Saturday, August 31, 2002

In an article in yesterday's Weekend Australian ("Money Talks, Uncle Sam Walks") Cameron Stewart (sorry, no link available) claims that the United States is circumventing the rule of international law in its attempts to broker agreements that would render members of its armed forces immune from ICC prosecutions:

`NO man is above the law and no man is below it,'' said US president Theodore Roosevelt. But a year after September 11, what would Roosevelt's ghost make of the new system of global justice emerging from the war on terror?

At one end of the scale, stranded far below the reach of international law is Adelaide's David Hicks, who was caught fighting on the side of the Taliban. Hicks and 600 other suspected terrorists have languished for up to eight months under armed guard at a US military base in Cuba's Guantanamo Bay. They have been charged with no crime, given no access to lawyers and afforded none of the rights traditionally given to prisoners of war. However, they are, in the words of George W. Bush, the bad guys and the public outcry in the US and Australia over their predicament has been less than deafening.

But if the bad guys in the war on terror can be placed below the rule of international law, should the good guys be placed above it?

That is the essence of a delicate question being debated in Canberra following a bold request by the Bush administration for Australia to sign a bilateral pact promising never to send Americans to the new International Criminal Court.

Well, actually, Cameron, you couldn't be more wrong: the diplomatic lobbying by the US has absolutley nothing to do with "placing the good guys above the international rule of law", and here's why:

Article 98 of the Rome Statute of the International Criminal Court states:

Article 98: Cooperation with respect to waiver of immunity and consent to surrender

1. The Court may not proceed with a request for surrender or assistance which would require the requested State to act inconsistently with its obligations under international law with respect to the State or diplomatic immunity of a person or property of a third State, unless the Court can first obtain the cooperation of that third State for the waiver of the immunity.

2. The Court may not proceed with a request for surrender which would require the requested State to act inconsistently with its obligations under international agreements pursuant to which the consent of a sending State is required to surrender a person of that State to the Court, unless the Court can first obtain the cooperation of the sending State for the giving of consent for the surrender.

So the US is well within its rights to try to broker agreements "pursuant to which the consent of a sending State is required to surrender a person of that State to the Court." If it were not the case, then why bother having Article 98 in the first place?

Cameron, if you think that these kinds of agreements are a bad idea, then please just say so and be on your way. But don't try to tell us that they circumvent the rule of international law, because it just ain't true.

Great Moments in Environmentalist Idiocy, Part III

Apparently, participants at the Earth Summit think that recycling is great, as long as they are the ones who don't have to do it (see earlier post), and as long as the issue isn't about recycling money.

Life Imitates the Onion, Part II


Great Moments in Environmentalist Idiocy, Part II

The Onion: 11 May 2000

450,000 Unsold Earth Day Issues of Time Trucked to Landfill

"Unfortunately, 'Earth Day 2000' wasn't as successful as we had hoped," Time managing editor Walter Isaacson said. "After selling out of such special issues as 'The Future Of Medicine,' 'Baseball At 100,' 'The Kennedys: An American Dynasty,' and 'Celebrating The American Automobile,' we thought we had another winner with this one. But of a press run of 485,000, only 35,000 sold. I guess we overestimated the demand for a full-color, 98-page Earth Day issue printed on glossy, high-pulp paper."

The enormous number of unsold copies created major headaches for both Time's distribution department and subcontractor Interstate Periodical Distributors. Some 1,300 semi trucks, many less than a third full due to isolated pick-up points, were needed to transport the 450,000 magazines from newsstands and bookstores across the U.S. to Time's main warehouse in Elizabeth, NJ. From there, the magazines were loaded onto 85 idling dumptrucks by gasoline-powered forklifts. Upon arriving at Fresh Kills, the world's largest landfill, the unsold issues were transformed into a 75-ton mountain of waste paper by a fleet of diesel bulldozers.

Real Life: 30 August 2002

World Summit Generates Tons of Trash

JOHANNESBURG, South Africa (AP) - While delegates attending the World Summit wrangled over how best to save the planet's rapidly dwindling resources, they gave scant indication of leading by example.

The 10-day summit, billed as the largest U.N. conference ever held, is expected to generate between 300 and 400 tons of trash, and so far, just 20 percent of it is being recycled....

Consumption barometers were erected in the summit venues, too, graphically illustrating the extent to which resources are being consumed and recycled.

Nonetheless, trash compactors erected at the back of the main conference center have been working overtime, and municipal workers have made several trips daily to empty overflowing trash containers.

Over at the Parish Pump, Ken Parish writes on this story, in which the NSW District court awarded compensation to an intruder (and his mother):

Personally, I would want to know a lot more of the facts before I could make up my mind one way or the other. On the one hand, a homeowner is entitled to defend his home and family when it is broken into by an unknown intruder at night. If it was dark and he had no way of knowing whether his intruder was armed, then I think the homeowner was justified in using considerable force. The judge may have failed to comprehend just how confusing and frightening such a situation is in real life. On the other hand, it would not be justified for the owner to bash the intruder repeatedly with a club if the owner knew the intruder was young, unarmed and relatively defenceless. But we don't know whether the homeowner knew any of those things at the time. If he did, his actions are reprehensible and merit censure by an award of damages.

