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John Quiggin

MMT and the scope for seigniorage

by John Quiggin on March 6, 2019

The central idea of Modern Monetary Theory (MMT), as I understand it, is that, rather than worrying about budget balances, governments and monetary authority should set taxation levels, for a given level of public expenditure, so that the amount of money issued is consistent with low and stable inflation. In this context, the value of the net increase in money issue is referred to as seigniorage. To the extent that seigniorage is consistent with stable inflation, it is achieved by mobilising previously unemployed resources.

A crucial question is: what is the scope for seigniorage? In particular (expressing things in MMT terms), is the scope for seigniorage sufficient to permit the introduction of ambitious programs like a Green New Deal without the need for higher taxes to prevent inflation.

The recent episode of Quantitative Expansion in the US provides some evidence here. Contrary to the dire predictions of some critics, QE did not lead to runaway inflation. This is consistent with the view, shared by MMT advocates and mainstream Keynesians, that, in the context of a liquidity trap and zero interest rates, there is substantial scope for monetary expansion.

How much is “substantial”?

According to the St Louis Fed,
the monetary base grew from around $800 billion to just over $4
trillion between 2008 and 2016. That’s an increase of $3.2 trillion,
which is a lot of money. Expressed in terms of GDP, though, it doesn’t
seem quite as large. Over eight years, $3.2 trillion is $400 billion a
year or around 2 per cent of US GDP ($20 trillion).

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Coal, cronyism and corruption

by John Quiggin on March 3, 2019

The latest issue of Coalwire, a weekly newsletter covering the transition away from coal list three separate corruption cases involving coal: in Indonesia, South Africa and Bangladesh. These aren’t isolated instances: in just about every jurisdiction that isn’t moving away from coal at a rapid rate, the industry is associated with cronyism at best, and outright corruption at worst.

In Australia, for example, the push to develop the Galilee Basin is being driven by a set of politically connected billionaires (or pseudo-billionaires on the Trump model). In China, the move away from coal is being obstructed by provincial governments eager to keep the construction gravy train rolling. In India, there’s Coalgate. Crony capitalist governments like those of Trump in the US, Erdogan in Turkey and Law and Justice in Poland are among the leaders in resisting decarbonization.

The explanation is simple. Coal can’t survive in an open market environment, particularly one with a carbon price, nor under a coherently planned system. It’s only under the toxic mixture of markets and intervention represented by ‘business friendly’ government that money can still be made from destroying the global environment.

Fake news: the medium is not the message

by John Quiggin on January 27, 2019

A study of fake news on Twitter Facebook has found that the biggest propagators are Republicans over 65. No surprises there, but the researchers muddy the waters by suggesting that this group is prone to believing and spreading lies because they are “digital immigrants”, rather than “digital natives”, a distinction I thought had disappeared.

A moment’s thought should have suggested a different interpretation. The same group, after all, constitutes the primary audience for Fox News and (globally) the core readership of the Murdoch press. Even before the emergence of a distinctively partisan rightwing media, evangelicals eagerly spread fake news by word of mouth.

And this study defined fake news in the narrow sense covering reports that Obama is a lizardoid Muslim and similar. A more accurate definition, encompassing deliberate denial of overwhelming evidence, would encompass the entire rightwing media universe, going beyond the Murdoch press to include the output of thinktanks like AEI, Cato, Heritage and Heartland. The extreme cases studied on Twitter are the core of an onion wrapped in multiple layers of denial and defense mechanisms.

Until recently, the most obvious case was that of climate change, but now they have Trump. It’s now impossible to survive on the right without giving Trump a pass for his thousands of glaring lies. In these circumstances, it’s scarcely surprising that Republican activists who have been steeped in this environment for decades. see it as virtuous to circulate talking points regardless of their truth or falsity. Far from misleading this cohort, Twitter Facebook simply provided them with an amplifier.

Save the nukes

by John Quiggin on January 25, 2019

I’ve written numerous posts pointing out that expansion of nuclear power is not a serious option in decarbonizing the electricity supply. In a sense, there’s no need to make the case, as no profit-oriented corporation is ever likely to start a new plant. The recent abandonment of two proposed plants in the UK, despite the offer of massive subsidies, illustrates the point. The only purpose of talk about new nuclear power is to attack the only realistic options, wind and solar PV.

On the other hand, nuclear power is a lot less dangerous than coal. So, it’s worrying to see nuclear power plants closing down in the US and elsewhere, when there are plenty of coal-fired power plants still in operation. The worse case is Germany, where the phaseout of nuclear power has left lots of lignite-fuelled power stations still in operation.

The sensible policy is first, to abandon any idea of closing nuclear power stations by direct regulation and second, to impose a substantial carbon price, putting coal-fired power stations first in the “order of demerit” for closure.

