Lessons from how Australia came out of the Great Depression-updated

31 Mar 2014 Leave a comment

by Jim Rose in great depression, macroeconomics, politics - Australia, politics - New Zealand Tags: , , ,

How Australia got out of the Great Depression in the 1930s could have lessons for today, for the global financial crisis and the Great Recession. In Australia, the massive fiscal contraction from late 1930 onwards was called the Premiers’ Plan. In 1931, unemployment rates was 25% or more.

The Premiers’ Plan required the federal and state governments to cut spending by 20%, including cuts to wages and pensions and was to be accompanied by tax increases, reductions in interest on bank deposits and a 22.5% reduction in the interest the government paid on internal loans.

The Premiers’ Plan was complementary to the Arbitration Court’s 10 per cent nominal wage cut in January 1931 and the devaluation of the Australian pound. Most countries had abandoned the gold standard by 1931 and 1932 and devalued by about 10% including the UK. These competitive devaluations were called currency wars. Most countries below started to recovery before they left the gold standard, a year or two before they left the cross of gold.

Real GDP and dates of exit from gold standard

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Sources: GGDC‑Maddison International Historical Database (http://www.ggdc.net/Maddison/), Bernanke et al. 1990; Gruen and Clark 2009.

The New Zealand Government also cut everything that could be cut by 20% in 1931.

Maclaren (1936) dated the Australian economic recovery from the last months of 1932. It was to take another three years before unemployment rates fell below 10 per cent — the rate it had been during most of the 1920s.

The June 1931 Premiers’ Plan of fiscal consolidation had time by late 1932 to become credible and take hold given the usual leads and lag on fiscal policy.

Unemployment data in the 2001 Australian yearbook of the Australian Bureau of Statistics graphed below shows a rapid fall in the high twenties unemployment rate in 1932 to be below 10 per cent by 1937. This fall started just after the 1931 Premiers’ Plan of fiscal consolidation.

Australian unemployment was 7.5 per cent in 1938, which is the long-term average for the period 1906 to 1929. The USA had an unemployment rate twice that in 1938 and was coming out of a double dip great depression.

Australia and New Zealand came out of the Depression earlier than most other countries because of the fiscal austerity under the Premiers’ Plan. The New Deal prolonged the great depression in the USA.

For those that doubt, how much lower would have been the Australian unemployment rate between 1932 and 1937 but for the fiscal contraction? What is your counter-factual? The role of fiscal policy in Australia in the 1930s is rather under-studied in Keynesian macroeconomics. Why?

The fiscal consolidation in the Premiers’ Plan removed fears of even harsher future taxes, stabilised expectations, increased consumers’ expected disposable incomes, and increased investor confidence and therefore stimulated private investment. See Keynes’ 1932 letter where he says

I am sure the Premiers’ Plan last year saved the economic structure of Australia.

Expressive voting – three case studies

29 Mar 2014 1 Comment

by Jim Rose in politics - USA, Public Choice Tags: , ,

Obama won nearly 80% of the Jewish vote. He and the Democratic Party are rather divided on support for Israel. The Republicans are more in favour of Israel.

Now see Expressive voting and identity: evidence from a case study of a group of U.S. voters, A review of Norman Podhoretz, Why are Jews Liberals? by Arye L. Hillman, Public Choice (2011).

Podhoretz describes behaviour that backs up the hypothesis that people vote expressively to affirm their identity. Podhoretz was concerned that liberal Jews vote against their self-interest.

Most of the Jews who voted for Obama did care about Israel but downplayed his anti-Israel associations; they voted for him anyway. The expressive behaviour hypothesis explains why many Jews do this. As a single vote is not decisive in most elections, the main benefit from voting is its expressive value:

  • Liberal Jews, manifesting a rational behaviour, choose the expressive utility from voting against the “Right”, which is identified with past prejudice against Jews and contemporary privilege.
  • The identity of a person who opposes privilege and cares about social justice is confirmed through the act of voting for the “Left”.

Liberal Jews support liberal principles through the low-cost actions of voting and rhetoric, so as to place themselves at the centre of society despite their higher-than-average incomes.

People also vote for parties that will never win elections for expressive reasons. Since maybe 1945, up to a quarter of UK voters knowingly vote for the Liberals and now the LDP knowing that it is usually a wasted vote. But is it?

  • Voting for a third party that will not win is a way of being a middle-of-the-road voter without voting for the socialists or the Tory party.
  • Third party votes change the identity of the median voter. The swinging voter in the UK is often an LDP voter.

To win this LDP vote, the major parties must change their policies or these voters will park their vote somewhere else while still signalling their vote is up for grabs to both sides. These voters affirm themselves as sensible middle-of-the-road voters without voting for either Labour or the Tory party.

The same happens for third-party candidates in America. They are protest votes. The major parties spend a lot of time wooing back these voters at the next election. A protest vote is very affirming to an expressive voter.

