Harry Clarke

I prepared these notes for a conference at Peking University, Beijing that I will be attending this coming Saturday. It is late in the day but comments are very welcome.

1. Introduction.   Carbon taxes and, more generally, taxes on greenhouse gas emissions, are a widely advocated means of reducing such emissions to address anthropogenic climate change – see, for example, Metcalf and Weisbach (2009).  I examine the positive and normative effects of a generic ‘carbon’ tax that covers the various greenhouse gases, with respect to its tax incidence and welfare effects including ‘double-dividend’ arguments.   I also consider the appropriate choice of carbon tax base – issues of the breadth of the tax are considered as well as whether it should be levied on a ‘destination’ or ‘origin’ basis in an open economy. Then I provide an evaluation of the case for a carbon tax rather than an emissions trading scheme. It is clear that although the analysis focuses on design issues for carbon taxes that many of the same issues arise with respect to emission trading schemes.  The discussion closes with conclusions and final remarks. Continue reading Positive & Welfare Effects of Carbon Taxes: Some Basic Economics*

What’s happened to Australia’s international trade over the past 5 years? Most people know that Australia’s trade has grown strongly but I wonder how many understand the dramatic nature of the transformation that has occurred so very recently and despite the global financial crisis.   Colleague RW collated figures for the year ended 2005 and for the year ended 2009 – they are derived from ABS Catalogue No. 5368  Tables 14a, 14b.  I nearly fell off my seat when I saw them.

Over the 5 years total exports to our 14 major markets grew from $126b to $196b.  Imports grew from $149b to $201b.  Exports to China grew from $13b to $42b.  As a fraction of total exports they grew from 10 to 21%.  Our imports from China grew from $19b to $36b. Exports to Japan grew strongly too from $24b to $38b – Japan remains our biggest export market. Exports to India more than doubled from $6b to $14b. The really massive growth in exports of course has been concentrated in the two areas – crude materials other than fuels and in mineral fuels. Obviously terms of trade improvements – surging coal and iron ore prices in particular – have been an important factor.

The surge in our exports over recent years must have been a key factor in preventing Australia going into recession as a consequence of the GFC.  It is a stunning overall picture of the enormous strength and potential of the Australian economy.

I found this curious and not because the ABC aired what is a  taboo subject – this was the focus of subsequent press critiques. Is labioplasty a media-inspired (airbrush) aberration?  Or is it analogous to having your hair coloured or wrinkles botoxed.  Is curiousity about labioplasty a reflection of underlying sexual puritanisms or of male chauvinism/male fear of female sexuality?  I gravitate to the puritanism line but could be convinced otherwise.

I guess that if you believe that Jesus was born of a virgin, was raised from the dead - and could both walk on the water and raise the dead - that it is not completely incomprehensible that you might not believe the science of climate change or the Darwinian theory of evolution.  The more extreme forms of Christianity can be a socially acceptible form of madness.  Moderate Christians who derive moral values from the New Testament without a bizarre belief in the supernatural comprise an influential component of our culture that counteracts excess and – wrong though they are – deserve some limited respect.

One of the world’s rubbish wines that I have always enjoyed is gamay Beaujolais.  I drank a gorgeous, spicy entry-level Paul et Eric Janin Moulin a Vent 05 at Source Dining in Albury a couple of weeks back – I have already indicated that this restaurant offers some of the best food in NSW - the wine list is also superb – ask Steve for recommendations.  We did this that night and he didn’t disappoint. 

The best gamay wines come from Beaujolais and the Loire Valley in France.   The grape itself is a clone of pinot noir without the pretensions of pinot but with a happy affability – and a somewhat spicy, aromatic fragrant finish. Like many of the French wines I drink, it offers a welcome retreat from the overpowering reds that distinguish the Australian scene. Indeed, in Australia, you must pay more to get a lot less – more approachable red wines. 

At Dan Murphy’s I have bought a couple of Beaujolais-Village over the last few days for between $12- $16.  Not great wine but enjoyable. The snobs don’t like this stuff but economists, such as myself, revel in the fact that purchasing it is a market opportunity – a bulk, inexpensive wine with interest.  I don’t think there are more than a few significant gamay producers in Australia – one Yarra Valley producer got tragically burnt out in the 2009 bushfires.

A very useful, enjoyable and concise Youtube on climate science by Peter Sinclair. The video refutes the message that those suopporting climate science are inept at spreading its message. Other videos by Peter Sinclair at his blogsite here. HT ClimateSight.

