Category: Economics – General

ABARE on the costs of climate change

John Quiggin62 Comments

I’ve been reading the latest ABARE report on climate change, kindly sent to me by my colleague Renuka Mahadevan . While there are some problems with the analysis and even more with the way it’s been reported, the central findings are strikingly consistent with estimates I’ve made about the costs of stabilsing global CO2 levels, most recently here

All the evidence, though, is that we can reduce emissions to levels consistent with stabilising global CO2 levels over the next few decades at a cost of around 5 per cent of GDP – a few years worth of economic growth at the most. Quite possibly, as in previous cases, this wll turn out to be an overestimate.

ABARE studies a number of scenarios in which global CO2 levels are stabilised at 575 parts per million in 2100 and reports the estimated reduction in global product at 2050, which ranges from 1.7 per cent to 4.3 per cent, or from a bit under 1 years per capita growth to a bit over 2 years. That is, in the worst-case scenario (which is somewhat problematic in modelling terms, I think), the living standards in 2150 will be those that would have been reached in 2048 under the base projection.

ABARE is not known for lowballing the estimated costs of mitigating climate change, but if you’re going to do a credible modelling exercise, it’s inevitable that numbers of this magnitude will emerge. This simply reflects the fact that carbon-based fuels make up only a modest proportion of the value of total output, and that the demand for carbon (or more precisely C02) emissions is bound to be at least moderately elastic in the long run.

BrisScience, 31 July

John Quiggin12 Comments

I’ve been very much enjoying attending the BrisScience lecture series, and next week I’ll get to give one. I’m talking on Monday July 31 at the Ithaca Auditorium, City Hall, on the topic “Economics: The Hopeful Science” (6pm for 6:30). The theme of my talk, which should be familiar to readers of this blog is that we can (and must) have both economic growth and protection of the environment.

Congestion taxes

John Quiggin42 Comments

The issue of congestion taxes has been raised in several SMH articles recently, and the blogs have been all over it.

This is one of many policy ideas in Australia that make obvious sense, but don’t have any big political interest behind them to offset the natural resistance of the political system to anything new.

Public-Private Partnerships get things pretty much the other way around. In most cases the economic case is weak or worse, but there’s a massive and well-financed lobby that stands to gain hundreds of millions from such deals and is happy to share some of the wealth with pro-PPP politicians, who are more or less guaranteed cushy jobs at megapay after they leave poltics.

This is getting to be a habit

John Quiggin74 Comments

As with the Lib-Nat merger in Queensland, I was just working on my analysis of the Snowy Hydro privatisation when the news came through that the deal is off. A few observations:

First, this episode confirms that privatisation is political poison in Australia, as is shown both by opinion poll evidence (links to come on this) and by election results in NSW, Tasmania and elsewhere. The more experience people have with privatisation, the less they like it. When you have the National Party celebrating a victory for people power, the point is pretty obvious.

Second, while the promoters of privatisation have criticised opponents as emotive, the case in favor of privatisation was made up in equal parts of emotive appeals to ideology and economic illiteracy. Ideologically, privatisation was assumed by its advocates to be a Good Thing, with no attempt to identify, let alone quantify, any concrete benefits in the case of Snowy Hydro. Economically, this was (I hope) the last outing of the idea that selling income-generating assets “frees up” or “unlocks” cash that can then be spent on schools, hospitals and so on. If the asset is sold for an amount equal to the risk-adjusted present value of expected future earnings, there is no change in the government’s fiscal position. In practice, higher risk premiums in the public sector and the absurd restrictions on ownership that are usually part of deals like this means that the government ends up worse off, not better off.

Coming to the arguments against, the “iconic” argument is indeed emotive, but not necessarily the worse for that. If it’s paying its way, why shouldn’t we keep ownership of an asset like the Snowy in the hands of the public sector that created it?

In any case, there were substantive arguments against privatisation that weren’t effectively answered. We’re in the middle of trying to sort out what to do with the water in the Snowy-Murray system, and not making a really good job of it. The last thing we need is to have a private company (probably with foreign owners who can appeal to the protection of the US-Australia FTA) with large, but still poorly-specified, entitlements to use the water or receive compensation for changes in use.

Finally, there are some big losers from the cancellation of this deal, namely the banks and financial institutions that would have had a cut of it. To that group can be added the politicians involved, whose prospects of highly-paid post-political jobs in those same banks have just taken a nosedive.

Becker and Murphy on advertising (crossposted at CT)

John Quiggin8 Comments

During the discussion following the death of JK Galbraith, the issue of advertising came up. In the Affluent Society Galbraith dismissed the idea that advertising is informative, and argued instead that it was used to manufacture demand for goods and services people would otherwise not want. The NYT obit suggested that Gary Becker and George Stigler had disproved this, a proposition that attracted some attention, mainly focusing on the work of Becker and Murphy.

Although Becker and Murphy don’t present it this way, their model actually supports Galbraith in most respects.
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Wikipedia economics category project

John Quiggin19 Comments

I’m getting involved in Wikipedia and my big project is to set up a categorisation system for economics based on the JEL Classification system.

I think this scheme is robust enough to allow for an expansion of Wikipedia to compete with specialist works like the Palgrave Dictionary of Economics, though this is obviously a long way off. As mentioned in previous posts, I’m very optimistic about Wikipedia’s potential, but the economics section is a long way short of being a comprehensive reference source at present. One side effect of the project is to reveal that there are whole categories in the JEL system for which Wikipedia doesn’t have an article – Computable General Equilibrium models for example.

Anyway, I could do with a bit of help on this from readers with at least some knowledge of economics. Basic Wikipedia editing skills (or willingness to acquire them) are desirable, but if you just want to write articles on gap topics, I could wikify them for you. Contact me by email or in the comments thread, if you want to help.

UpdateThanks for the positive response. I’ve got a starting list of articles that don’t seem to exist:

Exchange economy
Factor income distribution
Atlruism in economics (section in existing altruism article)
Expectations (with link to existing articles for rational and adaptive expectations)
Economics of contract law
Stochastic games
CGE models

and also some stubs (existing article is just a starting point)

Incomplete markets
Social choice theory
Economic methodology

THere’s a larger list of stubs here (though many seem not to need much more than a stub) and requested articles here. In terms of my particular project, if people could try to work out the appropriate JEL category and use that (if it exists already) or advise me (if it doesn’t) that would be great.