Ross Gittins repeats the criticism he, Ken Henry and Martin Parkinson, have put forward previously, that economists were either missing in action or actively unhelpful in the climate change debate. I disagree – I think academic economists as a group look a lot better on this issue than do economic columnists, and (on the limited available evidence) at least as good as public servants.
The views of the profession were stated pretty clearly back in 2002, when Clive Hamilton and I organized a statement calling for ratification of Kyoto which got 250 signatures (about 40 per cent of the entire academic economics profession at the time, which is huge given that many people never sign anything, or don’t get round to answering their email). A second pro-Kyoto statement in 2007 got 270 signatures, including 70 professors.
Against that, there are a handful of rightwingers who accept the delusional anti-science line that is required as a totem of tribal loyalty on the right. Not only is this group numerically small but, AFAIK, it doesn’t include anyone with substantial standing in the profession[1]. That’s certainly what the public record suggests. In 2002, John Humphreys and some others announced a counter-statement, but it never appeared, presumably because of the embarrassing quantity and quality of those willing to sign.
There are also a few people who have been so committed to particular policy formulations that they have been unwilling to support anything else, even though the similarities between different carbon price policies outweigh the differences. This is ultimately a matter of political judgement. The choice between supporting an imperfect policy and waiting for a better one isn’t a simple one. I supported the CPRS as an imperfect compromise right up to the final failed deal with Turnbull, which I thought was worse than starting again from scratch. Others judged, earlier on, that the scheme had been hopelessly compromised. On the whole, I don’t think any of this had any impact on the outcome.
If we compare this to Ross’ colleagues among economic columnists, I’d say the majority are either outright delusionists or “delay and doolittle” types. Alan Wood, who was generally well-regarded as economics editor for the Oz bought the IPCC conspiracy theory (full black helicopter version). Terry McCrann is much the same, and others (Alan Kohler for example) have pushed Abbott’s anti-economics line on the subject.
Public servants rarely go on the record, but discussions of the Greenhouse Mafia suggest that there are plenty who have worked hard to sabotage any action. My run-ins with ABARE in the Howard years certainly support this view.
Looking at the most recent debate, economists mostly supported the Garnaut Report and lots of us worked hard on developing detailed proposals for implementation of various aspects of it, only to see them traded away by the government in the ultimately futile search for a deal with the opposition. Given the speed with which the whole policy collapsed, it’s hard to see where academic economists could have intervened effectively. Whatever the strengths of the academy, rapid reaction times are not among them.
Looking forward, I predict that the majority of economists will back any coherent policy that involves an early shift to pricing carbon, and that the economics profession will be more unified in this respect than almost any other group.
fn1. I can’t rule out the possibility – eminent people can say silly things, particularly in their declining years. But the kinds of nonsense that delusionists are required to go along with (eg “no statistically significant warming since 1993”) make it hard for any self-respecting economist to be part of this movement.
John Quiggin 
Alice,
you seem to want to forget the great moderation between the early 1980s and 2007.
What John Taylor calls the great deviation in the last few years is the depature from the policies that underpinned the great moderation.
Economists have no more expertise to judge the physical science of global warming than they do in judging the science behind the super volcanoes such as the ones near me and you.
Economists can offer insights into the consequences of super volcanoes for the economy.
The key part of resilience is most capital is human capital.
The key risk is the breakdown of the division of labour and international trade.
@Jim Rose
Aha Jim Rose – you just tripped up on one of your own twists…
First you state “The comparative advantage of economists is if-then analysis.Cost-benefit analysis, the economics of uncertainty, welfare economics, intergenerational trade-offs, public choice and theories of collective action are some of the economic tools brought to the table. ”
Then you accuse Ernestine of
“Your posting is based on a false premise.
That false premise is that mathematical economics is an engine of truth”.
Make up your mind JR. Rather than Ernestine’s posting being based on a false premise I would suggest yours is. Or is that you just want economists to be kept busy doing maths that is entirely wrong?
@Jim Rose
You haven’t got the intellectual honesty required to withdraw you contradictory opinions.
As a consequence, your talk on ethics is talk in the wind.
Your pontifications, based on name dropping and arbitrary usage of terminology, are as believable as Monckton’s statements on climate science.
