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Against the Flow: Reflections of an Individualist
by Samuel Brittan
Atlantic Books 2005
304pp, 25 pounds
ISBN 1843544377X
Reviewed by Julie Novak
Sir Samuel Brittan has long been regarded as one of the United Kingdom’s leading economic commentators. He has written an influential column for The Financial Times since 1966, had been awarded the George Orwell, Senior Harold Wincott and Ludwig Erhard prizes for his journalistic contributions, and received a knighthood in 1993 for his ‘services to economic journalism’. Brittan’s insatiable appetite for writing is also reflected in the publication of 12 books, including his new work Against the Flow which consists of 68 essays written since November 1999.
One is immediately struck by the diversity of readings in this collection, ranging from foreign policy and international relations, British and European economic policy, social issues, political economy, to biographical essays on economists and philosophers such as Friedrich Hayek, Milton Friedman, Ayn Rand, John Maynard Keynes, Norman Angell, and Bertrand Russell. Apart from his willingness to commentate freely on issues that cross disciplinary boundaries, Brittan displays a rare gift for a certain elegance of expression whilst, at the same time, ensuring that his messages are unencumbered by complex technical jargon. He also manages to pull no punches against those notions with which he disagrees, providing a sprinkling of (scathing) humour in exposing a range of erroneous beliefs. For example, in his critique of NGO agitations for businesses to adopt a ‘stakeholder’ (corporate social responsibility) approach to their operations and reporting standards, Brittan notes that ‘… One enthusiast advocates that every company should have a ‘metaphysical director’ who could supposedly resolve conflicts of interest and value. This would indeed provide jobs for bogus philosophers’ (p. 85).
Brittan undertakes some effort to dismantle a range of fallacies that are commonly accepted as ‘economic truth’. He provides a critical assessment of the populist support for high minimum wages (which ‘... contributes to unemployment and is a breach of the human right to make a contract for services from which both sides benefit’ [p. 94]), criticisms of the wealth distribution (‘… the usual statistics … exaggerate the concentration of wealth. … The weakness of such figures is that they are snapshot rather than lifetime comparisons’ [p. 101]), and the fear of cheap imports (‘… if countries such as China and India are prevented from competing on the basis of their most favourable temporary asset – namely cheap labour – their whole development will be delayed’ [p. 73]). In the realm of foreign policy, he castigates the popular view that there is a strong link between terrorism and poverty (pp. 18‑19), and that the West needs to understand the underlying attitudinal bases of Islamic extremism with a view to appeasing terrorists to end their murderous campaign against the free world (pp. 4‑5). The quality of the critical analysis of these and other issues is a key strength of Brittan’s Against the Flow.
The book also provides a number of chapters covering a range of cutting‑edge research themes, including complexity theory, evolutionary psychology, currency competition, the limits of macroeconomic forecasting, and the role of institutional rules in shaping the evolution of competitive markets. Brittan also emphasises the nature and limits of human knowledge, drawing on the work of Karl Popper and Hayek. These are important issues in economic and social theory, and Brittan is to be highly commended for canvassing these concepts for the benefit of a wider audience.
However, with such an eclectic array of essays over a broad range of subject areas, a key drawback of this book is the appearance of a number of inconsistencies of argument. For example, Brittan describes himself as a ‘neo‑pacifist’ (p. 9) in foreign policy, yet supports the United States and its allies, including Australia, in its prosecution of the war against terror (p. 5). He also argues that ‘… At this point of danger we cannot be too squeamish in our choice of allies’ (p. 5), yet he later attacks Western leaders involved in strategic military and trade partnerships with countries such as Pakistan and Saudi Arabia (p. 13). These inconsistencies tend to leave the reader none the wiser as to what Brittan’s foreign policy stance might be.
On the economic side, there is some confusion within Against the Flow as to Brittan’s views on the desirability of macroeconomic targets as a policy instrument. Brittan warns against the utilisation of inflation targets during periods of rapid inflation (p. 160), and more broadly criticises policymakers who adopt macroeconomic policy targets for pretending to ‘… know more about the characteristics of the economy than we really do’ (p. 206). Yet elsewhere in the book Brittan advocates the adoption of nominal GDP as a policy target (p. 161). Putting aside the obvious problems posed by these inconsistencies, there remains considerable academic scepticism amongst even neoclassical economists regarding the feasibility of GDP targets and, further, from an Austrian economics perspective it could be regarded that an inordinate focus on national income accounting concepts (such as GDP) may bias policy towards focussing on increasing quantities of inputs and outputs in the production process, rather than on innovation and entrepreneurship that are the foundations of free competitive market processes (Randall G Holcombe, 2004, ‘National Income Accounting and Public Policy’, Review of Austrian Economics).
