Monday, 27 October 2008

The Obama Landslide

With just over a week to go to the US presidential election, I now feel confident in predicting not only an Obama win, but a landslide of historic proportions. The Obama and McCain campaigns are both playing this possibility down, claiming the result will be close. They have to. If Obama relaxed now and predicted a landslide, it could result in some of his supporters staying at home. If McCain conceded now, not only does he lose the improbable chance of a last-week turnaround, but he also (further) sabotages other Republican races.

So both sides have to say at this stage that it will be close; if Obama didn't say this, paradoxically, it would be more likely to be true.

Let's look at the indicators for a massive Obama win.


What of the “Bradley effect”, the alleged tendency for polls to be biased against black candidates because those polled don’t want to be seen to be racist? There is considerable dispute as to whether this effect was real. For example, one of the polls that erroneously predicted that Tom Bradley had won the 1982 California gubernatorial race was an exit poll, that failed to take into account absentee ballots, and the Republicans won on absentee ballots. On the whole, there is evidence that the “Bradley effect” is more likely to be a cover for weak polling technique rather than a real effect. In the current campaign, Obama has several times done better than predicted in the polls.

A big difficulty with polling in a game-changing election is that pollsters rely on demographics from past polls to predict future outcomes. In an election where some constituencies that have low participation rates come out in force, all those numbers could be skewed.

This close to an election, it would be an extremely rare event if polls showing the sort of lead Obama now holds reversed. Absent a real Bradley Effect and taking into account that it is his campaign that is mobilising key groups with a history of low participation, any error is more likely to be in his favour than not. So based on polling, unless his campaign makes a truly significant blunder in the last few days, his chances of not only a win, but a big win, are high.

The ‘it’s time’ effect

Again, all the pressures are on his side if you look at desire for change. The McCain's camp is trying to argue simultaneously that his short time in Washington makes him both inexperienced and a Washington insider, while McCain’s lengthy period in office makes him not only experienced but an outsider. That these contradictory arguments are implausible only helps Obama.

The ”it’s time” effect that worked so well for Gough Whitlam and Kevin Rudd in Australia (the latter against the backdrop of economic prosperity) is amplified by a widespread agreement that the Bush presidency has failed on all fronts. The war on terror has lost direction, the economy is in the toilet and social divisions are as deep as at any time since the civil rights movement. For McCain to claim to be an outsider, he would have had to disavow many more Bush positions than he has; it is not enough just to say that Bush was right on strategy but wrong on tactics, which is what the McCain position amounts to.

Also, despite the prejudice at the start of the primaries that Hillary Clinton would be a divisive figure, she turned out to be be surprisingly popular. Obama in many ways has similar pluses and minuses to her. Both have a sharp intellect (a plus or a minus, depending on how dig you deep into social strata), with backgrounds in law. Both have had relatively short periods in elective office; the talk of his inexperience somehow failed to touch on hers. Both represent demographics that have traditionally been excluded from high office. Both therefore represented change even before they articulated a platform. McCain, on the other hand, represents the past, and has failed to say how he really represents change. Had he campaigned as himself rather than the lapdog of the hard right, he may have stood a chance. But having allowed his campaign to look like George W. Bush, the remake, he has totally lost any chance at claiming it's his time. The Palin mistake only compounds his problems. McCain would have been a better president than Bush, but he's 8 years too late. If something happened to him and Palin was put in charge, very few people honestly believe she will do an even halfway competent job. She is the one part of his campaign that does represent change, but it's a scary kind of change: not what people are looking for in a time of multiple crises.

That brings me to the next range of issues.

Crisis Leadership

It's very seldom to have as wide a range of crises as is currently facing the US: peak oil, mitigated by worldwide economic collapse (as if that is a solution), all layered on top of climate change.

The US now needs a leader with the mass appeal of a JFK, the long-range vision of an FDR, and the unifying skills of a Nelson Mandela.

