The intellectual trend away from the political right in the US[1] has been going on for some time, reversing the trend in the opposite direction that dominated the 1970s and 1980s[2]. But this NPR interview with Richard Posner who says
there’s been a real deterioration in conservative thinking. And that has to lead people to re-examine and modify their thinking
is probably the most notable single example so far, for several reasons.
As I mentioned a little while back, I’m going to refrain (or at least try to refrain) from polemics on the subject of climate change in the future. As a first step, I’m happy to say that I’ve found a post by Andrew Bolt which I can recommend. Bolt links to this estimate by Damon Matthews that each tonne of CO2 emitted into the atmosphere changes the equilibrium temperature by 0.000 000 000 0015 degrees, that is 1.5*10^-12 in scientific notation. Noting that the carbon price is expected to reduce emissions by 160 million tonnes per year by 2020, Bolt makes the straightforward calculation that the emissions avoided in the year 2020 will reduce equilibrium temperature by 2.4*10^-4 or 0.00024 degrees.
Bolt stops there, perhaps having run out of time, so I’ll complete the calculation for him. Obviously to compute the impact of the carbon price we need to estimate the effect, not just for the year 2020 but for the entire period the policy is in place. That’s a complicated task, but let’s simplify by supposing that the policy stays in place until 2100 and that the 2020 reduction in emissions is maintained over this period. That gives a reduction in equilibrium temperatures of about 0.02 degrees, which coincidentally or not, is exactly what I estimated using a different method in a recent comments thread.
Of course, as we all know, this is a collective action problem – any one jurisdiction acting alone is not going to achieve much. Fortunately, most countries are doing something, even if they have adopted inefficient approaches like direct regulation in the US. So, let’s calculate what would happen if everyone adopted measures with effects comparable to those of the carbon price.
Australia accounts for about 2 per cent of the global economy, and about 2 per cent of total emissions (the latter depends a lot on which emissions are imputed where, but these estimates are imprecise anyway). So, if Australia’s effort with the carbon price is about average for the world as a whole, and these policies are sustained without change, Bolt’s calculation implies that the reduction in equilibrium temperature would be about 1 degree.
Bolt invites comments on whether such a reduction is worthwhile. Anyone who has looked at the impact of 1 degree of additional warming ought to agree that reducing warming by 1 degree yields a benefit far more than is needed to justify global adoption of policies like the current carbon price policy.
What this calculation shows is that we need to do more. Depending on your projections we need to reduce equilibrium temperatures by 2-4 degrees relative to Business as Usual. That will imply a carbon price at least twice as high as that implemented on Sunday. Comparing this week to last, I think we can probably bear the associated pain.
Bolt also links to this article by Michael Bachelard which states that the carbon price would reduce emissions by 5 per cent, relative to 2000, and gives an estimate by Roger Jones that this would reduce equilibrium temperature by around 0.004 degrees. As I’ve pointed out quite a few times now, the relevant comparison, and the one I’ve used in my calculations is between the carbon price and business as usual. That comparison yields a reduction of 25 per cent, and an impact of 0.02 degrees using Roger’s sensitivity assumptions. So, it looks like agreement all round.
(H/T John Humphreys)
The sharp drop in the price of coal over recent months might be just one of the fluctuations that go on all the time in commodity markets. That’s the preferred view of Fitch Ratings cited by Coalspot, saying “the weakness seen in thermal coal prices in recent months should reverse once demand from major importers recovers”. On the other hand, though “there is a risk low prices may persist into 2013, changing the industry’s supply side dynamics.” The crucial point is that most coal contracts are negotiated annually, so suppliers can ride out months, but not years, of low prices.
News from the US today increases the likelihood of a sustained drop in prices. The US Court of Appeals delivered a complete and unanimous rejection of an attempt to block regulation of CO2 emissions by the EPA, under the Clean Air Act. That could be overturned if the Repubs make a clean sweep in November, but otherwise it means, for practical purposes, the end of new coal-fired power plants in the US, and the shutdown of many existing plants. As noted in the Fitch report, declining US demand for coal is already pushing US coal onto world markets, contributing to the declining price.