More fundamentally, despite the claims that this book provides for a ‘robust defence of classical liberalism’, it is not at all clear that this is indeed the case. Brittan describes himself as a ‘redistributive market liberal’ (pp. xi, 86) who supports the notion of a guaranteed minimum income for all (pp. 91‑97, 240), as well as extensive asset‑based welfare (pp. 97‑104). Brittan’s self‑described ‘redistributive market liberalism’ is reminiscent of the ‘progressive liberalism’ label developed in a 1998 book by Australian economist Fred Argy, which was extensively critiqued in a previous edition of this journal by Wolfgang Kasper. Further, the welfare state concepts promulgated by Brittan have been variously embraced by left‑wing groups such as the Australian Labor Party under Mark Latham, the Greens Party, and the Australia Institute. This raises an obvious question: can this work, in its totality, be regarded as a statement of classical liberalism, in the tradition of Locke, Montesquieu, Hume, Smith, Bastiat, and Hayek? Perhaps not.
All in all, Against the Flow represents a series of thought‑provoking essays covering a panorama of contemporary economic, social and political issues. Against the Flow may not be the comprehensive tract in the classical liberal tradition that it is made out to be, and it does occasionally (at times critically) suffer from a lack of consistency, but it is nonetheless an interesting work which gives something for everyone together with some thrills and spills along the way.
Rights from Wrongs: A Secular Theory of the Origin of Human Rights
by Alan Dershowitz
Basic Books
United States
2004, $US24, 261pp.
ISBN 0 465017 14 4
Reviewed by John Heard
It would be difficult to find a legal writer who comes with more baggage than Alan Dershowitz. Infamous for suggesting—some time before the idea was co-opted, without citation, by Australian scholars—that torture, in limited circumstances, might be an acceptable response to terror, Dershowitz was accused by Norman Finkelstein and others of plagiarising large segments of his text The Case for Israel (John Wiley & Sons, 2003) from a book by Joan Peters, From Time Immemorial: The Origins of the ArabJewish Conflict Over Palestine (JKAP Publications, 2001).
Even his legal career has followed a stellar and slightly odd trajectory; the youngest ever Felix Frankfurter Professor of Law at Harvard he also once successfully defended Harry Reems—an actor in Deep Throat—from obscenity charges and figured prominently in the defence of Claus von Bülow, OJ Simpson and Mike Tyson when the first two faced murder and the last rape charges. It is perhaps not altogether surprising then that Dershowitz has published a text on, of all things, human rights.
In Rights from Wrongs Dershowitz presupposes a moral atrocity and builds his theory of rights upon responses to it. The academy, secular and modern and therefore bereft of a unifying metaphysics of justice, is to use the moral outrage encountered after such an event to discern and delineate human rights. Dershowitz, in his inimitable prose, argues that while one might not know what is right anymore, most people have a good understanding of what is wrong. He uses events like the Shoah as examples of unambiguous human rights abuses.
Dershowitz argues that such events demonstrate ‘a conception—or a consensus—about the very bad society, and the wrongs that made it so’ which he then uses to introduce and enunciate a system of ‘nurtural rights’. He chooses this term deliberately to set it over against the ‘natural rights’ commonly referred to in jurisprudence. He rejects Aristotle’s views and draws heavily on the ‘nature versus nurture debate’. Finally, he favours secularism mainly because of his inability to understand how human governments can trample rights that derive from God. It seems Dershowitz is unaware of the basic texts of the Scholastics, they resolved this conundrum about seven hundred years ago.
Other than some long, off-topic detours around Dershowitz’s pet political peeves—at one point he dismisses opposition to gay marriage by treating it as superstition at best before conceding opponents would have some moral integrity if not for the naturalistic fallacy—the text is a setting-out and a defence of Dershowitz’s theory. Curiously for a book that spends so much time attempting to sell readers on the flaws in natural law thinking, Dershowitz appears to be unaware of the writings of the theory’s contemporary champions, generally understood to be John Finnis at Oxford, Robert P George at Princeton and Germain Grisez formerly of Georgetown, currently at Mount St Mary’s Emmitsburg. If he is aware of them, like the Scholastics they’re never mentioned. This is perhaps understandable in a relative sense, not even Sts Augustine and Thomas Aquinas, the masters par excellence of natural law, rate a mention.
By attempting to introduce such a peculiarly divergent theory—Dershowitz hopes to find a middle way between natural law and positivism—in such a brief text, Dershowitz leaves himself vulnerable to attack on numerous fronts. What if there are no rights tragedies? In the absence of a specific rights violation, to what do rights adhere? More pragmatically, why should we trust Dershowitz that society will correctly identify rights violations and universally condemn them? Indeed, why should anyone leave human rights to the whim of a vaguely defined ‘consensus’? What if people just don’t care, don’t feel outraged? Dershowitz’s book introduces an innovative understanding of human rights as risk management. This does not, however, add value to the rights debate. If anything, rights defined by moral outrages create a perverse incentive to foment turmoil.
In a fundamental sense then for Dershowitz there is no sanctity, no goodness and certainly no truth about the human person. There is only evil—or more precisely, only our sometime outrage at some ‘wrongs’. This might not offend the anti-metaphysics of a secularist but here rights are reduced to the corollary—not always logical—of some kind of infraction. Rather than a supremely rational theory picked out from the premised ruins left by 20th century legal theory and the supposed loss of truth, Dershowitz’s is a litigator’s economy of human rights, where man is valued not because man, rather because capable of injury. In Dershowitz’s professional and now academic worldviews, an uncompensated injury is the supreme wrong; indeed it is the definition of injustice.