My response to all of this: we don't need to "know a lot more of the facts" to ascertain the correct legal approach here.

For me, the key sentence in the whole story is:

Mr Fox, who said he had been left with an altered sense of taste and headaches, was not charged, nor was Mr Newton.

Why not simply charge both of them with crimes, and let a criminal trial jury decide the factual issue of whether the homeowner was justified in bashing the intruder repeatedly with a club? If the homeowner wasn't justified, then he should be punished to the fullest extent of the law. But the criminal shouldn't receive monetary compensation either.

This approach creates exactly the right incentives for both parties: to the intruder - you cannot, under any circumstances, profit from crime; and to the homeowner - you can only ever use a reasonable degree of force in protecting yourself and your family.

Friday, August 30, 2002

Life Imitates the Onion, Part I


Great Moments in Environmentalist Idiocy, Part I

The Onion: 24 August 2000:

"Point/Counterpoint: Nigeria May Be A Developing Nation, But It Is Rich In Culture vs. Get Me Out Of This Godforsaken Hellhole".

It's sad how the media always dwell on the negative aspects of African society. Granted, Nigeria faces some economic challenges (the result of centuries of colonialist exploitation), but I'm sure Nigerians don't concern themselves with thoughts of shallow materialism when they are surrounded every day by such stirring, dynamic expressions of the human spirit. - "Zach Spence", University of Vermont Junior.

If I could get just a little money, I could try to leave. But I must save my money for food. There is no good food to buy in the streets. There are no doctors. I am still young. I don't want to get sick and starve. I don't want to be killed by the police. Please, God, save me. Shango, Ogun, Ifa, protect me. I don't want to die. I have to get out of here. - "Bitek Okoye", Nigerian

Real Life:, August 26, 2002:

Environmentalist Laments Introduction of Electricity (thanks to Paul Wright for this link).

Smith decried the introduction of electricity to the poor residents of the developing world. "I don't think a lot of electricity is a good thing. It is the fuel that powers a lot of multi-national imagery," Smith said. According to Smith, electricity can wreak havoc on cultures. " I have seen villages in Africa that had vibrant culture and great communities that were disrupted and destroyed by the introduction of electricity," he said. With the introduction of electricity, the African villagers spent too much time watching television and listening to the radio, allowing their more primitive traditional ways to fade away, according to Smith.

Moore said Smith's views represent a "naive vision of returning to some kind of Garden of Eden, which was actually not that great because the average life span was 35." "What a terrible thing to say. It's just so obviously stupid -- this romanticization of poverty, where people can't afford to fix their teeth, can't afford decent nutrition, can't afford proper health care, can't afford education," stated Moore.

The Democrats' no first strike petition once again gets results.
Over at Catallaxy files, Jason Soon tries to compare affirmative action with the following "thought experiment":

The Australian government negligently locates a base for military personnel and their families on a toxic waste dump. This is only discovered years later by which time there has been a history of birth defects and illnesses among descendants of the military personnel. These descendants sue the government and win a multimillion dollar compensation package. Now obviously this package is ultimately being funded by taxpayers.

This is really missing the point on affirmative action: in Jason's "thought experiment" if you are a descendant of the military personnel and you can show that you suffer actual physical defects and illnesses and that these were directly caused by the toxic waste dump, you get the compensation; but with AA, the only criterion for compensation is the color of the recipient's skin. You get Abstudy as long as you are sufficiently black, not because you can show that government negligence directly caused you to not be able to fund your own education. This thought experiment is silly and irrelevant.

It is not "superficial" to "brush off AA on the grounds that it is 'racist'. The fact is that AA is all about "discrimination or prejudice based on race", which is the definition of racism. You may or may not think that AA is morally equivalent to other forms of racism, but it is dishonest to claim that it is not a form of racism. And if you don't believe me, check out the transcript of this Four Corners program on Monday night. The closing comment by Professor Henry Reynolds, says it all:

There are many, many, many Aboriginal families over the last 200 years who have ceased to be Aboriginal and now see themselves as European. This process is probably going on all the time and has been going on since the beginning of European settlement. But we still have no real agreement about where that point is, or whether indeed there should be a category that scarcely exists in Australia -- and that is people of mixed descent. Now, it seems to me, the lack of that category in Australia is one of the things that means this problem will continue as far ahead as I can see.

Get it? AA is all about "categorizing" people, worrying about their "mixed descent", and so on. Compensation and the ability to vote in ATSIC elections is based solely on eugenics, not on actual damages and past wrongs.

This is not an argument against AA; all I am saying is: let's not fool ourselves into thinking that AA is not discrimination or prejudice based on race. It is.

