Author: John Quiggin

CCS AWOL?

John Quiggin65 Comments

As recently as the Stern Review in 2006, carbon capture and storage from coal-fired power stations was seen as the most promising clean energy technology on offer. This was before the huge decline in the cost of solar PV and the more modest, but still substantial progress on wind energy. Since then, the technology has dropped off the radar, to the point that many reports don’t even mention it. But I just got an invite to a conference on the subject, so I thought I would take another look.

The blurb refers to a number of projects “Callide and Surat Basin in Queensland, CarbonNet in Victoria, and South West Hub in Western Australia”. A quick survey suggests that these are mostly at “proof of concept” stage, rather offering a technology that could actually be implemented on a large scale. Globally, the site says

The Global Status of CCS Report: February 2014 states that there are 12 large-scale CCS projects in operation globally and nine under construction. Overall, these 21 projects have a total capture capacity of almost 40 million tonnes of CO2 a year.

If my arithmetic is right, the entire global effort is about equivalent to the impact of Australia’s Renewable Energy Target:the large scale component calls for 41 000 GWH a year by 2020: my rule of thumb is 1MWh = 1 tonne CO2.

There’s also a report on CCS in the New York Times, which is optimistic, but very vague on cost.

That’s disappointing: from Australia’s point of view, a cheap, safe method of CCS would have resolved the climate change problem, at least as regards electricity, with no adverse impact on our coal industry. I’d be interested in comments from more informed readers.

Hazlitt and the glazier’s fallacy

John Quiggin21 Comments

I’ve been working for quite a while now on a book which will respond to Henry Hazlitt’s Economics in One Lesson a book that was issued just after 1945 and has remained in print ever since. It’s an adaptation of the work of the 19th century French free-market advocate Frederic Bastiat for a US audience, specifically aimed at refuting the then-novel ideas of Keynes.

My planned title is Economics in Two Lessons. In my interpretation, Hazlitt’s One Lesson is that prices are opportunity costs[1]. My Second Lesson is that, in the absence of appropriate government policy, private opportunity costs (market prices) won’t reflect social opportunity costs. Here’s a central piece of the argument, responding to Hazlitt’s exposition of Bastiat’s glazier’s fallacy.

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Productivity yet again

John Quiggin24 Comments

The ABC has yet another story about economists warning on the need for more productivity. It’s a mixed bag. First up, this from Professor James Giesecke from Victoria University’s Centre for Policy Studies

“We’re going to need a growth rate in multi-factor productivity more like the rates that we saw back in the ’70s and ’80s, about 0.7 per cent per annum, in order to begin increasing per capita living standards going forward

appears to mark an abandonment of the mythical 1990s productivity surge, though he goes on to talk about micro-economic reform. More clearly positively, a bit of attention paid to bloated and lazy management rather than telling the rest of to “work harder and smarter” Many economists are turning their eyes to the business sector to take the productivity baton from the labour market to galvanise growth. Finally, there’s this from Peter Harris of the Productivity Commission who has

nominated energy, health and education and other parts of the non-traded sector as candidates for reform. (emphasis added)

Wow! I would have thought that, 20 years after the Hilmer report, the Australian energy sector has been as thoroughly reformed as it can possibly be, short of going back to oil lamps. We’ve had corporatisation, privatisation, pool markets and full retail competition. And of course, the results are evident for all to see. Apparently, though, we are in need of more.
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Macrofoundations of Micro

John Quiggin4 Comments

I was very pleased with my post on this topic, making the point that standard microeconomic analysis only works properly on the assumption that the economy is at a full employment equilibrium.

But, it turns out, exactly the same point, using the same title, was made by David Colander 20 years ago

Colander (1993), The Macrofoundations of Micro, Eastern Economic Journal, Vol. 19, No. 4 (Fall, 1993), pp. 447-457

And he wasn’t the first. The term and the idea have a long history, including a contribution by my UQ colleague Bruce Littleboy

The term macrofoundations, I suspect, has been around for a long time. Tracing the term is a paper in itself. Axel Leijonhufvud remembered using it in Leijonhufvud [1981] . I was told that Roman Frydman and Edmund Phelps [1983] used the term and that Hyman Minsky had an unpublished paper from the 1970s with that title; Minsky remembered it, but doubted he could find it and told me that he used the term in a slightly different context. I was also told by Christof Ruhle that a German economist, Karl Zinn, wrote a paper with that title for a Festschrift in 1988, but that it has not been translated into English. I suspect the term has been used many more times because it is such an obvious counterpoint to the microfoundations of macro, and hence to the New Classical call for microfoundations. While he does not use the term explicitly, Bruce Littleboy [1990], in work that relates fundamentalist Keynesian ideas with Clower and Leijonhufvud’s ideas, discusses many of the important issues raised here.

Stafford by-election

John Quiggin32 Comments

Another big loss for the Newman LNP government here in Queensland, with a swing of nearly 19 per cent in the Stafford by-election. I did my little bit for this, speaking at a public forum on asset sales. However, since only the Labor and Green candidates showed up, and no-one in the crowd seemed inclined to vote for the LNP or Family First anyway, I doubt that my contribution to margin was noticeable.

Like Newman’s previous drubbing, this by-election was caused by the resignation of the sitting LNP member. However, whereas in the previous case, the resignation resulted from personal financial scandals, the member for Stafford was a doctor who resigned as a result of disagreement with Newman’s health policy. So, the outcome may fairly be interpreted as a rejection of the government’s approach, both in terms of policy substance and authoritarian style.