This entails the conclusion, perhaps unforeseen by Dershowitz that the strongest man—and more disturbingly—the strongest nation need not contemplate human rights. Certainly the strong remain bereft of a prima facie rational incentive to either recognize or protect human rights. Such thinking can be manipulated more easily than that of other rights theories to buoy the collective ego of a society that considers itself unerringly decent or—God forbid, comfort the sensitive tyrant.
It cannot be ignored that Dershowitz’s theory would privilege those who are most put upon, which is immediately good—certainly it would privilege the Jewish people above all others in a taxonomy of wrongs—but this is still troublesome. Human rights must be based on humanity defined absolutely, not on an ever-splintering assortment of quantified particular wrongs. By neither premising his theory on the human nor even on human rights, rather on the events that precipitate moral outrage Dershowitz would limit the franchise of freedom. In practice this would shackle rights definition to an unwieldy fact-finding bureaucracy, impairing the universal imperative that human rights, however fragile, continue to own.
Elie Wiesel presented Dershowitz with an Anti-Defamation League award in 1983 and was quoted then as saying, ‘if there had been a few people like Alan Dershowitz during the 1930s and 1940s, the history of European Jewry might have been different’. Alarmingly however, and despite obvious good intentions, if murderous despots then or today had been reading Rights from Wrongs there is no good reason to conclude they would consider it a compelling deterrent to the next human rights outrage.
Freakonomics: A Rogue Economist Explores the Hidden Side of Everything
By Steven D. Levitt and Stephen J. Dubner
New York City, William Morrow 2005
242pp, $51.95, ISBN 0 06 073132X
Reviewed by Rajat Sood
The University of Chicago has a tradition of producing economists that push the boundaries of the discipline. This is the school that nurtured innovative and iconoclastic thinkers such as Milton Friedman (on macroeconomic stabilisation policy), Robert Lucas (on the use of ‘rational’ rather than Keynesian ‘adaptive’ expectations) and Gary Becker (on the economics of the family). Steven Levitt and his journalist co-author, Stephen Dubner, appear to be following this tradition by publishing a book that deals with a range of topics that do not fall within the realm of mainstream economics—hence the book’s title.
Freakonomics can best be described as a sort of Bill Bryson guide to applied social science. It considers a number of disparate behavioural phenomena and seeks to make sense of them, sometimes drawing on economic hypotheses but always relying heavily on data. It is the emphasis on data that is the book’s strongest feature. Levitt and Dubner discuss innovative techniques for identifying match-rigging by sumo wrestlers, cheating by Chicago school teachers, the impact of parents on children’s school test scores and other diverse topics.
The approach used to test sumo match-rigging is especially fascinating and is compulsory reading for anyone planning to sit a graduate job interview for McKinsey. Levitt and Dubner explain that the top wrestlers compete in tournaments six times a year. Each tournament comprises fifteen matches. A result of at least eight wins increases a wrestler’s ranking while seven wins or fewer causes his ranking to fall. Wrestlers’ income and status are based heavily on ranking, so a wrestler’s eighth win in a tournament is critical.
Levitt and Dubner show that the probability of success of wrestlers sitting on a 7 win-7 loss record on the last day of a tournament is far higher than one would expect based on the relevant wrestlers’ past records and, more importantly, is reversed in the following match between the same two men. This suggests that many wrestlers come to an agreement or understanding for one to throw a match crucial to his opposition in return for quid pro quo treatment the next time around.
A chapter that has attracted considerable controversy attributes the dramatic fall in US crime rates in the 1990s to the availability of abortion from 1973, following the landmark Supreme Court decision in Roe v Wade. Contrary to many experts’ predictions, violent crime rates fell dramatically across the United States from 1991, after rising strongly for the previous several decades. Levitt and Dubner systematically go through a number of conventionally cited reasons for the crime rate fall, but conclude that while some—tougher penalties, more police and lower profits from selling crack cocaine—played a part, none could explain the extent of the fall.
The most important reason was apparently the wider availability of abortion from approximately 18 years prior to the start of the crime rate reversal, 18 being about the age young people enter their ‘criminal prime’. Women in difficult circumstances who would otherwise be giving birth to children who would later develop anti-social tendencies were no longer doing so. Levitt and Dubner discuss a range of correlations that back up their hypothesis. The most compelling of these is that those US States that first legalised abortion were those in which the crime rate fell first. Interestingly, Levitt and Dubner go one step further by pointing out that even if legalised abortion lowers crime, it does so in a costly manner: more than 100 foetuses are lost for each life saved from homicide, a trade-off the authors refer to as ‘terribly inefficient’.
The crime-abortion chapter has attracted criticism on empirical (as well as moral) grounds, but there is no doubt it has stimulated debate. Certainly, it is refreshing to read an American discussion of one aspect of abortion that looks at the issue from a non-absolutist perspective. As to whether Levitt is a ‘rogue economist’, there is little unusual (for an economist) in the book’s emphasis on incentives and empirical analysis.
