http://www.petergallagher.com.au/index.php/site/index/ Peter Gallagher is a trade and public policy analyst en peter@petergallagher.com.au Copyright 2008 2008-05-11T02:13:01+10:00 http://www.petergallagher.com.au/index.php/site/gin-television-and-social-surplus/ http://www.petergallagher.com.au/index.php/site/gin-television-and-social-surplus/#When:21:49:16Z Clay Shirky's clever twist on a familiar point about the 'social surplus' frittered away watching television (but not by Wikipedia?)."And television watching? Two hundred billion hours, in the U.S. alone, every year. Put another way, now that we have a unit, that's 2,000 Wikipedia projects a year spent watching television. Or put still another way, in the U.S., we spend 100 million hours every weekend, just watching the ads. This is a pretty big surplus…" 2008-05-13T21:49:16+10:00 http://www.petergallagher.com.au/index.php/site/fk-and-the-oed/ http://www.petergallagher.com.au/index.php/site/fk-and-the-oed/#When:04:11:43Z The problem for lexicographers, says the OED, is not the taboo. It's that the use of 'f**k' and other more obscure encodings makes it difficult to document the etymology (OMG, I've joined the blogs that say 'f**k'). If your Latin isn't up to the 15th century rhyme that the OED credits as the earliest use, try this translation. 2008-05-11T04:11:43+10:00 http://www.petergallagher.com.au/index.php/site/climate-models-do-not-justify-even-precautionary-action/ http://www.petergallagher.com.au/index.php/site/climate-models-do-not-justify-even-precautionary-action/#When:02:13:01Z In an article that is itself a model of its kind, Patrick Frank shows that the documented uncertainties in General Circulation Models (GCMs) are so large that it is impossible they could make falsifiable predictions of the climate, even over the next few years. Illusory precision in the IPCC's trend lines, he points out, does not amount to accuracy and does not support the sort of precautionary action that the Garnaut Review seems set to recommend."…those who advocate extreme policies to reduce carbon dioxide emissions inevitably base their case on GCM projections, which somehow become real predictions in publicity releases. But even if these advocates admitted the uncertainty of their predictions, they might still invoke the Precautionary Principle and call for extreme reductions ‘just to be safe.’ This principle says, 'Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.' That is, even if we don’t fully know that CO2 is dangerously warming Earth climate, we should curtail its emission anyway, just in case. However, if the present uncertainty limit in General Circulation Models is at least ±100 degrees per century, we are left in total ignorance about the temperature effect of increasing CO2. It’s not that we, 'lack…full scientific certainty,' it’s that we lack any scientific certainty. We literally don’t know whether doubling atmospheric CO2 will have any discernible effect on climate at all."  Skeptic Magazine—Patrick Frank Frank's article is well-written, well-documented and brim-full of insight into the limits of GCM modeling. He writes without jargon and with no more algebra than is absolutely necessary: remarkably little as it turns out—for reasons that are illuminating in themselves. Unfortunately, the companion article published by Sceptic Magazine, in support of the AGW propositions offers little more than a repetition of well-known IPCC assertions. Global issues, Climate 2008-05-11T02:13:01+10:00 http://www.petergallagher.com.au/index.php/site/more-trade-horrors-from-the-us-campaign-trail/ http://www.petergallagher.com.au/index.php/site/more-trade-horrors-from-the-us-campaign-trail/#When:02:07:43Z Obama's policy, it appears, is to enforce precautionary action to reduce carbon-emissions by means of trade sanctions: a policy that the Europeans have prudently disowned. "Ultimately, the solution to global climate change is going to be mediated through the lens of global trade. Sen. Obama has been supportive of mechanisms that have the U.S. take a first step, and if after a period of years other nations are not acting in what is deemed to be a commensurate responsible manner, look to our trade laws to try to ensure that there's no inequity or competitive disadvantage imposed on U.S. businesses. The idea that was initiated by the International Brotherhood of Electrical Workers, in which importers of energy-intensive products would be required to purchase permits for the carbon embedded in those products -- the details need to be fleshed out, but that seems to be a reasonable approach to level the playing field, if we get there."(Obama energy adviser Jason Grumet)The proposal from the electrical workers' union is explained in this NY Times article. What EC Trade Commissioner Peter Mandelson means by the proposal being a "probable breach" of WTO trade rules is that unilateral measures must be both necessary and non-discriminatory under the GATT's rules on "environmental" non-tariff import barriers. In the 1990's, the USA twice failed these tests of its laws on turtle-exluding purse-seiner nets for shrimp boats and (probably—the case was never decided) of its laws concerning the protection of dolphins by tuna boats. As I argue here, the most plausible necessity-test is one that shows a barrier has been imposed to comply with an internationally-agreed obligation in an environmental treaty, such as the Kyoto Protocol. Of course, the reason that the