John Quiggin

Zombie Economics gets its official Halloween launch at the Irish Club, 6:30 tonight, courtesy of Birsbane Young Economists

Details here

I discovered this too late to put it in Zombie Economics, but it has to be the sharpest irony of the Queensland privatisation debate. The sale of our public assets is being managed, in part, by the Royal Bank of Scotland which, thanks to the gross incompetence of its private managers, is now a wholly owned subsidiary of the British government.

I was too busy to post when it came out, but the Climate Institute has recently issued an important report on the implicit carbon price associated with such measures as renewable energy quotas. The take home message is that major economies, either directly or indirectly, are putting in place carbon prices. China’s current implicit price, for example (in PPP terms), is roughly either times higher than Australia’s and three to four times higher than the USA and Japan.

You can read more here.

An important implication is that concerns about Australia “acting alone” or “getting out in front” are misplaced. We are, as we have been for most of the past decade, at the back of the international pack. One day, this will come home to hurt us.

That’s right. It’s the official Halloween launch of Zombie Economics, to be held at the Irish Club on Friday, thanks to Queensland Young Economists.

Angela Merkel’s recent denunciation of German multiculturalism marks another step in the tightening of ties between the market-liberal right and ethnic-national tribalism, evident in other European countries and in the US (most obviously with the rise of the Tea Party). In part at least, this is a result of weakness. The positive appeal of market liberalism has declined a fair bit since the triumphalist decades of the 1980s and 1990s, and the global financial crisis exposed the failure of its theoretical basis. But there are obvious problems for social democrats in responding to this development. I’ve been thinking about this for a while, and have come to the view that it’s better to put up some half-thought ideas for discussion (and maybe debunking) than to wait for a perfect formulation.

The left needs to offer a transformational vision of a better society if it is to motivate the kind of enthusiasm needed to overcome a rightwing politics of tribalism and (often misperceived) self-interest. The 19th/20th century vision of socialism and class solidarity provides a model and a starting point, but that model is no longer adequate, and the political movements it gave rise to are in disarray. We need, a world view that extends the solidarity of social democracy to the whole of humanity [1].

The institutions of social democracy have been developed primarily at the level of the nation-state and the popular appeal of social democracy rests on notions of solidarity which arise most naturally in a relatively homogeneous society. Most of the last few decades have been spent defending the social democratic welfare state against attacks which were largely justified by claims about the need to respond to (market liberal) globalisation. That defence has been surprisingly successful, even when market liberalism seemed to have won conclusive intellectual and political victories. It’s natural to continue that defensive stance in response to the current push for “austerity”, and to organise that defence at a national level, while seeking to refurbish and to some extent rationalise the national welfare state.

That defensive struggle is necessary, but I don’t think social democracy can endure indefinitely in this defensive/managerialist mode. As I said a while ago we need to mobilise a positive alternative to the fear, anger and tribalism on offer from the right. That means setting out goals that are far more ambitious than the incremental changes debated in day-to-day electoral politics. The goals that seem to me to offer the most hope – a world free of nuclear weapons and extreme poverty, an end to the acceptance of war as an instrument of national policy, action to stabilise the global climate – all involve going beyond national governments and concepts of national interest. And, so I believe, does any plausible program to renew and extend social democracy.

The need for global action on issues like nuclear disarmament and climate change is obvious enough. The argument about social democracy is less obvious. In a world where national borders no longer act as an effective barrier to migration, it is harder to justify social welfare systems in terms of solidarity with people like ourselves (since the population is more diverse) or in terms of mutual insurance or past contributions, at least as regards recent arrivals. Particularly where migrant groups are concentrated at the bottom of the income distribution and are therefore net beneficiaries from the welfare state, including health and education systems as well as social insurance. Less obviously perhaps, internationally mobile workers are unlikely to be happy about paying taxes for welfare systems from which they may not benefit. Within the framework of national social welfare systems, the alternatives are to cut back the system for everyone, to discriminate against recent arrivals, or to tighten restrictions on migration.

The alternative is to extend the welfare state beyond national boundaries. This has already happened in a very modest (and often grudging) way with various agreements between national governments, and somewhat more systematically under EU rules which require national governments to treat all EU citizens equally with respect to some social services.