The main aspect in which the book departs from standard economics is the broader way in which it conceptualises the motivations for human behaviour. While standard neoclassical economics begins with the assumption of a rational agent with given preferences, Freakonomics draws liberally from a variety of motivations including wealth, status, shame and even self-preservation!
Sometimes this works well. For example, Levitt and Dubner hypothesise that the reason why parents using an Israeli child-care centre increased their lateness in picking up their children was because the centre began charging a small ‘late fee’. According to the authors, this fee relieved parents’ consciences for turning up late, so that they were able to manage their arrival time to suit their own fee-time trade-offs rather than to aim for promptness out of a sense of obligation.
However, in other cases, the authors risk losing their readers’ faith or comprehension with their brainstorming-style commentary. When Levitt and Dubner tell the story of Paul Feldman, a former bureaucrat who began a bagel office delivery business working on an honesty payment system, they explain how Feldman found that the honesty of customers varied according to a range of factors. Customers in smaller companies tended to leave the right payment more than customers in larger companies, because, the authors say, of the higher risk of being caught not paying in a small company. The type of money container was also a factor—people were more inclined to steal from open baskets than a sealed box. Even morale and weather seemed to play a part.
All of this makes sense. But in the conclusion to the chapter, Levitt and Dubner change tack to argue that people are innately good most of the time, citing Adam Smith’s The Theory of Moral Sentiments. Yet this is straight after pointing out how cash from Feldman’s open money baskets was frequently stolen and straight before discussing the prevalence of cheating amongst schoolteachers.
Another example of literary hand waving occurs in the final chapter on children’s names. The chapter’s ostensible purpose of asking whether names determine destiny seems to be an excuse to showcase some interesting Californian data on the baby-naming practices of different racial and socio-economic groups. We are told that blacks choose ethnically specialised ‘black names’ so that their children are not persecuted for ‘acting white’. At the same time, whites choose names first popularised by the well-educated. But no explanation is offered for why blacks choose names to save their kids from being beaten up but whites choose the names of their socio-economic superiors.
The drawback with such a free-wheeling approach is that particular data may be consistent with a range of hypotheses. Picking a hypothesis to suit the data rather than testing previously-formulated hypotheses may happen regularly in the academy, but written up so breezily, it smacks of ex post rationalisation. But perhaps this is excessively picky. There are plenty of books on the market that prefer to opine without considering facts at all.
Freakonomics provides some intriguing pop-social science and is perfect for those who love to theorise. Just ignore the annoying chapter introductions (no doubt courtesy of Mr Dubner) and read it in the lounge rather than the study.
On Bullshit
Harry G. Frankfurt
Princeton University Press, 2005
67pp. $14.95, ISBN0 691 12294 6
Reviewed by Amalia Matheson
Despite its provocative title, On Bullshit is a serious little book of philosophy, the commercial and critical success of which makes it the surprise publication of the year.
It is rare for an academic essay of this kind to receive much popular attention, but Harry G. Frankfurt’s On Bullshit works hard at being accessible, entertaining and undemanding. The basis of Frankfurt’s theory is immediately recognisable to us all, whether we like to admit it or not, because ‘one of the most salient features of our culture is that there is so much bullshit. Everyone knows this. Each of us contributes his share’. And who doesn’t like to read all about themselves?
The problem in our social and cultural context is as Frankfurt states: there really is so much bullshit. Everywhere. The problem from a philosophical point of view is that there is no clear understanding of what bullshit is, ‘we lack a conscientiously developed appreciation of what it means to us’. So Frankfurt sets about beginning the development of a ‘theory of bullshit’.
Frankfurt’s theory is that bullshit is worse than a lie. Telling the truth and lying are two sides of the same game, both positions acknowledge and have a relationship to ‘truth’, whereas bullshit has no concern for the truth at all. The only concern of the bullshitter is his image, what people may think of him. The bullshitter may actually alight on the truth, more by accident than design, but that is not the motive of bullshit and is of no consequence to the bullshitter.
We all bullshit, we all feel confident of our ability to recognise bullshit when we encounter it, and for these reasons we are surprisingly tolerant of it. While we are all happily contributing to the global quantity of bullshit, we are also consuming it in ever increasing proportions. We accept bullshit as part of modern life and while blaming politicians, the media, PR machines and magazine editors for producing vast quantities of the stuff, we are also buying it in record proportions; when we run out, we demand more; we are always on the lookout for better bullshit than we can ourselves produce. Being fed bullshit is entertaining and it is easy.
These days bullshit is, in fact, just a form of good manners; it greases the wheels of modern social interaction, commerce and government. Telstra-like boardrooms all around the country are steeped in the practice. Indeed straight-out truth telling is considered to be rude and undiplomatically blunt, the truth is rarely cool, fun or entertaining. To be sure, no one wants to be told a barefaced lie either as there are too many consequences requiring some kind of effort when you know you are being lied to. Nope, bullshit is where it’s at. Bullshit skims along between the boundaries, comfortably never quite puncturing the surface of truth or lies, but always exhibiting just enough reality to be acceptable.
