Recent Reading: Where Next?

The New York Review of Books has had interesting comments on the literary personae of Barack Obama. Colm Toibin compares his autobiographical writings to those of James Baldwin.

It seemed important, as both men set about making their marks on the world, for them to establish before anything else that their stories began when their fathers died and that they set out alone without a father's shadow or a father's permission. James Baldwin's Notes of a Native Son, published in 1951, begins: "On the 29th of July, in 1943, my father died." Baldwin was almost nineteen at the time. Barack Obama's Dreams from My Father, published in 1995, begins also with the death of his father: "A few months after my twenty-first birthday, a stranger called to give me the news."

While Zadie Smith in their most recent podcast claims this comparison is obvious and contributes many further interesting comments.

Michael Tomasky reviews one item on Obama's reading list "Unequal Democracy: The Political Economy of the New Gilded Age" by Larry M. Bartels.

But the importance of these and some other findings in the book—for example, the aggressively negative impact on equality of the 2001 and 2003 Bush tax cuts—is that they use scholarly methods to provide political explanations for economic problems. Social scientists don't usually see things this way. To most economists, income levels, like periods of expansion and contraction, must have explanations rooted in the business cycle.

But Bartels now joins Paul Krugman and others—Jacob S. Hacker and Paul Pierson come notably to mind[7] —in the growing number of liberal social scientists who acknowledge the power of the conservative political apparatus aimed at achieving ideological goals such as minimally regulated markets and low taxes for the well-to-do. That such goals could not be justified as socially fair or economically effective did not matter. In his book The Conscience of a Liberal,[8] Krugman announced his conversion to the view that political decisions by Republicans, not the vagaries of the economic cycle, were the cause of inequality, and he pressed the need for a major political challenge to the conservative forces responsible. Now, writes Bartels, "the most important lesson of this book is a very simple one: politics matters."

Agriculture and Kyoto

Most scientists would argue that the Kyoto agreements have many serious deficiencies but are the only framework we have for international efforts to curb greenhouse gas emissions and minimize the risk of catastrophic, or just very damaging, climate change.

From New Zealand's point of view the most serious questions about Kyoto and its successor agreements relate to the impact of agriculture on greenhouse gas emission.

Readers of this blog, if there are still any, might like to take a look at my discussion about some aspects of this with Charles Finny over at Dear John.

Can I Just Say?

Bad news as always from the Middle East, take a look at the Washington Note, and commentary by Michael Oren in the New Republic.

If I say that this New Year's I willl try to be mindful of the people of Burma, Darfur and Congo as well as Palestine, you will know that I regard much of the reaction to the tragic events in Gaza as, yes, disproportionate. I remain more than a little queasy about those of us on the left that rail against "the Zionists" avoiding mention of that well-known UN member "Israel".

Yes, my attitudes to Israel are based on personal factors, "tribal" if you like; those factors include my friendship with residents of Tel Aviv and Jerusalem and with many American Jews, the fact that Israel is the only country in the Middle East where gays and lesbians can live together in safety with their relationships properly recognised by the state, the fact that Israel is a secular liberal democracy.

Be that as it may.

Again, take a look at Daniel Levy's account of where things are going wrong.

Update: And Mustafa Barghouthi also at the Washington Note.

Political Emissions

The soft Australian target of a 5% reduction of year 2000 emissions by 2020 has been received with dismay in many quarters. The various corporate hand-outs for "trade exposed emissions intensive industries" along with various offsets for the consumer that look like yet more middle class welfare, also seem pretty unappealing to me. The whole point is supposed to be to create economic incentives to reduce emissions and achieve increases in growth while reducing carbon dioxide emissions per dollar of GDP. This scheme looks to be minimizing those incentives at every turn.

I don't agree with everything there but Anna Rose has a good summary in New Matilda. There have been dramatic shifts since the Green paper, for example

It's worth noting that LNG companies like Woodside and Santos are huge winners from the scheme, as they had been excluded from receiving assistance in the Government's Green paper in July. Now, they'll receive 60 per cent of their permits for free, despite being well positioned to make windfall gains from emissions trading since LNG is a less polluting fuel than coal and oil.

