My friend Donald Marsh sent my letter addressing C. Fred Bergsten’s recent New York Times op-ed to Mr. Bergsten. Today comes this e-mail:
Your comment on my op-ed for last week is ridiculous.
Of course the American seller of land to the Chinese COULD buy US pharmaceuticals. But she could also save all the proceeds. Or use it to buy more imports from China and elsewhere.
We would never have a trade deficit in the first place if your postulated scenario were to occur in the real world. Come on!
C. Fred Bergsten
First of all – and despite calling my argument “ridiculous” – Mr. Bergsten, in his second paragraph, concedes that my scenario is possible. But apparently he believes it to be so far-fetched that it deserves his derision.
He misses my larger point that much of the U.S. trade deficit “comes back” as spending power to the U.S. I offered in my letter just one example to show that his suggestion that the trade deficit necessarily reduces demand for U.S.-made outputs is mistaken.
So let’s mention some other ways in which the dollars in the U.S trade deficit come back as spending power to America:
(1) if foreigners buy stock in U.S. firms. (U.S. trade deficit rises; sellers of stock have more money to spend – and U.S. firms have lower costs of capital.)
(2) if foreigners directly invest in America: those investment expenditures raise America’s trade deficit, but there’s no reduction in domestic spending of the sort that Mr. Bergsten implies in his NYT op-ed.
(3) if foreigners lend to Americans: the U.S. trade deficit rises. If Americans spend the borrowed funds (and why else would they borrow them?) there’s no reason at all why total expenditures need be lower in America in this case than if Americans never imported in the first place and instead spent all the money directly on the good and services that (in this hypothetical) they buy with dollars borrowed from foreigners.
Now Mr. Bergsten might worry that people hoard dollars (see his e-mail to me). But even if we grant that that is a problem, it has nothing to do with the trade deficit. The same problems would be created if Americans don’t trade at all with foreigners (or trade only in a “balanced” way) and yet hoard lots of dollars themselves.
There are other problems with Mr. Bergsten’s response to my letter – problems that I’ll address in a subsequent post. Suffice it here to say that his presumption that U.S. trade deficit = reduced aggregate demand in the U.S. economy is – while common – utterly without merit.
Tyler Cowen, my colleague at George Mason is a wonderful thinker and a superb communicator of ideas. But I have not been convinced by his argument in The Great Stagnation that living standards for the average American have either stagnated or grown very slowly since the early 1970′s relative to the earlier part of the 20th century because we have picked all the low-hanging fruit–the best ideas have been exploited and the new ones are less transforming.
The term “stagnation” actually means static, stuck in a rut, not progressing and so on. Tyler often concedes that there has been growth in living standards since say, 1973, but that the rate of growth has slowed. This is an easier thesis to defend. But recently Tyler invoked the lack of change in median income since 1973 has evidence for his thesis. I challenged him in this post to explain what he means by that claim:
Does it mean that the person who was the median or family in 1973 continued onward at a constant standard of living without any gains despite enormous gains in per capita income? This is the way the story is usually told–the rich (as if they were a fixed group of individuals, an exclusive club) somehow managed to gain all of the gains of the intervening 38 years for themselves. This is clearly not true. If you look at any data that follows the same people over time, you will see that their lives improve as they get older and that they are typically better off than their parents. Better off in absolute terms, not relative ones. Some people move up relative to others. Some move down. But the entire distribution moves up.
Or does it mean that the typical family or individual in America today has the same standard of living as people back in 1973? Is the median a surrogate for the middle class? This is a different claim from the first one. The problem with this claim is the types of people in the middle in 1973 are different from the types of people now. There was a major demographic change in the 1970′s. The divorce rate exploded. Suddenly (and it was pretty suddenly) new households were created as couples divorced. The rate of household creation grew faster than population.
In the rest of that post, I argue that the rise in the divorce rate changes the number of families, particularly below the median, lowering the measured median and distorting the measure of progress. I also mentioned that inflation is overstated (thereby understating the rise in living standards) and I closed with a discussion of the returns to education.