Obama camp is proposing this unilateral action is precisely because such international agreement on trade sanctions is entirely unlikely. Here, Peter Mandelson's second point is relevant. The Obama proposal is 'bad politics' because unilateral action by the USA or Europe to impose sanctions would make the prospect of international agreement on any collaborative action on climate change—let alone on sanctions for non-compliance with emissions controls—more remote, defeating his whole purpose. Obama's advisors, at least, could take a few lessons in leadership from Mandelson. Global issues, Climate 2008-05-11T02:07:43+10:00 http://www.petergallagher.com.au/index.php/site/does-trade-with-china-help-the-poor/ http://www.petergallagher.com.au/index.php/site/does-trade-with-china-help-the-poor/#When:07:57:01Z One focus of the economic debate (if that's what it is) in the battle for the Democrat nomination in the United States seems to be on the impact of trade—read: China—on jobs for the low-income group. But that's only one side of the story. The other side is pretty interesting, too. We examine the role played by Chinese exports in explaining the lower inflation of the poor. Since Chinese exports are concentrated in low-quality non-durable products that are heavily purchased by poorer Americans, we find that about one third of the relative price drops faced by the poor are associated with rising Chinese imports.Broda and Romalis 2008-04-27T07:57:01+10:00 http://www.petergallagher.com.au/index.php/site/australias-trade-performancehow-bad-is-it/ http://www.petergallagher.com.au/index.php/site/australias-trade-performancehow-bad-is-it/#When:09:18:01Z The Australian government's Review of Export Policies and Programs has apparently been prompted by concerns about export performance."While exports exhibited strong growth in the period 1980-2001, reflecting technological changes and important domestic policy initiatives such as the lowering of tariff barriers and the introduction of pro-competition policies, in recent years there has been a marked deterioration in the performance of Australian exports."(Mortimer review)Australia's terms-of-trade have strengthened, due to demand for minerals and food commodities. What has led to the apparent drop in export performance? (Imports are doing fine...)Since the 1980s, when Asia economies surged ahead in trade and growth and Australia languished with apparently unaccountable low trade performance, Australians have been susceptible to a sort of moral panic about trade and external debt. Our then Treasurer (Paul Keating) fulminated in 1986 about 'banana republic status' if we didn't bury the public-debt mountain. In fact, trade performance picked up in the late 1980s. It was only the wallowing exchange rate, and its impact on debt-service, during the 1990-92 recession that for a while seemed to bear-out Keating's warning. The psychic impact was more lasting. Privately, it appears, many Australians really are afraid of becoming 'white trash' in Asia, condemned to a commodity-linked spiral of immiserizing growth. It is pretty clear that net exports have been a small (~1%) drag on the value of output measured as final domestic consumption. It also seems that the recent trend, since 2001 has been monotonously negative. The trend looks different in current prices, but the 'chain volume' measures are a more robust illustration of what's going on because they abstract from the substitution effects of changes in the relative prices of goods and services year-year. There are several likely contributors to the negative trend in net-exports: The exchange rate—dominated by the trend versus the US dollar—is probably one explanation, as the chart illustrates. The Australian dollar has been backed by higher interest rates than comparably stable currencies in the past few years. Of course, this means exports are more expensive for our customers and imports less expensive than they would otherwise be. The strong pace of recent economic growth is another part of the explanation. The high levels of capacity utilization—indicated by historically low levels of unemployment—combined with the export- and domestic-supply impacts of a decade-long drought, have seen consumers satisfying more of their demand from imports (a good thingsince the alternative would, certainly, have been higher levels of inflation). The deterioration of net export performance during a period of high prices and demand for minerals exports points to serious shortfalls in export supply capacity especially in transport infrastructure, planning, investment, and regulation that need to be addressed. For more on these contributors to recent trends, see the Decembe 2007 record of the IMF's Article IV consultations with Australia and the RBA's Assistant Governor's address on the Australian Economic Outlook in March, 2008. Should we be worried by the net-export trend? If there were a reason to think that it will persist for decades, certainly. But the explanations for the trend are cyclical or stochastic (drought) and therefore unlikely to persist. Chances are very good that the current trend will turn around again. Admittedly, the deficit does not look cyclical when viewed in chain-value terms, but seen in current dollars the cyclical character is more obvious. Is there a good prospect that changes in export policies and programs will contribute much to a turn-around in the recent negative trend in net exports? No. There