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Are US policy-makers panicking?

With respect to fiscal policy, I suspect that the stimulus package will help, but believe – like every other political cynic – that the package is being undertaken principally so that candidates in this year’s congressional, senate and presidential elections can be seen to be acting.  I am not at all surprised that debate over the precise structure of the package never really rose above the blogosphere, since although that is of enormous significance in how effective it will be, it is of near utter insignificance from the point of view of being seen to act.  I find myself agreeing both with Paul Krugman, who points out that only a third of the money will go to people likely to be liquidity-constrained and with Megan McArdle, who (here, here, here, here and here) argues that if you’re going to give aid to the poor of America, doing it via food stamps is, to say the least, less than ideal.

On the topic of monetary policy, I will prefix my thoughts with the following four points:

  • The decision makers at the US Federal Reserve are almost certainly smarter than I am (or, indeed, my audience is)
  • They certainly have more experience than I do
  • They certainly put more effort into thinking about this stuff than I do
  • They certainly have access to more timely and higher quality data than I do

As I see it, there are three different concerns:  whether (and if so, how) monetary policy can help in this scenario; whether the Fed’s actions come with added risks; and whether the timing of the Fed’s actions were appropriate.

First up, we have concerns over whether monetary policy will have any positive effect at all.  Paul Krugman (U. Princeton) worries:

Here’s what normally happens in a recession: the Fed cuts rates, housing demand picks up, and the economy recovers.  But this time the source of the economy’s problems is a bursting housing bubble. Home prices are still way out of line with fundamentals … how much can the Fed really do to help the economy?

By way of arguing for a a fiscal package, Robert Reich (U.C. Berkley) has a related concern:

[A] Fed rate cut won’t stimulate the economy. That’s because lending institutions, fearing their portfolios are far riskier than they assumed several months ago, won’t lend lots more just because the Fed lowers interest rates. Average consumers are already so deep in debt — record levels of mortgage debt, bank debt, and credit-card debt — they can’t borrow much more, anyway.

Menzie Chinn (U. Wisconsin) looks at these and other worries by going back to the textbook channels through which monetary policy works, concluding:

In answer to the question of which sector can fulfill the role previously filled by housing, I would say the only candidate is net exports. The decline in the Fed Funds rate has led to a depreciation of the dollar. In the future, net exports will be higher than they otherwise would be. However, the behavior of net exports, unlike other components of aggregate demand, depends substantially on what happens in other economies. If policy rates decline in the UK, the euro area, and elsewhere, additional declines of the dollar might not occur. (And as I’ve pointed out before, if rest-of-world GDP growth declines (as seems likely [2]), then net exports might decline even with a weakened dollar).

I think the main point is that the decreases in interest rates, working through the traditional channels, will have a positive impact on components of aggregate demand. With respect to the credit view channels, the impact on lending is going to be quite muted, I think, given the supply of credit is likely to be limited. In fact, I suspect monetary policy will only be mitigating the negative effects of slowing growth and a reduction of perceived asset values working their way through the system.

James Hamilton (U.C. San Diego) is more sanguine, arguing that:

[I]t is hard to imagine that the latest actions by the Fed would fail to have a stimulatory effect.

[A]lthough interest rates respond immediately to the anticipation of any change from the Fed, it takes a considerable amount of time for this to show up in something like new home sales, due to the substantial time lags involved for most people’s home-purchasing decisions … According to the historical correlations, we would expect the biggest effects of the January interest rate cuts to show up in home sales this April.

[The scale of any effect is unknown, though.] Tightening lending standards rather than the interest rate have in my opinion been the biggest explanation for why home sales continued to deteriorate after January 2007 … The effect of rising unemployment and expectations of falling house prices on housing demand is another big and potentially very important unknown.

Going further, Martin Wolf at the FT worries that the Fed may be doing too much, that they the recent cuts in interest rates may serve only to renew or exacerbate the problems that caused the current crisis in the first place.

