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John Quiggin

The one-way ratchet of the TPP

by John Quiggin on October 6, 2015

Also, maybe of interest, this piece on the recently announced (but still secret) Trans-Pacific Partnership Agreement.


Bitcoin, a waste of energy

by John Quiggin on October 6, 2015

I have a piece up on ABC (~ UK BBC, not US ABC) discussion blog The Drum, making the point that most of the market value of a Bitcoin reflects the electricity wasted in the calculations needed to “mine” it, with the obvious disastrous implications for the global climate. Unsurprisingly, it’s provoked some vociferous, if mostly incoherent, responses from Bitcoin fans. Hoping to use the heat energy arising for some useful purpose.



This, you might think, qualifies as another in the series “Short Answers to Silly Questions”. But a Brookings Paper study by William G. Gale, Melissa S. Kearney, and Peter R. Orszag reaches the opposite conclusion.

The study looks at increasing the top marginal tax rate (currently 39.6, applicable to incomes above $400k for singles), with the strongest option being an increase to 50 per cent. The proceeds are assumed to be redistributed to households in the bottom 20 per cent of the income distribution.

The headline finding is that the Gini coefficient is barely changed, as are other popular measures including the 99/50 ratio (the ratio of income at the 99-th percentile to 50-th percentile, that is the median). But the 99/10 ratio and 90/10 ratios change a lot, from 50 and 17 under current law to 37 and 12.5 with the redistribution.

What does this mean? Two things:

(i) As is well known, the Gini coefficient is a lousy measure of income inequality, much more sensitive to the middle of the income distribution than to the tails
(ii) The proposed redistribution would substantially improve the welfare of the poor, with most of the burden being borne by taxpayers in or near the top 0.1 per cent.

It’s obvious, as the authors note, that the 90-50 measure won’t change, since neither group is affected (there’s no simulation of behavioral responses which might have indirect effects). But, since the 99-th percentile income is very close to $400k, there’s very little impact on this group either. But the tax, as modelled, raises a lot of money from the ultra-rich incomes. As a result, distributing the proceeds at the bottom of the distribution raises incomes substantially, which explains the big changes in the 90-10 and 99-10 ratios.

The real lesson to be learned here, one I came to pretty slowly myself is that old-style measures looking at quintiles or even percentiles of the income distribution are no longer very relevant. The real question, in the economy of Capital in the 21st Century is how much should go to the ultra-rich.


My comprehensive plan for US policy on the Middle East

by John Quiggin on October 3, 2015

Four years ago, I put forward a comprehensive plan for US policy on the Middle East (reproduced in full over the fold). Looking back from 2015, I think it’s clear that it would have yielded better outcomes all round than the actual policy of the Obama Administration, or any alternative put forward in the US policy debate. Not only that, but it needs no updating in the light of events, and will (almost certainly) be just as appropriate in ten years’ time as it is now.

Feel free to agree or disagree.

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Income redistribution: Where should we start ?

by John Quiggin on September 26, 2015

Here’s another draft extract from my book-in-progress, Economics in Two Lessons, looking at income distribution. The entire draft section on this topic is available here. And the introduction, describing the general approach of the book is here.

Praise is welcome, and useful criticism even more so. As a reminder, this is an extract. If you think a crucial point has been missed, point it out, but bear in mind that it may be addressed elsewhere in the book.

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The last Trump …

by John Quiggin on September 24, 2015

… has blown for any notion of “sane Republicans”. Comment seems superfluous, but I will repost some older pieces, going back to 2004, which I think stand up pretty well

Science versus the Republicans
Ignorance is strength
Has vaccination become a partisan issue?

Economics in Two Lessons: Income distribution

by John Quiggin on September 7, 2015

Here’s another excerpt from my book-in-progress, Economics in Two Lessons. Rather than work sequentially, I’m jumping between:

Lesson 1: Market prices reflect and determine opportunity costs faced by consumers and producers. and Lesson 2: Market prices don’t reflect all the opportunity costs we face as a society.

In the section over the fold, I’m looking at how opportunity cost reasoning applies to policies that change the distribution of income, wealth and other entitlements.

As usual, praise is welcome, useful criticism even more so. You can find a draft of the opening sections here.

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The great replication crisis

by John Quiggin on September 2, 2015

There’s been a lot of commentary on a recent study by the Replication Project that attempted to replicate 100 published studies in psychology, all of which found statistically significant effects of some kind. The results were pretty dismal. Only about one-third of the replications observed a statistically significant effect, and the average effect size was about half that originally reported.

Unfortunately, most of the discussion of this study I’ve seen, notably in the New York Times, has missed the key point, namely the problem of publication bias. The big problem is that, under standard 20th century procedures, research reports will only be published if the effect observed is “statistically significant”, which, broadly speaking means that the average value of the observed effect is more than twice as large as the estimated standard error. According to the standard classical hypothesis testing theory, the probability that such an effect will be observed by chance, when in reality there is no effect, is less than 5 per cent.

There are two problems here, traditionally called Type I and Type II error. The classical hypothesis testing focuses on reducing Type I error, the possibility of finding an effect when none exists in reality, to 5 per cent. Unfortunately, when you do lots of tests, you get 5 per cent of a large number. If all the original studies were Type I errors, we’d expect only 5 per cent to survive replication.

In fact, the outcome observed in the Replication Study is entirely consistent with the possibility that all the failed replications are subject to Type II error, that is, failure to demonstrate an effect that is there in reality

I’m going to illustrate this with a numerical example[^1].