Over at Catallaxy files, Mark Harrison notes this story :

A teenager who broke into the home of a Sydney nightclub licensee was today awarded nearly $50,000 damages after being attacked, sparking criticism that the law was standing behind the intruder instead of the householder.

Here is another one in the making:

SAN FRANCISCO, California (AP) -- A couple sued Air Canada for $5 million, claiming the airline lost their tabby cat during a flight from Canada to California.

Andrew Wysotski and Lori Learmont, formerly of Oshawa, Ontario, traveled to San Francisco with their 15-year-old cat, Fu, and four other cats last August.

They claim Air Canada, its cargo-handling company and San Francisco International Airport personnel are guilty of negligence, negligent infliction of emotional distress, fraud and false advertising.

"It's not about the money," Wysotski said. "It's more the attention to the problem than the money."

I just don't have anything to add to this, the last quote says it all.

Thursday, August 29, 2002

Great Moments in Revisionist War History, Part I
TOKYO: A government historian said Thursday that the finding of a Japanese midget submarine sunk just before the 1941 attack on Pearl Harbor was evidence that the United States, not Japan, started the war between the two nations.

"The finding provides evidence that it was the Americans who made the first shot, which means the war had already started even before Japan's air attack on Pearl Harbor," said Takehiko Shibata, a historian at the Defense Agency's research institute. "It's been our understanding of how World War II started. Now we have the proof."

Gee, I guess the fact that the USS Ward sank the approaching Japanese sub at 6:45 a.m. on Dec. 7, 1941, about an hour before the aerial attack, lets the Japanese off the hook. It now looks like they were provoked into launching a surprise attack, which - luckily for them - they had already started preparing for some 12 months earlier.

In a recent post over at Catallaxy Files, Jason Soon argues that Irwin Stelzer's idea of a 100% per cent inheritance tax is not an idea which bad in principle.

1. A general principle for living on this planet: as long as they don't harm others, people should be able to do whatever they want with their own money.

2. (Due to Steve Landsburg's "Armchair Economist"): people who hoard cash for their children and never spend it are the most generous people in the world: they refuse to convert their claims on real resources into actual present consumption of those resources. In other words: in exchange for their own effort, labor, ingenuity, and so on, cash hoarders accepted useless bits of paper and then refused convert these claims. This leaves more real resources for the rest of us. In fact, they are so generous, they would prefer to die before they allow those resource claims be converted into actual consumption.

So if we are concerned about people hoarding cash and we really want to "level things out", don't tax inheritances and try to redistribute the proceeds; simply take the inheritance when a person dies, convert it into cash, and then burn the cash . This would lower the price level for everyone, and would especially benefit those on fixed money incomes. To the extent that people won't try to avoid inheritance taxes, the only resource cost of this just the cost of printing paper and lighting the match.

2. The revenue raised from inheritance taxes has to be paid to someone. Exactly how bureaucrats handing out checks to people "levels the playing field" is beyond me, since (a) in general, receiving a check from the government creates huge disincentive effects on its own and (b) the people who get the checks have to spend the money somewhere, which (i) raises the prices of some goods, pricing marginal consumers who didn't get checks out of those goods markets, and (ii) increases the wealth of those supplying the goods. The people in (ii) are more likely than not the very same people that we taxed in the first place. How exactly has that "leveled the playing field"?

3. (And George Will touches on this) As far as regulating interactions within families goes, there is always an irrelevance result that should be remembered:

Any distribution of wealth within the family which the government tries to achieve, can always be replicated by voluntary transactions within the family itself.

Parents care about their children - this is one of the main reasons that parents actually go out and earn an income. You can try taxing inheritances, but this just means that parents won't leave inheritances and will instead make other arrangements with respect to their own children. So if you are worried about "unearned advantages", and if the goal is to try alter the incentives of children, then - to the extent that parents leave inheritances because they care about their children, and can make other arrangements to raise the welfare of their children if you tax inheritances - an inheritance tax will not do the job.

4. To the extent that parents know what their children's preferences look like, these alternative arrangements may only shift consumption from the future to the present. I am fond of the maxim: "who cares about future generations, after all, what have they ever done for us?", but I don't see how transferring consumption from the future to the present "levels things out".

5. If parents are leaving inheritances to their children because they are altruistic, then surely they too will also be aware of the incentive effects that "unearned advantages" might create for their children. And parents will have much more inimate knowledge of these problems than the government will. Altruistic parents will adjust the inheritance accordingly, to minimise any of these incentive effects on their child's welfare. This is a version of Gary Becker's "Rotten Kid Theorem": children will tend to choose actions that maximize aggregate family wealth, even though only the parents are altruistic.

6. So the only way that the government can improve matters on the "unearned advantages" score [and ignoring the incentive effects of subsidies identified in (2)] is if either (a) bureaucrats know the preferences of children, better than parents themselves do; (b) bureaucrats care more about children than the children's parents themselves do; or more generally, (c) transactions costs, informational asymmetries, etc. are sufficiently high within families to prevent efficient transfers taking place, but bureaucrats can somehow overcome these barriers and implement efficient transfers.

