John Quiggin

As Harry Brighouse mentioned at CT, I’m sceptical of the value of artificial “thought experiments” in moral philosophy, without having a fully coherent basis for this scepticism. One thing I don’t like about the term “thought experiment” is the implication that the results of such thought experiments constitute data, and therefore that an ethical theory is more satisfactory if it fits such data than if it does not. The way I’d prefer to approach such problems involves an iterative loop, with repeated stages of (i) consider reasonable general principles (ii) compare to intuitions about specific cases (iii) where appropriate, adjust judgements on specific cases (iv) revise general principles to give a better fit to adjusted intuitions. That is, I don’t think either general principles or specific intuitions are trumps.

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It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. Civilised discussion and no coarse language please.

As we’ve been discussing, my invitation to debate Lord Monckton was withdrawn before I could make a decision on it. But, for those interested, my column in yesterday’s Fin presents my thoughts on Monckton’s key claim: that the scientific literature on climate change is a gigantic fraud, cooked up in the service of a conspiracy to inaugurate a communist world government at Copenhagen.

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The Greens have proposed a carbon tax as an interim measure to begin cutting carbon emissions. Although there are strong reasons to favor an emissions trading scheme over a carbon tax in the long run, I think it’s time to look seriously at this option. Here a few points in no particular order.

* since the price of carbon is initially capped under the CPRS, it’s just like a carbon tax in the short run
* the way to dispel public fear of a new tax is to bring it in. Look at capital gains tax and GST, both the subjects of highly successful election scare campaigns (in 1980 and 1993 resp) and both now uncontroversial.
* the capture of the political right by delusionism is now irreversible, as can be seen from the embrace of the obviously loony Lord Monckton. There’s no chance, now or in the foreseeable future of a deal with these guys. In particular, the version of the CPRS negotiated with Turnbull and briefly supported by the majority of Coalition members is unsalvageable in every respect. There’s no way the deal can be modified enough to get Liberal support now, and on the other hand it’s too much of a dog’s breakfast to take to a double dissolution.
* The Greens will almost certainly regain the balance of power in the Senate after the next election. Much as the government dislikes it, they are going to have to rely primarily on deals with the Greens to get legislation through in future. They might as well start dealing now.

In general terms, the government lost control of the debate with the defeat of the Turnbull compromise ETS last year, and has done nothing to regain it. Turning up with the same discredited compromise in February makes no sense at all. This is a time for firm action, not more delay.

Tristan Ewins has set up a website for the group, Movement for a Democratic Mixed Economy. I’ve contributed an article. Go, read and comment (there, not here).

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

Janet Albrechtsen, who previously endorsed Lord Monckton’s conspiracy theory that the draft Copenhagen agreement were designed to bring in a world government has backed away, admitting that his rants about Hitler Youth and similar make it unsurprising that neither Kevin Rudd nor Tony Abbbott would see him during his Australian tour (I delayed in responding to my invitation, and it was pulled).

Albrechtsen has previously shown more willingness to admit error than the average pundit, and this piece counts in her favour. Still, it’s disappointing to see her continuing to suggest that the utterly unqualified and ludicrously wrong Viscount is “powerful” when he talks about the science. She quotes him confronting an activist, and asking

whether she is aware that there has been no statistically significant change in temperatures for 15 years. No, she is not. Whether she is aware that there has in fact been global cooling in the past nine years? No, she is not. Whether she is aware that there has been virtually no change to the amount of sea ice? No, she does not.

Perhaps the activist does not know these things because none of them are true, at least not in the sense that is implied. For example, as predicted by climate models, the dramatic reduction in Arctic sea ice has not not been mirrored in the Antarctic, so with a little ‘virtual’ fudge Monckton’s claim is, kind of, true. The point about statistical significance may be restated as saying that the variability of temperature about the upward trend is sufficiently great that 15 observations is not quite enough to reject the null hypothesis of no change with 95 per cent confidence (when I did stats, the standard number for a decent-sized sample was 30 observatons, but the trend in temperatures is strong enough that we don’t need so many). And the claim about global cooling is typical cherry picking, now out of date. 2009 was warmer than either 2000 or 2001, but Monckton was presumably using the relatively cool 2008 as his endpoint, or maybe the exceptionally warm El Nino year in 1998 as his starting point.