You see, it is not ‘cyberspace’ which verifies quality, it is the users of cyberspace that verify quality.
Hi Alice and welcome back.
@Jim Rose
That risk is already here – so is a lot of very bad maths. You forget JR – implicit in any maths and prior to the first calculation being made often resides human assumptions and if they are fallible, it doesnt matter how elaborate the maths that follows.
I consider the entire concept of global comparative advantage and its rampant pursuit one such example of poor assumptions. It completely ignores the value of industry that has no global comparative advantage for its contribution to employment that helps sustain that economy. A healthy economy then has positive spillovers for the global economy.
The great moderation you speak of between the early 1980s and 2007 was marked by two major recessions, an episode of inflation and marked the start of the great unchained bubble building. There wasnt anything particularly moderate about it at all. It was also marked by rapidly rising inequality and a new structurally higher entrenched level of unemployment and underemployment.
Hi Ernestine – nice to see you here.
It appears to me that almost all mathematical economics is determined by exogenous factors and assumptions (such as constant elasticity functons).
Some mathematical economics also assume unlimited labour at prevailing wage rate, and others assume unlimited money supply at prevailing interest rate.
Much mathematical economics is based on university courses in statistics, numerical analysis, and econometrics. They use this language in much the same way the Church and early physicians used Latin to pretend they had knowledge, when in fact they peddled nonsense.
As soon as politics intervenes in economics, to that extent mathematical modelling becomes redundant and could perpetuates misunderstandings.
How can mathematical economics be an engine of truth if politics is based on falsehood?
@Ernestine Gross
Gaz: 1) Can you give me an example, even a hypothetical example, of a market
solution to an externality problem?
Ernestine: 1. I have answered this question.
I oringially asked this question in my comment at July 22nd, 2010 at 17:04.
Forgive me if I am being obtuse, Ernestine, but I have searched through your posts and can find no example, hypothetical or real, of a such a market solution, nor any clear definition of what one might entail aside the definition by exclusion that it must not involve non-market actors.
Indeed, a solution to an externality problem that involves no intervention by a non-market agent would seem to be impossible by definition, given that the externatility exists because the market is not pricing some side-effect of an economic activity. Why would a market suddenly start pricing something that it was not pricing before?
But you are obviously tired of my questions.
Can someone else tell me where Ernestine has answered my question about non-market solutions?
@Gaz
I’ve spent a bit of time replying to your very fist question. So, no silly word games please.
In reply to your subsequent question @39, I wrote @43:
Gaz: Do you define a “market solution” as one which does not require a “non-market agent” to intervene in the market in some way?”
EG: In the context of the theoretical literature I referred to, the answer is Yes.
2. Gaz: “If yes, then what policy could possibly qualify as a market solution?”
EG: If you mean a solution to ghg emissions problem, there is no market solution.
This was and still is my answer. I am not prepared to go beyond the topic of this thread. You can ask your question if and when our host, Professor Quggin, puts up a thread on the topic ‘externalities’.
In the mean time you might wish to read the literature I referenced in reply to your explicit request.
@Alice
The subject of this thread is economists and climate change.
Economists have no professional expertise in the physical science of global warming. What economists can say as social scientists is on the philosophy and sociology of science is as follows:
• The motto of the royal society is Nullius in verba = Take nobody’s word for it.
• No single unified account of the difference between science and non-science has been widely accepted.
• For the physical sciences, a science could be said to be a set of testable propositions.
• New knowledge flows from the minority persuading the majority that it is wrong.
• The progress of science as not a gradual, continuous, ever-upward process where the scientific knowledge gradually grows and accretes through the process of framing hypotheses, testing them empirically, and discarding the invalid and keeping the valid.
• Scientific revolutions are common where one paradigm is replaced by another after a period of chaos ignited by period where more and more anomalies pile up and puzzles can no longer be solved by the paradigm.
• Increasingly desperate attempts are made to modify the basic theory so as to fit the unpleasant facts and to preserve the framework provided by the paradigm.
• John Stuart Mill was right when he said “”Lord, enlighten thou our enemies, sharpen their wits, give acuteness to their perceptions, and consecutiveness and clearness to their reasoning powers. We are in danger from their folly, not from their wisdom: their weakness is what fills us with apprehension, not their strength.”
