King Cotton is dead, long live King Gas

I have a post up at The National Interest, arguing that embargoes imposed by commodity export countries in pursuit of geopolitical objectives rarely, if ever, work. Opening paras:

At the beginning of the Civil War, the leaders of the South were, as is normal at the outset of war, confident that their superior military prowess would yield a rapid victory. But the Confederates had another reason for confidence: their possession of a near-monopoly in the market for the most important commodity of the day: cotton.

Like oil in the twentieth century, cotton was vital to the industrial economies of the nineteenth, and particularly that of Britain, the preeminent naval and military power of the day. And the Southern United States was the world’s dominant producer of cotton, accounting for 77 percent of British imports in the 1850s.

Rhetoric about ‘King Cotton’ matched the most hyperbolic claims about ‘energy superpowers’ to be heard today. In 1858, South Carolina senator James Hammond said ‘old England would topple headlong and carry the whole civilized world with her…. No, you dare not make war on cotton. No power on earth dares to make war upon it. Cotton is king.’

The most immediate application, obviously, is to Russia and gas. Feel free to discuss the broader issues raised by the Ukraine crisis.

March in March statement

I was invited to speak at last Sunday’s March in March, but was unable to go as I was entered in a triathlon in Mooloolaba[1]. So I wrote a statement to be read at the meeting, which was then published in in Independent Australia[2]. It’s over the fold.

After I wrote this statement, there was a bit of discussion in comments here as to whether the March was a party-political event in support of the ALP. I have no information about the organizers, but they were certainly happy to take a statement critical of both major parties

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Abbott and tribalism

I’ve been too busy to post much, but I’ve written a number of articles over the past month or so that might be interesting to readers here. This one, published by various Fairfax papers looks at the damp squib of the G20 finance ministers meeting, and links it to the Abbott government’s elevation of tribalism over good government, and even over market liberal ideology.

There’s a follow-up here from Charles Richardson at Crikey and something more on similar lines by Rob Burgess at the Business Spectator

Capabilities as menus: A non-welfarist basis for QALY evaluation (Crosspost from Crooked Timber)

This is a contribution to a discussion of Sen’s capability approach, taking place at Crooked Timber. It’s a bit too wonkish for the CT readership, it seems, and maybe the same here, but I’ll toss it up anyway.

Most of the discussion of capabilities has concerned poor/developing countries. Moreover, most of it has been qualitative rather than quantitative. One consequence is that, although the idea of capabilities has been around for a while now, its impact on the policy process in developed countries has been modest at best.

My own work on capabilities, represented by an article[1] published last year in the Journal of Health Economics has also had a modest impact, but for very different reasons. While not strictly quantitative, it’s mathematical, more so than the average reader of JHE tends to be comfortable with, and its direct relevance to policy is limited by the fact that we are, at least to start with, not addressing distributional issues.

The main objective is to explore the idea that capabilities can provide a basis for allocating health care resources based on the QALY (Quality-Adjusted Life Year) measure. in previous work, we looked at the “welfarist” idea that policy should be based on maximizing lifetime expected utility. It turns out that, considered purely as a technical problem, this can’t be done, except in very special cases. The appeal of capabilities is that they provide a non-welfarist (or at least ‘extra-welfarist’ in that it is more than a simple expected utility maximization) rationale for policies involving scarce resources like health care.

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Reef saved?

Following a similar announcement last week by Lend Lease, and earlier announcements by BHP Billiton annd Rio Tinto, mining company Anglo American has withdrawn its proposal to take part in the expansion of the Abbot Point coal terminal. That leaves only two proposals, both from Indian companies owned by billionaire entrepreneurs reminiscent of Bond, Skase and other Australian heroes of the 1980s. Both Adani and GVK are heavily indebted conglomerates of the type that invariably emerge when money is cheap, and mostly collapse when the tap is turned off.

It’s not surprising that these companies have not yet abandoned their bids. Doing so would involve booking huge losses on their mining prospects in the Galilee Basin. But, it’s hard to believe anyone is going to lend them the billions required, not just for the port expansion, but for a 500km rail line and the mine itself. The price of coal is well below the level required to cover the costs of extraction and transport, let alone to provide a return on capital. And if Adani and GKV don’t build the rail lines, the development of the entire Basin will grind to a halt.

