John Quiggin

Not long after the election, I perceived the signs of an emerging semi-formal coalition between the LNP and One Nation. Less than three months later, here’s Jeff Kennett, generally seen as a relative moderate in the Victorian Liberal Party, endorsing the idea.

To repeat what I said then, I remain convinced that this will prove a path to disaster for the LNP in the long run. One Nation is already repeating the history of meltdowns we saw in its first big run, and making clear that it stands for nothing beyond incoherent gesture politics. That’s true of rightwing identity politics in general, which is why I think it can’t last. It can, however, do plenty of damage in the meantime.

I’m working on my long running book project Economics in Two Lessons, and I dug out this old post, originally written in 2008, which remains strikingly relevant today.
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A colleague recently sent me a paper on the economics of open borders, by John Kennan, which I hadn’t known of before, though it came out in 2013.
Kennan’s conclusion is striking

Liberal immigration policies are politically unpopular. To a large extent, this is because the beneficiaries of these policies are not allowed to vote. It is also true, however, that the enormous benefits associated with open borders have not received much attention in the economics literature.20 Economists are generally enthusiastic about free trade. But if free movement of goods is important, then surely free movement of people is even more important.
One conclusion of this paper is that open borders could yield huge welfare gains: more than $10,000 a year for a randomly selected worker from a less-developed country (including non-migrants). Another is that these gains are associated with a relatively small reduction in the real wage in developed countries, and even this effect disappears as the capital–labor ratio adjusts over time; indeed if immigration restrictions are relaxed gradually, allowing time for investment in physical capital to keep pace, there is no implied reduction in real wages.

So, is Kennan right about the benefits of open borders? And if so, is there a way of transferring some of those benefits to already-resident wage earners who would otherwise lose, or at least not gain, from expanded migration?
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That’s the title of my latest piece in The Guardian. It’s a response to the Productivity Commission’s report on competition in human services. I wrote a submission in response to the draft report a while back, but it had no impact, and neither did any other evidence.. If anything, the final report is slightly worse than the draft.

My final para

Rather than close on a negative tone, I’ll make one suggestion for contestability. Private sector consulting firms have demonstrated a long-standing expertise in producing impressive looking reports to support the (predetermined) conclusion required by the client.

Given the predictability of the Productivity Commission’s conclusions on topics like this, private firms would have no difficulty in replicating them. Surely this is a service that could do with being opened up to the chill winds of competition.

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Here’s another excerpt from my book-in-progress, Economics in Two Lessons. Rather than work sequentially, I’m jumping between:

Lesson 1: Market prices reflect and determine opportunity costs faced by consumers and producers.
and
Lesson 2: Market prices don’t reflect all the opportunity costs we face as a society.

In the section over the fold, I’m looking at monopoly and regulation. Next up, public ownership.

As usual, praise is welcome, useful criticism even more so. You can find a draft of the opening sections here.

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Regular readers will know that I’m not a great fan of analysis based on generations (Boomers, X, Millennials and so on). Most of what passes for insight on this topic consists of the repetition of unchanged cliches about the rigidity and hypocrisy of the old, the laziness and irresponsibility of the young, and so on, applied to whichever cohort happens to be old or young at the time.

But there are some genuine differences between cohorts, typically determine by the time they have entered adulthood. One of these is religion.
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Peter Dutton’s attempts to promote an “uprising” in support of Christmas, and against “political correctness gone mad” are un-Australian in all sorts of ways, but most obviously in the stunning cultural cringe they reflect. He’s borrowed the catchphrase of a British tabloid in an attempt to import a US culture war campaign that has been going on so long it’s a Christmas tradition in itself (I observed that it was old stuff, back in 2004). This guy is the best the Trumpist faction of the LNP/ON can come up with?

The Grauniad has just resurrected Newcomb’s problem. I have a slightly special interest since the problem was popularized by one of my betes noires, Robert Nozick. So, in asserting that there’s a trivial solution, I have something of a bias.
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A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

While working on my long-forthcoming book, Economics in Two Lessons, I came across an interesting article by Edwin Dolan published (with commendably openness to criticism) in the Quarterly Journal of Austrian Economics. The conclusion

On a theoretical level, Austrian writers delight in claiming the moral high ground, condemning polluters as aggressors against property rights. On a practical level, however, they leave pollution victims in the lurch. They invite them to sue, but propose a set of legal standards that would guarantee that polluters would always win. They oppose all government measures to reduce pollution, whether through regulation or through measures to make polluters pay. As a result, at least in cases of environmental mass torts, the Austrian paradigm is a polluter’s dream and a victim’s nightmare. It offers far too little of any practical value toward securing property rights, too little toward facilitating environmental coordination, and too little toward promoting libertarian justice. Much work remains to be done.

