Climate change and the culture wars

John Quiggin26 Comments

As I’ve argued in a previous post, it seems likely [^1] that the global agreement on reached at COP21 will mark the turning point in efforts to stabilize the global climate. If so, it will mark the defeat of the right in one of the most bitterly contested arenas of their long-running culture war, and also one of the hardest to explain. There’s no obvious reason, apart from tribal hostility to “enviros” why this should have been a culture war battleground at all.[1]

There was, by 1990 or so, a well developed literature on “free market environmentalism” which pushed the idea that environmental problems were the result of inadequate property rights, and that the solution was to create such rights: in this case, tradeable emissions permits. Environmentalists were generally hostile to the idea, preferring direct regulation. Eventually most environmental groups came around to the view that a carbon price was essential to solving the problem. Instead of claiming victory, the right opposed the idea ferociously and effectively, with the result that the policy outcome has included much more intrusive regulation, and much less reliance on markets, than would have been optimal. The oddity of a supposedly market-oriented government in Australia preferring “Direct Action” over price-based policies is by no means unusual.

Has the climate change culture war helped or harmed the right? The harm is obvious enough. The scientific and economic evidence on climate change is so clear cut that mounting a case against it requires a huge amount of willing gullibility (the fact that is labelled “scepticism” is one of the smaller ironies of the story). The result has been a big contribution to the lowering of intellectual standards that allows someone like Donald Trump to become a plausible candidate for the Republican nomination in the US.

The intellectual damage has been particularly severe for libertarians, who have traditionally thought of themselves as the smart, logical types, deriving their policy positions from rigorous deduction. As the case of climate change has shown, you can get any answer you want if you make up your own facts. So, we have the sorry spectacle of self-described libertarians making the kinds of spurious claims, in relation to wind farms, that were once the province of the least credible environmentalists, and demanding the appointment of highly paid government regulators. At the turn of the century, libertarianism had a plausible case to be the way of the future. Now, as far as I can see, it has disappeared from view in the US and survives in Australia only because of the vagaries of the Senate electoral system.

Against that, the struggle to save the planet from dangerous climate change has chewed up a huge amount of energy and effort on the left. Arguably, that has distracted attention from economic issues, and allowed the steady rise of the 1 per cent to go unchallenged. That analysis fits with the widely held view that the culture wars are just a device to keep the rightwing base agitated enough to turn out, losing time after time, but still providing the votes needed to keep pro-rich politicians in office.

[^1]: A Republican win in 2016 would certainly be a major problem. But the momentum is such that it would probably not make much difference. Even if a Republican Administration weakened environmental standards, no one is going to build a new coal-fired power station in the US, knowing that it might have to shut down after the next election.

[^2]: There was, initially, some significant support from fossil fuel interests (notably Exxon) through bodies like the Global Climate Coalition. But that dropped off quite early as most big corporations worked out that they were better off changing their business models to incorporate renewables than fighting to save the old ways of doing things. For at least the last decade, the economic issues have been secondary – it’s all culture war all the time.

Turning the corner

John Quiggin50 Comments

The agreement just announced from the Climate Conference in Paris isn’t by any means, a solution to the problem of avoiding climate change. But, along with other developments over the past year, it signals the fact that the world community has turned the corner on this issue. Barring a catastrophe[^1], the world is now on the path to near-complete decarbonization of the economy by the middle of this century, and to stabilization of the global climate with less than 2 degrees of warming.

The big developments of the past year include:

* An apparent (though small) decline in global CO2 emissions in 2015

* Peak Coal. Not only has global consumption of coal begun to fall, but the pressure to abandon coal, exerted at every stage from the initial financing of mines to the burning of coal in power stations has grown in intensity.

* Continued progress in renewables, notably including the appearance of commercially viable battery storage systems. It’s now obvious that, taking all the costs into account, renewable electricity is cheaper than the fossil fuel alternatives, and capable of completely replacing them.

* The political eclipse of leading denialists, most notably Abbott and Harper, and the disarray of US Republicans on the issue

* Looking at the agreement itself, it’s as ambitious as could reasonably have been hoped. Big points include
– The adoption of 1.5 degrees as a goal towards which efforts will be aimed
– The “ratchet” mechanism of 5 year reviews
– The acceptance that all countries need to act to reduce emissions over time.

Taken together, these developments put the world on a path to steadily more ambitious reductions in greenhouse gas emissions, consistent with stabilization of the global climate at 2 degrees of warming or less.

[^1]: The most obvious possible catastrophe would be a Republican victory in the 2016 US elections. But the momentum for change is such that even four years of unified Republican rule would probably not be enough to stop it.

The economist as Grinch

John Quiggin51 Comments

The Economic Society of Australia has started running a panel in which economists are asked to give their views on policy questions. I wasn’t too happy with the last one, on penalty rates, where I thought the question was ill-posed, and the majority of responses (though by no means all of them) failed to address the basic microeconomics of the issue.

The latest is a more light-hearted one, asking for responses to the proposition

“Giving specific presents as holiday gifts is inefficient, because recipients could satisfy their preferences much better with cash.”

Rather than give an opinion, I took the argument to its logical conclusion, as follows

The obvious problem with this claim is that exchanging cash is also inefficient, especially when combined with the generally accepted norm that equals should give presents of equal value. This results in a costly exercise that nets out to zero. Anyone who accepts the stated proposition shoud be in favor of cancelling Xmas and relying on the existing intra-family tax-transfer system

Increasing GST: not worth the effort?

