Financial crises & climate change

I am in Queensland at the 37th Australian Conference of Economists.  I learnt early this morning about the House of Representatives rejection of the Bush bailout package with the consequent 7% fall in the Dow Jones and, as I write this, the Australian stock market has fallen by a bit less than 5% in response. The Australian market was a sea of red. What was particularly dramatic in Australia was the fall in resource stocks in response to the apparently induced fall in commodity prices. There is a fair bit of panic in the market but the broad coverage of the price falls suggests that Australian will not be insulated from the effects of this crisis. I remain pessimistic about the prospects of a catastrophic outcome from the current troubles. Even a version of a bailout is approved soon - and the facts today make this more than likely - the market is signalling that do not expect it will work.

One immediate concern for me is that the financial turbulance around the world will make political leaders shift their attention away from urgent climate change concerns. The release today of a more punchy final Garnaut Report advocating a 25% cut in greenhouse gas emissions at least as a negotiating stance in 2009 might well be overshadowed by the financial mess. Unscrupulous politicians will be aware of the implications of the recent Lowy Institute report that Australians want policies to deal with climate change but not if it costs jobs or if it hits them in the back pocket. Increasing economic difficulties will foster these attitudes.

Hedge funds

Are hedge funds the next class of financial institutions to start collapsing? They face record demands for redemptions and are highly geared.  Their share prices are taking a hammering.  Who would want to invest in them these days? High fees and lots of gearing like sub-prime mortgages are acceptible when asset prices are increasing since investors can always at least get their money back. Now they cannot. This crisis has a long, long way to run and the $700b bailout, even if it is eventually passed by the US Congress, is not going to resolve things entirely.

HT to Naked Capitalism.

Vale Paul Newman 1925-2008

Paul Newman has died from cancer. A comprehensively decent man whose acting performances have entertained me for as long as I have been watching movies. This interview with him was made in 2007. 

I most remember him best from The Sting, Butch Cassidy and the Sundance Kid and a compelling, very different sort of performance, in The Verdict.   He made movies for 50 years.  I also enjoyed the early versions of his 'industrial strength spaghetti sauce' which he released in the US on my first visit there about 30 years ago. He made a fortune with his food products and gave the lot to charity.

Krudd takes on the world

Krudd’s Australia is leading the world on climate change policy. Well, starting last November we did.

Krudd’s Australia will ‘work with’ the G20 countries to improve the world’s financial management. They will be grateful. Krudd delivers a stern economic message to the world’s economic leaders. They will appreciate Aussie honesty and directness. After all, Australia’s banking regulatory arrangements are ‘the best in the world’ says Krudd and he would know.

Krudd tells the US Congress it must pass the $700 billion dollar rescue passage now. 'No time to delay', Krudd says.  The Americans will appreciate his robust political advice and knowing where Australia stands.

Krudd urges Australia to regain its seat at the UN Security Council. Krudd has not yet set out which countries we will have to kowtow to or how being forced to take sides on Chinese versus US interests will advance our own national interest. But next week he probably will sort this out provided he isn't booked at resolving the world's financial or nuclear disarmament problems.  Maybe next Tuesday between 2-3pm.

In his few spare moments Krudd has founded a new Nuclear Non-Proliferation and Disarmament Commission.  India, Pakistan, Israel and North Korea have been urged to disarm.  You have been warned. I speak Chinese, says Krudd with that famous smile.

What will Krudd come up with tomorrow?  He is now back in Australia today and going to the footie. Apologies to the 'stolen generations', ratifying Kyoto,  an 'education revolution', dismantling the private health system - all the really tough decisions have been taken. I am certain he will come up with some new program - a new initiative or three.

Swan implements Turnbull's policy after misrepresenting & attacking it

Swan implements Turnbulls's policy. Yes, the Australian government will buy home mortgages - an amazing backflip involving $4b. OK, so no-one really knows what they are doing in the current volatile situation but sometimes the low-brows in the government's benches might consider opposition suggestions.

Anyway imitation is the sincerest form of flattery. After criticising Turnbull's pronouncements Swan is doing exactly what Turnbull suggested - to buy mortgages in order to increase competition in the mortgage market.

Malcolm Turnbull

I watched Malcolm Turnbull's extended interview last night with Tony Jones on the ABC - the video here - and believe he has the skills and charisma to defeat Labor at the next election. I also think that, even should Peter Costello eventually challenge for the leadership, Turnbull remains the better choice - Costello has already begun sniping from the sidelines. The key issue is for the Liberals to get behind the leadership and act cohesively to regain office.

