At the beginning of my first Economics I lecture at ANU in 1986, the lecturer told us that for the next three years we would be studying neo-classical economics. He helpfully suggested if we were interested in other schools of economic thought, we might want to enrol at another university. He went on to point out the significant earnings premium that ANU economics graduates then earned in the labour market. The implication was that these two facts were not unrelated. Not that we needed to be told. This is exactly what many of us had signed-up for. The subject had a 45% failure rate.
If the idea was to indoctrinate students, it failed in my case. I don’t consider myself a neo-classical economist, more a heterodox institutionalist, although I accept many fundamental neo-classical insights. You first have to study neo-classical economics to understand what you reject and why. Too many dismiss neo-classical economics without ever having understood it other than as a caricature.
This would seem to be the case with those students who staged a walk-out from Greg Mankiw’s class at Harvard, judging by their very silly open letter. Having taught from Mankiw’s introductory and intermediate texts, I can vouch for the fact that they are very balanced in their approach, as a good textbook should be. I teach from Cowen and Tabarrok’s principles text, which is more Hayekian than neo-classical, yet still very balanced. For example, it makes a conditional case for activist fiscal policy I would reject, but it is important that students understand the thinking behind such policy.
It is far from clear what Mankiw’s critics want taught instead, but I suspect it is not economics.
Zero Bubble: A Theory of Asset Price Booms and Busts
The Philly Fed’s Business Review has a good article by Satyajit Chatterjee on why asset price booms and busts are a rational response to the uncertain return to innovation.
Stanford University misanthrope Paul Ehrlich will be giving a lecture at UNSW on Monday. You can read about Ehrlich’s humiliation at the hands of Julian Simon here and here.
My recent proposal to auction the right to permanently migrate to Australia was not new. I was treading a path already worn by Gary Becker and Julian Simon in the US, and Mark Harrison, John Logan and Wolfgang Kasper in Australia.
My proposal provoked predictable outrage from those unwilling to think about the idea for more than five seconds. The outrage is partly due to the failure to understand that an auction scheme is designed to facilitate migration, not prevent it. Wolfgang Kasper emailed me this recollection of his experience trying to sell the idea at a conference of economists in San Francisco:
It was a gathering of like-minded friends and some very prominent economists. We had been told that Milton and Rose [Freidman], who lived in their apartment nearby, would come to a morning session, when Milton (now 89) was fresh….Before long, Milton was in the midst of the debate, debunking some idea or elaborating and extending someone else’s. He was in fine form! At morning tea, we expected to say goodbye, but they said they had come for the day! “Rose and I are not a monument,” he said. “This is exciting work, it’s an elixir for Milton to mix with you people,” said Rose…
At one stage of the conference, when I spoke about the idea of selecting immigrants by worldwide auction, I was attacked by R. Rubin, a former Clinton Minister of Labor. He disagreed with me violently… “You just want to sell passports!” I had of course worked on this question in a consultancy report for New Zealand and stood my ground. Our argument became, in my opinion, a distraction to the main topic of our session. Friedman intervened: “I am sure that everyone here has understood Dr. Kasper’s rationale, and I agree with him. Robert, why don’t you think it over overnight. Give me a ring in the morning if you still disagree and I’ll buy you and Wolfgang the best breakfast in town, so we can argue it out some more!” This was vintage Friedman. Alas, Rubin never came back with his counterarguments, and I never was bought breakfast by Friedman.
Steve Jobs versus Bill Gates: The Entrepreneur as Hero and Villain
My appreciation of Steve Jobs, from this week’s Ideas@theCentre:
The passing of Steve Jobs saw a remarkable outpouring of appreciation for the man and the company he founded, and its many innovative products. The quality and user-friendliness of the products, combined with outstanding brand management and marketing, explain Apple’s loyal, even sectarian, following.
It is unusual for an entrepreneur to be appreciated this way. The obvious comparison is with Bill Gates. Gates and the company he founded have also had a profound impact on our everyday lives. Yet if Gates were to die tomorrow, it is hard to imagine people lighting candles outside computer stores. Gates is still seen as the grasping robber-baron of computing, even though his business strategies have been no more anti-competitive than Apple’s iTunes store. Gates’ success earned him prosecution by the US Justice Department and EU competition authorities for supposedly harming consumers.
Microsoft has bestowed benefits on the world rivalling those of Apple, but to the extent that Gates earns plaudits, it is mainly for his philanthropic efforts. Gates’ philanthropy is likely motivated, at least in part, by the desire to win the respect and appreciation he never found as an entrepreneur. Gates is a member of a group of billionaires who have signed up to the notion that they must give away the majority of their wealth. In Australia, Dick Smith threatens to ‘out’ the wealthy who fail to give, treading a fine line between moral suasion and public intimidation. Yet Gates has done more for humanity as an entrepreneur than he is ever likely to achieve as a philanthropist. It is only the entrepreneurship that made the philanthropy possible.
