Recent Reading: Where Next?

The New York Review of Books has had interesting comments on the literary personae of Barack Obama. Colm Toibin compares his autobiographical writings to those of James Baldwin.

It seemed important, as both men set about making their marks on the world, for them to establish before anything else that their stories began when their fathers died and that they set out alone without a father's shadow or a father's permission. James Baldwin's Notes of a Native Son, published in 1951, begins: "On the 29th of July, in 1943, my father died." Baldwin was almost nineteen at the time. Barack Obama's Dreams from My Father, published in 1995, begins also with the death of his father: "A few months after my twenty-first birthday, a stranger called to give me the news."

While Zadie Smith in their most recent podcast claims this comparison is obvious and contributes many further interesting comments.

Michael Tomasky reviews one item on Obama's reading list "Unequal Democracy: The Political Economy of the New Gilded Age" by Larry M. Bartels.

But the importance of these and some other findings in the book—for example, the aggressively negative impact on equality of the 2001 and 2003 Bush tax cuts—is that they use scholarly methods to provide political explanations for economic problems. Social scientists don't usually see things this way. To most economists, income levels, like periods of expansion and contraction, must have explanations rooted in the business cycle.

But Bartels now joins Paul Krugman and others—Jacob S. Hacker and Paul Pierson come notably to mind[7] —in the growing number of liberal social scientists who acknowledge the power of the conservative political apparatus aimed at achieving ideological goals such as minimally regulated markets and low taxes for the well-to-do. That such goals could not be justified as socially fair or economically effective did not matter. In his book The Conscience of a Liberal,[8] Krugman announced his conversion to the view that political decisions by Republicans, not the vagaries of the economic cycle, were the cause of inequality, and he pressed the need for a major political challenge to the conservative forces responsible. Now, writes Bartels, "the most important lesson of this book is a very simple one: politics matters."

Agriculture and Kyoto

Most scientists would argue that the Kyoto agreements have many serious deficiencies but are the only framework we have for international efforts to curb greenhouse gas emissions and minimize the risk of catastrophic, or just very damaging, climate change.

From New Zealand's point of view the most serious questions about Kyoto and its successor agreements relate to the impact of agriculture on greenhouse gas emission.

Readers of this blog, if there are still any, might like to take a look at my discussion about some aspects of this with Charles Finny over at Dear John.

Can I Just Say?

Bad news as always from the Middle East, take a look at the Washington Note, and commentary by Michael Oren in the New Republic.

If I say that this New Year's I willl try to be mindful of the people of Burma, Darfur and Congo as well as Palestine, you will know that I regard much of the reaction to the tragic events in Gaza as, yes, disproportionate. I remain more than a little queasy about those of us on the left that rail against "the Zionists" avoiding mention of that well-known UN member "Israel".

Yes, my attitudes to Israel are based on personal factors, "tribal" if you like; those factors include my friendship with residents of Tel Aviv and Jerusalem and with many American Jews, the fact that Israel is the only country in the Middle East where gays and lesbians can live together in safety with their relationships properly recognised by the state, the fact that Israel is a secular liberal democracy.

Be that as it may.

Again, take a look at Daniel Levy's account of where things are going wrong.

Update: And Mustafa Barghouthi also at the Washington Note.

Political Emissions

The soft Australian target of a 5% reduction of year 2000 emissions by 2020 has been received with dismay in many quarters. The various corporate hand-outs for "trade exposed emissions intensive industries" along with various offsets for the consumer that look like yet more middle class welfare, also seem pretty unappealing to me. The whole point is supposed to be to create economic incentives to reduce emissions and achieve increases in growth while reducing carbon dioxide emissions per dollar of GDP. This scheme looks to be minimizing those incentives at every turn.

I don't agree with everything there but Anna Rose has a good summary in New Matilda. There have been dramatic shifts since the Green paper, for example

It's worth noting that LNG companies like Woodside and Santos are huge winners from the scheme, as they had been excluded from receiving assistance in the Government's Green paper in July. Now, they'll receive 60 per cent of their permits for free, despite being well positioned to make windfall gains from emissions trading since LNG is a less polluting fuel than coal and oil.

Writing in the Australian Financial Review, John Quiggin, takes issue with the Garnaut/Rudd-Labor argument for low per-centage but high per-capita emissions reductions. The AFR has some pernicious new trick though that stops me cutting and pasting the most apposite part. Shame!

Where next? First in an occasional series.

The global financial and economic crisis is only one of the developments that make 2008 appear to be a bit of a watershed. There's clearly a lot of thinking internationally about this new era and I'm just going to link to some of it.

In the realm of ideas, things are up for grabs in a way they haven’t been for several decades now. That is what makes the present both an anxious and an exhilarating time.

That from Francis Fukuyama, courtesy of The Washington Note.

Fukuyama is among those who see a possible end to the Reagan era in US politics. Specifically on financial deregulation, tax cuts and foreign policy. The first two aspects might be relevant to other countries.

There are three core Reaganite ideas that need to be reformulated or discarded altogether if the United States is to navigate the current crisis and restore its credibility in the new era. The first has to do with deregulation and the role of the government in the economy more broadly. The Wall Street collapse and the big recession we are heading into occurred for reasons intrinsic to the Reagan model, that is, because the government had permitted the emergence of an enormous, wholly unregulated shadow finance sector under the belief that this sector would be self-correcting. Financial market liberalization had proven highly dangerous in any number of earlier cases, most notably the Asian economic crisis of 1997-98 and the Swedish banking collapse of the early 1990s, but these warning signs were not heeded and no one imagined that this could happen to the United States itself. In this the Democrats were fully complicit, not just in their support for loan expansion by Fannie Mae and Freddie Mac, but in Clinton Treasury Secretaries who pushed financial market liberalization on the developing world. The current crisis of course has many other causes, such as the more than $5 trillion of excess savings pouring into the country from China and other Asian countries after 2002, but the idea that history was on the side of ever-expanding deregulation was ultimately an important cause of the collapse. The Reagan-era joke, “Hi, I’m from the government and I want to help” doesn’t sound so ironic in light of the Fed and Treasury’s heroic efforts to keep the economy from walking further off a cliff.

The trick in redefining the model is not to overdo it on the regulatory side. The financial sector is very different from other parts of the economy because failure there imposes enormous spillover costs on everyone else, and is why Congress ended up having to vote for the $700 billion bank bailout in September. Labor market deregulation, by contrast, has had very beneficial effects in driving down unemployment rates and permitting much more rapid adjustment to changing conditions. American income distribution has gotten excessively skewed towards the wealthy, but we don’t want to fix that problem by returning to a trade union dominated labor market.

The second big Reaganite idea that needs to be rethought concerns taxes and spending—i.e., fiscal policy. Reagan introduced the notion that tax cuts would be self-financing because all taxes smothered growth; he was also responsible for promoting the idea that virtually all new government spending outside of defense would necessarily be wasteful. While there is some rate of taxation for which this is true, the actual tax cuts enacted both in the 1980s and in the early 21st century have simply served to deepen fiscal deficits and further skew income distribution to the wealthy. The impact of these deficits was for many years masked, however, by the fact that foreigners were wanted to hold their ever-mounting reserves in dollars, a phenomenon that put off the final reckoning but ensured that the fiscal crisis would be much more severe when it finally arrived.

This attitude towards taxes and spending has rendered the American political system incapable of confronting, first, the huge looming entitlement crisis over social security and Medicare, and second, energy. The single best thing we could have done for ourselves in the past generation was to impose a stiff carbon tax in periods when energy prices were relatively low; it was also something that no politician had the courage to take on. No one is going to be talking about increasing taxes until we are out from under the current recession, but in the long run Americans will have to learn to pay their own way.

Secondly, take a look at Ian Macfarlane's lecture to the Lowy Institute last week. Macfarlane was for a decade the Governor of the Reserve Bank of Australia. He reviewed the financial crisis and its effect on Australia before discussing possible regulatory developments.