The Labor Party - and its weakest major link - Wayne Swan - have good reason to be fearful of a rejuvenated Liberal Party with a young, successful and highly articulate leader. The Australian economy will be hit by the US sub-prime crisis. Many Australians who supported Labor at the last election after a decade of amazing prosperity and good government, felt comfortable and relaxed with a change. They will now begin to look hard at the emerging economic difficulties and the lack of sense in a party putting a hack politician like Swan in charge of the economy. The robotic Swan is not difficult to replace given his apparent discomfit at his current role - in Parliament he is too frequently red in the face and nervously looking at pre-prepared notes as he wades in on issues beyond his capacity. He is that chink in Labor's armour the Liberals should continue to attack.

All Australians should welcome the emergence of an effective opposition in Federal politics. Liberal Party supporters will want a lot more than that.

Getting informed about the MDB

The ABS have just released a compendium of water use and other statistics for the Murray Darling Basin. I found it useful and valuable for understanding the MDB. Some of the choicer observations.

Physical Attributes. The MDB covers 14% of Australia's land area mostly in NSW (56%) and Queensland (24%). A fair slab of Victoria is in the MDB but it is only a small state. Australia's three longest rivers, the Darling (2,740 km), Murray (2,530 km) and Murrumbidgee (1,690 km) are in the MDB. 84% of the land in the MDB is owned by businesses engaged in agriculture with 67% of the MDB used for growing crops and pasture. In 2005-06 MDB temperatures were 2°C hotter than average. The MDB receives an average annual rainfall of 530,618 GL. Of this, 94% evaporates or transpires (not a misprint!), 2% drains into the ground, and the other 4% becomes run-off.

People. 10% of Australians - about 2 million people living in the MDB. Population is concentrated in NSW (39%) and Victoria (29%). A lot of people.

Agriculture is a significant employer with 10% of all people employed compared to 3% Australia-wide. But retail employs 14%, health and welfare 11%, Government administration and defence 10% - all more than agricultural employment - and even manufacturing is a surprising 9%. Not mainly agricultural.

Mean equivalised household income was $675 per week in 2006 compared to $732 for Australia as a whole.

Almost two-fifths (38%) of Australia's farmers reside in the MDB. The number employed as farmers in the MDB decreased by 10% between 1996 and 2006 and numbers employed in all other occupations increased by 18%. 39% of people employed and aged 65 years or over in the MDB were farmers - the oldies make up a lot of the farmers.

Water Use. In 2004-05, industries including Agriculture and households in the MDB used 52% of Australia's total water consumption. 83% of water consumed was in agriculture. MDB households consumed only 2%.

3% of Australia's electricity and 33% of the nation's hydro-electricity was generated in the MDB.

7,720 GL of water was consumed in agriculture which is 66% of Australia's agricultural water consumption. Most water consumed originated as surface water (6,499 GL or 84% of MDB agricultural water consumption) and groundwater (1,069 GL or 14%).

Most surface water consumed by agriculture was in NSW (57%) and Victoria (30%). Over 70% of the 1,069 GL of groundwater consumed was in NSW. The agricultural commodities using most water were:

• cotton - 1,574 GL or 20% of water used for agriculture in the MDB;
• dairy farming - 1,287 GL or 17%;
• pasture for other livestock - 1,284 GL or 17%; and
• rice - 1,252 GL or 16%.

Agriculture. There were 61,033 farms in the MDB or 39% of all farms in Australia.  A significant proportion of Australia's food production was grown in the MDB in 2005-06:

• 100% of rice;
• 95% of oranges;
• 62% of pigs;
• 54% of apples; and
• 48% of wheat.

The MDB contained 65% of Australia's irrigated land. The 1.65 million hectares (ha) of irrigated crops and pasture in the MDB were distributed as pasture (43%); cereals other than rice (20%); cotton (15%); rice (6%); grapes (6%); fruit and nuts (5%); and vegetables (2%).

In 2005-06, the Gross Value of Agricultural Production (GVAP) in the MDB was $15 billion or 39% of the Australiann total. Between 2000-01 and 2005-06, GVAP in the MDB increased by 7.3% while over the same period, the GVAP of all Australian agriculture increased by 12.8%. The MDB is not growing much comparatively.

The Gross Value of Irrigated Agricultural Production (GVIAP) in the MDB remained at $4600 million. GVIAP as a proportion of GVAP in the MDB decreased from 33% in 2000-01 to 31% in 2005-06.

In 2005-06, irrigated agriculture in the MDB generated 44% of Australia's GVIAP. Of this:

• dairy farming generated $938 million, or 20% of MDB GVIAP;
• fruit and nuts generated $898 million, or 20%;
• cotton generated $797 million or 17%;
• grapes generated $722 million or 16%.

