The intellectual trend away from the political right in the US[1] has been going on for some time, reversing the trend in the opposite direction that dominated the 1970s and 1980s[2]. But this NPR interview with Richard Posner who says
there’s been a real deterioration in conservative thinking. And that has to lead people to re-examine and modify their thinking
is probably the most notable single example so far, for several reasons.
Opening paras of my latest at The National Interest
As the euro zone stumbles towards a seemingly inevitable collapse, it is easy to blame the politicians involved or the whole idea of a common currency. The outcomes of the latest top-level meeting, including a pledge to create a single euro-zone banking supervisor and a relaxation in conditions for lending to Spain, are welcome enough but seem, yet again, to be too little, too late to save the common currency.
In reality, the real problem is not with the euro but with the institution set up to manage it, the European Central Bank. The idea behind its creation—a central bank completely independent from government control—is detached from economic reality.
The ECB’s disconnectedness was evident in the decisions by President Jean-Claude Trichet to raise interest rates twice during the course of 2011, at a time when the danger of complete collapse was already evident. Although these decisions were subsequently reversed, they killed any chance that Europe would grow its way out of the debt crisis.
In my previous post, I noted that, while Andrew Bolt had correctly calculated the impact of the carbon tax for the year 2020, he hadn’t completed the analysis by evaluating the impact over the relevant policy timeframe. While I was working on this, Bolt produced another post, linking to this piece by John Humphreys, which suggested errors in my original analysis. I submitted comments to both sites. John noted the error in Bolt’s analysis, but advises me that he is not going to publish comments, and hasn’t yet corrected his own post[1]. I assume he’ll get around to this soon.
I submitted the following to Bolt’s blog
John Humphreys has updated his post to note “John Quiggin has pointed out that there is also a significant problem with the Bolt estimate, since it only calculates the benefit from reduced emissions for one year (2020) instead of adding up the cumulative reductions over multiple years. Good point. This means the Bolt methodology just got a while lot more complicated since it now requires an expected future emissions time series and an expected future emissions time series counter-factual. That task is too big for me at the moment, but [b]it’s fair to say that such a number is going to be quite a bit higher than Bolt’s original estimate[/b].”
(emphasis added) I give a corrected estimate here
Sadly, the comment didn’t make it through moderation, presumably due to an error, so I’m publishing it here.
Update: Another go-round on moderation Andrew Bolt has posted again, indicating that the non-publication of my comment was indeed a moderation error, and acknowledging the need to use cumulative effects rather than those for a single year. As he will see when he does this, his sensitivity estimate is consistent with mine.
Unfortunately, Bolt didn’t follow the link I gave, and therefore repeated the already-refuted claim that my estimated was out by a factor of five, relative to that of Roger Jones. As I’d already pointed out here, the error was due to Michael Bachelard, who applied Roger’s sensitivity analysis to an emissions reduction of 5 per cent, when the reduction relative to BAU is 25 per cent. That obviously explains the factor of 5 divergence. I’ve posted a comment to Bolt’s blog pointing this out, but that comment too is awaiting moderation.
fn1. In the meantime, John H. has noted the erroneous estimates by Michael Bachelard, corrected here, and also some estimates by Christopher Monckton, presumably as a reductio ad absurdam
As I mentioned a little while back, I’m going to refrain (or at least try to refrain) from polemics on the subject of climate change in the future. As a first step, I’m happy to say that I’ve found a post by Andrew Bolt which I can recommend. Bolt links to this estimate by Damon Matthews that each tonne of CO2 emitted into the atmosphere changes the equilibrium temperature by 0.000 000 000 0015 degrees, that is 1.5*10^-12 in scientific notation. Noting that the carbon price is expected to reduce emissions by 160 million tonnes per year by 2020, Bolt makes the straightforward calculation that the emissions avoided in the year 2020 will reduce equilibrium temperature by 2.4*10^-4 or 0.00024 degrees.
Bolt stops there, perhaps having run out of time, so I’ll complete the calculation for him. Obviously to compute the impact of the carbon price we need to estimate the effect, not just for the year 2020 but for the entire period the policy is in place. That’s a complicated task, but let’s simplify by supposing that the policy stays in place until 2100 and that the 2020 reduction in emissions is maintained over this period. That gives a reduction in equilibrium temperatures of about 0.02 degrees, which coincidentally or not, is exactly what I estimated using a different method in a recent comments thread.
Of course, as we all know, this is a collective action problem – any one jurisdiction acting alone is not going to achieve much. Fortunately, most countries are doing something, even if they have adopted inefficient approaches like direct regulation in the US. So, let’s calculate what would happen if everyone adopted measures with effects comparable to those of the carbon price.
