Month: June 2019

Opportunity cost, MMT and public spending (crosspost from Crooked Timber)

John Quiggin10 Comments

I’ve been busy for the last week doing events for Economics in Two Lessons, so I didn’t have time to take part in the discussion arising from Harry’s post on alternatives to Sanders’ proposal to wipe out college debt.

In one way, that’s a pity because the key point of the book is the idea of opportunity cost – the true cost of anything, for us as individuals, and for society as a whole, is what you must give up to get it. More precisely, it’s the best alternative available to us.

Harry’s post was all about opportunity cost – what would be the best use of $1.6 trillion in public funds. However, the discussion was inevitably enmeshed in the complexities and inequities of US education, while comments making broader arguments about opportunity cost reasoning weren’t discussed in detail.

One of those broader arguments is the idea that, thanks to Modern Monetary Theory, there’s no need to worry about such questions. In the “chartalist” reasoning underlyng MMT, the fact that governments can issue their own sovereign currency means that there is no need to “finance” public spending by taxation; rather taxation is a tool used to manage aggregate demand so as to keep the economy fully employed but not at a point where excess demand creates inflation. That (essentially correct) position can easily slide into the (only subtly different, but radically mistaken) view that governments can spend money on anything they like with no need for any increases in taxes or cuts in other spending.

As I will argue over the fold, a correct version of MMT makes no such claim. Unfortunately, while avoiding the error themselves, a lot of MMT theorists have not shown much willingness to set their more naive followers straight.

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Gleebooks Tomorrow

John Quiggin8 Comments

I’ll be doing the Sydney launch of my new book, Economics in Two Lessons at Gleebooks tomorrow (Thursday 27 June). I’ll be talking to the always insightful Peter Martin, so it should be a great event. Details here.

Last night’s Brisbane launch, at Avid Reader with Paul Barclay (ABC Radio, Big Ideas) was very successful

Less empty space than at Trump’s inauguration!

Freedom of contract or freedom of speech

John Quiggin109 Comments

A number of comments on the Folau case have made the point that Folau failed to pay attention to the terms of his contracts with Rugby Australia [1] and also with GoFundMe, with the implication that he has only himself to blame for the outcome .

That’s a cute debating point, but it’s not one that should be used by those of us concerned with protecting workers’ rights. The use of contractual terms to constrain what workers say and do outside working hours is a misuse of the power of employers and a danger to free speech on issues of all kinds. The fact that we don’t like Folau’s use of this freedom shouldn’t lead to a retreat from the principle that, within very broad limits, what we do and say in our own time is no business of the boss.

The issue with GoFundMe is less problematic: funding a legal dispute is not obviously part of the site’s mission[2]. But we should be wary of the idea that Internet platforms should be able to set whatever terms of service they like and interpret them as they wish.

fn1 As with just about everything in this case, the exact status of the contract is a matter of dispute

fn2 neither is this much-mocked request by two layabouts for money to fund a trip to Africa that is beyond the resources of the mother who is currently working two jobs to support them in idleness)..

A message from the recent past

John Quiggin6 Comments

That’s the headline from my latest piece in Inside Story, in Libra, Facebook’s newly announced cryptocurrency. Opening and closing paras below

Facebook’s announcement that it is launching a #cryptocurrency called Libra raises two questions. Will Libra compete with the most famous cryptocurrency, #Bitcoin ? And what is a cryptocurrency anyway?

…

Ultimately, the crucial part of the name is “crypto.” What Bitcoin and Libra have in common is a desire to avoid the constraints of government regulation of financial markets by burying their operations in layers of technological mystery. These aspirations, brought together in the term “fintech,” reflect the market libertarianism that dominated both the technology and finance worlds in the heady days of the 1990s, and persisted even after the global financial crisis of 2008. It remains to be seen whether such aspirations will flourish in the current, much less favourable environment

Radio appearances

John Quiggin3 Comments

I’m doing a run of radio interviews this week, including

  • A discussion of Economics In Two Lessons with Nick Rheinburger, morning presenter for ABC Illawarra
  • A talk about the history of Australian farming, with Annabelle Quince of Rear Vision, the history program on ABC RN
  • A discussion of the resurgence of socialism with Tom Switzer on ABC RN Between The Lines

The first interview should go to air on Thursday morning. I’m not sure about the other two

Backing yourself

John Quiggin19 Comments

The AFL has handed a lengthy suspension to Collingwood player Jaidyn Stephenson, who was found to have bet a total of $36 on exotic bets, including one that he himself would kick a goal. Stephenson was silly to make the bets, but clearly there was nothing sinister here. This article points out the hypocrisy of the AFLs high-minded stance in combination with their eagerness to take money from the betting companies.

On the other hand, the availability of bets seems to me to make corruption inevitable.

Suppose that a player is willing to break the rules and is short of money. They can get a friend to back them for a large amount to score a goal. Then, they have a strong incentive to take a shot whenever the chance presents itself, even if they could pass to a team-mate in a better position. Or, they could get their friend to back a particular team-mate and pass to that player whenever possible.

I’ve wondered about this for a long time. Is it happening? It seems like it would be just about impossible to detect. It’s worth comparing horse racing, where there have been plenty of examples, even the options for cheating are far more limited – in essence, doping the horse, doing a Fine Cotton style substitution, or riding to lose in full view of the stewards.

The big yellow grader, one last time

John Quiggin29 Comments

Adani is getting on with the job of building its Carmichael coal mine as opponents prepare for a renewed campaign of protests.

That’s the lead in this SMH story about the Carmichael mine. But the picture released is the same yellow grader that’s been there for months.

This is a puzzle. On the one hand, Adani’s pronouncements exude confidence that the mine will be shipping coal within a couple of years. That was reinforced in a recent interview with Gautam Adani himself.

On the other hand, the company is showing no signs of urgency about getting to work. They’ve advertised only four jobs on their portal this month, after cutting lots of staff last year. And there’s been no announcement regarding contractors, consulting engineers and so forth, even though all their previous partners have either been sacked or walked away.

Given the subsidies Adani has recieved in India, the project might just be financially viable. But if so, why isn’t the corporation rushing to get it done while the political stars are aligned.

Adani again

John Quiggin25 Comments

In pointing out that Adani’s Carmichael mine wasn’t viable without government help, I focused on the possibility of a concessional loan from Australia’s Export Finance Insurance Corporation. As commenters have pointed out, Adani (a prominent crony of Indian PM Modi) looks like being able to charge above-market prices for electricity in India. I’m not clear whether this helps much to make the Carmichael project viable. Over the fold, an exchange I had with Charles Worringham.

In other news, it seems likely that Adani will move fairly slowly even after the environmental clearances come through. They’ve announced on their Facebook page that they are filling “more than 50” positions for pre-project work, and there are a dozen or so HQ jobs listed on their jobs portal. That’s a long way short of their announcements in January that they were ready to start digging the moment they got the go-ahead.

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