Author Archive

Green jobs

August 17th, 2015 13 comments

The question of “green jobs” has arisen in a lot of different contexts. At present, the most relevant is the problem of how to deal with the employment effects of the necessary and inevitable decline of industries based on fossil fuels. Part of this question is whether expanding sectors of the economy will create a number of new jobs comparable to those that disappear , and whether those jobs will be appropriate for the kinds of workers who worked, or would have, in the declining sector (that is, predominantly, male manual and trades workers). There are a lot of conceptual problems here, which I’m not going to address in detail. Rather, I’ll just look at some raw numbers and throw in some comments.

I was struck recently to read that, in the United States, the solar power industry now employs 174 000 people. That’s twice as many as coal mining. And, while these aren’t direct substitutes, they are, it would appear, broadly similar kinds of industries in the sense that the core workforce is dominated by male manual and trades workers.

Looking quickly at similar stats for Australia, I found that the numbers were reversed. According to the ABS, there were just under 40 000 Australians employed in the coal mining industry in May 2015, down from a peak of 60 000 in 2012, but well above the 20 000 or so employed in the early 2000s.

The Clean Energy Council estimates around 20 000 jobs in the renewables sector in 2014 – that’s up from virtually zero before 2010. So, broadly speaking growth in renewables has offset the decline in coal mining.

One specific issue in the US, that’s less of a problem here, at least in Queensland, is that of declining communities in places like Appalachia. Thanks to the practice of Fly-in Fly-Out, there are many fewer Australian communities focused on coal mining.

Finally, some related statistics I found in the process of researching this. The forestry and logging industries currently employ 3900 people (this number bounces about a lot, so I’m not sure how reliable it is). That’s about the same as the combined total for the NSW and Victorian National Parks systems. I expect if you added in various kinds of manual/trades jobs in adventure tourism and similar, you would find a net gain over the past 25 years or so.

Categories: Economic policy, Environment Tags:

Monday Message Board

August 17th, 2015 16 comments

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.

Categories: Regular Features Tags:

Are natural disasters economic disasters ?

August 14th, 2015 14 comments

Yes. This has been the latest in our series “Short Answers to Misconceived Questions”.

Actually, there’s a longer answer over the fold, another extract from my book-in-progress Economics in Two Lessons. You can find a draft of the opening sections here.

This extract is a subsection of Part 2, in which I explore the implications of Lesson 1:
Market prices reflect and determine opportunity costs faced by consumers and producers.
The conclusion is

if the damage bill measures the cost of restoring assets to their pre-disaster condition, it is also equal to the opportunity cost of the disaster, namely the goods and services that would otherwise have been produced.

I’ll be interested to see whether readers’ reaction is “That’s obvious” or “That’s obviously wrong”, assuming of course that you have any reaction at all. As always, civil comments of all kinds are welcome, particularly constructive criticism.

Read more…

Categories: Economics in Two Lessons Tags:

Solar PV (now with grid backup)

August 13th, 2015 60 comments

Following my previous post there was some discussion about the need for grid backup of solar PV to deal with extended periods of overcast weather. It’s obvious that storage will help with this to some extent, since batteries can store electricity from the grid as well as from distributed solar. I thought I would try to put some numbers on this (slightly changed from last time to simplify the numbers).

I’ll focus on 1 kW of solar PV generating an average of 4.8 kWh per day, with (as before) 2 kWh of storage. If there is zero solar generation and no demand management, the entire 4.8 kWh per day must be drawn from the grid. In the absence of storage, we might suppose that 1kW of backup capacity is needed to match the peak output of the solar PV system. But with storage, all that is needed is enough to supply 4.8 kWh over the course of a 24-hour day, that is, 0.2 kW.

The optimal backup choice is a fully dispatchable technology such as hydro or gas. Hydro resources are pretty much fixed, so I’ll focus on gas. According to the US Energy Information Agency, the capital cost of gas-fired power plants is around $1000/kw so our grid backup will have a capital of cost only $200 for each kW of distributed solar. There’s also the need to take account of fuel and distribution costs. Fuel costs will be low since the system is only used as backup, while distribution costs will be around 20 per cent of what would be need if peak loads were to be met by centralised generation.