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Socialist utopia 2050 …

by John Quiggin on January 18, 2019

what could life in Australia be like after the failure of capitalism?

That’s the title of my latest piece in The Guardian . It’s had quite a good run, but of course, plenty of pushback, mainly along the following lines

  • General objections to any kind of utopian thinking, even the very modest version in my article
  • Political impossibility
  • What about Stalin/Venezuela ?

What I haven’t seen, interestingly, is any suggestion that continuing expansion of financialised capitalism (aka neoliberalism) would produce a better outcome. Feel free to discuss this and other issues

Green New Deal

by John Quiggin on January 14, 2019

The idea of a “Green New Deal” seems to be everywhere, quite suddenly, although Wikipedia suggests it has been around for quite a while and that the phrase was coined by the ubiquitous Tom Friedman. There’s quite a good summary of the various versions by David Roberts at Vox (for those who don’t know him, an excellent source on climate issues in general).

The fuzziness of the term is, in a sense, unsurprising. It seems obvious that any progressive policy for the US must fit this description in broad terms. That is, it must be a modernized version of the New Deal and it must imply a shift to an environmentally sustainable economy. So, I’m going to put up my own version, without claiming that it is the One True GND.

As far as the “Green” part is concerned, it’s urgently necessary to decarbonize the economy, shifting to a fully renewable electricity system and electrifying the transport system. The time when this could be achieved by a price-based policy (carbon tax or emissions permits alone) has passed. A carbon price is needed, but so is systematic regulatory intervention.

Compared to politics as usual, this is a big deal, involving trillions of dollars in investment a complete restructuring of the energy sector, and radical changes to transport systems. It also has the potential for substantial net gains in employment – solar energy already employs three times as many US workers as coal.

But relative to the US or world economy as a whole, a transformation of the energy and transport sectors is not a big enough deal to form the basis of a New Deal. Energy and transport together account for around 10 per cent of the economy, and replacing fossil fuels with renewable energy in this 10 per cent is not going to make a fundamental difference to the operation of capitalism.

Quite a few ideas involving more radical economic changes have been proposed, including a Job Guarantee and Universal Basic Income. I’ve argued for a combination of these. In the specific context of a Green New Deal, the most important demand should be a reduction in working hours, with no offsetting change in wages. That amounts to taking the benefits of increased productivity, and progressive redistribution, in the form of increased leisure rather than increased consumption. It goes along with research findings suggesting that experiences, rather than material goods, are a better source of lasting happiness. To make the argument work completely, we need the further proviso that experiences arising from participation in family and community activities are more genuine than those offered by commercial providers such as tourism operators. I’d be interested to know if there is evidence on this point.

I’m at an early stage on this, so I’ll stop here and leave it open for discussion.

Published! (almost)

by John Quiggin on January 6, 2019

Economics in Two Lessons is listed as the #1 New Release in Microeconomics on Amazon. I’m not sure what this means, but it sounds encouraging.

It’s now available for preorder now, with a release date of April 23, the hardcover publication date. Apple books also has it for pre-order.

Thanks again to everyone who read and commented on the excerpts I published along the way. I’ve tried to mention you all in the acknowledgements, but it’s just about inevitable that I will have missed someone.

Done!

by John Quiggin on December 23, 2018

Today I sent off the corrected proofs of Economics in Two Lessons to the publishers, Princeton University Press #PrincetonUPress. They won’t look at it until New Year, but it doesn’t matter. The book is done, and I can sit down to Christmas dinner with the family knowing it’s off my hands.

Trump gets it (half) right

by John Quiggin on December 22, 2018

Donald Trump’s sudden decision to withdraw all US troops from Syria (and a large number from Afghanistan) has provoked plenty of criticism, not reduced by the enthusiastic support he has received from Vladimir Putin.

Rather than go over the arguments in detail, I’d like to make a point that seems to be missed nearly all the time. Whether acting for good or ill, the history of US involvement in the Middle East has been one of consistent failure at least for the last 40 years. The last real success was the Camp David agreement in 1978, which created the durable illusion that the US is crucial in resolving the Israel-Palestine dispute. The first Gulf War looked like a success at the time, but created both Al Qaeda and the conditions for the disastrous second war. Apart from that there has been nothing but failure: Reagan in Lebanon, 40 years of failure on Israel-Palestine, failed confrontation on Iran, incoherent attempts to influence oil supplies, and, of course, the second Iraq War including the rise of ISIS).

Whatever the motives, Trump’s decision to end military involvement on Syria is in line with Obama’s much criticised policy rule “Don’t do stupid shi*t.” Unfortunately, this move has been combined with increased support for Saudi Arabia and Israel against Iran and the Palestinians, and for an incoherent policy towards Turkey. Still, half-right is better than completely wrong.

