You really can’t have it all

The politics of reality have made for a strange year.

In Germany, an improbable rainbow coalition burnt lots of coal so it could close its nuclear power stations.  Americans decided an unpopular Biden was marginally less problematic than Trump.  Vladimir Putin overestimated his attractiveness and underestimated Ukraine’s. The Brits fell out of love with their Brexit government.  And China’s Xi is finding it hard to get out of unstable lockdown and into stable growth.

Incumbents are unpopular all over the show – even New Zealand now.  But that doesn’t always mean oppositions are doing much better.

Maybe Judith Curry will be more famous than Greta Thunberg …

Now, a substantive contribution to the post-COP26 debate.

Ted Nordhaus is the nephew of Nobel prize winner William Nordhaus (who got his “for integrating climate change into long-run macroeconomic analysis”).  But it’s fair to say they don’t agree on everything.

You wonder what uncle might think about his surprisingly angry but nonetheless coolly rational attack on ‘big climate’ in the Economist.

Economist is always right

The best editorials in The Economist are timeless. Traditionally they germinate in a Monday morning editorial conference run on the lines of an Oxbridge tutorial; Tuesday for a sometimes leisurely write up; Wednesday for editing; last minute tweaks on Thursday; giving a quality product with a life span longer than yesterday’s fish.

The latest on the global energy shock fits the bill.  Structured on the classical editorial tripos of “ … three problems loom[ing] large”.  Magisterial, incisive, combining sound economics with a global sweep of history.

But perhaps ten years too late.

There’s no escape from climate change – and NZ should brace for the tariffs imposed by our trading partners to deal with it

When a magazine as authoritative as The Economist  heads   up   its  lead  “No Safe Place” ,   even  climate  change  deniers  should  sit  up  and  take  notice.

The  Economist”  says  the  most terrible  thing   about the  spectacular scenes of  destruction that  have played out  around  the  world  over recent  weeks  is  that there  is  no  safe place  from  which  to  observe  them.

“The  ground under the German  town of Erftstadt is torn apart like tissue paper by flood  waters; Lytton in British Columbia  is  burned  from the map just a  day after setting  a freakishly  high temperature record; cars  float  like  dead fish  through the streets-turned-canals in  the Chinese  city  of Zhengzhou. All  the  world  feels  at risk,  and  most  of  it  is”.

NZ   had  its  own   headline:  “The  Buller River  recorded  largest NZ  flood  flows in  almost 100  years”.

The  Economist argues  the  extremes of  flood  and fire  are  not  going  away  but  adaptation can  lessen  their  impact.

Greenhouse gas  emissions have produced  a  planet  more  than 1 degree  warmer  than  in  pre-industrial  days.

We Kiwis are wealthier (per capita) than the Saudis? Indeed we are, according to a new natural capital study

New Zealanders  have  more  to  celebrate  than   being  virtually  Covid-free, or having  Jacinda Ardern  as  prime  minister.

According  to  a  report  in the London  “Economist”, NZ  has  more natural  capital per person ($US380,000)  than  oil-rich  Kuwait  ($US362,000)  or  Saudi Arabia  ($US180.000).

The  study which produced this  ranking   is  the  work of  economists  attempting to put a  dollar  figure  on the  value of the world’s land, forests, fisheries, minerals,  and  fossil fuels, or  what is left of them.  Their  work has  fed  into the inclusive  wealth project, initiated  by the United  Nations, directed by  Managi Shunsuke of  Kyushu  University and  advised by  Sir  Partha Dasgupta  of Cambridge.

They  estimate the  world’s  natural capital  amounted  to  over  $US91trn in  2014, or  over  $US13,000  per  person.   The  world’s  natural  capital  is  predicted to   decline   by a  fifth by  2040.

On  average,  countries  with  more natural  capital  tend  to have a  higher GDP  per person.

The  “Economist”  wonders  whether  this  is a  curse or  a blessing.  It  says  some  economists argue that  natural  bounty raises  the  level of  GDP  but  slows  its growth  rate:  it  provides an additional, steady stream of  income  that grows  less  quickly  than  the  rest of  the  economy.

Those  authorities   who carried  out  the  study    have  calculated  the future trajectory of  natural capital  under  a  variety of  scenarios.  In  a  future of  continued high energy demand,  carbon emissions can be expected to grow  by 7% in high-income  countries  and by 44% in the rest of the world over the  next two  decades.

In such a  scenario, the  world’s people  will  continue to grow  wealthier,  but natural  assets  will  diminish  rapidly as a  share  of the  portfolio. According to these projections  only  12  countries  will increase  their  stock of  natural  capital over the  next  two decades.

Point of  Order   suspects  this  will  not  provoke  a  “gee, whiz”   reaction from  NZers—but  certainly  there  is  some  food  for  thought  there.

Spark will be cheered by endorsement of UK’s handling of the Huawei spying threat

New Zealand  may  have been  presented with  a  model  to  follow  in  dealing  with the Chinese giant technology  firm  Huawei.  According to London’s  “The Economist”  Britain has struck an artful compromise on Huawei and 5G, even though many Americans and other friends of Britain will be appalled by its decision and fear the country is being naive and toadying up to China..

But, in an editorial, The Economist reckons  the UK’s  measured approach to dealing with the controversial Chinese firm is a model for other countries.

“Britain’s decision matters: it is a member of the ‘Five Eyes’ intelligence-sharing alliance led by America, and was one of the first Western economies in which Huawei built a presence. Britain also has experience of electronic spying and knows Huawei well.

“Far from being a betrayal, Britain’s approach, of using the firm’s gear on the edges of 5G networks, under close supervision, offers a sensible framework for limited commercial engagement while protecting Britain’s security and that of its allies.”

Anti-competitive behaviour, a suggested political response and a lesson for the Nats

LONDON CORRESPONDENT:   When something appears in The Economist, it’s time to take it seriously.  So the appearance of a special report (‘An age of giants‘) suggesting that the businesses of the world are uniting and consumers are paying the price has generated a great deal of interest.

The Economist says that measures of industry concentration have been rising for a generation now, helping big businesses in some sectors to build anti-competitive ‘moats’ to fend off competition.  As a result, these sectors of the global (particularly US) economy have been earning excess profits. Worse, these trends are exacerbating inequality and fueling populist politics.  The Economist urges a triad of responses: opening and deregulating markets, freeing up intellectual property to hobble tech dominance, and more powerful regulators to check over-mighty firms.

It is an ambitious line of reasoning, one which certainly justifies checking alternative approaches.  Readers might compare the paper ‘Antitrust in a time of populism’ by Carl Shapiro of UCLA Berkeley.  This makes the case for a more measured approach:  is says firms can and should be attacked for specific anti-competitive conduct, but not just for dominance; and that existing tools are appropriate to achieve the necessary, more vigorous, merger enforcement.

A bullish sharemarket contrasts with flagging business confidence

The New Zealand sharemarket’s top index hit a new record this week.

So given the slump in business confidence, is this just another outburst of irrational exuberance? Or do investors have a different take on the state of the economy than the business leaders who respond to confidence surveys?

The sharemarket has had a long bull run and some authorities think it is now overpriced. Yet those who have been predicting a downward correction are lonely prophets.

Big Macs and BMI – getting the measure of our economic health

Watch  your  BMI,  London’s  The Economist  advised last week as it updated  its  Big Mac index—what it  calls its lighthearted  guide  to  currency  valuation.

For  NZ   this has  special  meaning,  because  since  January  the  NZ   dollar  has  moved  from  being  17%    to   23%  undervalued, according to the  BMI.

The Big Mac index, invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level, is based on the theory of purchasing-power parity (PPP).