The end of the Abbot Point expansion and the proposals to mine the Galilee Basin would be a huge win for the Barrier Reef and the entire planet. The port expansion will involve the dredging of millions of tonnes of waste, to be dumped in the Great Barrier Reef Marine Park. But far more dangerous is the Galilee Basin itself, containing at least 25 billion tonnes of coal. That would produce around 50 times as much CO2 as Australia currently generates every year.

And, unsurprisingly, both Gina Rinehart and Clive Palmer hold big stakes (though Rinehart wisely offloaded much of hers). So, as well as saving the Reef and the planet from some imminent threats, the abandonment of the Abbot port expansion and rail line will clip the wings of some very unappealing billionaires. Here’s hoping.

Don’t blame me: I voted for Kodos

Former Queensland Transport Minister Rachel Nolan (whose argument for privatisation I discussed here) has a piece in the Brisbane Times attacking the Electrical Trades Union (disclosure: I produced a report on electricity privatisation for the Victorian branch of the union). The headline is “The ETU is nobody’s friend“, and that pretty much sums up the article – Nolan’s complaint is that the ETU has had the temerity to attack both the previous Labor government and the current LNP government over the same issues, broken promises and support for asset sales.

As Nolan admits, Labor suffered from a

a widely perceived breach of trust – the fact that Labor went to the 2009 election on a slogan of “Jobs, not cuts” and then announced a program of asset sales seemingly as soon as the result was declared

With the exception of the weasel words “widely perceived” and “seemingly”, this is spot on. And the voters reacted long before the ETU had a chance to mount a campaign. Labor’s support plummeted in the polls and, with the exception of a brief blip after the 2011 floods, never recovered.

Now, Nolan complains, the ETU is doing the same thing to the LNP government whose victory they assisted by campaigning against the asset sales. Why? Well,

LNP members’ willingness to stand by the ETU[1], hands on hearts telling us they didn’t believe in Labor’s asset sales, is an act of breathtaking hypocrisy – perhaps bettered only by the pre-election reassurances they gave public servants – with which they now have to live.

So, the crime of the ETU is not to criticise asset sales or dishonesty. It would be fine, according to Nolan, if they made these criticisms of one side (preferably the LNP) and ignored similar actions by the other. But to attack both sides indiscriminately is to undermine the very foundations of the two-party system.

All of this makes sense in Nolan’s world view. As she says in her Monthly article “ Australians have little philosophical grasp of the (rightful) diminution of governmental power which deregulation has brought”. Hence, it is necessary for the two major political parties to lie at election time, in order to secure office and implement the policies on which they both agree. A good friend, in Nolan’s world is a person who picks one of the interchangeable teams, and sticks to it.

And finally, there’s this little gem where Nolan (Ipswich Girls Grammar and UQ alumna) makes clear her contempt for ordinary workers, and for hard-won working conditions, abundantly clear

It might be fun for the bruvvers to chant on their RDO before heading off for a few beers but most people aren’t just troglodytes who are opposed to everything – they do not share the distorted world view of the ETU.

Perhaps if she rechecked the results of the last election, she might conclude that “most people” with whom she mixes are not a particularly representative sample of the Queensland public, and that the “bruvvers” are actually a bit closer.

fn1. As far as I can tell, the claim of “standing by the ETU” is bogus. To the best of my knowledge, the ETU never gave the LNP any support or expressed any faith in their promises. But, thanks to the two-party system, attacking one party is seen as equivalent to supporting the other.

fn2. Thanks for alerts on this from my wife Nancy and from commenter Megan.


Identity Crisis

In the latest issue of Gerard Henderson’s Sydney Institute Quarterly, Adam Creighton, economics correspondent at the Oz, “explains why most Australians pay no net tax”. That’s a striking conclusion, so I checked it out. Creighton has discovered that most Australians get about as much back in transfer payments and public services as they pay in taxation. The poor get a bit more, and the rich a bit less.

To save Creighton some work in future, can I suggest he consider the budget identity constraint “Expenditure = Income”. Since the government spends on services and transfer payments roughly the same amount as it raises in tax revenue[1], it’s obvious that, for the average Australian the same identity must hold, with income renamed as “tax paid” and expenditure as “transfer payments and public services”.

Next up: Why there is no net travel into the CBD

fn1. Taking account of the seignorage from inflation, returns on assets, intertemporal transfers through debt etc, this rough equality becomes an identity. Please, no arguments about deficits, and especially about MMT. The point of this post is a really simple, and doesn’t need this kind of complication.