“Economists have no professional expertise in the physical science of global warming. ”
Except those economists, who studied economics at the post-grad level after having established their career in science.
So much for ‘the division of labour’.
Gaz, translated into simpler language, what Ernestine means is as follows:
a) The existence of externalities is evidence of market failure.
b) The market can’t correct the market failure on its own. If it could, there wouldn’t be a market failure in the first place.
c) If the market failure is to be addressed, it must be by some non-market actor.
There is a number of ways the market failure could be addressed, e.g. closing half of the coal fired power plants and replacing them with solar. In this case the non-market actor (the government) has chosen a specific set of actions to address the market failure.
Alternatively, it could create a new market in “pollution rights”, in the hope that this new market will counteract the market failure in the pre-existing market, and at lowest cost. The “pollution rights” market is often referred to as a “market solution”, even though, strictly speaking, it isn’t.
@Ernestine Gross
Double-degrees are more common these days. Some get to employ both backgrounds, others do not.
Few become experts in both two fields, but why?
Ben Jones specialises in how innovation is getting harder such as in his neat paper “The Burden of Knowledge and the ‘Death of the Renaissance Man’: Is Innovation Getting Harder?” at http://www.kauffman.org/uploadedFiles/Jones_Ben.pdf
If knowledge accumulates as technology progresses, then successive generations of innovators may face an increasing educational burden.
Innovators can compensate in their education by seeking narrower expertise, but narrowing expertise will reduce their individual capacities, with implications for the organization of innovative activity – a greater reliance on teamwork.
In Age and Great Invention, Jones found that innovators are much less productive at younger ages, beginning to produce major ideas 8 years later at the end of the 20th Century than they did at the beginning. Furthermore, the later start to the career is not compensated for by increasing productivity beyond early middle age.
See http://www.kellogg.northwestern.edu/faculty/jones-ben/htm/AgeAndGreatInvention.pdf
Jim, you gave the game away when you said:
We recognise the libertarian code words, and I for one realise that further discussion is pointless.
@SJ
In this instance I am grateful for your post.
@Ernestine
You’ve said that before. 😉
I declared a cease-fire quite a while ago in any case. 🙂
@SJ
Do you have any other explanation for the depletion of open access resources?
what are emmissions trading allowances trying to establish?
@SJ
I agree SJ re the libertarian code words adopted from the sort of free market terminologies that have failed us all in the past three deccades…I could write a check list of them..but they basically centre around a common thread of “no intervention” is the best solution to everything…but as for a checklist here are some code words
“comparative advantage” (give up every other industry and get behind big coal)
“labour productivity” (why cant you all work longer for less?)
“innovation and innovators” (matter more than everyone else)
“intergenerational tradeoffs” (so what if we mess up the planet now – the kidsll survive)
“nullius inverbia” (translate as “there are no experts”)
everyone is an “agent” (secret agent… especially in here)
@Alice
you seem to be unaware of the mild left-wing bias of the economic profession.
Take that citadel of double secret Friedman clones, the american economic association where surveys find that:
• A large majority of economists are either generally favorable to or mixed on government intervention,
• A Democrat to Republican ratio of about 2.5 to 1
• A large majority of AEA members are either interventionist or middle-of-the-road Democrats, and most of the residual are middle-of-the-road Republicans.
• Many AEA economists maintain that they are essentially free-market supporters, but recognize that externalities, asymmetric information, diminishing marginal utility of wealth, etc. call for exceptions to free-market policy.
These findings were similar for the ACT branch of the economic society of Australia.
Economists do not have a very different set of values from the rest of the community in which they live.
JR – what is the market doing about global warming except warming it further and faster.? Is that the sort of fact that would be treated as a nullius inverbia by you ie denied?
Yet here you say economists have no business discussing it. If they dont who does?
GW is very much about economic policy.
This sort of “anti common sense” is the same reason a lot of voters think the Liberals have lost the plot (that and Iraq and Workchoices and AWB and Tampa and the stream of spin…and dont forget the infiltration of the deniers into the public service…ie ABC, ABS made to go semi private and charge unis for data, unis semi private and stuffing up degrees, greenhouse mafia in ABARE, productivity commission acting like Mussolinis militia.