When it is time to rebuild the regulatory system, I have no doubt that it will have to be more all-encompassing than formerly, but I don't see any likelihood of us returning to the old price-control type system that we had 30 years ago. To me the major challenges will be to:

- rein in what is left of the "shadow banking system";
- be able to measure the aggregate gearing ratio of the financial system and use this as a guide to policy;
- incorporate the risks arising from the reward structure of management into the regulatory framework;
- do something to address the inherent pro-cyclicality of conventional risk management frameworks and systems of bank supervision;
- resist the calls for self-regulation. As one astute commentator observed -- "self-regulation is to regulation as self-importance is to importance";
- bring some of the derivative instruments, particularly credit default swaps back onto an exchange so we can at least measrue their extent and the risks embedded in them, as well as reduce counterparty risk.

Australasian Contributions to International Climate Change Negotiations

While we await Kevin Rudd's statement on the Australian Government's carbon emission targets on Monday, much attention has turned to the international negotiations on future climate change agreements.

Ross Garnaut wrote a very useful op-ed in the Australian this week. He notes that these negotiations will be much more difficult than either trade or arms control agreements, and proposes some warning signs for difficulties in such talks.

If you hear negotiators from the respective countries arguing that Australia needs high per capita entitlements because it is big and lightly populated, or Canada because it is cold, or Japan because it has few opportunities for geo-sequestration of emissions from fossil fuel combustion, or China because it is the workshop of the world, you will know that the world has lost the battle to avoid dangerous climate change.

It's a cheap shot but I can't resist pointing out that some of New Zealand's statement in Poznan sounds exactly like this

New Zealand is unique among Annex 1 countries. With nearly 50% of our total emissions coming from agriculture, no other developed country comes close to having such a large percentage of its emissions arising from food production.

(Hat-tip: Charles Finny)

Given the ACT party's clutch on climate change policty, some aspects of the New Zealand statement were reassuring. But would Rodney Hide agree with this?

As a consequence we are reviewing our suite of climate change policies. The objective here is not to step back from Kyoto. The Government fully understands and accepts its long-standing international obligations under Kyoto for the first commitment period.

Prior to the election Hide stated his preference for leaving Kyoto.

In any case, Garnaut has become convinced that the eventual target for international negotiations must be equal per capita emmissions from all nations, and that progress should be measured in terms of per capita emissions reductions rather than reductions of particular nations or groups of nations from benchmarks in 1990 for example. This seems pretty sensible to me.

I was happy to see the mention of research on agricultural emissions mitigation in New Zealand's statement, and the emphasis on forms of agreement that will be satisfactory for developing nations. These aspects are very consistent with Garnaut's thinking about ways in which developed countries can contribute initially.

My work on The Garnaut Climate Change Review (Cambridge University Press, 2008) has led me to the view that any allocation of emissions entitlements with a prospect of being accepted by most developing countries must be based on convergence towards low levels of per capita entitlements at some time in the future. There will need to be headroom for rapidly growing developing countries. Through a transition period, the commitments of lower-income developing countries would be one-sided, with compliance encouraged through incentives rather than penalties.

The agreement over emissions entitlements would need to include developed country commitments to public support for research, development and commercialisation of low-emissions technologies. The agreement could embody firm commitments by developed countries to cover additional development assistance for complying developing countries to adapt to the climate change that will inevitably be faced in the period ahead. It could be supported by a proposal for World Trade Organisation rules to constrain individual countries' measures to restrict trade with countries that are not reasonably complying with the requirements of an international mitigation effort.

At the centre of the agreement would be an understanding on the allocation across countries of a diminishing total of annual emissions entitlements. These would be allocated on the basis that emissions would converge towards equal per capita entitlements at some time in the future.

The difference between the basis of allocation of emissions entitlements proposed here, and the Kyoto approach of fixed but differentiated reductions, is large. Within principles designed to reduce global emissions through convergence over time towards equal per capita entitlements, a reduction of 10 per cent from 2000 levels by 2020 in Australia would represent a full proportionate contribution to a global effort to hold concentrations of carbon dioxide equivalents to 550 parts per million. It would represent a larger per capita reduction than was required of the US or the European Union. It would represent a larger per capita reduction for Australia than the EU's implementation of its proposed unconditional commitment to reduce emissions by 20 per cent from 1990 levels.

Chinese economy

There is increasing concern in Australia over the health of the Chinese economy and the impact this will have here. The collapse in commodity prices seems to suggest rough times ahead in Australia.

Reserve Bank governor Glenn Stevens this week suggested that the striking economic fact of the past few months was not the expected downturn in the US. It was that "China's economy has slowed much more quickly than anyone had forecast".

China reports many of its key indicators in ways that obscure what has actually happened most recently. Stevens said the Reserve Bank's analysis indicated that Chinese industrial production went backwards over the four months to October. He was "not sure that many economic forecasters have fully appreciated this yet". "There is every chance that the rate of growth of China's (gross domestic product) is currently noticeably below the 8 per cent pace that is embodied in various forecasts for 2009," he said.

Stevens did not spell out what "noticeably below" meant but the word is that this could be as low as 4 per cent. That's a very big deal for a mega-economy that, until only months ago, was supposed to be marching ahead at a double-digit pace but which already had been clubbed by a home-grown property bust.

Select committee terms of reference

It seems that since the order paper was published earlier in the week the following clause has been added to the terms of reference for the climate change select committee

identify the central/benchmark projections which are being used as the motivation for international agreements to combat climate change; and consider the uncertainties and risks surrounding those projections

Good on you Rodney! And a great performance on Morning Report this morning, arguing as usual that there is no rational evidence for human impacts on global temperature.

Some would call this arse-backwards when many years of scientific observations and modelling have led the world's climate scientists to exactly the opposite conclusion. But as we all know the entire scientific community has been captured by an unthinking infatuation with Al Gore who invented the idea of climate change (along with the internet) while conspiring at the UN to institute a world socialist government back in the Clinton Administration.

Seriously, this clause is much better than the original one in the confidence and supply agreement. It should be possible to get reputable scientists and economists to greatly enlighten the committee about the observations and projections that form the basis of international concern on this issue. It is also true that there are uncertainties and risks in our current knowledge. Many of these are on the "down-side" as John Key would say.

The previous demand for opposing views on the science was merely an invitation for poorly credentialed cranks to waste the select committee's time.

Great News on Climate Change and Energy

President-Elect Obama is set to appoint Nobel Prize winning physicist Secretary of Energy.

For those of us in the science community wondering how to communicate the urgency of the situation to politicians and the wider community this seems to indicate that scientists who dedicate themselves to working on this issue can have an impact.

I hope it is also a sign that the Obama administration will be able to make some progress, despite the global financial and economic crisis.

Chu used to work in my field of atomic, molecular and optical physics before shifting to the top job at Lawrence Berkeley Labs to work on alternative energy sources several years ago. Some of Professor Chu's thoughts on climate change can be found here.

Kirk to return to NZ?

David Kirk has lost his job as Fairfax CEO. The troubled company looks set to appoint his deputy in his place. The Australian speculates that Kirk may wish to return to NZ politics.

There is growing speculation he will pursue a career in New Zealand politics. The National Party, led by his friend John Key, last month won power after a long period in the wilderness.

Reviewing the Science of Climate Change.

This is just to reassure Rodney Hide that while the select committee on climate change will not be reviewing the science of climate change, scientists will continue to.

I spent last week at the Australian Institute of Physics Congress in Adelaide. There were several great plenaries. One of them by Professor Marvin Geller of Stony Brook University in New York reviewed the effect of variations in solar intensity on the earth's average temperature. He told us that this effect is not large enough to explain observed warming. The Australian (which often runs infuriating articles on this issue) reported on this and I particularly liked this little comment from Geller

According to Professor Geller, sceptics are incorrect when they claim CO2 cannot cause warming as it comprises only a small, though increasing, fraction of the atmosphere.

In fact, CO2 is highly reactive in the atmosphere, he said. "Just because it's a small fraction doesn't mean it's unimportant. If you don't believe me, try surviving in a room with a small concentration of cyanide gas."

ACT in Government: Wasting your taxpayer dollar

Lets be clear. The Select Committee review of emmissions trading is a waste of money and a broken election promise on the part of National.

National was quite emphatic before the election that the ETS would not be repealed, that emissions trading would go ahead, and certainly that "the scientific aspects of climate change" were no longer up for discussion by New Zealand politicians.

