Redistribution and philanthropy

John Quiggin23 Comments

Joshua Gans points to this discussion of billionaire philanthropy by Robert Shiller. Shiller’s probably my favourite economist, and he makes some nice points, but I’ll leave them for later. I want to pick up a point made by Joshua, who says

Under a voting model, those governments will take from the median voter to give to the median voter. However, the alternative [poentially implementable by, say, Bill Gates – JQ] is to take from the middle to give to the poor.

Joshua has the model right, I think, but it doesn’t really describe the actual outcome.

Taking all taxes, and opportunities for avoidance into account, tax paid is roughly proportional to income. On the other hand, when you consider cash payments (which favour the goods) and public goods (where benefits generally rise with income) the benefits of public expenditure are fairly evenly distributed. So, roughly speaking governments take from everybody above the mean income, and gives to everyone below. Because of the skewness of the income distribution, more people are below the mean income than below, so this is a politically sustainable setup.

Howard and Costello: keeping interest rates below 17 per cent

John Quiggin50 Comments

If you sign a loan contract, you’re well advised to read all that boring fine print and get good advice on what the terms and conditions actually mean. This is also good advice if you plan to rely on promises from the Howard government. During the 2004 election, the Liberal’s ran on the slogan “Keeping interest rates low”. The content of this promise has now been explicated by the Prime Minister.

“You have to look at everything I said during the election campaign and you will find that I repeatedly said that interest rates would always be lower under a coalition government than Labor.

“In 13 years of Labor, housing interest rates averaged 12.75 per cent and peaked at 17. Under 10 years of coalition government, housing interest rates have averaged 7.25 per cent – a 5.5 percentage point difference.

Supposing, as looks increasingly likely, that Howard plans to stay on for another 10 years, he can manage an average rate of 17 per cent over that period and still keep his government average rate below Labor’s.

But at least Howard gets his facts straight. Treasurer Costello*, is quoted as saying

And the critical thing is to make sure that we don’t have interest rate rises of 300 per cent which would take us back to where the Labor Party low point was, or 1000 basis points, which would take us back to the height where they were under the Labor Party.”

It’s easy to check that the Labor party low point for the cash rate was 4.75 per cent in July 1993. But the message from Costello is the same as Howard’s. Anything below 17 per cent counts as delivering on the government’s promises, and anything below 9 per cent (the current cash rate of 6 per cent + 300 basis points) deserves extra applause.

* I think he’s segued from a selective quotation of home mortgage rates into discussion of the cash rate (only the latter is discussed in terms of basis points), but the implication is the same.

Conservatism invented in 1953:NYT

John Quiggin33 Comments

The term “conservative” gets bandied about a lot these days, and readers may wonder where it comes from. Jason DeParle in the NYT has the answer. It was invented by one Russell Kirk in 1953. DeParle’s opening para (“lede” in US newsspeak) introduces us to

Russell Kirk, the celebrated writer who a half-century ago gave the conservative movement its name

and elaborates later on

Kirk, who died in 1994, wrote 32 books, the most famous being “The Conservative Mind,� which was published in 1953. It championed 150 years of conservative thought, and offered “conservative� as a unifying label for the right’s disparate camps.

I must say, it’s a great term, offering a neat contrast with “progressive”. Surprising nobody came up with it earlier, really.

War and its consequences

John Quiggin66 Comments

The terrible war in Lebanon has been discussed from all sorts of ethical and legal perspectives, but the simplest way of judging war is to look at its consequences.

After weeks of bloodshed, with the vast majority of victims being ordinary people (mostly in Lebanon thanks to the use of airstrikes as a weapon of terror, but with many killed and wounded in Israel as well) whose only crime was to be in the wrong place at the wrong time, it’s hard to believe that anyone could claim that any good consequences are going to come out of this for the people of either Israel or Lebanon (though of course this is precisely the claim being made not only by the belligerents but by their outside backers, from Bush on one side to the Iranians on the other). But as we’ve seen time and again, the logic of war, once started, is remorseless. However obviously wrong the initial decision to go to war, the consequences of ending it always seem almost worse, at least to those who have to admit that the death and destruction they have wrought has been pointless.

And all this was not only predictable, but predicted by nearly everyone who looked at the situation objectively.
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The dismal science of freedom

John Quiggin49 Comments

The topic for my BrisScience talk tomorrow night is Economics: The Hopeful Science. The name, obviously, is an allusion to Carlyle’s characterization of economics as ‘the dismal science’. In choosing though, I was under the common misapprehension that Carlyle was attacking Malthus, and his prediction of a stationary economy with a subsistence wage, that could be raised only through ‘moral restraint’.

It turns out, however, that the phrase actually occurs in Carlyle’s defence of slavery, charmingly entitled, Occasional Discourse on the Nigger Question*, and that the primary target is John Stuart Mill and other economists who favored free labour over slavery.
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ABARE on the costs of climate change

John Quiggin62 Comments

I’ve been reading the latest ABARE report on climate change, kindly sent to me by my colleague Renuka Mahadevan . While there are some problems with the analysis and even more with the way it’s been reported, the central findings are strikingly consistent with estimates I’ve made about the costs of stabilsing global CO2 levels, most recently here

All the evidence, though, is that we can reduce emissions to levels consistent with stabilising global CO2 levels over the next few decades at a cost of around 5 per cent of GDP – a few years worth of economic growth at the most. Quite possibly, as in previous cases, this wll turn out to be an overestimate.

ABARE studies a number of scenarios in which global CO2 levels are stabilised at 575 parts per million in 2100 and reports the estimated reduction in global product at 2050, which ranges from 1.7 per cent to 4.3 per cent, or from a bit under 1 years per capita growth to a bit over 2 years. That is, in the worst-case scenario (which is somewhat problematic in modelling terms, I think), the living standards in 2150 will be those that would have been reached in 2048 under the base projection.

ABARE is not known for lowballing the estimated costs of mitigating climate change, but if you’re going to do a credible modelling exercise, it’s inevitable that numbers of this magnitude will emerge. This simply reflects the fact that carbon-based fuels make up only a modest proportion of the value of total output, and that the demand for carbon (or more precisely C02) emissions is bound to be at least moderately elastic in the long run.

Vote Yes in Toowoomba

John Quiggin60 Comments

The struggle of science against stupidity (and, in some cases, selfish interest groups) is being fought out on a number of fronts – creationism, global warming and passive smoking to name but a few. Tomorrow the venue moves to Toowoomba where a proposal to deal with a drastic water shortage by recycling effluent is being opposed by a know-nothing scare campaign, whose proponents have neither credible arguments nor an alternative to offer. I’m happy to endorse people’s freedom not to drink recycled water if they don’t want to. Their local supermarket offers chemically identical spring water at around $1/litre, so if they don’t want to drink what comes out of the tap at $1/kilolitre, they don’t have to. But they shouldn’t make their fellow-citizens suffer for their irrational squeamishness.