Expressive voting also offers much insight into why some democratically elected governments continued to pursue terrible wars of attrition. The unwillingness to discuss peace terms in World War I is an example. A voter might prefer peace to war but showing patriotism might outweigh this. One candidate offers a policy of appeasement, recognising the enormous cost in lives that further fighting might involve. The other candidate stands for national pride, not surrendering to bullies, and avenging past losses. A careful reflection on the costs and benefits of war or peace is what the voter does not do. What is relevant is showing patriotism and strength of purpose.

The main point is that expressive voters are not disciplined by outcomes, and that democratic choice is suspect for this reason even on the biggest of issues.

What is neoliberalism? Please tell me – show me one.

27 Mar 2014 4 Comments

by Jim Rose in F.A. Hayek, macroeconomics, Milton Friedman, politics - Australia, politics - USA Tags: , , ,

I want to meet someone who believes neoliberalism was the leading light of the economic reforms since 1980. They can then tell me what neoliberalism is. Please, tell me.

The prefix “neo-” makes “neoliberalism” sound like something that morphed into something bad. Is neoliberalism something more than a sustained sneer – a personal attack as a way of avoiding debate?

Not only is there no single definition of neoliberalism, there is no one who identifies himself or herself as a neoliberal. At least communists and socialists were proud to be called so.

In Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan, Taylor Boas & Jordan Gans-Morse went in search of anyone who identifies one’s self as a neoliberal:

  • They did not uncover a single contemporary instance in which an author used the term self-descriptively, and only one – an article by New York Times columnist Thomas Friedman (1999) – in which neoliberal was applied to the author’s own policy recommendations.
  • Digging into the archives, they did find that while Milton Friedman (1951) embraced the neoliberal label and philosophy in one of his earliest political writings, he soon distanced himself from the term, trumpeting “old-style liberalism” in later manifestoes (Friedman 1955). See “Neo-liberalism and its Prospects”, Milton Friedman Papers, Box 42, Folder 8, Hoover Institution Archives. 1951. Hardly a smoking gun?

What Boas and Gans-Morse found, based on a content analysis of 148 journal articles published from 1990 to 2004, was that the term is often undefined. It is employed unevenly across ideological divides; it is used to characterise an excessively broad variety of phenomena.

That is academic speak for neoliberalism is an empty slogan.

Neoliberalism was supposed to rule the roost under Reagan, Thatcher, Hawke and Lange-Douglas. The local branches of neoliberalism were Thatchernomics, Rogernomics, and Reaganomics.

Milton Friedman is said to have mesmerised several countries with a flying visit. The Friedman Monday Conference on ABC in 1975 and by Hayek in 1976 are still ruling the Australian policy roost, if some serious public commentators are to be believed.

In the 1980s and up to the mid-1990s, despite all the neo-liberal deregulation and Milton Friedman taking over monetary policy, mentioning Friedman’s name at job interviews would have been extremely career limiting, and that was at the Australian Treasury.

Back then, the much less radical Friedman was just graduating from being a wild man in the wings to just a suspicious character.

If you name dropped Hayek in the early 1990s, any sign of name recognition would have indicated that you were being interviewed by educated people.

When the Left gets on its high horse and goes on about Hayek and Friedman running neoliberalism, with Hayek as Friedman’s mentor, it is refreshing to remind all how little they had in common on macroeconomics. The University of Chicago Department of Economics did not offer Hayek a job in the late 1940s despite his outstanding record at LSE as Keynes’ principal critic in the 1930s.

While working at the next desk to a monetary policy section in the late 1980s, when mortgage rates were 18%, I heard not a word of Friedman’s Svengali influence:

  • The mantra for several years was that the market determined interest rates, not the Reserve Bank. Joan Robinson would have been proud that her 1975 Monday conference was still holding the reins.
  • Monetary policy was targeting the current account. Read Edwards’ biography of Paul Keating’s time as Treasurer and Prime Minister and his extracts from very Keynesian treasury briefings to Keating signed by David Morgan that reminded me of Keynesian Macro 101.

As a commentator on an Australian Treasury seminar paper in 1986, Peter Boxhall – freshly educated from the 1970s Chicago School – suggested using monetary policy to reduce the inflation rate quickly to zero. David Morgan and Chris Higgins almost fell off their chairs. These Treasury Deputy CEOs had never heard of such radical ideas.

In their breathless protestations, neither Morgan nor Higgins were sufficiently in tune with their Keynesian education to remember the role of sticky wages or even the need for monetary growth reductions to be gradual and, more importantly, credible, as per Milton Friedman.

By the way, Friedman’s presidential address to the AEA in 1967 is now recognised as perhaps the single most influential journal article of the 20th century. That article is the essence of good communication and empirical testing of competing hypotheses as was his 1976 Noble Prize lecture. No wonder both were hidden from impressionable undergraduates such as me a few years after.