This is something Jobs understood very well. He showed little interest in philanthropy, not because he was uncharitable but because he recognised that it was not his comparative advantage. Jobs was consequently ‘named and shamed’ by the US philanthropic sector. This did not dent his reputation, perhaps because the public also recognised they were better served by his relentless focus on Apple’s product.
Adam Smith famously observed that ‘it is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.’ In 1985, Jobs told Playboy magazine ‘we think the Mac will sell zillions, but we didn’t build the Mac for anybody else. We built it for ourselves.’ Like Gates, Jobs was a self-interested and self-serving businessman and yet we are all much richer for their efforts.
Fresh from the longest ever jailing for civil contempt in a federal white-collar case in the US, Martin Armstrong is back. You can read a much longer profile of him and others like him in The New Yorker.
I don’t have much time for cycle theories. When I worked in financial markets I met numerous advocates for various cycle theories among fund managers. Strangely, I always wound-up being the one who paid for lunch. However, his story is an interesting one. I’m always suspicious when someone gets locked-up for an incidental crime that hadn’t taken place before the prosecutors got involved and when everyone in the case seems to have copped a plea bargain. Even if I’m completely wrong in my suspicions, there are plenty of other cases like it pointing to the decline of the rule of law in the US.
The Torygraph is all over Alessio Rastani and who can blame them for wanting to stick it to the pretentious Beeb over their seeming lack of quality control. Turns out that Rastani is a ‘talker not a trader’ with somewhat limited credentials on both counts. While his now famous opinions are highly questionable, this doesn’t exactly set Rastani apart from the vastly more credentialed talking heads routinely used by the Beeb and others to fill air time.
The sad fact is that a PhD from Oxbridge or an Ivy League school and a stellar career at the IMF and/or an investment bank more often than not yields a set of opinions and insights only slightly less dubious than those of Rastani.
Euromoney talks to former finance minister of the year, Paul Keating:
When Euromoney sought comment from the only other Australian ever to have received our award, the famously flinty Keating’s instinctive reaction was to tell us “to just fuck off” and “I couldn’t give a fuck”, while curtly offering what appeared to be travel advice, suggesting we visit some place called “buggery”.
Daniel Yergin on Marion King Hubbert, the original peaknik:
Marion King Hubbert was one of the most eminent—and controversial—earth scientists of his time. Born on a ranch in San Saba, Texas in 1903, he did his university education, including his Ph.D., at the University of Chicago. One of his fundamental objectives was to move geology from what he called its “natural history phase” into its “physical science phase,” firmly based in physics, chemistry and, in particular, rigorous mathematics.
In the 1930s, while teaching at Columbia University, Hubbert became active in a movement called Technocracy and served as its educational director. Holding politicians and economists responsible for the debacle of the Great Depression, Technocracy promoted the idea that democracy was a sham and that scientists and engineers should take overthe reins of government and impose rationality on the economy. “I had a boxseat at the Depression,” Hubbert later said. “We had manpower and raw materials. Yet we shut the country down.”
Technocracy envisioned a no-growth society and the elimination of the price system, to be replaced by the wise administration of the Technocrats. Hubbert believed that a “pecuniary” system, guided by the “hieroglyphics” of economists, was the road to ruin.
The government looks set to proceed with a media inquiry. Twenty years ago, Kerry Packer demonstrated the right amount of respect and deference to be afforded the parliament in relation to such inquiries. It is still the most colourful defence of the rule of law in relation to cross-border acquisitions ever mounted in Australian public life. I was working in Parliament House at the time and I think it is fair to say that most of the politicians on the print media inquiry felt ashamed of themselves at the end of that hearing.
Data versus Anecdote on Foreign Acquisitions in Agriculture
The debate over foreign acquisitions of both agricultural and urban land has been driven by anecdote rather than data. Some high profile acquisitions have gained considerable media attention, but this has obscured the underlying reality that Australia’s broadacre, dairy and other farms remain overwhelmingly Australian-owned.
The Australian Bureau of Statistics (ABS) and the Rural Industries Research and Development Corporation (RIRDC) have been engaged in a data gathering exercise to measure the level of foreign ownership in Australian agriculture. As of 31 December 2010, the ABS finds that:
99% of agricultural businesses in Australia were entirely Australian owned;
89% of agricultural land was entirely Australian owned; and
91% of water entitlements for agricultural purposes were entirely Australian owned
This helps put the current debate in proper perspective. Foreign investment in agriculture should be welcomed, but agriculture in Australia is likely to remain overwhelmingly Australian-owned.