[P]essimists argue that the combination of declining asset prices (particularly house prices) with household overindebtedness and a fragile banking system means that monetary policy is, in the celebrated words of John Maynard Keynes, like “pushing on a string”. It may not be quite that bad. But, on its own, monetary policy will not act swiftly unless employed on a dramatic scale. The case for fiscal action looks strong.

Yet, in current US circumstances, monetary loosening should have some expansionary effects: it will encourage refinancing of home mortgages; it will weaken the exchange rate, thereby improving net exports; it will, above all, strengthen the health of banking institutions, by giving them cheap government loans.

This brings us to the biggest question: what are the risks? Unfortunately, they are large. One is indefinite continuation of an excessively low rate of US national saving. Others are a loss of confidence in the US currency and much higher inflation.Yet another is a further round of the very asset bubbles and credit expansion that created the present crisis. After all, the financial fragility used to justify current Fed actions is, in large part, the direct result of past Fed efforts at the risk management Mr Mishkin extols.

Moreover, the risks are not just domestic. If the US authorities succeed in reigniting domestic demand, this is likely to reverse the decline in the current account deficit. It will surely reduce the pressure on other countries to change the exchange rate, fiscal, monetary and structural policies that have forced the US to absorb most of the rest of the world’s huge surplus savings.

…

I find it impossible to look at what the US is now trying to do without feeling severely torn. If it succeeds it will renew and, at worst, exacerbate the fragility, both domestic and international, that triggered the turmoil. If it fails, the US and, perhaps, much of the rest of the world could well suffer a prolonged period of economic weakness. This is hardly a pleasant choice. But that it is indeed the choice shows how weakened the world economy and particularly the financial system has become.

In reaction at the FT’s hosted blog, Christopher Carroll (Johns Hopkins U.) argues:

This situation provides a more than sufficient rationale for the Fed’s dramatic actions: Deflation combined with a debt crisis make a toxic combination, because as prices fall, real debt rises. This point was amply illustrated in Japan, where deflation amplified both the number of zombies and the degree of zombification (among the initial stock of the undead). It was also the basis of Irving Fisher’s theory of what made the Great Depression great, and has clear echoes in the macroeconomic literature on the “financial accelerator” pioneered by none other than Ben Bernanke (along with a few other authors who have pursued more respectable careers).

In this context, the risk of an extra year or two of an extra point or two of inflation (if the deflation jitters prove unwarranted and the subprime crisis proves transitory) seems a gamble well worth taking.

Martin Wolf then replied:

[W]hat the Bernanke Fed seems to be trying to halt (with enthusiastic assistance from Congress and the president) is a natural and necessary adjustment, as Ricardo Hausmann argued in the FT on January 31st. I agree that this adjustment must not be too brutal. I agree, too, that both a steep recession and deflation should be avoided. I agree, finally, that market adjustments must not be frozen, as happened in Japan. But I disagree that the US confronts a huge threat of deflation from which the Fed must rescue the economy at all costs. What I fear it is doing, instead, is bailing out the banking system and so trying to reignite the credit cycle, with the consequent dangers of a flight from the dollar, considerably higher inflation and much more bad lending ahead.

Which leaves us with the third concern, over the timing of the rate cuts.  The first of them, of 75 basis points, was the largest single cut in a quarter century.  The fact that it came from an out-of-schedule meeting makes it almost unprecedented.  When we add the fact that the world was in the middle of a broad share sell-off – exacerbated, it turns out, by the winding out of US$75 billion of bets by Societe General – it definitely has the appearance of a panicked decision.  Adding the 50bp cut eight days later made for an enormous 1.25 percentage point drop in rates in a fraction over a week.

