One of the subthreads in this story turned towards a meta-discussion about gender culture on ET. This discussion has cropped up several times in the past, and I have usually avoided partaking in it, for a variety of reasons. One of those reasons is that it usually turns into a flame war, and my insurance stopped covering asbestos suit replacements after I began frequenting YouTube comment threads. Something about wilfully subjecting myself to avoidable risks, or somesuch insurance-speak.

However, to quote myself,

When you have a (set of) topic(s) that are overwhelmingly discussed by either gender, it does not seem irrelevant to ask why this is, and whether the reasons should prompt a change in site policy or culture.

[...]

If the entire community is composed mostly of one gender/skin colour/socioeconomic group, a little introspection might be in order.

It's not that homogeneity is necessarily evidence that something is wrong - there may be a variety of entirely acceptable reasons (or at least reasons that are beyond the power of the editors to change). But it should be cause for some introspection on a not too irregular basis.

It was correctly pointed out that a meta diary would be a suitable venue to have such a discussion. It was also pointed out that if I objected to the tone of the currently available example of said meta-diary, ET comes with a perfectly functional diary submission form.

This seems like a reasonable request, so here we go.

Ricardo is one of those classical economists who is usually turned into a pagan idol - to be the subject either of worship or of purification rites, depending on one's political affiliation.

It will, I hope, be evident that this text is written with no such desire. Richardo was not a stupid man, nor, I believe, a uniquely wicked one. Those of his models that have passed into the modern (neo)classical synthesis were not stupid models, and they were not based on stupid assumptions. They have, however, suffered the unfortunate fate that most economic theory will eventually fall prey to: Events have overtaken several of the key assumptions underpinning them.

Theory

The best way to illustrate this will be with a little graph:

The image on the right illustrates the production possibility frontiers (PPF) of two countries, A and B, with equal population (for a thorough introduction to PPFs, see this diary by Migeru). Both countries produce microchips and ball bearings, but Country A is an industrial state, while Country B is a third-world country, as seen from the disparity in their production levels (recall that they have similar population).

Now imagine that we open up Ricardian free trade between these two countries. What happens?

The answer is "nothing at all." The PPFs of these countries have precisely the same shape, so there is no expansion in the aggregated PPF from Ricardian free trade.¹

Practise

Suppose now that a well-meaning economist manages to convince Country A to enter into a bilateral trade agreement with Country B, modelled on the pattern of existing GATT/WTO treaties.

Promoted by afew

In this diary I introduced a frame of discussion about economics that I labelled the full world (by contrast with current economic thought which I claim is largely developed in and adapted to the empty world). In that diary, I looked at the different kinds of resources and the kinds of price shocks that could be expected when our non-negotiable way of life runs head first into the even less negotiable laws of physics.

This time, I'll look at a slightly different issue:

If economic activity is the process of converting raw materials to consumer goods and services, what happens when the capacity of one's industrial plant to convert raw materials into goods and services outstrips one's capacity to acquire raw materials?

To explore this, I'm going to go back to a fairly basic analytical tool: The production possibility frontier (PPF). The production possibility frontier represents the possible configurations of an economy when its labour and capital are fully deployed in the conversion of raw materials into consumer goods. The points that fall inside the PPF represent configurations that do not fully employ the capital and/or labour of the economy. The points that fall outside the PPF are unachievable given the available plant and labour force.

At afew's suggestion, here's a little scorecard to keep track of which governments seem to be tilting which way in the Blair question. I have tried linking to relevant items for each country, but in some cases I've gone with my gut.

Please do not hesitate to make suggestions and provide additional references.

Left: Distribution of Council votes (updated on the 15th of October).
Right: Distribution of committed votes (updated on the 15th of October).

- Jake

Jerome recently linked to a piece by one Peter Campbell. I didn't bother to read the article itself, but in the comment thread, I found a rather concise summary of the pro-Blair talking points.

Since I love the smell of freshly mowed astroturf in the morning, and since it's technically morning in my time zone right now, I'll cross-post my fisking here.

There is a long-standing precedent for countries refusing to pay "odious" debts - debts that were run up by repressive, colonial or otherwise illegitimate regimes. Similarly, a case can be made that countries who have been saddled with unpayable levels of IMF credit should be able to jettison these liabilities.

But. Odious debts don't just happen to happen from time to time. Somebody has to agree to borrow the money.