Fitch is optimistic about demand from China and India, but there’s plenty of room for doubt about China. Not only does it appear that economic growth is slowing, but China is giving a lot of support to renewables which are now the focus of an incipient trade war with the US, and may also be expanding doemstic coal production. From whatever cause, coal is piling up on the docks.
The situation for metallurgical coal is a bit better, but not much. Iron ore and steel prices are also weakening, despite a recent rally.
What does this mean for Australia ?
By John Quiggin, University of Queensland
Economists are regularly criticized for worrying about Gross Domestic Product (GDP), and similar measures. The classic statement of the case was by Robert F Kennedy:
“Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product … if we should judge America by that – counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armoured cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.
“Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.”
Much of the time, this criticism is misplaced. For the purposes of medium-term macroeconomic management, that is, trying to maintain full employment and low inflation, it is important to measure how much economic activity is going in aggregate. If aggregate demand is weak, for example, it is sensible to stimulate the economy by cutting interest rates or increasing public spending. GDP is the best single measure of economic activity, precisely because it captures all output, taking existing market prices as the measure of value.
In the longer term though, the problems with GDP start to matter, even in relatively narrow issues of economic policy. In measuring economic performance, as opposed to activity, GDP suffers from three major drawbacks in this respect
It’s Gross – that is, depreciation of physical and natural capital is not deducted
It’s Domestic – that is, it measures output produced in Australia, even though the resulting income may flow overseas[1]
It’s a Product – the ultimate aim of economic activity is not production in itself but the income it generates, which should be taken to include the economic value of leisure, household work and so on
With two weeks to go before the carbon price takes effect, I thought it might be fun to collect a few of the predictions of economic disaster that have been made about this very modest reform. And these people call climate scientists “doomsayers”
Piers Akerman
Tony Abbott
Christian Kerr
Andrew Robb
David Murray
Barry O’Farrell
John Howard
The coal lobby
The entire Liberal party, in unison
Feel free to add any I’ve missed. And, if anyone would like to reaffirm the predictions of disaster, preferably using real names rather than pseudonyms, this is a great opportunity.
Update
Here’s Terry McCrann claiming a doubling of electricity prices, a claim originated by Alan Moran and picked up by Tony Abbott. My response
Andrew Bolt, claiming a carbon tax will be ‘ruinous’
Alan Jones, going too far even for the toothless ACMA tiger
George Brandis, blaming carbon taxes for the woes of Fairfax
The facts about inequality in the US, and increasingly in other developed countries, are now so clear-cut that the defenders of the status quo have little solid ground left on which to stand. So, they are mostly confined to arguments that have already been effectively rebutted. As new talking points emerge, it’s become increasingly easy to pick them out before they are fully formed and have a prebuttal ready.
That’s the case with data showing that income inequality arises mainly from differences in current incomes rather than from inheritance. As I pointed out a couple of months ago, the absence of large inherited inequalities is a logical consequence of the fact that the distribution of income in the postwar generation was relatively equal.
Sure enough, here’s the prebutted talking point, stated by John Cochrane[1], who asserts
There are a lot of facts: the widening distribution comes from a skill premium, not inherited wealth.
He goes on with some older points, long rebutted
It’s new people getting rich, not the old rich keeping more money. It’s pretax income, not the rich keeping more money. Consumption inequality is much less than income inequality. And so on.
In reality, income mobility is falling not rising, and the tax system has become less progressive not more. And I’ve dealt with the consumption inequality point here and here.
fn1. This is a bit disappointing to me. In his technical work in finance theory, which overlaps with mine, I’ve found Cochrane to be admirably precise in his analysis and sensible in his comments on the critical issue of the equity premium. But his contributions to the broader public debate over the past few years have been very poor (of course, there are plenty who say the same about me).