So what’s my take?  Well …

1) The Fed is not as independent as central banks in other countries are.  Greg Mankiw may not like it, but the fact is that both Congress and the Whitehouse actively seek to influence monetary policy in the United States.  This photograph of Ben Bernanke (chairman of the US Federal Reserve), Christopher Dodd (chairman of the US senate’s banking committee) and Hank Paulson (US Treasury secretary) from mid-August 2007 is typical:

bernanke_dodd_paulson.jpg

As Martin Wolf noted at the time:

This showed Mr Bernanke as a performer in a political circus. Mr Dodd even announced Mr Bernanke’s policies: the latter had, said Mr Dodd, told him he would use “all the tools ” at his disposal to contain market turmoil and prevent it from damaging the economy. The Fed has its orders: save Main Street and rescue Wall Street.  Such panic-driven politicisation is almost certain to lead to both overreaction and the creation of bad precedents.

2) The Fed is mandated to keep both inflation and unemployment low.  By comparison, the other major central banks are only required to focus on inflation.  When they do look at unemployment, it plays lexicographic second fiddle to keeping inflation in check.  At the Fed, they are compelled to take unemployment into account at the same time as looking at inflation.

3) The banking and finance system is central to the real economy.  Without a ready supply of credit to worthy and profitable ventures, economic growth would slow dramatically, if not cease altogether.  Although it creates a clear moral hazard when bankers’ pay is not aligned with real economic outcomes, this – combined with the first two points – implies that the so-called “Bernanke put” is probably, to some extent, real.

4) The latest GDP numbers and IMF forecasts were released in between the two rate cuts.   I have nothing to back this up, but I wouldn’t be the least bit surprised to discover that the Fed gets (or got) a preview of those numbers.  Seeing that markets were already tanking, knowing that the reports would send them tumbling further, perhaps believing that they might already be in a recession, almost certainly fearing that the negative news, if released before the Fed had acted, might send risk premia skywards again and recognising that what they needed was a massive cut of at least 100bp, perhaps the Fed concluded that the best policy was to split the cut over two meeting, making a smaller but still unusually large cut before the reports were released to ensure that they didn’t trigger more credit-crunchiness and a second one after in notional “response.”

My point is this:  Which would seem more like a panicked response?  The way that things did pan out, or a global stock market melt-down that took several more days to settle, followed by the markets being hit with surprisingly negative reports from the IMF on the global economy and the BEA on the US economy, and then a 125 b.p. drop in a single sitting by the Fed?

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Clinton seeks what from a Florida win?

This article from the FT is pretty typical at the moment:  “Clinton seeks profit from a Florida win”

[F]ollowing her heavy defeat to Barack Obama in South Carolina last weekend, Mrs Clinton hopes to derive favourable publicity from her expected victory in Florida’s straw poll on Tuesday.

Almost 400,000 Floridians have already cast postal votes in the Democratic race, even though all of the candidates stuck to their pledge not to campaign there or run local advertising [after Florida had all of its Democratic delegates stripped for bringing the date of its primary forward].

Mr Obama’s camp has accused Mrs Clinton of cynicism for signalling she will ask the party to restore Florida’s delegates to the convention. Florida would have more delegates than Iowa, New Hampshire, Nevada and South Carolina combined.

Why does everyone play this as Hillary the cynical and faintly desperate candidate backing down on her pledge?  I understand why Obama’s staff are playing it that way, but why are the commentators agreeing with that view?

If she wins the nomination – and the best bet right now is that she will – then it will prove enormously valuable that she went to Florida, no matter whether their delegates get to vote for that nomination or not.  If she hadn’t gone but still won the nomination, then come November the Republican candidate would be speaking endlessly about her absence in such a key state while waxing lyrical about the democratic right of people to have their say.

Whoever the Democratic front-runner was at this stage was always going to be forced to go to Florida because of the attention that the Republicans are giving to it.  Hillary is simply making the most of it.  Barack Obama, who is behind in both the primary polls and the betting markets in most of the super-Tuesday states, cannot afford to think of November yet; if he’s looking at anything past the 5th of February, I’d be stunned.