We appear to be back to square one, at least if the select committee Terms of Reference in the confidence and supply agreement are final, or if Murial Newman gets her way. Here she is in the NBR spouting the "warming stopped in '98" canard and calling for a select committee review "of the science". As if scientists were not continually engaged in reviewing the scientific aspects of climate change!

It's breathtaking that ACT want to hear "competing views on the scientific aspects of climate change from internationally respected sources" when pretty much every scientific association in the world, including our own Royal Society of New Zealand, has carried out a careful review of the science and concluded that anthropogenic global warming is real.

I challenge ACT to find an internationally respected source to disagree. (And no, Thatcher-era UK cabinet ministers don't count. I'm interested in a scientifically respected source.)

In any case everyone is in agreement on this point so write a letter to John Key already.

My Election Theories

The Labour party will be dismayed at how few electorates still have a list vote lead for Labour. An alarming number of Labour-held electorates had National ahead on the party vote. This includes not only New Lynn but also Mt Roskill. In almost all Labour-held seats the MP is more popular than the party.

Since it is the home town, lets look at the Christchurch list votes. Increasingly rural Waimakariri looks like a safe National seat. There was just enough personal vote for Clayton Cosgrove for him to barely hold it. Christchurch Central was a very narrow win for Labour on both MP and list vote so you should think of that as a marginal(!) Labour seat. Port Hills looks marginal National and Wigram(!) looks to be only marginal for Labour. Only Christchurch East still looks like a pretty comfortable Labour seat. That's not the electoral map that I grew up with to say the least.

Oh and I almost forgot Ilam is still a National safe seat.

We were told by Mike Williams on election night that the get out the vote efforts developed in South Auckland last election were implemented nation wide this election.

Indeed I myself was prevailed upon to go door to door encouraging people to vote in Mana and there were certainly many Labour people out on the streets of Wellington Central getting out the vote. Based on experiences in Porirua I can only agree with the Labour leadership, many heartland Labour voters are still remarkably positive about the party.

Clearly though the get out the vote efforts were not as successful as might have been hoped, particularly in Auckland but in other centers also.

Here's my working theory.

There is a difference between knowing in principle how to organise the party vote, and having enough enthusiastic volunteers to execute.

Were Labour party operatives really working that hard on Saturday?

A question for an investigative journalist?

Iran and the Solomons

It seems like it's not just China, Taiwan and Japan practising checquebook diplomacy in our back yard Lowy Interpreter

Tehran and Honiara have little in common, but as Taiwan found out a long time ago, the Solomon Islands’ vote in the UN General Assembly is worth as much as that of the US. Hence the interest Iran has started to show in the welfare of Solomon Islanders. The two countries recently signed a Memorandum of Understanding, which may eventually lead to the establishment of diplomatic relations.

Key's first mistake

Last election I was appalled by the sight of Don Brash's grinning face surrounded by a posse of Diplomatic Protection Squad members as he entered the National party function to make his concession speech. I'm amazed that we saw a rerun of this disastrous image tonight. It spoke volumes at the last election that we saw Helen Clark's protection staff only in so far as they were required to help her parents into a car, and in tonight's efforts to protect Clark the DPS was similarly circumspect.

This is not an easy issue. I have heard that those who were charged with protecting Clark sometimes felt that she asked them to stand off at considerable risk to her person. They did not see this just as a risk to her but also as a risk to them and their reputations.

However, I don't believe that the New Zealand public wants to see its Prime Minister designate separated from the press or from the party faithful by the kind of linked arm squadron we saw tonight. This is an appalling look for the leader of any democratic country and should not be countenanced by the Prime Minister designate of New Zealand. Key should get up the courage to a put a stop to this sort of image.

I wonder whether the choice of venue has contributed to this situation. National Party organisers should select election night venues with a view to allowing the DPS to protect its leader while keeping out sight of the TV cameras.

A Vote for Generational Change

For various reasons I've been thinking this year about the messiness and necessity of generational change. I think I might finally be beginning to understand all those Greek myths where the son kills the father.

For the moment at least, I am planning to cast my electorate vote this year against my sitting MP. This means voting for a young, allegedly liberal, woman from the National party. It's not an easy decision and I may yet change my mind.

The Labour party is still my political home and I'm giving them my party vote trusting that in six years time everyone who sat around a Cabinet table or in a Labour party caucus room in the 80's will have retired and we will be electing a talented and enthusiastic new Labour-led Government.

In the meantime social democrats should be contemplating the extraordinary testimony of Alan Greenspan.

We will agree with John Quiggin on this point

Coming to substance, quite a few people have argued that the crisis doesn’t really signify very much, and that, once it is resolved, things will return to pretty much the way they were a couple of years ago. I disagree.

This concession of error by Alan Greenspan is, I think, pretty strong evidence against the view that the crisis is not so significant, in policy or ideological terms.

We'll also agree that news of the "great moderation" was premature.

As taxpayers we will want a say in the running of banks or other private businesses that we underwrite or take shares in.

In contemplating the future it seems to me that like many Australians, including the current Treasurer, we should be thinking about Labor Prime Minister Ben Chifley in these times of financial crisis. (There is a new documentary on his fascinating life to show on the ABC.)

Chifley took over from wartime Labor Prime Minister Curtin who is credited with forming the Australia-US alliance and who died in office. He lost power in the early fifties after trying to to nationalize the banks, after sending in the army to break up a mining strike and after failing to totally overcome Communist influence in the Australian union movement and Labor party. I've been learning about him from Bob Ellis's book "Goodbye Jerusalem".

Near the end of his life Chifley said

I remember when in the thirties because of the banks hundreds of thousands of breadwinners were thrown on a pitiful dole. Farmers were sold up and shopkeepers closed their doors, and insecurity, misery and want were forced upon our people. We are determined with all the power that we command that that shall not happen again.

"A new dawn of American leadership is at hand"

I spent the day with a score of physicists trying to get work done while they scanned their Blackberries for the latest vote counts. Having gotten home and watched Obama's speech my relief has been replaced by excitement.

If there is anyone out there who still doubts that America is a place where all things are possible; who still wonders if the dream of our founders is alive in our time; who still questions the power of our democracy, tonight is your answer.

My friends on the left, particularly in New Zealand, have a sometimes deserved reputation for anti-Americanism. At the end of four years living in the United States I was an enthusiastic combatant for the contrary view in any and all private discussions but I finally shut my mouth after the first photos from Abu Ghraib. From tonight I'm back on the team.

Will the Greens never learn?

A prominent feature of recent Australian politics has been the growing influence of the Green party in inner city electorates. Particularly in state elections where tired and unpopular Labor governments are opposed by state Liberal parties that, particularly in NSW, are a shambles populated by the barking mad.

At the weekend the Greens got the balance of power in the ACT.

Why is the Green party not doing better in inner city electorates in New Zealand?

Because they continually display the political nous that led them to declare prior to the election that they would not support the National party in Government. This despite the fact that an exactly similar declaration saw them kept out of the Cabinet after the last election. Russel Norman sometimes seems to understand the issue.

"Labour taught us a good lesson: you can't trust Labour to do anything except look after themselves, and I think National's the same. So you have to be tough."

Then they go and walk into the same old trap a second time. Twice seems like carelessness.

The Greens desperately need electorate seats so that they don't continue to rely on the 5% margin to get them into Parliament. These seats could well be one of the three with "Central" after its name but the Greens would have to break some eggs to get them.

However they persist in 'campaigning for the party vote' at least in Christchurch Central (where my parents live) and Auckland Central (where I have to decide who to vote for). I couldn't name the Green candidate in either electorate.

In both seats if they stood a warm body with a good list place and a long term committment to the electorate and campaigned agressively for the electorate vote they would attract significant support. This could damage relations with Labour in the short term, but as I have noted the Greens should have punished Labour for last election's shenanigans and this seems to be one way they could have made the point. Better still with effective challengers from National standing in both seats it might possibly have had the effect of giving the seats to the Nats.

This would be ideal for the Greens since these seats will never be safe for the right of politics and a warm Green body with the advantage of list incumbency and growing urban support would maximize the possibility of eventually winning the seat.