The war against terror really is a war

26 Mar 2014 1 Comment

by Jim Rose in politics, war and peace Tags: , ,

Some pretend that the war on Al-Qaeda is not a war and attacking them with drones is illegal under international law. Under this theory, terrorism is a crime, not an act of war. Terrorists such as Australia’s own David Hicks are just criminals. These criticisms rest on profound misconceptions about the international laws of war.

The hijacking of airliners was defined by the UN in the 1970s as aerial piracy.

The 9/11 terrorists were air pirates. NATO and allied military entered Afghanistan to subdue the home base of these brigands and those that harboured them:

  • Naval and military deployments against pirate’s lairs date back thousands of years.
  • The first war of the USA was with the Barbary Pirates in 1801 to 1805, with another war in 1815. These pirates waged war against the shipping of other nations, seized cargoes and ships, and sold captives into slavery.
  • Punitive expeditions against bandits were commonplace too, such as chasing Pancho Villa and his gang of bandits back into Mexico in 1916.
  • The U.S. military recently attacked a Somalian maritime pirate camp to rescue hostages. EU naval forces have also attacked these pirate lairs to destroy boats and supplies.

The case for attacking Afghanistan was as a limited, punitive expedition to degrade it as a terrorist base camp. That mission was accomplished in 2001 and 2002.

Does Al-Qaeda and other terrorist militias wear uniforms and carry their weapons openly as required by international law to qualify as a lawful combatant? Al-Qaeda and other terrorist militias routinely commit war crimes under the Geneva conventions by intermingling with civilians and by “locating military objectives within or near densely populated areas”.

International humanitarian law permits members of the armed forces of a state that is party to an international armed conflict and associated militias who meet the requisite criteria to wear uniforms, carry their weapons openly, and directly engage in hostilities. They are generally considered lawful, or privileged, combatants who, when captured, may not be prosecuted for taking part in hostilities as long as they respect international humanitarian law.

The whole purpose of requiring belligerents to wear uniforms recognisable at a distance and to carry their weapons openly is to protect civilians. Each side can see the other clearly and has no excuse for getting ‘trigger happy’ around civilians.

It is the terrorists who violate the laws of war by hiding themselves and their bases within civilian populations, thereby drawing unwilling and unsuspecting innocents into the fighting.

If civilians directly engage in hostilities, they are considered unlawful or unprivileged combatants or belligerents. They may be prosecuted under the law of the detaining state. The Allies detained 11 million POWs (and captured enemy personnel) without charge or trial by the time World War II ended. None were allowed access to a lawyer or had the right to seek bail.

Because the USA and others are at war with Al-Qaeda, they can use force to conduct hostilities against the enemy and those who harbour them. The Taliban was warned. A Wiki has this nice quote by Stone (1921):

When the territorial sovereign is too weak or is unwilling to enforce respect for international law, a state which is wronged may find it necessary to invade the territory and to chastise the individuals who violate its rights and threaten its security.

When a nation goes to war, it seeks to defeat and subdue its enemy to prevent further attacks.

The U.S. and allied military and intelligence services are legally and morally free to target Al-Qaeda for an attack whether they are on the front lines or behind them, with or without warning and without any attempt to capture.

A corollary of the right to kill enemy personnel is that the deaths of civilians that occur in legitimate attacks against military targets are not illegal. It is pious to deny this. It denies the most basic and best understood of moral distinctions: between premeditated murder and unintended killing.

It is the central principle of the international laws of war that innocent civilians should not be targeted. On the other hand, the rules of war accept the death of civilians in or near legitimate military targets.

Al-Qaeda will never follow the rules of war. Al-Qaeda gains its only tactical advantages by systematically flouting them and hiding among civilians.

The renegade Left for decades wanted terrorists to be treated as prisoners of war, and thereby held to the end of the war and not otherwise punished. Now, the renegade Left don’t want terrorists to be held as captured combatants to the end of the war. Instead, they want them to have the right to apply for bail.

As part of law-fare, one or two fathers applied to the U.S. courts for injunctions to stop drone attacks on their wayward sons on a best friend basis. They failed and were reminded by the Court that if they were so worried, their sons could pop down to the nearest U.S. embassy and discuss their fears: surrender for extradition.

Al-Qaeda and 9/11 will not go away if only history were different and the USA had kept more to itself prior to 9/11. The war against Al-Qaeda started from the world as it was on 9/11 for all its flaws. After 9/11, mutual defence obligations were triggered under NATO and ANZUS, in addition to the UN resolutions. Navies and armies have fought pirates and bandits for thousands of years.

