How coronavirus will wallop Australia’s economy – and what the government must do

John Quiggin74 Comments

The Guardian has a number of short pieces from economists on the likely economic effects of the coronavirus, and what should be done about it. Here’s mine

The government has finally recognised the correctness of the Rudd government’s response to the GFC

The Australian economy was slowing even before the bushfire catastrophe and the arrival of coronavirus. The economic costs of the bushfires, including damage to property and infrastructure, long-term health effects of smoke exposure and ecosystem destruction were massive, but the main effects on GDP will be felt by the tourism sector. The damage to Australia’s international image from widespread vision of the fires, accompanied by critical commentary to the effect that, as a climate laggard, we have brought this on ourselves, will be long-lasting.

The arrival of the coronavirus, just as the last bushfires were extinguished will have a greater short term impact on economic activity, almost certainly resulting in two or more quarters of negative growth. With an underlying growth rate of 0.5% per quarter, a 5% contraction in the 10% of the economy most exposed to the effects of coronavirus would be sufficient to reduce growth to zero.

It appears that the government has finally recognised the correctness of the Rudd government’s response to the GFC, and will follow that path, with some marginal attempts at product differentiation. It is likely that the effect on the budget balance will be substantially greater than the $10bn currently being discussed, and that the recent decline in the ratio of public debt to GDP will be reversed. In these circumstances, the massive tax cuts for high income earners, legislated for 2024-25 will probably prove unaffordable.

Sports rorts shorts

John Quiggin23 Comments

As I’ve said a few times before, I’m not a big fan of scandals. With much of the country burned over the last season (not even last summer, it started in June) and coronavirus in the way, our supposed leaders could do better than argue about handouts for boatsheds. But the corruption is obvious, and someone has to pay. So, here’s my suggestion.

Morrison’s chief of staff, John Kunkel admits that he ran the entire show (given that he was in charge of Morrison’s office, this is highly plausible) and that Morrison knew nothing about it (doubtful, but impossible to disprove). Phil Gaetjens ( Kunkel’s predecessor, now Secretary of PM & C admits he screwed up the investigation. Both of them resign, and everyone goes about their business.

Result: the Opposition get their scalps, and can claim vindication. The government protects Morrison and loses a couple of obscure apparatchiks (admit it , you had to Google them just as I did). The Australian public gets the leaders it elected back on the job. They might not do a good job, but that’s our problem for voting them in.

Debating postmodernism

John Quiggin47 Comments

Next week, as I’ve mentioned, I’ll take part in a debate/dialogue with Stephen Hicks, a North American philosopher, who has criticised postmodernism from a right/libertarian perspective. He’s on a tour of Australia, and was invited to Brisbane by Murray Hancock who’s setting up The Brisbane Dialogue which has the ambitious objective of promoting civil discussion across political divides. I ended up being dobbed in (is this an Australianism?) to present the other side, and chose the topic “Postmodernism is a rightwing philosophy”. Longterm readers of my blogging won’t be surprised: I was making this claim as far back as 2003. Thanks to Kellyanne Conway and “alternative facts”, I’ll have plenty of material to work with.
I plan to argue that in the absence of any objective correspondence to reality, it’s the truths favored by the rich and powerful that will win out, not those of the oppressed. Trumpism is the obvious illustration of this, but rightwing postmodernism on issues like climate change and creationism long predates his rise.

Still, I have a couple of problems. First, I’m not a philosopher, so I’m working with a pretty simple interpretation of postmodernism, roughly stated as “there are multiple truths, and no one is better than another” More precisely, as I encountered it, postmodernism involved a Two-Step of Terrific Triviality, putting forward statements that encouraged the simplistic interpretation most of the time, but, when challenged, retreating to into total obscurity, or else into something more nuanced and not very interesting like “there may be an actual truth of the matter, but we can never know it for sure” . But is there a better interpretation of postmodernism, one that is both interesting and comprehensible?

My second problem is whether constructive dialogue on a topic like this will prove to be possible. I think we’ll agree at least on not liking postmodernism, and probably on some of the intellectual history. I have no idea, though, what Hicks thinks about Trump and Trumpism, or for that matter about climate change and science in general. I’ll see how it plays out.

Coming events

John Quiggin26 Comments

I’ve got quite a few events coming up in the next ten days. I’ll be in Adelaide for the Writers Week (program here), appearing at the Pioneer Women’s Memorial Garden, King William Road on Wednesday 4 March at 2pm in conversation with Jane Goodall, on the theme the Common Good. I’ll be signing copies of Economics in Two Lessons.

