John Quiggin

I first started working on the problems of the Murray-Darling river system 30 years ago, just as the great expansion of irrigated agriculture was reaching its limits. I’ve done a lot of different things since then, but kept on coming back to this issue. For a brief moment after the election of the Rudd government and the implementation of the Water for the Future plan, it seemed like Australia finally had the policy right. The government would buy back enough of the water rights it had given away in the past, and use them to restore something close enough to natural flow patterns to protect the most vulnerable natural environments. The money spent on the purchases would ease the pain of the adjustments that have been going on for decades anyway, as a result of “closer settlement” policies that encouraged the creation of farms too small to support a family properly.

All of that fell in a heap with the disastrous mismanagement of the Draft Basin Plan, which led to its rejection first by irrigators instead of the government. At this point, the process reverted to the time-honored patterns of political horse-trading and I announced a year or so ago that I was moving on. Now the Basin Plan is finally law. The best that can be said is that it is not the disaster it might have been. Billions of dollars have been allocated to infrastructure boondoggles, and the allocation of water to the environment is less than what is needed. But the 2750 GL environmental allocation is much more than seemed remotely plausible a decade or so ago, and there seems to be some effort to stop the most wasteful infrastructure project.

Meanwhile, on the academic front, I’ve had one last gift from my decades of work on this topic, with a publication in Nature Climate Change, something I’ve long aspired to. Admittedly, I’m listed last among nearly 20 authors of an article that’s only a few pages long. I wrote a fair bit in the drafting process, but only a couple of sentences ended up in the final paper. Still, that’s the way things are done in the natural sciences, so I’m not going to complain. For those who can’t get access, the shorter version is that, while Australia hasn’t done a great job with the management of our water resources, we are still doing better than anyone else.

As I’ve mentioned before, I’ll be starting a new Australian Research Council Laureate project next year, on bounded rationality and financial crises. I’ll also continue working on climate change, and may touch on the issue as it relates to the Basin. But, apart from that, I think it’s time to declare an end to my work on the Murray. I think the work I put into this problem, along with many other natural and social scientists, led to a better outcome than we might have seen otherwise. And, sometime before too long, I really will take the family on the houseboat trip I’ve been planning since the beginning.

That’s the headline for a piece I published in The National Interest last week. Opening paras

Among the unchallenged verities of U.S. politics, the most universally accepted is that of the crucial strategic and economic significance of oil, and particularly Middle Eastern oil. On the right, the need for oil is seen as justifying an expanded and assertive military posture, as well as the removal of restrictions on domestic drilling. On the left, U.S. foreign-policy is seen through the prism of “War for Oil,” while the specter of Peak Oil threatens to bring the whole system down in ruins.
The prosaic reality is that oil is a commodity much like any other. As with every major commodity, oil markets have some special features that affect supply, demand and prices. But oil is no more special or critical than coal, gas or metals—let alone food.

This piece expands on my earlier argument that the US has no national interest at stake in the Middle East, just a set of mutually inconsistent sectional interests and policy agendas. I don’t talk about climate change explicitly, but we’ll never have a sensible debate about climate change until oil is demystified.

For quite a while, I’ve been arguing that the simultaneous occurrence of sustained depression in most developed countries provides fairly conclusive evidence that both new classical macroeconomics and standard versions of real business cycle theory cannot explain actual macroeconomic outcomes. That argument is directed both against US-based economists like Casey Mulligan and Narayana Kocherlakota, who are trying to explain the US experience in terms of problems specific to the US labor market[1] and to European advocates of austerity who blame the crisis in peripheral European countries on (mostly falsely) alleged government profligacy in those countries.

An immediate implication, drawn out here by Paul Krugman, is that the success or otherwise of the limited stimulus undertaken by the Obama Administration should be assessed by comparison to the performance of other countries, most of which undertook less stimulus, returned to austerity faster, and have experienced correspondingly weaker growth (as some Oz tweeps are pointing out, he might have mentioned Australia, which undertook a big stimulus and avoided recession altogether).