A problem arises when our bullshit-antennae fail us. When the bullshit is so artful, so convincing, so cleverly crafted that it appears to even the most experienced among us to be completely and utterly the truth, when in actual fact it is untrue or, worse, unmitigated bullshit, this is the work of the ‘bullshit artist’.
When discovering we have been taken in by a bullshit artist, we are unrelenting in our vengeance. The hoary old paradigm of the feted and much promoted self-made/media-created celebrity who, suffering a fall from grace, is torn limb from limb by a media fuelled by the outrage of its audience (and the ker-ching of advertising dollars). Latham, Vizard, Hanson are just a few recent notable cases. While Frankfurt’s theory proposes a moral position (that to lie is bad, but to bullshit is a greater enemy of the truth than lying) it is often difficult to disentangle such situations to arrive at a moral or even ethical position; the bullshit artist is obviously ‘bad’, those that promote and support the bullshit artist are complicit; we are angry because we have been duped. If only we had known it was all bullshit … We all knew Hawke’s famous ‘by 1990 no Australian child shall live in poverty’ was utter bullshit. And we were happy with that, we played along.
So acknowledged bullshit, consciously or otherwise, is fine. It may be morally and ethically pernicious, or it may just be shallow and mindless, but like French fries cooked in beef fat that encourage obesity, promote heart disease and kill people, we still swallow it. Happily, greedily, we suck it up.
The reasons for this are complex. Frankfurt doesn’t spend time analysing any rhetorical uses or misuses of bullshit nor its consequences. He admits his essay is just the beginning of a philosophical analysis, an attempt to ‘articulate, more or less sketchily, the structure of its concept’. Not because he is not interested, or has not thought it through that far—obviously he is and I’m sure he has. No doubt he doesn’t want to go into the complexity of ‘why’ because we’ll lose interest, get bored and switch on the TV wondering who’s left on Big Brother.
He does however, at the very end of the piece, suggest a possible source for the contemporary proliferation of bullshit: ‘antirealist’ doctrines such as ‘postmodernism’ within which ‘reality’, ‘truth’ and ‘rationality’ are indefinable and meaningless and the best we can each hope to know is how we feel and to be sincere’ about that. In political terms jump aboard the ‘Opportunity Express’ - there are no individual seats we all just pile in together, the important person is not the driver with the map, but the funny bloke up the back who cracks lots of bum jokes and don’t ask why we are going round in circles, because driving in circles is just as valid as going in straight lines, y’know.
‘Opportunity Express’, ‘ladders of opportunity’… they are examples of nice sounding, sincere ideas that are basically meaningless in a practical and real sense and are, therefore, potentially dangerous. Insofar as this is true, as Frankfurt says: ‘sincerity is bullshit’.
The Rise and Fall of Monetary Targeting in Australia
By Simon Guttman
Australian Scholarly Publishing, Melbourne
2005, $39.95, ISBN 1 74097 073 X
pp. 332.
Reviewed by Stephen Kirchner
The Rise and Fall of Monetary Targeting in Australia is a detailed examination of n important episode of macroeconomic policymaking. Based on the author’s PhD thesis, the book brings together an impressive range of primary and secondary source material. Guttmann was given unfettered access to the archives of the Reserve Bank through to 1986, although Treasury refused a similar request. Guttmann also interviewed many current and former policymakers.
Guttmann sets out to examine why monetary targeting ‘gained favour in Australia during the 1970s, how it was used to support a number of economic policies and why it lost appeal in the mid 1980s’ (p. vii). Guttmann concludes that ‘while the government, the Treasury and the Reserve Bank did, on occasion, provide a considered discussion of monetary targeting, unfounded assertion, dissembling and obfuscation were the rule. Misguided policies and unfavourable economic performance were arguably the result’ (p. 250). Similar conclusions could be reached about many other historical episodes of macroeconomic policymaking. The importance of the monetary targeting episode lies in what it tells us about Australia’s economic policymaking institutions.
The picture painted by Guttman in this regard is not a pretty one, with key policymakers and policymaking institutions shown to have been driven overwhelmingly by expediency and political and bureaucratic self-interest at the expense of good policymaking. Neither Treasury nor the RBA covered themselves with glory throughout this period, being concerned mainly with promoting their own bureaucratic prerogatives, while seeking to avoid being held accountable for macroeconomic outcomes.
The role of Treasury and the RBA before the Campbell Committee puts paid to the notion that these institutions were at the forefront of the push for financial deregulation. The Treasury’s submission showed that it barely understood what it meant to have a market-determined exchange rate, arguing against floating the dollar on the grounds that ‘the degree of intervention required in the foreign exchange market to achieve a desired exchange rate would be larger with a market-determined rate’ (p. 139).