To sum up, if battery storage becomes available at a sufficiently low price, there’s no obvious problem with a system in which over 80 per cent of capacity, and an even larger proportion of generation is distributed solar PV.

Categories: Environment Tags:

EROEI (batteries now included)

August 12th, 2015 50 comments

As I showed in a recent post, a typical solar cell will generate at least 10 times the electricity used to produce it, and probably substantially more. This Energy Return on Energy Invested (EROEI) calculation didn’t take account of battery storage, which is needed to make solar PV comparable to dispatchable technologies like gas.

For this purpose, I’ll assume that each kilowatt of PV capacity requires 2 kilowatts of battery storage. The reasoning behind this is that we get an average 5kWh/day from the PV system, of which 3kWh is used during the day and 2kWh is stored.

According to this life-cycle assessment, a 26.6 kWh battery has a life-cycle cost of 4.6 tonnes of CO2, which comes out to around 0.4 tonnes for the 2kWh system proposed here. Assuming that the system displaces black coal, which conveniently yields about 1 tonne of CO2 per mWh, we have a cost of 400 kWh, which is only a few months worth of generation from a 1 kW system.

This seems amazingly good, so I may have made an order of magnitude mistake somewhere. If so, I’d be grateful to have it pointed out. If not, I think we can put the EROEI constraint to bed, at least as regards solar PV.

Categories: Environment Tags:


August 12th, 2015 78 comments

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

Categories: Regular Features Tags:

Midweek Message Board

August 12th, 2015 10 comments

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

Categories: Regular Features Tags:

Score one for the planet

August 6th, 2015 81 comments

Several pieces of news in quick succession, have made in clear that the nightmare prospect of six mega-coal mines in the Galilee Basin has been staved off, at least for the foreseeable future. The key to the whole process is the Carmichael mine proposed by Indian conglomerate Adani. The rail line and port expansion proposed by Adani is necessary if any of the other mines are to proceed. Now the goods news

* Having already sacked its contractors, Adani is laying off most of its own staff, their non-denial denial notwithstanding. The break with Korean Steel company POSCO is particularly notable since POSCO was a likely equity investor and could have brought in debt funding from the Korean Export-Import bank
* The Federal Court overturned Minister Hunt’s approval of the project. While the grounds were technical, the decision raises the possibility that the whole process will need to be reassessed in the light of the adverse information that
* The Commonwealth Bank, the last likely source of debt finance for the project has ended its role as advisor

The remaining question is why, with no mine remotely in prospect, the Queensland government is still calling for expressions of interest in dredging for the proposed Abbot Point expansion. Hopefully, they have just been going through the motions. But, with the latest news, it’s time to stop throwing public money at this mirage. The tender process should be halted, at least until, and unless, the project is re-approved.

Categories: Environment Tags:

The generation game and the 1 per cent

August 6th, 2015 50 comments

For a generation (fifteen years) or more I’ve been writing and rewriting the same piece about the silliness of the “generation game”, the idea that one’s year of birth matters more than class, gender or race in determining life outcomes and attitudes. But this is a zombie idea that can never be killed.

Stephen Rattner in the New York Times is the latest example, with a piece showing that US Millennials (those born after 1980) are doing much worse than previous generations at the same age, despite higher levels of education. Rattner notes the role of the recession, now nearly a decade old, but then jumps to the conclusion that it is the Baby Boomers, as a group, who are to blame. His only evidence for this is the long-discredited claim of a looming crisis in Social Security.

Rattner doesn’t present any evidence about the recent experience of non-Millennials, but his piece leaves the impression that the experience of doing worse than older cohorts at the same age is uniquely Millennial. So I thought I’d do his work for him, and dug out this graph prepared by Doug Short HouseholdIncomeByAge As can be seen, the group suffering the biggest loss, relative to older cohorts at the same age, are those households with heads aged 45-54 in 2013, a mix of late Boomers (for aficianados, this group is called Generation Jones) and early X-ers. But the main point is that median household income is falling for all groups except the 65+ cohort (mostly called Silents in the generation game). Part of this is due to declining household size, but (IIRC) household size has stabilized recently as forming a new household has become less affordable.