But, as Megan McArdle snarks here, there’s an implication more appealing to Republicans. If Obama can’t be blamed for a global recession, neither can Bush. Although McArdle’s argument isn’t watertight (the US is big enough that US actions have a big effect on the world as a whole), the conclusion is broadly correct. There’s plenty of blame to go around for the Global Financial Crisis and the subsequent depression, and the Bush Administration deserves only a small share. Bush’s main contribution was to introduce unfunded tax cuts at a time when the budget should have been in surplus, thereby reducing the fiscal space available for stimulus when the crisis came. But, given the weakness of the stimulus and the ferocity of the political response, it’s not clear that was a binding constraint in any case.

The primary culprit is market liberal economics, which may be considered both as a set of ideas with its own internal logic and as an expression of the class interests of those who benefit from the finance-dominated form of capitalism that produced the crisis and has prevented any recovery. My book Zombie Economics is a critique of market liberalism considered as an economic theory, showing how market liberalism produced the crisis. Colin Crouch’s Strange Non-Death of NeoLiberalism gives more of the class interpretation, explainign why these discredited ideas remain dominant.

I don’t have much more to say about the systemic corruption of the NSW Labor party than I already said in this post from July, except that I now think Federal intervention is essential. Suspending Eddie Obeid is not nearly enough. Those who allied themselves with him including Tripodi, Roozendaal, Bitar, Arbib and Keneally must all go too. And Labor needs a new Parliamentary leader – John Robertson is too compromised to present a clean face. It will be a long while before Labor is electable at a state level in NSW. But a determined cleanup would help reduce the damage to the national party

Back around 1970, the Labor Party was unelectable because its biggest branches, in NSW and Victoria, were controlled by factional machines of the right and left respectively, who were still refighting the battles of the 1950s Split. The eventual response was Federal intervention to restructure both branches. The intervention was more successful in Victoria than in NSW, but overall the results were good enough to produce a revitalised Labor party. The election of the Whitlam government was one result, as was the strength of the early Hawke ministries, almost any member of which would outperform the great majority of both frontbenches today.

I doubt that an intervention would produce a similar result in NSW today, but the situation is now so dire that it could scarcely make matters worse. It’s hard to imagine a political party with less justification for its continued existence than NSW Labor. It sold out its stated principles with repeated attempts to privatise the electricity industry, then made a botch of the job anyway. It has made itself look stupid with repeated changes of leaders (the only one who tried any resistance to the machine was Nathan Rees, and he was promptly squashed). Its members are enmeshed in every kind of corruption, financial, ethical and sexual, above and beyond the routine corruption of political processes that turned the word “rort” from Sussex Street slang into an Australian byword for sharp practice. Electorally, it’s a disaster area, having gone down to the worst defeat in its modern history, under the sock-puppet leadership of Kristina Keneally. Even though the NSW Libs are, as they always have been, appallingly bad, the O’Farrell government is riding high.

And now, these geniuses have decided that it’s smart politics to make war on the party that’s keeping Federal Labor in office, and with which they will need to deal for the indefinite future if they ever want to pass legislation through the Parliament. Looking at this appalling crew, I can only quote Oliver Cromwell “You have been sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go.”

Update My friends at the Oz take a keen interest in all my thoughts, so I wasn’t too surprised to see this post linked in their “Cut and Paste” section. However, the headline All the Climate Change Authority member would like now is to get rid of the NSW Right seemed both unwieldy and obtuse, in a fish-meets-bicycle kind of way. Why should my (widely shared and longstanding) views on the NSW Labor Right machine be of any more interest by virtue of my membership of the Climate Change Authority? And why should my enthusiasm about the election of the Rudd government (also linked by Cut and Paste) be relevant to either?

The answer, I would imagine, is this post by Sinclair Davidson at Catallaxy who (in a quite strange misreading) took the imprecation “In the name of God, go” to be directed, not at the Sussex Street machine repeatedly criticised in the post, but at the Federal Labor government. Terje Peterson tried to set him straight in comments (thanks, Terje), but I had to spell the point out before he added a correction on Sunday evening, which made the entire post rather pointless. By that time, I imagine, the cutter and paster had already set the story up and gone home, leaving the unfortunate sub-editor to do a salvage job with the headline (not the first time!).

A new sandpit for long side discussions, idees fixes and so on.