Albrechtsen is no more qualified than Monckton on these points. But she ought to ask herself whether it makes sense to rely on the statistical judgement of a former political advisor (to climate arch-conspirator Margaret Thatcher no less) whose political judgement is so obviously flaky.

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It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. Civilised discussion and no coarse language please.

Given the Republicans’ success in painting the Democrats as the party of Wall Street, it was inevitable that the Obama Administration would announce some measures aimed at bringing the banking sector under more effective control. But the smart money would have been on a symbolic gesture, such as an ineffectual limit on bankers pay.

The announcement today that banks are to be banned from undertaking proprietary trading operations may have proved the smart money wrong. Certainly the sharp drop on Wall Street suggests that the announcement delivers more than expected for the public, and correspondingly less for the shareholders of big financial institutions.

If it is delivered as described, it would force the reversal of the 2008 move by Goldman Sachs and Morgan Stanley to become bank holding companies, with direct access to support from the Federal Reserve and Federal Deposit Insurance Corporation. More generally, it would be a significant move in the direction of narrow banking, preventing publicly guaranteed banks from engaging in the kind of high risk trading that produced the current financial crisis. As Chris Joye points out, narrow banking has surprisingly broad support among economists.

But will it be carried through? The first problem is the dysfunctional US political process, which prevents just about anything from happening. Obama might be able to wedge the Republicans on this issue, but they will probably find an excuse for voting en bloc against any measure he proposes. Under the current Senate supermajority rules that would be enough to stop any reform.

So, it will probably be necessary to scrap the filibuster and pass legislation with a simple majority. And that’s assuming that Obama can command the support of the numerous Democrats who are beholden to Wall Street, just as the Republicans (hypocritically, given their own position) allege.

Leaving aside the political obstacles to getting legislation passed, there’s the problem of making it effective. Even if banks aren’t allowed to own speculative investment enterprises, they can make big money lending to such operations. Then when things go bad, the failure of one or more big speculators can imperil the system as a whole. That’s what happened in 1998 with LTCM.

What matters here is the political dynamic. If the aim is to get back to business as usual as fast as possible, any reform will be short-lived and ineffectual. On the other hand, if there is a permanent shift in public and political sentiment against an economy dominated by the finance sector, things will work out very differently. Instead of eroding control, the discovery of loopholes will lead to tighter and more systematic regulation ending in a full-scale separation of banking and speculative finance.

One sign for optimism is the progress being made on the related issue of tax havens. Until very recently, moves to control the activities of tax havens were almost entirely ineffectual, at most prompting wealthy tax dodgers (and the banks who hid the money for them) to shift accounts from one jurisdiction to another. But as governments have run short of money and tolerance, the picture has changed. A combination of economic/diplomatic pressure on tax havens and a willingness to make use of whistleblowers within banks has rendered international tax evasion far less viable.

Perhaps this time Wall Street really will be cut down to size. If Obama’s Administration is to recover from its current malaise, he needs to win on this one.

I wrote this for Crikey. It should be appearing there soon, I expect

There’s been a bit of discussion about nuclear power lately, but it tends very much to the abstract. I thought I would look into the question of when, if ever, nuclear power might be a reasonable option for Australia to consider, and how we should go about it.

An obvious starting point is the Switkowski report commissioned by the Howard government, which I’ve uploaded here. There are three main points which allow me to provide an answer to the question, at least for the next decade or so.
(i) In the absence of a substantial carbon price nuclear power is not competitive with coal
(ii) First-of-a-kind (FOAK) nuclear plants are likely to be very expensive (above $80/MWh), not competitive with wind or gas (even with CCS)

The estimate is that ‘settled down’ long run costs could be $40-$65/ MWh, which is competitive with wind and cheaper (for the moment) than other renewables.

