Author: John Quiggin

A global climate deal without Australia

John Quiggin25 Comments

Over the last few weeks, there have been quite a few reports that the US, Japan, Australia and Korea are negotiating an agreement that would greatly reduce the availability of concessional funding for new coal projects. Recent reports, though, suggest that the US and Japan will make an agreement on their owmsn ter, leaving Australia (and perhaps also Korea) to go its own way. That has some pretty big implications for the Turnbull government and its position at the Paris Conference.

National and international development banks and export credit agencies, including Export-Import Banks in (South) Korea and the US, the Japanese Bank for International Cooperation[1] and the Export Finance Insurance Corporation in Australia have been a major source of finance for coal plants in developing countries like the Phillipines and Vietnam. With Chinese coal demand having peaked, and India shifting emphasis to renewables, the coal industry is counting on rapid demand growth in countries like these.

The reported US-Japan deal would eliminate funding for coal-plants that don’t use supercritical technology, and would require ultra-supercritical technology for all but the poorest countries.[2] Apparently, Korea has proposed weaker restrictions, and Australia weaker still. But rather than split the difference, Politico reports that the US and Japan will make a deal without Australia and Korea.

As far as I can tell, we are still in the stage of preliminary posturing. Some sort of compromise, or perhaps capitulation, may be reached. But if the US-Japan deal goes ahead without us, that will be a pretty clear signal that Turnbull is going to stick with Abbott’s anti-climate policies.

If such an outcome is possible in these talks, it’s also possible in Paris. Until now, I’ve assumed that the imperative for a global deal is such that even Australia’s weak proposals, and rejection of any credible policy, will be treated as acceptable. But now that Harper is gone in Canada, and Japan is working with the US, Australia is unlikely to find much backing for a recalcitrant position. While Korea might hold out on export financing, it is unlikely to want to be seen as sabotaging the entire agreement.

Hopefully, this is one of those situations where the export finance negotiations are still on a dynamic set under Abbott. Hopefully, Turnbull can see that the merits of being a global citizen in good standing, notably including continued friendly relations with Obama, outweigh any grumbles he might face from the LNP right.

Update An agreement has been reached. It looks pretty close to capitulation by Australia, though the government extracted enough concessions to call it a compromise. (Hat Tip: Cambo in comments).

fn1. I wasn’t clear about Australia’s involvement, since we don’t export or finance power plants, AFAICT. It appears that the agreement was formally made by the OECD, which requires unanimity. That makes the threat by the US and Japan to go it alone even more significant, I think.
fn2. Despite the impressive sounding name, ultra-supercritical plants still emit a lot of CO2, only about 10 per cent less than the subcritical plants they replace.

Armistice Day

John Quiggin42 Comments

As Armistice Day comes around again, I find it more and more difficult to avoid despair. Each new war seems even more brutal and pointless than the last, bringing nothing but ruin and destruction to all concerned. And yet, opposition to war in general, or even to involvement in any particular war, is increasingly being seen as unpatriotic.

My annual ritual of writing a post on this day hasn’t helped at all. I’ve repeatedly had it explained to me by learned commenters that the mass slaughter of 1914 to 1918 (and, by implication, the even more massive slaughter that followed it over the 20th century) was a right and necessary response to German imperialism, or that it must be understood in its historical context. I need only change a few place names, and substitute different enemies, to hear the voices of our present leaders, explaining the need for our armed forces to deliver more death and destruction, because “we must do something”. The fact that our current enemies are of our own direct creation, and that a decade or more of these wars has succeeded only it making matters worse, seems irrelevant.

Just about the only consolation is the fact that the scale and loss of life from war has been decreasing over time. Large areas of the world once riven by war now seem to be free of it, or nearly so.

Against that, however, is the ever-present shadow of nuclear cataclysm. The world has managed to survive, permanently within a few minutes of catastrophe, for 70 years now. But can that continue indefinitely? when belief in the rightness of war and the need for military strength is such a powerful force among ordinary people, and even stronger among the rulers who have the power to launch these weapons. Without radical changes in thinking, it seems almost certain that nuclear weapons will be used, sooner or later. Even a limited nuclear war, between India and Pakistan for example, would be a disaster as bad or worse than the World Wars of the 20th century.