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

A while ago, I posted about the supposed capture of the ‘white working class’ by Republicans, pointing out that the term was being used to refer to those with less than college education. On more traditional measures of class, such as income, the Democrats do much better, though still getting only about half the vote.

In response to this post a number of commenters pointed out that the data was not disaggregated by region, and that the South was anomalous. A couple of things I’ve seen recently support this. Here’s Charles Blow, reporting that 90 per cent of white voters in Mississippi supported Romney. Kevin Drum observes that Obama won about 46 percent of the white vote outside the South and 27 percent of the white vote in the South. Here’s a bit more from The Monkey Cage.

It strikes me that the best way to understand the distinctive characteristics of US voting patterns is to to treat “Southern White ” as an ethnicity, like Hispanic. With that classification each of the major parties becomes an coalition between a solid bloc vote from an ethnic minority and around half the votes of the “non-Southern white” ethnic majority, which is more likely to vote on class lines. The question then is which ethnic/class coalition is bigger. As in other countries, voting for the more rightwing party is correlated, though not perfectly with higher incomes and (conditional on income) lower education, and to shift according to broader ideological movements.
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Discuss

One of the jobs I had marked on my calendar for the holiday season was dismantling the second interim report of the Costello Audit Commission, due to be delivered on 30 November. While it’s obviously necessary to respond to these exercises in deception, I can think of plenty of better ways to spend the summer break. Fortunately, Campbell Newman turned out to be even less keen on defending the report than I was on attacking it. The government has announced the report won’t be released after all, so we won’t see anything more from Costello until February. Thanks, Can-Do!

After more than a decade of war in Iraq and Afghanistan, there’s a chance Australia might finally be at peace next Armistice Day. Most combat operations in Afghanistan will cease early next year, and we can hope that the final pullout will take place not too long after that. In my lifetime, Australia has been involved in three long wars, none of which have produced the promised results. In two of them, Iraq and Vietnam, the pretext for war was clearly fraudulent. The overthrow of the Taliban regime, which had sheltered Osama bin Laden, was plausibly justified on grounds of self-defence, but the conduct of the war, and particularly the decision to invade Iraq, ensured that the effort would end in failure, as it has done. The best that can be said about the wars of the last decade is that they have been less costly, at least in Australian lives, than was Vietnam.

What is really striking, looking at the recent past, is how much has been achieved by peaceful means. In our own region, Indonesia has been transformed from a dictatorship (generally seen as representing a long-term military threat) to a stable democracy, which has largely overcome the challenges of terrorism, religious violence, natural disasters, and the attempts of the military to retain its central role in politics and business. With the aid of Australian peacekeepers, East Timor has made a start on a difficult road out of poverty. Elsewhere in the world from Eastern Europe to South America to the Arab world, seemingly durable dictatorships have collapsed or handed over power, mostly without the intervention of foreign governments.

Saying that war should be the last resort sounds like a platitude. But it is among the most important lessons we learn from history. Those who choose war rarely achieve the outcomes they expect and usually bring disaster on themselves as well as others. War in self-defence is sometimes necessary, and there are rare occasions when outside intervention can prevent an immediate human catastrophe. Fighting wars for justice, or democracy, or national honour, or to prevent future wars is a path to ruin.

The crushing losses suffered by Republican culture warriors in the US elections shouldn’t blind us to the fact that from the viewpoint of the 1 per cent, the culture war is just a useful distraction to ensure that those they are exploiting never combine against them. The big issue for them is taxation, and the opening round will be the struggle to keep the Bush tax cuts and the preferential treatment of capital gains. They’ve had an unbroken sequence of wins on these issues ever since California passed Proposition 13 in 1978. But things are finally turning around.

Over the fold, a piece on this topic that should be coming out in The Conversation next week

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Discuss.

Before engaging in another round with Casey Mulligan, I’d like to say that, while I find most of his arguments implausible, I don’t think he’s silly for making them. Given the position he’s trying to defend, these are the best arguments available. And that position is widely shared, not only by economists much more famous than Mulligan but by lots of governments and policymakers. Most mainstream opponents of Keynesianism are committed, one way or another, to the view that persistent high unemployment must be caused by problems in labour markets. But it’s much easier to talk in vague general terms about rigidities and structural imbalances than to present an operational explanation for the sustained high US unemployment of the last four years. Mulligan at least makes the attempt, which is more than most of the New Classical/Chicago/Real Business Cycle school have done, and necessary if there is to be any progress in the debate.

