John Quiggin

The Australia Institute has a report out making the point that the growth in the administrative and marketing costs of electricity companies, following the reforms of the 1990s, has added more to electricity prices than has the carbon price.

Also, the Centre for Policy Development has a nice piece on solar PV coming out soon. Look for it.

Finally, here’s a piece I wrote for the The Economic and Labour Relations Review in 2001. Conclusion over the fold. I think it stacks up pretty well, certainly compared to the gushing praise for reform that was commonplace at the time.

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I appeared at a Senate inquiry into the Minerals Resource Rent Tax yesterday. Given the virtual certainty that the tax will be abolished after the election, I tried to focus on the future. Here’s my opening statement

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

Thinking about Anzac Day, with the inevitable mixed emotions, I was struck by the resemblance of the Anzac legend to that of the Charge of the Light Brigade in the Crimean War – the same incredible bravery of ordinary men commanded by bungling leaders to undertake a doomed and futile mission.

There’s another, even more tragic, echo here. Both the Crimean War and the Gallipoli campaign arose from the same cause – the decline of the Ottoman Empire, and the struggle over its partition. But in the Crimean War, the British and French were on the side of the Turks against the Russians. In the Great War, the imperial alliances had shifted, and the Russians formed part of the Triple Entente, while the Turks were on the side of the Germans.

Whatever the justice of the Allied cause in the Great War as a whole, the war with Turkey was nothing more than a struggle between rival imperialisms. The British and French governments signed secret treaties with each other, and with the Russian Czar, promising to divide the spoils of victory. At the same time, they made incompatible promises of independence for the Arabs and of a homeland in Palestine for the Jews.

There are no consolations to be had here. The Great War did not protect our freedom, or that of the world. Rather, it gave rise to the horrors of Nazism and Bolshevism, and, within Turkey, to the Armenian genocide. The carve-up of the Ottoman empire created the modern Middle East, haunted even a century later by bloodshed and misery.

As we reflect on the sacrifices made by those who went to war nearly 100 years ago, we should also remember, and condemn, the crimes of those, on all sides, who made and carried on that war.

Lest we forget.

Back in the 1980s, there was a constant stream of international delegations to Wellington, seeking to learn from the “New Zealand miracle”, in which a group of radical free-market reformers turned around a sclerotic welfare state. While the results had yet to show themselves, everyone was confident that NZ would soon surpass Australia, where the political system threw up many more obstacles to reform. Everyone knows how that turned out. After 100 years of economic parity, NZ GDP per person has fallen to around 60 per cent of the Australian level. The gap closed a little when NZ abandoned radical reform (from the first MMP election to the end of the Clark Labor government) but is now widening again.

And, just in the last week, the intellectual foundations of austerity polices have been cut away with the discovery that the influential paper of Reinhart and Rogoff, predicting disaster when public debt levels exceed 90 per cent of GDP, was based on a coding error (not to mention some dubious statistical choices). That follows the demolition of the even more influential work of Alesina, Ardagna and other co-authors, some of which I criticised in Zombie Economics

Against this background, it’s truly bizarre to see the Australian right (IPA, CIS and Tony Abbott) presenting New Zealand as a model, on the basis that the budget has been returned to surplus. Apparently, it doesn’t matter that the economic outcomes have been consistently appalling, as long as the ideology is right.

I have a simple suggestion which I hope will appeal to everyone. Since the new NZ government came in, deluded Kiwis have been voting with their feet in large numbers. The resulting imbalance could be addressed if the CIS, IPA, Parliamentary Liberal Party and their keenest supporters moved across the Tasman to try out the marvels of free-market reform for themselves.

With the exception of an unnameable region bordering on the Eastern Mediterranean, posts on diet and exercise seem to promote more bitter disputes than any others. So, in the spirit of adventure, I’m going to step away from my usual program of soft and fluffy topics like the bubbliness of bitcoins, the uselessness of navies and the agnotology of climate denial, and tackle the thorny question of running vs walking.