John Quiggin30 Comments

The Grattan Institute has just released a report suggesting that the government should get more revenue from the GST, either by broadening the base to include food, health and education (yielding an extra $17 billion) or by raising the rate to 15 per cent (yielding an extra $27 billion). As you’d expect from Grattan, the analysis is sound and careful. As long as you accept the standard framing of the tax reform debate, in terms of the need to shift from direct to indirect taxation, it is reasonably convincing.

Grattan suggest using 30 per cent of the extra revenue to increase welfare payments and 30 per cent in cutting the bottom two tax rates, thereby compensating low income earners. The overview concludes:

Around 40 per cent of the additional revenue from a higher GST would be left over after welfare increases and tax cuts. At least some will need to go to state governments to help them address their looming hospital funding gap, as the price for their support of the change. This would leave a little – but not much – to reduce the Commonwealth’s budget deficit, or to pay for other tax cuts that promote economic growth.

(emphasis added).

Is that enough to sell the package? I can’t imagine the states going along with a deal like this for less than 20 per cent of the total extra revenue, which implies the Feds are left with 20 per cent, somewhere between $3.5 and $5.5 billion. From a political viewpoint, it’s hard to see this being worth the effort for the Turnbull government, especially with no guarantee of success.

As a comparison, the FBT concession for motor vehicles, reinstated by Tony Abbott costs the budget around $1.5 billion. Exemptions for non-profits, which have been comprehensively rorted, cost at least as much. Add in a few ‘rats and mice” concessions, and the Federal government would have as much as it could get, in net terms, from the Grattan package (Getting rid of the non-profit concession would probably require some compensating expenditure, but the same is true of the health and education concessions under the GST.)

That’s before we get to the elephants: superannuation concessions (also supported by the Grattan report), corporate tax avoidance, land tax and higher income taxes for (say) the top 5 per cent of income earners (reflecting elite opinion, the Grattan report suggests cutting these rates). All of these are hard, but not obviously harder than the GST.

So, why is GST reform at the top of the government’s list? The answer is simple enough. The advocates of reform haven’t had a new idea, on taxation or anything else, in 30 years. They didn’t get the GST out of Keating’s Tax Summit in 1984 and they didn’t get the version they wanted from Howard and Costello in 2000. So, the same old idea keeps on coming up.

Video autoplay: a question and an answer

John Quiggin8 Comments

Video autoplay, regularly described as one of the most hated features of the Internet, seems to be becoming more common. It’s unsurprising that sites should autoplay ads: that’s how they earn the money they need to serve. But news sites seem to have started autoplaying videos of inane commentary on the stories that they publish. Typically, they take a while to load, so I am usually halfway down the page when the computer starts blaring TV commentary.

Question: Why do news sites do this ? Surely it will just drive readers away, while people who want video will presumably go to sites that provide nothing else.
Answer: For the moment, at least I don’t care, since I have found a way to block them. At least for the moment, and at least for Flash, it seems to be working.

Secular stagnation and technology

John Quiggin26 Comments

One of the problems I have with the term “secular stagnation” is that it implies condition relevant to the very long term, say, the coming century. Such long run conditions presumably have to arise from fundamental causes in demography and technology. That’s the kind of argument that Piketty makes with his r > g theory of rising inequality. There are some good arguments for the view that the depressed state of the global economy, and particularly that of the more developed countries, can be explained in this way. But it shouldn’t be implied in the name of the problem. I’ve argued in the past that technology, specifically the Internet, doesn’t explain growing inequality,

The key quote from that New Left Project article, responding to Tyler Cowen’s The Great Stagnation

The global crisis stopped economic growth, not only in the US, but in countries far inside the technological frontier like Greece; while it had hardly any impact in, for example, Australia, which avoided the initial financial crises and used Keynesian fiscal stimulus to offset shocks flowing from the global economy.

A further reason for scepticism about technological stagnation is that this explanation has been advanced in recessions and depressions ever since the beginning of the capitalist business cycle in the nineteenth century. Such claims represent the flipside of the equally common claim, made during every period of sustained expansion, that the economy has entered a New Era of untrammelled growth. The most recent episode of this kind was the ‘irrational exuberance’ of the 1990s, fuelled by optimistic claims about the potential economic implications of the Internet, which was opened to commercial use by the US Congress in 1992, and by capitalist triumphalism exemplified by Fukuyama’s The End of History.The collapse of the ‘dotcom’ bubble was softened by the housing bubble that developed shortly afterwards (again, not at all a new phenomenon), but the result was only to worsen the inevitable crash in 2008. The similarity of these events to previous bubbles and busts is good reason to doubt that they represent, or that they have inaugurated, a new phase in the evolution of capitalism.

Secular stagnation and the financial sector (crosspost from Crooked Timber)

John Quiggin21 Comments

In my last post on private infrastructure finance and secular stagnation, I suggested a bigger argument that

The financialization of the global economy has produced a hugely costly financial sector, extracting returns that must, in the end, be taken out of the returns to investment of all kinds. The costs were hidden during the pre-crisis bubble era, but are now evident to everyone, including potential investors. So, even massively expansionary monetary policy doesn’t produce much in the way of new private investment.

This isn’t an original idea. The Bank of International Settlements put out a paper earlier this year arguing that financial sector growth crowds out real growth. But how does this work and what can be done about it?

The financial sector is an intermediary between savers and borrowers (for investment or consumption). So, the costs of running the financial sector and the profits generated in that sector must be included in the margin between the rates of return by savers and those paid by borrowers, or else they must be shifted on to society at large (for example, through bailouts or tax subsidies).

I’m still organizing my thoughts on this, so what I have are some ideas rather than a fully formed argument.

First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?

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