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John Quiggin

Armistice Day

by John Quiggin on November 11, 2015

As Armistice Day comes around again, I find it more and more difficult to avoid despair. Each new war seems even more brutal and pointless than the last, bringing nothing but ruin and destruction to all concerned. And yet, opposition to war in general, or even to involvement in any particular war, is increasingly being seen as unpatriotic.

My annual ritual of writing a post on this day hasn’t helped at all. I’ve repeatedly had it explained to me by learned commenters that the mass slaughter of 1914 to 1918 (and, by implication, the even more massive slaughter that followed it over the 20th century) was a right and necessary response to German imperialism, or that it must be understood in its historical context. I need only change a few place names, and substitute different enemies, to hear the voices of our present leaders, explaining the need for our armed forces to deliver more death and destruction, because “we must do something”. The fact that our current enemies are of our own direct creation, and that a decade or more of these wars has succeeded only it making matters worse, seems irrelevant.

Just about the only consolation is the fact that the scale and loss of life from war has been decreasing over time. Large areas of the world once riven by war now seem to be free of it, or nearly so.

Against that, however, is the ever-present shadow of nuclear cataclysm. The world has managed to survive, permanently within a few minutes of catastrophe, for 70 years now. But can that continue indefinitely? when belief in the rightness of war and the need for military strength is such a powerful force among ordinary people, and even stronger among the rulers who have the power to launch these weapons. Without radical changes in thinking, it seems almost certain that nuclear weapons will be used, sooner or later. Even a limited nuclear war, between India and Pakistan for example, would be a disaster as bad or worse than the World Wars of the 20th century.

Are recessions abnormal ?

by John Quiggin on November 8, 2015

I’m on to the macroeconomics section of my book in progress, Economics in Two Lessons. The key point of this section is that, whereas the academic economics profession has wasted most of the last thirty years on the project of founding macroeconomics on (some near approximation of) standard neoclassical microeconomics, the validity of the core results of neoclassical microeconomics depend on the assumption that the economy is operating at full employment[^1]. This observation isn’t original – it was why Keynes saw his theory as saving capitalism from itself. Even the title I used in this post on the macro foundations of microeconomics turns out to be a reinvention of the wheel.

Having noted the importance of the full employment assumption in the abstract, how relevant is it? If the economy is, with notably rare exceptions, at, or close enough to, full employment, then it seems safe enough for economists to continue, as the profession has for 40 years or so, to treat macroeconomics as a special subfield with little relevance to the rest of the discipline.

To put the question simply, are recessions abnormal?

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No New Coal Mines

by John Quiggin on October 29, 2015

Along with 60 other Australians, mostly more eminent than me, I’ve signed an open letter to world leaders calling for a moratorium on new coal mines and coal mine expansions. The letter focuses particularly on Adani’s proposed Carmichael mine in Queensland but this is part of a global movement to stop new coal mines everywhere in the world.

The underlying reasoning isn’t spelt out but ought to be clear enough. If we are to stabilize greenhouse gas concentrations at 450 ppm or below, as the world’s leaders have already agreed we should, it is necessary for carbon dioxide emissions to peak soon, and decline to zero over the next 30 years or so. Given that burning coal creates major health hazards in addition to C02 emissions, coal burning needs to eliminated even more rapidly. That means first, that no new coal mine can expect to work for an operating life of more than 30 years, and second that any new coal mine must be offset be additional closures of existing coal mines. Once these factors are taken into account, it’s essentially impossible for new coal mines to make economic sense within the constraints imposed by a limited carbon budget. Certainly, that’s the case for Carmichael, which is a massive boondoggle keeping alive only in the hope of extracting some form of government assistance or compensation.

Labour Lords Resign the Whip

by John Quiggin on October 27, 2015

I don’t have much to say about this, but I couldn’t resist the multiple absurdities embodied in the title. For those who haven’t heard anything about this, two appointed members of the House of Lords (Warner and Grabiner) have announced that they will no longer follow the direction of the Labour Party on how to vote, and a third (Mandelson) has made noises suggesting he may go the same way. This is a result of the party’s leadership election, in which the members a (nominally, at least) democratic socialist party chose a (nominally at least) democratic socialist leader.

For those who are a little closer to the action, this is your chance to comment or speculate on the implications.

