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John Quiggin

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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Beyond Galilee

by John Quiggin on July 24, 2015

If there’s to be any chance of stabilizing the global climate, a large proportion of existing reserves of coal will need to be left in the ground. The Galilee Basin in Queensland, estimated to contain 27 billion tonnes of coal, enough to raise atmospheric concentrations of CO2 by several parts per million on its own, is arguably the biggest test case in the world right now. Fortunately, the latest news is good.

The critical project is the Carmichael Mine proposed by Indian conglomerate Adani . To get the coal out Adani proposed a new rail line and a port expansion at Abbot Point. A Korean conglomerate, POSCO (originally a steelmaker)m was named as the builder of the railroad, with the prospect that POSCO would take an equity share and the Korean Export-Import Bank would lend money on favorable terms. If the rail line is built, other projects could go ahead. One such project, owned by Bandanna Coal (now in receivership) was just approved by Environment Minister Greg Hunt.

It now seems clear that Adani is mothballing the project. A month ago, the engineering design teams were told to stop work, and now Posco’s contractors have been sent home. Coincidentally or otherwise, Posco has announced the intention to return to its steelmaking roots, with aggressive cuts to its engineering and construction divisions.

Adani is still blaming regulatory delays, but this seems increasingly implausible. The sacking of the engineering teams will set the project back many months, if not years, and burning your primary equity partner doesn’t seem like a sensible response to regulatory problems. At this point, I’d say the strategy is to obtain and bank the regulatory approvals then hope that the price of coal increases in the future. This seems unlikely, given the collapse of demand in the US, declining demand in China and increasing Indian focus on renewables, in which Adani itself is a big player.

Moreover, with every year that passes, the obstacles to coal projects of any kind get bigger. Most international development banks will no longer lend to such projects, global banks are under similar pressure and institutional equity investors are being pushed to divest. It’s unlikely that the proponents of new coal projects in Australia will ever again see a government as favorable as the Abbott government, so if they can’t succeed now, they will probably never do so.

I’m now coming up to (what I hope will be) the most challenging part of my book-in-progress, Economics in Two Lessons. The core theoretical point the first part of the book (Lesson 1) is that, under a set of ideal assumptions, competitive equilibrium prices both reflect and determine the opportunity costs faced by consumers and produces. This means that there is no way to rearrange consumption to make someone better off unless someone else is made worse off. (I’ve already mentioned my reasons for avoiding the term “Pareto-optimal” in this context.

What I’m trying to do here is to spell out the logic underlying these results in a way that foreshadows the discussion of market failure and income distribution, in Lesson 2, but still shows the power of market mechanisms. I’ll probably need a few goes at this, and this is my first try. Critical comments on everything from the underlying theory to editorial nitpicks are welcome. Sincere praise is also welcome of course, but constructive criticism is best of all. [click to continue…]

After Melos

by John Quiggin on July 15, 2015

I’m sure I’m not the only person who’s been thinking about the words Thucydides assigns to the Athenians in the Melian dialogue

The strong do as they will and the weak suffer what they must
And I knew the immediate context. Militarily powerful Athenians demanded that the inhabitants of neutral Melos surrender their city and pay tribute. When the Melians refused, Athens invaded, slaughtered the men and enslaved the women and children.

I didn’t however, have any broader context in which to place this episode, even though the information is readily available on Wikipedia for example, which is my source here (apologies in advance to any actual experts for inaccuracies). The story begins with the formation of the Delian League, an expression of Greek unity in the war against Persia. The Athenians used the League to supplant Sparta as the hegemon of Greece, and then to oppress the other members, leading to a series of attempted defections. In Thucydides words

Of all the causes of defection, that connected with arrears of tribute and vessels, and with failure of service, was the chief; for the Athenians were very severe and exacting, and made themselves offensive by applying the screw of necessity

Eventually, this policy led to the outbreak of war with the Spartan-led Pelopennesian League (this war was Thucydides’ subject). The attack on Melos took place during a brief period of peace about half way through the war. The war ended with Athens being utterly defeated. Only the mercy of the Spartans prevented the Athenians sharing the fate they had meted out to the Melians a decade earlier, as Sparta’s allies demanded.

Rather than extract analogies to current events, I’d like to observe that the historical setting suggests a very different reading of the dialogue to that commonly seen today. In most of the contemporary discussions I’ve read, the Athenian side of the dialogue is presented as embodying the remorseless logic of power politics. But in the light of the outcome (well known to his intended readers), it seems to me Thucydides is better read as showing the Athenians as subject to the kind of hubris that demands, and inevitably receives, punishment. By contrast, while the Melians made a bad bet in resisting, their arguments are entirely sound, and should have been convincing to a rational hegemon.

Those whom the gods wish to destroy, they first make mad.

