I’m writing a review article about Akerlof and Shiller’s new book, Animal Spirits. In doing so, it struck me that I had most of a new entry for my list of refuted economic doctrines, except that the target this time has not been refuted so much as rendered obsolete by events. I’m talking about New Keynesianism an approach to macroeconomics, to which Akerlof and Shiller have made some of the biggest contributions, but which they have now, on my interpretation, repudiated.
Month: May 2009
Politic religion (crosspost)
[I posted this at Crooked Timber a day or two ago and got quite a lively response].
While the aesthetic defence of religion offered by Terry Eagleton might appeal to a small fraction of the intelligentsia, a far more common belief is that, regardless of truth value, religious belief makes people better citizens, and should therefore be encouraged.
Although this claim has various components, the most obvious social benefits of religious belief, and the biggest source of concern about the adverse consequences of unbelief, is the doctrine of an afterlife in which good actions will be rewarded and bad ones punished. Back in the 19th century, lots of people were really worried about this and, even in the 21st it’s a common theme in US discussions of religion.
But do we really need religion for this?
Debate presentation
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I didn’t actually present this in my debate with Henry Ergas last night, since he wasn’t using Powerpoint, but readers might find it interesting.
Conditional and unconditional targets
There’s been a striking divide in reactions to the government’s changes to the ETS, with most of the major environmental groups supporting it, while the Greens (and most commenters here) seeing only negatives. The headline change (a one-year delay in the start date) is so minor that it’s not worth discussing, but it seems to have set the tone for a lot of responses. And some responses have taken it for granted that the government is acting in bad faith, but on that assumption, there is no point in arguing the specifics of policy.
Coming to substantive issues, a major complaint appears to be that the unconditional target of a 5 per cent reduction is not enough. Those making this complaint seem to me to be influenced by an error that’s the mirror-image of the doolittle-delay claim that, since Australia only accounts for 2 per cent of global emissions, we may as well do nothing.
The element of truth in the doolittle-delay line is that, in the absence of a global agreement, the planet is done for. That means that, when offering a conditional and an unconditional target, the crucial requirement for a defensible policy is a conditional target consistent with a global agreement to stabilise the climate. The unconditional target is important only insofar as it helps to achieve such an agreement, and a higher unconditional target is not necessarily a better one.
Big report on electricity generation options
In the grid parity discussion, reader Salient mentioned a report on energy generation options including solar thermal. There was a lot of interest, and Salient has kindly sent me the report, which is available here (7.5 Mb PDF).
May Day Monday Message Board
Its time once again for Monday Message Board, and also the May Day/Labour Day holiday here in Brisbane. Post comments on any topic. As usual, civilised discussion and no coarse language.
Bogus journal alert
In case any readers are medical practitioners, I’d like to alert them to this startling story. Apparently Merck and Elsevier have produced something called the Australasian Journal of Bone and Joint Medicine which looks like a peer-reviewed journal but is actually a marketing exercise for Merck. If you receive any marketing material citing this “journal” you should consign it to the circular file, and consider whether it is sensible to prescribe medicines that need such snake-oil tactics in their marketing.
This is utterly inexcusable, and no-one involved can retain any credibility in either academic or medical terms. Following on from the arms fair fiasco
a while back, this exercise is forcing me to consider, again whether publishing in Elsevier journals can be justified.
25 per cent by 2020
Media coverage of Rudd’s announced changes in the ETS scheme has focused on the one-year delay in the starting date. But the big news is that the government will now offer emissions reduction target to up to 25 per cent of 2000 levels by 2020, if an international agreement is made later this year in Denmark to keep global emissions under 450 parts per million.
This is significant good news. It’s obviously necessary to look at the fine print, but a 25 per cent reduction would be consistent with a global contract and converge agreement which could achieve climate stabilization. In the context of such a commitment, a delay in the start date for the scheme (inevitable in any case given the situation in the Senate) is a small price to pay, as is the temporary cap on permit prices.
Also, the government seems to have responded to criticisms about the ineffectiveness of voluntary action
Mr Rudd has also announced that households and businesses will be able to contribute to cutting Australia’s emissions through an Australian Carbon Trust comprising of an energy efficiency trust and an energy efficiency savings pledge fund.
Households would be able to calculate their energy use and then make donations to fund which would then buy and cancel carbon permits.
The scheme may not be perfect, but, on the face of it, the changes are sufficient for me to conclude that the Greens ought to be backing it, and seeking some further improvements, rather than holding out in the name of purity.
Grid parity
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I’ve been following discussions of solar energy on-and-off for quite a while, and it has always seemed as if it would be quite a long time, even assuming an emissions trading scheme or carbon tax, before solar photovoltaics could be a cost-competitive source of electricity without special support such as capital subsidies or feed-in tariffs set above market prices.
But looking at the issue again today, I’m finding lots of claims that this “grid parity” will be achieved in the next few years, and even one company, First Solar, that claims to be already at grid parity with a 12 MW plant in Nevada completed last year . Obviously, Nevada is a particularly favorable location, and there is plenty of room for judgement in cost estimates. Still, looking at a lot of different reports, it seems clear that, with a carbon price of say $50/tonne (about 5 cents/kwh for black coal and 7 cents/kwh for brown coal), solar will be cost-competitive with coal for most places in Australia without any need for fundamental technical improvements.
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Austrian Business Cycle Theory
I’ve long promised a post on Austrian Business Cycle Theory, and here it is. For those who would rather get straight to the conclusion, it’s one I share in broad terms with most of the mainstream economists who’ve looked at the theory, from Tyler Cowen , Bryan Caplan
and Gordon Tullock at the libertarian/Chicago end of the spectrum to Keynesians like Paul Krugman and Brad DeLong.
To sum up, although the Austrian School was at the forefront of business cycle theory in the 1920s, it hasn’t developed in any positive way since then. The central idea of the credit cycle is an important one, particularly as it applies to the business cycle in the presence of a largely unregulated financial system. But the Austrians balked at the interventionist implications of their own position, and failed to engage seriously with Keynesian ideas.
The result (like orthodox Marxism) is a research program that was active and progressive a century or so ago but has now become an ossified dogma. Like all such dogmatic orthodoxies, it provides believers with the illusion of a complete explanation but cease to respond in a progressive way to empirical violations of its predictions or to theoretical objections. To the extent that anything positive remains, it is likely to be developed by non-Austrians such as the post-Keynesian followers of Hyman Minsky.
Update There’s a fascinating discussion linking to this post here. In French, but clear and simply written. Anyone with high school French and a familiarity with the issues should be able to follow the main points.
John Quiggin 