7. On the other hand, if you tax inheritances and people contribute to private charities instead, then you are encouraging a transaction that is, in effect, one step removed from the nature of the parent-child transfer. The only way that this can improve things from an incentive point of view is if people know more about the preferences and disincentive effects of those receiving charitable donations than they do about the preferences of their own children.

Life Imitates, Part I

In a recent post (in the course of reporting that was shutting down), I referred to their famous "Axis of Just as Evil" piece.

Now has the following report from the Earth Summit:

Green Group Includes U.S. In 'Axis of Environmental Evil'
The environmental group Friends of the Earth International (FoE) called the U.S., Canada and Australia the "axis of environmental evil" for not supporting international environmental agreements.

The green group made the comments on the opening day of the international Earth summit, formally known as the United Nations World Summit on Sustainable Development.

"Instead of using the Earth summit to respond to global concerns over deregulation and liberalization, governments are pushing the World Trade Organization's agenda and re-branding it as 'sustainable development,'" said FoE spokesman Daniel Mittler in Johannesburg.

FoE, angry that the three governments are promoting free markets and free trade, are placing banners with the slogan "Don't Let Big Businesses Rule the World" at the summit.

Sadly, has shut down, but here is how a piece on this might go:

Cuba, Sudan, Serbia Form Axis of Somewhat Environmentally Evil; Other Nations Start Own Clubs

Bitter after being snubbed for membership in the "Axis of Environmentally Evil," China, Russia and the former East Germany decided to form the "axis of just as environmentally evil", which they said would be way environmentally eviler than that stupid U.S-Canada-Australia axis that the Friends of the Earth International (FoE) warned of.

But Dr David Kemp, representing the Axis of Environmentally Evil members, immediately dismissed the new axis as having, for starters, a really dumb name. "Right. They are Just as Environmentally Evil... in their dreams!" he declared. "Everybody knows we're the best environmental evils... best at being environmentally evil... we're the best."...

Tex over at gives Mark Latham a good Fisking. As Tex says: if you don't check this out, you are a commie.
In yesterday's Melbourne Age, Pru Howard (sorry, Goward) declares war on men:

The world of work as currently constituted was designed by and for men.

It gets better:

Women still only earn 84 cents in the male dollar, when comparing average weekly ordinary full-time earnings...It is the gendered nature of family responsibilities that now forms the greatest barrier to equal pay.

So the real problem is the "gendered nature of family responsibilities". Tell us, Pru, if that's the problem, what is the solution? Of course, Pru's solution is directed at men:

There are still many employers who consider that women do not work as productively while pregnant - they either demote or dismiss them, deny them training or otherwise allow their careers to stagnate. A front-office job may quickly become a back-office job should a boss decide that a life-bulging stomach is unsightly.

Let's get things straight here: whenever Pru talks about employers, it's obvious that she really means men. She's so dimwitted, she doesn't realise that many employers are women.

So, here is what Pru thinks about men: they would rather employ another man, at a much higher salary, than look at an "unsightly life-bulging stomach". In other words, Pru not only thinks that men are sexist pigs; they're stupid as well - when they should be taking advantage of an opportunity to employ cheaper labor and raise profits, they only see unsightly bulging stomachs.

Pru closes with these wonderful insights on the human condition:

Some women work because they have to for financial reasons

There are many of us for whom work is intrinsically satisfying - it forms part of our identities.

We can't forget women have a right to participate in public life.

Sorry, I couldn't read on.

Wednesday, August 28, 2002

On a more serious note: It seems that has shut up shop, at least temporarily.

I only recently discovered this site, and this news is naturally very disappointing. One of my favorites is the "Axis of Just as Evil" piece from a few months ago. Here's how it starts:

Cuba, Sudan, Serbia Form Axis of Somewhat Evil; Other Nations Start Own Clubs

Bitter after being snubbed for membership in the "Axis of Evil," Libya, China, and Syria today announced they had formed the "Axis of Just as Evil," which they said would be way eviler than that stupid Iran-Iraq-North Korea axis President Bush warned of his State of the Union address.

Axis of Evil members, however, immediately dismissed the new axis as having, for starters, a really dumb name. "Right. They are Just as Evil... in their dreams!" declared North Korean leader Kim Jong-il. "Everybody knows we're the best evils... best at being evil... we're the best."

Breakings news, just in:

Extra-terrestrials have landed at the Headquarters of the Australian Democrats, demanding:


The aliens received no reply.... (yes, I know, I know, an oldie but a goodie).

It also seems like petitions are the flavor of the month over at the Democrats. There's a no first strike petition (it appears that this petition has already worked ) and a paid maternity leave petition as well.

As some readers probably know, I'm not big on counter-petitions, but I'm considering starting one on both of these issues....

In a private correspondence, Mark Harrison, occasional contributor over at Catallaxy Files, has cleverly used my own medium to launch a withering attack on my poetic ability.

