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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Coal, cronyism and corruption

John Quiggin41 Comments

The latest issue of Coalwire, a weekly newsletter covering the transition away from coal list three separate corruption cases involving coal: in Indonesia, South Africa and Bangladesh. These aren’t isolated instances: in just about every jurisdiction that isn’t moving away from coal at a rapid rate, the industry is associated with cronyism at best, and outright corruption at worst.

In Australia, for example, the push to develop the Galilee Basin is being driven by a set of politically connected billionaires (or pseudo-billionaires on the Trump model). In China, the move away from coal is being obstructed by provincial governments eager to keep the construction gravy train rolling. In India, there’s Coalgate. Crony capitalist governments like those of Trump in the US, Erdogan in Turkey and Law and Justice in Poland are among the leaders in resisting decarbonization.

The explanation is simple. Coal can’t survive in an open market environment, particularly one with a carbon price, nor under a coherently planned system. It’s only under the toxic mixture of markets and intervention represented by ‘business friendly’ government that money can still be made from destroying the global environment.

Queensland: A service economy

John Quiggin20 Comments

Lots of people, notably including political commentators, imagine Queensland as a state dominated by mining and agriculture, and presumed to think and vote accordingly. I’ve just collected some statistics in response to a query made to the university, and I thought they might be of more general interest.

Like Australia as a whole, the Queensland economy is dominated by services. As this table shows, agriculture and mining each account for about 2.5 per cent of total employment. This is marginally, but not significantly, more than for Australia as a whole (2.4 and 2.0 per cent)

Agriculture and mining together account for less jobs than service industries you might think of as relatively minor, such as Professional, Scientific and Technical Services or Administrative and Support Services.

Even adding in manufacturing, which, in Queensland, largely consists of processing primary products into outputs like food products and refined metals, the “old economy” only accounts for about 12 per cent of all employment. Health care and social assistance alone is larger

The primary production share of employment has declined over time, with fluctuations between mining and agriculture.  Development of new mines also accounted for significant employment in construction until about 2015, but this has now dropped off (hard to extract from the data, but easy to see by looking at the pace of new development)

Mining is a significant, but not critical source of revenue to the state government, yielding $5 billion out of a total of $58 billion. However, the Grants Commission takes access to royalty income into account in allocating GST revenue, so the actual benefit to Queensland is smaller than the $5 billion figure would suggest.