Let’s take “settled down” to refer to a design with at least 5 examples completed and operating in developed countries, at least some of them built on greenfield sites (that is, not next to existing nuclear power plants which already have a lot of the necessary infrastructure). It seems clear that these minimal conditions can’t be met before 2025 at the earliest. The US, which has been attempting for a decade to restart its nuclear industries is still at the pilot stage, exploring a number of technologies, and offering to subsidise the construction of three plant designs for each major option. Most of the proposals are on existing sites, only six have reached the point of a plant actually being ordered, and none is anywhere near starting construction. Given a sharp acceleration in progress, the emergence of a highly successful design and a lot of new orders towards the end of this decade, the 2025 date might just be reached.

That suggests that Australia should forget about nuclear power entirely for at least the next five years. If things are going well for nuclear, and not so well for renewables, that would be the time to start setting up regulatory structures, looking for sites and so on.

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My column from Thursday’s Fin, with a not so subtle plug for my book.

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Over the fold, the conclusion of my book, with Release Candidate title “Zombie Economics: How Dead Ideas Still Walk Among Us”. I plan a proper post on the whole bookblogging experience, but until then, I’ll thank everyone who’s commented, or just read this exercise with interest and make one (maybe) last request for help. Can anyone recommend a book on Thatcher’s economic reforms that would be a good suggestion for further reading? I’m currently suggesting Anderew Glyn’s Capitalism Unleashed, but I’d like to add something from a centrist or Thatcherite perspective, as long as it’s readable and not too objectionable for words.

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If you thought the East Anglia email hack was overblown, how about today’s Oz. Frontpage lead[1] is a story that’s been rattling round the blogs for at least a couple of months, without attracting any real interest. The story is that the 2007 IPCC report quotes a poorly sourced estimate that most Himalayan glaciers could be gone by 2035. This is a bit worse than the evidence suggests. Himalayan glaciers have lost about 20 per cent of their area in about 40 years, and have also become more fragmented. That’s bad, but not quite as bad as the IPCC report, based on a speculative forecast suggests.

So, there is a mistake on one page of a 3000 page report. That’s unfortunate but scarcely surprising. But, if you want real silliness about glaciers, you have to go to the other side of the road and look at this (widely repeated) howler from David Bellamy, derived originally from Fred Singer. The Oz ran Bellamy’s (totally false) claim of persecution for his devotion to the delusionist cause (he was washed up long before he changed sides), but did not AFAIK cover this embarrassing episode,

Every new talking point that emerges from the delusionist camp gives further emphasis to the fact that these are people who have sacrificed both their own intellectual integrity and the future of the planet in the pursuit of a tribal vendetta.

Update Commenter James notes that, with much less apparent fanfare, the Oz published a report derived from Associated Press that concluded that there was nothing in the hacked East Anglia emails that undermined the mainstream consensus on global warming.

fn1. At least in the edition I saw. It’s almost invisible on the website now.

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

Since Europe-US comparisons are in the air again, it seems like a good time to report on the first year of my bet with Bryan Caplan, the terms of which are

The stake is $US100 and the agreed criterion is that, for Bryan to win, the average Eurostat harmonised unemployment rate for the EU-15 over the period 2009-18 inclusive should exceed that for the US by at least 1.5 percentage points

The relevant figures are at Eurostat and, with December still to come in, I estimate that the EU-15 rate will be 0.3 percentage points below that for the US for 2009, so that I beat the spread by 1.8 percentage points.
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It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. Civilised discussion and no coarse language please.

I sent off the draft MS of my Zombie Economics book to the publisher last week, but there is still time for improvement. Over the fold is the second, and final part of the privatization chapter.

You can read most of the book (not always the final draft) at my wikidot site.

As always, comments and criticism much appreciated.

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The Haiti earthquake looks to be one of the worst natural disasters in recent years. Lots of aid agencies will be involved in rescue and recovery efforts, but I’ll mention PLAN International which has been active in Haiti for a long time.

Remember also that, while earthquakes and tsunamis rivet our attention, hunger and disease are cutting lives short every day. Give what you can, whenever you can, to help.

I’ve just received an invitation from the Brisbane Institute to participate in a debate with Ian Plimer and Lord Monckton. Having seen Plimer’s Lateline performance, I can’t imagine that this exercise will add much to the sum of human knowledge. OTOH, the event will go ahead regardless. Any thoughts?

