It’s time again for weekend reflections, which makes space for longer than usual comments on any topic.
Category: Economics – General
Solar sums
Are you interested in switching to solar hot water and/or power? My UQ colleague Tim Coelli (mainly in the vineyard and holiday business these days, but still an adjunct professor) has done the sums, and says they come out looking pretty good for the package as a whole. Of course that depends on location, costs, available subsidies and so on. Tim has produced a spreadsheet so you can work it out for yourself.
The Importance of Being Earnest: How Superfreakonomics killed contrarianism
I missed out on the Crooked Timber book title contest (combine a classic title with a “How C did Y” subtitle in the modern manner) a while back, so here’s my entry. As regards earnestness, i’m riffing off Andrew Gelman, via Kieran Healy at CT, who observes “”pissing off conservatives” is boring and earnest?”
The main point, though, is that the fuss over the global cooling chapter in Levitt and Dubner’s new book is the first occasion, I think, where the refutation of specific errors has taken a back seat (partly because, in this case, it’s so easy) to an attack on contrarianism, as such. The general point is that contrarianism is a cheap way of allowing ideological hacks to think of themselves as fearless, independent thinkers, while never challenging (in fact reinforcing) the status quo. Here’s Krugman and Joe Romm, for example
The Goldman put
From the NYT on the remarkable profitability of Goldman Sachs
A big reason for Goldman Sachs’s blowout profits this year has been the willingness of its traders to take big risks — they have put more money on the line while other banks that suffered last year have reined in such moves. Executives say there are big strategic gaps opening up between banks on Wall Street that are taking on more risks, and those that are treading a safer path.
Hmm. I’d be willing to take big risks if I knew the Fed and the US Treasury were standing by, ready to pick up all my losing bets. In the circumstances, the guys at GS doubtless stand amazed at their own moderation in creaming off a mere $20 billion for the year.
Buying out brown coal
Today’s Fin (paywalled) leads with a story that the foreign owners of brown coal power plants are demanding that, instead of receiving compensation over time for the effects of the ETS, they should be paid a lump sum, in the billions of dollars, to shut down the plants. Given that compensation is to be paid, it is impossible for me to disagree with this. The whole point of the ETS is to reduce pollution, and that can’t be done effectively if major polluters receive payments that are conditional on continuing polluting activities.
But should they receive compensation. These plants were all in public ownership in 1992, when the Australian government first committed to reducing CO2 emissions (subject to the findings of the then-new IPCC). When Jeff Kennett sold them, the original buyers ought to have known they were taking a commercial risk regarding possible limits on emissions. Most of the current owners bought even later, after Australia had participated in the negotiation of the Kyoto Protocol.
The people who should be getting compensation are not investors who made bad bets, but the workers and communities who pay the price for their bad decisions. More on this in this paper with Flavio Menezes and Liam Wagner.
Ostrom and Williamson win Nobel
The award of the Economics Nobel (yes, yes, I know) to Elinor Ostrom and Oliver Williamson came as a big surprise, but is certainly welcome. I’ve always been keen on Ostrom’s careful and empirically-based analysis of common property systems (I did my Master’s thesis on this topic, and wrote a bunch of papers about it back in the 1980s), in contrast to the factually false Tragedy of the Commons story pitched by Garret Hardin. And Williamson’s work on transactions costs transformed the way economists think about these things, though we have yet to offer a fully satisfactory account of them.
Update Over the fold, an extended version I wrote for Crikey
Monday Message Board
Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.
The irrelevance of the financial sector
Here’s my piece from the Fin on Thursday
The macro wars
Paul Krugman’s piece on “Why did economists get it so wrong” has attracted a vitriolic response from John Cochrane, reproduced here. Krugman’s piece was strongly worded, but the reply ups the ante, and I expect further escalation. Economics conferences in the next few years are going to be interesting events.
Given that, as Krugman himself notes, disagreements between economists were notably mild until the crisis erupted, what is going on here?
I’m visiting Berkely at present and just had a chat with Brad DeLong. These are some of the thoughts I had about the great macroeconomics wars as a result.
Hansen on climate change over centuries
Following my recent post, a number of commenters suggested that I ought to respond more directly to the arguments of James Hansen and others for a CO2 target of 350 parts per million, as opposed to the 450 ppm that forms the basis of much current policy discussion. I’m using this paper as a basis, and take the following two points as its central claims
* To avoid unacceptable risk of passing a point of no return beyond which explosive feedbacks (icecaps melting etc) are inevitable, we should aim to reduce CO2 concentrations to 350 ppm by 2100. This is below current levels and won’t be achieved simply by ending net emissions
* We can achieve part of this (maybe a reduction of 60 ppm) through reforestation, biochar and similar measures
* Further reductions will require expensive technological solutions, estimated cost $200/tonne or $20 trillion to remove 50 ppm. Given a maximum point around 450 ppm and 50 ppm from reforestation, that’s about the amount required.
What then should we do? In particular, how much should we be willing to pay now, to avoid high costs in the second half of this century?
John Quiggin 