So it is clearly a necessary (but not necessarily sufficient) condition for repudiating debt as odious that somebody in the defaulting country goes to prison. In the case of countries emerging from colonial or otherwise repressive governments, it is fairly simple to tell who needs to go to prison: The dictator or colonial magistrate, sometimes his family, usually a number of military people too.

In the case of a country that has been shock therapied by the IMF, it is less clear who needs to go to prison. But the people who precipitated the crisis that caused the IMF to bail out foreign lenders seem like good candidates. And the politicians who signed up for the IMF programme should arguably serve some time too.

Promoted by Migeru

The empty world
During the 19th century, and well into the 20th, economic conditions were shaped by the relationship between capital and labour. If one had access to capital and could mobilise a labour force, the raw materials for production were largely free for the taking (although on occasion the people living on top of them had to first be removed...).

This one might call the "empty world:" Humans were an insignificant force in the grand scheme of things, and did not materially affect the availability of raw materials.

Naturally, the economics of the empty world do not revolve around the physics and economics of natural resources. Rather, the economics of the empty world revolve around the ability of capital to command labour, or of labour to command capital. The exceptions were mostly the kind of strategic resources that were made scarce less by lack of availability than by a tendency among imperial powers to hoard them from their geopolitical rivals (rubber, cotton, guano, etc.).

The full world
In the latter half of the 20th century, this changed radically: Industrial production had by then increased to the point where the availability of raw materials had become a point of crucial importance. The iconic resource crisis (although this went largely unrecognised at the time) was probably the oil shock following the peak of the Texas oil production.

This one might call the "full world:" A world in which the limiting factor on production is some combination of labour, capital and raw materials. Specifically, there is a hard ceiling on the availability of some raw materials - a point beyond which they will not be available at any price, for the simple reason that they are not physically present in the relevant amount.

Naturally, the economic models that were developed in, and adapted to, the empty world are unlikely to suffice in the full world.

promoted by whataboutbob

Video

On the face of it, one of the puzzling aspects of recent economic history is the way CEOs, investment bankers loan sharks and (other) corporate raiders have taken control of the Western^TM planning system away from the lower-level organisations that used to plan and implement industrial production in advanced industrial economies (what Galbraith called the technostructure).

I've been mulling over what could have happened, and I have come to think of three points that I believe are important:

1. Activist shareholders are more likely to be raiders than builders. A shareholder in a modern, technologically advanced company cannot stay sufficiently abreast of the operations of the company to make a useful contribution to the management. Looting, on the other hand, requires no detailed concept of the day-to-day operation of the company, only power to set required dividends and the will to go the nuclear option and liquidate the enterprise if it fails to provide those dividends.

2. Insufficient marginal taxation means that it is more profitable for CEOs to assist the looting in exchange for a cut of the take, than to resist the looting in order to preserve their long-term tenure within the firm. If marginal taxes are raised, steady salaries become more valuable relative to lump sum payments. And vice versa. Looting gives you lump sum payments, tenure in a healthy organisation gives you a steady salary.

3. Insufficient countervailing forces within the corporate hierarchy. If more groups from within the company were represented in the boardroom, it would be harder to loot the company (or at least to loot it profitably). People and groups within the company's technostructure have both the knowledge to exercise actual influence from the boardroom (as opposed to shareholders and their nominal representatives), and a strong interest in the preservation of the corporate technostructure that pays their salaries and is the source of their personal power. Of course these groups could also be bought by a prospective looter, but the more people you have to cut in on the take, the less profitable looting becomes.

promoted by whataboutbob

The first part of this diary is a slightly edited copy of this comment.

When labour productivity goes up, some combination of the following must happen:

1. The length of "the full work week" drops.
2. Unemployment rises.
3. Consumption rises (through private or state spending).¹

But,

1. Is considered ideologically unacceptable by the powers that be.
2. Is considered tactically unacceptable by the powers that be (the bread must flow and the circuses kept running).

This means that, in order for the political system to continue to function as advertised, 3) must happen.

Increased consumption can happen either through²

A) Tax-financed fiscal and industrial policy (which usually ends up being redistributive), B) Increased real median incomes, or C) Loan-financed spending (public or private).

But,

A) Is prohibited by The West^TM's official religion (unless it takes the form of feeding a Mil-Ind complex...). B) Is considered ideologically unacceptable by the powers that be.