The site outage that has kept the blog off air for several days has now been resolved, so here’s a once-off Thursday Message Board, for comments on any topic. Civil discussion and no coarse language, please.

When the SA Royal Commission on the Nuclear Fuel Cycle brought down its report, I welcomed the conclusion that there was no serious prospect that nuclear power generation would be feasible in Australia. That was unsurprising, since my own submission to the Commission had shown this pretty clearly. As regards the Commission’s recommendation for a waste dump, I argued that there could be no objection in principle, given that SA was an exporter of uranium and the waste had already been generated.

That left open the question of whether the waste dump proposal made economic sense. I’ve now looked at the case in more detail and concluded that it doesn’t. Countries with existing nuclear power industries have made arrangements that may not be satisfactory, but are unlikely to change. There is little prospect of any significant growth in the future. So, building a nuclear waste dump in the hope of attracting demand makes about as much sense as the actions of the protagonist in the movie Field of Dreams, who ploughed up his cornfield to make a baseball diamond for the ghosts of disgraced players.

I make the argument in more detail in this piece in New Matilda. Right on cue, Vietnam, which was one of the hypothetical users of the dump, decided that it would be better to dump nuclear power as uneconomic. Expect more announcements along these lines as the economics of renewable energy improve.

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

There’s plenty of bad news around these days, and that’s true of climate policy as of many other things. Turnbull (or Abbott, pulling Turnbull’s strings) has already imposed massive cuts in climate science research in Australia and it seems certain that Trump will do the same in the US.

Happily, it looks as if they have come too late to do real damage. The fact of climate change is now well established. Cutting research will impose all kinds of costs, but it’s not going to change the conclusions of science. Of course, the right will reject inconvenient science as they have done for decades, but more of less research won’t change that.

The big news is that the problem has turned out to be much easier to solve than anyone thought. We’ve long known that, to have a 50-50 chance of limiting warming to 2 degrees C, emissions should peak in 2015, and decline at an annual rate of at least 2.2 per cent thereafter. Hardly anyone thought a peak could happen before 2020 at the earliest, and this would imply a decline so steep (4.6 per cent per year) as to be just about impossible.

It now seems pretty clear, however, that fossil fuel emissions did in fact peak, or at least flatten out in 2015, and have remained stable through 2016.

Of course, stabilization is not enough. Is it possible for emissions to decline at the required rate. We can look at an identity

e = g – t – r

where e is the rate of growth of emissions, g is the rate of growth of output, t is the annual technological improvement in energy efficiency (the ratio of energy use to output, and r is the reduction in emissions per unit of energy, due to renewables).

Currently, these are just about in balance. But installations of renewables (and therefore r) are growing rapidly, while g is declining in the developed world, and probably also in China. It follows that we can expect e to become negative in the near future.

Policy matters, and it is important that the Paris Agreement should go ahead, with or without Trump and Turnbull. But the goals to which governments are willing to commit depend on what they think they can credibly promise. So, the fact that stabilizing the global climate looks to be feasible within the current economic framework is really good news.

UPDATE: A couple of commenters have questioned the math above. So, let’s spell it out. Let
E = Emissions (tonnes CO2)
G = Gross World Product (constant $)
J = Energy used (joules)
T (for technology) = G/J ($/joules)
R (for reduction) = J/E (joules/tonne CO2)

Then
E = G / (T*R)
Taking logs

log (E) = log (G) – log (T) – log (R)

Differentiating with respect to time

e = g – t – r

as stated.

Anyone wishing to debate this further should do so in the Sandpit

The one policy issue that was an unambiguous loser for Clinton was trade[^1]. Her grudging move to oppose the Trans-Pacific Partnership, choice of Tim Kaine as running mate and some unhelpful remarks from Bill Clinton meant that Trump had all the running. How should we think about trade policy after Trump? My starting point will be the assumption that, in a world where Trump can be President of the US, there’s no point in being overly constrained by calculations of political realism.

