Economics isn't as highfalutin' as the jargon makes it sound

Ross Gittins has a very nice piece in the SMH today, with some kind words about Economics in Two Lessons which he recommends as “the best book to introduce you to economics”. Ross says that the crucial concepts in economics are: Opportunity cost (of course!), the Invisible Hand (roughly, my Lesson One), imperfect competition, market failure and externalities (the microeconomic component of my Lesson Two).

His final para gives the lie to those who imagine economists oppose action to save the global enviroment

As for external costs (“negative externalities”), Quiggin notes that the leading British economist Lord Nicholas Stern has described climate change as “the biggest market failure in history”. So now you know why so many of the nation’s economists are appalled by Morrison’s dereliction.

The ash falls on the just and unjust alike

Looking at our elected leaders, it’s hard to avoid the feeling that we, as Australians, deserve the cataclysms that have been visited upon us in the last few months. And reading the international press coverage of the disaster, this is a theme that constantly recurs.

Yet its less than a year since 49 per cent of us voted for a policy program far better than that of the government that scraped in or the shell-shocked opposition that proposes to wait until 2022 before doing anything.

If it hadn’t been for any of half a dozen largely random factors (Shorten’s personal unpopularity, Clive Palmer’s advertising blitz, Labor’s clunky “big end of town”rhetoric and so on, we might have had the opposite result just as the polls predicted

Of course, a Shorten government wouldn’t have been able to prevent the bushfires, or even mitigate their severity in any way. We would have been a bit better prepared, since Labor promised to spend more on firefighting capacity, but changes in emissions policy would not even have taken effect. And of course, this is a global problem: efforts we make will mostly reduce the damage in other countries and vice versa.

Still, with a tiny but of luck, we would have had a government committed to doing our share as part of a global effort to reduce the risk of future disasters. That might at least have garnered some useful international sympathy, rather than the “serves you right” subtext of so much coverage.

The ash falls on the just and unjust alike. We must struggle to save what we can of the biosphere we have collectively done so much to destroy. And we must accept that sometimes luck won’t go our way.

Nuclear update: Gen III dies an early death

One of the more tenacious beliefs on the political right is that their support for nuclear power demonstrates superior rationality and openness to evidence. But the evidence is that, no matter what the structure of energy markets no one is willing to choose (new) nuclear power over any of the alternatives: gas, renewables and coal. That’s bad in the sense that the true costs of new and existing coal far exceed those of even new nuclear. But where those costs are factored in to decisions, it’s renewables (plus storage) that benefit.

Let’s look at the evidence. The World Nuclear Association currently lists “about 50” plants under construction, a number that’s been declining over time. A closer look reveals 47 plants, of which 23 are due to be completed this year or next (most are way behind schedule). The rest are due by 2026 reflecting the fact that hardly any have been started in recent years (a typical project takes 7-10 from initial construction to connection, if all goes well).

Adding in those modern (Gen III or III+) plants already in operation, the total contribution of modern nuclear to the world’s electricity generation capacity is likely to fall short of 100 GW, maybe equal to a couple of years of renewables (adjusted for differences in utilisation rates).

The only real hope is that of Small Modular Reactors, but even here the gap between claims and evidence is striking. Pro-nuclear advocates routinely write as if SMRs are an established solution, rather than a design that has so far not even reached the pilot plant stage.

If those on the political right would accept a market solution to decarbonizing electricity, including a carbon price and an option for SMRs, that would be a good deal for the environment. Sadly, there’s no sign of that happening. Rather, support for nuclear power is little more than an excuse for hippie-punching and intellectual self-congratulation.

Climate change and the strange death of libertarianism

It wasn’t that long ago that everyone was talking about the “libertarian moment” in the US. Now, libertarianism/propertarianism is pretty much dead. The support base, advocacy groups and so on have gone full Trumpists, while the intellectual energy has shifted to “liberaltarianism” or, a more recent variant, Tyler Cowen’s conversion to “state capacity libertarianism“.

Most of those departing to the left have mentioned the failure of libertarianism to handle climate change. It was critical for two reasons. First, any serious propertarian response would have required support ofr the creation of new property rights (emissions permits) and the restriction of existing ones (burning carbon). That would imply an acknowledgement that property rights are not natural relations between people (owners) and things (property). They are socially constructed relationships between people, allowing some people to use things and to stop other people from doing so. Second, the effort to deny the necessary implications of climate change inevitably resulted in denial of the scientific evidence that climate change was occurring. That contributed to a situation where most former libertarians are now Trumpists, happy to deny the evidence of their own eyes if that’s what the leader requires of them.

I’m working on a longer article spelling all this out. In the meantime, comments welcome.

Blackrock and the AAA rating

Blackrock, the world’s largest asset manager has announced some big steps towards divestment from thermal coal. As I observe in this article in The Conversation, Blackrock’s shift marks the point at which divestment has become the norm for financial institutions, and continued involvement with coal a choice that must be justified in the face of the evidence.

As has already happened with Adani’s Carmichael project, thermal coal miners and power station developers will soon find it impossible to get external finance except from government and government-backed sources, such as China’s Belt and Road initiative. The Australian government is already pushing in this direction.

That brings us to the next step in divestment: government bonds. The Swedish central bank has already dumped Australian government bonds in protest against our climate vandalism. As with earlier rounds of divestment, this is a small start that is likely to accelerate quickly. A large-scale divestment from Australian government bonds would lead to the loss of our AAA rating, and an increase in interest rates across the board, including home mortgage rates. That might finally shock the quiet Australians into realising how disastrous the choices they’ve made have been.

Economic estimates don't account for tragic bushfire toll

That;s the headline for my latest piece for Independent Australia Obviously, costs like ecosystem destruction and the deaths of millions of native animals can’t easily be put into the framework of the National Accounts. But, even if we stick to the National Accounts, Gross Domestic Product is a terrible measure of economic welfare. As I always say, there are three reasons for that; it’s Gross, it’s Domestic and it’s a Product.