I thought I might share his contribution with you here:

Alex writes bad poems
They don't even fucking rhyme
Do not waste my time

Thanks Mark, you have inspired me to new literary heights:

If wit was shit, then
Mark Harrison: forever
would he constipate.

AAP and the Sydney Morning Herald report that:

Australia's June quarter balance of payments widened to its largest deficit since March 2000...

Hmmm. That strikes me as kind of strange, since by definition the "balance of payments" must always "balance" (I guess that's how it got its name), and so must, by definition, be equal to zero (apart from an economically meaningless statistical discrepancy in the data).

The story goes on to explain that it is actually the current account which is in deficit, not the balance of payments.

If that is what they really meant to say in that opening line, fine. But it would be just as interesting to write a story proclaiming that the capital and financial account is in surplus , and that this surplus is "the largest since an $8.1 billion capital and financial account surplus was recorded nine quarters previously".

The sum of the current account and the capital and financial accounts, must, by definition, always equal zero. Any differences are made up of "net errors and omissions".

And "statistical discrepancies" are not newsworthy, by any stretch of the imagination.

Ken Parish and Scott Wickstein keep referring to economics as "the dismal science", as if this is somehow a pejorative term.

For the real story of who coined the phrase "the dismal science" and why, read this article by David M. Levy of George Mason University, and Sandra J. Peart of Baldwin-Wallace College.

The relevant section is contained in the opening paragraphs:

Everyone knows that economics is the dismal science. And almost everyone knows that it was given this description by Thomas Carlyle, who was inspired to coin the phrase by T. R. Malthus's gloomy prediction that population would always grow faster than food, dooming mankind to unending poverty and hardship.

While this story is well-known, it is also wrong, so wrong that it is hard to imagine a story that is farther from the truth. At the most trivial level, Carlyle's target was not Malthus, but economists such as John Stuart Mill, who argued that it was institutions, not race, that explained why some nations were rich and others poor. Carlyle attacked Mill, not for supporting Malthus's predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact—that economics assumed that people were basically all the same, and thus all entitled to liberty—that led Carlyle to label economics "the dismal science."

If Levy and Peart are correct, then I am quite happy for Parish, Wickstein and others to keep referring to economists as "dismal scientists". But I'm not sure they will want to keep using a term that is associated with the views of Carlyle.

Tuesday, August 27, 2002

Even stating Arrow's Theorem in less than half a page is difficult in itself (and proving it is a nightmare). As you can imagine, putting it in a haiku is virtually impossible. Here is my best attempt so far, but it is still pretty lame:

Get dictatorship
if social choice set too large
(by Arrow's Theorem)

and a related haiku:

Condorcet's problem:
A beats B, B beats C, and
C beats A: cycle!

And here are two other public choice-related haiku:

Gordon Tullock says:
To find monopoly loss,
Must add rectangle.

With two candidates,
Both propose same policies:
Median voter.

While John Quiggin and Mark Harrison slug it out, I'm going to sit on the sidelines and continue to write poetry that soothes my soul and hopefully explains it all to non-economists.

If all of this talk about efficiency seems puzzling to you, here are my two latest Haikus to explain things:

Make A better off,
Leave B at least as well off:
Pareto gain found.

Winner (A) still gains,
Despite paying loser (B):
Kaldor-Hicks gain found

In today's Sydney Morning Herald, Ross Gittins says that our "values have changed", and he blames "increasing materialism" as the real reason behind the "rise of economic rationalism" and other societal woes.

Apparently, materialism is like a disease:

Materialism is highly seductive and highly contagious. When you see your neighbours getting in for their chop, it's hard to resist the temptation to get in for yours. So all of us have been infected to a greater or lesser degree.

But, unfortunately, Gittins doesn't tell us where we can find the cure for this insidious disease. I guess we'll have to engage in further nasty acts of materialism and purchase tomorrow's Sydney Morning Herald, so we can read Gittins' next column to find out the answer to it all.

This reminds me of a piece by Phillip Adams in the Weekend Australian, 20th October, 2001 ("Have faith in disbelief" ), in which Adams discusses ethics, religion, and various "isms". In that piece (sorry, I don't have a link, I actually had to purchase this piece from the News Ltd website), he states:

I'm disinclined to accept that economic rationalism is a much better ism than, for example, Marxism.

Since we now know from today's Gittins piece that "materialism" causes "economic rationalism", I guess we could conclude that Adams also prefers Marxism over materialism.

Today's Economics Haiku:

Hotelling's Lemma:
Differentiate profits
to get firm's supply.

First Welfare Theorem:
Competitive markets yield
efficient outcomes.

With lump sum transfers
Reach all points on contract curve:
Second Welfare Thm.

Prices change. Combine
substitution and income
effects: gives Slutsky.

When you have poetry, you have words, phrases, and rhyming. When you have econometrics, you have regressions, parameter estimates, and standard errors. When you you put the two together, you get....Econometrics Haiku, due to econometrician Keisuke Hirano at the University of Miami.

