The National Electricity Market: A View from 2001

John Quiggin12 Comments

While doing a bit of work on electricity policy, I dug out this piece from 2001, which was published as ‘Market-Oriented Reform in the Australian Electricity Industry’ in The Economic and Labour Relations Review, June 2001; vol. 12, 1: pp. 126-150. The conclusion, written at a time when supporters of electricity reform were trumpeting it as a huge success, stands up pretty well 15 years later, I think.

Some problems, however, are likely to become more rather than less acute. The Australian National Electricity Market commenced operation in a period of oversupply so that problems of market power and excessive prices have not emerged until recently. It remains unclear whether an electricity auction market can produce adequate incentives for investment while generating appropriate prices for consumers.

Similar problems are emerging in relation to the regulated monopoly component of the industry, the transmission and distribution sector. Regulators must set prices that do not reward inefficiency or allow monopoly profits, but nevertheless provide appropriate incentives for new investment. This is a delicate balance.

In the longer term, the problem of the environmental impact of an industry relying predominantly on carbon-based fuels remains to be addressed. A market solution would involve the creation of emissions credits that could be traded along with electricity in national markets. Although limited steps have been taken in this direction, much remains to be done.

Catalyst catastrophe

John Quiggin22 Comments

There are reports that the ABC’s Catalyst science program is to be dumped, and replaced by a series of specially commissioned 1-hour documentaries. The move has reportedly been prompted by the disastrous broadcasts of Maryann Demasi, on the supposed dangers of statins and wifi. I have mixed feelings about this. Catalyst has serious problems, going beyond Demasi, but the alternative sounds like it will require a lot of money to do well. I fear that “specially commissioned” will turn out to mean “recycled from Discovery Channel” and that we will end up with lots of variants on “Shark week”

More generally, it’s depressing to reflect on the near-total failure of television as a communications medium for science. The demands of the medium (flashy visuals, and continuous sound) overwhelm what ought to be its potential. Discovery Channel is a joke that makes Catalyst at its worst look good. Even the great David Attenborough is now presented inaudibly, drowned out by the monotone background noise of Sigur Ros. Overall, radio is better, and text better still.

Arguing against racism

John Quiggin92 Comments

A while back, I made the case that the political crisis evident in most developed countries could be explained in terms of a “three-party system” in which the political forces were divided between tribalism, neoliberalism and a somewhat inchoate left. This replaced a neoliberal consensus in which power alternated between hard/right neoliberals (in the US context, the Republican party), relying on the political support of tribalists, and soft neoliberals (in the US context, centrist Democrats) relying on the left to support them as a lesser evil. The first stage of this breakdown has been the capitulation of hard neoliberals to the tribalist right. The most obvious instance is Donald Trump, but the same thing is happening in Australia with Pauline Hanson, in England with UKIP/Brexit and in many European countries as well.

That this is happening is now obvious. What should the left do about it? It’s obviously insufficient to make the point that Trump, or Hanson, or Farage is a racist (or uses racism for political benefit) and expect that to settle the question. That doesn’t mean that we should maintain the long-standing taboo on using the word “racist” to describe such people. Rather, we should start developing a proper analysis of political racism and strategies to oppose racism and tribalism.

The problem we face today is new in important respects. The civil rights and anti-apartheid movements were was a struggle against overtly racist racist state structures. The success of those movements did not end racism, but drove it underground, allowing neoliberals to exploit racist and tribalist political support while pursuing the interests of wealth and capital, at the expense of the (disproportionately non-white) poor.

That coalition has now been replaced by one in which the tribalists and racists are dominant. For the moment at least, ahrdneoliberals continue to support the parties they formerly controlled, with the result that the balance of political forces between the right and the opposing coalition of soft neoliberals and the left has not changed significantly. However, unlike the Civil Rights era, where racists had a clear agenda of defending the status quo, the new politics of the right is driven more by a general expression of resentment (or, if you want to be fancy, ressentiment) than by coherent policy objectives.