As between very rich and very poor countries, the benefits of this all go one way. People from poor countries gain from access to social services in rich countries, but not vice versa. But we can turn this argument around to say that the achievements of social democracy in the developed world can’t be secure as long as so much of the world is in extreme poverty. As Jeffrey Sachs has argued (and I’ve argued further), ending extreme poverty is entirely feasible, given an effort comparable to that the developed world has put into fighting pointless wars.

The ultimate goal ought to be one in which, everyone, no matter where they happen to be born has access to the basic requirements for a decent life. That doesn’t entail a world government (at least in the sense in which we typically understand the word “government” today) but it does entail a break with ideas based on nation-states as the ultimate focus of sovereignty. One relatively minor, but important step towards this would come with a “contract and converge” approach to CO2 emissions, which would ultimately imply equal entitlements to emissions per person in all countries [2].

All of this seems utopian in (at least) two senses. First, it seems very hard to sell politically. In part this reflects the long-standing distinction between a maximalist statement of long-term goals and a ‘fighting platform’ for a particular election. Part of my argument is that it’s the lack of long-term vision beyond the preservation of past gains that is sapping enthusiasm for social democracy.

But even after making the obvious adjustments to electoral reality, it’s far from obvious how to fashion a platform based on these ideas that is going to attract majority support in the short term. The power of nationalism and tribalism is strong, and the counter-appeal of global idealism goes only so far. On the other hand, it seems as if there is enough support for greens and leftish social democrats to form the basis of a significant minority that would support such ideas. Given a reaction against rightwing austerity politics, this group could form part of a majority coalition with mainstream social democrats.

More importantly, tribalism and monoculturalist nationalism belong to the past (as do essentialist versions of multiculturalism, in which people are defined by birth into some particular culture). The possibility of sustaining, in any country[3] a majority group (or even a dominant minority) that can be defined homogeneously in terms of race, religion, sexual politics and world-view (all at once) is slipping away fast. Part of the rage of the Tea Party is the fact that its adherents at once recognise this and are unwilling to concede the existence of an America that is not overwhelmingly white, Christian and traditionalist in terms of sexual mores and broader social attitudes. So, the more that social democracy and acceptance of social diversity are seen as two sides of the same coin, the better the long term prospects for social democrats.

The deeper question is whether such a program is feasible at all. Traditional views of international politics take the nation-state as an immutable atomic constituent of the system that can’t be wished out of existence by idealistic political movements. But the reality is that the sovereignty of nation-states has been eroded in all sorts of ways over the years since 1945. That’s most obvious in Europe, but all countries are bound up in a web of international arrangements that are increasingly hard to break out of. Big and powerful states like the US, Russia and China still act intermittently on the assumption that the rules don’t apply to them, but such displays (US and Russian military adventures, China’s attempted blackmail over rare earths) typically have high costs and few benefits. The real question is whether (as was assumed unquestioningly in the years leading up the global financial crisis) such constraints work inevitably in the interests of financialised market liberalism or whether they can be turned in more socially productive directions. I don’t know the answer, but I do think that the attempt to do this represents the best hope for a social democratic future.

Obviously, a lot of what I’ve written above is only partly thought through, and at least some of it is doubtless wrong. However, I’m not really interested in dealing with snarky nitpicking and general derailment, so I will exercise a fair bit of discretion in deleting comments I regard as unhelpful. I’ve opened up a new “sandpit” thread where I will direct snark and lengthy off-topic monologues and back-and-forth disputes between commenters. Since this topic will clearly interest Jack Strocchi, I will pre-emptively direct him to the sandpit.

Finally, a few links to things I’ve found useful (not necessarily because I agreed), from John Keane and Policy Network.

fn1. This certainly isn’t a new claim – Ulrich Beck has been arguing for a similar, cosmopolitan and social democratic, position for some time. But it certainly needs a lot of working out and discussion, and blogging provides me with an avenue to try out ideas like this.

fn2. Although I don’t believe the process is as conscious as this, the ferocious rightwing resistance to the reality of climate change ultimately reflects an intuition that some global action of this kind is the only possible response.

fn3. The big potential exceptions are China and perhaps Japan, although it seems obvious that maintaining current restrictions on immigration will be very costly for Japan.

and without the Institute of Public Affairs.

The nuclear v renewables debate is going along in its sandpit with plenty of sand being thrown and a good time had by all as far as I can see. So, I thought I would open up a new sandpit to make space for any long interchanges on other topics, rants on favored hobby horses (other than energy-related) and so on. Have fun!