The problems with the RBA’s conflicted statutory mandate are readily apparent throughout the book. In an amazingly frank admission before the Campbell Committee, the RBA argued in relation to its own statute:
it has become all too clear that the hoped-for compatibility of objectives, and even their meaning, are the very stuff of politics. The Reserve Bank must pick its way as best it can…its range of choice depends upon the powers and actions of others, as much as upon its own. The objectives are achievable in their entirety only in the long run (if at all). (cited on p. 133)
It is hard to imagine a more telling indictment of the statutory framework that still governs Australian monetary policy. The RBA opposed monetary targeting, not least because ‘the accountability that a projection imposed on the authorities was incompatible with the Reserve’s reluctance to provide information about monetary policy’ (p. 241). These problems were not confined to the monetary targeting episode. In the wake of the abandonment of monetary targeting, Guttmann notes that ‘it quickly became apparent that a strategy for structuring monetary policy, and also communicating with markets, was absent’ (p. 134). The check-list approach to monetary policy adopted from May 1985 proved equally unsatisfactory and arguably still lives on in the everything-but-the-kitchen-sink inventories the RBA now offers by way of explanation for its policy actions.
While Guttmann’s book is very revealing about the failings of Australia’s macroeconomic policymaking institutions, unfortunately, this is not his major focus. Instead, Guttmann is overly preoccupied with criticising monetary targeting as such. Many of these criticisms would today meet with very little resistance from the economics profession. He expects the pronouncements of policymakers to bear a logical and theoretical consistency that is probably rarely observed in any area of policymaking at any time, much less the deeply contested area of macroeconomic policy. While some of these criticisms are fair and reasonable, they are significantly less interesting than what the monetary targeting episode reveals about the institutional framework for macroeconomic policy in Australia.
Reading Guttmann’s book, one could be forgiven for thinking that monetary targeting and monetarism were an historical aberration, rather than a necessary stage in the evolution of contemporary monetary policy practice. While monetary targeting was ultimately abandoned in favour of the eventual adoption of interest rate and inflation targeting, the core monetarist insights that drove the experiment with monetary targeting in Australia, the US and elsewhere were absorbed into mainstream monetary theory and practice. Former Federal Reserve Board Governor Ben Bernanke recently noted that ‘[Milton] Friedman’s monetary framework has been so influential that, in its broad outlines at least, it has nearly become identical with modern monetary theory and practice’. The rise of a monetary view of inflation was critical in discrediting the price and income control policies that were competing for policymakers’ attention in the developed economies during the 1970s, when non-monetary views of inflation held sway, leading to the Great Inflation of that decade. Monetary targeting was primarily a response to the failure of existing policies. The long term success of the monetary view of inflation is reflected in contemporary macroeconomic outcomes.
Guttmann concludes that ‘as with the monetary target,—ideology—in the form of the inflation target and prevailing fashion of central bank independence—is also crucial to understanding the financial markets’ support for the present approach to monetary policy’ (p. 249). Guttmann’s evidence makes clear that expediency and pragmatism rather than ideology were the main drivers of the monetary targeting episode and this is also true of inflation targeting and central bank independence today. The significant improvement in macroeconomic outcomes in recent years relative to the period examined by Guttmann owes an enormous debt to the post-war revival of monetarist thought, a debt that goes unacknowledged in this book.
Fighting Poverty in the US and Europe: A World of Difference
By Alberto Alesina and Edward Glaeser
Oxford, Oxford University Press, 2004, 250pp, US$45
ISBN 0-19-926766-9
Reviewed by Peter Saunders
This is an interesting and important book, although its argument could have been presented in half, or even one-third, the number of pages. There is a lot of repetition, probably reflecting the fact that the book originates in a number of discrete papers and has not been carefully edited.
The question Alesina and Glaeser address is why Europeans spend so much more on the welfare state than Americans do. Their answer lies partly in America’s political institutions, which have successfully defended the rights of private property owners for more than 200 years while European institutions have been turned upside down by wars and revolutions, and partly in America’s ethnic diversity.
The book begins by outlining the sharp differences between US and western European social policies. EU governments on average soak up 45% of their countries’ GDP, compared with 30% in the USA, and this mainly reflects the differences between them on welfare state spending. Whether it be family payments, government health programmes, age pensions, sickness and accident compensation or poor relief, the US government is consistently less generous than those in Europe (although individual Americans are a lot more generous in making charitable donations). Furthermore, American income tax is less ‘progressive’, the labour market is less regulated, and post-tax incomes are more unequal.
Despite the fact that they are both economists, the authors rule out economic explanations for these differences. It is not the case, for example, that Europe has more people in need of government assistance; nor do Americans enjoy noticeably greater opportunities for upward mobility which would allow them to improve their incomes through their own efforts. Alesina and Glaeser conclude that the explanation must lie elsewhere – in politics and in sociology, rather than in economics.
Like many others before them, they link the stunted development of a welfare state in America to that country’s failure to develop an effective socialist movement. The weakness of US socialism is in turn explained by geographical factors (the huge size of the country made it difficult to build a national movement) and by racial and ethnic fragmentation (class solidarity was constantly cross-cut by ethnic divisions). All of this is probably true, but much of it has been said before. Where the book is more original is in its claim that US political institutions have also played a key role in blocking redistributive social policies, and that these institutions have survived because socialism never became strong enough to overturn them.