Happily, and unlike, say climate science, this is a question on which you can find a reputable scientific study to support just about any position you care to name, and even some that appear to support both sides, so I’m just going to pick the ones I like, draw the conclusions I want, and invite you all to have it out in the comments thread. I’m also going to attempt the classic move of representing the opposing positions as extremes, relative to which I occupy the sensible centre.

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There’s an important new report out from the Grattan Institute, which has received a fair bit of press (some of it rather off-point) for its prediction that, under current policies, Australian governments will need to find an additional 4 per cent of GDP (about $60 billion a year) over the next decade if they are going to meet new expenditure needs for health and education services and maintain a prudent fiscal surplus.

The options aren’t explored in much detail, but it seems clear that expenditure cuts (particularly the usual suspects like duplication and waste, “middle class welfare” and so on) won’t be enough, so more tax effort will be needed. The top priorities ought to be tightening up the income tax system and increasing income tax rates at the top. If that’s not enough, the next option (tough, but maybe necessary) is an increase in the rate of GST.

I’ll try to post in more detail soon, but I think Grattan gets the story right on most points, and their analysis will certainly help anyone who wants to take a serious look at Australain fiscal policy

At Crooked Timber, Henry Farrell points out that it is now exactly a decade (24 times 5 months) since Charles Krauthammer told us that

Hans Blix had five months to find weapons. He found nothing. We’ve had five weeks. Come back to me in five months. If we haven’t found any, we will have a credibility problem.

Despite being utterly and repeatedly wrong about Iraq, and many other things, Krauthammer is now, as he was then, a prominent columnist at the Washington Post.

What about our own Krauthammers? The leading candidate is surely Andrew Bolt, and a search through the archives[1] finds him denouncing the Left saying, triumphantly “they were wrong”. Those attacked include Carmen Lawrence, Bob Brown, Robert Manne, Andrew Vincent and Paul Dibb. Here’s a typical example of Bolt’s vitriol

NO one tried harder to save Saddam than Greens leader Bob Brown, a notorious scaremonger, who claimed more than 100,000 Iraqi children would die in this war. He also quoted from a leaked UN report which predicted 900,000 refugees. In fact, hardly one Iraqi refugee has fled in four weeks.

Of course, Brown was right[2].

Bolt is pretty big on demands for retractions. So, has he ever apologized for this appalling, and utterly wrong, attack on the reputations of those who correctly predicted the disastrous outcomes of the Iraq war?

fn1. The News archive doesn’t seem to go back 10 years, so I’ve been using the Factiva database. Google found Bolt’s spray reproduced on the Free Republic (I haven’t heard anything of the Freepers for years, but apparently they are still going). I’d welcome any help with data sources, and also any suggestions for more absurd wrongness from 10 years ago. If there are enough good links, I might make this a regular feature

fn2. From the days of the Iraq debate, I can just imagine someone quibbling about Brown’s reference to “children” and demanding a source that specifies the ages of those who died as a result of this tragedy. Such quibbles, and their authors, will be treated with the contempt they deserve.

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

According to a report in the Courier-Mail, Queensland Treasurer Tim Nicholls has just announced the sale of seven government buildings in the Brisbane CBD. This transaction has all the dodgy features we’ve come to expect from Queensland asset sales

* The buyers are “assorted funds managed by the [state-owned] Queensland Investment Corporation”. So, as often seems to be the case, we are selling assets to ourselves

* Nicholls says “the sale proceeds will be used to reduce state debt. The government will also save about $130 million in interest payments.” Of course, this is double counting – the whole point of reducing debt is to save interest payments. But what does the $130 million mean? It’s about 24 per cent of the sale price, so I’d guess it refers to savings of 6 per cent a year over the four years usual in forward estimates. But that’s a very short-term way of looking at transactions that will affect the public for decades to come

* The buildings will be rented back on set leases with fixed rent increases. So, we’ll also be renting them back from ourselves. Costs will mount over time, but the big increases will doubtless be outside the forward estimates. So, there might be net saving for the next few years, but there will be losses after that.

And of course, as Shadow Treasurer Curtis Pitt points out, selling assets without a mandate was exactly what this government (elected because of Labor’s mandate-free asset sales) promised not to do.