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit(s). As always, civilised discussion and no coarse language please.

Michael Stutchbury has offered a rejoinder to my post responding to his article in the Australia. I’ve put it up as a guest post. I remind commenters to stick closely to the comments policy, and avoid any kind of personal attack. Feel free, however, to agree or disagree with the substance of the post. – JQ

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A few year ago, I observed that the paperless office, long derided as a myth was on the edge of becoming a reality for those on the leading edge of technology (immodestly, I took myself as an example). Jumping to the present, global demand for paper has dropped sharply. Granted, there’s a recession on, but that’s only a spur to changes that were going to happen anyway. When and if the economy recovers, i don’t think paper demand will bounce back, except in a few specialty areas.
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Another thread for lengthy debates, off-topic exchanges, long posts on regular hobby-horses etc.

The latest renewables v nuclear sandpit thread has racked up 300 comments and counting. Rather than attempting to arbitrate, I’m going to assume that both sides are right in their most pessimistic estimates of the other technology. That is, I’m going to look at the implications of assuming that a low-carbon electricity generation (mainly carbon-free with some gas) will imply average costs of $200/MWh.

What does that mean at the household level. Average generation costs are currently around $50/MWh, so there’s an increase of $150/MWh or 15c/kWh.

UpdateI didn’t think I needed to spell it out, but obviously I do. Debate on the merits of specific technologies, such as nuclear v renewables belongs in the sandpit. End update
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Michael Stutchbury in the Oz offers a case for the Bligh government’s asset sales, and that of QR in particular. Mostly, he wants to argue that the sales will put an end to the oppression of the bosses by the workers[1], or as he puts it, would allow business to “clean up its anti-management culture”. But he also tries a half-hearted defence of the official case for privatisation, that selling assets will finance non-commercial investments.
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I just got an automated message from my hosting service saying my bandwidth limit had been exceeded. I’m not sure what this means, but it’s possible the blog will go off air without warning. In the meantime, please don’t download any big files, and use the RSS feed if you want to check the site regularly. I will see if I can get the comments feed working again.

If the site goes down, I’ll post directly to Posterous

http://johnquiggin.posterous.com/

Chris Bertram’s CT post on the Browne reforms[1] in UK Higher Education has prompted me to write a post I’d half-planned a while ago, after seeing this familiar (to Australian eyes) claim.

Too many universities simply state a desire to “achieve excellence in teaching and research” and appear unable to carve out a market niche, Professor Beer said.

The idea that a pseudo-market system (centralised control but with sharper price incentives) will generate diversity is one of many illusions that were exposed during the Australian reform era of the 1990s. Faced with pressure to find a market niche and select a “flagship” program, 37 Australian universities (out of 37) decided that business education and a multitude of specifically labelled vocational degrees were the right niche and that an MBA would be a good flagship. This is scarcely surprising: given the incentives, business degrees were the obvious profit centre. It’s only as the reform program has faded from memory that we are seeing serious attempts at diversity like the “Melbourne model”

However, similar choices didn’t produce a homogenous outcome. Rather, the historical hierarchy (century-old sandstones at the top, former teachers colleges at the bottom) which had been somewhat muted when funding flowed a little more freely, re-emerged stronger than ever. At the top, there was enough surplus to maintain, more or less, the full range of disciplines as well as the long-established professional schools (law, pharmacy and so on). The further down the scale you went the less of the arts, humanities and sciences survived. This apparently came as a surprise to the Australian equivalents of Professor Beer.

Even more bizarre was the shock expressed by some market advocates when they discovered that, with a customer base consisting of 18-year olds (who understood their own preferences), and parents (who mostly knew very little about units), the market produced very little demand for anything that was hard and didn’t purport to offer training for a well-paid job. Some of them seriously appeared to think that the market would kill off critical theory in favor of good old-fashioned classical education. In fact, provided the pill was sugar-coated with film studies and pop culture, critical theory didn’t do too badly, at least relative to old-style humanities. I myself am affiliated with the QUT Centre for Creative Industries, which derives much more from crit theory than from lit crit.

Australia has a long history of importing policies that have already failed in the UK. It’s a source of mild schadenfreude to see the trade going in the opposite direction for once.

fn1. As always, I use “reform” to mean “change in structure” with no implication of approval or disapproval. Given the history of C20, most reforms consist, in large measure, of undoing some previous reform.