I have some ideas about what kinds of strategies and arguments are needed here, but I thought I’d post this first, and wait to see what others have to say.

The magic pudding, yet again

John Quiggin30 Comments

I’ve just done an interview with Channel 10, about cost blowouts on the infrastructure projects supposedly funded by Mike Baird’s asset sales program. I made the point that such blowouts are more likely when projects are funded from special pots of money rather that avoid normal processes of budget assessment.

More tiresomely, I repeated a point that I have been making for 20 years, and that (as far as I know) every economist in Australia agrees with. Selling income generating assets does not provide any additional capacity to invest in non-income earning assets such as (untolled) roads, schools and hospitals Exactly this point was made by the Secretary of the NSW Treasury in relation to PPPs back in the 1990s (I’ll dig out a link).

Despite this nonsense idea being refuted over and over again, it continues to be believed by politicians of both parties and to get a free ride from our economically illiterate press, most notably (since it ought to do better) the Financial Review.

I’ve given up hoping that this will change. Fortunately, privatisation is so politically toxic that justice is usually served in the end.

A tribute to Fred Gruen

John Quiggin18 Comments

A few weeks ago, I gave the FH Gruen lecture, on the topic After reform: the economic policy agenda in the 21st century. Thanks to sound editor Simon Kravis, I now have a version of the podcast with improved audio quality, but unfortunately the part of my tribute to Fred that was drowned out by a hailstorm is permanently lost.

So, I thought I would try to write something like what I said, with a few (I hope) improvements. Here it is:

It’s great honour to be invited to give the FH Gruen Lecture.

Fred was very much a role model for me, and while I will never be able to emulate his effortless personal style, I have done my best to follow his lead in my approach to economics. He saw economic theory as a tool, and only part of what economics should be: what really matters is the application of theory to improve policy.

In a small country like Australia, it’s necessary for economists to take part in public discussion and public debate. The older generation of academic economists, exemplified by Fred, did this, and I’ve tried to maintain this approach.

Like me, Fred began his career as an agricultural economist, and I’ve always thought this was some of the best training for an economist. But Fred’s contributions weren’t limited to agriculture. He ranged across a wide range of policy issues. He always brought to bear both a keen economic insight and a commitment to the use of economic policy to improve the lives of ordinary Australians.

He greatly encouraged me, and many of my generation of economists who worked with him in the Economics Department of the Research School of Social Sciences at ANU.

I am very proud to be able to give a lecture in his honour.

Competition and human services don’t mix

John Quiggin34 Comments

According to today’s news, the government has estimated that for-profit vocational trainers are three times as expensive as TAFE. That’s no surprise to me, but it’s a striking contrast with the barely qualified enthusiasm (until very recently) of the Productivity Commission.

I’ve put in a submission to the PC inquiry into Competition in Human Services arguing that
(i) there’s no reason to expect that competition will deliver improved “consumer” (that is, student) choice or better outcomes
(ii) the failure of the PC to foresee, or recognise until much too late, the disastrous failure of for-profit vocational education means that its judgements about areas that might be opened to competition in future should not be relied on.

My submission is here

Unnecessary Wars

John Quiggin39 Comments

A long-running theme of this blog has been the disaster of the Great War, and the moral culpability of all those who brought it about and continued it. It’s fair to say, I think, that the majority of commenters have disagreed with me and that many of those commenters have invoked some form of historical relativism, based on the idea that we shouldn’t judge the rulers (or for that matter the public) of 1914 on the same criteria we would apply to Bush, Blair and their supporters.