Replying to my criticism of his NY Times column, Mulligan suggests that I should have read his book. Perhaps so, but the column is presented as a critique of Krugman’s book, not a plug for Mulligan’s, and I responded in that light. His latest post mentions a couple of points where he draws on the book, but for the moment I’m going to continue to rely on data published elsewhere.

Mulligan responds to my points in reverse order, which makes sense, because his response to my central point is by far his weakest. The big difficulty for an explanation of post-2008 unemployment based on US welfare policies (unemployment insurance and food stamps) is that many other countries with radically different labor markets and policy responses experienced a big and sustained increase in unemployment at exactly the same time, following the global financial crisis of late 2008. In particular, lots of countries introduced austerity policies involving sharp cuts in the kinds of benefits Mulligan is criticising. Mulligan’s response to this evidence is handwaving. First he says that I haven’t calculated the implied changes in marginal tax rates, although its pretty obvious that most of them will be reductions. Then he resorts to US exceptionalism, saying

Finally, if marginal tax rates were found to be constant in Estonia (the only specific country that Professor Quiggin points to), does that mean that marginal tax rates do not matter in the U.S.? Please let me know so I can notify American economists that Estonia is our ideal laboratory, and notify policymakers that they can safety hike marginal tax rates to 100 percent without noticeable consequences.

That’s pretty startling for someone representing a school of thought which usually treats economic laws as having the same universal applicability as those of physics.

To try and make sense of an argument like Mulligan’s you’d have to start with the financial crisis as a global shock, then claim that, if only governments had sat on their hands, recovery would have been rapid. Instead, the argument would run, governments acted to alleviate the lot of the unemployed and thereby made things worse. That would be a coherent explanation for simultaneous and sustained increases in unemployment – the only difficulty is that it’s directly contrary to the facts.

It’s worth making the distinction here between changes and levels. Lots of European countries have high marginal tax rates and generous unemployment benefits, relative to the US. But, in many of the worst hit countries, benefits have been greatly reduced. By contrast in the US, benefits are very low but at least some have been increased. If, like Mulligan, you want to argue in terms of changes, then Europe should have seen reductions in unemployment (which was previously higher than the US). In reality, there is very little correlation between labor market policies and changes in unemployment. What has mattered has been exposure to the initial financial sector shock and/or subsequent austerity policies, exactly as Keynesian analysis would predict.

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The most striking political development of the last decade or so has been the abandonment, by the political right, of any concern with reality. Mitt Romney ran the most deceitful and dishonest campaign in US political history, vowing not to be deterred by fact-checkers. His partisans, in the US and Australia have made denial of reality an artform. This approach has had some remarkable successes, notably in delaying action against climate change. But there is always the risk that deception will turn into self-deception and the US Presidential election illustrated that, with the emergence of “poll trutherism”, the belief that the polls pointing to Obama’s re-election were skewed in order to encourage Democratic turnout.

Now that poll-based predictions have turned out to be as close to accurate as statistical theory would predict, how will the right react? I can think of three possibilities

(a) Going deeper down the rabbit hole with the idea that the “increase Democratic turnout” strategy ensured that the polls were a self-fulfilling prophecy
(b) Attempting to return to reality on this issue, while maintaining delusional positions on other issues, and maintaining faith in the pundits who led them astray this time round
(c) A serious attempt to shift to a policy discourse based on evidence and analysis rather than talking points in support of positions chosen on a basis of tribal faith

I can’t imagine much progress towards (c). Apart from anything else, most of the existing rightwing commentariat would be unemployable if this were required of them. So far, I haven’t seen much evidence of (a), but it may well be bubbling below the surface. Still, at this point (b) looks most likely.

As regards the outcomes, it’s all positive except for the failure to make significant gains in the House of Reps. Obama wins easily, the Dems gain ground in the Senate despite defending 23 states against the Reps 10, and some big referendum wins on marriage equality and drug law reform. The good thing about the House is that it’s up for re-election in two years time, without the distraction of a Presidential race.

