Yesterday (August 29, 2023), the incoming Reserve Bank of Australia governor was confronted with 'activists'…
Its my Friday lay day blog where I just wander around in the time I allocate to writing this blog. The venality of neo-liberal governments is never far from the surface. The more successful ones manage to mostly hide the nasty stuff they get up to from the general public or assuage public concern via their spin doctors. Sometimes, an outrageous decision breaks out of the cocoon of spin and demonstrates the sheer bastardry of the political elites. That happened in Australia over the last week when it was announced that the Australian government was providing $A4 million to the University of Western Australia to set up a new think tank under the influence of a Dane Bjørn Lomborg – who has been described as a “sceptical environmentalist” (Source). Our Prime Minister has favourably quoted Lomborg’s work in his own work and is the Australian leader who abandoned the carbon tax and thinks continued use of “coal is good for humanity” (Source).
The leading researchers in Australia are typically defined by how successful they have been in the National Competitive Grants program supervised by the Australian Research Council (for non-medical research) and funded by the Australian government.
A similar scheme operates for medical research. The grants are highly competitive and high status. They are hard to get – success rates – around 18 per cent of applicants and succesful applicants last year received on average 64.2 per cent of their bids.
I was successful last year (with two colleagues) and our funding request was cut back by 63 per cent. The funds are usually well short of what is required to run a vibrant research group. Senior professors who lead research groups in Australian universities have been forced to become ‘small business managers’ as they seek funding from a range of sources to supplement the scarce ARC funding.
One of the reasons our Modern Monetary Theory (MMT) textbook is still not completed is because my time is spent chasing funding and then delivering on the commissions. The textbook will earn nothing for my group. Priorities! Paying wages or getting the book out. That is always the dilemma.
Money doesn’t come easy, especially in the social sciences where I operate.
Leading researchers work hard during the typical Australian holiday period (January) to put together the large applications that have to be in late February and early March. The process is very onerous and time consuming. People ask ‘where are you going for your vacation?’ Reply: my computer desk to work up funding applications!
Then there is the concept of the ‘track record’. This is the researchers CV that accounts for a significant part of the panel’s assessment and ultimate decisions. As a researcher my track record is everything. It has to be built strategically over many years and is subjected to intense scrutiny.
No-one gets money from the ARC without a track record of international standing. The applications are subjected to peer-review – several assessors – who don’t spare the critical purview. It is a tough process and many potential researchers fall by the wayside because of the confronting nature of the system and the small chance of becoming one of the successful researchers.
Further, to get a senior position in most universities in a research capacity requires a strong track record with a demonstrated scientific standing.
I am not complaining about any of this. I went into it with eyes open and knew that once I got on the treadmill I would have to keep running or else fall off and never get back on. The track record is not something that one can add to one year and then rest of one’s laurels the next. It is a treadmill.
But that is the reality of our system. It is fairly transparent, peer-reviewed and generally, the better researchers float to the surface.
How then does a $4 million dollar handout to an Australian university to set up a research think-tank fit with that?
The money comes at a time that the Government is pursuing cuts to higher education and the ARC process in its erroneous pursuit of fiscal surpluses.
The money was not subject to peer-review or administered and allocated via the ARC.
The money was not subjected to any transparent process of review and assessment against competing projects.
The money appears to reward a person who would not be placed among the leading academic researchers in the nation. $4 million is a huge grant in our system.
Fairfax report (Source) that:
… former Australian of the Year Tim Flannery said it was “extraordinary” that the government had abolished the Climate Commission “which was composed of Australia’s best climate scientists, economists and energy experts” on the basis of lack of funding only to find the money to “import a politically-motivated think tank to work in the same space.”
UWA have appointed Lomborg as an adjunct professor. Even academics within UWA are questioning that appointment.
Fairfax reported (April 24, 2015) that one Academic Department Head at UWA wrote that:
Dr Lomborg did not have the necessary academic track record to justify his appointment as an adjunct professor. “The school would therefore like to know by what process the appointment was made and did it take the quality of Dr Lomborg’s research track record into account? (Source).
Lomborg was the subject of a hearing by the – Danish Committees on Scientific Dishonesty. It considered three complaints of “scientific misconduct” against Lomborg about the validity of the research reported in his book (The Skeptical Environmentalist) and, given the topic, the investigation received international attention.
In its – Annual Report – the Committee summarised the findings against Lomborg, that they had released earlier in the year (January 7, 2003).