Rattner doesn’t mention, even once, the obvious and well-known explanation for the fact that median income is falling while mean income rises. This can only occur if the distribution of income is becoming more skewed, with the top tail (the 1 per cent) benefiting at the expense of everyone else.

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August 4th, 2015 35 comments

Among critics of renewable energy, one key idea is that of Energy Returned On Energy Invested (EROEI). The central idea can be illustrated by the case of ethanol produced from corn in the US. It’s argued by critics that the production of ethanol from corn uses more fossil fuel inputs than it displaces. The US Department of Agriculture has an EROEI slightly greater than 1, but it’s still clear that corn ethanol is not going to do much to solve the carbon dioxide problem.

Now lets look at the case of solar PV. The energy-intensive component of a solar PV module is the polysilicon used to produce the wafer, which is produced using an electric furnace. Clearly, if more electricity is used in this process than is generated by cell, EROEI < 1, and the idea does not work. We can do a rough check by observing that a typical wafer uses 5 grams/watt of polysilicon. The cost of polysilicon is $20/kg. To be conservative let's assume this is all electricity, at a cost of 5c/Kwh. Then a quick calculation shows that each watt of PV requires 2 KWh of electricity in production or about 1 year's generation in a favorable location. So, for a panel with a 10-year lifetime, the EROEI is 10. Clearly not much of a problem. The estimate omits the energy costs of the rest of the module, but that's almost certainly more than offset by the conservative assumptions about polysilicon.

Some EROEI fans don't like this calculation. They want to include all sorts of other costs, going as far as the food energy used by the workers who instal the panel. At this point, the exercise becomes one of trying to price all economic activity in terms of energy, an idea that has been tried without success for decades. For everything except energy-intensive activities like smelting, energy costs are a small part of the total, and imputing such costs to any particular energy source is a fools errand.

Categories: Economics - General, Environment Tags:

No regrets

August 4th, 2015 6 comments

Another quick reaction piece, this time on Obama’s climate policy, for The Conversation. My key observation is that, despite its ambitious goals, Obama’s policy is still in the “no regrets” class. That is, the domestic benefits for the US, disregarding climate effects, outweigh the costs. More over the fold

Read more…

Categories: Environment Tags:

How our Senate (and not the US Senate) blocked the TPP

August 4th, 2015 17 comments

Following the breakdown of talks on the Trans Pacific Partnership last week, I did a quick reaction piece for Inside Story, making the point that our much-maligned Senate was the most important source of resistance to the demands for yet more protection for US pharmaceuticals, demands that make a mockery of both the claim that the TPP is a “free trade agreement” and the “diffusion of knowledge” rationale for the patent system.

Is an emissions trading scheme a carbon tax?

August 4th, 2015 23 comments

I was recently asked this question by ABC Fact Check. Here’s my answer:

The core idea of an ETS is to limit the volume of emissions (of carbon dioxide) by creating a set of permits that must be used by emitters. The permits may initially be auctioned or given away. Since the permits are tradeable a market price will be determined by the demand for permits and the willingness of permit holders to sell their permits. By contrast, a carbon tax sets a price on carbon emissions and allows the market to determine the volume of emissions.

There are a large variety of schemes that resemble the ETS in general structure. Within the environmental area, both the Renewable Energy Target and the government’s Emissions Reduction Fund (if augmented with a baseline allocation and penalty structure) fall into this class. Other examples include taxi licenses, electronic spectrum auctions, and tradeable catch quotas in fisheries. None of these policies is normally described as a tax.

CCS: A fiction that has outlived its usefulness

August 2nd, 2015 41 comments

With only a handful of pilot projects in operation around the world, Carbon Capture and Storage (CCS) has not played a significant role in reducing carbon dioxide emissions. CCS has, however, been valuable as a fiction for all those who want, for whatever reason, to avoid dealing explicitly with the fact that stabilizing the global climate will require ending the use of fossil fuels, and particularly coal. For example, rather than prohibiting new coal-fired power stations, the US EPA has proposed that only power stations equipped with CCS technology should be permitted. Since new coal stations are mostly uneconomic even without CCS, this amounts to a ban, but can be justified simply as requiring best practice.