I can't resist pointing out that this was a particularly good year to initiate this strategy in Christchurch Central. The popular Labour MP has retired and Labour has seen fit to nominate in his place a spin doctor who has never previously lived in the city. I can assure you that Christchurch people very much dislike having to vote for these Labour carpet-baggers. (I was naive enough to believe that MMP had put a stop to the practice.) Moreover in last year's local body elections Green candidates unseated several Labour incumbents representing central parts of Christchurch on the regional council. They did this by running against Labour-led council and Government support for an enormous irrigation project on the Canterbury plains. This shows that local environmental issues could be big winners for the Greens, and the issue could have been revived for the general election by an enthusiastic campaigner.

The Green party of New Zealand is asleep at the wheel.

Just as well the anti-science Greens are one of my least favourite parties in the New Zealand Parliament. A genuinely Green, genuinely political, Green party would however be an asset.

Small town activism

I lived in South Pasadena for a couple of years. Despite being in the middle of the conurbation that is Los Angeles, it's a beautiful little enclave of California bungalows and tree-lined streets. There's a great little coffee shop next to the park in the middle of town where you can overhear students discussing their projects and scriptwriters their scripts. You can buy the best Baja fish tacos at Senor Fish and get your groceries at the original Trader Joes. It's the kind of place where people still take little kids trick or treating and the whole community lines up to cheer the fire department at the 4th of July parade before heading to the fireworks in the evening.

It's probably not the kind of small town Sarah Palin thinks of as breeding good people but it's a wonderful small town all the same. It's great to see some in South Pasadena getting behind the effort to defeat Proposition No 8 which would overturn the California Supreme Court's decision that same sex marriages are legal in that state. Their ad which features many gay and lesbian families and marriage ceremonies has appealed to many who are dissappointed with the oblique approach of the main "No on 8" campaign.

Hat-tip: Andrew Sullivan

A question for our politicians as they stand for re-election. Is it still the policy of New Zealand to recognise marriages performed in other jurisdictions?

Say what?

A colleague passed through the Qantas lounge in Auckland at the weekend and brought back a copy of the Sunday Star Times.

I find that they have started a "Wise Heads" column alternating Doug Graham and Margaret Pope.

Good for Doug Graham, I nearly voted for him as President! This week he called for an independent anti-corruption authority. A wise and timely idea.

But Margaret Pope?

Trans-Tasman contrasts in response to financial crisis

The Australian government dedicated half its surplus or $10.4 billion dollars to a stimulus package. The money goes out before Christmas to those most likely to spend it; pensioners and their carers, low income families and first home buyers ($14,000 from the State when you buy a house! That's twice the Howard government level.)

This was done without any detailed Treasury modelling because both officials and politicians were of the opinion that immediate action was needed. In particular it appears that Australian and international experts are not very confident of the continued health of the Chinese economy which is the main driver of growth in resource rich Australia.

The economy is still dominating the front pages and Rudd has announced the goal of avoiding recession and developing regulations in response to the crisis that will be a model for international developments. This is consistent with his extraordinary ambition to be seen as a player on the world stage.

I suppose that it is no surprise, given the Election season, that by contrast the front page news on the New Zealand Herald website at the moment is that Lockwood Smith has been known to make a dick of himself. Who knew?

Cullen will be happy to find that fishhooks in the detail of the Government's bank guarantee were big news in Australia this morning. So Australian moves are not without percieved missteps.

Meanwhile the outcome of the NZ election is not a topic of great interest.

US Presidential Race

McCain's campaign is currently in tatters, that never seems to last long though!

Last weekend he allowed his campaign operatives to make the extraordinary statement, to the Washington Post I believe, that they wished to "turn the page" on the financial crisis and move to attack Obama's judgement and character. They let all and sundry know that they would raise the Ayers issue, possibly even in the debate Tuesday. Reviews, even from conservative commentators like Peggy Noonan on Meet the Press, were very negative and polls have continued to move in Obama's direction.

Sure enough Ayers was not mentioned Tuesday and everyone agrees that Obama came off best. McCain-Palin events are whipping up quite nasty rhetoric from the more redneck element though, which is again creating concern among commentators like George Packer, for example. This has led McCain to once again dial back the rhetoric and another outbreak of playing nice.

On the other side I think we saw a trademark Chicago shove from Obama. (This whole "Bambi" thing was always a fiction. The reason to like Obama is that he is very considered and also tough, I hope his more dewy eyed supporters are not too disilluisioned, they should definitely reader the Lizza profile in the New Yorker as well as the earlier one.) After McCain announced his intention to increase the negative attacks we saw Obama release a 15 minute account of the Keating Five scandal on the web.

Last weekend also saw (with suspiciously apt timing) the release of an extraordinary polemic against McCain in Rolling Stone. It'll take a while for you to get your jaw back up off the floor after you read it.

Some good quotes: this one from a fellow prisoner of war in Vietnam (and I am leaving out the best bit)

Dramesi, who went on to serve as chief war planner for U.S. Air Forces in Europe and commander of a wing of the Strategic Air Command, was not surprised. "McCain says his life changed while he was in Vietnam, and he is now a different man," Dramesi says today. "But he's still the undisciplined, spoiled brat that he was when he went in."

And in honour of local corruption hawks this one:

There is no small irony that the Reform Institute — founded to bolster McCain's crusade to rid politics of unregulated soft money — itself took in huge sums of unregulated soft money from companies with interests before McCain's committee. EchoStar got in on the ground floor with a donation of $100,000. A charity funded by the CEO of Univision gave another $100,000. Cablevision gave $200,000 to the Reform Institute in 2003 and 2004 — just as its officials were testifying before the commerce committee. McCain urged approval of the cable company's proposed pricing plan. As Bradley Smith, the former chair of the Federal Election Commission, wrote at the time: "Appearance of corruption, anyone?"

But really read the whole thing.

Oh and the NYT has finally noticed Obama's extraordinary ground operation.

Preparing for worse if that's possible

The response to the G7 communique and Paulson's subsequent press conference seems to be very negative. Many commenters hoped that the G7 would move to a British style scheme of partial nationalisation of the banks. Paulson's press conference suggested he is moving ahead with that but is still looking for private capital to assist also and the G7 communique is very vague. (The authority to buy equity in the banks was not in the original rescue package put forward to congress but clearer heads prevailed and it now seems that the bailout package will look very different.

It's really not reassuring when Paul Krugman says "Paulson sounds terrified" and others comment that he is loosing all credibility. But given that he has downplayed the crisis at every turn for the last 18 months this is perhaps not surprising.

Lets hope that Morgan Stanley does survive the weekend.

Australian Response to Financial Crisis

Treasurer Wayne Swan is in Washington and New York this weekend, attending the G20 meeting and lobbying bigwigs. I've just listened to his interview with Barry Cassidy on Insiders, and I don't think you could really describe him as calm and collected. It seems that there is no government program that will not be reconsidered in light of the financial crisis.

Back in Canberra the Foreign Minister Stephen Smith has announced that the finance subcommittee of the Cabinet will meet later today.

What are New Zealand's alleged leaders doing this weekend?

THE government's cabinet budget committee will meet later today to take any action deemed necessary from key meetings of the International Monetary Fund and Group of 20 finance ministers in New York today.

Foreign Minister Stephen Smith said there was a growing realisation that the international financial crisis was worse than originally thought.

Update: Account of Clark's campaign opening speech just up, she does at least announce a deposit guarantee scheme.

How are New Zealand's banks really doing?

We were told on Morning Report Friday morning that the Reserve Bank believes that New Zealand banks have $60 billion of overseas debt to turn over in the next 40 days. I've listened to that several times to be sure that is really what was said.

That figure appears to be nearly half of New Zealand's GDP.

My limited understanding of the situation at the moment is that internationally banks are simply not lending money to other banks.

Worse still other nations are moving to guarantee or buy stock in their banks. Australia seems likely to increase its guarantees on its banks (which admittedly own ours) in the next few days.

We're told that the Reserve Bank has moved to allow banks to borrow from it secured by the value of mortgages. However I can't help noticing that the total value of New Zealand houses is about $2.11 billion, so there better be some hefty mortgages on commercial property out there if that's really going to solve the problem.

Could someone, preferably the boss of a bank and the leader of a major party, say something reassuring but convincing about the position of New Zealand's banks?

Finally, if you were Jim Anderton and you'd set up a government owned bank that doesn't borrow overseas you would have to be pretty happy with yourself.


Update: Clark has just announced a deposit guarantee scheme.