A few points and some suggestions

* So-called “trade” deals like the TPP were actually devices to enhance corporate power (and, in the case of the TPP, to isolate China), and deserved to be defeated regardless of views on trade

* No matter what policy is adopted, manufacturing jobs aren’t coming back, any more than farm policy can restore an agrarian society. The manufacturing share of total employment has peaked nearly everywhere in the world, notably including Mexico. As is often the case, Chinese data is too opaque to get a clear picture, but there’s plenty of evidence of contraction about

* The idea of manufacturing jobs as “good” jobs is historically specific particularly to the US, and reflects the fact that the dominance of manufacturing coincided with the New Deal and the unionisation of the labour force. It’s unions, not manufacturing that we need to bring back.

* The big problem facing workers, in the US and elsewhere, isn’t competition from immigrants, or from imported goods. It’s the fact that capital is freely mobile and unfettered by any social obligation. So, a profitable plant can be closed down if its owners get a better off elsewhere. Alternatively, the threat of a move can be used to bargain down wages.

So, instead of thinking about tariffs and trade agreements, the big question is: what can be done to change trade and capital flows in ways that yield more good jobs?

Some suggestions over the page

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My election commentary in Inside Story is about

The dog that didn’t bark … the (assumed) majority of “decent Republicans” to whom Clinton sought to appeal. Although most observers (including me) assumed that many of them would turn against Trump, hardly any did so

Peace now, more than ever.

So said Adam Smith a couple of centuries ago, and he will, I hope, be proved right, in the US, and elsewhere in the world. Trump and the Republican majority in Congress and (imminently) in the Supreme Court will, in all probability, repeal Obamacare, restore and expand the Bush tax cuts for the rich, stop action on climate change, overturn Roe v Wade, expand deportation and more.

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At CT and just about everywhere else, there’s been lots of discussion about who is voting for Trump and why. This began during the Republican primaries, when it made sense to ask “what kind of Republican would prefer Trump to Bush, Cruz etc?”.

This kind of discussion continued through the general election, even though the answer is now staring us in the face. Trump is getting overwhelming support from self-described Republicans and Republican-leaning independents, and almost none from Democrats and Democrat-leaning independents. The same was true for Romney four years ago, and for McCain and Bush before him.

This is well known, but few people seem to have drawn the obvious conclusion*. With marginal changes (I’ll discuss these below), the people who are voting for Trump now voted for Romney four years ago, and for Bush before that.
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In thinking about how the global economy can be decarbonized, I’ve focused on the electricity sector, and particularly the elimination of coal-fired electricity generation. In the transport sector, I’ve pushed for fuel efficiency standards, but have generally assumed that internal combustion cars are going to be around for a long time to come. That’s consistent with Australian experience where annual sales of electric vehicles are counted in the hundreds, and with the US, where cheap petrol has held electrics to a market share of a couple of percentage points.

So, I was quite surprised to find out that lots of European countries, including Germany, Norway and the Netherlands, are talking about ending sales of petrol driven vehicles in the near future (2025 or 2030), with diesel possibly being banned even earlier.

Obviously, achieving these goals will require some pretty strong policy encouragement, including subsidies and planned provision of infrastructure, and targets are easier to announce than to hit. Still, it looks as if eliminating internal combustion engine cars is not a distant dream but a feasible policy goal.
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While doing a bit of work on electricity policy, I dug out this piece from 2001, which was published as ‘Market-Oriented Reform in the Australian Electricity Industry’ in The Economic and Labour Relations Review, June 2001; vol. 12, 1: pp. 126-150. The conclusion, written at a time when supporters of electricity reform were trumpeting it as a huge success, stands up pretty well 15 years later, I think.

Some problems, however, are likely to become more rather than less acute. The Australian National Electricity Market commenced operation in a period of oversupply so that problems of market power and excessive prices have not emerged until recently. It remains unclear whether an electricity auction market can produce adequate incentives for investment while generating appropriate prices for consumers.

Similar problems are emerging in relation to the regulated monopoly component of the industry, the transmission and distribution sector. Regulators must set prices that do not reward inefficiency or allow monopoly profits, but nevertheless provide appropriate incentives for new investment. This is a delicate balance.

In the longer term, the problem of the environmental impact of an industry relying predominantly on carbon-based fuels remains to be addressed. A market solution would involve the creation of emissions credits that could be traded along with electricity in national markets. Although limited steps have been taken in this direction, much remains to be done.