In 2005-06, some irrigated crops in the MDB accounted for relatively high levels of GVIAP using relatively low levels of water consumption. Examples:

• fruit and nuts (20% of total GVIAP; 5% of agricultural water consumption); 
• vegetables (12% of total GVIAP; 2% of a.w.c).

Other irrigated crops in the MDB accounted for relatively low levels of GVIAP using relatively high levels of water consumption. Examples:

• rice (6% of total GVIAP; 16% of agricultural water consumption);
• and cereals other than rice (2% of total GVIAP; 10% of a.w.c.).

Fairly pointed comparisons for the ABS number nuts! Good on them. It is interesting stuff.

Natural Resource Management. Most NRM effort in the MDB during 2004-05 was spent managing weeds, pests, and land and soil. Farmers in the MDB reported the lowest effort expended on managing water issues (27 person days per farm on average) of all the NRM issues, equivalent to half of the effort put towards land and soil activities (54 person days per farm on average). Hmmmm....

I learnt a lot from this data base. It is a 150 page report and I have only summarised the synopsis. Pages 140-144 provides a useful survey of government policies in the MDB. Useful for me as a teaching aid. Well done ABS!

TV Advertisements

During a 15 minute interval of the show Underbelly on Channel 9 last night I counted 8+9+13 = 30 advertisements over 3 successive ad-breaks. The period was between 9-15pm and 9-30pm. I noticed most of the ads were of short duration but was still astounded at their sheer volume. How anyone can question the value of commercial-free ABC TV is beyond me.

Why should we pollute a major source of information and entertainment with lies and bad taste? Even if you do support the hideous quality commercial TV shows is it sensible to plaster them with such a huge volume of advertising even from the perspective of commercial interests?

Surely the incentives are to pre-record material and delete the advertising during playback. I have slipped into doing this almost unconsciously with the pay-TV service I subscribe to.

Economists opposed to the Paulson plan

Some big names in finance and economics here. Hat tip to Gregory Mankiw whose posts I am grabbing a lot lately. The last signatory on the list of eminents is Luigi Zingales who has a fascinating article in The Economist's Voice, Why Paulson is Wrong, which suggests how the crisis should be handled. I excerpt a segment:

'....it makes sense in the current contingency to mandate a partial debt forgiveness or a debt-for-equity swap in the financial sector. It has the benefit of being a well-tested strategy in the private sector and it leaves the taxpayers out of the picture. But if it is so simple, why has no expert mentioned it?

The major players in the financial sector do not like it. It is much more appealing for the financial industry to be bailed out at taxpayers’ expense than to bear their share of pain. Forcing a debt-for-equity swap or a debt forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition'.

I don't like the idea of the 'captains of the universe' and the greedy investors claiming huge profits and then seeking to socialise the disasterous losses they impose on themselves and society. But my anger directed at this lot, strong as it is, is tempered by the view that a lot of innocent people get hit in any major financial collapse. I'll let the financial experts work this one out but I am always surprised at how destructive errant financial markets can be when they run amok.

On this last point Gary Becker, while pointing to the costly implications of the bailout for future financial market moral hazard (future financing will be biased toward bonds rather than equity) and the unfortunate US taxpayer, broadly would agree with my caution. He writes:

'Despite my deep concerns about having so much greater government control over financial transactions, I have reluctantly concluded that substantial intervention was justified to avoid a major short-term collapse of the financial system that could push the world economy into a major depression'.

China as leader in the global financial crisis

Peter Drysdale over at East Asia Forum exposits claims by historian Harold James that only action by China can rescue the global economy from US financial ineptitude.  Indeed, to James, China is the US of the 1920s and 1930s.  China should become the anchor of the modern international financial system.

 James' argument:

'China is today’s America...When the 1920s and ’30s crisis hit, America alone had the capacity to take the big public sector action at home that was needed to stem the panic and economic collapse and the reserves to save Europe and the rest of the world from massive contagion. Andrew Mellon, US Treasury Secretary of the time, resolutely stood back, determined to let markets collapse and ‘purge the rottenness out of the system’. The collateral economic and geopolitical damage from that adjustment path through the markets was well and truly done before Roosevelt’s New Deal was put in place. Then, and now, a globalised world means that the solution to such crises spans borders. Aside from the US, only China...has the firepower to rescue the global conglomerates at the heart of the global financial system now under stress.