Clarification I should say straight off that I have no intention of attempt to debate climate science. Although I’m probably better qualified to discuss the key issues (many of which involve statistics) than either Plimer or Monckton, that’ s not saying much. In any case, discussing these issues in a debate format with dishonest antagonists is pointless, as has been shown many times.

So, the only way to approach it is to address the underlying conspiracy theory directly. If Monckton and Plimer are right, all the major scientific bodies in the world are engaged in a conspiracy to introduce communist world government by (drumroll!) auctioning tradeable carbon emissions permits. The question is, can I convince an audience sympathetic to delusionism that this is a really silly thing to believe?

Update Without advising me that my invitation had been withdrawn, the Institute made another invitation, to Barry Brook, who accepted. So, the decision has been made for me. I did, however, think about the approach I might take if I accepted.

I planned to elaborate Monckton’s conspiracy theory, announce myself as part of the global conspiracy, and conclude by pointing to Margaret Thatcher (Monckton’s former employer) as the originator of the whole thing (she has a great 1990 speech putting forward the case for urgent action based on the precautionary principle). At the end I would have played it straight for a minute or so, asking the audience whether they want to believe this black helicopter nonsense or the alternative that the scientists have it right. Would this have worked? We’ll never know.

Regardless, I certainly hope that Barry Brook and Graham Readfearn (the Courier-Mail environment blogger who will also appear on the pro-science side) stick it to Monckton and Plimer for their political axe-grinding, long track record of lies, and general nuttiness, rather than giving this deplorable event any credibility.

It’s (past) time, once again for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

The efficient (financial) markets hypothesis still has plenty of defenders, though their arguments are looking rather ragged at present. Coincidentally, it’s ten years since the merger of Time Warner and AOL, the biggest and most disastrous in history. If any single event symbolises the failure of the EMH, it’s this merger, driven by the ludicrous valuations of the dotcom era. As I commented at the time

If the accounting numbers are taken at face value, AOL Time Warner will have a price-earnings ratio of about 350 to 1, modest by Internet standards. When options are taken into account, the ratio is more like 1000 to 1. It is difficult to see how an economy in which investment decisions are based on numbers like these can avoid some sort of financial catastrophe

Hot/cold on the heels of Iceland’s quasi-default, the Roger Lowenstein in the NY Times urges underwater/negative equity homeowners to “Walk Away From Your Mortgage!”. . Lowenstein’s key point is that businesses (including those owned or controlled by the banks themselves) treat default as a straightforward business decision, to be adopted whenever it is profitable to do so. Lowenstein gives a number of examples where leading banks like (inevitably) Goldman Sachs have engaged in strategic default and urges his readers to do likewise. The piece is in a section headed “The Way We Live Now” and it’s striking that it’s taken more than 100 years for the business ethics of Augustus Melmotte to percolate through to the American middle class

To be fair, it’s only in the last thirty years or so that such ethics have become dominant in the corporate sector, to the point where a board that rejected profitable opportunities to stiff their creditors would now be regarded as having violated its fiduciary obligations to shareholders (particularly if the creditors are workers). And despite all the talk about shareholder value, a CEO who passed up opportunities for personal enrichment at the expense of shareholders would be regarded by his or her fellows as a mug.

Millions have defaulted already – (one in eight mortgages is currently in arrears). Bankruptcy is once again as common as divorce. When defaulting on debt is this common, it is hard to sustain any sort of social stigma or internalised notion that this is anything other than a financial option, like refinancing an existing loan. And, as with divorce, we must soon be reaching the point where most people who take out loans will do so in the knowledge that default is an option.

The question is – can the consumer credit system survive this? Probably it can, but the system will need some radical changes. It’s worked for several decades on the basis of creditworthiness criteria that work on the assumption that (nearly) everyone will repay their debts if they can. Until recently, the checks could also rely on the assumption that people would be more-or-less honest in the information they provided in their applications. The financial system, by promoting ‘liar loans’ colluded in the destruction of the second assumption, and by leading the way in strategic default, helped to destroy the first.

The problem for lenders now is that they will increasingly have to act on the assumption that their borrowers (including those who appear creditworthy on the old standards) are planning, at a minimum, to use default as an insurance option. The only good way to protect against this is to demand lots of secure collateral. That means less liberal credit (and, given higher default rates, higher interest rates) for everyone and no credit at all for lots of us.