The immediate point here is not to allocate blame or praise to Trump, but the importance of avoiding reflexive hawkishly responses of the kind emerging from the Foreign Policy Community. More generally, this event stresses the urgency of the need for a progressive foreign policy based on the presumption that military intervention in foreign disputes is almost always harmful and hardly ever preferable to civil aid. The same is mostly true of military aid, particularly when it is given to dictators who mostly use it to oppress their own people.

No planet but this one

by John Quiggin on December 13, 2018

The Voyager 2 spacecraft has just passed through the heliopause and into interstellar space, forty years after it was launched.

On the one hand that’s a stunning technological achievement and a reminder of the wonderful universe we live in. On the other, it’s a reminder that humans will never go out to explore this universe, or even leave Earth in significant numbers.

Although Voyager 2 has passed the heliopause it is still within the gravitational field of the sun. It would take another 30,000 years to fly beyond the Oort cloud which marks the boundary.

These facts could have been computed when Voyager was launched though at the time its mission was limited to five years. But if they had been pointed out as an argument for the impossibility of interstellar travel, the response would surely have been that the problem would be solved by technological progress. Forty years before Voyager was launched, flying across the Atlantic ocean was a major feat. Forty years or so before that, the first heavier-than-air flight was undertaken by the Wright brothers.

Extrapolating one could reasonably expect that forty years more progress would produce massive advances in space travel including human space travel. In fact, though no one knew it at the time, the heroic age of space travel (indeed, of nearly all kinds of travel) had already passed. No one has travelled to the moon since Voyager 2 was launched and, quite possibly, no one ever will. The promise of easy access to space through the space shuttle has been abandoned in favor of the 1950s technology of the Atlas rocket. Meanwhile physicists have closed off just about every possible loophole that might allow us to evade Einstein’s conclusion that the speed of light is an absolute limit.

The other achievement of the Voyagers and their successors has been a comprehensive exploration of the planets and moons of the solar system. They have revealed many marvels, but nowhere remotely habitable compared to, say, Antarctica or the Atacama desert.

The biggest lesson of our decades of space exploration is that Earth is the only planet we have.

A small piece of good news for the global climate

by John Quiggin on December 8, 2018

The market price of Bitcoin and other cryptocurrencies is plummeting, having dropped by 10 per cent over the last couple of days, and 50 per cent over the past month. The bubble that reached maximum expansion a year ago is gradually deflating.

The good news is that a lower Bitcoin price makes the energy-wasting process of Bitcoin mining unprofitable for many, so lots of miners are turning off their servers. Most estimates of the marginal cost of mining are around $4500 per coin, but the market price has just fallen to $3500.

That situation won’t last long. Every couple of weeks (more precisely, every 2016 blocks) Bitcoin adjusts the difficulty of the pointless algorithm used to mine coins, so as to ensure a steady flow of around one every 10 minutes. As mining effort has declined, the difficulty is reduced, which means less electricity wasted per Bitcoin.

The rapidity with which Bitcoin prices are falling give some hope that the entire disastrous episode will soon be over. If the current rate of decline (50 per cent per month) is maintained, Bitcoins will be worth less than dollar coins in a year’s time, and their impact on electricity demand will be negligible. That’s equivalent to taking a small country like New Zealand off-grid.

In this context, it doesn’t matter whether Bitcoin miners are using renewable energy or coal. The opportunity cost of the electricity they use is the coal-fired electricity that would otherwise be displaced by renewables.

The three-party system in Australia

by John Quiggin on December 1, 2018

A couple of years ago, I had a go at analyzing politics in the English-speaking developed countries in terms of a three-party system. The three parties were neoliberalism (in hard and soft versions), leftism and what I then called tribalism, but can now be better described as Trumpism. Trumpism combines what might be called dominant identity politics (for the countries in question, the relevant identity is white, Christian, heterosexual and suburban/rural) with crony capitalism and “big man” authoritarianism.

When I described the Australian political system a year ago, I noted a profusion of Trumpist parties. The most important is the governing Liberal party, until recently (like the US Repubs) hard neoliberals, but now increasingly Trumpist, with the partial exception of Prime Minister Malcolm Turnbull,

Malcolm Turnbull, a wealthy businessman, and smooth neoliberal who was widely seen as reviving of the soft liberalism of the past on social questions. As it has turned out, however, Turnbull has acted as a puppet for the Trumpists who dominate the party
A few months ago, the Trumpists finally tired of Turnbull and dumped him in favor of Scott Morrison, a former PR executive, who has praised Trump and even taken to wearing baseball caps.

