Category: Uncategorized

Contesting contestability

John Quiggin9 Comments

Economics, like fashion, has its hot ideas. Among the hottest ideas of 1982 was the theory of contestable monopoly, described as an ‘uprising’ by its leading proponent William Baumol. To quote the summary in Wikipedia

Its fundamental features are low barriers to entry and exit; in theory, a perfectly contestable market would have no barriers to entry or exit (“frictionless reversible entry” in economist William Brock’s terms).[1] Contestable markets are characterized by “hit and run” competition; if a firm in a contestable market raises its prices much beyond the average price level of the market, and thus begins to earn excess profits, potential rivals will enter the market, hoping to exploit the price level for easy profit. When the original incumbent firm(s) respond by returning prices to levels consistent with normal profits, the new firms will exit. Because of that, even a single-firm market can show highly competitive behavior

Contestable monopoly theory didn’t stay at the top of the hit parade for long. In theoretical terms, it was hard to formulate the hit-and-run analysis in the language of game theory, which was beginning its rise to dominance around the same time. More importantly, at least from my viewpoint, the predictions turned out wrong, most notably in relation to US airline deregulation, which was the primary motivation for the theory. Routes served by only one or two airlines were characterized by higher fares than more competitive routes, and “raids” of the type described by the theory were rarely if ever observed. Looking at Google Scholar, I found hardly any recent papers making use of contestable monopoly theory (feel free to point some out!)

Yet an examination of the policy statements of Australian governments would make it appear that contestability is a central idea in economic theory. Google reveals the term applied to electricity and water consumers, vocational education (a spectacular disaster), the Department of Finance, and even Tasmania.

It seems that contestability, having died as an economic theory in its native country, has been resurrected as a piece of policy jargon in Australia. Presumably, it is supposed to carry with it the positive connotations of the theoretical term. In practice, however, it’s one of the long list of euphemisms for “privatisation”, a word that is almost never used nowadays, except by its opponents.

NEGative on NEG

John Quiggin10 Comments

I’ve just joined 22 other Australian energy researchers in calling for the release of the modelling used to justify the Abbott-Turnbull government’s National Energy Guarantee. Until this is out in the open, state and federal Labor should have nothing to do with the NEG. I am confident that, once the modelling is released, it will quickly be shown to be so weak as to provide no support for this camel of a policy, designed to placate both the Abbott denialists and the business lobby who want a soft policy but can see that they can’t win with denialism. The letter is at https://t.co/X6VhZK5vQa

A bit more of the iceberg

John Quiggin7 Comments

Just a day after this post on wrongdoing in the pursuit of the government’s anti-union agenda comes the news that the AFP is liaising with the Commonwealth Director of Public Prosecutions about whether charges should be laid over leaks from Federal Jobs Minister Michaelia Cash’s office about raids on the Australian Workers Union. It remains to be seen whether charges will be laid – if so, it will be a breach of the normal protocol under which unionists are charged in the most trivial cases, while business owners and politicians are almost invariably let off.

A striking, and closely related, example was Human Services Minister Alan Tudge’s release, to a friendly journalist, of the social security files of a blogger who had complained about the department. This contrasts notably with the routine invocation of “client privacy” when the Department is accused of wrongdoing and wants to avoid responding.

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The tip of the iceberg

John Quiggin10 Comments

The pursuit of wrongdoing by unions and union officials by the Abbott-Turnbull government has been highly successful in producing evidence of wrongdoing. The problem is that the wrongdoing has been that of the pursuers, not the pursued. Some examples

* The forced resignation of Australian Building and Construction Commission chairman Nigel Hadkiss, after he was found to have breached the Act he was supposed to be enforcing

* Two separate cases in which the Australian Federal Police were forced to compensate the CFMEU and its officials for unlawful seizure of documents, wrongful arrest and other offences

* A string of failed prosecutions of union officials, many of them obviously involving an abuse of process. The classic was one dismissed by the judge in which an official was charged for “having a cup of tea with a mate”

* The forced resignation of Michaela Cash’s senior media ­adviser David De Garis over an improper tipoff to the media regarding an equally improper AFP raid on the AWU

* The finding that Trade Union Royal Commission star witness Kathy Jackson misappropriated union funds, the very offence for which she had previously appeared as a whistleblower

But this is just, as Commissioner Dyson Heydon might say, the tip of the iceberg. It’s pretty clear that a more comprehensive inquiry would reveal extensive wrongdoing by senior ministers, and just about everyone involved in the Commission.

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When is a record not a record?

John Quiggin20 Comments

It’s been  cold here in Brisbane for the last few days, at least by our subtropical standards, with overnight minimums of 6 degrees in the city, and negative temperatures in  towns like Stanthorpe in the nearby Granite Belt. That occasioned lots of news coverage, with the observation that this was the coldest temperature we’ve had since 2014 and one of the coldest since 2000. The same was true for much of Eastern Australia. Melbourne had its coldest morning in several years, and  a couple of towns in NSW had the lowest minimum for several decades.

All of these are “records” in the trivial sense that we record the temperature every day, but none of them are records in the commonly used sense of “lowest (or highest) value in the relevant record”. That didn’t stop the usual denialist suspects claiming a RECORD (all caps in original) and evidence of global cooling. The Daily Mail  claimed “Australia’s east coast shivers through its coldest EVER morning” even though the sub-headlines made it clear this wasn’t true.

What’s striking here is that the same people who are willing to claim that the Bureau of Meteorology is part of a world-wide warmist conspiracy to doctor climate records are eagerly credulous about any piece of data that suits their case. Next time we get record heat, the conspiracy theories will be wheeled out again, but for now the Bureau is an unquestionable source of scientific evidence.

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Grattan goes denialist

John Quiggin19 Comments

Reading the reactions to the incoherent report on electricity pricing from the ACCC, I was struck by this quote from Tony Wood of the Grattan Institute, writing in the Oz 

Australians need energy policy that is driven by neither green evangelism for renewables nor a deep-seated fear to protect the role of coal for baseload power.

“Green evangelism” is rhetoric straight out of the denialist camp, associated with the bogus claim that climate change is not science but a religion   The content of the piece bears this out. Wood opposes any form of subsidy for renewables and (by omission) any price on carbon emissions. He advocates a policy that is “the policy is indifferent to the tech­nology mix, whether new-build or the extension of the operating life of an existing, newer coal-fired plant.”

This is centrism at its worst. Faced with a choice between an evidence-based response to climate change and culture-war proposals to actively subsidise the destruction of the global environment, Grattan has gone for the “middle course” of doing nothing whatsoever about climate change.

 

The LDP: Trumpism in Australia

John Quiggin27 Comments

The reaction to Senator David Leyonhjelm’s recent attacks on women have mostly focused on Leyonhjelm personally. If he were a private citizen or an independent member of Parliament, that would make sense, and would lead to the conclusion that best thing to do is to ignore him.

In fact, however, Leyonhjelm is the most senior elected representative of the Liberal Democratic Party, a national political party. His statements on the matter give his position as Parliamentary leader of the party and appear in the media section of the LDP website. They may be taken as official statements of the LDP position.

Leyonhjelm’s statements are entirely consistent with the general position of the LDP which may be summarized as “well off white men should be able to say and do whatever they like with no adverse consequences”. That’s pretty much the essence of Trumpism.

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