The bailout of the US financial sector through the Troubled Assets Recovery Program (TARP) looks to have been fairly successful on its own terms – the banks have become profitable again and the final estimated loss to the government is relatively small. That doesn’t change the fact that the government took on huge risks for negative returns, without any reason to expect that the future behavior of the banks will change.

But all of that was based on assumptions of an orderly resolution of the mortgage crisis. Those assumptions now look very dubious, as the legal consequences of the practices of the financial sector during the bubble, ranging from sloppiness to outright fraud, manifest themselves.
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I just did an interview with ABC Radio Lismore about the latest proposal to divert water from the Clarence River to the Murray Darling Basin. Apart from the environmental effects (disastrous according to the studies I’ve seen) proponents of ideas like this seem to be unaware of a crucial fact. Water is heavy. A megalitre of water (worth maybe $200 as bulk supply to irrigators) weighs 1000 tonnes. Pumping that much mass over even a low mountain range is prohibitively expensive. You can overcome that with tunnels if the gradients are steep enough, but the Great Dividing Range is pretty broad in Northern NSW.

And, don’t get me started on the really crazy projects like Colin’s Canal.

Apparently the Mont Pelerin Society is meeting in Sydney. The proceedings are apparently unpublished, which is a pity, since I would be interested to see how, if at all, members have adjusted their views in response to the Global Financial Crisis. In the absence of this, we can all think about the maxim “bad things come in threes”.

The last meeting of which I heard anything[1] was in Reykjavik, at which time the MPS was happy to share in the glory of its proteges such as David Oddson. There was also a meeting in Chile in 1981, notable for producing an endorsement of the Pinochet regime from Hayek The Chilean economy ran into a severe crisis shortly thereafter. So, let’s hope that this meeting passes off uneventfully, and without any nasty aftershocks.

fn1. Google suggests there have been plenty of other meetings, but these are the only ones I heard anything about.

News of the Grog’s Gamut debacle has reached my former home of Townsville, where the appalling Townsville Bulletin (aka Bully) publishes a splendid piece of invective against cowardly bloggers “who hide under the veil of anonymity, taking cheap shots to satisfy their trendy social agenda”. The author of this marvellous diatribe deserves some recognition, but sadly …

(H/T The Political Sword

… but we still can’t water the lawn. As I predicted more than a year ago, the gates have been opened at Wivenhoe Dam, and water saved at substantial cost last year is now flooding down the Brisbane River. Yet, anyone who wanted, for whatever crazy reason, to water their lawn today would be breaching Brisbane’s permanent water restrictions, which forbid watering on Mondays (why Monday? – I have no idea). And watering the lawn between 10 am and 4 pm is never allowed.

It makes sense to require water-efficient sprinklers, taps and so on – investment in such measures now will pay off in a drought. But, when water is plentiful, there should be no restrictions on when and how it is used. That way, restrictions will have more bite when they are actually needed.

It’s time again, once again, for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.

Presumably relying on his Queensland government sources to get their sums right, ABC business reporter Peter Ryan writes

The biggest public share offer in more than a decade is expected to raise more than $5 billion for the Queensland Government … The Government will retain between 25 and 40 per cent of QR and will sell up to 1.68 million shares at between $2.50 and $3.00 a share. Individual investors will pay no more than $2.80 a share.

It’s a good thing all that money will be used to build new schools [1], since some arithmetic lessons are clearly in order. Unless all the shares are sold to institutions at the maximum price, there is no way the revenue can reach $5 billion.

fn1. I’m joking of course. As I and other economists have explained at tiresome length in the past, the sale of income-earning assets cannot, in any meaningful sense, finance social investments like schools and hospitals. The taxes that would (in the absence of asset sales) be required to finance debt for additional investments must be used instead to replace the income lost from the assets that have been sold.

The problems of the Murray Darling Basin have been developing for more than a century. I’ve been working on this issue for 30 years, during which, despite a series of policy initiatives too long to list, the situation in the Basin has got worse in most (not all) respects. So, it’s not surprising that the attempt to provide a comprehensive plan for the future involves a drawn-out process. The big question (which the Risk and Sustainable Management Group at UQ will be addressing in a workshop later this month) is: Have we finally got it right?

