Debate and decision

The peer­less Hen­ry Ergas offers a clever cat­e­chism of the Euro­pean Mon­e­tary Union that first accom­mo­dat­ed, then reward­ed, eco­nom­ic mis­man­age­ment in south­ern Europe and final­ly smeared its con­ta­gion across world mar­kets. He traces the fault to the arro­gance of cru­sad­ing Euro enthu­si­asts

Much like Europe’s emis­sions trad­ing scheme, the euro was a “solu­tion” imposed by Europe’s polit­i­cal elites. For the French, it would chal­lenge the despised US dol­lar; for the Ger­mans, it would buy French accep­tance of reuni­fi­ca­tion and a more assertive Ger­many; and for south­ern Europe’s social­ists, it promised to pain­less­ly trans­form Sici­ly into Switzer­land. All this proved no more than mag­i­cal think­ing. But because bad poli­cies are eas­i­er to intro­duce than to remove, its costs will be there for years to come.“Extract from The Aus­tralian

His tar­get, how­ev­er, is the qual­i­ty of Aus­tralian, not Euro­pean, pub­lic pol­i­cy:

What can pre­vent such poor­ly con­ceived ideas from get­ting up? Robust, even divi­sive, pub­lic debate. No won­der elites hate it. No won­der it played no role in the deci­sion to adopt the euro. And no won­der Ross Gar­naut says argu­ing about a car­bon tax makes us look fool­ish com­pared with how they do things in Europe.”

This is a well-deserved, skew­er­ing of the arro­gance of Gillard and Gar­naut who dis­miss oppo­nents as eccentrics or morons and who have even less taste for the plebescite that con­sumer-fac­ing busi­ness­es now sup­port.

But Hen­ry is only half right about the Euro­pean Mon­e­tary Union. The prob­lem is not that there was insuf­fi­cient debate or that the devo­tees of Delors’ view of Euro­pean union mere­ly over-rode the dis­senters. The offi­cial eval­u­a­tion of mon­e­tary union kicked-off thir­ty years before its adop­tion. There was a vig­or­ous and detailed analy­sis of the pro­pos­al for a year before the 1992 Maas­tricht treaty (focussed main­ly on the expect­ed trans­ac­tion cost sav­ings) and robust argu­ment about the terms of “con­ver­gence” before the 1998 entry into force of the treaty and the cre­ation of the Euro. Dis­sent remains vig­or­ous today: wit­ness the con­tin­u­ing absence of the UK from the Union and the recent near-defec­tion of Ger­many when faced with financ­ing Greek debt through the ECB.

The prob­lems with the EMU are due less to lack of dis­sent than to anoth­er fun­da­men­tal fail­ing that afflicts the Labor/Green car­bon tax pro­pos­al…

All pol­i­cy is effec­tive­ly exper­i­men­ta­tion”, says Gary Banks (Chair­man of the Pro­duc­tiv­i­ty Com­mis­sion). Deci­sion mak­ers need a well-defined objec­tive (mit­i­gat­ing iden­ti­fied dan­gers in glob­al warm­ing), they should eval­u­ate options in light of the ben­e­fits and costs (Oops! Warm­ing is mod­est and uncer­tain, CO2 isn’t a ‘smok­ing gun’, the tax won’t make any dent in glob­al emis­sions , it will cost too much) and accept that, once they have choosen an option, it is like­ly to be the wrong choice—at least at some point in the future. A deci­sion-mak­er must mea­sure and revise.

That is the fail­ing of the EMU. Once the treaty was adopt­ed and the con­ver­gence terms accept­ed, the sup­port­ers became accolytes. They re-inter­pret­ed con­ver­gence terms, notably excus­ing Italy and Ger­many and France for default on the pub­lic deficit terms and craft­ed polit­i­cal arrange­ments to fit the South and the East of Europe into bound­aries they imprac­ti­cal­ly desired. Their enthu­si­asm was irre­spon­si­ble and even stu­pid, but not espe­cial­ly elit­ist. Unlike the car­bon tax, the EUM was a pop­u­lar, even pop­ulist, pol­i­cy that was allowed to escape from deter­mined review.

The corol­lary of the Banks dic­tum is that it’s OK to make the wrong choic­es. Hap­pens all the time. In dif­fi­cult domains of pub­lic pol­i­cy, the wrong choice is impos­si­ble to avoid. What mat­ters is revi­sion.

For exam­ple, our nation­al debate on emis­sions-mit­i­ga­tion began with Peter Shergold’s 2007 report to the Howard gov­ern­ment that rec­om­mend­ed an emis­sions trad­ing scheme. I made a sub­mis­sion to the Sher­gold group sup­port­ing emis­sions con­trol but cast­ing doubt on the prospect of inter­na­tion­al con­sen­sus (for rea­sons men­tioned here). But as I plaid clos­er atten­tion to the evi­dence on the dan­gers of warm­ing I sub­se­quent­ly changed my mind. I revised my views in the light of more rig­or­ous analy­sis than the shab­by IPCC pro­duces.

The ker­nel of fault in the Gillard/Garnaut (and IPCC) pol­i­cy is not that they have sup­pressed debate (thank god, in Aus­tralia they can­not) it’s that they pre­tend debate can ever be over or that that the “sci­ence is in” or that their poli­cies are “locked-in” and no longer need review.

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