Writing in the Australian Financial Review, John Quiggin, takes issue with the Garnaut/Rudd-Labor argument for low per-centage but high per-capita emissions reductions. The AFR has some pernicious new trick though that stops me cutting and pasting the most apposite part. Shame!

Where next? First in an occasional series.

The global financial and economic crisis is only one of the developments that make 2008 appear to be a bit of a watershed. There's clearly a lot of thinking internationally about this new era and I'm just going to link to some of it.

In the realm of ideas, things are up for grabs in a way they haven’t been for several decades now. That is what makes the present both an anxious and an exhilarating time.

That from Francis Fukuyama, courtesy of The Washington Note.

Fukuyama is among those who see a possible end to the Reagan era in US politics. Specifically on financial deregulation, tax cuts and foreign policy. The first two aspects might be relevant to other countries.

There are three core Reaganite ideas that need to be reformulated or discarded altogether if the United States is to navigate the current crisis and restore its credibility in the new era. The first has to do with deregulation and the role of the government in the economy more broadly. The Wall Street collapse and the big recession we are heading into occurred for reasons intrinsic to the Reagan model, that is, because the government had permitted the emergence of an enormous, wholly unregulated shadow finance sector under the belief that this sector would be self-correcting. Financial market liberalization had proven highly dangerous in any number of earlier cases, most notably the Asian economic crisis of 1997-98 and the Swedish banking collapse of the early 1990s, but these warning signs were not heeded and no one imagined that this could happen to the United States itself. In this the Democrats were fully complicit, not just in their support for loan expansion by Fannie Mae and Freddie Mac, but in Clinton Treasury Secretaries who pushed financial market liberalization on the developing world. The current crisis of course has many other causes, such as the more than $5 trillion of excess savings pouring into the country from China and other Asian countries after 2002, but the idea that history was on the side of ever-expanding deregulation was ultimately an important cause of the collapse. The Reagan-era joke, “Hi, I’m from the government and I want to help” doesn’t sound so ironic in light of the Fed and Treasury’s heroic efforts to keep the economy from walking further off a cliff.

The trick in redefining the model is not to overdo it on the regulatory side. The financial sector is very different from other parts of the economy because failure there imposes enormous spillover costs on everyone else, and is why Congress ended up having to vote for the $700 billion bank bailout in September. Labor market deregulation, by contrast, has had very beneficial effects in driving down unemployment rates and permitting much more rapid adjustment to changing conditions. American income distribution has gotten excessively skewed towards the wealthy, but we don’t want to fix that problem by returning to a trade union dominated labor market.

The second big Reaganite idea that needs to be rethought concerns taxes and spending—i.e., fiscal policy. Reagan introduced the notion that tax cuts would be self-financing because all taxes smothered growth; he was also responsible for promoting the idea that virtually all new government spending outside of defense would necessarily be wasteful. While there is some rate of taxation for which this is true, the actual tax cuts enacted both in the 1980s and in the early 21st century have simply served to deepen fiscal deficits and further skew income distribution to the wealthy. The impact of these deficits was for many years masked, however, by the fact that foreigners were wanted to hold their ever-mounting reserves in dollars, a phenomenon that put off the final reckoning but ensured that the fiscal crisis would be much more severe when it finally arrived.

This attitude towards taxes and spending has rendered the American political system incapable of confronting, first, the huge looming entitlement crisis over social security and Medicare, and second, energy. The single best thing we could have done for ourselves in the past generation was to impose a stiff carbon tax in periods when energy prices were relatively low; it was also something that no politician had the courage to take on. No one is going to be talking about increasing taxes until we are out from under the current recession, but in the long run Americans will have to learn to pay their own way.

Secondly, take a look at Ian Macfarlane's lecture to the Lowy Institute last week. Macfarlane was for a decade the Governor of the Reserve Bank of Australia. He reviewed the financial crisis and its effect on Australia before discussing possible regulatory developments.