Here are a couple of my favorites (warning - you will not find these funny unless you know some econometrics, and maybe not even then):

Method of moments:
replace population mean
with sample version.


Testing restrictions:
Wald, Lagrange Multiplier,
Likelihood Ratio.

Here are three of my own:

The Coase Theorem says:
Efficient outcomes reached if
Transactions costs low.


Good negligence rules
set due standards of care at
efficient levels.


Private property
eliminates free riding:
commons not tragic.

Princeton economist Alan Krueger, a former Chief Economist at the U.S. Department of Labor in the Clinton administration, is famous - inter alia - for writing a series of papers and a book with John Bates Clarke medallist David Card of UC Berkeley, finding that raising the minimum wage would not increase unemployment. If you believe the Card-Krueger studies, then I have some Enron shares I'd like to sell you.

On the other hand, here is a recent paper by Krueger, co-authored with Jitka Maleckova, the results of which I find a little more plausible. They find that:

"having a living standard above the poverty line or a secondary school or higher education is positively associated with participation in Hezbollah. We also find that Israeli Jewish settlers who attacked Palestinians in the West Bank in the early 1980s were overwhelmingly from high-paying occupations. The conclusion speculates on why economic conditions and education are largely unrelated to participation in, and support for, terrorism."

Monday, August 26, 2002

Great Moments in Space Exploration, I
Mark Harrison links to this article posted by one Rand Simberg on the imminent war. In a similar vein, here is an older article by Victor Davis Hanson, who contributes regularly to the fantastic National Review Online.
While LA schools ban soda (see Great Moments in Public Education I, below), Pepsi can't seem to catch a break anywhere else, either. As the Wall Street Journal reports:

Pepsi's China story is a classic cautionary tale. It has invested $500 million in the country over the past 20 years, and has yet to make a dime of profit -- the company says it hopes to break even in the next few years. Elsewhere that would be called madness, but in China it's known as "long-term investing" and proving yourself to be an "old friend" of Beijing.

Pepsi set up its Sichuan venture in 1994, back when the government provided joint venture partners for big projects. That's how it teamed up with a most unlikely partner for bottling and selling soft drinks -- the local bureau of the State Administration of Film, Radio and Television, which regulates China's media.

Pepsi alleges that the venture's chairman, Hu Fengxian, expensed luxury cars and European vacations without its approval. It also suspects that funds were skimmed off by inflating marketing costs. Mr. Hu denies the accusations. But the dispute has become so bitter that local employees threatened Pepsi officials trying to visit the plant and inspect its finances.

Because China's courts are notoriously corrupt, most Western companies insist that their contracts with Chinese partners and clients include a provision for international arbitration. Pepsi is no exception, and it has now taken the Sichuan case to a panel in Stockholm. But don't hold your breath waiting for a happy ending. Even if the arbitrators favor the American company, Pepsi will still have to go to the local courts to enforce any judgment. And even if that happens, Mr. Hu and his friends may not comply, in which case Pepsi will be at the mercy of another Chinese judge.

I guess this is what Kerry Nettle is talking about when she laments that:
The rise of corporate globalisation is the greatest threat to our current democratic systems, and the increasing role of corporations in our governments and our democratic institutions amounts to nothing less than a creeping coup d'etat.
I just received this email (see below), and apparently, Gumi Abubakar, "Attorney and son of the present
Nigeria Vice President, Atiku Abubakar" wants to "establish a cordial relationship with me".

Well, gee, Gumi. I don't know about that, maybe I'll think about it when you stop stoning people.

FROM:Gumi Abubakar

DIRECT: Fax:234-1-7593607 Tel:234-1-4705964.

TO : The President/CEO

Dear Sir,

Wishing you a very pleasant time.

Sir, unfortunately we never had the opportunity to know one
another before this time, pardon me that I have to use this medium to
get to know you. I am Gumi Abubakar, Attorney and son of the present
Nigeria Vice President, Atiku Abubakar. I found your contact
informationn in a web directory and my reason for contacting you is to
establish a business and a subsequent cordial relationship.

The uncertainty of the Vice President to return to power come
2003 election has prompted him to secretly and urgently require your
assistance to secure some amount of money in US dollars for his
family use in the near future.

Your reward for this assistance will be negotiated and agreed
upon with me before the commencement of the transaction. The amount
involved is $50 million USD but the transfers will depend on
how much you can accommodate. This and more details on how the money
will be possessed by you will be discussed with you upon receipt of your response to this e mail.

Please be informed that a high amount of secrecy is required in
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Tim Blair reports on a speech by new Greens senator, Kerry Nettle. All of this reminds me of a quiz I once took: Who said it: Al Gore or the Unabomber ?
You've read the book, now see the video. Commanding Heights , a book on globalization originally written by Daniel Yergin and Joseph Stanislaw, was recently released as a television series by PBS in the United States.

A few months ago I wrote to the ABC and SBS to try to get them to screen it, but without any luck so far. For the life of me, I can't figure out why the ABC or SBS wouldn't want to screen a show that paints globalization in a positive light.