China, of course, has already played a role in picking up some of the pieces as the wheels fell off the US financial bus. As the crisis unfolded, Chinese and Middle East sovereign wealth funds recapitalised some of the debt of US and European institutions. But more recently Chinese investment Co (CIC) backed away from bankrolling Lehmann Bros. ....CIC backed away from picking up the tabs on Lehmann Bros as pay-back for US failure to act in the East Asian financial crisis and that is fanciful. This is only the micro play. The big play is the geopolitical paradigm shift that needs to deal China into its new responsibilities in managing the international economic and financial system. China can’t be expected to play its role in these affairs until it is brought into the centre of the global economic decision-making processes.

Meanwhile, the US crisis comes at a time that highlights the peculiar measure of influence and responsibility that rests upon China. Here, even more than in the East Asian financial crisis, China has the chance of making its own constructive and strategic contribution through underwriting policies to support a stronger RMB and boost continued growth of its own domestic demand. This will buttress the efforts of policymakers in Washington, serve China’s own national interests and leverage China’s role as an anchor of the international system'.

Superb Fairy-wren

Its just a great picture of a common bird in Melbourne. Courtesy of the Bird Observer's Club website.

Thoughts on the US economy

The US Government debt will rise to $11.3 trillion with the proposed $700 billion bailout of troubled mortgages now before Congress. That amounts to $37,098 of public debt per citizen.  To say the US financial system is stressed is to understate the issue.  The question is whether foreigners will come to demand higher interest rates on US IOU's.  Tax increases are ruled out by the political stances of each of the current Presidential candidates - Obama simply wants to shift the tax burden from poor to rich.  They are also ruled out in the US by fears such increases will intensify the likely forthcoming US recession.

The British don't seem to have the same conccerns. A tax increase of 5 pence in the pound is anticipated to cover their financial-crisis-induced budgetary problems.

US policy options are narrowing as the US economy faces the prospects of decades of removing a massive public debt burden. With a current account deficit of around $800 billion - accumulating at the rate of around $13 per US citizen per day - around 7% of GDP in aggregate - there seem to be no easy policy options.   Eventually taxes in the US must be increased and public spending cut so that the US economy pays its way internationally.  It is difficult to think of these things in the midst of a financial crisis but the US response to this crisis further constrains its longer-term policy options.

Privatizing ocean fisheries

I haven't posted for a while on fishery issues. Such concerns occupied a fair amount of my research time in the early 1980s. This article in The Economist makes the case for imposing individual transferable quotas on ocean fish stocks. 121 of the ocean's fisheries operated under ITQ's are much healthier than those not managed in this way. The specific studies are referenced here.

Ocean fisheries outside national waters are notoriously difficult to police and groups such as the Japanese cheat in dramatic, stupid and self-defeating ways on assigned quotas. But apparently 90% of fish caught are caught in national waters so that these issues of cheating can be overstated. It is, however, true that most of Australia's ocean fisheries are heavily over-exploited. Indeed ocean fisheries generally are expected to collapse by mid-century at current rates of exploitation. This is a crisis situation. Although still reversible the loss of marine biodiversity is one of the major factors reeducing the productivity of the oceans.

I always enjoy showing to students that overexploitation reduces fish yields and increases fish harvest costs. The Japanese are shooting themselves in the foot by cheating on international conservational agreements for such species as Southern bluefin tuna.

Financial crisis

This is a clear Q&A style discussion of the current financial upheaval.  David Brooks comments on the kneejerk reregulation response that is becoming the new fashion.  Meanwhile today's surge on stock markets around the world apparently reflects moves by Congress and the US Treasury to buy back at deep discounts the remaining mortgage bad debt in the US economy - this plan involves buying the mortgages, not the distressed institutions. It would be the biggest bailout in US history.

HT to Gregory Mankiw.

Update: I repeat a news update from the NYT:

Rescue Plan Seeks $700 Billion to Buy Bad Mortgages

The Bush administration is asking Congress to let the government buy $700 billion in troubled mortgages, according to a draft of the plan. The proposal would raise the statutory limit on the national debt to $11.3 trillion from $10.6 trillion.

A quote from this report by Republican Senator Jim Bunning of Kentucky:  “The free market for all intents and purposes is dead in America. The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably.”

Oil prices dip

I forecast in April this year - in the face of hysteria about $200/barrell oil prices - that the price of oil would approach $75US/barrell within 18 months and would settle around there. After I made my prediction it increased to a peak of $145-29US. Today- about 5 months later -  it touched $91-23US.  Indeed we seem to be moving back into what looks increasingly like an OPEC-determined oil price driven by supply rather than oil prices driven by surging developing country demands.  I'll stick to my earlier medium term forecast - there is plenty of exploitable oil in the world at $75US/barrell.  The OPEC cartel-type supply restrictions have a long history of repeated failure.

Of course, the current oil price fall is partly due to expectations of lower economic activity associated with the current capital market crisis. This capital market crisis has however dented speculative activity in oil markets that will make things easier for motorists and more difficult for OPEC and the Russians.

Are we in a liquidity trap?

Currently it is claimed that lending is drying up because lenders are fearful of the credit worthiness of borrowers.  That is self-evidently true. I assume lending is also limited because people are holding onto money balances to purchase assets which look like getting cheaper across the board.  I notice that in the UK there are proposals to stop short-selling of bank shares to stop large investors driving down bank equity prices further - this is occurring in the face of doubts about the future of Britain's largest mortgage lender Hbos.  The same proposals were passed into law during the Great Depression. Expectations about persistent future asset price deflation are, in part, driving a reduction in lending.  Moreover, as people try to build up their real money balances this drives further deflation and economic contraction.

My macroeconomics is rusty but are we not in a type of liquidity trap?

Malcolm Turnbull

The election of Malcolm Turnbull as leader of the Liberal Party is a good outcome for the party and an excellent outcome for Australia. Turnbull deserves the support of the Party and all those determined the kick the Rudd Labor Government out of office.

Turnbull has much more business and life experience than Kevin Rudd and is a much more intelligent politician. Turnbull is a serious candidate to be Australia's next Prime Minister.

Financial collapses

Bear Stearns, Lehman Bros, Fannie Mae and Freddie Mac receiving public bailouts or failing and yes even the venerable Merrill Lynch being flogged for a pittance.  And insurer AIG seems to need about $40 billion to survive. AIG is a big insurer in Australia with 500 employees. In the UK Hbos looks threatened by the collapse of Lehman. The bad news has not ended - it is only now starting to surface.

3 of the 5 largest investment banks in the US - some around for 150 years - have been wiped out or sold off at bargain basement prices. The asset values a puff of smoke.

I have been caught up with other things the past few days but watching what is unfolding with trepidation. The events over the past few days are a catastrophe beyond belief. I am interested to see what will happen to Macquarie Bank - their shares fell 11% today but I'll watch them today with interest. Babcock and Brown have fallen 94% this year and almost collapsed completely this year as former CEO departed the company completely.

Australian bank stocks generally will certainly continue to retreat but the broader market will also continue to suffer. We will all experience economic costs.

Update: Wall Street dropped 500 points last night.  Excellent discussions on the crisis by Malcolm Maiden and Michael West.

Two excellent French movies

The Diving Bell and the Butterfly is a 2007 film adaptation of the memoir by Jean-Dominique Bauby. Bauby had a massive stroke which left him paralysed except for the ability to move a single eyelid – the ‘locked-in syndrome’. He communicated using this eyelid to write a memoir describing his interior journey. The film is a remarkable achievement and one of the best I have watched in 2008. Sensitive and moving but not at all weepy, Bauby has an appealing inner toughness. The gradual pace of the movie parallels Bauby's situation – it initially adopts only his perspective but gradually unfolds to show something of his rich life prior to the stroke and his subsequent extraordinary strength and imagination. Simply a great movie.

I also watched the 2006 version of Lady Chatterley directed by Pascale Ferran. I thought this was a worthwhile adaptation and more subtle than the excellent earlier 1981 version starring a young Sylvia Kristel which warmed the blood. Kristel had experience as Emmanuel in doing that - but the film overall had an unrealistic rauchiness about it. The Ferran version has a different conclusion to both Lawrence’s book and the earlier version. This is a sensitively drawn story of romance, class and sex. I found the eroticism tasteful and the issues of class more thoughtfully drawn than in the earlier film version I mention. For example, Connie the aristocrat is sold on the game keeper Mellors for sure but not completely sold. The scenery and photography were a notable feature - the film is technically well done. Margaret and David reviewed the film in their At The Movies show and, for once, I agreed with Margaret.

Two interesting articles on climate change

Stewart Franks supports my earlier claim that the current dought in the Murray-Darling Basin cannot be attributed to climate change.  It can be more accurately attributed to the 2002 El Niño event and there is no convincing evidence increased frequencies of such events can be linked to climate change.  In the past such events have been bunched at high frequencies.   An excellent older post on this same issue is at RealClimate.

Climate change is a real problem but lets get the science right and, with respect to agriculture, get farmers acting on the basis of sound information not exaggerated pleadings.

An article from The Economist, provides a pessimistic assessment of the medium term implications of climate change for developing countries and a strong argument for emphasising the use of adaptation policies. This new emphasis is a sign of increasing pessimism in climate change debates.

Do you ever complain about your job?