is some plausible evidence that export promotion agencies, for example, have a positive impact, up to a point. But there is no reason to think that they can improve performance on the order of one-percent of GDP. At least, not without switching demand in ways that are bound to have even more negative impacts on growth and productivity (like import barriers, for example, or exchange manipulation). Most of the factors identified above are not, in any case, very susceptible to policy settings. The important exception is the need for action on infrastructure. There is also a strong case to return to the micro-economic reform agenda that has lain all-but-abandoned since the mid-1990's to improve productivity incentives in services and to remove hidden protection in goods sectors. There are two further observations to be made about the outlook for future trade performance: First: Australia's terms-of-trade have improved dramatically and may stay strong for some time. A survey of Australia's long-term TOT shows they have not, on the whole, been unfavorable—much less immiserizing—despite the historical composition of our exports (commodities) and imports (manufactures). There has been a much larger degree of diversification in export composition than the popular imagination allows. Recently, too, there has been a dramatic improvement in our TOT—by about 40% since 2003—due, mostly, to the China effect (the chart is from the IMF Article IV consultations referenced above). An improvement in our terms of trade, even if it deteriorates over time, is equivalent to unilateral liberalization by our trading partners. In other words, we get more bang for the export buck. It lifts the exchange value of our exports, increasing our income in the short run. But it does not contribute directly to our productivity growth in the sense of raising output per hour of manpower employed. Second: Our export performance—indeed, our trade performance generally—is unlikely ever to match that of our regional trading partners. It is undeniable that Australia's trade-to-output ratio is low by comparison with, for example, OECD economies of the same economic size. With a trade share of GDP of less than 0.5%, we rank near the bottom of the OECD line-up with the giant economies of USA and Japan. But the explanation for this phenomenon probably has less to do with the composition of trade or the moral-fibre of Australians than with geography. Australia (and New Zealand) are further from the centers of world production and consumption than any economies of the OECD economies or the emerging trade giants of the BRICs. Until 1990s, our trade-distance from centers of global production was increasing."Accounting for the factors in the gravity trade equation suggests that Australia’s comparative trade performance is actually quite strong. These factors, which are ordinarily outside the control of policy, plainly have a role in determining many economic outcomes in a country. In Australia’s case, geographic remoteness increases the costs of trading, which in turn lowers the extent of international trade and provides varying degrees of natural protection for Australian industries."(Battersby & Ewing) A Reserve Bank staff paper looking at the general question of 'openness' (export/GDP ratio) reached similar conclusions about Australia's distance-limited performance: it's at least as strong as would be expected given our geographic isolation. Indeed, it's a little stronger than would be expected, possibly because of geographic size (diverse land-based endowments) and a liberal trade policy. Finally, gravity models also suggest that Australia's productivity gap to the United States, for example—we struggle to reach and rarely exceed 80% of USA productivity levels—may be explained by the distance effect. Global issues 2008-04-19T09:18:01+10:00 http://www.petergallagher.com.au/index.php/site/a-magic-recipe-for-global-food-shortages/ http://www.petergallagher.com.au/index.php/site/a-magic-recipe-for-global-food-shortages/#When:23:10:01Z There is no 'famine' nor even a long-term food scarcity. But poor people are paying more for food—when they can get it—than they should because governments have screwed-up. There is a well-attested solution to this problem, that looks like magic. You can have your cake and eat it too, with both higher prices for producers and lower prices and better supply for consumers. Victor Mallet in the Financial Times has accurately identified the problem: "…The immediate cause of this crisis is not – perhaps surprisingly – a shortage of food. The problem is the sudden reluctance of traditional exporters to sell their surpluses. As with credit providers in the seized-up credit markets, each producer is hoarding its own supply in case of hard times at home, because it suspects its trading partners will do the same. Trust in the efficiency and liquidity of the market has collapsed… The current seizures in the markets are therefore a cause for general alarm. Singapore, one of the world’s wealthiest nations, depends on food imports as much as Eritrea, one of the poorest. …Like international trade, domestic trade in farm produce is often highly distorted. While developed nations tend to support their farmers at the expense of consumers, developing countries typically subsidise city-dwellers at the expense of rural smallholders, who receive low prices and have no incentive to increase their output. As the Financial Times