P.S. All terrorists and members of the Taliban are war criminals because:

  • Article 51 (7) of Protocol I of the Geneva Convention states: “The presence or movements of the civilian population or individual civilians shall not be used to render certain points or areas immune from military operations, in particular attempts to shield military objectives from attacks or to shield, favour or impede military operations”.
  • The Geneva Convention also holds that “The presence of a protected person may not be used to render certain points of areas immune from military operations”. (Geneva Convention Relative to the Protection of Civilian Persons in Time of War, 1949, Laws of Armed Conflicts, 495, 511.)
  • The Rome Statute is clear that “utilizing the presence of civilians or other protected persons to render certain points, areas or military forces immune from military operations is recognized as a war crime by Article 8 (2) (b) (xxiii)”.

Privatisation screw-ups are the best case for privatisation

26 Mar 2014 2 Comments

by Jim Rose in entrepreneurship, politics - New Zealand, privatisation, Public Choice Tags: , ,

Governments are so bad as business owners and so incapable of running a commercial process free of politics that governments cannot even sell a state-owned enterprise for a good price under the full glare of the media and public.

Anyone can sell an asset. It is the simplest task of ownership. Hire some consultants and go for the best price. Governments lack this ability.

Privatisations are often politicised, with discounts for small buyers from the middle class, for employees and other special interests. These messy privatisations are the best case out there against state ownership of businesses.

 

“No asset sales” was the Labour Party’s most coherent slogan in the 2011 general election in New Zealand. It cannot be claimed that the more recent privatisations in New Zealand were not subject to the maximum amount of public and parliamentary scrutiny possible in a democracy. The 2011 election was said to be a referendum on asset sales.

This inability to sell state-owned enterprises for a profit and free of politics calls into question the ability of governments to make complicated day-to-day business management and entrepreneurial judgements as owners of business enterprises. Imagine the quality of the day-to-day state-owned enterprise decision making that is further away from the glare of an election?

Private asset owners have a strong incentive to sell assets at a profit as it will otherwise hurt their share price and their personal wealth. Inferior entrepreneurs and owners are punished by losses. Any assets that inferior entrepreneurs either mismanaged or sell at a bargain price will, through further buying and selling, end up in the hands of more alert entrepreneurs and owners.

There are no similar feedback and error correction measures disciplining governments as asset owners and in their day-to-day monitoring of their business portfolios. Governments who own business assets have an inherently softer budget constraint.

Beware of Greeks bearing debts

25 Mar 2014 1 Comment

by Jim Rose in global financial crisis (GFC), politics, Public Choice Tags: , , , , ,

The Greeks initially did a fine job in squeezing huge subsidies and debt write-offs! The Irish played by the rules, guaranteeing bank bond holders to which they had no obligation, but got screwed.

Arellano, Conesa, and Kehoe explain in Chronic Sovereign Debt Crises in the Eurozone, 2010–2012 that the post-GFC recession in many Eurozone countries created an incentive to gamble for redemption.

This gamble for redemption is betting that the post-2008 recession will soon end.

  • If Greece sold more bonds to smooth government spending in the interim, and if the Greek and EU economies recover, the stronger revenue growth will pay off the enlarged Greek government debt.
  • Under some circumstances, this policy is the best that a government can do for its country, but it carries a risk!
  • If the recession goes on for too long (and it did in southern Eurozone), a government will either have to stop increasing its debt or default on its bonds.

The global bond markets will anticipate this prospect of default as a country’s government debt accumulates and will seek higher and higher interest for new bonds, and importantly, to roll over existing Greek Government bonds.

EU policies that result in higher interest rates on government bonds and high costs of default provide incentives for a national government to reduce its debts and avoid sovereign default.

EU policies that result in lower interest rates and lower the cost of a sovereign default provide incentives for a government to gamble for redemption.

The interventions taken to date by the EU and the IMF – lowering the cost of borrowing and reducing default penalties, the bailouts and the 50% write-off of the existing Greek government debts – encourage southern Eurozone governments to gamble for redemption.

Greece and a few others are gambling for redemption by betting that the recession will end soon, selling more bonds to smooth government spending in the interim, and reducing the enlarged debt if their economies recover.

If the recession continues for too long, the government will have to stop increasing debt or default on its bonds. Greece has been in default in more than 50% of the time since it became independent in 1822.

A 2014 paper by Kehoe argued that if Germany and France start to get tough with Greece and charge it penal interest rates on further loans and debt rollovers, it will make it optimal for Greece to just default on its government debts and leave the Eurozone.

A resumption in economic growth is one of the few solutions that avoid these calamities.

Greece’s problem is that it is 119th in the 2014 index of economic freedom, just ahead of India. The World Bank ranks Greece 161st in the world for ease of registering property and 91st for enforcing contracts; it takes an average of 1,300 days to enforce a contract through the Greek courts. This low base says something about how Greek politics works and will work for some time to come.

The lengthy shortcomings of the Eurozone were well-known before it was formed. As Michael Bordo pointed out in 1999:

the absence of a central lender of last resort function for EMU, the lack of a central authority supervising the financial systems of EMU, unclear and inconsistent policy guidelines for the ECB, the absence of central co-ordination of fiscal policies within EMU, unduly strict criteria for domestic debt and deficits, as set out in the Maastricht rules, in the face of asymmetric shocks, and Euroland is not an optimal currency area.