This Saturday, I’ll be at the Blackheath Philosophy Forum in the Blue Mountains, talking about the economic feasibility of social democracy.

That’s the title of my latest piece at The National Interest. The blurb sums it up pretty well. Under the efficient-markets hypothesis, a worthless digital currency should have never gotten off the ground.

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

As has been true since 2010, our aspiring leaders seem to be determined to outdo each other in silliness this week. Since Julia Gillard will (with 90 per cent probability) be nothing more than a bad memory in a year’s time, while Tony Abbott will be an unavoidable reality, I’m going to ignore Gillard’s “Rob Peter to Pay Paul” aprroach to funding Gonski and talk about the National Broadband Network.

The Abbott-Turnbull proposal for a cutprice NBN has been an amazing success in clarifying issues that previously seemed too complex to be resolved. Until now, it’s been far from obvious how to assess the NBN – the complaint that we didn’t have a benefit cost analysis was obviously silly in the absence of any easy way of quantifying the benefits. But now that we’ve seen the alternative – a 25MBps network, dependent on Telstra’s failing copper network and non-existent goodwill, it’s obvious that the NBN is the only option that gives us any hope of keeping up with the steady growth in demand for information. The claim that individual subscribers can choose to upgrade to fibre-to-the-premises appears to have collapsed in the face of expert scrutiny. Instead, it seems, we’ll end up with lots of street-corner boxes, which will have to be ripped out and replaced wholesale when their inadequacy becomes apparent.

Given that he is going to win the coming election anyway, Abbott could greatly improve his chances of re-election in 2016 by admitting his mistake and going with the existing NBN plan, maybe with some cosmetic tweaks. As a bonus, from Abbott’s POV, Turnbull would have to eat a lot of humble pie.

The same is true for the other slogans on which he’s relied so far, like “Stop the Boats’ and “Axe the Tax”. Thanks to Labor’s implosion, he can afford to dump them now, and replace them with something more realistic – there’s no shame in changing policies before an election.

I don’t expect Abbott to take this unsolicited advice, but he could look at the cautionary lesson provided by Bligh, Gillard and NSW Labor among others, and consider carefully whether it’s better to take a few lumps now, or gain office on the basis of commitments that will prove a millstone, whether they are abandoned or adhered to.

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* I know, this quote attributed to Thomas J Watson is apocryphal, as is a similar one attributed to Bill Gates, but lots of similar statements have been made in reality, and they’ve all proved to be silly. For example, I can remember people saying in the early 80s that 8-bit address space of 64k (a double octet) were all we would ever need. Many more people said, well into the 1990s, that graphical interfaces were an unnecessary luxury and that personal computers would always start with a C:\> prompt.

Responding to my observation that Andrew Bolt’s estimate of the impact of the carbon tax/price on global warming was out by a couple of orders of magnitude (he calculated the impact for one year, not that over the decades for which the policy is supposed to operate), Quadrant contributor John Dawson jumped into the fray and pronounced himself satisfied with Bolt’s arithmetic (H/T Terje Petersen). Dawson’s piece is too confused for a link but confusing enough that Terje couldn’t see where he ran into error. Rather than try to clean up this arithmetic mess, I’ll step back to something much simpler – the inability of Dawson, and his mentor Keith Windschuttle, to count to three.

Long-term readers will recall that, back in 2002, Windschuttle made quite a splash with The Fabrication of Aboriginal History, Volume One, Van Diemen’s Land, 1803-1847, which attempted a revisionist account of the tragic history of the Tasmanian Aborigines. He didn’t achieve much except to point out some sloppy footnoting in a fairly obscure recent history[1]. The main interest in the book was as an appetiser for the succeeding volumes, on Queensland and Western Australia, promised to appear on an annual schedule. Here, Windschuttle promised to refute the work of Henry Reynolds and others, who painted the frontier as a scene of prolonged violent warfare between the indigenous inhabitants and the white settlers who sought, successfully in the end, to displace and subdue them.