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Abusing the welfare state

I graduated from my engineering degree in November of 1998. I already had a job lined up, which I was due to start on the 18th of January, 1999. I had a couple of months to kill and I decided to go on the dole. What I wanted to do was work in a book store, and I applied to some, but not before first applying for unemployment benefits.

The Work for the Dole scheme was up and running by that point, but since it only applied to people who had been receiving payments for over six months, it was never going to be a concern for me. If I remember correctly, I had to fill out a form every two weeks detailing which businesses I had contacted in my quest for work. I definitely remember realising that all I needed to do was open the Yellow Pages at a random page, call whomever my finger fell on and have a conversation like this:

Them: Good afternoon [I was an unemployed recently-ex-student, after all. You can’t expect me to get out of bed in the morning, can you?]. This is company XYZ. How may I help?

Me: Hi. Do you have any jobs going?

Them: Uhh, no.

Me: Okay. Thanks.

I could then list that company on my fortnightly form, safe in the knowledge that even if Centrelink did bother to check – and I seriously doubt that they ever did; I could have written that I applied to “Savage Henry’s discount rabbit stranglers” and they would have just filed it away – then I was covered.

That felt a bit too much like taking the piss though, so I made sure that my targets were legitimate. As I mentioned above, I mostly applied to book and map retailers. I never lied to Centrelink or to any of the places I applied to. I always admitted to everyone that I had a job lined up and only needed to fill in the two-month gap, but if the truth be told, I didn’t put much effort in either, except for a couple of early applications to places where I genuinely would have enjoyed working. It’s not that I was disheartened; just that I didn’t particularly care. I wasn’t desperate for the cash (although it was certainly handy) or a job (since I’d have to quit in a few weeks anyway). I was really only doing the dole thing to see what it was like and the answer was: boring, but easy.

I’ve never felt any guilt or shame at doing it and I don’t think that any of my friends at the time were judging me negatively for it. It was a little unorthodox, but just accepted. I’ve certainly paid a lot more in taxes since than I received on the dole or for my university education. Fast-forward to 2008 and I am thinking about the social acceptability of receiving welfare payments, both in Australia and abroad.

It may just be the stereotype, but I get the feeling that in continental Europe, both in 1998 and today, what I did would barely raise an eyebrow; that it would be completely accepted. In the U.S.A., on the other hand, I think that it would be regarded by many as a shameful thing to do and an abuse of federal money. In Australia and the UK, I’m not so sure. I suspect that the more “aspirant middle class” you are and the older you are, the more shameful it will seem. I have no idea if the age thing is because it’s a process that everybody goes through as they get older or if there’s been a genuine generational shift in attitudes.

Any thoughts?

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John Pilger versus “the great game”

John Pilger (biography on Wikipedia) has a new piece out in the New Statesman, “The ‘good war’ is a bad war.” This is the central part of his essay:

The truth about the “good war” is to be found in compelling evidence that the 2001 invasion, widely supported in the west as a justifiable response to the 11 September attacks, was actually planned two months prior to 9/11 and that the most pressing problem for Washington was not the Taliban’s links with Osama Bin Laden, but the prospect of the Taliban mullahs losing control of Afghanistan to less reliable mujahedin factions, led by warlords who had been funded and armed by the CIA to fight America’s proxy war against the Soviet occupiers in the 1980s. Known as the Northern Alliance, these mujahedin had been largely a creation of Washington, which believed the “jihadi card” could be used to bring down the Soviet Union. The Taliban were a product of this and, during the Clinton years, they were admired for their “discipline”. Or, as the Wall Street Journal put it, “[the Taliban] are the players most capable of achieving peace in Afghanistan at this moment in history”.

The “moment in history” was a secret memorandum of understanding the mullahs had signed with the Clinton administration on the pipeline deal. However, by the late 1990s, the Northern Alliance had encroached further and further on territory controlled by the Taliban, whom, as a result, were deemed in Washington to lack the “stability” required of such an important client. It was the consistency of this client relationship that had been a prerequisite of US support, regardless of the Taliban’s aversion to human rights. (Asked about this, a state department briefer had predicted that “the Taliban will develop like the Saudis did”, with a pro-American economy, no democracy and “lots of sharia law”, which meant the legalised persecution of women. “We can live with that,” he said.)