I wouldnt perhaps mind a little nuttiness in our political leadership but I strongly object to the now years of it since JHoward of treating adults like children who can be (in their view) bathed in lies.
Not that Labor are much better – so much for Gillards back down on miners – that was quite pathetic – and yet another boatpeopleplay..I lumped her in with KK and turned off from both major parties.
Im voting for the worm.
@Jim Rose
Jim
you say
“you seem to be unaware of the mild left-wing bias of the economic profession.”
So what. The strong right bias of many governments across the globe have failed us all.
The economics profession, if this mild left bias exists, is part of what will save us from the nutters JR.
Alice, every time you reply to the troll, you give it the opportunity to spout more nonsense. DNFTT.
@Alice
If “a lot of voters think the Liberals have lost the plot’, as you say, why was Rudd dumped?
The party was worried about losing the election.
solution: a fresh face and steal Abbotls policies
Climate scientists say AGW is a problem. Economists knock up policy proposals to deal with it. I don’t see what the problem is.
@sdfc
TPIT – the problem is trolls and deniers SJ. Anti economic policy anti action trolls. Thats why denying AGW is what they do. Thats why attacking credible sources is what they do. Problem? What problem? The real problem is them .They dont want any policy at all. They just cant easly convince voters that doing nothing is good policy. You are right at 22.
@sdfc
Well put.
If-then analysis.
If it is a problem to be solved, here are some options that address the problem and the actual consequences of adopting one of these options are a net benefit and the unintended consequences are manageable.
@Alice
You say ‘a lot of voters think the Liberals have lost the plot’, and ‘The strong right bias of many governments across the globe have failed us all’.
Limiting ourselves to democratically elected governments, and there are many of these even in the under-developed countries, progressive ideas seem to fail, and fail again at the ballot box right around the globe as you concede the strong right-wing bias of many governments across the globe. There was one left-wing federal government in Australia in the last 60 years and that was for three years
This inability of progressive politics get anywhere is important because every set of ideas needs effective critics to keep it on its toes and stop it from slouching into error and special interest capture.
The Right needs a vibrant Left to keep the Right fit, trim and down to its fighting weight so as to be able to thrash the Left once again at the next election.
Prior to the 1990s, all it took to see progressive ideas off the political and economic stage in a country was a visit or two by Milton Friedman, if some posters on this blog were to be believed. I do not believe that political transformations are as easy as this.
However, for those who want to maintain the rage over, for example, Friedman’s April 1975 trip to Australia for 18 days leading to a paradigm shift to neo-liberalism and Hayden’s monetarist budget shortly after see http://www.canberratimes.com.au/news/opinion/editorial/general/the-rivalry-of-two-great-economists-lives-on/133243.aspx and http://www.cecc.com.au/clients/sob/research/docs/jcourvisanos/Courvisano-Millmow.doc
Apparently, the spirited, witty Joan Robinson visit the same month and her own Monday conference program did not do the trick as an anti-biotic and vaccine.
Progressives will have no role in future political transformations because if you scratch a progressive you will find a left wing populist.
A left-wing populist is too busy telling you who to fear and who to blame to put up policies that are actually robust enough to work and to have worked in the past in a society where people are not perfect in their motivations and they do not have perfect knowledge in a changing world.
p.s. The Monday Conference program was the ABC at its best.
@SJ
When falling back on sneers, smears and stereotypes to avoid the risk of debating the issues, use labels that the rabble that respond to such low tactics may know and understand.
The political vocabulary of Australian English is not the same as that of political junkies who follow all the twists and turns of American politics.
Even the term liberal has very different meanings in Australia, the USA and UK.
The closest Australian usage was the Sydney Push of the 1950s and 1960s which was by Sydney Libertarianism – albeit libertarianism of the left. See http://en.wikipedia.org/wiki/Sydney_Push
There are also libertarian socialists such as Noam Chomsky.
@Ernestine Gross
point to one or two climate change related specific error and I will respond. more than that leads to unwheldy exchages
@Jim Rose
No, Jim Rose, changing to topic on the run is not the deal. You challenged me on the successor thread. You wrote:
“A few days ago, you made great play about the absence of negative prices as a reason for the inefficiency of markets.
