Month: February 2009

Washington Post: Opinions differ on shape of earth

John Quiggin39 Comments

In one sense, the blogosphere has reached a near-universal consensus on climate change. Everyone who follows the issue at all closely agrees that there is no real debate. Instead, it’s generally agreed, we have a situation where (1) a large body of people devoted to serious scientific research on one side is confronted by (2) pushers of silly Internet talking points who are ideologically motivated, financially driven or just plain delusional . The only disagreement is which group is which. Is group (1):

* The Australian Academy of Science, all other similar organisations and the vast majority of active climate scientists;

or is it

* The 650 “sceptical scientists” identified by Marc Morano (aide to US Senator Inhofe) including such Australian luminaries as David Evans, Louis Hissink, Warwick Hughes and Jennifer Marohasy (Morano’s list includes numerous genuine scientists whose views he has misreprented

My Summer of Love rip

but he’s right to include all those I’ve mentioned )

Broadly speaking, for anyone from politically left or centrist blogs the first answer is correct, and for anyone from the political right, the second answer is correct. As far as the mainstream media is concerned, Fox News, the Australian and some other outlets know where they stand.

But for establishment outlets like the Washington Post, the idea that either (nearly) all scientists or (nearly) all right-of-centre politicans and commentators are liars/hacks/self-deluded is rather hard to accept. So we get episodes like this one. (via Tim Lambert)

News from the Sunshine State

John Quiggin16 Comments

Two big news items from Queensland in the last 24 hours. Standard & Poors has downgraded the State’s credit rating to AA+ and Anna Bligh has called an early election.

The fact that these two events happened in this order is striking. Until six months ago, a government that had been downgraded in this way would be holding off an election until the last possible day in the hope of burying the bad news, or else would have gone early, before releasing the bad budget news that triggered the downgrade. Now, the government calculates:

* Everyone knows that the state’s finances are a lot weaker than they looked six months ago, and that this has very little to do with the government
* No-one who has been watching the news could possibly place any weight on ratings issued by Standard & Poors (or Moodys – Fitch has been marginally better). If credit rating agencies were subject to election, or to any kind of proper market test, these guys would be out of business. The fact that they aren’t is yet another indication that the global financial sector is in need of reform far more drastic than has been contemplated so far
* The policies ‘demanded’ by S&P to keep the rating (drastic cuts in infrastructure spending) would have been economically disastrous

Coming to the election itself, the uncertainties created by the global financial crisis are such that I’m not going to venture a prediction. Overall, the government has done a reasonable job, but not a great one, and it remains to be seen whether the cumulative impact the ethical troubles of numerous ministers, ex-ministers and backbenchers over the years will come back to haunt them. There are also a bunch of policy decisions (including some good ones, like fluoridation, and not-so-good ones like chickening out on water recycling) that need to be taken into account. And it remains unclear how much progress has been made, and perceived, in fixing the health system. The government’s performance on indigenous issues has been lamentable, but that probably won’t cost them many seats.

On the other side, the opposition moved from being unelectable to conceivably electable with the merger that created the Liberal National Party. But they remain deeply unimpressive. This election will be won, or lost, by Labor.

Hewson hits the mark

John Quiggin60 Comments

John Hewson’s public denunciation of Peter Costello “‘Lazy, disloyal, no balls, unelectable'” is one of the more effective examples of the genre I’ve seen*. At least, it is for me, since it’s exactly consistent with my own judgement. Money quote

I also doubt you have the skills, experience or self-confidence to have accepted the obvious job after losing the last election, namely shadow treasurer. You’d be lost without Treasury. You may have delivered 11 budgets but ask yourself honestly how many of them were actually yours, rather than Treasury’s. I am told Treasury is now drawing a sharp contrast between your little interest and involvement and that of Wayne Swan.

And Hewson gets in a very effective jab at Howard along the way

Both sides of politics know from painful experience that disunity is death- although, like you I’m sure, I found it a bit galling to hear Howard now saying so, having been disloyal to every leader he ever worked for.

* It would have been more effective without the gratuitous reference to testosterone, which doesn’t at all suit an academic/finance type like Hewson.

An argument for emissions trading

John Quiggin26 Comments

With resurgent debate over the relative merits of carbon taxes and emissions trading, attention has turned again to Europe where the market price of emissions permits has fallen sharply as a result of the financial crisis and recession. Most commentators have seen this as a strike against emissions trading, but actually it’s a positive. The big concern about price uncertainty arises when we are very uncertain about the cost of reducing emissions. Under cost uncertainty, setting the emissions target too low could impose unexpectedly high costs on the economy.

What’s happening here is that we are uncertain about the rate of growth of the economy. An emissions target is countercyclical since it imposes a relatively high cost when the economy is strong, and a much smaller cost when the economy is weak. This is a Good Thing.

My view, for what it’s worth, is that a well-designed emissions trading scheme is the best available option. But given the weaknesses of the government’s proposed scheme, I’m prepared to consider alternatives.

Note also that different macroeconomic shocks give different outcomes. Warwick McKibbin has done some work showing that an upward shock to growth in one country will benefit other countries less (and perhaps not at all) under global emissions trading than with a price cap or hybrid policy. That’s because the growing country will demand more emissions permits, pushing up the global price.

It’s easy to see that McKibbin’s modelling result is consistent with the analysis here. By symmetry, a negative shock in one country will harm others less under emissions trading than under the price-based alternatives. And the same logic applies to sectors within countries. It’s easy enough to see then, that for any economy with a fixed aggregate target, or for the world as a whole, emissions trading will tend to reduce the benefits of booms and the cost of slumps.

Framing nationalization

John Quiggin74 Comments

With even Alan Greenspan Smother move and Lindsey Graham now in support, and the alternatives canvassed in the Geithner “plan” thoroughly discredited (even Wall Street hated it), large-scale nationalization of US banks now looks inevitable. But, as Obama has observed, this kind of thing seems alien to US culture.

This looks like a classic Lakoff framing problem. How can the obviously necessary, also be made to seem natural? There have been a couple of approaches so far.

The first is to emphasise that the Federal Deposit Insurance Corporation routinely takes over failed banks. So, as Paul Krugman puts it “nationalization is as American as apple pie“.

The second is to focus on the ultimate goal which is to return the banks to solvency and private ownership. Hence the lovely euphemism coined (I think) by Calculated Risk “preprivatisation”

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Economists agree!

John Quiggin20 Comments

Tim Lambert links to this article by Eric Pooley in Slate’s The Big Moneye which points out that, for all the disagreement among economists regarding the details of climate change policy, there is substantial consensus on the following main points
(i) the cost of action to stabilise atmospheric concentrations of CO2 and other greenhouse gases will be of the order of 1 per cent of GDP
(ii) a strong mitigation policy is preferable to business as usual

There is also widespread, though not universal, support for the view that it is best to act early and strongly rather than waiting for more information.

The article makes the point that the quarrelsome nature of economists obscures the level of consensus and that has certainly been my experience.

Also from experience, I know that quite a few readers of this blog are unwilling to believe that (i) can be right. But the argument from personal incredulity is not a sound basis for reasoning. It’s easy to check that the cost can’t be much more than 10 per cent of GDP (about five years worth of economic growth), which contradicts the common intuition that cheap energy is economically vital. Once you accept that upper bound it seems silly to disagree with the experts on the best estimate in the range 0-10.