Milton Friedman predicted that the Euro would not survive its first major recession.

I told you so is never a solution.

Europe has extensive experience with currency union break-ups:

  • The Latin Monetary Union joined Belgium, Italy, and Switzerland with France in 1867. The arrangement held together until the generalized breakdown of global monetary relations during World War I.
  • The Scandinavian Monetary Union was formed in 1873 by Sweden and Denmark and Norway joined two years later. This was disrupted by the suspension of convertibility and floating of the three currencies at the start of World War I. The agreement was abandoned during the global financial crisis of 1931.
  • Following the start of the Zollverein (the German customs union) in 1834, members established a German Monetary Union. A full merger of all the currencies did not arrive until after consolidation of modern Germany in 1871.
  • The only truly successful monetary union in Europe came in 1922 with the birth of the Belgium-Luxembourg Economic Union (BLEU), which remained in force until 1999.
  • After the Austro-Hungarian Empire was dismembered by the Treaty of Versailles, in an abrupt and quite chaotic manner, new five currencies were introduced.

Rather than saying the Euro cannot fail, the discussion should be about how the dissolution of currency unions is common, especially where Greece is a member. What happened? What can we learn from the past to prepare for a possible Greek departure from the Eurozone?

Why only Nixon could go to China and Clinton finish the Reagan Revolution

24 Mar 2014 Leave a comment

by Jim Rose in labour economics, politics - USA, Public Choice, war and peace, welfare reform Tags: , , , , , , ,

The secret of winning the swing vote is having policies slightly different from your opponent. Recall Tyler Cowen and Daniel Sutter’s Why Only Nixon Could Go to China in Public Choice.

 

File:Nixon Mao 1972-02-29.png

Cowen and Sutter say that a policy could depend on information – on which policies or values everyone could potentially agree, or on which agreement is impossible.

Politicians, who value both re-election and policy outcomes, realise the nature of the issue better through inside and secret information and superior analytical skills (or access to those skills), whereas voters do not have access to such information base or skills.

Only a right-wing president can credibly signal the desirability of a left-wing course of action. A left-wing president’s rapprochement with China would be dismissed as a dovish sell-out. The Nixon paradox held because citizens could vote retrospectively on the issue.

Left-wing parties adopt right-wing policies because they are good ideas that will get them re-elected. Bob Hawke, Tony Blair, and Bill Clinton were firmly camped over the middle-ground.

Only centre-left economic reformers can credibly signal the desirability of their economic reforms because of the brand name capital they invested in distributional concerns and protecting the poor.

Because of their proven record and brand name, they do not jeopardise their support or credibility by seemingly departing from their core values. They must have done so because it was the right thing to do given events and the long-term interests of the lower-income groups they represent.

Bill Clinton balanced the budget and introduced sweeping welfare reforms in 1996 after vetoing two earlier bills because this finally fulfilled his 1992 campaign promise to “end welfare as we have come to know it”. As he signed the bill on August 22, 1996, Clinton stated that the act:

gives us a chance we haven’t had before to break the cycle of dependency that has existed for millions and millions of our fellow citizens, exiling them from the world of work. It gives structure, meaning and dignity to most of our lives.

Jimmy Carter was a bigger deregulator than Reagan. Obama uses drones far more often than Bush did.

Major labour law reforms were passed in Germany under a left-wing government after decades of 10% unemployment rates and average German unemployment spells for about a year. The key part of these reforms came into play just before the global financial crisis hit and was a major reason for the unemployment rate in Germany falling despite the onset of GFC.

Why Only Nixon Could Go to China also explains why hawks such as Reagan and Begin and other right wing party leaders were able to negotiate peace treaties that eluded more dovish politicians who ran on ‘peace now’ slogans.

Reagan signed the Intermediate-Range Nuclear Forces treaty, walked with Gorbachev in Red Square and seriously offered complete mutual nuclear disarmament in Reykjavik in 1986. Any other American President who offered complete mutual nuclear disarmament would have been impeached.

https://i0.wp.com/www.reagan.utexas.edu/archives/photographs/large/c47345-10.jpg

Hawks also have the right negotiating stance. Robert Aumann argues that:

If you are ready for war, you will not need to fight. If you cry ‘peace, peace,’ you will end up fighting… What brings war is that you signal weakness and concessions.

Only then will both sides negotiate because they know that the other side is willing to walk away and perhaps not come back for a long time. Unless it gets reasonable offers that will be binding on both sides for a long time because both win more for honouring their promises rather than threatening war again soon.