My general view is optimistic. If the politics can be negotiated, and if the government is willing to spend around $5 billion on buying back overallocated water rights, we can probably reach a solution that is economically, environmentally and socially sustainable.

The Draft Plan proposes a reduction in water use for irrigation of between 3000 and 4000 Gigalitres (GL). That range reflects two fairly tight constraints. Anything less than 3000 GL won’t achieve environmental sustainability. Anything more would imply unacceptably large impacts on irrigated agriculture.

Here’s the rough arithmetic on the irrigation side, which is broadly consistent with the modelling done by my Group, some of which was used along with research by ABARE in preparing the draft plan. A 30 per cent cut in water use will result in a 15 per cent reduction in the gross value of agricultural output, and a smaller reduction in net returns to farmers.

The big change required to achieve this kind of reduction in water use is a shift from irrigated rice production to dryland agriculture. Since yields on irrigated lands are much higher that will imply a reduction in our total grains output. Still the impact is much smaller than, for example, the effect of the current overvaluation (relative to long-run value) of the Australian dollar.

Importantly, although the changes in the Draft Plan have been referred to as “cuts in allocations” this is incorrect. Although the National Water Initiative proposed cuts where water resources had been over-allocated in the past, the Draft Plan calls for the entire reduction in water use to be treated as a change in government policy, meaning that the Commonwealth will bear the cost. It’s already been made clear that this reduction will be achieved entirely by voluntary buybacks and conservation measures.

While there are some opportunities for conservation, the most cost-effective mechanism in most case is buying back entitlements. Now that the drought has broken, I’d guess the likely price for entitlements will be around $1500/ML suggesting a cost of buyback (or similarly cost-effective conservation) of between $4.5 billion and $6 billion. It’s not clear whether buybacks that have already taken place will be counted towards this. There’s enough money allocated to the National Water Plan/Water for the Future to cover this cost, though most of it is currently earmarked for on-farm works.

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit. As always, civilised discussion and no coarse language please.

I’m sure quite a few regular commenters are keen for me to lift my ban on discussions of nuclear power (imposed to prevent the threadjacking effects of this topic). So, I thought I would open it up to all comers with a couple of observations of my own:

(1) Nuclear power isn’t going away any time soon. Nuclear plants generate a lot of power and most of them seem likely to outlive their originally planned operational lifetime. So, there doesn’t seem to be much point in being “anti-nuclear” in the sense of hoping for a world without nuclear energy – that horse bolted decades ago.

(2) Except in China (and maybe India) nuclear power isn’t getting bigger any time soon. Following the failure of Obama’s energy bill and the GFC, the US “nuclear renaissance” is dead in the water, and the same is true in Europe. While residual anti-nuclear sentiment plays a role here, the big problem is economics.

(3) The only plausible path to an Australian nuclear power industry involves the use of modern plant designs and regulatory systems with a proven track record in the US and/or Europe and Japan. Given point (2), that path won’t open up any time soon. So, for the foreseeable future, nuclear isn’t an option for Australia, and there is little or nothing we can, or should, do about it. When there, are, say 50 new plants in the developed world with 5-10 years of operating history behind them, it would make sense for us to take another look. On the most optimistic possible projections, that might happen sometime after 2030.

That’s it from me. I won’t moderate the thread except to delete personal attacks and similar violations of the comment policy.

The Queensland government has cited an alleged financial crisis as one of its spurious justifications for the sale of public assets, but apparently it can find a spare billion or so to spray on yet another sporting event which will almost certainly return little or nothing in revenue. I had my say on the Commonwealth Games bid here and here. The ABC story includes Treasurer Andrew Fraser’s admission that the proceeds of the asset sales, which were supposedly going to finance schools and hospitals, are the source of this luxury expenditure.

I’m happy to say that on this occasion I was accurately quoted in the Oz. The reporter Roseane Barrett did her job properly, and there was no editorial interference, presumably because the story was critical of a Labor government.

I wasn’t quite sure whether I was presenting my own dangerous ideas, or talking about the dangerous ideas of the zombie economists, but either way it was a fun event. I’ve attached the presentation in various formats PPT and PDF (v large) formats, and a font you may need to read it.
DangerousZombiesPDF
bloodyFont
DangerousZombies

It looks like last weeks MMB has devolved into a back-and-forth, so I’m opening up a new sandpit for such interchanges