music and Sydney's Oxford Street are but a few notable examples).




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