Left-wing politicians can deliver economic reforms because they can deliver new voting blocs to the realignment of political coalitions. This new bloc of centre-left voters and some members of existing political and special interest groupings benefit from regrouping and joining new political coalitions that push through the reforms. An ageing society, budget deficits, technological innovations and shifts in production cost structures and in consumer demand can all make the existing political coalitions less rewarding than in the past.

Civil disobedience and political activism are overrated

24 Mar 2014 Leave a comment

by Jim Rose in politics - Australia, Rawls and Nozick Tags: , , , ,

Most activists take to the streets because if they ran openly for office, they would struggle to get 1% of the vote. Their best options are entryism and branch stacking.

The strength of democracy lies in the ability of small groups of concerned and thoughtful citizens to band together and change things by running for office and winning elections.

That is how new Australian parties such as the ALP, the country party, DLP, Australian democrats and Greens changed Australia. One Nation even had its 15 minutes of fame. Australian state upper houses even have Christian and shooters parties and many independents. Many started in someone’s living room.

Some find democracy frustrating because they cannot win openly at the ballot box even under proportional representation in federal and state upper houses.

When the “shooters” party and “no aircraft noise” party can win ahead of you, it is time to accept that your message of struggle and direct action simply does not resonate with the electorate.

John Rawls, discussing non-violent direct action, argues that in a nearly just society, those who resort to civil disobedience present themselves to the majority to show that, in their considered opinion, the principles of justice governing cooperation amongst free and equal persons have not been respected.

Rawls argues that civil disobedience is never covert or secretive; it is only ever committed in public, openly, and with fair notice to legal authorities. Openness and publicity, even at the cost of having one’s protest frustrated, offers ways for the protesters to show their willingness to deal fairly with authorities.

Rawls argues:

  • for a public, non-violent, conscientious yet political act contrary to law being done (usually) with the aim of bringing about a change in the law or policies of the government;
  • that appeals to the sense of justice of the majority;
  • which may be direct or indirect;
  • within the bounds of fidelity to the law; and
  • whose protesters are willing to accept punishment. Although civil disobedience involves breaking the law, it is for moral rather than selfish reasons; the willingness to accept arrest is proof of the integrity of the act.

Rawls argues, and too many forget, that civil disobedience and dissent more generally contribute to the democratic exchange of ideas by forcing the champions of dominant opinion to defend their views.

Legitimate non-violent direct action are publicity stunts to gain attention and provoke debate within the democratic framework, where we resolve our differences by trying to persuade each other and convince the electorate.

Too many acts of non-violent direct action aim to impose their will on others rather than peaceful protests designed to bring about democratic change in the laws or policies of the incumbent government. That ‘might does not make right’ is fundamental to the rule of law.

How to negotiate a treaty on global warming

20 Mar 2014 Leave a comment

by Jim Rose in climate change, economics, environmental economics, politics, Thomas Schelling Tags: , , ,

I found the best writer on global warming to be Thomas Schelling. Schelling has been involved with the global warming debate since chairing a commission on the subject for President Carter in 1980.

Schelling is an economist who specialises in strategy so he focuses on climate change as a bargaining problem. Schelling drew from his experiences with the negotiation of the Marshall Plan and NATO.

International agreements rarely work if they talk in terms of results. They work better if signatories promise to supply specific inputs – to perform specific actions now.

  • Individual NATO members did not, for example, promise to slow the Soviet invasion by 90 minutes if it happened after 1962.
  •  NATO members promised to raise and train troops, procure equipment and supplies, and immediately deploy these assets geographically. All of these actions can be observed, estimated and compared quickly. The NATO treaty was a few pages long.

The Kyoto Protocol commitments were not based on actions but on results, to be measured after more than a decade and several elections and a recession or two in between.

Climate treaties should promise to do certain actions now such as invest in R&D and develop carbon taxes that return the revenue as tax cuts. If the carbon tax revenue is fully refunded as tax cuts, less reliable countries, in particular, have an additional incentive to collect the carbon tax properly to keep their budget deficits under control.

No more witty politicians

18 Mar 2014 Leave a comment

by Jim Rose in politics - Australia, politics - New Zealand, Public Choice Tags: , , , , , , , , ,

Did the crowd boo when Gough Whitlam was so ill-mannered as to refer to Kerr’s cur? Did the crowd at the steps of Parliament chant ‘manners, Gough, manners’ rather than ‘shame, Fraser, shame’?

When Gough was challenged by a voter for his view on the contentious issue of abortion, hoping to catch him out, Whitlam replied that he was for abortion and in the heckler’s case, he wished that abortion would be retrospective. Everyone laughed and Gough got off the hook.

30 years ago when public meetings in elections were raucous affairs rather than photo opportunities, being able to give as good as you get was a key political skill.

Public meetings were tests of a politician’s mantle and those that did not fight back were judged to be weak. Stand-up comics had easier initiations.

Wit has lost its place in public discourse.

Robert Muldoon pinged the famous insult “New Zealanders who emigrate to Australia raise the IQs of both countries”.