Rehashing the Tiebout thesis, the authors argue that federalism (decentralised powers) helped put a cap on tax increases because adjacent jurisdictions have had to compete to attract and keep high-earning businesses and residents. They think the powerful US Supreme Court has played a crucial role by striking down various attempts at redistributive and regulatory interventions. And they suggest that, while European-style voting systems based on proportional representation (PR) promoted higher welfare spending, the US majoritarian system encouraged politicians to target spending at their own local constituencies rather support more extensive welfare programmes.
Despite extensive use of least squares regression to ‘demonstrate’ the association between PR and a big welfare state, I found this last part of their argument unconvincing, for it is not obvious that PR will produce compromises with radical parties that want to drive up welfare spending rather than to coalitions with moderate centre parties which would put a brake on radical change. Be that as it may, Alesina and Glaeser claim that distinctive political institutions explain about half the variance in welfare spending between the US and Europe.
The other half is explained by ethnic heterogeneity. Their basic hypothesis here is that high welfare spending will only develop in homogenous populations, for taxpayers resent their money being transferred to people very different from themselves. This hypothesis is tested against international data, and against variations in spending between the different American states, and in both cases it holds up very strongly. But having established the correlation, the authors have to explain it. Why are voters in ethnically heterogenous populations so loathe to support the development of an inclusive welfare state?
The authors reject the sociobiologists’ idea that there is something ‘natural’ about people’s tendency to ‘favour their own’, arguing instead that racial and ethnic identities have been played up by US politicians to divide and rule the working population. Put simply, America never got a welfare state because racist leaders discouraged poor whites from identifying with poor blacks.
Perhaps this explanation is right, but the argument gets confused. We learn, for example, that Goldwater, Nixon and even George Wallace (in his earlier days) won the support of southern whites without appealing to race, but if this is the case it would seem to undermine the authors’ claim that a racist agenda was cynically fomented by right-wing political leaders to build support for their anti-welfare policies. Alesina and Glaeser say Americans have been ‘indoctrinated’ by politicians to believe that poor blacks are lazy and that there is plentiful opportunity for them to improve themselves if they were willing to make the effort, but this explanation rests on a very crude version of the ‘dominant ideology’ thesis which few serious sociologists would endorse. Ideology is much more subtle than brute indoctrination.
What this book lacks is a sophisticated analysis of the historical development of national cultures. It provides some important clues to understanding the social policy differences between Europe and the US, and it musters some valuable empirical evidence along the way, but it never gets to grips with the fundamental cultural division between continental Europe and the ‘Anglo’ world (including Australia, as well as the US and the UK) which arguably underpins the divergence in their welfare states.
Because it is so concerned to contrast the US against everybody else, the book is blind to some deeper similarities between America and the other ‘Anglo’ countries. In a number of graphs it is obvious, for example, that the UK, Canada and Australia share more in common with America than they do with western Europe, but the authors never see this, and they constantly struggle to explain why the UK persistently crops up as an outlier from the rest of the EU.
Towards the end of the book there is a feeble attempt to take account of the possible impact of Protestantism as a cultural factor shaping the emergence of social policy differences between countries, but the core explanation arguably goes much deeper even than religion. As I have suggested elsewhere, the Anglo cultures share a centuries-old tradition of individualism which has radically demarcated them from continental Europe and which almost certainly helps explain why they have proved so resistant to the strongly corporatist welfare models that emerged in countries like Germany, France and Italy.
At the end of the book, the authors speculate that increased immigration may be weakening the traditionally strong European welfare states, and I have no doubt they are right. But their explanation for this – that right-wing parties are playing the race card to wean voters off high welfare spending – strikes me as superficial. The key explanation, surely, is that big welfare states depend upon strong collective sentiment – a popular sense of unity and shared identity. Such collective sentiment was never strong in the Anglo countries due to their individualistic cultural inheritance, which is why they ended up with relatively weaker welfare state models. Historically, collectivist sentiment was much stronger in continental Europe, but it is now being weakened there too as a result of the influx of culturally-dissimilar immigrants. It is not racism that is undermining support for the welfare state in continental Europe, but is rather the erosion of a strong sense of national uniformity.
Our Culture, What's Left of It: The Mandarins and the Masses
Theodore Dalrymple
Ivan R. Dee, Publisher (May 25, 2005)
ISBN: 1566636434
320pp US$27.50
Reviewed by Alan Anderson
Only man placed values in things to preserve himself—he alone created a meaning for things, a human meaning. Therefore he calls himself ‘man’, which means: the esteemer… Through esteeming alone is there value: and without esteeming, the nut of existence would be hollow.
Friedrich Nietzsche, Thus Spoke Zarathustra
In an age of non-judgementalism, Theodore Dalrymple is the most eloquent of heretics. Writing under his mildly pompous yet endearing nom de plume, British psychiatrist and prison doctor Anthony Daniels continues to puncture the post-modern pretensions of Britain's politically correct elites. His latest anthology, drawn from the Manhattan Institute's City Journal, surpasses its predecessor, Life at the Bottom, in its sparkling erudition and underlying humanity.