By early 2001, convinced it was the presence of Osama Bin Laden that was souring their relationship with Washington, the Taliban tried to get rid of him. Under a deal negotiated by the leaders of Pakistan’s two Islamic parties, Bin Laden was to be held under house arrest in Peshawar. A tribunal of clerics would then hear evidence against him and decide whether to try him or hand him over to the Americans. Whether or not this would have happened, Pakistan’s Pervez Musharraf vetoed the plan. According to the then Pakistani foreign minister, Niaz Naik, a senior US diplomat told him on 21 July 2001 that it had been decided to dispense with the Taliban “under a carpet of bombs”.

That is fascinating stuff. I am glad that people like Pilger exist as journalists because he really does push to uncover the truth. Any lie by any government is shameful. Nevertheless, while I am happy to accept the facts that Pilger presents as true, it’s difficult to read this article and to know what he actually wants other than to continue his vociferous criticism of Western foreign policy and that of the United States in particular.

On the one hand, he highlights above some of the awful aspects of an Afghanistan ruled (let’s not say governed) by the Taliban: no democracy, no freedom of religion, little (if any) freedom of speech, the utter subjugation of women, an economy based on the extraction and capture of wealth. On the other hand, he later speaks of the …

… historic ban on opium production that the Taliban regime had achieved. A UN official in Kabul described the ban to me as “a modern miracle”. The miracle was quickly rescinded. As a reward for supporting the Karzai “democracy”, the Americans allowed Northern Alliance warlords to replant the country’s entire opium crop in 2002. Twenty-eight out of the 32 provinces instantly went under cultivation.

But he doesn’t bother noting that the Taliban were only able to enforce their ban by killing anyone who violated it. I’m pretty sure that Pilger opposes the death penalty. I’m absolutely certain that he opposes it when it’s instigated without any recourse to defence in a fair trial.

I agree entirely with Pilger that the main priorities of the U.S. in looking at other countries have been political stability and economic liberalism, with the rule of law being a distant third and anything else almost entirely off the radar. I likewise agree that this is principally because these represent minimum conditions for the inevitably large U.S. companies to do business in those countries. I say “inevitably” because small U.S. companies are not in a position to invest internationally. Pilger views this as a modern form of imperialism. It’s a tempting position, but I tend to think of it more as the U.S. looking out for it’s own and leaving other countries to sort out their own particular rights and values. It is not non-interventionism, but a sort of ideally-minimal-but-occasionally-dramatic-interventionism.

I would understand if Pilger thought that the West ought to promote the good things it has aspired to itself: women’s rights, religious freedom, the welfare state and so forth. But Pilger is apparantly against humanitarian intervention, which he describes as the work of the ascendant, “narcissistic, war-loving wing” of liberalism, so I am again left confused as to what he wants the West to actually do. Does he want complete isolation?

Let me put it this way: Zimbabwe is in a terrible state. From once being described as the “bread-basket of Africa,” it is now the basket-case of the continent. It’s inflation is so high as to become unmeasurable. A third of it’s population has fled the country. It has no democracy. The opposition, when they attempt to rally, is beaten. For it’s part, the West has imposed sanctions, but China has happily handed truckloads of cash to Mugabe’s regime in exchange for Zimbabwe’s natural resources. What does John Pilger think the foreign policy of the U.S.A., the U.K. and the rest of the West ought to be towards Zimbabwe?

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New Hampshire and the prediction markets

Plenty of people, Paul Krugman among them, are pointing out that just like the polls (which, on average, had Obama ahead of Clinton by over 8 points), the prediction markets were plainly wrong in forecasting the outcome of the Democratic New Hampshire primary. They’ve got a point.

These are the daily closing prices on the Clinton and Obama contracts to win the New Hampshire primary from InTrade:

dem_nh_clinton.png

dem_nh_obama.png

Up until Iowa, they were fairly steady at ~60% for Clinton and ~40% for Obama, but from the 3rd of January onwards, there was a clear movement towards Obama. On the day before the primary, the markets had Obama 97.8% likely to win. On the day, Clinton won with 39.07% of the vote, while Obama received 36.47%. So why did the market get it wrong?

Paul Krugman contends that the prediction markets were just reflecting the polls and talking heads, presumably because that was all the information there was to be had. This naturally raises the question of why they were wrong (e.g. did we just witness the Bradley effect in action?), but that is not the point here. A prediction market, according to the theory, is meant to be superior to the polls in predicting outcomes because it combines information contained in the polls with information from other sources. So perhaps Krugman is right. But if he is, why did the market go so far towards Obama?

My guesses:

  • Perhaps Krugman is partially right, but the talking heads provided a positive feedback loop. The polls predicted Obama, which the markets saw. The talking heads saw the polls too (perhaps in more detail) and then spoke about it on television, but added effectively no extra information. The markets saw the talking heads and believed it to be extra information in support of the polls.
  • Like any market, the prediction markets are susceptible to bubbles. Perhaps we saw one here in the days between Iowa and New Hampshire.
  • A lack of “true” liquidity. There was plenty of nominal liquidity in these markets leading up to and during the counting, but how much of the trading was arbitrage, how much was momentum (i.e. bubble) trading and how much was “true,” changing-belief-based trading? As the counting occurred, I was watching both the leaked figures on the Drudge Report and the movement on InTrade. It seemed that the prediction market was moving steadily towards Clinton, but nowhere near as quickly as one would have expected. For example, at 9:40pm, with 46% of the vote counted, Clinton was leading 49,719 (40%) to 45,383 (36%), from which one would conclude with extremely high confidence that Clinton would win, but the market was still only putting her at 65%.
  • Perhaps – and I’m by no means certain of this last point – in order for a prediction market to work perfectly, we also need people to set the size of their position in proportion to their confidence in that prediction. So perhaps there were traders who, looking at Drudge or some other source were extremely confident that Clinton would win from quite early in the counting, but since they did not take large enough positions, they did not move the market. In other words, liquidity requirements for a successful prediction market are not just on the number of trades, but on the volume traded.

Update: Justin Wolfers, a long-time researcher in prediction markets, has an article in the WSJ highlighting how surprising the result was given the market predictions.

We were led to this research by an age-old racetrack puzzle economists call the “favorite-long shot bias“: Horse bettors historically have overbet long shots, and they win less often than their odds suggest. Our research suggests that similar biases hold in political prediction markets.

As such, Sen. Clinton’s comeback is even more stunning, as political underdogs have historically won even less often than suggested by their prediction market odds.

Historical comparisons are already being drawn between the New Hampshire primary and the famous 1948 presidential race in which President Harry S. Truman beat Republican challenger Thomas Dewey, despite the infamous “Dewey Defeats Truman” headline in the Chicago Tribune.

Yet the magnitude of the Clinton surprise is arguably even greater. Indeed, historical research by Professors Paul Rhode of the University of Arizona and Koleman Strumpf of Kansas University has shown that in the Truman-Dewey race, prediction markets had seen hope for President Truman despite his dreadful polling numbers, and he was rated an 11% chance of winning the election by election-eve. Thus, Sen. Clinton’s victory on Tuesday was more surprising than President Truman’s in 1948.

Personally, I seem to be thinking of this the other way around. Assuming that prediction markets are generally better than other forms of forecasting, I find it surprising that they got it so wrong on this occasion. Rather than thinking of the result as the equivalent of a 6-sigma event given the prediction market, I wonder what was different this time that so disturbed the market’s ability to predict?

Update 2: Okay, okay a 3-sigma event 🙂  Justin in an email:

For the polls, this was about a 3-sigma event.  For the market, which had Hillary priced at about a 7% chance [JB: Justin is referring to the WSJ market], it is about a 1.7 sigma event.  They aren’t that unusual.  Indeed, they probably happen about 7% of the time

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A tight race in Bowman

The overall result may not be in doubt, but spare a thought for Andrew Laming (Liberal, incumbant) and Jason Young (Labor) in the Queensland seat of Bowman.

Before the election, Laming held the seat with an 8.9% margin.  It was safe, but not that safe and by the time of the election, the betting markets were leaning towards Labor (thank you, Simon Jackman). Turnout on the day was 85.25%.  With those votes counted, the primary count went to Laming (33,833 vs. 32,498), but the two-candidate preferred count is going to Young (36,693 vs. 36,672).

That’s a margin, on current counting, of just 0.014%.

The pre-poll, postal, absent and progressive votes are still being counted, but you’ve got to feel for those guys.  If Laming hasn’t worn holes in the carpet then I’m a monkey’s uncle.

Update 29 Nov 2007:  With a bit under 2,000 extra votes counted, Young appears to have squeezed a little extra traction from one fingernail.  He’s now got a margin of 0.040% (37,690 vs. 37,630).

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Carbon tariffs

Well, well.  It would appear that Nicolas Sarkozy is threatening China with “carbon tariffs.”  It comes as no surprise that:

His idea already has supporters in the European Commission, particularly among officials charged with defending the interests of European industry.

In other words, the criticism of China is not really based on a perceived risk to the global environment, but that by acting first and China not following, the EU feels that European industry suffers unfairly.  It’s difficult to see how this would be legal under WTO rules.

The stated justification for the threatened action was:

“We cannot have one response from Europe and one from Asia, one from the north and one from the south,” he said. “China can and must play its full part.”

…

“I will defend the principle of a carbon compensation mechanism at the EU’s borders with regard to countries that don’t put in place rules for reducing greenhouse gas emissions,” Mr Sarkozy said.

This might be morally defensible if (and I really have to stress that ‘if’) the EU were to hand the Chinese government every cent they took in tariffs from Chinese exporters, thus allowing Europe to claim that they really were acting on behalf of the planet and not just their domestic industry.

However, we still have the very large problem of sovereignty.  Why should the EU get to dictate policy to China and to impose it arbitrarily if China doesn’t comply?  Even if China were to agree that (a) climate change is real and (b) humankind can and ought to do something about it, it does not follow that China and the EU would agree on an acceptable cost to impose on polluters, not least because China is still a developing country.

The point is that for every tonne of CO2-equivalent emitted in the EU, Europe gets more goods for consumption, but for every tonne emitted in China, we get more goods for consumption and another couple of people lifted out of poverty.

This message was driven home Tuesday by an article in a Communist party newspaper that said 95 per cent of carbon dioxide emissions from the era of the Industrial Revolution through the 1950s came from today’s developed countries.  Rich nations’ per capita emissions of greenhouse gases are also far above those in the developing world, the overseas edition of the People’s Daily newspaper said.

Now, if the world can agree on some sort of framework for reducing greenhouse gas emissions that also includes some restrictions on China and India, it seems sensible enough to me to allow carbon tariffs as punitive action against non-compliant states, but that’s pretty much the only way I’d support it.

I suppose that you might argue that if one country refused to ratify some treaty and other countries judged that by failing to do so, that country was placing other countries in peril, then taking action against them – in this case, imposing carbon tariffs – might be justified under “self defence.”  It’d be a tough sell, since the danger would not be imminent, but you might try it.  The problem then would be that if the stand-alone country were one of the UN security council’s permanent members, they could veto any attempt at multilateral action.

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I swear I’m not a junkie

My wife is American.  This has various benefits for me, but one of the best is the opportunity, at this time of year, to gorge myself stupid.  Last Thursday was Thanksgiving in the U.S., but we decided to have our little shovel-food-down-your-throat-athon on Sunday night with some of my wife’s friends from university.  The turkey was bought on Friday, the giblets removed and discarded (sorry, I just can’t handle them) and we were ready to get started with marinading it.