The earthquake in Chile is 8.8 on the Richter Scale so it is of extreme intensity -  ground movement is about 63 times that generated in the Haitian quake (Richter scale 7) while 483 times the energy was generated in the earthquake. The Richter scale is calculated as the logarithm to base 10 of the amplitude of the strongest wave of the quake.  The damage in Chile is immense – hundreds killed and 1.5 million left homeless – but the effects are less severe than they would have been had Chile not been prepared. The most intense earthquake in history occurred in Chile in 1960 – 9.5 on the Richter scale – and this killed 2,000 people. Indeed the tsunami induced by that quake induced 25 metre high waves which battered Chile and sites 10,000 kilometres away. The Chilians have consequently set high building standards in order to accommodate anticipated shocks – much of the damage will be concentrated in buildings not covered by such regulation.

I didn’t get far yesterday with my claim to a postgraduate student that climate change delusionism is analogous to irrational belief in biblical creationism – both involved a rejection of mainstream science and reliance on emotional instincts.   The student responded that he believed in the latter – that Adam’s dalliance with Eve created the human race – and that the issue was not one of evidence (of the type he supposed I might advance) but simply of belief.   My response was that ‘belief’ in this sense amounted to ‘faith’ which in turn involved nothing more than blind acceptance and a rejection of reason based on, in this specific case, evolutionary history. It is a standard story I have accepted all my adult life – the words I used hatched in my throat like they were already written there (thanks WB) – I knew this dialogue would go nowhere.    Continue reading Compartmentalized thinking – god & universities

The Victoria Transport Institute (Victoria, BC, Canada) has this excellent survey.  Less theoretical than the discussions by Donald Shoup and by myself - it has lots of excellent case studies but no reference to the role of telematics.  I continue my long-term search for a doctoral student interested in pursuing a topic on the economics of parking policies in Australian cities.  Interesting area with numerous interesting Australian policy issues and almost entirely unexplored.

I don’t like guns or the idea of owning guns for ‘protection’.  Gun ownership delivers a Prisoners’ Dilemma where there is a collective loss in legal law-abiding welfare and where ownership increases the stakes in planned criminal acts.  Having more than a few punch-ups is socially preferred to having only a few killings. You buy a gun to ‘protect’ yourself and others buy guns because you own a gun. And crazy male psychopaths/libertarians buy guns because they fear that they have excessively small testicles, a problem that (fortunately) doesn’t trouble me.  I am a carnivore but I question the intrinsic reasonableness of killing animals for ’sport’ so I treat hunters as rather ugly people. Continue reading Guns in America

Jagdish Bhagwati argues in the Financial Times (subscription encouraged) that developed countries should be subject to a strict tort liability for damages done because of cumulative past greenhouse gas emissions. I disagree with most of his views but cite them (see below) given his pre-eminence as a trade theorist, development economist  and trade policy analyst. Continue reading Bhagwati on climate change negotiations

I have argued several times (here, here) that it is wise to be very pessimistic about the consequences of continued unmitigated releases of greenhouse gas emissions.  If this is alarmism then it is a rational form of alarmism.  Rational because, as has been repeatedly pointed out, the costs of averting a climate catastrophe are small.  Robert Frank, one of my favourite economists and economist-writers, takes up this line of argument in the current NYT.  The facts are frighteningly self-evident:

“According to recent estimates from the Integrated Global Systems Model at the Massachusetts Institute of Technology, the median forecast is for a climb of 9 degrees Fahrenheit by century’s end, in the absence of effective countermeasures.   That forecast, however, may underestimate the increase. According to the same M.I.T. model, there is a 10% chance that the average global temperature will rise more than 12.4 degrees by 2100, and a 3% chance it will climb more than 14.4 degrees. Warming on that scale would be truly catastrophic.  Scientists say that even the 3.6-degree increase would spell widespread loss of life, so it’s hardly alarmist to view the risk of inaction as frightening”.

Frank points out that even a massive carbon tax of $300 per tonne CO2 – a very high tax since an $80 per tonne tax should do the trick – would raise US petrol prices to about where they are currently in Europe.

I totally endorse Frank’s closing lines:

“Most people would pay a substantial share of their wealth — much more, certainly, than the modest cost of a carbon tax — to avoid having someone pull the trigger on a gun pointed at their head with one bullet and nine empty chambers. Yet that’s the kind of risk that some people think we should take”.