This leaves only C) which is precisely what created the current financial meltdown.

promoted by whataboutbob

Final results are now in, and they are as follows:

Independent GUE/NGL [see first comment by DoDo]:
Popular Movement against EU {N} (Folkebevægelsen imod EU): 7.2 %, 1 seat

Greens
Popular Socialists {SF} (Socialistisk Folkeparti): 15.9 %, 2 seats

PES
Social Democrats {S} (Socialdemokraterne): 21.5 %, 4 seats

EPP
Conservatives {K} (Konservative Folkeparti): 12.7 %, 1 seat

ALDE (sane wing)
Social Liberals {R} (Radikale Venstre): 4.3 %, 0 seats
ALDE (lunatic wing)
Liberal Alliance {I} [formerly New Alliance {Y}] (Liberal Alliance [formerly Ny Alliance]): 0.6 %, 0 seats
Liberals {V} (Venstre): 20.2 %, 3 seats

ID
June Movement {J} (Junibevægelsen): 2.4 %, 0 seats

UEN
Danish Popular Party {DF} (Dansk Folkeparti): 15.3 %, 2 seats

The seats are assigned by a countrywide count under the d'Hondt method, and there were three electoral pacts (listeforbund in Danish, Wahlblock in German):

• Popular Socialists (Greens), SocDems (PES) and Social Liberals (ALDE - sane)

• Liberals (ALDE - lunatic), Conservatives (EPP) and Liberal Alliance (ALDE - lunatic)

• Popular Movement against EU (independent) and the June Movement (ID).

With the Popular Party (UEN) being the only party outside such a union.¹

I'm not going to go into a detailed description of the different parties involved (what I've written here, here and here should suffice for the present purposes).² Instead, I'm going to split these numbers along different fracture lines and try to do some tea-leaf reading based on this treatment.

In another diary, this comment sparked some discussion of the difficulties of harmonising European health care.

Now, don't get me wrong. I'm all for harmonising European health care. It would be neat if I could go to Finland to get surgery, if they have spare capacity while Denmark has none. Or if a Polish construction worker could get access to the French hospital system.

But (and of course you knew there'd be a 'but') only if it's done properly. Just as I'm all for harmonising European train services, provided it's being done by Deutsche Bahn, not AnsaldoBreda (more [.pdf]) or Arriva. And when something is being pushed by an ALDE member using "competition" newspeak, I reflexively check my wallet to see if I'm being robbed.

The underlying difficulty, as I see it, in harmonising health care provision across Europe is that there is a multitude of different systems in use, and each national system is funded and controlled by country-level political bodies. Changing this is presumably off the table, as providing a centralised health care authority for the EU would require (given the kind of funding we're talking about here) giving Parliament the power to levy taxes directly upon European citizens and disburse funds directly to operators.

Assuming that such a solution is dead on arrival, I see three broad ways to harmonise health care. And I frankly don't like any of them.

promoted by whataboutbob

This post in the most recent train wreck community building exercise got me thinking. Specifically, I thought "that's actually a good question. How did all these people get here in the first place?"

Myself, I got here because I was following the American anti-creationist scene, and had been doing so since I discovered creationism sometime in high school (I remain fascinated by the power of people to believe these things not simply on no evidence but in spite of literally mountains of contradicting evidence... but that's for another time).

In short order, that got me into the orbit of Seed Magazine's Scienceblogs collective, where I encountered a link to a blog contest (I think it was Orac, of Respectful Insolence, who posted the link). ET was nominated in the category "Best non-American blog," so I figured I'd check it out (can't cast a vote uninformed, after all...). And here I am. Still go to Scienceblogs occasionally, on a slow news day or when I want to leave the echo chamber.

So what's your story?

- Jake

Many self-professed fans of Adam Smith seem to think that the parable of the Invisible Hand is either one of meritocracy, or one of economic efficiency. Now, I have not read Wealth of Nations (yet), and I'm not quite finished with Theory of Moral Sentiments, so it's possible that Smith does use the metaphor in those ways later in his works. It is also possible that many self-professed fans of Adam Smith have read more Ayn Rand than Adam Smith...