The Dilemma of Attribution

It's been a great decade for Nobel Prizes in theoretical physics. In 1999 it was awarded to 't Hooft and Veltman "for elucidating the quantum structure of electroweak interactions in physics", in 2003 to Abrikosov Ginzburg and Leggett "for pioneering contributions to the theory of superconductors and superfluids", to Gross, Wilczek and Politzer in 2004 "for the discovery of asymptotic freedom in the theory of the strong interaction", and in 2005 to Roy Glauber "for his contribution to the quantum theory of optical coherence" (that contribution amounts to creating, out of the pretty much the whole cloth, my field of theoretical quantum optics and proceeding to do a frightening amount of the interesting work in it).

This year's prize is more cause for excitement since it goes to three more theorists: Yoichiro Nambu "for the discovery of the mechanism of spontaneous broken symmetry in subatomic physics" and to Makoto Kobayashi and Toshihide Maskawa "for the discovery of the origin of the broken symmetry which predicts the existence of at least three families of quarks in nature".

All of these well-deserved prizes recognise wonderful advances in our knowledge. Theoretical physics is an activity undertaken by a relatively small community of researchers and it's in the nature of ideas that often a large number of people have made significant contributions to any major development. When it comes time to award the prize only three names can be up in the bright lights. Those of us who have read enough physics texts to recognise the terms "Nambu-Goldstone boson" and "Cabbibo-Kobayashi-Maskawa matrix" might wish that there were a better way to reward the great ones among us and achieve for them appropriate public recognition.

It's probably fair to guess that David Politzer's Nobel Address got his co-recipients offside from the first paragraph. It does, however, provide a fascinating if bleak assessment of how science really gets done and the challenges facing those who decide on who gets and who does not get a Nobel Prize.

Keep Physicists Off Wall Street

I've long been of the opinion that overly complicated and insufficiently commonsensical analysis of risk by theoretical physics and mathematics Ph.D's may have played an unfortunate part in the creation of the incredibly complicated arguments that dressed sub-prime mortgages up as AAA investments and thus contributed to the current parlous state of international credit markets.

Dave Bacon seems to agree and has a great idea to avoid this state of affairs in future; increase science funding to keep theoretical physicists away from money markets!

The State of the Free Market

Could I second the Hive's plea that we all take the US financial crisis more seriously?

I can't resist arguing the cause of social democracy though. John Quiggin here in Brisbane has a great trade for those who argue that the current difficulty is not some failure of "the free market" on account of the US not being a free market. I'll have to quote it almost in full

I will agree that
(a) the US is not a free-market economy, and its failures do not constitute evidence against the claim that a pure free-market economy is the best possible form of social organization
(b) no other actually existing society is, or has ever been, a free-market economy, and no actual or conceivable events anywhere constitute evidence against the claim that a pure free-market economy is the best possible form of social organization
(c) In discussion with parties to the agreement, I will not contest the claim that a pure free-market economy is the best possible form of social organization

All I ask in return is that the counterparties to the deal agree not to advocate, oppose, criticise, or comment on any policy or political position that might actually be implemented, to ensure that the purity of the free-market ideal is not compromised by actual experience.

John is also willing to make the same offer to Marxist-Leninists for pretty obvious reasons.

He also thinks we might have seen the back of neoliberalism, I'd post a link including his assessment of the New Zealand situation but his site seems to have crashed just at the moment.

The Dark Side

TPMCafe is discussing Jane Mayer's book the Dark Side currently (both Christopher Hitchens and Slate's Emily Bazelon are part of the group). If you are interested in the Bush administration's use of torture you should read the book, not just the New Yorker articles.

In the discussion Mayer asks about the possibility of war crimes prosecutions in the next administration. Since such prosecutions are unlikely she also asks what effect this precedent will have both on future US administrations and the international standing of the US.

Mayer succinctly outlines the facts on which such a case would be based

In secret dungeons, U.S.-held prisoners were waterboarded, stripped naked, kept chained and near frozen, bombarded with unbearable sounds, deprived of daylight, kept isolated from human contact for months, fed barely enough to live on, beaten, confined in dog cages, and deliberately mistreated in other carefully-regulated ways under a policy set in place by the highest-ranking officials of our country. An unknown number died. A larger unknown number simply disappeared. We know that the Red Cross -- an independent non-partisan organization - warned the President and other top officials that at least fourteen of the individuals currently held in Guantanamo -- people who the Red Cross was able to interview -- were tortured. Not maybe. Definitely. The Red Cross also warned the President that he and others in his administration were in danger of being held liable for war crimes

We know an increasing amount about the intelligence community's division on this issue. Scott Horton has some very interesting comments on the state of affairs at the CIA.

In my mind, Jane is asking the most important question--the accountability question. I also have had a run-in with a senior CIA official who described to me in some detail being briefed on the new policies. "I decided that afternoon that I was taking an early retirement," he told me. He went on to note that "it seems quite a few people took early retirement after getting that briefing." He also told me his thinking was simple: "It's not that this was bad policy. It was a crime. Black and white." It's clear that these moves were very controversial within the intelligence service. Although the pushback in the military is now very well documented, the pushback at CIA remains anecdotal. It will come in time, I think.

US Senate passes Indian nuclear deal; where next for nuclear non-proliferation?

The NYT made one last desperate case against it but the Senate was unusually busy today, and passed the US-India nuclear agreement that got through the Nuclear Supplier's Group with New Zealand's reluctant support.

At the moment this move by New Zealand looks like a very good tactical retreat. Firstly we have the move by the US to sign a free trade agreement with the P4 nations. Secondly there may be secret side agreements in Vienna that would make us happier, or maybe not. Thirdly US lawmakers seem to be clear that a nuclear weapons test by India would end the US supply of uranium (but can the same be said for France and Russia?

In private correspondence with Congress that was made public last month, the administration said the United States would terminate nuclear trade with India if it conducted another nuclear test. But the administration refused to add such terms to the Nuclear Suppliers Group waiver, and an amendment to the bill that would have made them explicit failed to pass last night. Sen. Richard G. Lugar (Ind.), the ranking Republican on the Foreign Relations Committee, argued that the amendment was not necessary because U.S. laws made it clear that the deal was off if India tested again.

"There should be no doubt" because of the floor debate, Kimball said. "There will be practical consequences if India tests."

Both presidential candidates are in favour of the deal.

But the agreement had the strong support of both presidential candidates, helping grease the way to victory. The House approved the bill Saturday, 298 to 117.

Just to throw the cat among the pigeons. If India is to become part of the "mainstream" of civilian nuclear trade then it seems only fair that so should Israel.
(While we are at it Israeli "nuclear opacity" may have run its course.)

Given the current parlous situation, good luck to Kevin Rudd's efforts to reinvigorate international non-proliferation efforts I say and lets hope Gareth Evans is serious about his efforts to bring India, Israel and Pakistan under some form of restraint.

Australia's former foreign minister, Gareth Evans, will co-chair the event with Yoriko Kawaguchi, an ex-foreign minister in Japan, the government said. Senior Indian diplomat Brajesh Mishra and Pakistan's ex-army chief Jehangir Karamat are to be among the delegates.

Evans has recently said all nuclear powers _ including those who have refused to join the nonproliferation treaty such as India, Pakistan, North Korea and Israel _ must be included in the new process if the world is to ever achieve disarmament.

Shock: Global Warming Still Happening!

Poneke is the local advocate for the view that global warming stopped in 1998. This canard is related to the fact that 1998 was just a shockingly hot year, the hottest on record.

It is true that warming in the last decade is slower than in the previous
decade due to a dramatic El Nino event in 1998 and La Nina conditions in the last twelve months or so.

However if you get the global average temperature data and fit a line to the last ten years then sure enough it has a positive gradient indicating a warming trend. For what that is worth on such a short timescale.

There is as yet no evidence that the underlying warming trend in global average temperatures has changed.

The Met Office in the UK has just released a press release to go along with this plot of their latest data (their methodology for this data is indeed described in a 2006 peer reviewed article.). (Hat-tip Climate Progress)

Anyone who thinks global warming has stopped has their head in the sand. The evidence is clear – the long-term trend in global temperatures is rising, and humans are largely responsible for this rise. Global warming does not mean that each year will be warmer than the last, natural phenomena will mean that some years will be much warmer and others cooler.

