Eye of the needle, again (crosspost from Crooked Timber)

The US college admissions scandal is rolling on, seemingly endlessly. There’s been a lot of discussion of moral decay, hypocrisy and more. But no one seems to have mentioned the central point. The number of places in the Ivy League and similar schools has remained almost unchanged for decades, even as the demand for those places has been swelled by a wide range of factors, most notably by the growth in all forms of inequality, which is mediated in part by unequal access to education. Parents who want their children to maintain their position in the scale, or climb upwards, need to facilitate that access if they can.

There’s no fair way of allocating that limited set of places*, and, even if there were, the existing system is full of arbitrary roadblocks to some and loopholes for others. The standard way of allocating scarce goods in a market system is through willingness to pay, and that plays a big role in the process. But since an open market isn’t an option, willingness to pay isn’t enough on its own, and can’t be tied to directly to the admission decision. What you want, as this story says of Harvard is “well-off, multi-generational Harvard families [who] pay higher tuition and give more money” (ideally over a long period). Unsurprisingly, parents with money, but without the required social access have sought more direct methods of buying a way in for their children.

Catching and prosecuting a few parents isn’t going to change this, and neither is any reform of the admissions system. The problem can only be resolved by reducing inequality in society as a whole, and particularly, by increasing access to high quality post-school education. I have no clear idea how this goal should be pursued in the US, given the stratification entrenched in the system. Given the numbers involved, there’s a strong case for focusing on free access and more funding for community colleges, ideally with a transition path to four-year institutions. But I don’t understand the system well enough to know whether this would work. Regardless, the US case provides a warning for countries like Australia, where the leading universities (the so-called “Group of 8”) are keen to put more distance between themselves and the rest.

  • An system based solely on test scores, such as the SAT, would not be as obviously arbitrary as the current one. But it would clearly favor those with the resources to get test prep tutoring and so on. The Japanese example is not encouraging, at least from a distance.

Pinker polymathic

The New York Times has a piece pushing the idea that nuclear power is the solution to our environmental problems. It’s familiar stuff, citing the French success in the 1970s, the promise of Gen IV and small modular reactors, and so on. Indeed, two of the authors had an almost identical piece in the Wall Street Journal in January. What’s most interesting is that the set of authors[1] this time includes Steven Pinker, who seems to be spreading his claims to expertise yet more broadly[2].

None of the authors has any training or expertise in economics, AFAICT. So, they make extreme claims such as that South Korea and China can build nuclear plants at one sixth the cost of the US. With the abandonment of the nearly-complete VC Summer project, the only nuclear plant now under construction in the US is the 2GW Vogtle project in Georgia. That looks like coming in at about $20 billion or $10 billion/GW. Most estimates of Chinese costs are around $3.5 billion or one third of that – the most optimistic I’ve seen is $2 billion.

Moreover, it might have been worth mentioning that South Korea has stopped new nuclear power and China hasn’t started a new project in three years. In both cases, renewables have undercut even the lowest estimates of the costs of nuclear.

Also striking is a sudden shift in the argument about halfway through. The article begins reasonably enough, pointing out that the success of the French model in the 1970s depended critically on the large-scale deployment of a small number of standardised designs. (That wasn’t the only crucial feature, as I’ve pointed out before.) That contrasts sharply with the current situation where nearly every new plant is First Of A Kind, or close to. They point to US efforts to promote new nuclear power, including the Nuclear Energy Innovation and Modernization Act, recently passed through Congress by big margins (361 to 10 in the House, and a voice vote in the Senate).

Then suddenly, the article shifts gears, claiming that the crucial problem is irrational public fear of radiation, nuclear accidents and so forth. The obvious question to raise is: how does this supposed climate of fear manifest itself? Obviously not in a Congress, generally notable for bitter partisan division, where pro-nuclear legislation sails through with negligible opposition. Nor is there any evidence of significant resistance at the regulatory level, where numerous plants have had their licenses extended.

With the abandonment of the nearly-complete VC Summer project, the only nuclear plant now under construction in the US is the two-reactor Vogtle project in Georgia. Googling for Vogtle protests, I found numerous links to protests from shareholders, customers and others concerned about the massive cost overruns of the project. But the only anti-nuclear protest I could find was back in 2011, and appeared to have no effect at all on the project.

The myth that nuclear power would roar ahead if only public fear could be overcome is comforting to nuclear fans. But the truth is that the technology is doomed by economics.


fn1. The only author with any relevant expertise is Staffan Qvist who works on Gen IV reactors and has previously written policy pieces with our own Barry Brook.

fn2. I also write on lots of different things. On the blog, I’m happy to state my views on all kinds of topics, as I would in ordinary conversation. But when I write for the general public, citing my professional affiliation, I try to stick to areas where I have some claim to expertise.

What’s happening to the Australian Dairy Industry

I just recorded a radio interview for ABC Toowoomba on the dairy farmers’ campaign against supermarkets selling milk for $1. Here are my notes for the discussion

Consumer prices have increased 20 per cent since 2010, when the milk price was $1.30/litre, so to maintain the real price, the current price would have to be around $1.56.