It’s not totally clear to me that Obama has all of the above, but it is clear that McCain falls far short. His campaign has been one of the most divisive I've witnessed. It is all very well for the ignorant to label Obama's tax proposal (that goes back to the tax rates in the time of one of the most popular presidents in recent times, Bill Clinton) as “socialism” but for McCain to repeat this is just absurd. His campaign has not done enough to stop ridiculous claims that Obama is a Muslim (as Colin Powell put it, it's not true and anyway why should anyone care?). They also keep harping on the by now thoroughly debunked “palling around with terrorists” claim. This is not even smart campaigning, let alone the question of dishonesty. When you are up against a candidate who can outspend you by as much as seven to one in battleground states on advertising, going negative assumes a level of risk not seen in previous campaigns.

Obama certainly has crowd appeal; even his opponents recognise that. On long-range vision, his case for heavy investment in alternative energy is a good sign, even if he is putting too much store on the bogus concept of “clean coal” (contrary to what we are widely lead to believe, even if this technology works, it will not fix existing coal power stations, so it is a total fraud to use “clean coal” as an excuse for continuing to build coal power stations). On unifying, he seems to be doing pretty well.

So as the transformational figure needed in a time of extreme crisis, Obama at least has the potential to do what needs to be done. Before the election, I would have scored McCain higher. Back in February, I blogged on the US election, starting with the words “Lucky, lucky Americans”, comparing their options with the incumbent. But his entire approach is to appeal to the section of the Republican Party that didn't like him before (Palin, calling Obama a “socialist”, allowing others to label Obama as a close associate of a “terrorist”). Ignoring the rest of the country is a massive failure of judgment at a time when the US demands clear and decisive leadership of a kind only required in the past at rare times of extreme crisis.

Reality Check

That in my judgment the US requires such a transformational figure doesn’t mean that the average US voter sees this. All the polls point that way, but I don’t recall seeing one that directly asks the exact questions needed to determine if people agree with my assessment of what’s required. Nonetheless, the fact that Obama is a better fit to my requirements and the fact that he is energising a wider base than any candidate for decades indicates that he is making some strong connections with broadly-held perceptions.

Given how much hangs on this election, I hope Obama is up to the challenge.

Another Opinion

The New York Times has recently editorialized on the same subject, giving Obama one of the strongest endorsements I've ever seen them give a candidate.

Check Your Views

Electoral Compass USA allows you to compare your position on the issues with those of the two candidates. This is an interesting way of seeing which candidate your are really closer to, independent of your preconceptions of which is closest to your views.

On the Lighter Side

The right has been trying desperately to label Obama as a socialist. Here's a YouTube response:

Another version

This article has also been published at On Line Opinion.

Tuesday, 14 October 2008

Climate Change, Peak Oil and the Meltdown

Some people are already talking about how mitigating climate change is a luxury that will have to await recovery from the economic meltdown. That is loser talk. Governments at least in countries with sound economic management that haven't run up massive debt can and should look at this as an opportunity for long-term infrastructure spending. And what better way to plan for the future than to reduce the future impact of higher energy costs and climate change mitigation?

Here are a few ideas for consideration. First, funding efficiency drives will gear the economy for future competitiveness.

Another idea is to fund free solar hot water for 100,0000 and free solar power for 40,000 low-income households (each at a cost of about $400-million); both would generate jobs and save poorer people money. Why is this a better idea than existing Australian state and federal rebates? Because there rebates cause no downwards price pressure; the price rises to whatever the market will bear. I've seen solar water heaters in South Africa for sale at less than the post-rebate price in Australia. If the government buys a large number of systems and pays for installation, the vendors will build economy of scale, then have to drop prices to continue with that scale in the broader unsubsidized market. To me this makes more sense than an ongoing price subsidy, the effect of which is to keep prices high.

Of course "free" doesn't mean no one pays for all this; it comes out of our taxes. But the same is true of roads, the vast majority of which don't have tolls. Building roads contributes to carbon emissions yet somehow "free" roads are acceptable to some, where a plan like this is seen as somehow wrong because someone is getting something for nothing. I wonder, do the same people argue that you can't mitigate climate change because the poor will suffer the most from extra costs of energy?