Year followed year, and promise followed promise, but Volumes 2 and 3 didn’t appear. Finally, in 2009, Volume 3 was published. Not only was there no Volume 2, but the new Volume 3 bore no resemblance to the book originally promised for 2004. Instead, it was a critique of the Stolen Generations report and the film Rabbit Proof Fence. Windschuttle said that this volume had been published “out of order”, and that the missing volumes 2 and 4 would appear “later”.

Even by Windschuttle’s standards, this is bizarre. The Stolen Generations debate refers almost entirely to the 20th century, so this volume, on his reasoning ought to come after the others.

It’s truly bizarre to see self-satisfied climate “sceptics” who can’t even calculate a standard error, but have convinced themselves they are smarter than professional scientists. Stranger still to see someone like Bolt, who’s incapable of basic arithmetic, treated as an expert by his readers. But surely even the editor of a literary magazine ought to be able to count to three.

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There’s already plenty of commentary, here and elsewhere on Margaret Thatcher. Rather than add to it, I’d like to compare the situation when she assumed the leadership of the Conservative Party with the one we face now. As Corey Robin points out at Crooked Timber

In the early 1970s, Tory MP Edward Heath was facing high unemployment and massive trade union unrest. Despite having come into office on a vague promise to contest some elements of the postwar Keynesian consensus, he was forced to reverse course. Instead of austerity, he pumped money into the economy via increases in pensions and benefits and tax cuts. That shift in policy came to be called the “U-Turn.”

Crucially, Heath was defeated mainly as a result of strikes by the coal miners union.[1]

From the viewpoint of conservatives, the postwar Keynesian/social democratic consensus had failed, producing chronic stagflation, but the system could not be changed because of the entrenched power of the trade unions, and particularly the National Union of Miners. In addition, the established structures of the state such as the civil service and the BBC were saturated with social democratic thinking.[2]

Thatcher reversed all of these conditions, smashing the miners union and greatly weakening the movement in general, and promoting and implementing market liberal ideology as a response to the (actual and perceived) failures of social democracy. Her policies accelerated the decline of the manufacturing sector, and its replacement by an economy reliant mainly on the financial sector, exploiting the international role of the City of London.

Our current situation seems to me to be a mirror image of 1975. Once again the dominant ideology has led to economic crisis (now about 4 years old), but attempts to break away from it (such as the initial swing to Keynesian stimulus) have been rolled back in favour of even more vigorous pursuit of the policies that created the crisis. The financial sector now plays the role of the miners’ union (as seen in Thatcherite mythology) as the unelected and unaccountable power that prevents any positive change.

Is our own version of Thatcher waiting somewhere in the wings to take on the banks and mount an ideological counter-offensive against market liberalism? If so, it’s not obvious to me, but then, there wasn’t much in Thatcher’s pre-1975 career that would have led anyone to predict the character of her Prime Ministership.

fn1. I was too far from the scene to be able to assess the rights and wrongs of these strikes or the failed strike of the early 1980. It’s obvious that the final outcome was disastrous both for coal miners and for British workers in general, but not that there was a better alternative on offer at the time.

fn2. The popular series, Yes Minister, was essentially a full-length elaboration of this belief, informed by public choice theory

As you can see I’m back. The weekend is nearly over, but there’s still time for another weekend reflections, which makes space for longer than usual comments on any topic. Side discussions to sandpits, please.

… for the announcement that the Commonwealth government is spending $20 million to support the production in Australia of a Disney film of the Jules Verne novel 20000 Leagues Under the Sea. I was interviewed by Gary Maddox who wrote an opinion piece supporting the subsidy, but mentioning my opposition.

For dogmatic free-market advocates, there’s not much need to explain why the subsidy is a bad idea – it follows from the general claim that all subsidies are bad, and for the real dogmatists, that any kind of government expenditure is bad. But I’m happy to support subsidies to film production under some circumstances so I need to explain my position a bit further, and the Maddox piece provides a handy foil

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I’ve been on holidays over Easter, and am now going completely offgrid for the rest of the week. So, no posting. Commenters, please observe extra courtesy while I’m away.