When it is time to rebuild the regulatory system, I have no doubt that it will have to be more all-encompassing than formerly, but I don't see any likelihood of us returning to the old price-control type system that we had 30 years ago. To me the major challenges will be to:

- rein in what is left of the "shadow banking system";
- be able to measure the aggregate gearing ratio of the financial system and use this as a guide to policy;
- incorporate the risks arising from the reward structure of management into the regulatory framework;
- do something to address the inherent pro-cyclicality of conventional risk management frameworks and systems of bank supervision;
- resist the calls for self-regulation. As one astute commentator observed -- "self-regulation is to regulation as self-importance is to importance";
- bring some of the derivative instruments, particularly credit default swaps back onto an exchange so we can at least measrue their extent and the risks embedded in them, as well as reduce counterparty risk.

Australasian Contributions to International Climate Change Negotiations

While we await Kevin Rudd's statement on the Australian Government's carbon emission targets on Monday, much attention has turned to the international negotiations on future climate change agreements.

Ross Garnaut wrote a very useful op-ed in the Australian this week. He notes that these negotiations will be much more difficult than either trade or arms control agreements, and proposes some warning signs for difficulties in such talks.

If you hear negotiators from the respective countries arguing that Australia needs high per capita entitlements because it is big and lightly populated, or Canada because it is cold, or Japan because it has few opportunities for geo-sequestration of emissions from fossil fuel combustion, or China because it is the workshop of the world, you will know that the world has lost the battle to avoid dangerous climate change.

It's a cheap shot but I can't resist pointing out that some of New Zealand's statement in Poznan sounds exactly like this

New Zealand is unique among Annex 1 countries. With nearly 50% of our total emissions coming from agriculture, no other developed country comes close to having such a large percentage of its emissions arising from food production.

(Hat-tip: Charles Finny)

Given the ACT party's clutch on climate change policty, some aspects of the New Zealand statement were reassuring. But would Rodney Hide agree with this?

As a consequence we are reviewing our suite of climate change policies. The objective here is not to step back from Kyoto. The Government fully understands and accepts its long-standing international obligations under Kyoto for the first commitment period.

Prior to the election Hide stated his preference for leaving Kyoto.

In any case, Garnaut has become convinced that the eventual target for international negotiations must be equal per capita emmissions from all nations, and that progress should be measured in terms of per capita emissions reductions rather than reductions of particular nations or groups of nations from benchmarks in 1990 for example. This seems pretty sensible to me.

I was happy to see the mention of research on agricultural emissions mitigation in New Zealand's statement, and the emphasis on forms of agreement that will be satisfactory for developing nations. These aspects are very consistent with Garnaut's thinking about ways in which developed countries can contribute initially.

My work on The Garnaut Climate Change Review (Cambridge University Press, 2008) has led me to the view that any allocation of emissions entitlements with a prospect of being accepted by most developing countries must be based on convergence towards low levels of per capita entitlements at some time in the future. There will need to be headroom for rapidly growing developing countries. Through a transition period, the commitments of lower-income developing countries would be one-sided, with compliance encouraged through incentives rather than penalties.

The agreement over emissions entitlements would need to include developed country commitments to public support for research, development and commercialisation of low-emissions technologies. The agreement could embody firm commitments by developed countries to cover additional development assistance for complying developing countries to adapt to the climate change that will inevitably be faced in the period ahead. It could be supported by a proposal for World Trade Organisation rules to constrain individual countries' measures to restrict trade with countries that are not reasonably complying with the requirements of an international mitigation effort.

At the centre of the agreement would be an understanding on the allocation across countries of a diminishing total of annual emissions entitlements. These would be allocated on the basis that emissions would converge towards equal per capita entitlements at some time in the future.

The difference between the basis of allocation of emissions entitlements proposed here, and the Kyoto approach of fixed but differentiated reductions, is large. Within principles designed to reduce global emissions through convergence over time towards equal per capita entitlements, a reduction of 10 per cent from 2000 levels by 2020 in Australia would represent a full proportionate contribution to a global effort to hold concentrations of carbon dioxide equivalents to 550 parts per million. It would represent a larger per capita reduction than was required of the US or the European Union. It would represent a larger per capita reduction for Australia than the EU's implementation of its proposed unconditional commitment to reduce emissions by 20 per cent from 1990 levels.

Chinese economy

There is increasing concern in Australia over the health of the Chinese economy and the impact this will have here. The collapse in commodity prices seems to suggest rough times ahead in Australia.

Reserve Bank governor Glenn Stevens this week suggested that the striking economic fact of the past few months was not the expected downturn in the US. It was that "China's economy has slowed much more quickly than anyone had forecast".

China reports many of its key indicators in ways that obscure what has actually happened most recently. Stevens said the Reserve Bank's analysis indicated that Chinese industrial production went backwards over the four months to October. He was "not sure that many economic forecasters have fully appreciated this yet". "There is every chance that the rate of growth of China's (gross domestic product) is currently noticeably below the 8 per cent pace that is embodied in various forecasts for 2009," he said.

Stevens did not spell out what "noticeably below" meant but the word is that this could be as low as 4 per cent. That's a very big deal for a mega-economy that, until only months ago, was supposed to be marching ahead at a double-digit pace but which already had been clubbed by a home-grown property bust.

Select committee terms of reference

It seems that since the order paper was published earlier in the week the following clause has been added to the terms of reference for the climate change select committee

identify the central/benchmark projections which are being used as the motivation for international agreements to combat climate change; and consider the uncertainties and risks surrounding those projections

Good on you Rodney! And a great performance on Morning Report this morning, arguing as usual that there is no rational evidence for human impacts on global temperature.

Some would call this arse-backwards when many years of scientific observations and modelling have led the world's climate scientists to exactly the opposite conclusion. But as we all know the entire scientific community has been captured by an unthinking infatuation with Al Gore who invented the idea of climate change (along with the internet) while conspiring at the UN to institute a world socialist government back in the Clinton Administration.

Seriously, this clause is much better than the original one in the confidence and supply agreement. It should be possible to get reputable scientists and economists to greatly enlighten the committee about the observations and projections that form the basis of international concern on this issue. It is also true that there are uncertainties and risks in our current knowledge. Many of these are on the "down-side" as John Key would say.

The previous demand for opposing views on the science was merely an invitation for poorly credentialed cranks to waste the select committee's time.

Great News on Climate Change and Energy

President-Elect Obama is set to appoint Nobel Prize winning physicist Secretary of Energy.

For those of us in the science community wondering how to communicate the urgency of the situation to politicians and the wider community this seems to indicate that scientists who dedicate themselves to working on this issue can have an impact.

I hope it is also a sign that the Obama administration will be able to make some progress, despite the global financial and economic crisis.

Chu used to work in my field of atomic, molecular and optical physics before shifting to the top job at Lawrence Berkeley Labs to work on alternative energy sources several years ago. Some of Professor Chu's thoughts on climate change can be found here.

Kirk to return to NZ?

David Kirk has lost his job as Fairfax CEO. The troubled company looks set to appoint his deputy in his place. The Australian speculates that Kirk may wish to return to NZ politics.

There is growing speculation he will pursue a career in New Zealand politics. The National Party, led by his friend John Key, last month won power after a long period in the wilderness.

Reviewing the Science of Climate Change.

This is just to reassure Rodney Hide that while the select committee on climate change will not be reviewing the science of climate change, scientists will continue to.

I spent last week at the Australian Institute of Physics Congress in Adelaide. There were several great plenaries. One of them by Professor Marvin Geller of Stony Brook University in New York reviewed the effect of variations in solar intensity on the earth's average temperature. He told us that this effect is not large enough to explain observed warming. The Australian (which often runs infuriating articles on this issue) reported on this and I particularly liked this little comment from Geller

According to Professor Geller, sceptics are incorrect when they claim CO2 cannot cause warming as it comprises only a small, though increasing, fraction of the atmosphere.

In fact, CO2 is highly reactive in the atmosphere, he said. "Just because it's a small fraction doesn't mean it's unimportant. If you don't believe me, try surviving in a room with a small concentration of cyanide gas."