So I bought the video from Ain't globalization and international trade grand? I think the first video is the best (except for the interviews with Bill Clinton, who, to paraphrase General George S. Patton, knows as much about economics as he does about fornicating. Hang on - somehow, that doesn't seem right).
I am reviewing "The Ethics and the Economics of Minimalist Government" by Timothy P. Roth for the journal Public Choice. I am not much of a moral philosopher, and so I am finding it pretty tough going!

Great Moments in Public Education, I
From the Wall Street Journal's editorial page:

Some of our friends have been saying that the United States needs a draft to help win the war on terror. They cite polls showing Generation "Y" unwilling to fight overseas, and they argue that public support for risky operations will be weak unless children of the "rich" are conscripted to fight.

But every senior military officer we talk with opposes a draft, on grounds that a highly-trained volunteer force is more effective in today's high-tech warfare. And when it comes to attracting new recruits, the forces that performed so well in Afghanistan, the Balkans and the Gulf War are doing fine.

Ken Parish might be interested to know that two of my favourite economists, Walter Oi and Milton Friedman, are, to a large degree, responsible for successfully making the economic case for abolishing the draft. I think this is a perfect example of how good economic analysis can inform the choice of legal rules.

You can read about Oi's role in this policy decision in:

Meckling, William "Walter Oi and the all-volunteer force", Carnegie-Rochester Conference Series on Public Policy, Volume 33, Autumn 1990, Pages 5-8

The same edition of this journal details some wonderfully funny stories about Professor Oi's grad school days at that great institution, the University of Chicago.

In a column in last week's Sydney Morning Herald, Miranda Devine wrote a piece on gay marriages. Different views on this issue - which I am in substantial agreement with - are given by David Boaz and Wendy McElroy.

The relevant passage in the latter article is:
Marriage should be privatized. Let people make their own marriage contracts according to their conscience, religion and common sense. Those contracts could be registered with the state, recognized as legal and arbitrated by the courts, but the terms would be determined by those involved.

I would go further than this and question why such contracts need to be registered with the state and arbitrated by courts. There are many other arbitration mechanisms that are available.

John Quiggin, commenting on Posner, writes:

I think he [Posner] has focused on the least convincing ideas in Coase, namely that judges and the common law should make judgements in line with efficiency.

I am very happy to report that I find myself in agreement with John on this point!

My view is that we want judges to be experts about legal rules, not about economic analysis or about what is or is not efficient. To the greatest extent possible, judges should follow legal precedent and view legislation in light of long-established rules of interpretation. Their job should most definitely not be to conduct cost-benefit analyses.

In contrast, the claim of several law and economics scholars, most notably Paul Rubin , is that, by doing their job as judges, the common law evolves, and that this process eventually produces efficient legal rules. This may or may not be true, but I believe this kind of argument might be more appealing for both lawyers and economists than the one that is advocated by Posner. In other words, if we accept Rubin's claim, then we don't need to invoke Posner and require that judges should act as welfare economists. We just need judges to be judges, follow precedent etc, and efficiency will eventually take care of itself. [I also note in passing that Posner (p 614, 5th edition) has several good criticisms of Rubin's hypothesis].

John also writes:

I'm not a big fan of judicial legislation, though I dislike even more the kind of spurious literalism that allowed people like Garfield Barwick to impose their own political views while posing as conservatives. I prefer an 'original intent' approach to the interpretation of the law, with sensible modification in the light of changing social and technological conditions.

Again, I agree, with the (possibly unimportant) caveat that this might raise problems in relation to Arrow's theorem and issues in social choice theory. To wit, how do we want judges to interpret "original intent" if "original intent" was itself the product of an imperfect preference aggregation process? Might the "original intent" have been wildly different if a slightly different aggregation process or voting rule had been used by the original framers? If so, then how can we really focus on "original intent"? Arrow's theorem tells us that "original intent" might be a meaningless term in such cases. On the other hand, it could be that in most cases (ie where there are only two possible legal rules to choose from) that this is not an important issue.

Sunday, August 25, 2002

Ken Parish responds to my post (below) on a recent Gittins SMH piece.

1. Parish asserts that law and economics is “just another American apologia for neo-liberalism (aka feral capitalism)”. I don’t know what either of these terms mean, nor do I understand why they are relevant to the present discussion. So I am just going to ignore them, except to note that "capitalism" can't exist or operate without well-defined, well-enforced rules of conduct.

2. Parish claims that:
“Ronald Coase argues that market-based solutions will generally be more efficient than regulatory responses, but with the important proviso that information and transaction costs for both parties must either be zero or sufficiently low that there is (in effect) a reasonable degree of equality of bargaining power. “

(a) I don’t know what the term “more efficient” means. Something is either efficient or it isn’t.

(b) And, conceptually at least, bargaining power is a completely different issue from the issue of transactions costs.

Efficient bargains are still possible in a world of unequal bargaining power. In a world of sufficiently low transactions costs, bargaining power only determines the distribution of the gains, not whether efficient bargains will actually take place.