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Why price control doesn’t usually work

by John Quiggin on August 26, 2015

Another extract from my book-in-progress, Economics in Two Lessons. You can find a draft of the opening sections here. To recap, the idea of the book is to begin with the idea that market prices represent opportunity costs for the households and business who face them (Lesson 1), and then go on to explain why market prices won’t in general equal opportunity costs for society as whole (Lesson 2). A lot of the book will be applications of the two lessons, and this section is an application of Lesson 1. The title of this section is self-explanatory, so I’ll throw it open for comments. Praise is welcome, useful criticism even more so.

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War and Technological Progress

by John Quiggin on August 22, 2015

One of the big benefits of blogging for me is the chance to try out my ideas on an audience I couldn’t easily reach (or at least hear back from) in any other way. That’s particularly true when I’m writing a book, which is always a difficult process for me. My last post, on the opportunity cost of war produced a great comments thread. Particularly useful was a discussion, started by Chris, of the oft-heard claim that war stimulates scientific and technological progress. I’ve used my response, along with points appropriated from commenters to draft a new section for the book, pointing out how this claim ignores the problem of opportunity cost.

As always, comments of (nearly) all kinds are appreciated, and useful ones may be recycled.

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The opportunity cost of war (slightly updated)

by John Quiggin on August 18, 2015

What is true of natural disasters is even more true of the disasters we inflict on ourselves and others. Of these human-made calamities, the greatest is war. The wars engaged in by the US, Australian and other governments come at the opportunity cost of domestic programs that could save thousands of lives every year. The cost of war, in terms of American (and Australian) lives, is many times greater than battlefield casualty counts would suggest.

That’s the theme of this extract from my book-in-progress, Economics in Two Lessons. You can find a draft of the opening sections here.

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Are natural disasters economic disasters ?

by John Quiggin on August 14, 2015

Yes. This has been the latest in our series “Short Answers to Misconceived Questions”.

Actually, there’s a longer answer over the fold, another extract from my book-in-progress Economics in Two Lessons. You can find a draft of the opening sections here.

This extract is a subsection of Part 2, in which I explore the implications of Lesson 1:
Market prices reflect and determine opportunity costs faced by consumers and producers.
The conclusion is

if the damage bill measures the cost of restoring assets to their pre-disaster condition, it is also equal to the opportunity cost of the disaster, namely the goods and services that would otherwise have been produced.

I’ll be interested to see whether readers’ reaction is “That’s obvious” or “That’s obviously wrong”, assuming of course that you have any reaction at all. As always, civil comments of all kinds are welcome, particularly constructive criticism.

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The generation game and the 1 per cent

by John Quiggin on August 5, 2015

For a generation (fifteen years) or more I’ve been writing and rewriting the same piece about the silliness of the “generation game”, the idea that one’s year of birth matters more than class, gender or race in determining life outcomes and attitudes. But this is a zombie idea that can never be killed.

Stephen Rattner in the New York Times is the latest example, with a piece showing that US Millennials (those born after 1980) are doing much worse than previous generations at the same age, despite higher levels of education. Rattner notes the role of the recession, now nearly a decade old, but then jumps to the conclusion that it is the Baby Boomers, as a group, who are to blame. His only evidence for this is the long-discredited claim of a looming crisis in Social Security.

Rattner doesn’t present any evidence about the recent experience of non-Millennials, but his piece leaves the impression that the experience of doing worse than older cohorts at the same age is uniquely Millennial. So I thought I’d do his work for him, and dug out this graph prepared by Doug Short HouseholdIncomeByAge As can be seen, the group suffering the biggest loss, relative to older cohorts at the same age, are those households with heads aged 45-54 in 2013, a mix of late Boomers (for aficianados, this group is called Generation Jones) and early X-ers. But the main point is that median household income is falling for all groups except the 65+ cohort (mostly called Silents in the generation game). Part of this is due to declining household size, but (IIRC) household size has stabilized recently as forming a new household has become less affordable.

Rattner doesn’t mention, even once, the obvious and well-known explanation for the fact that median income is falling while mean income rises. This can only occur if the distribution of income is becoming more skewed, with the top tail (the 1 per cent) benefiting at the expense of everyone else.

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The Senate (not that one) blocks the TPP

by John Quiggin on August 4, 2015

The failure of talks in Maui last weeks to reach final agreement on the Trans Pacific Partnership Agreement raises new, if slim, hope that this corporate wishlist may not be delivered after all. Friday was the last chance to get a deal that could be pushed through the US Congress before 2016, when Presidential campaign politics might disrupt everything. If that happened, and the new President opposed the deal it might never happen.

Although there were a bunch of issues that prevented a final deal, the biggest one was the demand for new protection measures for US pharmaceuticals (typical of what are absurdly still called Free Trade Agreements), and the biggest single obstacle was the attitude of an obscure legislative chamber, the Australian Senate. This piece in Inside Story gives some of the background.

Demography and irreligion

by John Quiggin on July 30, 2015

A few months ago, I was a bit surprised to read a report put out by the Pew Research Center predicting that the proportion of the world population without a religious affiliation would decline sharply by 2050. The basic argument sounds plausible: an increase in the unaffiliated proportion of the population within countries will be more than offset by faster population growth in countries with higher rates of affiliation. The main points are presented in a peer-reviewed article in the journal Demographic Research, which suggests the analysis should be solid.

Still, I thought I would dig a bit, and found a longer version of the report here, including the projection that Christians would decline from 78.3 per cent of the US population in 2010 to 66.4 per cent in 2050. That seemed like a very slow rate of change, so I did some amateur demography of my own. I found another Pew report, released almost at the same time, which focused on the beliefs of Millennials (those born from 1981 onwards). This report showed that less than 60 per cent of Millennials currently report a Christian religious affiliation, compared to around 70 per cent of X-ers (born 1965 onwards) and much higher levels for older cohorts.
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