It now appears that this fiction has outlived its usefulness. Recent reports suggest that the EPA will drop the CCS requirement in favour of the weaker requirement that all new coal-fired stations should use supercritical combustion. There are two main reasons for this

(a) The requirement might not stand up to legal challenge on the basis that CCS is not a feasible technology
(b) No new coal plants are likely to be built anyway

Meanwhile, the EU is struggling over proposals to stop subsidies for coal-fired power. Again, the compromise was to subsidise only projects with CCS. But the coal lobby is now arguing that

proposed requirements on carbon capture and storage (CCS) to neutralise emissions have to be realistic as the technology is still in its infancy.

In this context, “realistic” means supercritical and therefore theoretically ready for CCS, as opposed to actually using the technology.

Combine this with a string of cuts in funding for CCS projects, and the conclusion is inescapable. CCS is an ex-parrot.

Categories: Economics - General, Environment Tags:

The socialist objective

July 31st, 2015 55 comments

There’s a push within the ALP to remove the party’s long-standing socialist objective, which states

The Australian Labor Party is a democratic socialist party and has the objective of the democratic socialisation of industry, production, distribution and exchange, to the extent necessary to eliminate exploitation and other anti-social features in these fields.

Then follows a long list of commitments, notably including
(i) the restoration and maintenance of full employment;
(j) the abolition of poverty, and the achievement of greater equality in the distribution of income, wealth and opportunity; and
(k) social justice and equality for individuals, the family and all social units, and the elimination of exploitation in the home

I’m ambivalent about this, both as as regards substance and timing. When I started this blog, I made the decision to describe myself as a social democrat rather than a democratic socialist. In 2006, I gave the following explanation, in a comment

I prefer “social democratic” because it clearly refers to the set of policies implemented and advocated by social democrats in the second half of the 20th century, including a mixed economy, an active welfare state, government responsibility for full employment and so on.

By contrast, socialism is less well defined. It can mean comprehensive public ownership, which I don’t support, or it can be just a general statement of values and aspirations, consistent with social democracy.

So, if the change was simply to replace “democratic socialist” with “social democratic”, and to give a description of goals consistent with that, I’d have no problem. But let’s look at the text proposed by NSW Labor Leader Luke Foley[1]

The Australian Labor Party has as its objective the achievement of a just and equitable society where every person has the opportunity to realise their potential.

“We believe in an active role for government, and the operation of competitive markets, in order to create opportunities for all Australians, so that every person will have the freedom to pursue their wellbeing, in co-operation with their fellow citizens, free from exploitation and discrimination”.

Foley’s further comments make no reference to full employment, equality, poverty or any other social democratic concerns. He goes on to say

We understand that competitive markets are best placed to deliver the economic growth that the people we represent rely on.

We also know that regulation and redistribution are necessary to correct market failures, to ensure dignity and opportunity for all Australians.

Is there anything here that Tony Abbott, or even Joe Hockey, could disagree with?

Read more…

Categories: Oz Politics Tags:

Demography and irreligion

July 31st, 2015 11 comments

A few months ago, I was a bit surprised to read a report put out by the Pew Research Center predicting that the proportion of the world population without a religious affiliation would decline sharply by 2050. The basic argument sounds plausible: an increase in the unaffiliated proportion of the population within countries will be more than offset by faster population growth in countries with higher rates of affiliation. The main points are presented in a peer-reviewed article in the journal Demographic Research, which suggests the analysis should be solid.

Still, I thought I would dig a bit, and found a longer version of the report here, including the projection that Christians would decline from 78.3 per cent of the US population in 2010 to 66.4 per cent in 2050. That seemed like a very slow rate of change, so I did some amateur demography of my own. I found another Pew report, released almost at the same time, which focused on the beliefs of Millennials (those born from 1981 onwards). This report showed that less than 60 per cent of Millennials currently report a Christian religious affiliation, compared to around 70 per cent of X-ers (born 1965 onwards) and much higher levels for older cohorts.
Read more…

Categories: Life in General Tags:

Back to the Deutschmark

July 28th, 2015 86 comments

The debt crisis has upended lots of my assumptions about European politics, so it’s perhaps not surprising that I find myself agreeing with just about everything in this piece from The Telegraph by Mehreen Khan, advocating a German exit from the euro. Less surprisingly, I also agree in general with this NY Times article by Shahin Vallee, who also concludes that the (virtually inevitable) breakup of the euro would be better achieved by an orderly German departure.
Read more…

Categories: Economic policy Tags:


July 27th, 2015 14 comments

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

Categories: Regular Features Tags:

Monday Message Board

July 27th, 2015 107 comments

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.