Thanks Bernd

Costello not a leader

I have always had affection for Peter Costello. He is one of the Liberal Party's strongest parliamentary performers and an even-tempered, amiable sort of bloke. I think he would have made a competent Prime Minister though not outstanding. He faced the problem that most Liberal Party members felt gratitude and respect towards John Howard so that a challenge to Howard for the top job was always going to be difficult. But that challenge was what Costello needed to make to confirm that he had the needed ticker to be leader. He didn't and, indeed, waited until the eve of the launch of his book to confirm that he would not seek leadership of the party. It is disappointing. Nick Minchin's anger over the suggestion that the Party has been destabilised in the interests of a book promotion suggests a core discomfit. He 'doth protest too much'.

Malcolm Turnbull will shortly replace Brendan Nelson as Party leader and Turnbull is a good prospect to be a future Prime Minister. No problems here in the timing - Nelson took the flack that inevitably followed an election loss by a figurehead leader. Nelson deserves the Party's praise for doing that but Costello puts a somewhat tarnished seal on his leadership aspirations. Future talk of possible comebacks by Costello should be ignored.

Misplaced criticism of the Garnaut proposal

Amanda Lynch from Monash University's 'Climate Program' writes a 3/4 page op ed in The Age this morning criticising the Garnaut Review's draft report on 'Targets and Trajectories' for setting excessively high greenhouse gas emission targets of 450 ppm.  Unfortunately this claim seems wrong - Garnaut targeted 550 ppm and the criticisms she makes should relate to this target. Garnaut rejects the 450 ppm target as infeasibly low. For example, at 550 ppm, not 450 ppm as Amanda claims, there is only a 50% chance of restraining temperature rises to 2oC.

 I have criticised aspects of the Garnaut proposals - though as I reread his report my attitudes are softening somewhat - but it is important for Amanda to get her facts right.

The positive claim in the Garnaut argument that needs to be critically tested is the view that to cut emissions to 450 ppm would impose impractically huge cutbacks on developed countries given the expectation of continued high emissions growth in developing countries. That's the point where I become ambivalent. Is it better to target something modest but achieveable but which still carries the prospect of catastrophe or should we target something much less feasible which substantially reduces the prospect of catastrophic change?

A primer on the climate change debates

In June this year in the New York Times Freeman Dyson reviewed books by William Nordhaus and Ernesto Zedillo on the economics of climate change. This has evoked a response by Nordhaus and others and an amiable counter-response by Dyson. If you don’t have time top plough through all the literature this gives a good introduction to the science and to the earnest debates between Nordhaus and Lord Stern on the choice of discount rate and, in the Zedillo book, on the dead-end debate between climate change denialists and those advocating strong policy actions. I am recommending the discussion to my environmental economics students - it is a good read. Eventually I will try to read these books which look interesting.

Melbourne's Pravda runs free ads for protectionism

The Age today runs what amounts to a free advertisement for the car industry protectionists.  It is the usual nonsense.  Other countries shoot themselves in the foot by subsidising their car industry so we should too. Plus the crazy, utterly discredited line that was pushed for a while on other blogsites that there is an optimal tariff of about 10% on cars because we don't levy tariffs on those exports we have for which there is monopoly power.   The argument here relies on the Lerner symmetry condition of trade theory showing that an export tax is equivalent to an import tariff so if an optimal tariff is not levied on exports for which we are price makers this can be undone by leving a tariff on imports.  The claim is nonsense - the last link to an earlier post shows exactly why it is nonsense.

Those propounding these economically irresponsible claims should be ashamed of themselves.

Thanks to Damien Eldridge for pointing out The Age article.

More deceit from big tobacco

This article in The Age suggesting that tobacco companies knew that ciarettes contain a pollonium isotope that makes smoking a packet and a half of cigarettes equivalent in radiation exposure to 300 chest X-rays per year.  They kept quiet about it as they have with some many of the other deadly features of this habit. The more I look at the evidence the more I back my radical plan to get really tough on smoking - let's end this outrageously dangerous and stupid practice within one generation.

Thanks for The Age reference Damien Eldridge

Garnaut sucks up to Labor's lack of principles

I thought Tim Colebatch in The Age this morning summed up the Garnaut Reviews proposals for climate management as well as anyone. Labor's rants at the Bali conference last year about the need for 25% emissions cuts below 1990 levels by 2020 were just an instance of the standard bull-artistry we can come to expect from bureaucrats briefed by this terrible PM. 'Say it first - then think'.

Ah, where are those computers in schools for every kid?

OK the proposal from Rudd's Labor mate, Garnaut, is for a 10% cut on 2000 levels by 2020. The EU will cut its 2020 emissions to 20% below 1990 levels, and will go to 30% if others do the same.