One of the interesting and influential figures I met recently in Paris was Professor Donald Shoup  from the University of California, Los Angeles - I have a great shot of him iding a (rented) Velib bike near a well-known Parisian tourist attraction.  Shoup is one of the world’s experts on the economics of parking.  This sounds like a dry topic but it isn’t –  parking practices are, in fact, a significant contributor to the unpaid, social costs of motoring.  I reviewed Professor Shoup’s The High Cost of Free Parking here.  The average US parking spot costs more to provide than the typical car occupying it and underpriced parking is a significant cause of traffic congestion.  The gist of Shoup’s argument is that anyone should be able to park anywhere at any time by paying a high-enough fee and that this would reduce excessive traffic partly by reducing socially-destructive search efforts to find a parking spot. One should set supply=demand in the parking market - allowing for entry and exit from spots you will do this if a 15% vacancy level among spots is targeted. I think a dozen quality PhDs in economics could be constructed in Australia on themes developed in Shoup’s book and all would have greater social payoffs than the current batch of mindless atheoretical, time series macroeconomic studies or the surfeit of ’sophisticated’, useless game theory projects we are producing.  Continue reading Parking economics revisited

As I plan to spend at least 4 months in China this year and, because I found difficulties getting around Beijing during my month-long 2009 stay without knowing any of the local language, I am doing a couple of units in elementary Mandarin here in Melbourne over the next few months.  As part of these courses you learn the Pinyin system which is, to me, a quite complex way of representing the Chinese language in terms of the English alphabet and you learn the Chinese language characters as well.  The objective is to ‘expose’ you to about 600 words of Mandarin although this (I imagine) is definitely an outer bound on what people can hope to assimilate. Continue reading Learning some Mandarin

I am not a keen supporter of numerical modelling of economic phenomena.  I have seldom seen key issues of controversy in economics resolved by numerical modelling and think that, as a policy tool, numerical modelling does not improve on sensible thinking through of the issues using low order non-numerical and even purely conceptual models.  It is absolutely essential to try to understand things initially using a minimialist conceptual model. Many of the extremely abstract theoretical models that I studied as a graduate student to try to understand the world – e.g. infinite time horizon, representative agent, consumption-savings models – are now being fleshed out numerically and used in important parts of, in particular, macroeconomics.  Continue reading Numerical economic modelling

I provided these remarks at the 54^th Annual Conference of AARES (Australian Agricultural and Resource Economics Society) that I am now attending in Adelaide. It is in the main a simple argument for using adaptive management techniques for managing highly uncertain and complex environmental systems. Very provisional. Revised, comments welcome. Continue reading Does environmental economics fail to account for ecological complexity?

I regret that Malcolm Turnbull was replaced by Tony Abbott as Liberal Party leader. To me it is the replacement of a decent hard-thinking politician by a populist clown who stands for nothing of consequence. Turnbull has stated he will cross the floor to vote for the Government’s CPRS. It is hard to see he could do much else given his stated views and, indeed, those of the Liberal Party itself, going into the 2007 elections.  In doing so Turnbull provided a more cogent analysis of the reasons for supporting a CPRS than Rudd ever could.

Here is a transcript of Turnbull’s speech - perhaps his best.

Moves by others in the Liberal Party to support Turnbull either in the House of Representatives or- much less likely - the Senate might suggest a rebuild of one of Australia’s important political parties.  Currently it is a party of clowns.

Update: Samuel J probably the worst of the right-wing ignorami at Catallaxy gets it horribly wrong by suggesting that an individual nation cannot implement a CPRS so that Turnbull is a traitor to liberalism and small government! What a bad joke!

The Sunday Age today presents a proposed ‘transport revolution’ for Melbourne prepared by Monash University’s Professor Graham Currie – a ‘transport expert’.  The plan recognizes that expanding road supply is not a major sensible option in the face of Melbourne’s ballooning congestion problems and instead argues for creating a ‘road hierarchy’ that gives pedestrians, cars, motorists and public transport priority access to roads at different times of the day to improve travel times.  To reduce congestion Professor Currie proposes to limit the building of new roads, create the above-mentioned priorities, reduce the speed limits allowed to cars in shopping strip areas during the day and by giving more priority to public transport by, among other things, removing on street parking. Continue reading Daft proposals for Melbourne’s transport woes

I am attending an OECD meeting on ‘Implementing Congestion Pricing’. There are some excellent papers here – the one by K-K.  Chin on the Singapore experience was particularly good but presentations on the Stockholm, Oslo and proposed Dutch schemes also useful. Generally, the International Transport Forum website is useful for transport planners.

A few of my well-worn prejudices have been shocked by the imperatives of practicality. Lots of design compromise and my love affair with telematics * is experiencing a rocky patch. The world will watch the Dutch attempts to regulate national traffic flows by satellite with interest. I’ll write up a more complete report once my opportunities to appreciate French cuisine cease.

* Need to be hard-nosed about pricing technologies.  Plenty of mature options and the most economic should be chosen – not necessarily the most sexy.