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. Civilised discussion and no coarse language please.

Talking of books, it’s been nearly a month since it was announced that Volume 3 of Keith Windschuttle’s fabrications would be released “next week”. Such vaporous promises are typical of KW, but I would have thought that if a book was promised for next week it would have already been printed. Could it be that, with his lead story about Rabbit Proof Fence totally demolished, Keith has decided to pulp the book and try again?

Update Commenter Charlie, who obviously has a stronger stomach than I do, visited the Quadrant website, and found an extract and cover art for the book, with publication details as follows: The Fabrication of Aboriginal History, Volume Three, The Stolen Generations 1881–2008, Macleay Press, $59.95, 656 pages, published in December 2009. But MacLeay Press itself has nothing.

Update While I’m on the topic, the latest outpouring from American Enterprise Institute Fellow Charles Murray as he complains about the number of black and brown faces on the streets of Paris has drawn attention to his past as a youthful cross-burner. In between his KKK wannabe youth and his current channelling of Pauline Hanson, Murray wrote a bunch of books, such as The Bell Curve and Losing Ground, which put a scholarly gloss on the same ugly stuff, and were therefore treated with more respect than they deserve.

Since he has already commented in defence of Windschuttle, I expect Jack Strocchi will have something to say here and I’m going to let him. However, that’s the end. From this post on, any comment from Strocchi touching on the issues of race, ethnicity, religion or immigration, directly or indirectly, will be deleted and repetition will be cause for an immediate and permanent ban. No correspondence will be entered into, and any attempt to dispute the policy in comments (here or elsewhere) will trigger the same ban. Strocchi is, however, welcome to continue commenting on other topics.

Further update The book has now appeared (11/1/09). I guess Windy was just trying to put some time between the Rabbit Proof Fence debacle and the release. Interestingly, he’s still promising Vol 2 and Vol 4.

I just sent a draft manuscript of my Zombie Economics book off to the publisher at Princeton UP. It’s pretty much in beta stage now.The aim is to have it come out in the Fall List.

Thanks heaps for all the praise and criticism. The praise has kept me motivated, and the criticism has been at least as valuable.

I’ve got some more sections of the privatisation chapter and the afterword to post here for comments, and I’m now going to circulate the draft in the older version of the same process. I’m also updating the draft at wikidot (lagging a little on this).

The financial crisis has, justifiably, enhanced the reputation of Karl Marx as an economic thinker. Marx was the first economist to treat crises and panics as an inherent feature of capitalism rather than as an inexplicable, but fortunately temporary, departures from a natural equilibrium.

Unfortunately, most of his analytical effort, and even more, that of the school of thought that followed him, was devoted to pointless exercises in value theory[1]. Marx’s theory of crisis rested mainly on the idea of the falling rate of profit which seemed at the time to be both a theoretical inevitability and an observable trend. But with technological progress, there’s no necessity for the rate of profit to fall consistently, and it hasn’t. There are other ideas in Marx that might be developed to yield a better theory of crisis, but if this has been done, I haven’t seen it.

And, in the current crisis, Marxian economics seems to be pretty much Missing in Action. I haven’t seen much and what I have seen hasn’t added anything, in analytical terms, to the standard left-Keynesian analysis. Perhaps the problem is that just about everyone expects capitalism, in one form or another, to survive this crisis, contrary to the orthodox Marxist view where crises become ever more severe and eventually precipitate the revolutionary overthorw of the entire system. But it’s equally possible that I haven’t been looking in the right places. Can anyone recommend a good Marxian analysis of the current crisis?

fn1. If I get time, I’ll write a longer post on this point. In short, the idea underlying debates about value theory was that since the sale proceeds of production are divided between the owners of inputs to production (labour, capital, and land in the C19 division) there must exist some natural way of determining the share of the value of output for which each group is responsible. This is essentially an idea about average values, since averages added across a group are equal to the total for that group. But, as the neoclassical revolution of the 1870s showed, prices are determined by marginal costs and marginal rates of substitution and these don’t equal averages. Subsequent attempts to rescue a substantive role for value theory as opposed to price theory by Marxians, Austrians and Sraffians, not to mention the marginal productivity ethics of JB Clark and others, have gone nowhere.