Dairy producers in Australia have been under continuous pressure to increase herd size and reduce costs, with those unable to do so having to leave the industry or accept declining incomes. I first researched this topic in the early 1980s, when farm numbers had already fallen by about 50 per cent.

Since 1979, the number of dairy farms in Australia has fallen from 22 000 t0  5700. In Queensland the number has gone from 3000 to less than 400.

However, because of increased herd size the number of cows hasn’t changed much . Milk output per cow increased rapidly up to about 2000, so total production grew over that period before stabilising

The “cost-price squeeze” affects most agricultural producers but the problems of dairy farmers are exacerbated by the market power of supermarkets and their use of milk as a “loss leader”.  The decision to raise the price charged to consumers represents at least a symbolic step away from that practice.

Monopoly: too big to ignore

That’s the headline given to my latest piece in Inside Story

Here’s the opening para

Two hundred years after the birth of Karl Marx and fifty years after the last Western upsurge of revolutionary ferment in 1968, the term “monopoly capitalism” might seem like a relic of outmoded enthusiasms. But economists are increasingly coming to the view that monopolies, and associated market failures, have never been a bigger problem.

and the conclusion

The problems of monopoly and inequality may seem so large as to defy any response. But we faced similar problems when capitalism first emerged, and Western countries came up with the responses that created the broad-based prosperity of the mid twentieth century. The internet, in particular, has the potential to enhance freedom and equality rather than facilitate corporate exploitation. The missing ingredient, so far, has been the political will.

Queensland: A service economy

Lots of people, notably including political commentators, imagine Queensland as a state dominated by mining and agriculture, and presumed to think and vote accordingly. I’ve just collected some statistics in response to a query made to the university, and I thought they might be of more general interest.

Like Australia as a whole, the Queensland economy is dominated by services. As this table shows, agriculture and mining each account for about 2.5 per cent of total employment. This is marginally, but not significantly, more than for Australia as a whole (2.4 and 2.0 per cent)

Agriculture and mining together account for less jobs than service industries you might think of as relatively minor, such as Professional, Scientific and Technical Services or Administrative and Support Services.

Even adding in manufacturing, which, in Queensland, largely consists of processing primary products into outputs like food products and refined metals, the “old economy” only accounts for about 12 per cent of all employment. Health care and social assistance alone is larger

The primary production share of employment has declined over time, with fluctuations between mining and agriculture.  Development of new mines also accounted for significant employment in construction until about 2015, but this has now dropped off (hard to extract from the data, but easy to see by looking at the pace of new development)

Mining is a significant, but not critical source of revenue to the state government, yielding $5 billion out of a total of $58 billion. However, the Grants Commission takes access to royalty income into account in allocating GST revenue, so the actual benefit to Queensland is smaller than the $5 billion figure would suggest.


We shouldn’t be wasting time on (Issue I oppose)

Something I read a lot in political discussion is the claim “We shouldn’t be wasting time on Issue X”. Almost invariably, the writer clearly has strong views on Issue X, supports the status quo, and is aware that some change has majority support. So, their best hope is to avoid any decision at all. Of course, while statements like this logically imply that the speaker shouldn’t waste their own time on the issue, this inference is rarely drawn. The same people who tell us not to waste our time on some proposed change will spend lots of their own time fighting against it.

Feel free to point to examples or, for that matter, counterexamples.

The Coal Cartel ? Why Adani’s prospects haven’t improved

In my recent piece in The Guardian, mostly about Adani, I observed

The paradoxes of Adani are mirrored in the global coal market. Despite a small increase in 2017, global coal production is below its 2013 peak. Yet prices have recovered strongly, yielding big profits to existing miners and offering a seemingly tempting prospect for new mines.

It turns out that this isn’t quite right. The benchmark Newcastle price, for low-ash coal with a heat content of 6000kcal/kg has risen strongly, to the great benefit of companies like Yancoal, Glencore and Whitehaven. It turns out, however, that this increase isn’t representative of the broader market. Prices for lower quality coal with lower heat content and higher ash content haven’t moved at all, with the result that the premium between higher and lower grades has grown dramatically.

What’s going on here? One possible explanation is that Yancoal and Glencore, who produce the majority of Australia’s high-grade coal, have engaged in successful cartel behavior. Another is that the premium reflects shifts in demand (with China and India increasingly rejecting high ash coal, while Japan continues to demand high grade coal) and supply (few new mines are opening, and this has a bigger effect on the smaller market for high grade coal).

Whatever the explanation, most analysts agree that it is more likely to be resolved by a decline in the price of high-grade coal rather than an increase in the price of low-grade coal.

Where does Adani fit into all this. Most of the discussion I’ve found focuses on the premium between 6000kcal/kg and 5500 kcal/kg. Coal extracted from the Carmichael mine would be much lower quality, below 5000 kcal/kg.