Lomborg down under

Bjorn Lomborg pushes his usual anti-Kyoto line in the Oz

will be extremely expensive and will have only a negligible effect. The global cost will be large: the estimates from all macro-economic models show a cost of $US150 billion ($224 billion) to $US350 billion every year. At the same time, the effect on extreme weather will be marginal: the climate models show that Kyoto will merely postpone the temperature rise by six years from 2100 to 2106. Most global warming problems will occur in the Third World, yet these countries have many other, more serious, problems with which to contend. For the cost of Kyoto, in 2010, we could permanently solve the biggest problem in the world ö we could permanently provide clean drinking water and sanitation for every person in the world. Should we not deal with the most pressing problems for real people first?

What Lomborg doesn’t say here is that these scary estimates refer only to the case when Kyoto is implemented without emissions trading. With emissions trading, the net cost to the world would be much smaller, but Lomborg says this is politically infeasible because it would require big transfers from rich to poor countries.

In other words, we can’t implement Kyoto efficiently because we would have to give lots of money to poor countries and that’s politically impossible. But, as an alternative to implementing inefficiently we should give lots of money to poor countries.

I’ve pointed out this contradiction ad nauseam, but consistency is not a major issue for Lomborg or for his right-wing employers (the nastiest government in recent Danish history) and promoters.

Conference presentation

I’ll be presenting twice at the Economists’ conference today. First, in the morning on “Higher Education: The Last Nationalised Industry?” and then in the afternoon on “Discounting and sustainable management of the Murray-Darling system”. After that I’ll be heading back to Brisbane, stopping along the way at Dubbo zoo and the Parkes radiotelescope. Normal blogging should resume next week.

I plan to post copies of my presentations on my website next week, and to have full papers a bit later.

Monday Message Board

As another Monday rolls around, I’m in Canberra for the Economists’ Conference. So, I’m suggesting the starter question for this week’s Message Board. What are the big (unanswered or unasked) questions in economics. Feel free to offer comments on the state of other social sciences or, as always, on any topic that takes your fancy (civilised discussion and no coarse language, please).

Parallel universes

According to today’s Oz editorial,

Perhaps journalists at the ABC and Fairfax newspapers are trapped in a parallel universe where they receive and then report information that seems distorted from what the rest of us hear. This is the most charitable explanation of the reporting of United Nations Secretary-General Kofi Annan’s speech to the General Assembly during the week. According to one report, Mr Annan “attacked American foreign policy, warning it could stoke terrorism and global chaos”.

Perhaps it’s the same parallel universe as that inhabited by the Voice of America whose story on the same speech was headlined “Annan Condemns Unilateral Military Action”.

Whiteout

I’m writing this in the aftermath of a brief snowstorm, surprising since other parts of NSW have been experiencing record heat. It’s come at the wrong end of my visit to the Snowy Mountains, which has mainly been characterized by wind and rain – not good weather for skiing. Still, it’s very pleasant to look at if you’re inside with a fire. I’m staying at Lake Eucumbene, which is well below the normal snowline. This means that the snow usually melts pretty fast. On the other hand, you get to see things you wouldn’t expect higher up, like the kangaroos coming out from the shelter of the trees and nuzzling through the snow to eat the grass beneath.

1500 GL

This report, saying that a return of 1500 Gigalitres to the Murray is needed to achieve moderate improvements in ecological conditions is pretty much what was expected. As I argued here, such a reduction in water use is feasible, but expensive and politically tricky. Given the way the process has been set up 1500 GL is likely to be an upper bound for the return of water to the Murray, at least for the next 10 years, the period for which NSW licenses will be allocated.

ABCEB

I can’t say I’m eager to say anything positive about Kim Beazley after the fiasco of 2001, but I have to agree with what he has to say here and with the unstated message that it’s time to dump Simon Crean as Labor leader. Beazley attacks the last round of tax cuts, endorsed by Crean, and Crean’s promise not to increase the Medicare levy. (I haven’t been able to confirm the existence of this promise, but it’s implied in various press reports)

Having said that, I don’t retract my endorsement of the Caucus decision to reject Beazley’s leadership challenge. Beazley had the chance to put his thoughts into practice in 2001 and he squibbed it. Not only did he not propose an increase in the Medicare levy, he even vetoed any change to the absurd tax subsidy to private health insurance.

After beating off Beazley’s challenge, Crean needed to get off the fence as far as tax and public spending is concerned but he’s failed to do so. As a result, he remains a purely negative figure as far as the Australian public is concerned. In effect, he’s reproduced Beazley’s small target strategy.

So I’ll modify the ABC (Anybody But Crean) view, and say that Labor should go for ABCEB (Anybody But Crean, Except Beazley).

Bubble or boom

My column in today’s Fin (Subscription required) is about the (putative) bubble in housing prices. After noting that virtually all economists think there is a bubble I observe

There is a paradox here. In a country with a longstanding suspicion of market forces, economists have normally been among the few defenders of the market. Even relative sceptics put more weight than the average Australian on seeking rational economic explanations of market outcomes. Yet in the case of the housing boom, ordinary Australians have shown a faith in the market that would put the most devout Chicago economist to shame….

A bad end to the current boom would mark the failure of the separation between monetary policy and prudential regulation introduced following the report of the Wallis Committee. The whole program of financial deregulation would be called into question.

The implications would be even more striking if the current putative bubble turned out to reflect a sustainable increase in underlying values. If the doubling of house prices over a few years is not a bubble, then it is clearly impossible for economists to recognise one when it is in progress. It would be hard to imagine a more triumphant vindication of the efficient markets hypothesis than this.

If anyone has a plausible story as to how the rise in asset prices is sustainable, I’m eager to hear it. Sustainable in this context means that the value of the flow of services from housing should equal the rental cost implied by current prices and reasonable real interest rates.