My wife wanted to follow in her mother’s footsteps by injecting the turkey with red wine.  I’d never heard of this technique before, but a good roast is worth a lot in my book and a turkey is famously difficult to keep moist, so I was keen to try it.  I raided our travel first-aid kit to look for our syringe, but to no avail.  Okay, no worries, it’s off to the chemist we go to get another one.  The coversation, at a Boots, as it happens, went like this:

Us:  Hi.  Do you have any needles?  Syringes?

Them:  Ummm … maybe.  Is it for travelling?

Us:  No.  It’s for a turkey.  We’re going to inject it with wine.

Them:  Ahhh, no.

Us:  Okay, then.  It is for travelling. [Yes, yes, I know.  This wasn’t the most subtle of ploys]

Them:  We’ll need to order them in.  It’ll take two weeks.

Yeah, right.  The implication was pretty clear – hovering in the air, as it were.  They weren’t going to take the slightest risk of selling needles to drug users.  To really slam home the fact that they were looking out for their jobs in a big corporate chain, the conversation finished with:

Us:  Well, do you know where we might be able to find one?

Them:  Perhaps at an independent pharmacy.

… which is exactly what we did.  There’s a wonderful chemist on England’s Lane that just looks Italian (next time you go to Italy, pay attention to the chemists – they’re fantastically unique).  It’s certainly run by an Italian lady and she was fascinated by the idea of injecting wine directly into the meat.  She insisted on my wife spelling out all the recipe details as she promptly sold us a pack of 10 1ml syringes for £2.90.  It was simple, it was easy, it was friendly and it was helpful.  She’ll keep our business from now on.

I got really quite angry from the whole affair.  My wife and I don’t look particularly shabby (I hope).  We were clearly entering the Boots as a couple.  We weren’t shifting around on our feet or trying to speak quietly to avoid undue attention.  None of these seem consistent with how I imagine a drug abuser would present.  It seems perfectly reasonable – to me – to have believed that we were genuine in our request.

But even if we weren’t, I still would have been upset with them.  Yes, the UK operates a needle exchange programme, but any kind of restriction on the sale of needles simply raises their implicit price, which can only encourage drug users to share needles.  If a chain of Chemists can’t be sold on the idea of harm minimisation, we’re in real trouble.

The turkey turned out great, by the way.  We used a Malbec to inject it with, stuffed it with chopped-up apple, prunes and garlic (the bread-based stuffing was being brought by someone else) to sweaten the meat a little, sprinkled quite a lot of rosemary over the skin, roasted it with tin-foil over the top for the first two hours and without the tin-foil for the last hour.  Beautiful.

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Oz Election

Well, the Australian election is getting pretty damn close now.  A few random thoughts:

  • Both at an aggregate and at a seat-by-seat level, the betting markets have blown out in favour of a Labor victory.
  • There have been plenty of predictions of exactly how many seats Labor will win, but as ever, Bryan Palmer does a superb job of aggregation and analysis.
  • We have, as Joshua Gans puts it, “US style election-lawyering” from the Coalition, who have released legal advise suggesting that 13 Labor candidates may be inelligible to stand.  I am entirely in agreement with The Possum on this one:  “Sour grapes do not play well with the electorate, threatening to bring in lawyers to try and overturn the election result looks bitter. Not accepting the umpires decision, and threatening to take your bat and ball and go home looks pathetic.”
  • Andrew Norton has some good work in looking at the reasons why the Coalition are on the nose.  His prognosis:  expect a long time in opposition.  I’m not sure I agree with him, but I can’t really explain why, so I’ll just shut up and direct you to him.
  • A friend here in London was voting for somewhere (sorry, I have no clue where) in NSW and thanks to the beauty of the Australian preferential voting system, had to rank One Nation, Family First and Fred Niles.  I really don’t know how I’d put them.