Tyler has responded at some length, which I much appreciate. I will quote the middle of his response verbatim and comment along the way:
I am reading a fascinating book, The Art of Immersion, by Frank Rose–I’ll be interviewing him this week for EconTalk and if all goes as planned, the interview will be up on the web on October 11.
The book is a look at storytelling and how the web has made storytelling immersive. Along the way, he discusses Lost, a very immersive story, obviously, for millions of people. I saw a few episodes but never immersed myself in that world. Rose discusses Lostpedia, the Lost Encyclopedia and the wiki available online about everything Lost. In particular he mentions that there is an article in the wiki on the economics of the island.
I checked it out for fun. It’s pretty bizarre. Written initially (then later edited by others) by a self-proclaimed socialist who at the time was a grad student in economics, it lays out three approaches to resource allocation on the island:
- The socialist approach allocates resources through consensus and planning.
- The capitalist approach relies upon a market to allocate resources based on supply and demand.
- The tribal approach holds that in small communities economic decisions can be made at a personal level. That such a community is not of sufficient scale to require or manage a formal system of exchange or enforcement of laws. Thus the tribal approach relies on small-scale exchanges and community resources.
Jack represents the socialist approach to resource allocation. Jack is a mostly benevolent person who attempts to solve the problems of the Island imposed by scarcity, even to the point of personal exhaustion. Jack’s surname, “Shephard,” reinforces this interpretation – he exists to care for and organize the survivors.
Sawyer is seen as representing capitalism. In this context, Capitalism is defined as an economic and social system in which the means of production are predominantly privately owned and operated for profit, and in which investments, distribution, income, production and pricing of goods and services are determined through the operation of a market economy.
… is from Jim Buchanan’s and Geoff Brennan’s 1985 book The Reason of Rules:
The individual is the unique unit of consciousness from which all evaluation begins. Note that this conception does not in any way reject the influence of community or society on the individual. The value structure of an isolated human being may be totally divergent from that of such a person described by membership in one or many social relationships. The presupposition requires only that societal or communitarian influences enter through modifications in the values that are potentially expressed by the individually and not externally.
This above is fine description of methodological individualism – a scientific presupposition that is too frequently mistaken as being an assumption that each individual’s preferences emerge only from within each individual and are not affected in any significant ways by other people.
I choose this quotation today because today is Jim Buchanan‘s 92nd birthday. Happy Birthday, Jim!
This week’s EconTalk is Bruce Meyer of the University of Chicago talking about the growth in middle class incomes over the last forty years. He argues that the middle class has seen significant increases in its standard of living despite the usual claims to the contrary. If you wish to comment on this podcast, head over to the link above.
Andrew Bolt – Tuesday, October 04, 11 (02:05 pm)
Former Labor Minister Barry Cohen admits to having committed a potential crime under the Racial Discrimination Act:
A newcomer to Aboriginal politics, I was fascinated by the views expressed by a group of speakers who could best be described as “whiter than white”.
I remarked to a veteran activist: “Those are funny comments from white people.” He replied: “They’re not whites, they’re Aborigines.” I responded, a little naively: “You’re joking.” He answered with a terse “No."…
For years I wondered what would happen when someone loudly proclaimed they were Aboriginal and their claim was rejected....
The bomb went off recently when the pin was pulled by Federal Court judge Mordecai Bromberg. The good judge claimed that prominent journalist Andrew Bolt had “sought to convey the message that certain people of a certain racial mix should not identify with a particular race because they lack a sufficiency of colour and other racial attributes to justify the racial choice which they had made”.
No one apparently had alerted him to the fact you could choose your religion or your nationality but not your race…
I don’t intend to discuss the details of the case brought by the nine pale plaintiffs for the obvious reason I could well be the next one in the dock. Oddly enough I had been planning to write an almost identical article to Bolt’s....
Bolt will be spot-on about freedom of speech going down the gurgler. More and more people will be scared to speak their minds. If that happens, the goodwill that has continued since the 1967 referendum will gradually disappear, and that would be a tragedy for all of us but particularly for the Aboriginal community.