Over at what was the Austrian economists blog, Peter Boettke announces a change of name, saying

As an experiment, over the past six months we have been tracking the use of the term Austrian economics in the news and in the blogosphere. Less systematically, we have also been listening carefully to the use of the term among fellow professional economists and what they think the label means. The results do not fit our intention. Google alert, for example, inevitably points to financial advice or libertarian politics, rarely to the research paradigm of F. A. Hayek, never to the scholarship of Israel Kirzner. Mises is often mentioned, but Mises the ideological symbol, not Mises the analytical economist. The “Austrian” theory of the business cycle is mentioned, but only in relationship to anti-fed politics and hard money advocacy, and never as an ongoing research program among professional economists.

These trends are not recent, but have been constant throughout our respective careers. We have always been among those who attempted to offer resistance to this use of the term. It has become evident to us that our efforts have been futile. Rather than resist the pure ideological identification, we are choosing to devote our efforts elsewhere. The name Austrian economics has been lost as a focal point for a tradition of economic scholarship, and is now a focal point for something else. We have to let it go.

This is pretty much the view I expressed here

although the Austrian School was at the forefront of business cycle theory in the 1920s, it hasn’t developed in any positive way since then. The central idea of the credit cycle is an important one, particularly as it applies to the business cycle in the presence of a largely unregulated financial system. But the Austrians balked at the interventionist implications of their own position, and failed to engage seriously with Keynesian ideas.

The result (like orthodox Marxism) is a research program that was active and progressive a century or so ago but has now become an ossified dogma. Like all such dogmatic orthodoxies, it provides believers with the illusion of a complete explanation but cease to respond in a progressive way to empirical violations of its predictions or to theoretical objections.

Meanwhile, Rafe Champion points to this post suggesting that market liberals (the author prefers “classical liberals”) should abandon the use of the term “capitalism”.

It seems pretty clear that these developments are related to the global financial crisis. The adoption as a badge of pride by Forbes magazine and others of the previously pejorative term “capitalism” was one of the most extreme manifestations of market liberal triumphalism in the 1990s. But, in the wake of the crisis, “capitalism” is a much more problematic term. It works well enough as a generic term covering all advanced economies in which private capital plays a leading role, but one that is, as we have seen, ultimately dependent on government action for sustainability. We can then say that the relatively unregulated, finance-dominated form of capitalism that has held sway for the last 30 years is being supplanted by a different form in which the role of government as ultimate risk manager is more direct and obvious. But this has little rhetorical value for market liberals.

The story with Austrian economics is more complex. On the one hand, the crisis has increased the appeal of Austrian views of the business cycle, relative to other rightwing views like New Classical macro and Real Business Cycle theory. On the other hand, the label has been increasingly associated with gold bugs, critics of fractional reserve banking, neo-Confederates and general fringeness.

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

I’m on the final chapter of my long-promised Zombie Economics, dealing with ideas refuted by the Global Financial Crisis. My target this time is privatisation – more precisely, the idea that privatisation will always yield an improvement over public ownership, and, therefore that market liberalism is an advance on the mixed economy that developed in the during the post-1945 long boom.

As always, comments, criticism and suggestions much appreciated.

Updated In response to comments, I’ve added a bit more material on the 1970s and the background to privatisation.

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For me the big change that came with the last decade was blogging. I started in 2002, and it’s been a big part of my life (sometimes too big) ever since. So, when it came to review the decade, the obvious place to look was the Wayback Machine, which captured my old blogspot blog on 27 July 2002. Looking at the blog as it was then, two things jump out at me

* Looking at the blogroll, I feel like the last of the Mohicans. The bloggers of those days have nearly all retired, and almost no-one runs a solo blog like this one anymore.

* I’m singing the same song now as I was all those years ago. The top post on the page is about how the financial crisis has discredited the efficient markets hypothesis, trickle down economics, privatisation and so on. Of course that was the dotcom financial crisis of 2000-01. I think a few more people are paying attention this time around, but we will have to wait and see.