Consider David Lange:

  • Micheal Bassett was a member of parliament and a cousin on my father’s side of the family. My father delivered him and it became plain in later days that he must have dropped him.
  • To US Ambassador H. Monroe Browne, who owned a racehorse called Lacka Reason: “You are the only ambassador in the world to race a horse named after your country’s foreign policy”.
  • And I’m going to give it to you if you hold your breath just for a moment…I can smell the uranium on it as you lean towards me.
  • …a man whose life is so boring that if it flashed past he wouldn’t be in it.

Paul Keating’s contributions to Australian culture would be lost:

  •  He described his opponents as “mangy maggots”, “intellectual rust buskets”, “gutless spivs”, “foul-mouthed grubs” and “painted, perfumed gigolos”.
  • Keating said of Howard: “From this day onwards, Howard will wear his leadership like a crown of thorns, and in the parliament I’ll do everything to crucify him”.
  • On Andrew Peacock: “A soufflé doesn’t rise twice”.
  • On Wilson Tuckey: “He’d be flat out counting past ten”.

@greenpeaceNZ The expressive politics of action on global warming @RusselNorman

16 Mar 2014 2 Comments

by Jim Rose in environmentalism, politics - Australia, Public Choice Tags: , , ,

Global warming is part of a political theatre that is made up of the symbols we boo and cheer.

People gain pleasure, excitement and self-definition for cheering for particular parties and worthy causes in the same way as they cheer and boo for sports teams.

Geoffrey Brennan, in Climate Change: A Rational Choice Politics View, Australian Journal of Agricultural and Resource Economics, July 2009, argues that we will see many countries acting unilaterally to introduce carbon emission policies because expressive voters cheer for such policies.

Brennan argued that the nature of expressive concerns is such that significant reductions in real incomes are probably not politically sustainable in the long term. This suggested to him that much of the carbon reduction action will be limited to modest reductions of a largely token character.

There are many expressive voting concerns that politicians must balance to stay in office and the environment is but one of these. Once climate change policies start to actually become costly, expressive voting support for these policies will fall away.

Abbott’s big bad new tax rhetoric in the last two Australian elections split away the working class and lower-middle class Labor voters who worry more about bread and butter issues.

The inner city Green voters’ high incomes allow them to be more indulgent as to what they cheer and boo for at the ballot box. As a group, Green party voters have the highest average incomes. These high incomes act as a buffer against policies that are otherwise costly to them. But if you scratch an inner city Green voter’s superannuation entitlements, you will find a rather raw hip-pocket middle-class voter.

In Demand for Environmental Goods: Evidence from Voting Patterns on California Initiatives: Evidence, Journal of Law and Economics, April 1997, Matthew Kahn and John Matsusaka studied voting behaviour on 16 environmental ballot propositions to estimate the demand for environmental goods.

  • In most cases, rising  incomes and price changes can explain most of the variation in voting; it is not essential to introduce non-economic concepts such as political ideologies.
  • An important price of environmental goods is reduced incomes in the construction, farming, forestry, and manufacturing industries.

Kahn has previously argued that the environmental movement should stop saying that half measures will work and the transition to a green economy will be easy and painless.

The Green parties where I have voted do not sell their message of a green economy and action on global warming as a cause requiring more blood, sweat and tears.

The collapse of the Green vote at the recent Australian federal and state elections demonstrates that many vote Green as a protest vote against the other parties and to feel good about themselves.

The Green vote takes a hammering once Green parties enter into power sharing deals with a government. Green policies are symbols and gestures, not something about half of their voters actually want to see passed into law on a large scale and start paying for in real money.

Attack Ads uplift democracy

16 Mar 2014 1 Comment

by Jim Rose in election campaigns, politics - USA, Public Choice Tags: , ,

I love attack ads. About the only time you find out anything about the downside of opposing parties and rival candidates is through these attacks ads.

attack ad

A favourite web site is the Attack Ads Hall of Fame where John Geer rightly argues that when candidates attack each other, raising doubts about their respective views and qualifications, we voters benefit. Positive ads are fluff.

Geer collected clips of the best, worse and boomerang attack ads in the post-war presidential elections from his Hall of Fame at his book site In Defense of Negativity Attack Ads in Presidential Campaigns

Both web sites are a must view for political junkies. Most of the Attack Ads are based on the truth and they are highly creative and focussed messaging.

The economics of the Dallas Buyers Club

15 Mar 2014 Leave a comment

by Jim Rose in liberalism, politics - Australia, politics - USA, Public Choice, regulation Tags: , , , , , , ,

Deciding if a new drug is safe is a serious issue. Separate to this is whether the drug is better than existing drugs.

In 1962, an amended law gave the FDA authority to judge if a new drug produced the results for which it had been developed. Formerly, the FDA monitored only drug safety. It previously had only sixty days to decide this. Drug trials can now take up to 10 years.