The popular vote is a more complicated story. At this stage it looks as though Obama will win narrowly. But he would win easily among registered voters, more easily among US citizens, more easily again among US adults and overwhelmingly in the world as a whole. The Dems need to make voting rights a core issue from now on.

The Repubs only lost narrowly, but time and demography are against them. Unless they shift ground on some major issues, they look like being a permanent minority. But the attack machine they’ve built up will savage anyone who suggests such changes. Logic says they’ll find a way, but maybe it will take another, bigger, defeat. Let’s hope so.

Particularly in the Senate, the quality of the Democratic caucus is greatly improved – Ben Nelson, Joe Lieberman and others are gone, while the additions include Elizabeth Warren and Tammy Baldwin. A House win in 2014 could see a genuine Democratic majority rather than one relying on Blue Dogs and Dixiecrats as in the past. That would provide a path to passage of genuine reforms.

It would be great if, now that he doesn’t need to go for re-election, Obama returned to the defence of civil liberties he advocated in his 2008 campaign and his inaugural address. Sadly, I’m not holding my breath on this one.

Thanks to everyone who sponsored me and Flavio Menezes for the Noosa Triathlon. I finished in 3:04:55, a personal best. The highlight was finishing in the top half (31/72) of my age-gender category for the run leg, the first time I’ve managed this in any leg of a tri. As regards the 1.5k swim, though, the less said the better. Flavio outdid himself (and me) finishing in 2:50. As you can see from the sidebar we raised $2320 for Heartkids which is really great. Thanks again!

Journalism academic Julie Posetti has just announced a move from the University of Canberra to the University of Wollongong. This represents a small step up in the status hierarchy, but not exactly front-page news. Except of course, at the Oz, where Posetti ranks high on the enemies list, having induced editor Chris Mitchell to issue absurd threats of a defamation action, based on a tweeted report of statements by a former Oz journalist. So, this story gets the full Oz treatment with references to Posetti’s “notoriety” her “ducking of questions” about the possible move (standard practice when you are in negotiation, AFAIK) and “incidents” that have “rocked” the UC journalism school.

This is pathetic, but typical of what happens when you give a third-rate group blog like The Oz the resources that allow it to pose as a national newspaper.

Chicago is about as close to the American heartland as you can get and still be in a major city (the infamous Heartland Institute is located there, for example), but even so, I’d expect a professor at the University of Chicago to be aware that the USA is not the only country in the world. That’s not true, apparently, of Casey Mulligan, who claims that the continued weakness of employment in the US is due to policies introduced in 2008 and 2009, which ” greatly enhanced the help given to the poor and unemployed — from expansion of food-stamp eligibility to enlargement of food-stamp benefits to payment of unemployment bonuses — sharply eroding (and, in some cases, fully eliminating) the incentives for workers to seek and retain jobs, and for employers to create jobs or avoid layoffs.”

Mulligan’s claims about US policy are dubious at best (see over fold), but there’s a much more critical problem with his argument. If US unemployment is caused, not by a demand shock but by the mistaken policies of the Obama Administration, why did unemployment move in the same way, and at the same time, in many different countries? Did Iceland expand its food stamp program? Does Estonia pay unemployment bonuses? Sadly, no. And while many countries adopted Keynesian policies in the immediate aftermath of the Wall Street meltdown, others did not, and most have now switched to the disastrous policy of austerity. An even clearer demonstration is given by the Great Depression, where nearly all governments pursued austerity policies after 1929 (Mark Blyth’s soon-to-appear Austerity: The History of a Dangerous Idea tells the story)>

This isn’t just a problem for Mulligan. The simultaneous occurrence of a sustained increase in unemployment in many countries, with different institutions and policies undermines any explanation of unemployment that works at the national level. That includes all forms of New Classical Economics, in which unemployment arises from labor market “distortions”, as well as Real Business Cycle theories (except if you stretch the idea of a technology shock to the point where “technology” effectively means “aggregate demand”).

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The Noosa Triathlon is coming up on Sunday, and there’s still time to give to Heartkids, the charity I’m supporting. Just click on the picture in the right-hand sidebar. Or, if you’d prefer a different charity, why don’t you give now, and (if you like) post a comment announcing it. Either way, it’s a great chance to help others.