I pointed to the existence of negative prices in spot markets in the energy sector.
What was your response, again?”
I asked you to go to the relevant thread. So here we are.
My response was to ignore your reference to the ‘negative spot price’ in the electricity market. I had reasons for this.
Now, here are the rules if you wish to get an answer:
1. You repeat exactly what I wrote.
2. You compare what I wrote with what you say.
3. You write in your own words an exact description of what you say happened in the electricity market and then supply the reference.
4. Depending on what I get on 1 to 3, I may then explain or ask you further questions before I can give you the answer.
.
@Ernestine Gross
if you are saying someone is in error, or is misrepresenting you, it is up to you to say who, what and where.
I assume this is the relevent thread. if it is not, it is up to you to submit a correction.
@Jim Rose
Ah Jim Rose, Schelling’s focul point theory of negotiation doesn’t seem to work. You see, your first sentence @31 is already a rule that is not relevant @31 and your second sentence is silly because I have already acknowledged that you are on the relant thread.
So, please go back to 31 and read the rules.
@Jim Rose
Replacement for 32:
Ah Jim Rose, Schelling’s focal point theory of negotiation doesn’t seem to work. You see, your first sentence @31 is already a rule that is not relevant @30, to which you reply, and your second sentence is silly because I have already acknowledged, @30, that your re on the relevant thread.
So, please go back to 30 and read the rules.
@Ernestine Gross
I now know why you have reasons for not responding on negative prices.
In addition to Electricity and Natural Gas Pricing by Matthias Janssen and Magnus Wobben which I have previously linked that discussed negative prices, and I quoting the current floor on negative price for Australian electricity, there are also two-sided markets.
I have been married so long that I have forgotten about the classic example of a two-sided market, which is a nightclub.
Two types of foot-loose and fancy-free customers must be present even if one side is supplied at a negative cost, so men pay heaps but women get free drinks. Without this night-club pricing regime of positive and negative drink prices, no one turns up.
Some of us on this blog, but never others, have paid negative prices as routine part of their social life.
A very old example is village match-makers who bring local women and men together for possible marriage in a reputable environment.
thank you for reminding me how fascinating network economics is. Isn’t a lot of it about negative prices?
the market developed negative prices centuries ago. maths is still cathing-up, that is why maths is only a form of short-hand, rather than an engine for new truths in economics.
For those watching, the troll’s barking up the wrong tree. What’s being referred to is asymmetrical pricing, where the price is negative for the producer/seller but zero for the consumer/buyer.
I take that back. The “two-sided market” idea at least puts it in the right forest.
@SJ
as allued to at #34 and posted a few days ago, in Australia, electricity generators can effectively make offers with negative prices (with an offer price floor of -$1000/MWh).
In times of a sudden low demand, producers may pay customers for take electricity to avoid the costly expense of shutting down plants. This happens the USA and in Europe too!
see electricitycommission.govt.nz/pdfs/advisorygroups/mdag/5Nov09/WIP.pdf
In nightclubs, it is cheaper to give women the drinks rather than ask them to pay for them and provide women with free access to in-kind payments so as no door charge and free access to the nightclub including its other patrons.
Back into two forests, barking up two wrong trees. Maybe it’ll wear itself out running back and forth between them.
@SJ
do you have a definition of asymmetrical pricing?
what is your defintion of negative pricing? how do they differ?
Exactly, SJ. I believe I’ve been very generous outlining steps for the good Jim Rose to follow to assist him to distinguish between cost-accounting and temporary marketing methods on the one hand and a ‘price system’ when markets are complete and when they are incomplete on the other. Lets see what happens next.
@Ernestine Gross
I recently read a biography of Thomas Schelling. I commend it to you.
He first used Schelling points in 1940 or so at the age of about 19 when he and friend were separated on a city-to-city trip across America.
Schelling found his friend without any communication or search by either of them, but it was not a chance meeting.
Has a great little section on how Schelling got what I think was his first paper on global warming published in the American economic review in 1991 or so without any of the requested revisions.