Are recessions abnormal (crosspost from Crooked Timber)

John Quiggin14 Comments

I’m on to the macroeconomics section of my book in progress, Economics in Two Lessons. The key point of this section is that, whereas the academic economics profession has wasted most of the last thirty years on the project of founding macroeconomics on (some near approximation of) standard neoclassical microeconomics, the validity of the core results of neoclassical microeconomics depend on the assumption that the economy is operating at full employment[^1]. This observation isn’t original – it was why Keynes saw his theory as saving capitalism from itself. Even the title I used in this post on the macro foundations of microeconomics turns out to be a reinvention of the wheel.

Having noted the importance of the full employment assumption in the abstract, how relevant is it? If the economy is, with notably rare exceptions, at, or close enough to, full employment, then it seems safe enough for economists to continue, as the profession has for 40 years or so, to treat macroeconomics as a special subfield with little relevance to the rest of the discipline.

To put the question simply, are recessions abnormal?

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Grattan Institute advocates cutting university research funding

John Quiggin44 Comments

Andrew Norton of the Grattan Institute has received quite a bit of attention for a piece arguing that universities don’t need additional funding because money intended to fund teaching is going to support research instead. Norton suggests that the funding going to research is around $2 billion a year

University research matters to Australia, but the evidence that it improves teaching is less clear. Direct spending on teaching, by contrast, is far more likely to ensure that universities offer the high-quality courses students want.

The obvious question is, if university research is important to Australia, won’t cutting $2 billion (or some substantial component of it) from research funding harm our national interest. As the quote above shows, Norton merely asserts that redirecting funding from research to teaching will benefit teaching.

The core of Norton’s piece is a misuse of accounting categories. The implicit claim that, since university funding is allocated on a per-student basis, it must be intended entirely for teaching. The further implicit assumption is that the only research that should be undertaken is that explicitly funded through bodies like the Australian Research Council.

But this has historically never been the case. In Australia, and (as far as I know) in every other country, university academics are expected to undertake research as part of their duties, whether or not they have grant funding. The standard proportion, which hasn’t changed in my 30+ year involvement in the system is 80 per cent teaching (and associated service), 20 per cent research, which appears to be exactly the proportion cited by Norton.

It’s true that more transparency in the allocation of resources between teaching and research would be a good thing, if it were feasible. But as the travails of exercises like the Excellence for Research in Australia process have found, this is easier said than done.

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For-profit education: plenty of blame to go around

John Quiggin33 Comments

Success has a thousand parents, failure is an orphan. The truth of that proverb is illustrated by the blame game now going on around the disaster that is for-profit Vocational Education and Training (VET) in Australia. In the last couple of weeks, I’ve seen dozens of different stories illustrating the extent of the failure. The Oz alone has at least ten.

Reading these stories, it’s clear that this isn’t a matter of bad apples or abuse of the rules. The for-profit sector as a whole is delivering abysmally poor results while chewing up billions of public dollars.

Unsurprisingly, Labor is blaming the government for allowing this to happen. Equally unsurprisingly the Oz is running the line, pushed by Minister Simon Birmingham that it’s all the fault of the ALP who extended the FEE-HELP scheme to the VET sector in the first place.

I had to check back on the history, which reveals that this was actually an initiative of the Howard LNP government, announced in its final year, implemented by the Rudd Labor government, and carried on by the Gillard and Abbott governments. Victorian governments of both parties led the charge at the state level. So, there’s plenty of blame to go around.

But, that’s history. The real problem is that no one is willing to admit the obvious lesson, already evident from the US; for-profit education, funded by public subsidies, is a recipe for disaster.

I should concede though, that Birmingham is already edging towards the right answer, saying that he is and not as keen as he was to extend subsidies to bachelor and sub-bachelor courses at private colleges.

Another piece of good news is that the ACCC and Auditor-General are finally getting their teeth into this, doing what should have been done by the supposed regulator, the Australian Skills Quality Authority, which has been asleep at the wheel ever since it was established.

But no amount of tightening up at the edges can fix this problem. The only solution is to abandon subsidies to for-profit providers and put a serious effort into restoring and upgrading the TAFE system.

Finally, a blast from the past. Back in 2012, ACPET, the for-profit VET lobby group cited me as saying

“I think we will continue to see many examples of (dodgy) educational institutions. They are going to be much more common than examples of successful profit driven training or educational enterprises”.

The report in question (paywalled) concluded by quoting me as saying

The only solution is ultimately for the federal government to take over this area [of VET] and to then have a much more robust accreditation system for private providers than we have, and a much more sceptical one”

ACPET suggested that my position was reminiscent of the Flat Earth Society. At this point, I’d say the Flat Earth Society has at least as much credibility as ACPET.