Categories: Regular Features Tags:

Sea change

July 27th, 2015 25 comments

Maybe it’s my chronic over-optimism, but it seems to me as if there has been a sudden change in the long-sputtering debate about taxation in Australia. Until a few weeks ago, “tax reform” was, as it had long been, code a “tax mix switch” which in turn was code for “tax food and use the proceeds to cut the company tax rate or the top marginal rate of taxation”. Joe Hockey was still pushing the second part of this package only a week ago.

But the reports coming out of the recent COAG summit seemed to convey a general acceptance that more tax revenue is needed to fund health expenditure in particular. The two top options were an increase in the rate of GST or an increase in the Medicare levy, with little mention of “base broadening” (more code for taxing food).

Meanwhile, Labor has been talking about a Buffett tax, that is, a minimum rate of tax levied on gross incomes, regardless of deductions. And, while the LNP still assumes that it can win by running against a “carbon tax”, that belief seems to have come unmoored from any general theoretical viewpoint. How can Abbott run against a “great big new tax on everything”, if he is happy to discuss a 50 per cent increase in our existing “great big tax on everything”, the GST?

I’m not clear what has happened to bring this about, or whether I’m misreading the signals. But it certainly looks to me as if the great political taboo against even mentioning higher taxes has been broken.

How I learned to stop worrying and love the RET

July 26th, 2015 21 comments

That’s the title of a paper I wrote a while back about the Renewable Energy Target scheme. I was reminded of it when Labor announced its proposal to raise the RET to 50 per cent by 2030.

First, it’s striking to observe that no one has popped up to claim that the target is unachievable or that an electricity supply system with 50 per cent renewables will be unworkable. The strongest claim I could find in this article describing coal lobby responses is someone from the Minerals Council of Australia saying that the target is “technically questionable” which could mean anything. By contrast, until very recently, sites like Brave New Climate were full of amateur experts claiming to demonstrate the impossibility of such a goal.

Second, it’s clear that the economic impact will be minuscule. Owners of coal-fired power stations (if they are not compensated, as they should not be) will bear most of the costs. Electricity prices may rise a little compared to the current RET, but will probably be no higher than if we had stayed with a coal-based system. Perhaps this will help to convince those who think that decarbonization of the economy as a whole must have a massive cost impact, but, based on past experience, I can’t see this happening.

Third, as argued in the paper mentioned in the title, an expanded RET may not be the best way to achieve climate goals, but, if the carbon price is below the appropriate level ($50/tonne or more), a RET for the electricity sector is an appropriate policy. The main problem is that the RET doesn’t discriminate between different fossil fuels. A RET, combined with incentives to close down brown coal power stations, would have much the same effects as an adequate carbon price, and is politically much easier to do.

Categories: Economic policy, Environment Tags:

Leaving it in the ground

July 23rd, 2015 33 comments

If there’s to be any chance of stabilizing the global climate, a large proportion of existing reserves of coal will need to be left in the ground. The Galilee Basin, estimated to contain 27 billion tonnes of coal, enough to raise atmospheric concentrations of CO2 by several parts per million on its own, is arguably the biggest test case in the world right now. Fortunately, the latest news is good.

The critical project is the Carmichael Mine proposed by Adani Coal. To get the coal out Adani proposed a new rail line and a port expansion at Abbot Point. Korean conglomerate POSCO (originally a steelmaker) was named as the builder of the railroad, with the prospect that POSCO would take an equity share and the Korean Export-Import Bank would lend money on favorable terms. If the rail line is built, other projects could go ahead. One such project, owned by Bandanna Coal (now in receivership) was just approved by Environment Minister Greg Hunt.

It now seems clear that Adani is mothballing the project. A month ago, the engineering design teams were told to stop work, and now Posco’s contractors have been sent home. Coincidentally or otherwise, Posco has announced the intention to return to its steelmaking roots, with aggressive cuts to its engineering and construction divisions.