Garnaut's proposal for a miserly 10% cut (a 25% cut on bau) is of course conditional. It will go through only if environment ministers agree in Copenhagen next year on a global plan to stabilise atmospheric greenhouse gas levels at 550 parts per million. That's twice their pre-industrial levels, but far above the 350-400ppm many scientists now say is safe. As this is unlikely to happen even the limited proposed cut probably won't eventuate.

How does this differ from the much-criticised proposals of John Howard to commit to mitigation only if other countries do so?

550 ppm should (according to the Hadley Centre) ensure a long-term temperature rise of probably something beyond 2oC and, without an eventually reversed overshooting in GGEs, the destruction of the Great Barrier Reef (see also here).

If the agreement in Copenhagen only cuts half the growth in emissions then Garnaut suggests only a 5% cut from 2000 emission levels. With no agreement at all Garnaut suggests no target but a carbon tax of $20 to $30 a tonne until an agreement finally emerges.

The world's leaders will be quaking in their boots at the ferocity of the implied incentives for them to take an urgently accelerated approach to GCE mitigation on the basis of the couageous Australian proposal.

But Colebatch praises Garnaut and some of the praise makes a little sense. The proposals will cut emissions per capita by 25% over what they will otherwise be 2050 target and should converge to sensible global targets by 2050 - a 90% cutback in per capita emissions by 2050. That's not too bad and it does get things moving on the basis of an emissions trading scheme that proceeds so slowly that even John Howard and Martin Ferguson would approve.

And a considerable advance is that the ALP (if it adopts these proposals) will have 2020 targets as well as earlier 2050 targets. These phonies didn't have these before.

The most interesting aspect of Garnaut is the targeting of equal per capita emissions across developed and developing countries by 2050. Developed countries are being urged to make absolute cuts and developing countries cuts in the growth of their emissions to this date.  This reflects, for example, the insistence of India, that it will not exceed developed country emissions and provides a basis for a joint global response.  Both sides are being called upon to adjust.

Update: I agree with the views of the three Australian IPCC members that the Garnaut report is not ambitious enough.  One of the three, a Dr Hare, commented '...Professor Garnaut had taken the wrong approach: he should have made a case for a strong global deal, not give a political assessment'. Essentially Dr Garnaut's cuts will almost certainly ensure 3o+C warming - a temperature increase that will devastate large parts of Australia.  When threatened with immenent peril it is inappropriate to be cautious on the grounds that this is politically realistic.

Risk of death

This blog contains a diagrammatic picture of what is likely to kill you at various ages given your gender and your smoking status. Its an interesting discussion although the original Journal of the National Cancer Institute article by S. Woloshin, L. Schwartz & H. Welch is even better. The 'risk charts' Figures 3-5 are excellent.

Crucially from my perspective it gives an accurate picture of the health risks of smoking and of the prospects of my own mortality. To summarise:

At any age you are more likely to die if you are a male than a woman.

Roughly speaking if you smoke you add about 5-10 years to your life. Thus a 60 year old smoker has about the same life expectancy as a 65 year old non-smoker.

Compared to a non-smoker a 60 year old male smoker has about double the risk of dying from vascular (heart or stroke) disease and about 25 times the risk of lung cancer. Ex smokers have experience somewhere between these extremes but still a greatly increased risk of lung cancer.

Overall of 1000 60 year old male individuals, 115 never-smokers will die within 10 years, 256 smokers will die and 166 former smokers will die.

Of 1000 60-year old women only 84 never-smokers will die within 10 years, 167 smokers will die and 125 former smokers will die. Women smokers from age 40 on have a much higher risk of dying within 10 years from lung cancer than from cancer of the breast. At age 65 the difference is a factor of 8.

This is only a sketch of the main conclusions. Well worth a more careful view.

Hat tip to FXH.

Sarah Palin a rookie politician she 'aint

Palin provides an old-fashioned rabble-rousing appeal to patriotism but this woman is dangerous. And here and here. Jingoistic stupidity and far more dangerous than the largely empty rhetoric of Obama with its economic stupidity.  Palin reminds me of a scene from Altman's Nashville - 'you may say that I 'aint free but it don't bother me'.  When will America wake up from this nightmare?  Hollywood has consumed Washington.

Update: Paul Krugman sees the Republican tactics as a dishonest, strategy that seeks to encourage resentment.

A wander half way down my blogroll

Reading blogs is often more fun than writing blog posts. Before I started this blog I naturally did it much more than I do now.  Below are some highlights I selected from a couple of hours wandering down through the first half of my blogroll - I stopped at Marginal Revolution.  I'll do a wander through the other sites at a future date.