I apologise to Professor James Allan for not having linked earlier to his article calling for the repeal of the Racial Discrimination Act:
Start with section 18C, the provision relied on against Bolt. In an Orwellian way, it makes some conduct unlawful, but not a criminal offence, and does so if your act “is reasonably likely . . . to offend, insult, humiliate or intimidate” others, and done because of their race (among other things). Then, section 18D gives exemptions, if what you said or did was done reasonably and in good faith, including as part of a fair comment on a matter of public interest.
As I said, this legislation needs repealing not least because it has the potential to create some sort of half-baked group right not to be offended that sends the most chilling effect over all sorts of speech. And that is virtually how Bromberg of the Federal Court interpreted it in his judgment released two days ago. So he interpreted the section 18C “reasonably likely to offend” test to be one that is assessed by reference to some objective member of the group spoken about, those claiming victimhood, not by reference to a reasonable member of the community at large.
That pretty much finished off Bolt right there. But on top of that, Bromberg decided that the onus of proof for triggering the section 18D exemption lay on Bolt and, anyway, that the articles as written were not reasonable nor written in good faith. It is not at all clear on what basis the judge comes to those latter conclusions other than he thinks Bolt was being gratuitously offensive (a different point and not anything we want judges supervising, anyway), that Bolt made a few factual errors (a non sequitur) and, possibly, that deep down the judge didn’t see any genuine public interest in these pieces (again, not to the point of section 18D). So, as interpreted by Bromberg, bad legislation has become worse legislation.
Viewed from outside Wonderland, the decision in Eatock and Bolt is bizarre. Unless and until there is a successful appeal, or the legislation is repealed or amended, you can breach the Racial Discrimination Act without actually racially discriminating against anyone, or being motivated by racial hatred.
(The legal risk is too high to allow your comments. I apologise.)
Andrew Bolt – Tuesday, October 04, 11 (09:24 am)
So Wayne Swan’s brother disagrees with him. But should a family connection really elevate his opinion above that of anyone else?
THE Swan family is at war over the Government’s proposed poker machine reforms, which could leave their local surf club with a $720,000 black hole and struggling to pay for rescue equipment.
Treasurer Wayne Swan’s older brother Ian who sits on the Coolum Surf Life Saving Club board and is a life member told The Courier-Mail that small clubs would be in the firing line....
“This will have a huge impact on small clubs like surf clubs. It has the potential to wreck everything,” Ian Swan said.
I’m not sure it’s fair to play off siblings like this, although the counter argument is that both are adults who should be entitled to express their own views. Families can be complicated enough.
For the same reason, I am not really interested in what Kevin Rudd’s brother says about him, or what Bob Katter’s does ditto. Too many swirling motives to untangle, and sometimes the more famous half is constrained in how he and she can respond.
I was very much struck and impressed by Red Symons’s reply when a close relative unloaded with something hurtful. “Families are difficult,” was all he said.
Reader Artist Formerly Known As Chris:
Yet people are more than willing to bash Peter Costello with something his brother Tim said.The fact that Ian Swan is in a position to make a conflicting comment to proposed legislation is actually relevant and newsworthy, especially on the Sunshine Coast - because he’s Waynes brother merely makes it more interesting.If you read the whole article, the actual news is:The brotherly-spat comes amid revelations from independent Andrew Wilkie that senior Labor MPs have met privately with him to try to talk him out of his threat to bring down the Government if it fails to legislate his pokie machine reforms by May.(My bold)
Andrew Bolt – Tuesday, October 04, 11 (09:20 am)
How the global warming debate is managed by a university so that there’s none at all:
AGRICULTURAL consultants have expressed disappointment at the University of Western Australia’s (UWA) attitude towards a planned debate on global warming.
After hearing predictions of the impact that global warming could have on WA farming, Bill Crabtree and David Falconer approached UWA to hold a debate representing both sides of the global warming argument.
They said after getting the initial go-ahead from UWA’s vice-chancellor Alan Robson they were told that no speakers could be found for the pro-global warming side and that the speakers the pair had organised to speak against global warming were not credible enough to speak at a debate on UWA grounds.
Mr Crabtree said the speakers that had been approached to question the degree of climate change were credible and included mathematician and engineer David Evans, who between 1999 to 2005 worked full-time for the Australian Greenhouse Office (now the Department of Climate Change) modelling Australia’s carbon in plants, debris, mulch, soils, and forestry and agricultural products.