Adani is still blaming regulatory delays, but this seems increasingly implausible. The sacking of the engineering teams will set the project back many months, if not years, and burning your primary equity partner doesn’t seem like a sensible response to regulatory problems. At this point, I’d say the strategy is to obtain and bank the regulatory approvals then hope that the price of coal increases in the future. This seems unlikely, given the collapse of demand in the US, declining demand in China and increasing Indian focus on renewables, in which Adani itself is a big player.

Moreover, with every year that passes, the obstacles to coal projects of any kind get bigger. Most international development banks will no longer lend to such projects, global banks are under similar pressure and institutional equity investors are being pushed to divest. It’s unlikely that the proponents of new coal projects in Australia will ever again see a government as favorable as the Abbott government, so if they can’t succeed now, they will probably never do so.

Categories: Economics - General, Environment Tags:

Monday Message Board

July 20th, 2015 128 comments

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.

Categories: Regular Features Tags:

Competitive equilibrium (excerpt from Economics in Two Lessons)

July 18th, 2015 45 comments

I’m now coming up to (what I hope will be) the most challenging part of my book-in-progress, Economics in Two Lessons. The core theoretical point the first part of the book (Lesson 1) is that, under a set of ideal assumptions, competitive equilibrium prices both reflect and determine the opportunity costs faced by consumers and produces. This means that there is no way to rearrange consumption to make someone better off unless someone else is made worse off. (I’ve already mentioned my reasons for avoiding the term “Pareto-optimal” in this context.

What I’m trying to do here is to spell out the logic underlying these results in a way that foreshadows the discussion of market failure and income distribution, in Lesson 2, but still shows the power of market mechanisms. I’ll probably need a few goes at this, and this is my first try. Critical comments on everything from the underlying theory to editorial nitpicks are welcome. Sincere praise is also welcome of course, but constructive criticism is best of all.
Read more…

Categories: Economics in Two Lessons Tags:

After Melos

July 15th, 2015 27 comments

I’m sure I’m not the only person who’s been thinking about the words Thucydides assigns to the Athenians in the Melian dialogue

The strong do as they will and the weak suffer what they must

And I knew the immediate context. Militarily powerful Athenians demanded that the inhabitants of neutral Melos surrender their city and pay tribute. When the Melians refused, Athens invaded, slaughtered the men and enslaved the women and children.

I didn’t however, have any broader context in which to place this episode, even though the information is readily available on Wikipedia for example, which is my source here (apologies in advance to any actual experts for inaccuracies). The story begins with the formation of the Delian League, an expression of Greek unity in the war against Persia. The Athenians used the League to supplant Sparta as the hegemon of Greece, and then to oppress the other members, leading to a series of attempted defections. In Thucydides words

Of all the causes of defection, that connected with arrears of tribute and vessels, and with failure of service, was the chief; for the Athenians were very severe and exacting, and made themselves offensive by applying the screw of necessity

Eventually, this policy lead to the outbreak of war with the Spartan-led Pelopennesian League (this war was Thucydides’ subject). The war on Melos took place during a brief period of peace about half way through the war. The war ended with Athens being utterly defeated. Only the mercy of the Spartans prevented the Athenians sharing the fate they had meted out to the Melians a decade earlier, as Sparta’s allies demanded.

Rather than extract analogies to current events, I’d like to observe that the historical setting suggests a very different reading of the dialogue to that commonly seen today. In most of the contemporary discussions I’ve read, the Athenian side of the dialogue is presented as embodying the remorseless logic of power politics. But in the light of the outcome (well known to his intended readers), it seems to me Thucydides is better read as showing the Athenians as subject to the kind of hubris that demands, and inevitably receives, punishment. By contrast, while the Melians made a bad bet in resisting, their arguments are entirely sound, and should have been convincing to a rational hegemon.

Those whom the gods wish to destroy, they first make mad.

Categories: Politics (general) Tags:


July 14th, 2015 111 comments

Obviously, my analysis of the Greek debt crisis was wrong. My crucial error was the assumption that, having held the referendum and being faced with an unacceptable offer, Tsipras would choose exit from the euro rather than capitulation. Judging by this interview with Varoufakis (H/T Chris), that’s what Tsipras thought too, until, too late, Varoufakis told him it couldn’t be done. Certainly Tsipras’ actions were consistent with that interpretation.