Bluffed

by John Quiggin on July 14, 2015

Obviously, my analysis of the Greek debt crisis was wrong. My crucial error was the assumption that, having held the referendum and being faced with an unacceptable offer, Tsipras would choose exit from the euro rather than capitulation. Judging by this interview with Varoufakis (H/T Chris), that’s what Tsipras thought too, until, too late, Varoufakis told him it couldn’t be done. Certainly Tsipras’ actions were consistent with that interpretation.

Syriza has clearly been beaten. But I doubt that the outcome will work well for the other side in the long run. (Nearly) everyone understands that the debt can’t ultimately be repaid. But the German voting public hasn’t been told that. A deal that had some kind of quasi-automatic mechanism for writing down the outstanding balance (for example, by multiplying up the proceeds from asset sales) might have got around this problem. As it is, an explicit writedown will be needed at some point, presumably after Syriza has been forced out of office. That will be incredibly unpopular in Germany, while making clear to everyone else the locus of sovereignty in the post-crisis EU.

Update Commenters generally disagree with my take on the Varoufakis interview. I’m not wedded to it. The crucial point is that exit from the euro is extremely difficult, and that this fact will be used to punish any eurozone country that tries to resist the controlling powers.

TISATAAFL

by John Quiggin on July 11, 2015

Another excerpt from my book-in-progress, Economics in Two Lessons. To recap, the Two Lessons are

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

In this section, I’m working on Lesson 1, leading up to the point (my restatement of what’s usually called the First Fundamental Theorem of Welfare Economics) that an ideal competitive equilibrium is one in which there are no unexploited potential gains from technical improvements or mutually beneficial exchange. For reasons I’ve spelt out already I don’t want to use the term “Pareto-optimal” to talk about this. I also want to confine “efficient” to its normal meaning of “technically efficient” and avoid the common economist practice of extending this to cover various definitions of “market efficiency”. So, I’m talking about “free lunches” or, more formally, benefits with no opportunity cost.

In Lesson 2, I’ll be looking, among other things, at the Second Welfare Theorem, which says any outcome with no free lunches corresponds to a particular initial allocation of property rights, broadly defined to include taxation obligations and entitlements of all kinds.

Now please comment, criticise and hopefully enjoy

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Derp: An irregular verb

by John Quiggin on July 7, 2015

Following up on Noah Smith’s marvellous definition of derp, I thought I would add the first person to give the declension of this irregular verb

  • I can’t see this happening
  • You regularly restate your tight (low probability) prior
  • He herped a flerp of derp, the twerp

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Lots of people have raised the suggestion of applying game theory to the the Greek debt crisis. I haven’t attempted this, reflecting my general scepticism about game theory in the absence of a well-defined strategy space. But now the Greek government and public have made, what is, in effect, a final move. In view of the No vote, Syriza can’t accept a deal that doesn’t include an explicit debt write-off or one that obviously crosses its stated red lines. Within those parameters, its clearly eager for a face-saving compromise.

For the other side (effectively the Troika and the German government), since Syriza’s move has already been made, the problem has now been reduced to one of decision under uncertainty, which is something I am comfortable with. More precisely, it’s a choice between a “safe” option, with an outcome that is fairly predictable, and a “risky” option where the outcome is uncertain.
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Locke and the Declaration

by John Quiggin on July 5, 2015

I didn’t take part in the book event on Danielle Allen Our Declaration, except as a commenter. But, as it happened, I converged on some of the central questions by a different route. For some time now, I’ve been writing critically about John Locke and his propertarian theory of liberalism. Increasingly, I’ve come to the view that Locke is best seen as an American rather than an English political theorist, even though he was an absentee owner rather than an American resident.

Further, while his writings appear liberal if interpreted in the English context, and if attention is focused on the passages where he is seeking to diminish the power of the English monarchy, his crucial contributions to the theory of propertarian liberalism are his justifications of expropriation and enslavement in the American context. The combination of the two made him the ideal theorist for those who wanted a Declaration of Independence that justified rebellion against the British monarchy, in combination with rule by a slave-owning aristocracy in the newly independent country.

James Wilson’s contribution to the Danielle Allen seminar, The Declaration of Independence isn’t egalitarian enough explores many of the issues, as does Gabriel Winant.

I’ve made a start to spelling out the arguments in a piece for Jacobin magazine, entitled John Locke Against Freedom, which has given rise to some interesting discussions on Facebook, Twitter etc. Chris Bertram has raised some effective criticisms, and hopefully will spell them out in more detail later on. A couple of notable points, with partial responses

  • I’ve overstated the extent to which Locke’s influence was confined to the American context, although it remains clear that his political theory mattered more in that context than in England

  • Even if Locke himself advocated and benefited from expropriation and slavery, it’s not obvious (as I assert) that his theory of classical liberalism necessarily entails these things. I plan to spell out the argument in more detail soon.

