The student strike and the social compact

John Quiggin38 Comments

Large numbers of school students have gone on strike today to protest about global inaction on climate change. This action has been met with a lot of huffing and puffing to the effect that students should stay in school and leave politics to adults.

Ideally, this would be the correct view. Part of the social compact of democracy is that the adult voting population should take account not only of their own interests but those of children who currently can’t vote and of future generations.

For those who have dependent children of their own, this isn’t a very demanding requirement. There’s no sharp distinction between your children’s interests and your own.

For older voters, the social compact is a bit more demanding. They cannot benefit directly from policies that make the world better for today’s and tomorrow’s children (a group that may or may not include their grandchildren). But they are morally obliged not to vote selfishly, taking advantage of the fact that they are enfranchised, while the young are not.

Sadly, the last few years have seen numerous instances where a majority of the old have violated this social compact. They have voted against the interests of the young out of a mixture of self-interest and cantankerous dislike of change, on climate change, Brexit and support for reactionary demagogues like Trump.

Having been let down by their elders, young people are fully justified in protesting against them, and ignoring their hypocritical expressions of concern about missing out on education.


Why is carbon pricing so hard?

John Quiggin41 Comments

I’ve just published a piece in Aeon (an excellent and free online magazine) drawing on the analysis in my (about to be published) book Economics in Two Lessons. I make the case that carbon pricing, whether through a tax of an emissions trading scheme, is the most cost-effective way to stabilize the global climate. Moreover, it’s straightforward to offset any adverse effects on low-income earners, displaced workers and others.

That raises the obvious question: if carbon pricing is so good, why is it so hard to implement, compared to less efficient alternatives like mandatory renewable targets. One factor, which I discuss, is that the creation of property rights over previously open-access resources creates obvious, and often powerful losers.

I was limited by space, so I couldn’t discuss the more puzzling problem of why regulations are more politically salable than prices even in the absence of income effects.

Is Queensland different?

John Quiggin22 Comments

It seems to be taken for granted in political commentary, particularly on the political right, that the Liberal and National Parties face a geographical problem in which pro-coal policies are an electoral loser in wealthy city seats in Sydney and Melbourne, but a winner in Queensland, and particularly in regional Queensland. The key issues are the proposed Adani coal mine and the idea of a publicly-funded coal-fired power station.

No one seems to have mentioned an obvious problem with this analysis. Queensland held a state election in 2017, in which the Adani proposal was a key issue. Labor won easily, holding the regional seats where Adani was supposed to create thousands of jobs, and picking up seats in the south-east corner.

Following the election, the state government announced that it would set up a publicly-owned renewable generator (rather unimaginatively called CleanCo). It remains well ahead in the opinion polls (53-47 as of last November)

Obviously, not everyone is happy. The mining division of the CFMMEU has joined the Queensland Resources Council to campaign for Adani. But there’s no sign that this move has had any real impact on public opinion.

The great majority of Australians accept mainstream science and want action on climate change. Denialism is a loser everywhere, including in Queensland. It’s only a winner with the right wing “base” amounting to perhaps 20 per cent of the population, but dominant within the Liberal and National parties.

Monopoly: too big to ignore

John Quiggin21 Comments

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.

Locke and Slavery, again

John Quiggin7 Comments

A few years ago, I wrote a series of articles in Jacobin showing how Locke’s theory of property, on which most modern propertarianism is based, was entirely consistent with his personal involvement in American slavery and the expropriation of indigenous Americans. Historian Holly Brewer has come to Locke’s defence, pointing to more evidence about Locke’s involvement in American affairs, of which I was previously unaware. I’ve responded[1], arguing that, far from exonerating Locke, the new evidence shows that Locke was deeply enmeshed in American slavery throughout his life, yet never took a stand against it.

Brewer’s broader concern is to defend liberalism against critics who argue, pointing to Locke and the US Founding Fathers, that the whole ideology was conceived in the context of slavery. Here, I think she is making a mistake in accepting the idea of Locke, rather than the much more defensible Adam Smith as the founding theorist of liberalism.

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MMT and the scope for seigniorage

John Quiggin88 Comments

The central idea of Modern Monetary Theory (MMT), as I understand it, is that, rather than worrying about budget balances, governments and monetary authority should set taxation levels, for a given level of public expenditure, so that the amount of money issued is consistent with low and stable inflation. In this context, the value of the net increase in money issue is referred to as seigniorage. To the extent that seigniorage is consistent with stable inflation, it is achieved by mobilising previously unemployed resources.

A crucial question is: what is the scope for seigniorage? In particular (expressing things in MMT terms), is the scope for seigniorage sufficient to permit the introduction of ambitious programs like a Green New Deal without the need for higher taxes to prevent inflation.

The recent episode of Quantitative Expansion in the US provides some evidence here. Contrary to the dire predictions of some critics, QE did not lead to runaway inflation. This is consistent with the view, shared by MMT advocates and mainstream Keynesians, that, in the context of a liquidity trap and zero interest rates, there is substantial scope for monetary expansion.

How much is “substantial”?

According to the St Louis Fed, the monetary base grew from around $800 billion to just over $4 trillion between 2008 and 2016. That’s an increase of $3.2 trillion, which is a lot of money. Expressed in terms of GDP, though, it doesn’t seem quite as large. Over eight years, $3.2 trillion is $400 billion a year or around 2 per cent of US GDP ($20 trillion).

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