Syriza has clearly been beaten. But I doubt that the outcome will work well for the other side in the long run. (Nearly) everyone understands that the debt can’t ultimately be repaid. But the German voting public hasn’t been told that. A deal that had some kind of quasi-automatic mechanism for writing down the outstanding balance (for example, by multiplying up the proceeds from asset sales) might have got around this problem. As it is, an explicit writedown will be needed at some point, presumably after Syriza has been forced out of office. That will be incredibly unpopular in Germany, while making clear to everyone else the locus of sovereignty in the post-crisis EU.

Update Commenters generally disagree with my take on the Varoufakis interview. I’m not wedded to it. The crucial point is that exit from the euro is extremely difficult, and that this fact will be used to punish any eurozone country that tries to resist the controlling powers.

Categories: World Events Tags:


July 11th, 2015 32 comments

Another excerpt from my book-in-progress, Economics in Two Lessons. To recap, the Two Lessons are

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

In this section, I’m working on Lesson 1, leading up to the point (my restatement of what’s usually called the First Fundamental Theorem of Welfare Economics) that an ideal competitive equilibrium is one in which there are no unexploited potential gains from technical improvements or mutually beneficial exchange. For reasons I’ve spelt out already I don’t want to use the term “Pareto-optimal” to talk about this. I also want to confine “efficient” to its normal meaning of “technically efficient” and avoid the common economist practice of extending this to cover various definitions of “market efficiency”. So, I’m talking about “free lunches” or, more formally, benefits with no opportunity cost.

In Lesson 2, I’ll be looking, among other things, at the Second Welfare Theorem, which says any outcome with no free lunches corresponds to a particular initial allocation of property rights, broadly defined to include taxation obligations and entitlements of all kinds.

Now please comment, criticise and hopefully enjoy

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Categories: Economics in Two Lessons Tags:

Balancing the books

July 10th, 2015 43 comments

I’ve been at the Australian Conference of Economists for the last few days. Today we had presentations from the Queensland Treasurer, Curtis Pitt, who is about to bring down his first budget, and from Commonwealth Treasury Secretary, John Fraser.

Curtis Pitt’s big announcement was a rearrangement of debt and equity in Government Owned Corporations, increasing their borrowing and transferring the resulting equity to the general government balance sheet. The result is a $4 billion reduction in general government debt, part of a program to bring the debt/revenue ratio down to around 70 per cent.

A transfer like this doesn’t make any difference to the state’s net financial position. Bu it makes the point that publicly owned assets are assets, not liabilities, and the fact that we own them makes the state’s position stronger. As long as the higher gearing ratio is commercially sensible and the debt can be serviced out of GOC earnings, there’s no reason not to use this to improve measures of general government debt.

Privatisation also makes no difference to the net position, assuming assets are sold at their value in continued public ownership, and the proceeds are used to pay down debt. However, the StrongChoices plan put by the LNP at the last election, would have dissipated around half of the sale proceeds on pork-barrel projects (to be delivered only if the LNP won the seat in question). So, compared to the alternative, Labor’s management is fiscally responsible.

The only measure that is unaffected by balance sheet reshuffles (at least if it is correctly measured) is net worth, and the only way to increase net worth is for income (revenue and asset earnings) to exceed expenditure.

John Fraser’s performance was as expected, which is to say, deeply disappointing. As a colleague sitting at our table remarked, he came across as a politician not a Treasury secretary. Fraser repeated the Henry Review’s criticism of stamp duties and the case for not taxing mobile capital. But when I asked if that meant he supported land taxes, he squibbed the question, waffling on about what a great group of officials he was working with in the states.

Categories: Tax and public expenditure Tags:

Derp: An irregular verb

July 7th, 2015 28 comments

Following up on Noah Smith’s marvellous definition of derp, I thought I would add the first person to give the declension of this irregular verb

* I can’t see this happening
* You regularly restate your tight (low probability) prior
* He herped a flerp of derp, the twerp

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Categories: Economics - General, Environment Tags:


July 6th, 2015 18 comments

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

Categories: Regular Features Tags: