Month: January 2007

Melting the Arctic ice

John Quiggin26 Comments

Suppose that someone proposed using nuclear explosions to melt the Arctic ice cap*, with the aim of opening the Northwest passage and reducing shipping costs, and that this proposal was supported by an analysis showing that world GDP could be permanently increased by 1 per cent, or maybe 3 per cent, as a result.

On the face of it, this seems (to me, anyway) like a crazy idea. Should such a proposal be dismissed out of hand or taken seriously and subjected to benefit-cost analysis or ? And, if we did do a benefit-cost analysis, what would be the result?
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The Great Water Plan

John Quiggin44 Comments

I’ve been reading the PM’s Water Plan announced last week. While the Plan gets the scale of the problem about right, the near-exclusive emphasis on engineering repeats the mistakes of the past on a larger scale.

The big problem is the primary focus on engineering solutions such as lining and piping of channels. No benefit-cost analysis is presented and the aggregate numbers are worrying. The proposal is to spend $6 billion on efficiency improvements that are

aim to achieve efficiency gains of around 25 per cent of total irrigation water use. This programme will generate water savings of over 3,000 GL per year, with over 2,500 GL per year saved in the MDB. Water savings will be shared 50 per cent with irrigators to help meet the challenge of declining water availability, and 50 per cent to address over-allocation and sustain river health.

On the good side, if I read it correctly, the implied return of water to the Murray-Darling Basin is around 1250 GL, which is close to the 1500 GL recommended by the Living Murray program as the minimum needed for sustainability.

But the average cost of $2 million per GL saved ($2000 a megalitre) is very high. While the drought and evidence suggesting a long-term decline in inflows have raised the market price of irrigation water entitlements, it is still below this value in most markets as far as I can observe. Here’s some recent data from the MIA .

By contrast, market purchases of entitlements continue to be treated as a last resort. This is bad policy. Proposed engineering schemes should be tested for cost-effectiveness with a water price set by the value of water to irrigators, as indicated by the price at which they are willing to sell (or buy).
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Weekend reflections

John Quiggin29 Comments

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

False positives

John Quiggin10 Comments

Akismet has started flagging lots of genuine comments as spam. I’m manually despamming when I get time, and will work on a fix when I get some more time – probably not for a week or two, unfortunately. So apologies for the disrupted discussion, brickbats to spammers of all kinds, and hope that normal service will return soon.

Prada, princesses, product placement

John Quiggin27 Comments

I watched The Devil Wears Prada not long ago – as the name implies, it’s not short on product placement, though of course this is part of the fun. The central character, played by Meryl Streep, is the editor of a fashion magazine and the heroine/narrator is hired her assistant. Streep’s character is represented as an impossibly demanding princess – the first illustration of this being an imperious demand for Starbucks coffee, delivered in a paper (or maybe even styrofoam) cup. Even allowing for the needs of product placement, and the curiously high status of this coffee-shop chain in the US, this strikes me as way off the mark. Surely she should be demanding her own personal barista, freshly grinding exotic coffee beans, and delivering the product in brand-name china (compare the gangster-movie financier in Mulholland Drive who spits out the coffee with which his hosts have struggled desperately to please him).

But all this comes to the central contradiction of promoting luxury consumption, discussed here not long ago. On the one hand, we want to read about and watch the luxury products of the rich and famous, and advertisers want to exploit this. On the other hand, if we could all afford to buy it, it wouldn’t be luxury consumption. There are ways around this – for example, Gucci makes its name with impossibly expensive clothes, but makes much of its profits by attaching its brand name, and the associated high markups, to lower-priced products like sunglasses.

Of course, I’m using “luxury” in a special sense here. Refrigerators were once available only to the wealthy, but they are valuable because they are useful. Now they are cheap and widely available (note that other items, like university education are going in the opposite direction), but this isn’t a problem. By contrast, the kind of luxury I’m talking about, represented most clearly by high fashion relies on exclusiveness for its value. In the end, this is a zero-sum game, which probably explains some of the oddities of fashion.

Edited in response to comments