William Kinnimoth, among other things, worked with the Australian Bureau of Meteorology for 38 years in weather forecasting, research and applied studies.
For 12 years until 1998 he was head of its National Climate Centre.
(Thanks to reader John.)
Andrew Bolt – Tuesday, October 04, 11 (08:03 am)
Former Greens candidate Dr Clive Hamilton praises a play about “an eminent climate scientist who allegedly punched a climate denier in the face”. Hamilton asks:
Now if a sceptic had said that… Or said a few other things said by this warmist.
Hamilton sins against the Racial Discrimination Act, by singling out people on the grounds of their race, falsely describing their disposition, and using offensive and sarcastic language. Naturally it’s published by the ABC:
Crownies scriptwriter Chris Hawkshaw must have attended a few public meetings to take notes on the boorish tactics of the deniers - bombastic old white blokes who stand to declaim their crazy views, insensitive to how foolish they appear and deaf to all counterarguments. Healy captures perfectly the ignorant self-certainty and Aspergerish insensitivity so typical of the breed.
(Thanks to reader James.)
Andrew Bolt – Tuesday, October 04, 11 (06:09 am)
I thought we were rescuing asylum seekers from danger, not deliberately helping them to a lingering death:
BUYING cigarettes and tobacco for immigration detainees is costing taxpayers more than $1.4 million a year. While the federal government spends millions on anti-smoking campaigns, the cost of keeping up detainees’ habits costs about $4000 a day.
(Thanks to reader handjive and others.)
Andrew Bolt – Tuesday, October 04, 11 (05:44 am)
Has anyone told Climate Commission Tim Flannery about the rains and heavy crops in the state he once claimed global warming would turn into a wasteland, with a ”ghost metropolis” as its capital?
Andrew Bolt – Tuesday, October 04, 11 (05:35 am)
Mitchell’s 196-page tome is essentially an anti-Catholic sectarian rant of a kind prevalent in Australia a century ago. Mitchell’s message is that Australians should not elect the Coalition led by Abbott because he is a conservative Catholic who has “never left the Catholic Church”. Mitchell, who did not attempt to interview Abbott for her book, presents the Opposition Leader as a “mad monk” and an immature “zealot” who is ingrained with “sexism and misogyny” and who does not acknowledge the separation of church and state.
In the author’s view, Abbott has been reliant on “a series of older male mentors throughout his life”. They include, wait for it, “his father, who once hoped to become a Catholic priest”. Shame. Then there are the Jesuit priest Father Emmet Costello, John Howard, Cardinal George Pell and the late political activist B.A. Santamaria. All except Howard are Catholic.
Henry Rosenbloom, who runs the book’s Melbourne publisher, Scribe, has allowed a number of factual errors to remain in Mitchell’s text. I will detail these in my Media Watch Dog blog on Friday. The essential criticism of Mitchell and Rosenbloom is that they believe it is acceptable to describe Abbott as “dangerous” on account of his Catholicism…
The fact is that Abbott, both in government and in opposition, employed a number of senior women on his personal staff. He is politically close to such senior Liberal Party MPs as Julie Bishop and Bronwyn Bishop.What’s more, according to the latest Newspoll, Julia Gillard leads Abbott by only two points - 39 per cent to 37 per cent - when females are asked who would make the better prime minister. The evidence suggests that, unlike Mitchell and Burnside, many voters do not regard him as a dangerous misogynist intending to create a Christian theocracy in the Antipodes.
Even Louise Adler, the Melbourne University Publishing boss whose Leftism ticks every box, is astonished by Mitchell’s caricature, having worked with Abbott on his own book:
Abbott the author is unfailingly gracious, reflective and responsive to editorial suggestions. To be sure, as with every politician we have published, Battlelines is the product of calibrating the political consequences of every phrase. My own experience, across the ideological chasm that divides us, is not of the ‘’bully boy’’ of Mitchell’s derivative account, and there’s nothing like authoring a book to inflame egoism and ignite self-importance.
The gap between Mitchell’s reading and my acquaintance makes me reflect on the disjunction between the public performance and the private reality.