… that by customary scientific standards, the defendant had acted at odds with good scientific practice in his systematically one-sided choice of data and in his arguments. If the book was intended to be evaluated as science and not as a contribution to the general debate, then in addition the scientific message had been so distorted that the objective criteria for establishing scientific dishonesty had been met. DCSD did not find a sufficient basis, however, on which to establish that the defendant had misled his readers with intent or gross negligence. DCSD noted, in this context, that in the preface to the book the defendant had himself drawn attention to the fact that he was no expert in environmental issues.
In other words, he wasn’t found guilty of scientific fraud because he was not considered qualified to be a ‘scientist’ within the field he was writing. Some let off.
Those who might be considered ‘scientists’, for example, the – Union of Concerned Scientists – (membership > 200,000 with HQ at MIT), assessed Lomborg’s work in its report – UCS Examines ‘The Skeptical Environmentalist’.
They noted that:
Lomborg accuses scientists and environmental organizations of making false and exaggerated claims about the world’s environmental problems. He concludes that population growth is not a problem, that there is plenty of freshwater around, that deforestation rates and species extinctions are grossly exaggerated, that the pollution battle has been won, and that global warming is too expensive to fix. A self-proclaimed environmentalist and skeptic, he claims that his reanalysis of environmental data measures “the real state of the world.”
The UCS assembled a broad group of scientists and statisticians (all world leaders in their fields) who concluded that:
Lomborg’s book is seriously flawed and fails to meet basic standards of credible scientific analysis. The authors note how Lomborg consistently misuses, misrepresents or misinterprets data to greatly underestimate rates of species extinction, ignore evidence that billions of people lack access to clean water and sanitation, and minimize the extent and impacts of global warming due to the burning of fossil fuels and other human-caused emissions of heat-trapping gases. Time and again, these experts find that Lomborg’s assertions and analyses are marred by flawed logic, inappropriate use of statistics and hidden value judgments. He uncritically and selectively cites literature — often not peer-reviewed — that supports his assertions, while ignoring or misinterpreting scientific evidence that does not. His consistently flawed use of scientific data is, in Peter Gleick’s words “unexpected and disturbing in a statistician”.
These reviews show that The Skeptical Environmentalist fits squarely in a tradition of contrarian works on the environment that may gain temporary prominence but ultimately fail to stand up to scientific scrutiny.
Other scathing reviews appeared in Scientific American, Nature, Science and a host of peer-reviewed scientific journals.
The Economist Magazine and a bevy of fan-boy anti global warming lobby groups supported the book. The support from the Economist is no surprise, given that it had co-sponsored the creation of the so-called – Copenhagen Consensus – which was headed up by Lomborg (then director of the Copenhagen Consensus Center) and created by the right-wing Danish government,
It was mired in controversy with accusations that its consultants held right-wing views and were opposed to the Kyoto process (Source).
In 2012, the Copenhagen Consensus Centre was forced out of Denmark when it was announced that the new Danish government had “cut its funding” (Source).
I don’t want to get into a debate about the climate change science that is associated with Lomborg and his lobby group funding groups.
The point of the blog is that the Australian government is distorting our research funding rules in favour of outcomes that it seeks to promote, where they have no solid scientific evidence basis.
In doing that they also lied to the public.
1. They said that the University approached the Government with the idea to fund a centre. It now turns out that the Government instigated the idea.
In the Fairfax article (April 24, 2015) – Creation of Tony Abbott-backed Lomborg ‘consensus centre’ has tarnished our reputations, say academics – we learn that:
On Thursday it emerged Mr Abbott drove the push to provide government funding, not Education Minister Christopher Pyne.
2. They lied about how much money was involved. The Education Minister claimed that UWA was putting in the majority of the cash and the $A4 million government contribution was about a third of the total.
We now know that UWA had put up no money. The whole deal was down to the Government’s contribution.
In the Fairfax article (April 23, 2015) – Bjorn Lomborg centre: leaked documents cast doubt on Abbott government claims – we read that “UWA says it does not plan to spend any money on the centre and that it believes government funding will largely cover its cost.”
3. The $A4 million was provided at the same time that the Government has imposed severe cuts on the credible scientific bodies charged with providing climate change research (Source).
It is also at a time the Government is crying about a ‘fiscal emergency’ and the need to cut its deficit. All those tears are political and it is time the public woke up it and rejected it outright.
The Government clearly uses its fiscal policy to advance the interests of itself and its high income funding lobbies – like the mining sector.
This is a venal Australian government.
And central banks can be venal too
It was reported this week (April 22, 2015) that the ECB was putting pressure on the Greek government again.