There are reports that the ABC’s Catalyst science program is to be dumped, and replaced by a series of specially commissioned 1-hour documentaries. The move has reportedly been prompted by the disastrous broadcasts of Maryann Demasi, on the supposed dangers of statins and wifi. I have mixed feelings about this. Catalyst has serious problems, going beyond Demasi, but the alternative sounds like it will require a lot of money to do well. I fear that “specially commissioned” will turn out to mean “recycled from Discovery Channel” and that we will end up with lots of variants on “Shark week”

More generally, it’s depressing to reflect on the near-total failure of television as a communications medium for science. The demands of the medium (flashy visuals, and continuous sound) overwhelm what ought to be its potential. Discovery Channel is a joke that makes Catalyst at its worst look good. Even the great David Attenborough is now presented inaudibly, drowned out by the monotone background noise of Sigur Ros. Overall, radio is better, and text better still.

A while back, I made the case that the political crisis evident in most developed countries could be explained in terms of a “three-party system” in which the political forces were divided between tribalism, neoliberalism and a somewhat inchoate left. This replaced a neoliberal consensus in which power alternated between hard/right neoliberals (in the US context, the Republican party), relying on the political support of tribalists, and soft neoliberals (in the US context, centrist Democrats) relying on the left to support them as a lesser evil. The first stage of this breakdown has been the capitulation of hard neoliberals to the tribalist right. The most obvious instance is Donald Trump, but the same thing is happening in Australia with Pauline Hanson, in England with UKIP/Brexit and in many European countries as well.

That this is happening is now obvious. What should the left do about it? It’s obviously insufficient to make the point that Trump, or Hanson, or Farage is a racist (or uses racism for political benefit) and expect that to settle the question. That doesn’t mean that we should maintain the long-standing taboo on using the word “racist” to describe such people. Rather, we should start developing a proper analysis of political racism and strategies to oppose racism and tribalism.

The problem we face today is new in important respects. The civil rights and anti-apartheid movements were was a struggle against overtly racist racist state structures. The success of those movements did not end racism, but drove it underground, allowing neoliberals to exploit racist and tribalist political support while pursuing the interests of wealth and capital, at the expense of the (disproportionately non-white) poor.

That coalition has now been replaced by one in which the tribalists and racists are dominant. For the moment at least, ahrdneoliberals continue to support the parties they formerly controlled, with the result that the balance of political forces between the right and the opposing coalition of soft neoliberals and the left has not changed significantly. However, unlike the Civil Rights era, where racists had a clear agenda of defending the status quo, the new politics of the right is driven more by a general expression of resentment (or, if you want to be fancy, ressentiment) than by coherent policy objectives.

I have some ideas about what kinds of strategies and arguments are needed here, but I thought I’d post this first, and wait to see what others have to say.

I’ve just done an interview with Channel 10, about cost blowouts on the infrastructure projects supposedly funded by Mike Baird’s asset sales program. I made the point that such blowouts are more likely when projects are funded from special pots of money rather that avoid normal processes of budget assessment.

More tiresomely, I repeated a point that I have been making for 20 years, and that (as far as I know) every economist in Australia agrees with. Selling income generating assets does not provide any additional capacity to invest in non-income earning assets such as (untolled) roads, schools and hospitals Exactly this point was made by the Secretary of the NSW Treasury in relation to PPPs back in the 1990s (I’ll dig out a link).

Despite this nonsense idea being refuted over and over again, it continues to be believed by politicians of both parties and to get a free ride from our economically illiterate press, most notably (since it ought to do better) the Financial Review.

I’ve given up hoping that this will change. Fortunately, privatisation is so politically toxic that justice is usually served in the end.

A few weeks ago, I gave the FH Gruen lecture, on the topic After reform: the economic policy agenda in the 21st century. Thanks to sound editor Simon Kravis, I now have a version of the podcast with improved audio quality, but unfortunately the part of my tribute to Fred that was drowned out by a hailstorm is permanently lost.

So, I thought I would try to write something like what I said, with a few (I hope) improvements. Here it is:

It’s great honour to be invited to give the FH Gruen Lecture.

Fred was very much a role model for me, and while I will never be able to emulate his effortless personal style, I have done my best to follow his lead in my approach to economics. He saw economic theory as a tool, and only part of what economics should be: what really matters is the application of theory to improve policy.

In a small country like Australia, it’s necessary for economists to take part in public discussion and public debate. The older generation of academic economists, exemplified by Fred, did this, and I’ve tried to maintain this approach.

Like me, Fred began his career as an agricultural economist, and I’ve always thought this was some of the best training for an economist. But Fred’s contributions weren’t limited to agriculture. He ranged across a wide range of policy issues. He always brought to bear both a keen economic insight and a commitment to the use of economic policy to improve the lives of ordinary Australians.

