Reasons to be cheerful (Part 1): Peak gasoline

There are plenty of reasons to be gloomy about the prospects of stabilising the global climate. The failure at Copenhagen (partly, but far from wholly, redressed in the subsequent meeting at Cancun) means that a binding international agreement, let alone an effective international trading scheme, is a long way off. The political right, at least in English-speaking countries, has deepened its commitment to anti-science delusionism. And (regardless of views on its merits) the prospect of a significant contribution from nuclear power has pretty much disappeared, at least for the next decade or so, following Fukushima and the failure of the US ‘nuclear renaissance’.

But there’s also some striking good news. Most important is the arrival of ‘peak gasoline’ in the US. US gasoline consumption peaked in 2006 and was about 8 per cent below the peak in 2010. Consumption per person has fallen more than 10 per cent.
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Weathervanes

Tony Abbott, who denounced the government’s very mild pause on indexing the $150k threshold for access to Family Tax Payments as “class warfare”, has previously supported identical attacks on “middle class welfare“. Nothing surprising there: Abbott has shown himself absolutely willing to say whatever he thinks his audience wants to hear on the day. Unfortunately, exactly the same is true of Julia Gillard. Neither seems to think much before committing themselves to whatever thought bubble looks good on the day (cash for clunkers, tax levies for parental leave etc)

By comparison with these two, Wayne Swan and Joe Hockey, among other potential successors, look like stellar intellects and conviction politicians. Kevin Rudd and Malcolm Turnbull are in a whole different universe. As I’ve said before, the current contenders to rule Australia are living disproof of the adage that we get the government we deserve. We didn’t ask for Gillard, and the only alternative we were offered was Abbott. What a choice!

Wake-up call, part II: revenge of the snooze button?

A while ago I wrote a post responding to a Lowy Institute blurb for a new book by Michael Wesley, called There goes the Neighborhood and described as ‘A loud and clear wake-up call to Australians’. In response, I said that ‘At the global level it’s hard to think of a time when we have been less threatened, at least within living memory’, and concluded ‘unless commenters can point to something I’ve missed, I’m going back to sleep’.

Michael Wesley has now responded, and sent me a copy of the book, which I hadn’t read when I responded to the blurb. It turns out that he agrees with me that most of the threats that worried us in the past have dissipated. Also, as I surmised, his main concern is about the way in which the rise of India and China changes our strategic environment. He concludes

In short, we’re entering a world not of threats but of agonising choices that will come at us constantly. My bet is that we’ll look back on the vanished threats that Quiggin talks about with nostalgia for a world that all seemed so simple.

I agree with Wesley that the rise of India and China makes life more complicated in important ways. In the past, our foreign policy consisted, in essence, of the US alliance. That alliance gave us some protection against our local fears, most notably with respect to Indonesia, while also exposing us to some big costs (the need to join faraway wars in which we had no say) and an increased risk of nuclear annihilation, which faded away along with the Cold War, though it hasn’t disappeared.

In the new world, Wesley correctly argues, an uncritical adherence to the US alliance would be a disaster, particularly in the event of a major dispute between the US and China. I agree, and I think most serious foreign policy types already know this. Kevin Rudd’s recent visit to Washington seemed to be devoted, in large measure, to hosing down any expectation that Australia would line up with the US against China in any future dispute (a much more sophisticated line than the updated “All the way with LBJ” line, typically repeated by visiting PMs, up to and including Gillard). Even under the Howard government, generally gung-ho about the US, our diplomats sent the same kind of message from time to time.

Wesley also wants the Australian public to be more engaged and informed, pointing to the deplorable ignorance and anti-Indonesian prejudice surrounding the Schapelle Corby case. Actually, I think this was a good learning experience – most people eventually worked out that, while she cut a sympathetic figure in prison dress, Corby was given a fair trial, (if fact, the Indonesian courts had bent over backwards to give her justice, admitting evidence that would never be allowed in Australia)[1]. Australians are gradually adjusting to the idea of Indonesia as a friendly neighbor rather than a foreign threat. Even so, I think they are well justified in leaving to the experts the kind of diplomacy involved in telling three great powers what they want to hear, while committing ourselves to none of them.

 

fn1. While I’m on this, I’ll welcome the news that the death sentence imposed on Scott Rush has been commuted. This case was a far worse travesty of justice than anything in Corby’s case, but those most to blame were the Australian Federal Police, who sent Rush to possible death in Indonesia, rather than warning him off (as his parents begged them to do) or arresting him on arrival in Australia (which would have reduced their chances of convicting the ringleaders).

Economists for the price mechanism

I had a call from a local business organization asking if I would talk at a breakfast about the carbon tax to be held in a few eeks. The date was fine, so I said yes, then came the kicker – they wanted an economist on each side of the issue. The organizer said they had plenty of economists willing to speak for the tax, but they couldn’t find any willing to speak against it. I gamely offerd to present the case for an emissions trading scheme as opposed to a tax (even though, at the moment, I lean to a tax). But they wanted an actual opponent of any kind of carbon price, who was also an economist. This has proved to be impossible, which is pretty impressive testimony to the quality of the Queensland economics profession, and to the underappreciated fact that economists are among the strongest supporters of good environmental policy.

 

 

Some propositions for chartalists (wonkish)

I’ve been asked quite a few times about chartalism and its recent rebadging as modern monetary theory (MMT). My answer has been that I really should get around to looking into this. However, the issue came up again at Crooked Timber following my post on hard Keynesianism. Looking around, I drew the conclusion that an attempt to define and assess the various versions of MMT would take more time than I had available. So, instead, I thought I would draw up a set of propositions bearing on the claims I made about hard Keynesianism and invite comment from MMT advocates and others as to whether they disagree.  Here they are

1. Except during the period since the GFC, money creation has not been an important source of finance for developed countries

2. Except under extreme conditions like those of the GFC, money creation cannot be used as a significant source of finance for public expenditure without giving rise to inflation and (if persisted with) hyperinflation

3. Government deficits must be financed primarily by the issue of public debt

4. The ratio of public debt to GDP cannot rise indefinitely, since governments will ultimately find it impossible to borrow

5. The larger the deficits governments want to run during deficits, the larger the surpluses they must run in booms

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