The government should support development of sustainable biomass and wind turbines on farms. Measures here could include direct subsidies and decent feed-in tariff policies for supplying clean energy to the grid. Both interventions would generate an income stream for farmers, reducing the pain of higher energy costs for their operations. Good for the environment, good for the economy. There are some interesting biofuels options out there. Legumes for example do not need nitrogen fertilizer. Peanuts are one of the oldest sources of biodiesel; better still are legumes that grow on land unsuited to food crops, such as the Pongamia tree.

Improved urban public transport should be another priority. Again, it creates more jobs, is better for the environment and reduces the impact of high energy costs on those on lower incomes. Add to this putting more services into outer suburbs to cut travel distances. Again good for the environment, good for the economy, good for those on low incomes.

Better inter-city rail is a longer-term project. But why not start planning now? What will we do when air travel becomes prohibitive? Already, fast trains are competitive in time for travel up to 1,000 km, allowing for the inconveniences of getting to and from airports and on and off planes. Europe and parts of the Far East already have this infrastructure; countries like Australia and the US need to catch up, otherwise they will be severely disadvantaged in sectors of the economy where medium-range travel is a significant cost.

All of this except the inter-city rail project that would be a longer-term project could be funded for less than the $10-billion the Rudd government is pumping into the economy mainly by cash handouts, as their response to the worldwide economic meltdown.

We have had a brief breather from high oil prices thanks to the financial meltdown, but don't expect it to last (prices are already heading up). Oil is not made by melting down markets ...

Friday, 10 October 2008

Lies, Damn Lies and The Australian

On 9 October 2008, The Australian's foreign editor, Greg Sheridan, published an opinion piece expressing disappointment with both US presidential candidates. He attacked McCain in particular for his proposal to refinance bad mortgages at the level the house actually turned out to be worth to the tune of $300-billion as rewarding those who made bad decisions.

It seems that Obama pretty much agrees with Sheridan; I hope the latter will follow up with an article backing Obama.

In addition, for good measure, Sheridan repeated a criticism of Obama's running mate, Joe Biden, that has been doing the rounds on right-wing blogs:
And he said three weeks of US expenditure in Iraq equalled seven years of US expenditure in Afghanistan, which turns out to be completely wrong.

I posted the following response at a time when responses were still being taken:
Greg, Biden was comparing military expenditure in Iraq with nation-building expenditure in Afghanistan (not total expenditure in both cases). On that score he is about right. See CNN's fact check.

If his point was that at a fraction of the cost of the Iraq war, the Afghan exercise could have been completed, i.e., rebuilding the infrastructure and setting the country on its feet, he's dead right.

Guess what happened to my response? Actually you don't have to guess. Go to Sheridan's article and look for it. The Australian's editors hate to be pulled up on matters of fact. I've tried to do this on several occasions in the past, and they have simply ignored my correction. So here it is. Maybe a small fraction of the people who read the original article will see this. Then again, if they like Greg Sheridan and The Australian, they are not likely to worry about the facts spoiling a good argument.

Tuesday, 7 October 2008

The Zeroth Way

Social democrat parties have in recent years (going back to Bill Clinton and Tony Blair, more recently joined by Australian Labor leader and prime minister Kevin Rudd) been espousing the Third Way – supposedly a middle ground between capitalism and socialism. Socialism was widely believed to have failed with the collapse of the Soviet Union and the ascendency of tendencies like Thatcherism and Reaganomics, collectively amounting to a “greed is good” mindset. While supporters of this latter tendency called themselves free market capitalists, in reality, they were happy to support market distortions that supported particular interests. Thatcher herself denied that she was a strictly “laissez faire” capitalist.

Going back to the Third Way, rather than a reformation of social democracy to something less socialist with elements of fiscal responsibility, it was essentially a capitulation, an acceptance that the “greed is good” mindset had won.

With the 2008 Wall Street meltdown and the increasingly obvious problems purely market-based mechanisms are having in dealing with a transition from carbon-based fuels, it becomes useful to rethink the whole economic paradigm again.

With the failure of the Third Way, I advocate going back to basics: considering what humanity is actually collectively striving to achieve. Naturally in the process of doing so, we should not discard lessons of the past: the utility of the market mechanism when it works, the values of social goods such as a healthy society that are hard to quantify in a market and the limits of these mechanisms.

