John Quiggin

At about the same time as announcing that Queensland was an economic basket case, requiring large scale sackings of public employees to balance the books, the Newman government called for tenders for a project that, among other things, involves demolishing the 1970s office tower in which the Premier, Deputy Premier and Treasurer work, and replacing it with a spiffy new one. Some might see a contradiction here, but according to Treasurer Tim Nicholls, the new building “won’t cost taxpayers a cent“.

I’m tempted to say “if you believe that, I have a bridge for sale”, but of course Australian governments of both parties have become adept in bogus sales of bridges, roads and assets of all kinds. So, I’ll quote the famous aphorism, There Ain’t No Such Thing As A Free Lunch.

In the case of the “free lunch” apparently offered by US bars in the past, it’s clear enough that you are unlikely to get the lunch more than once if you don’t order a beer or two, and that the price of the lunch is included in that of the beer. In a complex transaction like the current one, it’s not immediately obvious how we are paying for Mr Nicholls’ new office. Some of it is in the 15-year lease payable to the owners of the new building, some of it in land being given away with the deal and some of it, probably, in valuable rights being handed over free of charge. What we do know is that, when you can’t see the price of what you are buying it’s almost certainly higher than if you paid upfront.

Of course, we have a Commission of Audit, headed by former Treasurer Peter Costello, that is supposed to expose dodgy transactions in the State’s books. The Committee prepared its draft report over the same period as this deal was going down. The government hasn’t released the report. An amusing, but unlikely, possibility is that the Commission actually did its job and criticised this boondoggle, leading the government to bury the report. More likely, Costello has done his job by helping to create the panic needed to justify 20 000 sackings, and is now just an embarrassment.

Wayne Swan has finally announced the abandonment of the promise to achieve a budget surplus this financial year. Some observations

* Everyone with any understanding of economics knows this was the right thing to do. The idea of trying to maintain a balanced annual budget regardless of economic conditions is recognised as nonsense even by anti-Keynesians. In the absence of active fiscal policy, the standard recommendation is to maintain settings consistent with medium-term balance.

* Both parties have made an awful hash of this in political terms. Labor was silly to make the promise of a return to surplus on a specific date, and sillier to reaffirm it in ever stronger terms until very recently. Abbott and Hockey made a mess of their response. They could have used Swan’s announcement to dump their own surplus fetishism saying something like “since the government refuses to reveal the true fiscal position, we can’t promise to fix it in one year”

* With any luck, some of the appalling fiddles of the last few months, most notably the recent reallocation of aid funding to domestic funding on refugees can be reversed

* We still need a long term discussion about revenue and expenditure in the light of the global failure of market liberalism. I plan to address this in another post

Update Hockey has indeed backed off the surplus, showing more good sense than Abbott. I’m nearly alone in this view, but I think he is under-rated. Not a towering intellect, but still among the stronger performers on the LNP front bench.

The big political news yesterday was a national opinion poll showing, on its face anyway, that Labor would easily win an election held right now. you didn’t see it? I wouldn’t have either, except that it was in my Twitter feed for about five minutes and I happened to be looking at it. AFAICT, none of the major national news organizations even mentioned it. There seem to be a couple of possible reasons for this. One is that some people don’t like Morgan as a pollster (I don’t follow the polls closely enough to have a view on this).

The second is the idea that a result so far out of line with other polls (52.5-47.5 for Labor) must be a “rogue” or “outlier”. This reasoning reflects the fact that political journos still don’t understand stats. It would be sensible to ignore a poll finding if it was the result of a breakdown in sampling procedures, or a biased question. But this is the same poll Morgan has been running for many years, presumably with the same procedures. What is more likely is that, by chance, this particular sample population was more pro-Labor than the population as a whole. Every sampling procedure is subject to this kind of error. But the correct response is not to discard the data, but to collect more, or combine it with existing evidence.

Given four or five of recent polls with results around 53-47 for the coalition, simple averaging suggests that the best estimate would now be around 52-48. A better procedure would be to use a Bayesian model. This guy has done it, and Hey Presto, concludes that the best estimate is 51.9-48.1.

Coming back to the statistical illiteracy of journos, the problem may be put as follows. On the one hand, they know that it would be silly to run a “Labor ahead” story. On the other hand, they don’t have the technical chops to explain Bayesian updating, or even weighted averaging, and to do so would make it impossible to write future stories suggesting that small variations in poll numbers have any meaning.