In any event, this is the first appearance of the Invisible Hand in Smith's books, from Part IV of Theory of Moral Sentiments [paragraph breaks inserted by me]:

This is actually a diary that I've been wanting to do for some time, but always kinda pushed back because there were Other Things To Do. But with front page story on the issue, and Frank's review of NATO's potential irrelevance, I guess that excuse no longer applies.

So without further ado:

One of the questions that has been raised a couple of times on ET but never quite, in my opinion, adequately answered is "what is NATO good for?" For some reason, most people who write diaries on how NATO and the Union can integrate their political and military command and control structures seem to develop urgent appointments elsewhere whenever the question is raised...

The only coherent response to the question (that I've seen) is Marek's analysis, which can - I think - be briefly summarised as "Eastern Europe suffers from a severe case of rysskräck, and view NATO membership as the only way to obtain a credible (read: American) security guarantee against a hypothetical Russian violation of their sovereignty or territorial integrity.

While that's not entirely unreasonable, I don't find it completely satisfying as justifications go: If the Poles and Estonians are not convinced that Paris will nuke Moscow over an invasion of Eastern Europe... what possible justification can they have for believing that the US would? At worst, the US would stand to lose some core client states - but Western Europe - including the independent French nuclear deterrent - would be directly threatened on its very existence, if Russian troops were to suddenly stand at the German border.

And besides, when Russia was "pacifying" Chechnya, it had to pour the next best thing to a hundred thousand soldiers into the meat grinder. This was in order to "pacify" a backwater third-world country that nobody cares about (to the extent that they ever managed to do that...), and with a population of around one million people. I am, shall we say, less than convinced that Russia could win a serious land war against all of Eastern Europe.

But enough of that - the title was "In defence of NATO" - so let's get down to that. I'll advance two core arguments here:

1. Military interdependency is A Good Idea, because it increases the number of people who have to sign off on a war. If the European Union is unable to operate its military independently of the US outside our own territory, it would mean that we would have to get active US support every time our Dear Leaders thought it right and proper to go bomb the stuffing out of some random brown people in a country nobody cares about. All else being equal, this leads to fewer people getting bombed. Which, in my book, is A Good Thing. (The converse - making the US dependent on European support for their colonial adventures - is a nice pipe dream, but will probably prove, ah, impractical.)

2. Nothing in the NATO framework forces European countries to join the US in its colonial adventures: The NATO treaty speaks exclusively of defencive military commitments. The fact that our Dear Leaders find it opportune to join the US in its colonial wars is problem with European political culture, not with NATO per se. Bluntly put, if NATO does not force European governments to go along with American adventures, then removing NATO would do nothing to curb Euro-American adventurism.

An addendum to point 1) is that having an integrated military structure with one of the two powers on the planet that possesses the logistical capability to fight a serious shooting war with the EU probably decreases the probability of such a shooting war. Can't hurt, at any rate.

To that end, I'll examine the NATO charter in some detail below the fold [my bold everywhere].

From the diaries - afew

As I type this, the fine details on what promises to be the major tax package of 2009 are being hashed out on Christiansborg. Originally, the government (a V-K coalition) invited S, SF, O, Y and R (Danish party run-down here, here and here). Over the last few days, S, SF and R walked out one by one, characterising the negotiations as, quote-unquote "gathering signatures instead of negotiating" (- Margrete Vestager, chairwoman (R), my translation). So we're substantially looking at yet another VKO tax package [1].

I obviously don't know what the content will be precisely, and judging by the careful leaks and presentations that have been going on over the last fortnight, digging through the whole package would be a sore test of my gag reflex, even if I had the full text and could summon up the patience to do so.

So I'm not going to comment on the tax downsizings, risible though they will undoubtedly be (no points for guessing which end of the income distribution they'll favour). I also won't comment (much) on the real estate tax hike: A decade late, five or so percentage points short and will probably only hit the middle class.

No, what I'll comment on is the combination of weatherisation assistance for homeowners and a round of taxes on unhealthy food (think candy, refined sugar, tobacco, that kind of stuff).

Both of these policies are, considered in isolation, actually pretty good policies: There is no doubt that a price hike of 10-25 % on ice cream and cigarettes would change consumption patterns in desirable ways. And weatherisation assistance is straight out of the progressive playbook (in the interest of keeping the record straight, that particular initiative was copied virtually wholesale from a much larger package proposed by R...). So why does this combination leave such a bad aftertaste?