But since I want to go back to basics, I would like to call my approach the Zeroth Way.

What has proved to be a limiting factor on previous economic thought?

The inability to grasp the necessity of handling limits to trends has caused many of the problems we face today. Long-term growth in fossil fuels has led to the peak oil problem. Whether we have reached that point or not is something that will only be clear in hindsight but there is growing evidence that it will soon be impossible for oil supply to continue to meet growth in demand without big price increases, once sources of oil that are cheap to extract deplete. Another difficulty is a lack of understanding that risk in home loans depends on expectations of growth in house prices. While prices are increasing, the risk is low, as in the event of anyone defaulting on their loan, most if not all of the money can be recovered in a forced sale. When prices drop, any doubtful loans turn into liabilities not only for the home owner but for the lender. That same principle applies across many financial instruments: as long as the trend is up, the risk is lower, because failures can be covered by other successes.

The combination of a number of these effects has resulted in a major economic crisis, the like of which has not been seen since 1929.

What is the alternative, the Zeroth Way?

The alternative is to adopt a principle of sustainable economics. “Sustainable” in general terms as a description of a practice simply means that that practice can be continued without any reasonably foreseeable limit. This definition is very general, and can apply to an activity that is constant in time, one that is growing or even one that is shrinking. To give some examples, using solar energy is sustainable in the sense that the sun will continue to be available for as long as a human requirement for energy is likely to be an issue. Growth in demand can be handled up to a very high limit compared with demand today, though ultimately there is a cap. By contrast, fossil fuel use is clearly not sustainable, as we are already running out of some resources, and we are using fossil fuels up at about a million times the rate they were created.

Sustainability in energy terms is a well-known concept, but how does it adapt to economics?

The same definition applies, except the measure we are using becomes an economic measure. For example, returning to mortgages, lending money at a level that requires house prices to rise before the loan becomes secure (in the sense that the loan could be recovered by selling the propery) is not sustainable. Lending at a level that requires prices to be static could even be argued not to be sustainable. The lowest-risk strategy would be to limit a loan to the level that a valuation is likely to hold in any economic scenario short of a total collapse. In practice, this may mean limiting loans to something like 80% of the valuation in normal times, and less when the market was rising rapidly. Naturally banks do not like this sort of restriction, as a rapidly rising market is exactly the scenario where borrowers battle to find a higher fraction of the price as a down payment. However, a sustainability requirement such as this on mortgages would slow down rapid price spikes, and smooth out fluctuations in the market by reducing trends for price spikes to overshoot a reasonable level, and correct downwards. Why not just leave it to the market? Because the market results in the opposite effect to sustainability: practices that only work in a growing market tend to be amplified as growth increases, inevitably leading to a bigger than necessary collapse at the peak of the economic cycle.

There are two important things we have learnt from market capitalism and socialism:
  • The market is not good at ensuring sustainability, and
  • over-complex regulation has a tendency to become an end in itself, failing to deliver the intended benefits.

The example of mortgages illustrates a general principle. The notion of discouraging or preventing unsustainable practices could apply more broadly to the economy. The key trick to making the Zeroth Way work is to find simple mechanisms to enforce sustainability. Sometimes very simple measures can have profound effects. For example (I don't claim this example is one of sustainability, but of how simplicity can be effective), the German Reinheitsgebot (beer purity law) was a simple measure that prevented adulteration of beer by specifying the exact allowed list of ingredients. The economic effect was to prevent large-scale monopolistic breweries from forming. Such relatively simple measures have the advantage of simple implementation and enforcement, and avoid the downside of socialism, bureaucratic entanglement.

Why would we want to make this change? A simple answer is that the existing approaches have all failed. A more complex answer is that understanding sustainability in economics terms helps us to avoid considerable human misery. Think of thousands of people losing their homes and jobs in an economic collapse. Think of the hardships of the poor as energy gets expensive. Think of the impossibility of poorer countries ever having the advantages of an energy-intensive economy if the wealthy burn up all the cheap energy.

