It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit(s). As always, civilised discussion and no coarse language please.
Can we feed the world? Will we?
I’m in Melbourne for the conference of the Australian Agricultural & Resource Economics Society (in fact, I’m currently President-elect of the Society[1]. There have been a couple of great papers on long-term food supply from Phil Pardey and Tom Hertel. So, this seems like a good idea to write down some thoughts about (what ought to be, at any rate) the central issue of agricultural economics – whether the global food system can produce enough food for the world and deliver it to those who need it. I’m hoping to refine this in response to comments – I’ll mark major changes but will otherwise adjust as I go.
Global warming takes a globe
As part of the publicity effort for the AARES conference, I was interviewed, along with some of our invited speakers, by the ABC Country Hour. I talked mainly about global warming and (along with Quentin Grafton and Alan Randall) water policy in the Murray Darling Basin, two of the main topics discussed at the conference (I also wrote an opinion piece, which was published here).
Given the audience, we were anticipating the arrival of hotly worded text messages denouncing the IPCC etc. However, the first one in was much more pleasantly amusing “We never had global warming when the world was flat. I blame Christopher Columbus”[1]
Depressing …
… that with leadership as underwhelming as Gillard’s, the alternative should be so bad as to make it no contest for anyone who cares about policy.
Picking up the gauntlet
As I mentioned, my Fin article on Thursday was intended as an appeal to those on the “do-nothing” side of the climate debate to take the risk of climate change seriously and abandon silly culture wars, cheap pointscoring and so on. It didn’t take long to elicit a reply in the form of a snarky, anonymous and (of course) hopelessly wrong piece of “gotcha” journalism from the “Cut and Paste” column in the Oz. Tim Lambert does garbage pickup.
Being attacked by The Australian is not something to get upset about. But it does give me a little more incentive to disabuse of their illusions the declining of paper who still believe this worthless gutter press rag to have some value. So, I’m going to add a regular feature pointing out the lies and silly errors that fill the news and opinion pages of The Australian. I’ll try to avoid duplicating Tim’s “War on Science” posts (up to number 60 with the one mentioned above!). I’ll retrospective label the “Factor of Five” post from last week as item 1. Suggested contributions are welcome.
Monday Message Board
It’s time again, at long last, for the Monday Message Board to resume. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.
Catallaxy doesn’t like bond markets
Over at Catallaxy, Sinclair Davidson suggests that reductions in carbon emissions should be financed by bonds maturing in 2050, so that the cost is borne by the future beneficiaries[1]. He ends with what is presumably intended as a snark
The real question is how these bonds should be priced? As an opening bid I reckon the ridiculously low discount rate proposed by the Stern Review should be used.
Looking up the latest data, 30-year US government bonds, the closest approximation to a 2050 maturity, are yielding 4.25 per cent. Assuming the Fed manages to hit the midpoint of its 2-3 per cent comfort zone for inflation, that’s a real interest rate of 1.75 per cent. That’s about typical in historical terms – the long run real bond rate has mostly been between 1 and 2 per cent.. Stern doesn’t propose an exact interest rate, but on standard parameters, his proposals imply a real rate of around 2.1 per cent. So, if Stern is ridiculously low, the market bond rate must be positively insane. Perhaps the Catallaxy crew can come up with some libertarian proposals to raise interest rates to a more sensible level.
Update The title was meant as a snark, but in an update, Davidson asserts that “we all know” that the rate of interest on US 30-year bonds is too low. He links to a piece on monetary policy in the mid 2000s, but, as I pointed out above, the current real interest rate is close to the average for the last 120 years. So, Catallaxy really doesn’t like bond markets.
To expand a bit on this point, there is a large literature suggesting that, because of capital market failures, the average rate of return to equity is too high, and the real bond rate is too low. Simon Grant and I have done a lot of work on this issue, and its implications, such as the fact that privatisation is often undesirable. However, correcting the market failure would only raise the bond rate to levels consistent with Stern’s estimates (there’s room to fiddle a bit with the parameters, but Stern’s default choices are pretty plausible).End update
fn1. He includes a suggestion that the bonds should be contingent on exact forecasts of economic environmental outcomes at that date, but I’ll pass over this in silence.