Schelling noted recently that “It is interesting that this idea that costly actions are unwarranted if the dangers are uncertain is almost unique to climate. In other areas of policy, such as terrorism, nuclear proliferation, inflation, or vaccination, some “insurance” principle seems to prevail: if there is a sufficient likelihood of sufficient damage we take some measured anticipatory action. … Weigh the costs, the benefits, and the probabilities as best all three are known, and don’t be obsessed with either extreme tail of the distribution.”
Schelling has also noted that in only three successful experiences of multinational economic commitment: the Marshall Plan, NATO and the WTO, first the rules are established and later a system of regulations is set-up through which each state justifies itself before the others and watches the others.
p.s. the biography was a short book which I think missed an important contribution of Schelling to strategic nuclear stability in 1958. After visiting an air force base, he suggested that good strong locks be put on nuclear weapons themselves in case they were stolen. They had no locks at the time.
@Jim Rose
You wrote the crux of foregoing story before on this blog-site.
You don’t get the point about a global negative externality.
May I ask you to read Ken Binmore & Parth Dasgupta (ed), The Economics of Bargainin, Basil Blackwell, 1987 or later edition. Don’t write to me until you feel ready to answer questions from this book.
schelling also thinks that it might take a century to reach a consensus on solving the greenhouse gas problem
this is because there is no likelihood that China, India, Indonesia, Brazil, or Nigeria will fully participate in any greenhouse-gas regime for the next few decades – they have done their best to make that point clear, and it serves no purpose to disbelieve them – but that is no excuse for wasting time getting started.
he is also of the view that the problem with an international emissions trading regimes is that initial quotas are negotiated to reflect what each nation can reasonably be expected to reduce.
Any country that is tempted to sell part of an emissions quota will realize that the regime is continually subject to renegotiation, so selling any excess is tantamount to admitting it got a generous allotment the last time around. It sets itself up for stiffer negotiation next time.
schelling also is of the view that global climate change may become what nuclear arms control was for the past half century. It took more than a decade to develop a concept of arms control. It is not surprising that it is taking that long to find a way to come to consensus on an approach to the greenhouse problem.
@Ernestine Gross
at #30 you purported to cut and paste what I posted in another thread.
you dropped out the last line of what I said.
please correct this error.
Oh dear oh dear, Jim Rose is putting up a false image. It is not an error to not copy ‘the last line’ if it is irrelevant to the point. In the case in question, the the said image manufacturer had conflated two separate themes. Surely, disentangling the attempted entanglement is the opposite of introducing an error. I suppose Jim Rose didn’t intent to conflate separate themes, he merely made an error.
Exactly.
@Ernestine Gross
Ill second that.
@Alice
I’ll third that. I know that Pr Q has direct access to the print media, even if the readership is small (say ~100k) and rarified. But what of many other academic economists? Surely there must be some interesting articles on AGW and the problems of formulating an adequate economic framework for its resolution?
For decades now the science journalists have trawled the various academic electronic databases in order to find a new lead, or a quirky or neat idea. For example, arXiv.org is heavily (over-referred to, but that’s another matter) used source of ideas for a story in cosmology, or astronomy, or even neuroscience. It’s free, which is one reason it is high on the list. PubMed Central is another favourite for similar reasons; and, each major faculty at universities typically have their own preprint servers for external, and free, use.
Journalists who write on matters economic should occasionally do the same, for it might improve their technical knowledge, and shift their opinions on some multi-disciplinary problems, especially the ‘wicked problem’ variety.
@Ernestine Gross
I disagree that it was “irrelevant to the point”.
@SJ
SJ, thank you for your reply. it would seem to me that you have confirmed my impression that, by the definition used implicitly by Ernestine and as set out by you, there can be no such thing as a market solution to an externality problem.
As you say: “If the market failure is to be addressed, it must be by some non-market actor.”
Therefore the concept of “non-market solution” is pretty much meaningless, or at least tautological in the sense that all posisble solutions (by this definition at least) are non-market solutions.
I can now understand Ernestine’s reluctance to offer an example of a market solution. By this definition, there can be none.
I would prefer an alternative definition of a “market solution” as one which utilises market forces to allocate resources.
So, for example, a policy which forces everyone who builds a new houses to adhere to a regulatory standard would be a non-market solution while one which restricts the supply of rights to emit CO2, then allows a market to price and allocate those rights would be a market solution. The first intervenes in a market while the second merely changes the initial conditions.