There is so much disillusionment with politics at present that just about anything can happen. My own guess is that the state election, due in March next year, will see Newman lose his own seat of Ashgrove (held on a margin of 5.7 per cent) and that no party will secure a majority. After that, who knows? Informed or uninformed speculation welcome.

Finance: global or international ?

John Quiggin9 Comments

I have a piece in The National Interest, looking at various recent events including the latest round of the Argentinian debt crisis, in which a New York court ruled in favor of a group of ‘vulture’ investors, led by a New York billionaire, and the agreement of the US Department of Justice and Citibank, involving a financial settlement to avoid a lawsuit over bad mortgage deals and CDOs in the pre-crisis period.

My central observation is that while legal forms are being observed, these are obviously political processes, with outcomes reflecting relative political power rather than any kind of neutral application of the law. So, the world financial system is part of international power politics: it matters a lot that Citibank is a US bank, while BNP Paribas is French and so on. This is very different from the picture of a global financial system independent of, and standing in judgement on, national governments that seemed to be emerging in the 1990s.

As an illustration, I found this ad put out by the ‘vultures’. To see my point, try interchanging “US” and “Argentina” throughout and assuming an adverse judgement by an Argentinian court against the US government.

ATFA-Full-Image

Condemned by history

John Quiggin192 Comments

So, after some farcical manoeuvres, the Senate has passed Abbott’s legislation removing the carbon price. I hope and believe that this outcome will be reversed in due course, but those who brought it about will stand condemned by history.

It’s not merely that this is a bad policy, which will impose large and increasing costs (depending on how long it takes us to get back on track) on Australia and the world into the future. Even more damning is the fact that this action is entirely based on conscious lies, embraced or condoned by everyone who has actively supported it.

First, and most obvious, no one (least of all Tony Abbott) believes that the government’s “Direct Action” policy is a superior alternative to the carbon price, one that will deliver emissions reductions more rapidly and at lower costs. It is, as everyone knows, a cynical ploy put forward simply to allow the government to say that it has a policy.

In reality, Abbott and the rest want to do nothing, and the motives for this desire are entirely base. For a minority of the do-nothing group, it is simply a matter of financial self-interest associated with the fossil fuel industry. For the majority, however, it is the pursuit of a tribal and ideological vendetta. Their position is driven by Culture War animosity towards greens, scientists, do-gooders and so on, or by ideological commitment to a conservative/libertarian position that would be undermined by the recognition of a global problem that can only be fixed by changes to existing structures of property rights.

Most of these people would describe themselves as climate “sceptics”. There is no such thing. That is, there is no one anywhere who has honestly examined the evidence, without wishful thinking based on ideological or cultural preconceptions, and concluded that mainstream science is wrong. Most “sceptics”, including the majority of supporters of the conservative parties, are simply credulous believers in what their opinion leaders are telling them. Those opinion leaders are engaged, not in an attempt to determine the truth, but in a cultural vendetta against their enemies or in an ideologically-driven attempt to justify a predetermined do-nothing position.

This is a sad day, but one that will come back to haunt those who have brought it about.

Zombie DDT myth reanimated

John Quiggin7 Comments

A large part of my blogging career has consisted of attempts at zombie-slaying: finding ideas that have been refuted by the facts, but that remain undead. Zombies are hard to kill, but one I thought had been permanently dealt with – the myth that Rachel Carson brought about a worldwide ban on DDT, leading to millions of deaths from malaria[1]. Although quite a few people helped to show that this wasn’t true, the lion’s share of the credit, at least in the blogosphere, goes to Tim Lambert (who stopped blogging a while back, though his site still runs a montly open thread). Tim and I laid out the facts in a 2008 piece in the English magazine Prospect which made the following points

* DDT has never been banned in anti-malarial use
* The failure of DDT to eradicate malaria was due to resistance, promoted by overuse in agriculture and elsewhere, exactly as Carson warned. Bans on agricultural use of DDT helped slow the growth of resistance
* The attacks on Carson were undertaken by tobacco industry lobbyists, seeking (among other things) to pressure the World Health Organization not to undertaking anti-smoking campaigns in poor countries

Our primary targets were Steven Milloy and Roger Bate‘s Africa Fighting Malaria organization.

Whether due to our efforts or not, the DDT ban myth seems mostly to have died. Milloy, whose links to tobacco have thoroughly discredited him, seems to be out of the pundit business altogether. He still has an adjunct perch at the Competitive Enterprise Institute but his web page there shows only two opinion pieces since 2008. AFM is also quiescent – its website doesn’t show any research activity since 2011 and its staff all appear to have paying jobs in free-market thinktanks, suggesting a zombie organization.

But the zombie plague always recurs and just now I’ve seen (via Ed Darrell) another instance, oddly enough in an environmentalist magazine Greener Ideal. The author, one Mischa Popoff is described as ” former organic farmer and USDA-contract organic inspector” and repeats the standard DDT myth before a segue into a defence of GMOs. But, as Ed Darrell points out, Popoff is being a bit cute here. DuckDuckGo reveals that he is in fact a Policy Advisor for The Heartland Institute and a Research Associate for The Frontier Centre for Public Policy (the latter being apparently a Canadian version of Heartland, as is the IPA in Australia. The site is down now, so I can’t check).

As long as Heartland lives, zombie ideas will never truly die.

fn1. As usual, the Australian right commentariat bought this one hook line and sinker. Miranda Devine excelled herself, but Blair, Bolt, Quadrant, the CIS and the IPA were all along for the ride.