Trans-Atlantic plane wars (crosspost from CT)
My post on the end of US decline, suggesting that the US now has about the influence that would be expected, given its population, relative to other developed countries, attracted a fair bit of criticism from International Relations specialists. In particular, my suggestion that the EU and US typically bargain on relatively equal terms (as would be expected since they are about equal in size and income) was criticised by Kindred Winecoff with a reprise (see also Phil Arena). We could go on for a long while picking examples to suit one case or the other, but as it happens, I can take my best illustration directly from the news headlines appearing at the same time as my post. The World Trade Organization has completed its report on US subsidies to Boeing, following an earlier report on EU subsidies to Airbus. Although the report is not yet publicly available, both sides have received it, and are leaking/spinning like made, each claiming victory. Reading the competing claims, it seems that the WTO has found that that the US subsidies to Boeing have broken the rules (yay, Europe!), but not by nearly as much as EU subsidies to Airbus (yay, USA!).
In terms of the legal dispute, this looks like a win on points for the US side. But in geopolitical terms, it’s the other way around. Not only has Europe bent the rules more, it’s done so without suffering any real consequences, and to much greater effect than the US.
From a standing start in the 1960s, Airbus has taken the lead over Boeing in the commercial aviation market, while the rest of the once vigorous US commercial aviation industry has been wiped out. And, thanks in part to the launch subsidies against which the WTO has ruled, Airbus not only has the jumbo end of the market to itself with the A380, but has been able to counter Boeing’s successful (at least terms of orders) 787 with its own A350 (running only a couple of years behind the B787). Perhaps the WTO ruling will eventually force Airbus to give back some of the money, but as far as the global aviation market is concerned, the deed is done.
While this is only one example, it’s one that ought to give advocates of the US hyperpower theory a lot of pause. If spending more on the military than the rest of the world combined (the disproportion must surely be even larger in relation to military aviation) can’t preserve a position of dominance (or even leadership) in a closely related sector like commercial aviation, it’s hard to believe that it can be of any significant value in relation to other sectors of the economy.
It’s certainly possible to argue that the kind of industrial policy that produced Airbus is economically inefficient, and that the Europeans would have been better off leaving the field to the US. But this kind of argument applies in spades to anyone who wants to claim indirect benefits from military pre-eminence.
Similarly, it’s still possible that Boeing will win, or at least regain parity, in the marketplace. But if so, it will be due to a combination of good commercial judgement and good luck, not because Boeing has benefited from being part of the US military-industrial hyperpower rather than the supposedly outmatched EU.
Coming back to the general question, I’d say that the outcome of negotations where the EU and US appear with opposed agendas depend mainly on such things as the existence or absence of veto points, and the extent to which one side or the other cares about the outcome. Where there are lots of veto points (climate change negotiations or the Multilateral Agreement on Investment) the status quo has an obvious advantaage. Conversely, even a united EU can’t stop the US from going to war if it wants to, and the US couldn’t stop the International Criminal Court or the Law of the Sea convention. The US can often split the UK and sometimes others off to prevent the emergence of a common EU position, but the veto points within the US system often mean that the US itself can’t act one in any coherent fashion.
All of this is a long way from my original post, which was mainly concerned with convergence in economic performance. But it’s certainly been interesting to engage with the very different way IR specialists view the world. This is the kind of experience that you get from blogs, and much less from official academia.
This time it’s personal
The personal experience of the floods and watching the effects of Cyclone Yasi haven’t altered my views on climate change, which are based on a large accumulation of scientific evidence, so that one or two additional data points should have only a marginal confirming effect. But they have changed my personal attitude to those who persist in obstructing action to mitigate climate change. My piece in Thursday’s Fin (over the fold) was a final appeal to any of them still accessible to reason, but I haven’t seen any evidence that it had any effect.
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First sandpit for 2011
The blog and author are recovering from the floods and other disasters, and getting back to normal. Here’s a new sandpit for lengthy side discussion, rants on idees fixes and so on.
John Quiggin 