But once again a picture is worth a thousand words. Here is a plot of global average temperatures (relative the the average temperature during 1961-1990) for the last thirty years or so.



It's really the thirty year trend that you should pay attention to, that is about the shortest period you should be looking at to determine long term trends related to climate rather than weather.

In their discussion of the current La Nina related "low" temperatures, they note

despite this temporary cooling, 2008 is still likely to be the seventh warmest on the global record.

As a result of such fluctuations, global average temperature trends calculated over ten-year periods have varied since the mid-1970s, from a modest cooling to a warming rate of more than 0.3 °C per decade. Similar behaviour is also seen in individual model predictions of future climate change where the long-term warming trend is forecast to exceed 2 °C per century. Even then, due to the natural variations in climate, we expect to see ten-year periods both globally and regionally with little or no warming and other ten-year periods with very rapid warming. This complex behaviour of the climate system shows why we need to examine much longer periods than ten years if we are to fully understand and quantify how the climate is changing.

Retirement Project for Katherine Rich

Maybe after the election, Katherine, you could write a decent Wikipedia page for Flying Nun? Give your Parliamentary colleagues some inkling of the significance of this Kiwi cultural landmark.

This effort is a pretty poor stub at best.

Better still though, a well informed muso could return Rich's favour and get onto it right away!

Punk Rock Fan Leaves Parliament Her Way

I might annoy some friends if I gush too much about Katherine Rich's valedictory speech. But here goes.

Rich has been a champion for causes dear to the hearts of social liberals, like civil unions and the repeal of Section 59. She is right to place her politics in a liberal tradition in the National party that includes Marilyn Waring among many others and has been responsible for much social reform in this country.

One of my most satisfying political memories is playing a part in the Section 59 debate, although it was not an easy time.

Some said parenting would become illegal, CYF would steal our children and that good parents would end up in jail.

It hasn't happened. I believe the Bradford law will become another chapter in our gradual move to social enlightenment, alongside other seminal pieces of legislation which brought women's suffrage, homosexual law reform, and the recognition of civil unions.

Initially, I supported Sue's bill because I wanted to close the legal loophole that allowed some parents to batter their children and escape conviction.

By the end of the debate I supported the message that hitting children for any reason was not OK - a turning point was listening to another MP talking of the "loving smack" and merits of using an instrument to beat children.

Secondly she seems to take at least one sideways swipe at her caucus. Her assessment of the state of New Zealand's democracy is clear-eyed but hopeful, I wholeheartedly agree with this

I leave positive about New Zealand, and our parliamentary process.

We live in a robust democracy and one of the least corrupt societies in the world.

We should remember that when the daily small scandals threaten to distract us.

Rich's worst year is also one of her finest moments, and she eloquently put on record her views on forcing those on the DPB back to work for a pittance

Every MP has their annus horribilis and mine would have to be 2005.

Members might recall a slight difference of opinion over a welfare speech.

Demotion clearly wasn't a career highlight, but it was preferable than trying explain why I, a well-paid mother with all the supports in the world, intended telling a DPB mum to leave her baby in child care to net less than half the minimum wage.

There is also this plea to New Zealand's next Prime Minister

I know that under your leadership National will not forget those less fortunate.

It's a great pity that Rich will not be at the Cabinet table to argue their case.

Finally I was struck by the slightly incongruous fact that Rich is a huge Flying Nun fan. I am now officially in love. It's hard to tell on YouTube but I couldn't help thinking that many in the House didn't seem to have heard of Flying Nun. More reason for Rich's plea for the funding of New Zealand music.

They had heard of Sid Vicious though so she got a laugh at the end

Mr Speaker, looking back on many valedictories delivered in this Chamber, I find a popular choice for retiring MPs is to quote Frank Sinatra's My Way.

Well, I can't abide crooning.

I've always preferred the Sid Vicious version.

There is a very nice post on Rich from the other side of politics at Homepaddock. Tony has a brief appreciation here.
The ODT has most of the text of the speech here.

Kiwiblog notes that the liberal wing of the National party is being much depleted at the end of this term. I really hope DPF is right that new admissions to parliament will right this balance.

Science journalism and the methane "time bomb"

It must really suck to be a science journalist at a high profile international newspaper. It's a genuinely difficult area to get up to speed on but unlike your colleagues covering Britney Spears you have essentially no chance of getting a scoop.

All the big science news and quite a lot of not very big news gets published in the refereed journals Science and Nature. But both of those journals prepare their own media materials and strictly embargo articles published in them. These embargoes are very tightly enforced by the journals, sometimes even to the extent of sending staff to scientific conferences to check that the authors do not spill the beans in advance of publication. Every week you can find out what's big in Science or Nature by reading the press release regurgitated in the NYT or on CNN's web page.

If you want to make a splash as a science journalist though you should get some hapless fool of a scientist to talk to you about their recent work prior to acceptance, prior even to writing a scientific paper. As No Right Turn and Hot Topic have noted, Steve Connor at the Independent has recently pulled this wheeze. (Note the proud billing "exclusive") We are told that frightening amounts methane are being emitted from ground exposed by thawing permafrost.

Unfortunately it is totally impossible to assess the merits of this research without a scientific article. What I can guarantee is that Orjan Gustafsson's scientific colleagues are spitting tacks at this display of science by press release. And yes, we learn that the enterprising science writer at the Guardian has already found one of them to describe Gustafsson's work as "speculation". The wonders of journalistic competition!

These kinds of articles are part of the problem not part of the solution. Science journalists could make themselves more useful but reporting on the settled scientific knowledge about our changing climate and thinking seriously about difficult issues like "false balance" in their reporting.

Arctic Sea Ice

This year Arctic sea ice has contracted to essentially the same level as last year's dramatic and poorly understood record low. Read about it at Dot Earth but sometimes a picture is worth a thousand words:



This picture of the area of floating ice is stolen from the Dot Earth blog and was prepared by William Chapman at the University of Illinois.

Now Poneke describes this as "good news". Call me a pessimist but that may be overstating the case.

Adding Noughts on Climate Change

When I started writing this blog I thought that I would talk quite a bit about climate change and climate change policy. Partly I was struck at Christmas time when my cousin, who works for a bank in a fairly senior capacity, announced that climate change was just a fraud perpetrated by politicians. Perhaps he was even serious but I was too stunned, and indeed ill-informed, to pursue the topic! In any case, I had the impression that the disparagement of the scientific consensus that human activities are heating the earth, particularly by those on the right of politics, was proving more stubborn in New Zealand than in the US for example. The emissions trading legislation was shaping up as one of the big issues of the year.

I haven't really said much for several reasons. Firstly I don't know enough about economics to get down in the dirty details of emissions trading schemes and carbon taxes. Secondly I am not a climate scientist so I don't have a lot to say about the detailed science. If you want to hear about climate change from climate change scientists read Real Climate and the refereed scientific literature. Thirdly embarking on this issue seems to be a great way to attract cranks and trolls. There is often a tone of barely controlled hysteria on both sides.

So all in all it often seems that there are too many challenges in attempting to communicate effectively on the subject. Instead I've hatched a plan to run a course on the physics of climate and energy. This is probably a better use of my time, and provides an excuse to learn more about the details of the science.

However the Kiwi blogosphere has been replete with discussions of this issue and at some point I just want to get stuck in. I've been trying and failing to write the one perfect blog post about the physics of climate change but I am going to leave that for now and just get stuck in on some recent issues in true reactive blog style.

So henceforth I will be joining the "climate change jihad".

Cloak and Dagger: DIO targets Japan

I'm a bit of a sucker for real life spy stories. But I missed this interesting report in the Canberra Times on the Australian Defence Intelligence Organisation's targets. They focus on the interest in Japan since Japan is such a close Australian ally. The shock that one would spy on an ally seems pretty naive but adds to the story!

According to briefings seen by The Canberra Times, DIO's Transnational, Scientific and Technical Intelligence branches keep a close watch on Japan's nuclear power industry and civilian space programs.

According to one Defence intelligence analyst, this is more than a watching brief. ''We put quite a lot of effort into the Japanese target,'' he said. ''After all they have lots of nuclear reactors, an advanced space sector and an enormous stockpile of plutonium.