The first half of the volume is devoted to Western literature and art, charting their decline into a charmless celebration of vulgarity and sensationalism. For this phenomenon, Dalrymple blames the liberal intelligentsia's embrace of cultural relativism and aversion to value judgements.
He explains how narcissistic liberals of the artistic and literary world, driven by a desire to appear virtuously open-minded, praise disingenuously the most sordid and degraded aspects of slum culture as triumphant declarations of non-conformity and working class authenticity. Thus, in Dalrymple's view, have they condemned the British underclass to continued economic, social and intellectual deprivation by destroying its sense of aspiration.
The barren wasteland of modern British culture is compared unfavourably with its former depth and vibrancy, a theme illustrated by Dalrymple's application of Shakespeare to the modern world, which demonstrates the timeless nature of the Bard's works.
By contrast, Dalrymple derides the sensationalism of modern pop culture, tracing its ancestry through the 20th century. Of D.H. Lawrence, Dalrymple thinks little: ‘The radical humourlessness of this passage … is indicative of a profound moral defect, insofar as a sense of humour requires a sense of proportion’. Of Virginia Woolf he thinks less: ‘Had Mrs. Woolf survived to our time, she would at least have had the satisfaction of observing that her cast of mind—shallow, dishonest, resentful, envious, snobbish, self-absorbed, trivial, philistine and ultimately brutal—had triumphed among the elites of the Western world’.
If this anthology were to be faulted, it would be on the basis that the selection of essays on high culture rather belabours the point. The paeans to Shakespeare and the ruthless demolitions of Lawrence and Woolf are refreshing and entertaining, but by the time we reach Dalrymple's critique of Miro and his reflections on Gillray, the essays begin to feel a little predictable.
The second half of the volume suffers from no such defect. Dalrymple analyses a wide range of modern social problems including drugs, criminality, malnutrition of the British underclass and, most timely, forced ethnic marriages and the dysfunctional nature of Islam in the West. Eschewing the theoretical abstractions of the top-down Continental approach to social analysis, Dalrymple epitomises the British tradition of building his ideas on the solid foundations of empirical evidence.The essays draw on a host of anecdotes from Dalrymple's medical practice to illustrate his points.
The two halves of the book are two sides of the same coin, demonstrating how the pollution of elite thinking and culture with liberal falsehoods has filtered down to the slums, where the poison proves infinitely more lethal. For instance, Dalrymple explains how the practical application of fashionable sociological and psychological theories, which absolve criminals of responsibility for their actions, has seen those theories escape the confines of Notting Hill dinner parties to form a basis for even the most ill-educated criminal's internal justification of his crimes.
Well-travelled and well-read, Dalrymple draws on disparate fields of knowledge to construct a series of thought-provoking arguments consistent with an overall thesis which, as an anti-theorist, he never deigns to state explicitly. There are two common threads: a disdain for the conspicuous and counterproductive compassion of liberal elites; and a belief that even society's most hopeless cases deserve to be accorded respect as human beings, not treated as billiard balls in some social theorist's model, nor subjected to what George W. Bush terms, ‘the soft bigotry of low expectations’.
Dalrymple is a classical conservative: ever conscious of the imperfectability of human nature and the need for external restraints on human behaviour; condemning the culture of rights while emphasising the importance of individual responsibility. exposed daily to the gritty reality of life in the slums, Dalrymple casts down the shibboleths of political correctness with brutal frankness. His work is the ultimate rejoinder to Tony Blair's ‘Cool Britannia’ and the entire neo-socialist project of the ‘Third Way’, with its racial sensitivity training and rush from judgement.
Of fundamentalist Muslims, Dalrypmple writes, ‘If they were content to exist in a seventh-century backwater, secure in a quietist philosophy, there would be no problem for them or for us; their problem, and ours, is that they want the power that free inquiry confers, without either the free inquiry or the philosophy and institutions that guarantee that free inquiry’.
While most of the essays focus on Britain, Dalrymple proves a perceptive travel writer further afield. Of particular interest is the essay entitled The Barbarians at the Gates of Paris, which paints a grim picture of the Islamic ghettoes that surround major French cities. Anyone who has tramped the streets of Paris outside the Peripherique, or the dormitory housing estates of Lyon, will annotate their memories afresh. The final essay, After Empire, draws on Dalrymple's time in Zimbabwe to explain the African dilemma in terms which will be as unwelcome to apologists for European imperialism as to misguided Live Aid enthusiasts.
The essays in this volume are, without exception, subtly but elegantly crafted. Dalrymple's pellucid style, refreshingly free from jargon, is itself an implicit reproach to the insular priesthood of experts and academics who have sought, through the terminology of post-modernism, to exclude outsiders from the field of social analysis.
My only reservation in recommending the purchase of this book is the observation that its constituent essays are freely available on the Internet. It is, nonetheless, an impressive compilation of Dalrymple's very best. For both newcomers to Dalrymple and old fans, this is a book worth owning—and lending to friends who work at the ABC.
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