Worthwhile Canadian Initiative

by John Quiggin on October 20, 2015

I’m writing from the other side of the planet, but there are enough Oz-related links to offer some thoughts on the Canadian election result.

First, taken in conjunction with the recent removal of Australian Prime Minister Tony Abbott, this is a big win for the planet. Abbott and Harper were the only two world leaders who were clearly climate denialists (despite some official denial-denialism) and now they are both gone. That leaves only the US Republican Party as a serious political force dominated by denial (of course, a big “only”). The chance for a decent agreement coming out of the Paris conference in December has improved significantly

Second, as the UK election also showed, the combination of multiple parties and First Past the Post voting is highly unpredictable. If things had shaken out a little differently, Harper might have managed it back into some kind of minority government, or we could be seeing the NDP rather than the Liberals winning on the basis of strategic voting. Applying this to the UK example, the idea that Cameron’s victory was in some sense inevitable is fallacious. Had a few things gone differently, we could all be talking about the mysterious appeal of Ed Miliband.

Third, the supposed dark magic of Oz spinmeister Lynton Crosby did Harper no good. If anything, Crosby’s dog whistle strategy motivated the majority to vote strategically against Harper. But I suspect that people like Crosby are better at selling themselves to politicians than at selling politicians to the public.

Locke’s Road to Serfdom

by John Quiggin on October 18, 2015

The second instalment[^1] of my critique of Locke’s propertarian liberalism is up at Jacobin. I’m looking at an obvious (but, AFAICT, rarely asked) question about Locke’s theory: if land is acquired through agricultural labor, how is it that agricultural laborers have mostly been landless? The answer is simple: thanks to slavery and serfdom, it’s the owners of the laborers who acquire the property. To quote Locke

the grass my horse has bit; the turfs my servant has cut … become my property
Locke’s political practice in the Americas was consistent with his theory. In his Constitution of the Carolinas, he suggested the creation of “leetmen” — a hereditary class of landless laborers, tied to specific areas, and bound to work for aristocratic landowners. As I observe (the point isn’t original)
Locke didn’t really need a new word for this institution. The founding figure of classical liberalism was proposing, literally rather than metaphorically, a Road to Serfdom.

[^1]: I’ve done with Locke, but I’m planning a third instalment on Jefferson, his most important successor.

Populism and Patrimonialism

by John Quiggin on October 17, 2015

Nuance is nearly always appealing to academics. For a long time, that was true of my approach to economic issues, particularly including income distribution. When presented with simplistic populist solutions to inequality like “Make the rich pay!”, I was inclined to responses along the lines of “It’s more complicated than that”.

A big problem with “Make the rich pay!” is that with the kind of income distribution that prevailed in the mid-to-late 20th century, any change to income tax that would raise significant revenue would have to apply to the top quintile (20 per cent) of the income distribution. People in the top quintile of the income distribution mostly derive their income from (typically professional or para-professional) employment, don’t think of themselves as rich, and aren’t, in general, seen this way by others. So, the slogan didn’t match the implied policy.

But with the rise of the patrimonial society, that’s largely ceased to be the case. The top 1 per cent of the US population now get more than 20 per cent of all pre-tax income, considerably more than the total revenue of the Federal government. Within that group, the top 0.1 per cent have done better than everyone else, and the top 0.01 per cent even better.

So, taxing the 1 per cent more makes sense. I responded a little while ago to a piece trying to argue increasing the top marginal tax rate would make no difference to inequality. And while I was drafting this post, the NY Times came out with an article that reached broadly the same conclusion as mine.

There’s nothing inherently ludicrous in the suggestion that the very rich should pay most or all of the costs of sustaining a system that benefits them so greatly[^1]. And, as in the 1920s, the very rich are different from everyone else. Their wealth is derived primarily from capital, or from control over capital (as business owners or from the financial sector). And, while most of the current cohort of ultra-wealthy did not inherit large fortunes, that’s an inevitable consequence of the fact that there weren’t many large fortunes to inherit until recently. As Piketty demonstrates, a society dominated by large accumulations of wealth will inevitably one in which inheritance, rather than effort, education or talent, determines life outcomes.

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Another excerpt from my book in progress, Economics in Two Lessons. There’s a partial draft here if you want to read it in context. I could spend a lot more time on the topic of advertising, but much of the ground has been covered in Akerlof & Shiller’s latest Phishing for Phools. As always, both praise and useful criticism are very welcome.

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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.

Yes.

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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