reported two weeks ago, Asian countries are among the worst offenders. Farming productivity growth has slowed drastically in the current decade…Asian governments could do much to boost food output by liberalising their domestic markets, helping to provide farmers with credit and giving them access to the sort of modern technology and advice they once received as a public service. "(Financial Times") Prices for grains and livestock products on world markets are at record highs at present partly because of a coincidence of bad growing-seasons. But governments have made the situation much worse—as Victor Mallet argues—by banning exports to keep local prices below market prices and by subsidizing non-food uses of grains. Here is an excerpt from the latest USDA market outlook for grains that describes the problem graphcially. Chances are, however, these critical food shortages will be overcome because they are mostly the result of 'frictions' in supply and demand, made worse by knee-jerk reactions. There is a much more serious underlying problem that ensures these frictions will return. Trade protection for farmers and food processors in developing countries is higher on average than it is even in protected industrialized countries (click the column-graph, below). This wide-spread trade protection taxes food supplies world wide, depressing market prices and discouraging competitive producers who live with the market price. But these lower prices on world markets do not flow through to poor people who live in countries where governments slug imports with high taxes. The result is a double-whammy of misery: poor people face higher prices and smaller supplies than they should and production falls because market-facing farmers get lower prices than people are willing to pay. The "magic" solution has been known for many years. Opening food markets to trade will lead to two apparently contrary results that solve the problem. There will be higher prices for producers world wide and lower prices (and more stable supply) for poor consumers. The Center for Agricultural and Rural Development (CARD) at Iowa State University has a decades-long reputation for analysis of global food markets. In a study published for CARD this month, Jacinto Fabiosa nicely demonstrates this "magic" effect with a straightforward analysis that uses data from 158 developing countries. Here is the abstract of the study describing the results:First, agricultural trade liberalization is estimated to raise economic growth by 0.43% and 0.46% in developing and industrialized countries, respectively. Since food consumption of households with lower income are more responsive to changes in income, their food consumption increases more under a trade liberalization regime. Second, trade liberalization is expected to raise world commodity prices in the range of 3% to 34%. Since, in general, border protection is much higher in developing countries and the level of their tariff rates are likely to exceed the rate of price increases, 87% to 99% of the 83 to 98 countries examined would have lower domestic prices under liberalization. Again, given that low-income countries are more responsive to changes in prices, food consumption in these countries would increase more. Finally, empirical evidence shows that if there is any harm on small net selling producers in a net importing country, it is neither large in scale nor widespread because the substitution effect dominates the net income effect from the lower domestic prices. (CARD: Fabiosa) Global issues 2008-04-16T23:10:01+10:00 http://www.petergallagher.com.au/index.php/site/new-zealand-copyright-reform/ http://www.petergallagher.com.au/index.php/site/new-zealand-copyright-reform/#When:21:41:42Z Is it too soon to hope the tide is turning against the abuse of copyright privilege at last? A report of consumer-friendly copyright reform that preserves fair dealing rights, from across the Tasman: “Unlike the DMCA in the US, the new [New-Zealand] law allows people to bypass DRM if the intended use is legitimate, it explicitly allows format shifting and timeshifting, and it refuses to protect region-coding of movies and games."(Wired.com)More here from Michael Geist, Univerity of Ottawa professor of internet and e-commerce law. Global issues 2008-04-10T21:41:42+10:00 http://www.petergallagher.com.au/index.php/site/a-foolish-overreaction-to-climate-change/ http://www.petergallagher.com.au/index.php/site/a-foolish-overreaction-to-climate-change/#When:10:06:24Z Former UK Chancellor, Nigel Lawson, in the Financial Times. "Over the past five years I have become increasingly concerned at the scaremongering of the climate alarmists, which has led the governments of Europe to commit themselves to a drastic reduction in carbon emissions, regardless of the economic cost of doing so. "("FT.com) 2008-04-07T10:06:24+10:00 http://www.petergallagher.com.au/index.php/site/would-critical-mass-agreements-in-wto-be-fissile-or-fusional/ http://www.petergallagher.com.au/index.php/site/would-critical-mass-agreements-in-wto-be-fissile-or-fusional/#When:08:03:00Z Here is the paper I presented today to the Melbourne University Center for Public Policy seminar on the Future of the Multilateral Trade System. It asks would 'critical mass' agreements—as recommended by the Warwick Commission—reinforce ('fuse') the WTO's Single Undertaking or would they tend to pull it apart ('fission')? I welcome your comments. 2008-04-07T08:03:00+10:00