Even so, I think Tony Abbott has had a lucky break here (as has, in a secondary way, Julia Gillard). The only thing keeping him in his job is the perception that, while he may be unpopular, the LNP are sure to win. Even a single poll challenging that could pave the way for a spill. And if the result were to return Malcolm Turnbull, the outlook for the Gillard government would suddenly get a lot worse.

The French edition of Zombie Economics, published by Editions Saint-Simon, will be out early next year. French is the only language other than English that I can read reasonably well, so it will be very interesting for me to see this edition.

Here’s the cover

Another Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.

The horrific shootings in the US may or may not produce some restrictions on the gun culture there, but they provide a renewed warning of the dangers here. Australia has experienced a substantial reduction in gun deaths since John Howard bravely introduced severe restrictions in the wake of the Port Arthur massacre. But the gun nuts, aided and abetted by people like Campbell Newman, have been chipping away at those restrictions ever since.

It’s time to take a clear stand on this. There’s no reason why anyone should be allowed to own a handgun. Their sole purpose is to kill people. Those who need handguns for their work (like police officers[1] and armored car guards) should have them checked out at the beginning of each shift, checked back in at the end, and kept securely locked away when not in use. Farmers and professional shooters need rifles and shotguns, but anyone else who wants to use deadly weapons like these should seek psychiatric treatment. Anyone outside these categories found with a weapon designed to kill people should be assumed to have that end in mind and locked away from the rest of us until they can show that it is safe to let them out. And, obviously, military weapons should be confined to the military.

Undoubtedly, criminals will ignore the law – that’s why they’re criminals. But in a situation where only outlaws (and police) have guns, the possession of a gun will permit an easy conviction in cases where crims might otherwise get off.

fn1. As UK experience shows, there’s no reason for the majority of police to carry guns. That should be limited to trained specialists.

The latest news showing that former NSW Treasurer Michael Costa is up to his neck in the Obeid scandal comes as no surprise. Australian politics has produced few characters more unattractive than Costa, and it is unsurprising that he should have enriched himself mightily on the proceeds (to the tune of $3.5 million according to the SMH, he says “only” $500 000).

At this point, it’s evident that this isn’t a problem of individual malfeasance but one of structural corruption. The core of the corruption is the NSW Right faction aka “Sussex Street”. [1]. While corruption has been an ever-present problem on both sides of NSW politics[2], the wholesale corruption of the NSW right can be traced back to the election of Graham Richardson as General Secretary in the 1970s. From the bashing of Peter Baldwin to the rise of Obeid, Richardson oversaw the conversion of the rightwing machine into a wholly corrupt organization. At this point, there is no-one in the faction who doesn’t owe their position, directly or otherwise, to Richardson or the crooks he promoted and protected.

If Labor is to have any chance of avoiding catastrophe in NSW at the next federal election, the National Executive needs to intervened now to shut down the NSW Right once and for all. The faction should be proscribed so that no ALP member is allowed to belong to it. The current officers of the NSW Branch should be sacked, and direct national control maintained until the party can be cleaned up. In this respect, Faulkner’s “one strike” policy should be applied with immediate effect, and including past offences.

It may well be that the only way to get rid of the NSW Right is to ban factions altogether. While the factional system has both advantages and disadvantages, none of the advantages are remotely comparable to the cancerous damage wrought by Sussex Street.

fn1. Ludicrously, they now propose to fix their problems by changing address, perhaps to somewhere in the much-touted Western Suburbs

fn2. Back in the 60s and 70s, Premier Robin Askin and Lord Mayor Leo Port were notoriously corrupt and Howard’s right-hand man Arthur Sinodinos is caught up in the same mess as Costa.

I don’t have anything to say, other than to express my grief at the loss suffered by so many. Others may have more insights to offer

While we are on the subject of irresponsible pranks, noted performance artist, “Lord Monckton” is returning to Australia after his highly successful tour a couple of years ago, when I was invited to, and then disinvited from, a debate with him. I had some good lines ready on my part in the conspiracy to impose a communist world government, but I never got to use them. On the other hand, Monckton played the straight man to Tim Lambert, reprising the famous McLuhan moment from Annie Hall.

It’s been suggested that “Monckton” is another manifestation of the multi-faceted Sacha Baron-Cohen, but this is incorrect. Like his model, the marvellous Screaming Lord Sutch, Monckton lives his character 24/7. In fact, Monckton outdoes Sutch in many respects. Sutch regularly ran for the English House of Commons as a candidate for the Monster Raving Loony Party, losing his deposit every time. Monckton topped this by running for the House of Lords, as an independent monster raving loony, and received zero votes. Emulating Monty Python’s Silly Party, he ran three times more, doubling his vote each time.