In my copy of Posner (5th edition, 1998), I can’t find any reference to “bargaining power” in any of his discussions of the Coase theorem. I also have Coase’s (1960) paper right here in front of me, and I can’t find any mention of bargaining power there either. In Cooter and Ulen’s “Law and Economics” (3rd edition, 2000), I can’t even find a reference to bargaining power in the index. In Polinsky’s “Introduction to Law and Economics”, I can’t find a reference to “bargaining power” in the index either, but he does of course discuss “strategic behaviour” in relation to the Coase Theorem, which is quite a separate and distinct economic issue. (I am happy to be corrected on any of these books and articles).

What the texts do discuss are duress, extortion, unconscionability, and other issues in contract law which may render a contract null and void.

Perhaps I am wrong, but none of what I have read about amendments to the TPA plans on altering these parts of contract law. If businesses somehow force consumers to agree to such contracts by threatening them, or by engaging in fraud or misrepresentation and so on, then the ordinary rules contract law still apply. And rightly so, in my opinion.

3. I never claimed anywhere in my article to be “a single-minded advocate of markets as an economic panacea”. Again, I don’t even know what this means, so I will ignore it.

4. In contrast to Parish’s claims, I explicitly stated in my post that the condition of low transactions costs will very frequently not be satisfied in the real world. If it was indeed the case that transactions costs were zero or sufficiently low in all cases, then the entire field of law and economics would not exist.

5. I never claimed that Gittins article "displayed abysmal ignorance of matters both legal and economic." Perhaps he does, but I hardly ever read the Sydney Morning Herald so I wouldn't know. I just think Gittins is wrong on this particular issue.

The crux of my argument is: in relation to the particular situations that we are discussing, if the government decides to enforce the particular contractual terms that we are talking about, then consumers and producers who sign contracts to this effect in the future will both be better off than they are at present.

On the other hand, if consumers and producers do not sign such contracts - for whatever reason - then they will be no worse off than they are today. That is all that I am saying, and I believe that it is a correct application of Coase's principles.

Let me repeat my argument, which I believe is still correct and remains unchallenged by Parish's post.

In the examples we are discussing, the transactions costs are, at present, made infinitely high by direct government intervention. To wit, such bargains are not enforceable at law. As I understand it, the purpose of the TPA amendments is simply to make them enforceable at law. As Parish correctly points out, the relevant section is:

A term in a contract to supply recreational service which operates to exclude, restrict or modify the:
- application of section 74 (which implies a warranty of due care and skill)
- exercise of rights conferred by section 74 (the right to sue for breach of contract where services are provided without the required care and skill)
- liability of a company for a breach of warranty implied by section 74
is not void.

If these contracts are so obviously evil and stupid, as Parish and Gittins both seem to claim, then I fail to see why the government needs to outlaw them. After all, if people like Parish and Gittins can figure out that they are so bad, then I am willing to guess that the rest of the population can as well. And if consumers don't have complete information about these contractual terms and what they might mean in practice, then surely the first best solution in a free society is simply to tell them that they are a bad idea (if that is what they are), not to ban them outright.

The amendments do not say, as Parish claims, that customers won't ever be able to sue recreational services businesses in either contract or tort. The simple reason is that if consumers do not waive such rights in the first place, then of course they will still be able to sue. After all, the contract which waives the relevant rights and which the government is now saying it will not render void cannot exist without the consent of the contractor and the contractee. Perhaps I am wrong, but if neither party agrees to terms of the contracts that we are talking about, then the rights to sue still exist.

It may well be the case, as Parish seems to claim, that transactions costs in these kinds of situations will be high, even after the TPA is amended. Then of course, if that is the case, the Gittins' principle of law and economics comes in to play. Then, by definition, the parties won't be able to arrive at mutually beneficial agreements (due to high transactions costs), and rights to sue won't be waived - all of which is fine by me. In that case, consumers and producers won't be able to find mutually beneficial ways of opting in to such contracts, and so they will be left in no worse a position than they are at present.

To repeat, I am not saying that businesses shouldn't be held liable, period. Of course they should, since I agree that, in general, businesses can avoid accidents at least cost. But perhaps in some situations they cannot. All I am saying is: let's put that claim to the test. If it is true that the present rule is efficient in all situations, then no waiver contracts will be signed. If, on the other hand, we enforce the wishes of consumers who want to waive their right to sue, then if both parties agree to such waivers, they will, as a matter of definition, both be better off. What is so wrong with that?

To repeat, it might be quite legitimate to argue, as Gittins and Parish do, that consumers will sign contracts that they don’t really understand, or whose terms they don’t really agree with. Or perhaps consumers might not estimate the probability of accidents correctly. This is all fine and dandy but – to repeat – these arguments have nothing to do with economic analysis.

Finally, I will read what Picciotto and Campbell have to say about the issue of liability rules, contracts and so on, but my guess is that it won't be very informative for the present discussion.

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