Among OECD countries Australia won the recent Olympics using a measure that adjusts both for population and the degree of economic development. Oh yes, Jamaica won the global top spot and the US came 17th.

The value of day-dreaming as an input to creativity.  A wandering mind is in its default state according to this post.  3quarksdaily is a blog I should read more frequently. Recommended.

Adrian’s night shift driving a taxi with interesting statistics and no drunks – a great blog by the way compiled by a man with compassion and intelligence.

Clive James has some impressive clips of the late Sir John Gielgud - the voice of the Bard indeed! Listen!

From the Dog’s Bollocks I learned of a new (apparently very good) web browser – Chrome – supplied by Google.

Stephen Dubner proposes a tax on sex. It’s a joke (I guess) but like a lot of the stuff at Freakonomics it is neither funny nor clever. At the same site Daniel Hamermesh argues the case for the superiority of American toilets. Yuppie economics on a bad sample path! Not my taste at all.

But this was very cute. A Danish chain of gyms provides memberships for free with the only caveat being that you are charged if you don’t turn up. Certainly reduces those procrastination incentives but if their business plan is smart it implies a fairly low view of humanity.

George Borgas draws on a study of 30 billion electronic communications to suggest a 6.6 degrees of separation claim.  I think this is deep.....well.....

Warwick McKibbin has some very useful papers on climate change at his website.  I listened to a paper Warwick gave last week and was impressed.  Not light reading but valuable suggestions for our post-Kyoto future.

Labor liars on climate change

The claims by Labor that Brendan Nelson is a 'climate change denialist' because he asserts that the current dire situation in the Murray-Darling cannot be attributed to climate change is a deceit. There is no such implication. The statements by Brendon Nelson are accurate - the current drought cannot be attributed to climate change. Moreover, Nelson's claims have nothing at all to do with denying the reality of climate change.

Droughts have occurred around large parts of Australia for about 3 years in 10 since almost the time the first settlers arrived at Sydney Cove (Rob Linn, Battling the Land, 200 Years of Rural Australia is good on this). On this basis moderate drought cannot even be regarded as an extreme climatic event. In the terrible drought of 1895-1903 40% of cattle in Australia perished. There have been major prolonged droughts in Australia from 1911-16, 1939-45, 1963-68 and 1991-95 prior to the current severe drought. There have been specific regional droughts on a much more frequent basis than even this.

Longer-term we might expect a gradual trend increase in temperature, changed rainfall levels that differ regionally and possibly an increased frequency of extreme climatic events including drought. There is, however, no basis for interpreting the particular drought event now being experienced as being attributable to climate change.

As a commenter pointed out a few weeks back on this blog the difficulty with perpetuating these false claims is that, if people are persuaded that the current drought is due to climate change, they will come to disbelieve that climate change is a serious threat if the drought breaks and we have good rains for a number of years. Moreover, there are suggestions from some that ocean temperature changes might cause a temporary easing of warming over the next decade or so before temperatures resume their upward trend.

In addition these lies turn attention away from more proximate causes of the current dire situation namely the overallocation of water use entitlements in the MDB. Nelson is quite correct to point this out.

The lies have the political purpose of seeking to ridicule Nelson (are there diminishing returns to abuse?) but they have potentially serious consequences that go beyond this. It is important that politicians stick to the truth and throw light on climate change problems rather than mud at their political opponents.

I watched Minister Penny Wong repeat this deceit on Lateline last night. She deliberately avoided answering the repeatedly posed question of how she came to the view that drought in the MDB could be attributed to climate change. It was an evasive and disgracefully, inept and deceitful performance. Moreover, when quizzed on the issue of carbon leakage complaints currently being raised by the BCA she seemed lost and mumbled something irrelevant about the need to 'share the burden' of dealing with climate change. Moreover, if she understood the issue at all - one would think she should as she is the relevant minister - she could have advanced some sensible views that would, in fact, have supported the Government's position.

Wong took over the climate change issue from an incompetent Peter Garratt who, in fact, launched the foolish attack on Brendon Nelson yesterday in Parliament. Who can take over handing the important climate and water portfolio from Wong?

Update: The press reports that MDBC boss Wendy Craik has claimed the CSIRO have determined that the current drought is due to climate change. I can't find such a statement in CSIRO material I have read. What is claimed in the literature I have read is that the frequency of droughts has risen and can be expected to rise - a claim that is plausible and indeed which I cite above. This is, of course, quite a different matter from attributing the current drought to climate change. If the CSIRO - or anyone else - claim this it is an extremely incautious claim.