Of course if you write such a story you can expect a bunch of guys in dark glasses to arrive at your house and turn the place upside down.

Short Selling in New Zealand?

A propos of yesterday's comments on short selling in New Zealand, it appears that neither the Australian newspaper nor the regulatory body ASIC are of the opinion that the practice is insignificant.

In a hurried decision yesterday, ASIC revealed covered shorts could be taken in dual-listed stocks such as BHP Billiton, Rio Tinto, ANZ Bank and Lion Nathan, as the stocks were at risk of being savagely shorted on their secondary exchanges in London and New Zealand.

This is in marked contrast to the points of view on Morning Report Monday. Not my bailiwick this issue, but it must be possible to find the truth one way or the other.

In general the ban on short selling seems to be attracting increasing criticism.

Who has their eye on the ball in New Zealand?

The Peters censure and the start of the election campaign make it difficult to focus on external events.

But it would be a pretty good bet that the consequences of the financial meltdown in the US will have some impact on the public consciousness in New Zealand before November 8.

It seems that the buy-up of bad mortgages in the US may go ahead in some form, despite being criticized on all sides. The US stockmarket's rush of blood to the head on Friday has faded, the dollar is down and oil prices are way back up.

According to Nouriel Roubini in the Financial Times, who has been right before, the next victims of the crisis will be the hedge funds and then private equity firms.

The next stage will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.

Even private equity firms and their reckless, highly leveraged buy-outs will not be spared. The private equity bubble led to more than $1,000bn of LBOs that should never have occurred. The run on these LBOs is slowed by the existence of “convenant-lite” clauses, which do not include traditional default triggers, and “payment-in-kind toggles”, which allow borrowers to defer cash interest payments and accrue more debt, but these only delay the eventual refinancing crisis and will make uglier the bankruptcy that will follow. Even the largest LBOs, such as GMAC and Chrysler, are now at risk.

But we should all be thinking about the effects on the real economy in the US and elsewhere. Roubini again

The real economic side of this financial crisis will be a severe US recession. Financial contagion, the strong euro, falling US imports, the bursting of European housing bubbles, high oil prices and a hawkish European Central Bank will lead to a recession in the eurozone, the UK and most advanced economies.

European financial institutions are at risk of sharp losses because of the toxic US securitised products sold to them; the massive increase in leverage following aggressive risk-taking and domestic securitisation; a severe liquidity crunch exacerbated by a dollar shortage and a credit crunch; the bursting of domestic housing bubbles; household and corporate defaults in the recession; losses hidden by regulatory forbearance; the exposure of Swedish, Austrian and Italian banks to the Baltic states, Iceland and southern Europe where housing and credit bubbles financed in foreign currency are leading to hard landings.

Thus the financial crisis of the century will also envelop European financial institutions.

By the way, New Zealand did not ban short selling over the weekend, unlike the US, the UK and Australia among many others. We were told by several people on Morning Report Monday that this is because the practice is rather limited in New Zealand. I hope that either that is the case or that the people arguing that the short selling ban is a bad idea are right.

Shared Values and Common Purpose

John McCain has an opinion piece in today's Australian. McCain's real connection with Asia and the South Pacific and committment to free trade are the best reasons why bloggers like The Hive, for example, are so excited about McCain's candidacy. The argument for McCain from an Antipodean point of view is put pretty well by Andrew Shearer at the Lowy Interpreter here.

It's heartening that as well as canvassing the long history of the Australia-US alliance and issues such as terrorism McCain includes a strong statement backing US leadership on climate change and against torture. The foreign policy statements seem to me to have a considerable neo-con, rather than Republican realist, flavour. (I can't resist noting that while it's true that Australians have "suffered terrible terrorist attacks" it shouldn't escape our attention that Australia has not.)

New Zealand readers of course will skim for that all important "Z"

In Asia this means engagement must begin with our allies. Our alliance with Australia sets the standard. Our ally Japan has proved a strong and reliable partner to the US and Australia. South Korea is taking on new global responsibilities. We can reinvigorate our traditional alliances with Thailand and The Philippines and build on newly strengthened partnerships with Singapore and India. And we should recognise our shared values and common purpose with New Zealand.

Now is that the same as small-a "allies"? Having run through 'allies' and 'partners' we get 'and we should recognise'? The tone is quite grudging.

US credit market woes

I haven't read the commentary but the larger than expected Reserve Bank interest rate cut probably doesn't result from an optimistic assessment of the world economy.

The woes in the US did not end when the federal government seized Fannie Mae and Freddie Mac. Lehman Brothers are on the verge of bankruptcy. People are worried about the financial health of AIG, Merrill Lynch and Washington Mutual. It seems that the best place to read a digest of the business pages along with informed speculation is naked capitalism

Still waiting for final whistle on US-India nuclear trade

It appears that the backdown last week at the Nuclear Suppliers Group may have been associated with some private side agreements restricting the sale of fuel enrichment and reprocessing technology to India and other countries that are not signatories of the NPT. The report in the Washington Post is here.

The Arms Control Wonk discusses it here and here.

Kessler cites “sources familiar with the discussions” making two claims:

1. “[The NSG] privately agreed last weekend that none of its members plans to sell sensitive technologies to India .. [to] persuade several skeptical member states to support a waiver authorizing nuclear trade with India…”

2. “The NSG separately is nearing consensus on a total ban on sensitive sales to countries such as India that have not signed the Non-Proliferation Treaty … [This was] another factor in persuading countries such as Ireland, New Zealand and Austria to end their effort to write such trade restrictions into the waiver for India.”

This doesn't seem to address the question of what happens if or when India tests a nuclear bomb but it definitely represents a significant win over the public version of the deal.

Those of you interested in Kim Jong-il should be reading the Arms Control Wonk also.

Trust?

Sorry not to be down with the talking points but I hated this 'trust' line as an election 'theme' from the begining. I'd much rather Labour run on, oh I don't know, some policy initiatives???? But this morning's SMH helped reinforce this for me. Helen Clark has called an election they note

THE New Zealand Prime Minister, Helen Clark, has taken a leaf out of John Howard's book, calling an election and immediately defining it as being about trust.

Then they explain why Australian readers may find the line familiar

When he announced Australia's 2004 election, Mr Howard said: "This election, ladies and gentlemen, will be about trust." He asked voters to trust him with the economy and interest rates and in the fight against terrorism.

Now I've been banging on in private about the parallels between Clark and Howard for ages. If you want to learn about the condition of Labour in two months time you could I believe do a lot worse than reading Judith Brett's account of Howard's demolition derby with the Australian Liberal Party. Or if you can get your hands on Black Inc's "Best Australian Political Writing 2008" read Pamela Williams article "A Right Royal Mess: How Howard led Libs into chaos"

If you want to test this analogy though, listen to Peter Costello who is all over the Fairfax papers today spruiking his book. Can't find it online but here is his assessment of Howard from the SMH magazine Good Weekend

Leadership is not only about winning; it is also about departing. ...

Unlike Menzies, Howard never managed a transition. He did not accomplish generational change.

After the best economic record of any Australian goverment and after an Age of Prosperity from a golden era of continuous economic growth, the Coalition was defeated in the spring of 2007. We lost because we failed to renew. We mismanaged generational change. We did not arrange the leadership transition. The electorate did it for us.

Sound like anyone we know?

Not to be outdone the Australian has more Costello

Howard identified the interests of his party with his own. After so many years at the top, separating the two became difficult.

At the peak of his power, it was difficult to disagree with that assessment.

Glenn taking another turn

Clark deserves this

"She is very self-serving," he said.

"I wouldn't want her in the trenches next to me."

Asked if he would support Labour in future, he replied: "I am not exactly cheering for Labour now, not when they turn the dogs on you."

It's a wonder he didn't say something like this after the Business School opening.

And he is trying to head off the "it wasn't Winston on the phone defense" too

He introduced his executive secretary Laura Ede to say she will sign an affidavit saying she put in the cell phone call to New Zealand First leader Winston Peters.

I just don't understand why Clark has not already pulled the plug on Peters but surely the time has come? Better late than never.

Obama still ahead?

Marc Ambinder at the Atlantic is starting a weekly assessment of the electoral college map in the US presidential elections. This is based on polls and extensive reporting.