Australia accounts for about 2 per cent of the global economy, and about 2 per cent of total emissions (the latter depends a lot on which emissions are imputed where, but these estimates are imprecise anyway). So, if Australia’s effort with the carbon price is about average for the world as a whole, and these policies are sustained without change, Bolt’s calculation implies that the reduction in equilibrium temperature would be about 1 degree.
Bolt invites comments on whether such a reduction is worthwhile. Anyone who has looked at the impact of 1 degree of additional warming ought to agree that reducing warming by 1 degree yields a benefit far more than is needed to justify global adoption of policies like the current carbon price policy.
What this calculation shows is that we need to do more. Depending on your projections we need to reduce equilibrium temperatures by 2-4 degrees relative to Business as Usual. That will imply a carbon price at least twice as high as that implemented on Sunday. Comparing this week to last, I think we can probably bear the associated pain.
Bolt also links to this article by Michael Bachelard which states that the carbon price would reduce emissions by 5 per cent, relative to 2000, and gives an estimate by Roger Jones that this would reduce equilibrium temperature by around 0.004 degrees. As I’ve pointed out quite a few times now, the relevant comparison, and the one I’ve used in my calculations is between the carbon price and business as usual. That comparison yields a reduction of 25 per cent, and an impact of 0.02 degrees using Roger’s sensitivity assumptions. So, it looks like agreement all round.
(H/T John Humphreys)
Hello all, your friendly Ozblogistan Tyrant here, abusing my multisite posting powers.
This morning I received two independent reports of trojan warnings being given for two different Ozblogistan websites.
After investigation, I have determined that the server was automatically compromised, presumably by a brand new attack (since we just 2 days ago updated to WordPress 3.4.1), and a trojan inserted into various parts of WordPress.
I have identified and replaced the affected files with clean copies, and you should see no more warnings.
Those who want the gruesome details can learn more.
To support my fundraising appeal for HeartKids Queensland. Just click on the ad on the right and give money[1]. It would be great to reach $2000 by the end of the financial year (30 June).
An added incentive – after the carbon tax comes in on Sunday, money will be worthless and bank balances will be confiscated by the UN[2], so you may as well give generously while you still can.
fn1. Unfortunately, the widget isn’t updating the total amount at the moment, but I’ll announce it soon.
fn2. Oops, not sure if I was supposed to pre-announce that, so don’t tell anyone
The sharp drop in the price of coal over recent months might be just one of the fluctuations that go on all the time in commodity markets. That’s the preferred view of Fitch Ratings cited by Coalspot, saying “the weakness seen in thermal coal prices in recent months should reverse once demand from major importers recovers”. On the other hand, though “there is a risk low prices may persist into 2013, changing the industry’s supply side dynamics.” The crucial point is that most coal contracts are negotiated annually, so suppliers can ride out months, but not years, of low prices.
News from the US today increases the likelihood of a sustained drop in prices. The US Court of Appeals delivered a complete and unanimous rejection of an attempt to block regulation of CO2 emissions by the EPA, under the Clean Air Act. That could be overturned if the Repubs make a clean sweep in November, but otherwise it means, for practical purposes, the end of new coal-fired power plants in the US, and the shutdown of many existing plants. As noted in the Fitch report, declining US demand for coal is already pushing US coal onto world markets, contributing to the declining price.
Fitch is optimistic about demand from China and India, but there’s plenty of room for doubt about China. Not only does it appear that economic growth is slowing, but China is giving a lot of support to renewables which are now the focus of an incipient trade war with the US, and may also be expanding doemstic coal production. From whatever cause, coal is piling up on the docks.
The situation for metallurgical coal is a bit better, but not much. Iron ore and steel prices are also weakening, despite a recent rally.
What does this mean for Australia ?
A new sandpit for long side discussions, idees fixes and so on.
It’s time for another Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.
By John Quiggin, University of Queensland
Economists are regularly criticized for worrying about Gross Domestic Product (GDP), and similar measures. The classic statement of the case was by Robert F Kennedy:
“Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product … if we should judge America by that – counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armoured cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.
“Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.”
Much of the time, this criticism is misplaced. For the purposes of medium-term macroeconomic management, that is, trying to maintain full employment and low inflation, it is important to measure how much economic activity is going in aggregate. If aggregate demand is weak, for example, it is sensible to stimulate the economy by cutting interest rates or increasing public spending. GDP is the best single measure of economic activity, precisely because it captures all output, taking existing market prices as the measure of value.
In the longer term though, the problems with GDP start to matter, even in relatively narrow issues of economic policy. In measuring economic performance, as opposed to activity, GDP suffers from three major drawbacks in this respect
It’s Gross – that is, depreciation of physical and natural capital is not deducted
It’s Domestic – that is, it measures output produced in Australia, even though the resulting income may flow overseas[1]
It’s a Product – the ultimate aim of economic activity is not production in itself but the income it generates, which should be taken to include the economic value of leisure, household work and so on
John Quiggin 