Let's play economic crisis bingo. I provide a couple of quotes, and you guess which economic crisis they describe (I'll remove all direct mention of the countries and years involved so it won't be too easy).

So, without further ado:

The first act was the story of the bubble. It began, we now think, with bad banking. In all of the countries that are currently in crisis, there was a fuzzy line at best between what was public and what was private

[...]

Government guarantees on bank deposits are standard practice throughout the world, but normally these guarantees come with strings attached. The owners of banks have to meet capital requirements (that is, put a lot of their own money at risk), restrict themselves to prudent investments, and so on. In [...] however, too many people seem to have been granted privilege without responsibility, allowing them to play a game of "heads, I win, tails somebody else loses." And the loans financed highly speculative real estate ventures and wildly overambitious corporate expansion.

The bubble was inflated still further by credulous foreign investors [...] It was also, for a while, self-sustaining: All those irresponsible loans created a boom in real estate and stock markets, which made the balance sheets of banks and their clients look much healthier than they were.

So what's been going on in the Danish financial sector recently? Well, I've been alluding to a variety of bail-outs, bank failures and general unrest, so I figured I'd bring together what I consider the most important highlights in one place.

Bank Trelleborg - the canary in the coal mine

• Bank Trelleborg was the first Danish bank in the current meltdown to fail sufficiently spectacularly for the Danish central bank to intervene. The intervention limited itself to arm-twisting, however.

• Was taken over by Sydbank, who ate the loss after shareholders were wiped out, because they wanted to take over the staff, branches and market share.

• Reportedly, the management and shareholders were not consulted during the negotiations, they were confronted with an ultimatum: Accept the deal negotiated between Sydbank and the central bank or go bankrupt.

• Lawsuit ongoing against the former management, whom shareholders accuse of various and sundry forms of fraud.

Diary rescue by afew - originally posted 08/10/2008

One of the key points of the version of popular economics that gets passed around as Conventional Wisdom is that constraining the movement of capital is equivalent to erecting tariffs.

Intuitively, this does not seem right: If capital is free to cross borders while workers are not, it can go to where labour is cheapest - meaning that all other things being equal, I should think that capital would get a larger share of the value added.

That goods are free to cross borders without tariffs, however, does not intuitively appear to permit capital to leverage differences in laws, degrees of worker organisation, etc. to its advantage.

My first problem is that I have a hard time constructing a convincing toy model of trade between countries. So how many different kinds of goods would I need in order to construct a convincing toy model, and how many countries would I need? My own guess is at least three countries and at least two different types of goods.

With only one kind of good, there would either be no trade, or at least one country would be in permanent current account deficits, which would be A Bad Thing for said country and encourage it to close its markets completely, giving us the no trade situation.

With only two countries, I think (but cannot prove) that the model would yield results that cannot be generalised to a scenario with more than two countries.

And the problem here is, of course, that the number of combinations that need to be analysed increase much faster than linearly with the number of goods and countries involved. So I'd like to keep things as simple as possible.

So how many goods and countries do I need?

- Jake

A couple of days ago, DoDo asked me to give a run-down of the interesting party leaders in Denmark, so here goes.

Some of you may remember my description of the Danish political parties from my Election Times series half a year ago. Most of what I wrote back then is still true, with a few minor updates and corrections reflecting the way the political situation has developed since. Those who recall it will know that there is one party in the Danish parliament that can reasonably be described as to the left (Ø), two parties that are centre-left (SF, S), two parties that are centre-right (R, DF) and three wingnut parties (V, K, Y). Confusingly, DF is often referred to as O instead of DF, because O is their letter on the ballots, and VKO is easier to say than VKDF when you need an acronym for the ruling coalition...

As an aside, the Social Liberals (R) and the Popular Party (DF/O) would both be bringing out the torches and pitchforks if they knew that I'm grouping them together, but in terms of economic policy it's the only reasonable ordering. They're both "values" parties more than fiscal parties. The Social Liberals are from the left but listen too much to the kind of economists you get out of bizniz schools. The Popular Party is right-wing populist, but their target demographic (old folks and people who don't like furriners) means that their economic policy is somewhat to the left of the real righ-wing parties.

But I digress. Today, in order to keep the diary of a manageable length, I am going to focus on the leadership of the left-of-centre parties: Ø, SF and S.

Diary rescue by afew