My column from yesterday’s Fin, comparing the US subprime lending boom with PPPs in Australia, is over the fold.
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Category: Economic policy
Ozonomics in Brisbane
For any Brisbane readers who haven’t already made their plans for this evening, there’s a book event run by the Brisbane Institute at the Customs House tonight. Andrew Charlton will present a talk on the title “Inside the myth of Australia’s economic superheroes” based on his new book, Ozonomics Charlton is the co-author with Joseph Stiglitz, of Fair Trade for All. Of the new book, Stiglitz writes
Charlton makes a convincing case that Australia’s remarkable performance is not because of the Howard Government – indeed, it may be despite it.’
More details here
A Sterner Review from RFF
Via Joe Romm at Climate Progress this report by Thomas Sterner and Martin Persson from the leading US environmental thinktank, Resources for the Future*, endorsing the key conclusions of the Stern Review. (Given the apt surname of the first author, it’s called “An Even Sterner Review”).
As in my own assessment, Sterner and Persson argue that Stern underestimates nonmarket damages from climate change.
For a related comment on a piece by Ron Bailey, with lots of useful links, including an earlier version of this paper, here’s Tokyo Tom
A bit more on housing
I expanded my post on housing affordability into a piece for the Fin, published yesterday. The suggestion of replacing stamp duty with land tax produced a letter from someone whose argument (if I got it right) was that homeowners would be better off if stamp taxes were abolished and not replaced with anything. True, and while we’re at it, free expresso and ponies all around would be nice.
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Risk and Social Democracy
The Centre for Policy Development has just published a piece I wrote for them, called The Risk Society: social democracy in an uncertain world. You can download the PDF here. Discussion has already started at CPD, so you’d probably do best to comment there.
Thatcherism after Blair
While there will doubtless be plenty of discussion of Blair’s contribution on his departure, it might be more useful to take a step further back and re-evaluate Thatcher. When Blair took office, he was generally seen as offering Thatcherism with a human face. Thatcher herself was generally seen,as a successful (counter-) revolutionary and aspirants to the Tory leadership were still competing for her mantle.
Ten years later, the picture is quite different, superficially at least. Brown seems much more Old Labour than Blair, and Cameron is eager to be seen as anything but Thatcherite.
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Scorcher
I reviewed Clive Hamilton’s Scorcher: The Dirty Politics of Climate Change in the Fin on Friday. It’s over the fold.
I was amused to read, the next day, the Oz praising emissions trading as The free market way to save the world, and noting “the rapid change that has taken place in community and business attitudes over a relatively short period of time as the science of climate change has become more widely known and better understood.” Of course, it would have been more widely known and better understood if it weren’t for the continuous attacks on the science that the Oz was making right up to the last possible moment.
Meanwhile, I notice lots of others making an inelegant retreat from Lavoisier-style scientific delusionism to the long-prepared Lomborg line that it will all cost too much. But, thanks to the Stern Review, the recent statement by Australian economist the forthcoming IPCC report and even the PM’s Task Group, that line has already been outflanked. We’re down to arguing about details and numbers now, an argument where rightwing bloviators have little to contribute. Howard has belatedly realised the fact, accepting both emissions trading and quantitative targets (but not until 2008!).
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CEDA lunch on emissions trading
Yesterday, I spoke at a CEDA (Committee for the Economic Development of Australia) lunch on the topic “What would life be like with an emissions trading system for Australia”. Shorter Quiggin: Much as it is now. Slightly longer version: For the average household, it will be a bit like the GST, with some initial disruption and relative price changes, becoming effectively invisible as carbon costs are factored into prices throughout the economy. Other speakers were Paul Simshauser from Babcock and Brown (owners of electricity generators and other infrastructure) and Stuart Dix from e3 International, a firm with a lot of experience in emissions trading markets.
The audience was similarly made up of likely buyers of emissions credits (Stanwell and other electricity generators), sellers (geothermal and other carbon-free sources) and intermediaries (accounting companies, consulting engineers and so on). They are looking at decisions on the billion-dollar scale over the next few years
A couple of points of interest:
* In addition to the usual free lunch and bottle of wine, speakers were rewarded with 17 trees worth of carbon credits, roughly a year’s worth of CO2 from driving for the average motorist.
* The delusionist idea that the whole thing is a hoax dreamed up by scientists looking for research grants/the UN seeking world domination/the Illuminati didn’t get a mention, even in refutation. Unlike the rightwing commentariat and some senior political figures, serious businesses have concluded that the main game now is how emissions trading should work, not whether we should have it.
Saving up the big stuff?
The Budget announced last night has widely been described (both favorably and otherwise) as “clever”. There are tax cuts across the board, with the biggest proportional benefits going to low-income earners. And there are lots of spending initiatives, particularly targeted at areas where the government is vulnerable because of past cuts. There’s a lot of money for universities (which, unsurprisingly, I welcome) partially reversing the cuts of the Vanstone-Kemp era. And the Commonwealth has resumed funding for dental services ten years afer this was abolished. Similarly, there’s a bit more money for alternative energy, an area that’s been cut in the past.
But (again as lots of people have pointed out) there’s no big idea here. Overall the tax cuts continue a pattern of returning real and nominal bracket creep, leaving the share of national income going to the Commonwealth effectively constant. And the new expenditure that’s been announced consists of lots of little things, some better than others, but none likely to make a fundamental difference to the way people perceive the government.
This Budget would make political sense if the government were cruising towards victory, and just needed to shore up its support. But it seems unlikely to do much to claw back the big lead Labor currently enjoys. Maybe the government is confident of winning on the IR front, and doesn’t think it needs any more than this. But that seems unlikely to me.
My guess is that the government is saving up something big for the election campaign. An obvious area would be climate change, where the Budget had only token measures. Alternatively, we might see a relaunch of the water plan. Finally, although the Budget had plenty of money for transport infrastructure, I was surprised that the Melbourne-Brisbane railway proposal, which was the subject of some pretty confident leaks, didn’t get a run. Maybe the government is planning to go the whole hog and announced support for the plan for an inland rail line from Melbourne to Darwin. This proposal has been kicking around for years, and Melbourne-Brisbane can be seen as the first leg.
Economists lining up on climate change
Today’s Fin includes a full-page ad from five prominent financial market economists, calling for the introduction of a carbon trading scheme to reduce greenhouse gas emissions (paywalled, but it gets a brief mention here in the Oz). Meanwhile, Crikey yesterday ran a piece by another financial market economist, Michael Knox. Knox multiplies the estimated social cost of CO2 emissions from the Stern review ($85/ton of carbon) by total carbon consumption to get an estimated 5.3 per cent of GDP, and concludes (contra Stern) “This means that the cost is not 1 per cent of GDP but 5.3 per cent of GDP.
But Knox has the problem back to front here. He has calculated the cost to the world of Australia’s carbon emissions. Equivalently, this is the revenue that would be raised by a carbon tax of $85/ton, assuming a zero price elasticity of demand.
But the 1 per cent estimate of Stern, with which he is comparing his numbers is the cost of reducing emissions by 50 per cent relative to business as usual. Assuming the policy adopted was a carbon tax, with zero exemptions, the appropriate measure is the welfare triangle of deadweight loss. Knox has instead calculated the rectangle of revenue, a standard mistake for beginners in welfare economics, but a bit surprising to see from a senior financial economist.
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John Quiggin 