Credit to Adler.
Andrew Bolt – Tuesday, October 04, 11 (05:20 am)
First, I believe there is a persistent belief among Australians, put forth by political and key opinion leaders, that many Aboriginal people are leading a traditional lifestyle, or at least maintain a traditional lifestyle mindset. In other words, they have the hunter-gatherer way of thinking, minus any hunting or gathering.
Leading Aboriginal people into the modern world (out of their impoverished world) would destroy the romanticised view some have of them as the hunter-gatherer and would also take away the jobs of many.
Second (again this is my opinion only), .... Aboriginal people are hindered by their own beliefs that every problem they face is the result of the white government.
Andrew Bolt – Tuesday, October 04, 11 (05:16 am)
A FEMALE prime minister who rolled the sitting leader to take Australia’s top job finds herself sinking in the polls - but it’s purely fiction, of course.
Such is the fantasy detailed in the new novel from Jessica Rudd - the daughter of rolled prime minister and now Foreign Minister Kevin Rudd.
The 27-year-old author and former Labor campaign worker is putting the final touches on the follow-up to her debut novel Campaign Ruby, the tale of a prime minister cut down by his ambitious female deputy.
Her 2010 chick-lit hit won praise and puzzlement for the remarkable prescience of its storyline, given it was finished months before the sudden departure of her father as prime minister in June last year. The book was released for sale two months after the Labor coup, which Ms Rudd later described as a “spooky” but a distressing coincidence.
Andrew Bolt – Tuesday, October 04, 11 (05:13 am)
Just another of those little bungles:
THE federal government is racing to plug a massive hole in its revenues caused by botched tax changes last year that are allowing companies involved in takeovers to claim tens of billions of dollars in losses dating back nearly a decade.
The looming fiscal debacle means Canberra is likely to take the extraordinary step of announcing retrospective legislation this month to try to fix the issue, despite the outrage this will cause in the business community.
The changes to the tax law came into effect in July last year but the government and the Australian Taxation Office belatedly realised in March the massive loophole created by accident in corporate tax.
The outcome will have far more impact than today’s tax forum on Labor’s intention to return the budget to surplus next financial year because the government faces a flood of claims for billions of dollars of tax deductions it was not expecting.
Andrew Bolt – Tuesday, October 04, 11 (04:57 am)
Oops. I’d thought that speaking your own mind, rather than speaking someone else’s, was the mark of a true commentator:
A RESPECTED NRL commentator has admitted that ostensibly off-the-cuff remarks during a rugby league final attacking proposed poker machine reforms were provided to him by Channel Nine management.
The admission by Ray Warren, one of Australia’s most famous sports commentators and a former gambler, emerge as the two independent politicians backing the pokie reforms lodge a formal complaint with the broadcaster over the remarks, which they say break the law.
Warren and fellow commentator Phil Gould have been criticised for statements made just after half-time in the preliminary final between Manly and Brisbane on September 23. ‘’The proposed mandatory pre-commitment that they’ve put forward is a rubbish policy. It won’t work,’’ Gould said.
‘’It was a directive from up top that it be read by at least somebody, so I read it,’’ Warren told his co-host, Dan Ginnane.
Warren said he supported the comments and while he could not be sure, he believed they were a paid message. ‘’I think it was an ad, if you like, it sounded like an ad. I think it was done on behalf of the rugby league, who is fully supportive of the clubs.’’
I’m now not so sure this isn’t a matter for regulators, but in any event I do very much think it’s matter for pubic criticism - that adults can sit there pretending what they are told to say is in fact their own genuine belief. I’d be mortally embarrassed.
Fry was talking about double meanings etc, in language etc, and said the following... Surely in terms of lineage, a 50/50 factor should apply - the dominant "bloodline" become the race of definition...
...It so happened that I was in Kenya at the time of Barack Obama’s election as president. I spoke to a member of the Luo tribe, from which Obama’s father came, and asked if he was pleased that America should not only now have a black president, but one from his people. “Very pleased of course,” came the reply, “but you should consider that had Mr Obama been elected president of Kenya, he would have been our first white president.”