It’s fascinating therefore to read Henry Reynolds’ latest book, Unnecessary Wars about Australia’s participation in the Boer War, and realise that the arguments for and against going to war then were virtually the same as they are now. The same point is made by Newton in Hell-Bent: Australia’s leap into the Great War (recommended in comments a while ago by James Sinnamon. He shows how, far from loyally following Britain into a regrettably necessary war, leading members of the Australian political and military class pushed hard for war. In Newtown’s telling, the eagerness of pro-war Dominion governments helped to tip the scales in the British public debate and in the divided Liberal candidate. I don’t have the expertise to assess this, but there’s no escaping the echoes of the push towards the Iraq war in 2002 and early 2003, when this blog was just starting out.

The case against war was fully developed and strongly argued in the years before 1914, just as the case against slavery was developed and argued in the US before 1861. Those who were on the wrong side can’t be excused on the grounds that they were people of their time.

The only defence that can be made is that those who were eager for war in 1914 had not experienced the disaster of the Great War and its consequences. The failure of today;s war advocates to learn from this disaster makes their position that much worse. But the same is true of anyone defending the warmakers of 1914 on any grounds other than that of their ignorance.

Dragging the chain

John Quiggin36 Comments

Looking at the Abbott-Hanson government that is now taking shape behind the nominal leadership of Malcolm Turnbull, the dominant theme is one of pointless resistance to inevitable change.

The most striking instance of this is the plebiscite on equal marriage, dreamed up by Abbott as a way of dodging the issue of a Parliamentary vote. At this point, it is obvious that the whole thing is just an expensive and painful exercise in delaying the inevitable. Equal marriage is law throughout the English-speaking world, and is rapidly becoming so everywhere, as well as being supported by a majority of Australians. Even if the opponents could somehow carry the day in a plebiscite, the position couldn’t be sustained for long. And of course the Abbott group know this. As soon as Turnbull was locked into the plebiscite they started loading it up with everything they could to ensure it would never happen. Even from the most cynical viewpoint, this seems silly to me. They are going to lose in the end, and when they do, they will be wailing about freedom of conscience for cake-makers and so on. If they agreed to a Parliamentary vote now, they could make it a condition for Turnbull to include such clauses and reject any amendment. But in three years time, or whenever a parliamentary majority emerges, there will be no reason to appease people who have shown themselves to be bigots.

Then there’s climate change. Everywhere else in the world, things are moving fast. Country after country is abandoning coal, and the share of renewables is rising rapidly. Even England is generating more power from solar PV than from coal. But Australia is going backwards. Having dropped any idea of turning Direct Action into an emissions intensity scheme, Turnbull and Frydenberg have joined the science denialists at the Oz in a campaign against renewable energy. At least they have signed on to the agreement to phase out HFCs, an agreement driven by, among others, the US, Canada, China and Brazil (the EU has already legislated an early phaseout). It’s good that the government has agreed to do the minimum required for developed countries under this deal, but takes some chutzpah to say, as Frydenberg does that this makes Australia a world leader.

The only remaining item about which the government seems to care is Abbott’s vendetta against the unions, settling scores dating back to the 1980s.

Abbott and Hanson and are almost exact contemporaries of mine (as is Turnbull, though he scarcely seems to have any active role). But politically it seems to me that they have chained themselves to ways of thinking that were ossified even in John Howard’s generation.

Locke + Nozick = Locke

John Quiggin27 Comments

In the discussion of my three–part critique of Locke, I mentioned my view that Rothbard and Nozick added nothing of value, and promised to expand on this when I got some time. I discussed Rothbard here, and have finally got around to Nozick.

Someone (I think Jerry Cohen) remarked that Nozick was be taken very seriously by Marxists and not nearly as much by social democrats and (US) liberals. Obviously, my reaction (that of a social democrat) illustrates this. The reason for this divergence is obvious enough. If you would like to derive property rights from a notion of self-ownership (and the Marxist concept of exploitation is close to this), Nozick provides a reductio ad absurdam. So, a critique like Cohen’s is essential.

OTOH, if you start from the ground that property rights are social structures, and that their justice or otherwise is inseparable from that of the society in which they operate, Nozick is of no real interest. All the important errors in his work were already made by Locke. However, I’ll point out some new ones.

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