His latest tour will be a challenge. He doesn’t seem to have much new material to add to the loony climate denialist routines of his previous tours, and much of the audience is now in on the joke. For example, I’m pretty sure that Andrew Bolt tumbled after Monckton’s Galileo Movement prank. Still, fans of WWE wrestling are perfectly happy to cheer the faces and boo the heels, knowing perfectly well that the events are staged and scripted, and indeed getting additional entertainment from the soap opera of the “real story”

Following my post on China, I took a look at the situation in India, generally seen as the source of the next big ramp-up in coal-fired electricity. I found this article by Giles Parkinson, who suggests on the contrary

poor supply and pipeline infrastructure, and the high cost of coal imports mean that coal- and gas-fired generation is becoming unviable, even in a country with huge economic growth, an energy deficit and massive energy needs.

Following some of the companies mentioned by Parkinson, I found the recent news is even worse for coal-fired power, and better for renewables and the environment

Tata Power
CLP

As an aside, there have been a lot of stories about a boom in coal-fired power in Europe, in response to low global coal prices. At least in part, though, the story seems to be that the plants in question had been allotted a fixed number of operating hours before they closed down under the EU “large combustion plant directive which forces high-polluting power plants to close by the end of 2015 or after 20,000 operating hours from January 2008 unless they fitted greenhouse gas reducing equipment. So, the combination of cheap coal and expensive gas made it profitable to use up the hours quickly, then shut down, as with these UK plants.

Most of the news on CO2 emissions has been bad. In particular, there are plenty of stories suggesting that coal-fired electricity is booming, and that this can be expected to continue. Although the evidence is mixed, I’m coming to the opposite conclusion. It’s already clear that no new coal-fired power stations will be constructed in the US for some time to come, and that many old ones will close, thanks to cheap gas and EPA regulations. And, while there are some new stations coming on-line in the EU, closures will predominate there too, although they still need to work out what to do with Poland.

But the big news is from China. Not that long ago, the standard story was that China was turning on two new coal-fired power stations every week. Now as this AFR report (paywalled, but another version here) says, China is cutting back hard on coal expansion. I found this story from March, in which the China Electricity Council says that it expects coal consumption in 2015 to be below the 2011 level, implying that the peak is very near. India is also planning some big expansions, but if China can grow without coal, so can they.

All of this suggests that the peak in global use of thermal coal could be much closer than is generally thought. Demand for metallurgical coal, used to produce steel, seems much more robust at least as long as investment-driven growth continues apace in China and India. Looking at the other fossil fuels, we reached plateau oil at least five years ago. On the other hand, gas (less carbon-intensive than the others, but still a source of CO2) is booming. So, there’s still a lot of work to be done before we can end the growth in emissions, let alone start on the 80 per cent reductions we need.

Another Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.

Following the tragic suicide of a British nurse, the victim of a cruel and unfunny practical joke by an Australian radio station 2DAYFM, what action can we expect from the Australian Communications and Media Authority which is supposed to regulate such matters? Following the most recent of many such breaches of license conditions, in May last year, ACMA warned 2DAY-FM that it could lose its license if such behavior continued. But ACMA has never cancelled a license, and clearly never will. So, we can expect another warning, or perhaps some meaningless, and unenforceable, license conditions.

ACMAs total failure contrasts with the success of the Facebook backlash against Alan Jones, which has cost him and his employers millions in lost advertising revenue, and greatly reduced his power and influence.

At this point, it’s clear that licensing has failed. Rather than continuing with this farce, we should auction the spectrum currently allocated to commercial radio, and let the winners do what they want with it, subject to the ordinary law of the land (which prohibits recording deceptive calls, though this law is never enforced against radio stations). As a community, we should continue to punish the corporations that sponsor the likes of Jones, Kyle Sandilands, and their latest imitators.

The Queensland LNP comes up with this. Fortunately, I doubt that this silliness will have any effect, except to increase the likelihood of a one-term Newman government, already close to even money in my view.

Having lived in Queensland for most of the last 20 years, the only LNP government I can remember is that of Rob Borbidge, who seemed like a paragon of good sense compared to this lot. It really is as if the entire LNP has been in cold storage since the Joh era and revived for the occasion. But, given Labor’s appalling betrayals of its own voters, they were certain to win, and better that they should be so obviously silly as to make the next election a chance for real change.

