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Monthly Archives: July 2009

For those not in the know, I’m applying for a cadetship (internship) at the Reserve Bank this summer. Therefore, I shall be preparing by familiarising myself with economic and financial policy prior to my interview. So I thought I might as well share it with all of you. So I guess for the next month or so, this blog will be filled with economics related posts.

So I guess a quick summary of my economic beliefs is in order. I don’t like to label myself with any particular school, cause frankly I don’t belong to any school but just blatantly plagiarise any policy I think is a good idea. I’m a strong behavioural and non-classical enthusiast (particularly with respect to experimental economics and game theory) but rather than formally incorporating them into economic models, I think they’re most useful in sharpening our intuition when we analyse models in the more classical economic theories.

As derided as Homo economicus is, these assumptions are abstract simplifications so we can build mathematical models to describe an incredibly complex system. And many of them are very useful in describing reality – in particular the notion that decisions occur at the margin. I think that an underemphasised point in economics is that it is simply the aggregate decision-making of million different individuals. Though none of those individuals are strictly rational in the economic sense, I think on average you’ll find that they are. Where they are not, then I’m sure behavioural economics can pick up the slack.

I’m a big fan of microeconomics over macroeconomics. In the end, what is macroeconomics but the aggregate decision-making of a hundred different industries? Inflation theory makes no sense till you look at the regulatory structure of hte major industries comprising the CPI. Think about competition within the supermarkets and think of the effect that would have on CPI.

As to what school I belong to, I would say I’m definitely a fusion of the Keynesian and neoclassical schools. I think I’m a bit more neoclassical than the average student simply because I see flexibility as a much greater asset in maintaining stability than most other people. And I’m suspicious of anyone claiming that government is competent and efficient. Having once stood in a queue, I do assure you that it is not. Unfortunately, many of the claims that government can do a particular thing are after-the-fact knee jerk reactions. “Well why didn’t you regulate subprime mortgages better?!” Well yes, they could have, but every single year there would be a new variant of subprime mortgages which wouldn’t be covered by the regulations and we’d need to pass a different law each year and I really think you over-estimate how many laws you can pass in a 10 week Parliamentary session (or however long it is).

But there is a role for government in passing regulations as a baseline. Seriously – how big of a burden is it on business to “not commit fraud, lie on documents or murder opposing counsel.” Ok. I can see why you would be tempted to murder the other side’s lawyer, but my point stands. I think rather than regulations, the frontline of our defence should be a strong and flexible regulator and counter-party surveillance. No regulator can keep tabs on everything going on in a market, its just not possible. How can a person sitting in an office in Sydney understand everything going on across the country? Most business deals are confidential. Its somethingcalled business confidentiality. It is just simply very hard to keep track of everything. That is why it is counter-party surveillance – due diligence and the like – which should be the crux of our economic policy. Subprime mortgages was a case where regulations prevented or did not properly encourage counter-party surveillance.

Government has a critical role to play in economic policy – not in managing the economy, but in ensuring that it manages itself smoothly through intelligent regulation. It has a role to play in protecting property rights and criminalising acts which hurt more than they benefit. And at times of great need, it may pass stimulus packages.

I for one applaud the Republicans. To a man they have decided to vote down Judge Sotomayor and once again consigned their party to irrelevancy. They are attacking her for things which are just not true. She is not a liberal activist, in fact its hard to say that she is an activist at all. They criticise her for giving short judgements in three cases. Oh my! And they’ve also decided to play the anti-anti-race card, thus losing the Latino vote. Guys, have you not noticed that the Southern states are riiight next to Mexico? Have you not noticed that along with the influx of illegal immigrants, you’re also getting large numbers of legal immigrants? Do you not want to be re-elected? Seriously?

Look, I oppose Sotomayor too, though not as fervently as I once did. There are great gaps in logic on the Democrat side. How can you at once claim that cases which reach the US SC are those few cases where the law is not clear, then loudly proclaim that “the law controls”. How can you claim that a judges background doesn’t influence their decisions and boast about her life struggles? Let’s face it, the once respectable institution of the Supreme Court has been dragged through the mud by both sides of politics.

Sotomayor does not pose a threat in most instances. But there are a whole group of cases where her instincts on race pose a danger. The notion of the reasonable person pervades basically every major part of law. For instance, in negligence, the question is often asked: “Would a reasonable person have foreseen that damage would have resulted from his/her act?” Increasingly (in the Commonwealth at least) there has been a push by some to adopt a more flexible test, though thankfully the courts have thus resisted any temptation to yield. Instead of a single ‘reasonable person’ test, proponents wish to use a variant such as “a reasonable person with the ethnic background of the accused” or with the socio-economic background etc etc. It seems innocuous enough, after all.

This poses two key problems. Firstly, it entrenches into the heart of the law, a double standard. One standard for white people, and a second standard for minorities. It is not even clear that this is beneficial to minorities – given that the overwhelming proportion of judges are white, and the overwhelming proportion of lawyers are white, who is to say that the standard for the minorities will play in their favour? The second is more of a lawyer’s gripe. The reasonable person test is an objective test, to use factors, such as ethnicity, subjectivises it. NO! Bad! I hate to use the slippery slope argument, but the problem is there is no clear logical divide between factors we should consider, and those we should not. Once we accept the reasonable person has a race, do we also admit he has a socio-economic background? An educational background? Sexuality? Gender? Why not just take into account every factor like some multi-variate statistical model? What proponents of a raced reasonable person test don’t realise is that it is merely a legal fiction which allows us to set an artificial standard by which to judge all defendants equally. The reasonable person is inherently raced by reason of the fact that the tribunal of fact – the jury – is composed of 12 people of all races and backgrounds, each using his or her common sense to determine if a reasonable person (ie them) would have done the same as the defendant. To artificially bring in the question of race is to invite the lawyers to take turns at making terrible stereotypes and dressing them up as “instruction to the jury”. It contaminates the tribunal of fact, and as I said, it is not clear this would even be favourable to minorities. Separate is not equal.

I am not familiar enough with American law to hazard more guesses as to where race plays a part, but I am sure there are other instances where race could enter the equation. The affirmative action cases in Constitutional law spring to mind. The Republican’s strategy – if they are truly committed to a free and independent judiciary, which I doubt – should be to ensure that every avenue where race could play a part in the shaping of law is closed off to Sotomayor. Question her on them. Ask her- what do you think the state of the law is with regards to this area? Do you foresee a change? A true justice, as I believe Sotomayor is, is bound by honour to do as she says. Having questioned her thus, the Republicans can rest easy and confirm her. This is the congenial approach, and the one that will win the day in the long run, in the long cold days of opposition. Ranting and railing will not work, and never has. All it does is divide a nation that must stand strong behind the principles of justice. And, it will return to the days before Bork when Justices were assessed on their merits and when justices weren’t party-political.

Unfortunately, this approach contrasts quite dearly with the present approach. The Republicans fear that she will favour minorities in the cases directly before her. That is not where the danger lies. The danger lies in tectonic shifts of the law which expose and create double standards to ensure that separate is not equal. It is clear to me that the right no longer has the monopoly on claiming they are judicial conservatives. Whilst the old guard of judicial activists have been traditionally quite leftist, the new judicial activists are quite conservative. Chief Justice Roberts, Justice Alito pander to a neo-con agenda. Judge Richard Posner makes no attempt to hide the fact he will throw away any precedent in pursuit of economic efficiency. The hypocrisy is stunning, and it hurts the notion of justice and it hurts the notion of an independent judiciary. Both sides of politics need to shut the fuck up and return to the simpler times of yore.