Another answer is that the market is designed to price short-term fluctuations accurately, and performs poorly when the requirement is to reconfigure the basic settings of the system. For example, agriculture could be severely impacted by rising energy costs (whether from peak oil or from carbon taxes). A solution is to include energy production as an income stream in agriculture. Options include biofuels and placing wind turbines on farms. Biofuels have started to get a bad name because of unsustainable practices, like using food crops as feedstock, and clear-cutting old growth forests to grow fuel crops. Both of these approaches can be avoided; there are options like using agricultural waste, and growing crops on land that is not suited to food crops. Sustainability in this instance is not only in ensuring the continued economic viability of farming by including farmers in energy production, but in ensuring sustainable practices for producing biofuels. Absent interventions like subsidies on research to jump-start new approaches to energy, however, these things will not happen on their own. Left to the market, farmers will simply go broke as costs get too high, as we reach the point where food prices are too high for poorer people, and consumption drops.

All of this is purely a question of sustainable economics. Add in the environment, and there is another important consideration that is often overlooked. Yes, environmentalists can and should worry about our furry and feathered friends in the wild, the great trees in our old growth forests, and the mysterious creatures of the air, the dark forest and deep sea. But we are also a species, and, like any other species, we have a habitat. Destroy that habitat and we destroy ourselves.

The challenge therefore I would like to throw out is to think through other areas of economics where the sustainability principle could apply, and how to enforce that principle with least effort.

Further Reading

There's like thinking in other parts of the world. For example, the Green New Deal idea from the UK is worthy of further study.

Sunday, 5 October 2008

Turmoil in Queensland major party politics

On 5 October 2008, Labor state member for Indooroopilly Ronan Lee jumped ship and joined the Greens.

Labor supporters have been quick to label this as an opportunistic move; in a state where the Greens have battled to win elections at any level, it's hard to see how this could be so.

I'd like to point out that the opposition Liberal National Party has a big problem. Inner city voters don't like the Nationals, and the Nationals are in control of the LNP. To anyone who says Lee should have resigned his seat: I hope you said the same about the LNP.

Views on comment sites are interesting. Some claim he is just jumping ship to protect himself against the shift away from Labor; that being the case, why didn't he join the second biggest party? There are many green-leaning Liberals in his electorate. It is hardly self-serving to join a small party that is struggling to win elections. At worst, it buys him another year in state parliament. At best, a lonely time in the next lower house with few if any members on his team. Anyone thinking he is taking the easy way out obviously has no clue how much harder members of small parties have to work just to keep up let alone to get ahead.

It's a hard adjustment to accept that there are some politicians with principles. Had I been a Labor state member, I would have had difficulty holding down my lunch let alone staying in my seat when Anna Bligh said not so long ago that Labor had such great environmental credentials, Greens would have no problem preferencing them.

If you are elected on the basis that you have certain principles and your party claims to uphold those principles but clearly doesn't, what do you do? Be honest and quit the party, giving up the perks of a parliamentary secretary and the possibility of being elevated to the cabinet, or stay on to become another Peter Garrett with a tight muzzle and a short leash?

Meanwhile the notion that the conservative side of politics stands for sound financial management has been ripped apart by the turmoil on Wall Street and, closer to home, the rates revolt in Brisbane where a Liberal (LNP now, I guess) administration is taxing unit owners out of their homes.

Anna Bligh has given the Greens a head start by claiming that her environmental credentials were so good, no Greens voter would have trouble preferencing the ALP. Tell the good people at the Mary River that. Tell the people at Felton who are threatened with having their farms ripped up for a coal mine that. Ms Bligh's first response was that this was a stange move, as only governments can protect the environment. Let me repeat my two-word response to that: Peter Garrett. She has also shot herself in the foot by making contradictory claims. On the one hand, Ronan Lee had never expressed any environmental concerns to her. On the other hand, he wasn't able to function as a member of a disciplined team. What does that mean? Either she was aware of his dissent from party positions, making her first claim nonsensical, or he was dissenting on some other range of undisclosed issues. And in any case, you do not appoint a loose cannon who is out of line with party principles as a parliamentary secretary, generally a precursor to elevation to the cabinet.

Interesting times, and Queensland politics is shaping up for a really interesting state election.