Who cares if a safe drug works or not? If a new drug does not work or is no better than the existing drugs on the market, the investors in the development of the new drug bear the (unrecoverable) development costs. Capitalism is a profit AND loss system. Losses are a signal that you should try something else.

Sam Peltzman showed in a famous paper in 1973 that these 1962 amendments reduced the introduction of effective new drugs in the USA from an average of forty-three annually in the decade before the 1962 amendments to sixteen annually in the ten years afterwards. No increase in drug safety was identified.

Drugs became available years after they were on the market outside the USA. To quote David Friedman:

“In 1981… the FDA published a press release confessing to mass murder. That was not, of course, the way in which the release was worded; it was simply an announcement that the FDA had approved the use of timolol, a ß-blocker, to prevent recurrences of heart attacks.

At the time timolol was approved, ß-blockers had been widely used outside the U.S. for over ten years.

It was estimated that the use of timolol would save from seven thousand to ten thousand lives a year in the U.S. So the FDA, by forbidding the use of ß-blockers before 1981, was responsible for something close to a hundred thousand unnecessary deaths.”

AZT double-blind trials collapsed in the mid-1980s in the USA because participants sold the drug in the black market.

If memory serves right, Australian drug regulators planned to duplicate these double-blind trials in Australia before approving the drug. Last time I checked, the physiology of Australians was the same as any other human being. What did they plan to find that justified the delay in approving AZT?

The duplicate double-blind AZT trials in Australia were abandoned not because they were mad and evil, but because again the participants sold the drug in the black market. That was to be expected too so the duplicate double-blind AZT trials in Australia in the 1980s were a double evil.

Why call my blog Utopia – you are standing in it?

12 Mar 2014 2 Comments

by Jim Rose in economics, liberalism, politics Tags: , , , , ,

Welcome to my blog.

My blog reflects where I came from and how I think the world works for better and for worse.

Yes, my background is as a trained economist, but this blog’s title is more to do with how the over-weaning conceit of youth was replaced by an increasingly unreliable memory, a bad back and the odd dose of wisdom.

My mum and dad grew up between the two world wars. Their and my upbringing seem to be light years apart in terms of quality of life.

Longer and healthier life expectancies are obvious. Less obvious are the day to day risks of crippling diseases.

My brother told me a story about how my father, who was a doctor, used to give my older brothers and sisters  the once-over with his eye each morning at breakfast looking for initial signs of polio and the other endemic childhood illnesses of the 1950s. These days, you show your age if you know of these endemic diseases. I was born a few years after mass immunisations of babies started. Was it just lucky me?

I am also old enough to remember when going to an airport was exciting because you were going somewhere. Devonport (in Tasmania) to Melbourne was a big trip when I was a kid. A luxury back then. Now airports are a boring wait that we must endure.

My sister traveled the world a lot. She started in about 1973 when an airfare from Sydney to London was $2,000. That was maybe a year’s income back then for her. For some reason, I kept note of that price. That airfare never increased despite 40 years of inflation.

I first visited Asia in 1993. Lived in Japan from 1995 to 1997.

Although of average height for an Australian, I was tall in Asia back then. Looking over the top of the crowd is really great. There were so few obese Japanese of any age that it really was a cause for comment when you saw one.

No more, no longer. Last time I visited Hong Kong, I was looking up at the young Chinese men serving behind the counters at McDonalds.  Each generation is head and shoulders taller than their parents in Asia.

When I first visited my parents-in-law in the Philippines, that part of Leyte had no sealed roads and no phones. The next time I visited, the road was being sealed and mobile reception was better if you had an arial on the roof. After a five year gap in visiting, not only was mobile reception good, there was cable TV if you wanted it. When I visited in 2012, there was wireless internet if you had outside arial. Last Christmas, we hot spotted off my sister-in-law’s mobile.

These revolutionary improvements in my life in a rich country and in lives in developing countries must have a cause.

This blog will champion the spread of capitalism and the rule of law as the cause of the flourishing of humanity in the 20th century and beyond.

I call this a utopia because it is the heaven on earth that led so many to fall for the siren call of socialism and progressive politics. They did not notice that they were already in paradise.

Joan Robinson noted in her 1942 book An Essay on Marxism that when the Communist Manifesto was published in 1848, its battle cry, which would have had some currency, was:

‘Rise up ye workers, rise up, for you have nothing to lose but your chains.’

The industrial revolution was still in its infancy in 1848.

Alas, 90 years later, Joan Robinson suggested that this battle cry at the barricades would have to be amended to:

‘Rise up ye workers, rise up, for you have nothing to lose but your suburban home and your motor car.’

This optimism was in the middle of a world war and after the Great Depression. (Joan Robinson was one of the first writers to take Marx seriously as an economist).

These days the battle tweet of the progressive Left would have to be:

‘Rise up ye workers, rise up, for you have nothing to lose but your iPad and your air miles’.

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