I’ve long had the suspicion that the Catallaxy blog is an experimental test of the Dunning-Kruger effect. The clearest examples have been Sinclair Davidson’s posts on the question of “no significant warming since 199x”, where it seems as if he is angling to get the most super-confident commentator to reveal the fact that they have no clue what statistical significance means, while being sure that they can do climate science better than those who have spent decades studying the subject.
Now, with this post by well known hip-hop artist Samuel J, the hypothesis is beyond doubt. The post itself is about as extreme an example of Dunning-Kruger as could be imagined, but clearly Sam is just daring the commentary team to outdo him. With the exception of a handful of killjoys who take the post seriously and point out how silly it is, they deliver.
Hat Tip: Harry Clarke, who scratches his head in amazement, here.
That’s the title of my latest post at The Drum (over the fold). It’s the latest round in my long dispute with the Productivity Commission on this issue, which flared up most recently here.
This is not an issue on which I’ve been impressed with the performance of either the PC or other economists who’ve weighed in to this debate (mostly associated with the business sector). As I point out below, my analysis is mainstream textbook orthodoxy, and led me to predict the productivity “slowdown” at a time when the PC and the others were proclaiming a miracle. But my arguments get even less attention now than they did fifteen years ago, when the PC was at least willing to reply.
Back in 2005, I wrote about the common experience of dealing with “ people who’ve shifted, politically, from positions well to my left to positions well to my right” (taking as an example, Nick Cohen). Paul Norton, about the same time, wrote along similar lines.
At the time, I mentioned that there weren’t many examples of people going in the opposite direction[1]. But as a commenter points out following this Ryan Cooper link to my last post on the collapse of the rightwing parallel universe, there are now lots of prominent US examples: David Frum, David Stockman, Andrew Sullivan, Bruce Bartlett and just now Michael Fumento. I’m quite surprised by Fumento, who has always appeared to me as a stereotypical culture warrior.
Of course, there isn’t an exact symmetry here, essentially arising from the fact that, whereas most of the L-R conversions happened at a time when the left as a whole was conceding a lot of intellectual and political ground to the right, the current situation is one where the US conservative movement and their international offshoots have moved sharply to the right and remain politically potent. So, it’s much more plausible for those making the R-L shift to claim “I didn’t abandon the conservative movement, it abandoned me”.
Still, never having had such a conversion experience I find it fascinating to observe. Particularly striking is the fact that a sharp change in position doesn’t much change the confidence with which views are expressed. Someone who was cautious and sceptical before a change in view will remain so afterwards. More strikingly, converts who held their old views with absolute confidence, will be equally confident of their rightness in abandoning those views.
fn1. Some earlier examples that occur to me now (all US) are David Brock, Michael Lind and Kevin Phillips. No tendency of this kind is evident in Australia as yet – I’d be interested in views from other countries.
Over the last few months, a string of seemingly solid pillars of the rightwing ideological establishment have crashed, or at least wobbled. The typical case has been one of over-reach followed by public exposure and then a rush of sponsors and other supporters for the exit. Examples include
* Rush Limbaugh’s attack on Sandra Fluke and subsequent abandonment by sponsors
* The failed attempt by rightwing operatives at the Komen Foundation to blacklist Planned Parenthood
* The exposure of ALEC’s responsibility for the “stand your ground” laws that played a critical role in the Trayvon Martin case
* Most recently, the Heartland Institute has seen sponsors bail and its entire Washington team (mostly focused on insurance issues) decamp, promising that their new operation will have nothing to do with climate “scepticism”
In addition to this, but arguably sui generis are
* the attempt (which looks like succeeding) by the Koch Brothers to take control of Cato, easily the most credible thinktank on the right of politics
* the denunciation of the Republican party by Norman Ornstein, long presented as the intellectually respectable face of the American Enterprise Institute
John Quiggin 