The results, happily have been catastrophic, that is for the Liberals. After being tossed out as PM, Turnbull resigned from Parliament and his ultra-safe seat was won by an independent. Then the Victorian Liberals, running on a Trumpist platform involving a racist fear campaign on crime, the revival of the drug war and support for anti-gay discrimination by publicly funded church schools, were comprehensively thrashed in a state election. With moderate members defecting and others in open revolt, the Liberals are now in a complete mess.

Where does this leave the three-party system?
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Bitcoin’s belated bust

by John Quiggin on November 23, 2018

It’s been quite a big week in cryptocurrency markets. The price of Bitcoin has fallen close to $4000, down from a peak of nearly $20 000.

As a longstanding sceptic of cryptocurrencies, it might be thought that I would be taking a victory lap. After all, I have previously written that “Bitcoins will attain their true value of zero sooner or later, but it is impossible to say when.” With the Bitcoin price having fallen by 75 per cent, it might seem that my prediction is well on the way to being justified.

Unfortunately, the second part of my statement, about the impossibility of predicting timing has been proved definitively correct.. I wrote this in 2013 when Bitcoins were valued at around $100, and the total market capitalization was a mere billion dollars. A single wealthy individual could have driven the price to zero by short-selling.

Five years later, and despite the price collapse of the past few months, Bitcoins are selling at nearly 50 times the price I criticized as excessive. Moreover, as cryptocurrencies have proliferated, Bitcoin now constitutes only a fraction of the total market. The capitalization of the cryptocurrency market as a whole is fluctuating still close to $100 billion.

Yet this massive valuation is built on nothing. The idea that Bitcoin, or any of its competitors will provide a new and superior means for buying and selling goods and services has been tested to destruction. Nearly a decade after the currency was launched, the use of Bitcoin in purchases is modest, and rapidly declining.

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Trolls

by John Quiggin on November 18, 2018

I’ve decided that life is too short for me to deal with any more trolls. From now on, I’m following the same zero[1] tolerance policy regarding blog comments as I do on other social media. Snarky trolling comments will lead to an immediate and permanent ban from my comment threads.

More generally, I’ve come to the conclusion that the best way to look at the ‘Intellectual Dark Web’ and what remains of the Republican intellectual class is the light of my experience as a blogger.
Put simply. the IDW and others are trolls. Their object is not to put forward ideas, or even to mount a critique, but to annoy and disrupt their targets (us). As Nikki Haley observed, a few months before announcing her resignation as UN Ambassador, it’s all about “owning the libs
Once you look at them as trolls, it’s easy to see how most of the right fit into familiar categories. They include

  • Victim trolls: Their main aim is to push just far enough to get banned, or piled-on, while maintaining enough of an appearance of reasonableness to claim unfair treatment: Christina Hoff Sommers pioneered the genre
  • Concern trolls: Jonathan Haidt is the leading example. Keep trying to explain how the extreme lunacy of the far right is really the fault of the left for pointing out the lunacy of the mainstream right.
  • Quasi-ironic trolls: Putting out racist or otherwise objectionable ideas, then, when they are called out, pretending it’s just a joke. The alt-right was more or less entirely devoted to this kind of trolling until Trump made it acceptable for them to drop the irony and come out as open racists.
  • Snarky trolls: Delight in finding (or inventing) and circulating examples of alleged liberal absurdity, without any regard for intellectual consistency on their own part. Glenn Reynolds is the archetype in the US, though the genre was pioneered in UK print media by the Daily Mail’s long running obsession with ‘political correctness gone mad’
  • False flag trolls: Push a standard rightwing line, but demand special consideration because they are allegedly liberals. Alan Dershowitz has taken this kind of trolling beyond parody
    From what I can see, the latest hero of the Dark Web, Jordan Peterson, manages to encompass nearly all of these categories. But I haven’t looked hard because, as I said, life is too short.

fn1. Not quite zero. Commenters with a track record of serious discussion will be given a warning. But, anyone who wastes my time will be given short shrift

Brexit: this is it?

by John Quiggin on November 15, 2018

Since the Brexit referendum was hailed by many as representative of a new force in global politics, it’s of interest even on the far side of the planet, and I’ve watched the slow-motion train wreck with appalled fascination.

So, as far as I can tell, the Brexit deal Theresa May has come up with is pretty much the super-soft version. About the only immediate change it will produce is a return to blue passports in place of the EU burgundy, which, it appears, were always optional. And, it appears, the new passports will be printed in France.

All that assumes that the deal will go through. In this context, I’ve been struck by a lot of commentary supporting the deal on the basis that a second referendum isn’t feasible due to the timing requirements of the Referendums Act. Am I missing something here? Isn’t Parliament supreme? And given that this issue has consumed British politics for the last two years or more, can there really be any significant ambiguity about the possible choices articulated by May today: her deal, no deal or no Brexit?

Feel free to comment on these or any other aspects of the issue.