In the Fairfax article – European Central Bank tightens screws on Greek banks we learn that:
… Mario Draghi, the president of the ECB, has made it clear that if Greece does not strike a deal with Europe he will eventually stop backing the Greek banks – a step that would inevitably lead to capital controls and eventual default.
The myth of central bank independence.
Mainstream economists justified the increased separation of treasuries and central banks under the smokescreen that politicians would corrupt the inflation-fighting determination of central bankers if they created unemployment.
Now we have the ECB as a member of an obvious political elite – the Troika – and using its monetary policy powers, which are designed to engender financial stability with the relevant currency region, to enforce political outcomes relating to fiscal policy.
In doing so, they are undermining financial stability.
Music – I just want to get my kicks before the whole shithouse goes up in flames!
This is what I was listening to this morning while working.
The final studio Doors album – An American Prayer – was released on November 25, 1978 seven years after Jim Morrison’s death.
The three remaining members of the Door’s put music to the poetry of Jim Morrison from 1969 and 1970 and the album was the result. It was controversial (see wiki page) but the outcome was good for those who appreciated the music of the Doors.
One Track is American Night (starts around 25:15) and Morrison says:
All hail the American night what was that?
I don’t know sounds like guns thunder
Roadhouse blues alright, alright, alright
Hey, listen, listen, listen, man, listen, man
I don’t know how many you people believe in astrology
Yeah, that’s right, that’s right, baby, I, I am a Sagittarius
The most philosophical of all the signs
But anyway, I don’t believe in it
I think it’s a bunch of bullshit, myself
But I tell you this, man, I tell you this
I don’t know what’s gonna happen, man, but I wanna have
My kicks before the whole shithouse goes up in flames alright
With all these venal governments and agencies around, how long will it before it all goes up in flames.
China relaxes reserve requirements
The Guardian reported this week (April 19, 2015) that – China’s central bank cuts reserve ratio – to provide more funds to banks to stimulate lending activity as economic growth slows down.
It just tells me that too many young Chinese students are getting economics PhD qualifications from mainstream American universities and think that banks are somehow reserve constrained.
Please read my blog – Lending is capital- not reserve-constrained – for more discussion on this point.
Reserve requirements place not such limit on lending. Commercial banks hold reserve accounts at the central bank for the sole purpose of facilitating the payments system (clearing house). Many countries have no reserve requirements other than the accounts must not be in the red on a sustained basis. The US is currently considering eliminating the positive requirements.
Reserve requirements are an artifact of the old gold standard and are irrelevant in the current monetary system. They do not reduce bank risk nor do they comprise a buffer that can be drawn on when there is a run on a bank.
To understand why reserve requirements do no constrain lending you have to understand how a bank operates. Banks seek to attract credit-worthy customers to which they can loan funds to and thereby make profit. What constitutes credit-worthiness varies over the business cycle and so lending standards become more lax at boom times as banks chase market share (this is one of Minsky’s drivers).
These loans are made independent of the banks’ reserve positions. Depending on the way the central bank accounts for commercial bank reserves, the latter will then seek funds to ensure they have the required reserves in the relevant accounting period.
Please read my blog – The role of bank deposits in Modern Monetary Theory – for more discussion on this point.
They can also access funds in wholesale markets.
For short-term funds, they can borrow from each other in the interbank market but if the system overall is short of reserves these horizontal transactions will not add the required reserves.
In these cases, the bank will sell bonds back to the central bank or borrow outright through the device called the “discount window”. There is typically a penalty for using this source of funds. At the individual bank level, certainly the “price of reserves” may play some role in the credit department’s decision to loan funds.
But the reserve position per se will not matter. So as long as the margin between the return on the loan and the rate they would have to borrow from the central bank through the discount window is sufficient, the bank will lend.
So the idea that reserve balances are required initially to ‘finance’ bank balance sheet expansion via rising excess reserves is inapplicable. A bank’s ability to expand its balance sheet is not constrained by the quantity of reserves it holds or any fractional reserve requirements. The bank expands its balance sheet by lending. Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank.
The major insight is that any balance sheet expansion which leaves a bank short of the required reserves may affect the return it can expect on the loan as a consequence of the ‘penalty’ rate the central bank might exact through the discount window. But it will never impede the bank’s capacity to effect the loan in the first place.
Please read my blogs – Money multiplier and other myths – Building bank reserves will not expand credit – Building bank reserves is not inflationary and Oh no … Bernanke is loose and those greenbacks are everywhere – for more discussion on this issue.
The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.