When commentators as disparate as me, Warwick McKibbin, Bernie Fraser, ACOSS the Australian Industry Group and the Business Council of Australia are all in agreement, it might be time for the government, and the opposition to start paying attention. At this point, I doubt that there is a single credible economist who thinks that the government’s promise to return the budget to surplus this financial year is a good idea. Yet the Treasurer remains absolutely committed, and the Opposition is ready to denounce him if we miss the target by even a single dollar.

To restate the case, it’s clear that growth is slowing, and, as usual in these circumstances, monetary policy is becoming less effective. In cases like this, fiscal policy ought to be moderately stimulatory, or at least left neutral, so that the automatic stabilizers (declining revenue and increasing welfare payments) are left to cushion the impact of a slowdown. Instead, thanks to this absurd pledge, the government is committed to matching every reduction in economic activity (and therefore in the budget balance) with its own cuts or tax surcharges.

Obviously, the reasoning here is political not economic. The government suffered badly from the gratuitous “no carbon tax” promise[1] made before the 2010 election. To dump the equally gratuitous “early return to surplus” promise would involve a whole world of pain. And of course Tony Abbott cares nothing at all about good policy, unless it’s defined as policy that will make him PM. So, we have the politicians united on one side of the debate, and everyone who has any idea of economic reality on the other.

fn1. Feel free to parse this in comments, but the fact remains that the Rudd government was elected with a strong commitment to carbon pricing, which Labor then dumped in a loss of nerve before the 2010 and was forced back to (something like) its original position by the election outcome. In this context, the question of whether a specific promise was made and broken is of secondary intersest.

A belated Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.

Comments seem to be veering off-topic, so I’m opening a new sandpit for long side discussions, idees fixes and so on. In particular, this includes MMT-related discussions. I’m planning a post which will address some of the arguments raised by MMTers and others as to when, if at all, the government’s budget constraint is binding.

Following up on my post about Rachel Nolan’s arguments for privatisation, I ran across this interview with former ALP education minister and attorney general Cameron Dick, generally regarded as a rising star while Labor was in office. Before Nolan, Dick was the only minister willing to go on record with thoughts about Labor’s defeat and he had this to say

he felt the party should have concentrated more on the economy during the election campaign, emphasising the decisions it had made.

‘‘I do think Labor fell into the error, or seriously miscalculated and under-estimated the desire for Queenslanders to hold onto the AAA credit rating,’’ he said.

‘‘And I think the concern Queenslanders had generally about government debt and deficit.

‘‘And I think we were unable to effectively tell our story about investing in infrastructure to keep jobs.

‘‘I mean, that was the strategy we took as part of the global financial crisis.’’

Say what? All of these points would be a great explanation if Labor had lost the 2009 election, after sacrificing the AAA rating to maintain infrastructure and jobs as a strategy in response to the global financial crisis. But, in reality Labor won that election easily. The plunge in the polls came when they announced a drive to restore the AAA rating by selling public assets, mostly infrastructure, and by pushing the panic button with respect to government debt and deficits. All the polls showed that no one except the pollies (and powerful bureaucrats like Doug McTaggart and Leo Hielscher) gave two hoots about the discredited ratings agencies. They hated the asset sales, and dumped the government as a result.

To strengthen my conclusion from last post, while the Newman government has been a disaster, the Labor MPs who supported the sales to the bitter end (all but a handful) brought their fate on themselves, and deserved it. Labor will certainly win lots of seats next time around, and perhaps even win government. I hope they can do a better job selecting candidates whose views reflect those of Labor voters.

During the long debate over the Bligh government’s sale of public assets, I was frustrated by the government’s refusal to mount a serious case in favour of the sales. The official argument, that the money gained from the sale of income-earning assets could be used to finance the building of schools and hospitals was such obvious nonsense that even strong advocates of privatisation like Henry Ergas were willing to sign a letter I organized pointing this out and calling for a proper debate. Now finally, former Transport Minister Rachel Nolan has given us some idea of what the government was really thinking.

Nolan has a piece in Quarterly Essay (paywalled, but there is a summary from Laura Tingle here), in which she laments that Australians “have little philosophical grasp of the (rightful) diminution of governmental power which deregulation has brought” . She retails some anecdotes of being besieged by “rent-seekers” wanting her to direct Queensland Rail in various ways[1], and complains about constituents wanting her to fix various things outside her control.
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