He greatly encouraged me, and many of my generation of economists who worked with him in the Economics Department of the Research School of Social Sciences at ANU.

I am very proud to be able to give a lecture in his honour.

According to today’s news, the government has estimated that for-profit vocational trainers are three times as expensive as TAFE. That’s no surprise to me, but it’s a striking contrast with the barely qualified enthusiasm (until very recently) of the Productivity Commission.

I’ve put in a submission to the PC inquiry into Competition in Human Services arguing that
(i) there’s no reason to expect that competition will deliver improved “consumer” (that is, student) choice or better outcomes
(ii) the failure of the PC to foresee, or recognise until much too late, the disastrous failure of for-profit vocational education means that its judgements about areas that might be opened to competition in future should not be relied on.

My submission is here

A long-running theme of this blog has been the disaster of the Great War, and the moral culpability of all those who brought it about and continued it. It’s fair to say, I think, that the majority of commenters have disagreed with me and that many of those commenters have invoked some form of historical relativism, based on the idea that we shouldn’t judge the rulers (or for that matter the public) of 1914 on the same criteria we would apply to Bush, Blair and their supporters.

It’s fascinating therefore to read Henry Reynolds’ latest book, Unnecessary Wars about Australia’s participation in the Boer War, and realise that the arguments for and against going to war then were virtually the same as they are now. The same point is made by Newton in Hell-Bent: Australia’s leap into the Great War (recommended in comments a while ago by James Sinnamon. He shows how, far from loyally following Britain into a regrettably necessary war, leading members of the Australian political and military class pushed hard for war. In Newtown’s telling, the eagerness of pro-war Dominion governments helped to tip the scales in the British public debate and in the divided Liberal candidate. I don’t have the expertise to assess this, but there’s no escaping the echoes of the push towards the Iraq war in 2002 and early 2003, when this blog was just starting out.

The case against war was fully developed and strongly argued in the years before 1914, just as the case against slavery was developed and argued in the US before 1861. Those who were on the wrong side can’t be excused on the grounds that they were people of their time.

The only defence that can be made is that those who were eager for war in 1914 had not experienced the disaster of the Great War and its consequences. The failure of today;s war advocates to learn from this disaster makes their position that much worse. But the same is true of anyone defending the warmakers of 1914 on any grounds other than that of their ignorance.

Looking at the Abbott-Hanson government that is now taking shape behind the nominal leadership of Malcolm Turnbull, the dominant theme is one of pointless resistance to inevitable change.

The most striking instance of this is the plebiscite on equal marriage, dreamed up by Abbott as a way of dodging the issue of a Parliamentary vote. At this point, it is obvious that the whole thing is just an expensive and painful exercise in delaying the inevitable. Equal marriage is law throughout the English-speaking world, and is rapidly becoming so everywhere, as well as being supported by a majority of Australians. Even if the opponents could somehow carry the day in a plebiscite, the position couldn’t be sustained for long. And of course the Abbott group know this. As soon as Turnbull was locked into the plebiscite they started loading it up with everything they could to ensure it would never happen. Even from the most cynical viewpoint, this seems silly to me. They are going to lose in the end, and when they do, they will be wailing about freedom of conscience for cake-makers and so on. If they agreed to a Parliamentary vote now, they could make it a condition for Turnbull to include such clauses and reject any amendment. But in three years time, or whenever a parliamentary majority emerges, there will be no reason to appease people who have shown themselves to be bigots.

Then there’s climate change. Everywhere else in the world, things are moving fast. Country after country is abandoning coal, and the share of renewables is rising rapidly. Even England is generating more power from solar PV than from coal. But Australia is going backwards. Having dropped any idea of turning Direct Action into an emissions intensity scheme, Turnbull and Frydenberg have joined the science denialists at the Oz in a campaign against renewable energy. At least they have signed on to the agreement to phase out HFCs, an agreement driven by, among others, the US, Canada, China and Brazil (the EU has already legislated an early phaseout). It’s good that the government has agreed to do the minimum required for developed countries under this deal, but takes some chutzpah to say, as Frydenberg does that this makes Australia a world leader.

The only remaining item about which the government seems to care is Abbott’s vendetta against the unions, settling scores dating back to the 1980s.

Abbott and Hanson and are almost exact contemporaries of mine (as is Turnbull, though he scarcely seems to have any active role). But politically it seems to me that they have chained themselves to ways of thinking that were ossified even in John Howard’s generation.