There are a lot of big states currently too close to call, including Pennsylvania, and we are still too close to the conventions to get any idea how the candidates are travelling but it looks like this will be worth following.

Don't mock the constitution

The worst applause line in Palin's often hilarious convention speech was this

"Al-Qaeda terrorists still plot to inflict catastrophic harm on America and he's worried that someone won't read them their rights."

Not so much because of the rights reading as because the Americans having mounted a rather more thoroughgoing assault on the rights of terror suspects and prisoners of war.I really hope that McCain will protect habeas corpus and end torture as president, but we'll see.

Obama has finally come out with a strong attack on this line. After reiterating his determination to target and kill those involved in planning 9/11 Obama mounts a defense of habeas corpus and pleads "don't mock the Constitution".

"The reason that you have this principle is not to be soft on terrorism. It's because that's who we are. That's what we're protecting," Obama said, his voice growing louder and the crowd rising to its feet to cheer. "Don't mock the Constitution. Don't make fun of it. Don't suggest that it's not American to abide by what the founding fathers set up. It's worked pretty well for over 200 years."

Did we back down on the nuclear agreement? Yes

If you are interested in this issue there are now blog posts at Kiwiblog and No Right Turn.

DPF argues that Clark backed down on this one. I think this is true but I am not sure that I blame Clark greatly. Would a National government have been more resolute on this issue? Even once we were the only country on the NSG to remain opposed to the agreement? At the cost of improved trade access to the US? No I thought not.

Idiot/Savant on the other hand argues that we did not back down because we got most of what we wanted. In this he relies on the Herald's summary of New Zealand's goals in the negotiations.

New Zealand had wanted:

* Action to be taken should India resume nuclear testing;

* For India to sign up to an International Atomic Energy Agency protocol extending its monitoring powers;

* A review of the exemption.

(The full text of the waiver is available here, and a complete analysis from the arms control point of view here.)

It's certainly true that the three points mentioned by the Herald are addressed in the waiver as I/S notes. However this list is drawn up after the fact.

In interviews prior to the NSG meeting Goff was very clear; New Zealand and other nations wanted it written into the waiver that a nuclear test by India would end the supply of uranium. Avoiding this was the goal of US and Indian diplomacy and we backed down, the waiver is not conditional on India refraining from testing.

Here is Goff in an interview by the ABC

LOPRESTI: So with the safeguard agreement would you like to see tighter controls over India such as with the nuclear tests?

GOFF: Well we'd like to see what's already built as part of the United States Hide Act, which allows the United States to undertake nuclear trade with India, which requires that the deal would cease immediately in the event that India would conduct a nuclear test. India's not currently conducting tests; it says that it's made a domestic decision not to do so. We'd like some certainty around that and should not be an impossible ask of India to say that as long as you, in fact it's not even an ask, it could be built unilaterally into the agreement that this exemption would only apply so long as India did not again test its nuclear weapons.

This is a very unfortunate development but I blame the Bush administration rather than New Zealand and the US congress may still act to require such a conditionality at least for US sales.


Particularly unfortunate is the situation whereby countries like New Zealand have had to put their concerns in national statements that do not form part of the waiver. The Arms Control Association notes:

Because of the negotiations were tough and the real differences not fully resolved, there will likely be serious differences between India and most of the NSG about the interpretation of what the guidelines allow and don't allow and what the consequences of any violation of India's nonproliferation and disarmament commitments would be. This outcome is a failure of the NSG as a whole, the U.S. delegation, and the NSG chair Germany.

Also the Arms Control Wonk

I worry this sets up a potential trainwreck:

* Indian officials believe they have what they seek: the legal commitments at the core of a strategy that will mitigate the consequences of a resumption of testing. (The fuel reserve, access to the international marketplace, etc.)

* NSG members, on the other hand, believe they have a political commitment, however weak, from India to refrain from testing and options to isolate India again in the event that it violates the pledge.

One of the two parties is wrong. I am not eager to find out which.

The Increasing Importance of Uranium

It's going to be very interesting to see whether Australia now moves toward selling uranium to India. But even without that a lot is going on with respect to the politics and economics of uranium at the moment.

The week before last we had the extraordinary spectacle of Peter Garrett approving the expansion of the Beverly uranium mine in South Australia. Apparently the joke about Garrett now is "every appearance a sell-out."

Last week the Chinese company Sinosteel placed a bid to develop a large uranium mine in South Australia. This places the totally opaque foreign investment rules here under still more pressure. If the Right in New Zealand thinks it is unclear what is and is not a strategic asset they should take a look at the situation in Australia.

The Foreign Affairs minister Steven Smith threatened to reneg on a deal made by the Howard government to sell uranium to Russia in response to the situation in Georgia with a predictably stern response from the Russians.

Why all this interest in Australian uranium?

There is an urgent need to expand world uranium production which currently stands at around 64% of consumption. (Whether this is a serious problem for the nuclear power industry is debatable. The Three Mile Island and Chernobyl accidents depressed demand in the 80s to the extent that there are currently very large stockpiles.) China in particular is rapidly building nuclear power reactors and needs to assure its supply of fuel. Australia has about 23% of known reserves. Canada and Kazakhstan are the other countries with large reserves and mining industries.

Garnaut's new report

Ross Garnaut has released a supplementary report on emissions trading in Australia. He is recommending a very slow start to the program with a target of a 5% reduction on year 2000 emissions by 2020 unless a deal that includes all nations emerges from Copenhagen.

Paul Kelly notes that this takes the heat off Rudd

There are two main stories in the Garnaut report about the 2020 target. Garnaut is advising Rudd to run on two tracks: what Australia does with a comprehensive global agreement and what it does with an ongoing ad hoc post-Kyoto global compromise.

Taking the second scenario (absent any all-in global deal), Garnaut advises Rudd to settle on a 5 per cent Australian reduction by 2020. He stresses this would be consistent with reaching Rudd's non-negotiable 60 per cent reduction target by 2050.

The reason 5 per cent is the most likely target in practice is because, as Garnaut argues, there is only a chance the world will reach a comprehensive deal any time soon. Given this likely failure, Garnaut wants a modest start for Australia.

Because it is inconceivable that Rudd would choose a more ambitious target than Garnaut's, the best calculation under this scenario is that the Rudd Government will settle somewhere between zero and minus 5per cent from year 2000 levels.

NSG agrees to India waiver

In a dramatic last minute agreement the NSG has agreed to the waiver for the US-India uranium deal. Details of the waiver are sketchy and the deal must now get through the US congress.

According to the Hindu, New Zealand was the last to concede in a classic divide and conquer strategy by high level US diplomats.

“It was clear to us that as long as these countries were a group, they would remain a problem,” a senior Indian official said. “But we also knew none of them wanted to be the last man standing.” So between the United States and India, a determined political effort was made late Friday night to ensure each of the four came on board. The first to agree was China, said the official, and the last New Zealand, with Ireland and Austria also dropping their objections in between. Though the last three communicated their decision to Washington, the official said the Chinese side directly informed India that it intended to back the consensus.

It seems that little has been done formally to modify the original waiver, but that a statement on September 5 from the Indian Foreign Minister reiterating their moratorium on testing has been mentioned in a 'chapeau' to the waiver. New Zealand is also one of several countries to make a national statement expressing disquiet at the deal. From the Hindu again:

Though several minor changes were made in the India waiver adopted by the Nuclear Suppliers Group on Saturday, the most important change from the point of view of those countries with non-proliferation concerns was the incorporation of a reference to the September 5 statement made by External Affairs Minister Pranab Mukherjee reiterating India’s stand on disarmament and non-proliferation.

Among the commitments the statement highlighted were India’s voluntary and unilateral moratorium on nuclear testing, its “policy of no-first-use of nuclear weapons” and several initiatives the country has taken in recent years to press for the elimination of nuclear weapons at the global level.

For a feeling of the pressure that has been exerted there is this:

Asked for his assessment of the waiver, a diplomat from a European country which initially wanted much stronger conditional language said his government had joined the consensus “very reluctantly.” “I wouldn’t say we’re happy,” he said, adding that his country and several others had been “leaned on at the highest levels.”

I take it we can assume that we have been "leaned on at the highest levels" also.

The Washington Post has run an impassioned critique of the deal here.