The IMF: An inexcusable, incorrigible failure

by John Quiggin on July 4, 2015

Chris has already pointed out the failure of the core European institutions in their response to the global financial crisis. One excuse that can be made for these institutions is that they are still in the process of development, and were ill-prepared, intellectually and institutionally, for an event so far outside their experience. The ECB and EC developed in a period when controlling inflation and stabilizing government debt were the key imperatives, and they responded to the crisis accordingly.

No such excuse can be made for the third member of the Troika, the International Monetary Fund. The IMF has understood from the start that the austerity policies it has imposed are economically unsound and a repetition of past failures. And yet it has been unwilling and unable to do anything else.

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Happiness and unhappiness

by John Quiggin on June 30, 2015

I have a chapter in a newly released book on happiness, extracts of which have been published in The Conversation. My argument, summed up as Measures of happiness tell us less than economics of unhappiness, is a reworking of points I’ve made in the past. In particular, I argue that it’s more useful to think about removing avoidable sources of unhappiness, and that has been the great success of social democracy and the welfare state.

An optimistic view on climate change

by John Quiggin on June 25, 2015

We had an interesting discussion in comments recently about the usefulness or otherwise of optimism in relation to problems like climate change. I’m a card-carrying optimist, as can be seen from this article for Australian magazine Inside Story arguing that the prospects are good for stabilising global greenhouse gas concentrations at 450 ppm.

On the whole, excessive pessimism is a bigger problem than over-optimism. As I’ve argued before, lots of people have locked themselves into positions (eg advocacy of geoengineering, or belief in the end of industrial civilisation) that are based on the assumption that stabilisation is impossible. Many of these people are not open to evidence that stabilization is feasible, and even likely.

There’s a strong case that we should do better than 450 ppm, with a common ‘safe’ figure being 350 ppm. Since we passed that level some time ago, that requires a long period of negative net emissions, which cannot easily be achieved with current technology. Still, if net emissions are reduced to zero in the second half of this century, and some technological advances are made over the next fifty years (a plausible assumption if we put in some effort), even 350 ppm might be feasible.

Since this was written we’ve seen the Dutch court decision mentioned by Ingrid. Also, the development of one of the biggest coal deposits in the world, in the Galilee Basin in Queensland, is looking a bit less likely. The main developer, Adani, has halted engineering work on the project. Adani didn’t announce this, but since it’s been reported, their spin is that it’s a tactical move to pressure governments to speed up regulatory approvals. My take from a while back is here.

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Here’s another draft excerpt from my book in progress, Economics in Two Lessons. 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.

As before, all kinds of comment and criticism, from editorial points to critiques of the entire strategy are welcome.

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Economics in Two Lessons (draft excerpt)

by John Quiggin on June 12, 2015

I’m still redrafting the opening section of my book, on the concept of opportunity cost. Some applications to specific problems coming soon, I promise. In the meantime, comments and criticism, including editorial corrections and nitpicks, much appreciated.
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Big Oil changes sides in the War on Coal

by John Quiggin on June 11, 2015

As the time left to save the planet from uncontrolled climate change gets shorter and shorter, the previously glacial pace of movement on the issues has speeded up. One of the most important, and surprising, developments has been a string of increasingly sharp attacks on coal, coming from representatives of major oil and gas companies. As this (rather excitable) piece explains, the reason is simple. The policy debate has crystallised around the idea of a carbon budget – the remaining amount of CO2 that can be emitted while keeping atmospheric concentrations at levels consistent with 2 degrees of warming or less.

Obviously, if such a budget is imposed and adhered to, a lot of fossil fuel resources, currently sitting on corporate account books, will have to be left in the ground. Unsurprisingly, fossil fuel companies have done their best to prevent such an outcome, promoting science denial, and encouraging national governments to shirk their share of the burden with the argument that others should do more. Such a strategy implies a united front among fossil fuel owners, since the longer the imposition of a budget can be delayed, the better off they all are.

The recent break in the fossil fuel coalition therefore marks a new stage. Rather than try to expand the budget for all fossil fuels, the oil and gas companies have decided to get as much as possible for themselves, which means shutting down coal as fast as possible. The facts that have made such a strategic switch sensible are many and varied but the most important are

(a) the increasing recognition of the health effects of burning coal which gives national governments like that of China a strong incentive, independent of climate change, to reduce coal use
(b) the fact that the most immediately promising alternatives to fossil fuels are renewable sources of electricity which compete directly with coal, and are, to a significant extent complementary with gas (as a dispatchable source, gas-fired electricity tends to offset problems associated with the variability/intermittency of renewables.

What’s the appropriate response here? In the end, it will be necessary to phase out fossil fuel use altogether. But the logic of tackling coal first is inescapable. If that logic drives a wedge in the fossil fuel coalition, so much the better for all of us.