I’ve fitted in two earlier events on Tuesday 3 March. At 12 noon, I’ll be talking about the economic cost of the bushfire disaster, at the University of Adelaide (Level 6, Faculty of the Professions Building, Pulteney Street). Then at 5:30, I’ll be talking about Economics in Two Lessons to the Economics Society of Australia, Marjoribanks 126 SANTOS Lecture Theatre, Level 1, Nexus Building 10 Pulteney Street, Adelaide, SA 5000

On Monday 9 March, I’ll be back in Brisbane at the Customs House for the launch of The Brisbane Dialogues, an attempt to promote civil discussion across political divides. I’ll be debating North American philosopher Stephen Hicks on the topic (suggested by me) “Postmodernism is a rightwing philosophy”. As long-time readers will recall I was making this point long before Kellyanne Conway brought it to wider attention with the idea of “alternative facts“.

Planning for pandemics (repost from 2005)

John Quiggin

The news of deaths from bird flu in Indonesia is pretty scary. Although, as I’ve mentioned recently Indonesia has made a lot of progress in many respects, the handling of this threat so far seems to show the worst of both worlds: all the ill ffects of authoritian habits combined with the timidity of weak politicians. There have been a lot of coverups, and an unwillingness to tackle the necessary but unpopular task of slaughtering affected flocks of birds. Things seem to be improving now, but there’s a long way to go.

It seems very likely that, sooner or later, bird flu will make the jump that permits human-human transmission, and quite likely that a major flu pandemic will result. The world, including Australia, is very poorly prepared for this. One thing we could do to prepare is to adopt a national program encouraging annual flu vaccinations for everyone, instead of just for limited categories of vulnerable people.

The main benefit of this is not that the shots would provide immunity against a new and deadlier flu variant (though there might be some limited benefit of this kind) but that we would have the infrastructure, production facilities and so on to undertake a mass vaccination against such a variant if it arose. As it is, it seems likely that many countries will be scrambling to get access to an inadequate world supply of vaccines, but if Australia and other developed countries ramped up normal levels of production, it would be much easier to generate extra supplies for our neighbours.

I haven’t looked into it, but my guess is that, even without considering the possibility of a pandemic, the benefit-cost ratio from such a measure would be pretty high. Flu is very costly in economic terms, and I suspect that, if pain and suffering were thrown into the balance, a program of universal free vaccination would come out looking pretty good.

Notes  I wrote this in 2005 thinking about new flu strains. The only difference I see with “novel” viruses is that the time taken to produce the initial batches of a vaccine is likely to be longer. As is usual with my policy advocacy, little if anything has been done along the lines I suggested.

Getting off coal: Orderly exit or last-minute stampede

John Quiggin16 Comments

I’m one of 10 000 Australian academics who signed an open letter to Unisuper (our industry superannuation fund) calling for a policy of divestment from carbon-based fuels. The first step in such a policy has to be divestment from thermal coal. Purely on fiduciary grounds, getting out of thermal coal is now a matter of cashing out before the assets are completely unsaleable. Just in the last week, here’s a list of investors, ranging from small institutions to financial giants that have made announcements along these lines

  • JP Morgan
  • Moody’s (saying that insurance companies should divest to reduce climate litigation risk)
  • The Royal College of Psychiatrists
  • The Jesuit Order in the UK
  • Creighton University (Jesuit University in the US)
  • Bristol University (UK)
  • Danish pension fund APG (selling its holding in KEPC)

That’s certainly a partial list, indicating that divestment decisions are now being announced on a daily basis, with many more happening quietly.

As the Wall Street Journal reported today, the exodus has reached the point where many coal companies have only a handful of institutional shareholders. These institutions, are too put it mildly, exposed to a lot of risk. And, for any other investors, a divestment decision by one of the remaining institutional shareholders would imply a big drop in the share price and therefore a capital loss.

Part of this flight is the toxic reputational risk associated with coal. As coal industry magazine CoalZoom has observed, reporting a study by Alva Group the bushfire catastrophe has had a huge impact in this respect to the point that

public awareness and a latent activist momentum which may only take one more high-profile incident to trigger concerted action have been built.

Sooner or later (as Moody’s notes above) that concerted action will include attempts to recover the damage caused by carbon dioxide emissions first from emitters, and then from their financiers and insurers.