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The Forum > Article Comments > 1,000,000 economists can be wrong: The free trade fallacies > Comments

1,000,000 economists can be wrong: The free trade fallacies : Comments

By Steve Keen, published 30/9/2011

The Neoclassical model that dominates economics today is riven with logical and empirical fallacies.

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"Anything the vast majority of economists believe is likely to be wrong".
This extends to any majority in my view; whatever the popular majority hold to be so must be wrong. This is not merely droll, but can easily be sociologically defended. Ironically, if it ever becomes broadly accepted, it will cease to be true.

However.
The author fails to note that the division of labor also meant the loss of real life-skills and craftsmanship in favour ultimately of the production line, drudgery, a throw away society and a mentally ill population: http://www.mhca.org.au/documents/StatisticsonMHinAustralia.pdf
Life long since ceased to be satisfying in terms of "accomplishment", in being a self-sufficient and fulfilled human being--this isn't just a Marxist view (Marx btw was one economist who did get it right), Maw Weber's "iron cage" complains of the same thing: http://en.wikipedia.org/wiki/Iron_cage Taking satisfaction from "living" is displaced by some future prospect or expectation of happiness. According to Richard Sennett under "the specter of uselessness" many lead impoverished lives and "are incapable of enjoying the present for its own sake; delay of fulfilment [never to be realised] becomes a way of life".
But of course economists have never considered such drippy sentimentality. The division of labour was held to be economically salubrious, and if it brings in the dollars it must ultimately be healthy. On the one hand they failed to consider the cost of attrition due to an existential malaise. On the other hand, mental illness is big business and there's a killing to be made--that is unless the drugs are all made in Portugal! In that case there's only the service industry that sprouts everywhere to capitalise on the "mentally ill". In Australia this is funded, like most things, mainly by the resource industry, because though we can match it with the best in terms of generating mental illness, we're only a boutique industry in treating it. After the mining boom the service industry will collapse and mental illness will go largely unpalliated (people will have to be self-reliant again), and we'll be a literal basket case and not just an economic one.
Posted by Squeers, Friday, 30 September 2011 7:43:51 AM
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Heresy! Interesting article.

"If economics were a real science, it would have long ago been overthrown and replaced by something more realistic." Indeed, such as political economy and economic history.

There's far too much philosophy in economics and not enough science, however,there are encoraging developments which could establish economics as a real science. For example, one recent Nobel Laureate in Economics(Daniel Kahneman) is a psychologist,who apparently, has never studied economics.
Posted by mac, Friday, 30 September 2011 7:48:00 AM
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Steve
But doesn't that argument only prove that the capital lost was that misallocated by the original restrictions on trade?

None of the protectionists will answer these questions but perhaps you will:
1. if it's true that free trade makes societies poorer, why not abolish it altogether?
2. if not, then what is your argument in favour of the free trade that should not be abolished
3. what is the economic principle by which the free trade which should be restricted is to be distinguished from the free trade which should remain free?
4. why doesn't the same argument in favour of free trade apply to both?

All those criticisms apply to the neo-classical school. None of them applies to the Austrian school.
Posted by Peter Hume, Friday, 30 September 2011 9:54:06 AM
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Prof. Steve Keen,

You mean 1,000,000 Economists disagree wit you?

You mean that there are 1,000,001 people that have to be fed, clothed, housed, and amused by the non-economists?

Isn’t this economic thing becoming a bit too uneconomic?
Posted by skeptic, Friday, 30 September 2011 10:45:37 AM
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The trouble with Keen’s piece is that, like Ricardo’s defence of free trade, it is neat, plausible and wrong. It is so wrong I don’t even know where to start.

I’m tempted to say, quoting Wolfgang Pauli, >>That's not right - that's not even wrong.>>

Let me start here:

>>Since capital is destroyed when trade is liberalised, the watertight argument that trade necessarily improves material welfare springs a leak.>>

Technology advances destroy the value of capital. The laptop I’m using is worth a fraction of the $2,000 I paid three years ago.

Should we freeze technology so that my laptop keeps its value?

Absurd!

A small country like Australia cannot manufacture everything it needs on its own. Actually I doubt if even a giant country like the USA can be self-sufficient in manufactured goods or commodities. But the problem is more severe in small countries.

Does anyone seriously think we could manufacture our own chips to put into our own computers purely to serve the domestic market? It’s preposterous. There are things we need to import and to pay for them we need to trade.

Free’ish trade is not a panacea. It’s just better than the alternatives.

I am not a market fundamentalist. I think the Australian government could and should be doing much more to promote high value added product development and manufacturing in Australia. But that’s a different story.

I also think we need policies in place to ensure a better distribution of income. In the US the top 1% of earners now get 25% of the national payroll, double the proportion they got in the 1970s. Something like 90% of all the growth in income in the US has gone to the top few percent.

In Australia too there has been a surge towards greater inequality.

These inequalities are not, however, caused by free trade. Mainly they are a consequence of technology that substitutes capital for labour.

Inequalities should be addressed but putting up tariffs won’t help.
Posted by stevenlmeyer, Friday, 30 September 2011 5:32:38 PM
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Stevenlmeyer:
<A small country like Australia cannot manufacture everything it needs on its own. Actually I doubt if even a giant country like the USA can be self-sufficient in manufactured goods or commodities>

But how many of the "manufactured goods or commodities" do we actually "need"? The word "need" has lost its meaning; needs are now manufactured. There's no need for them!
Though I s'pose "he must needs go that the devil drives".
Posted by Squeers, Friday, 30 September 2011 5:53:36 PM
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You can trust the economist about the same amount as the 'scientist' making all the prophecies on climate change. They just don't know despite their High Priests making huge profits from pretending they do. Has anyone checked their superannuation lately? The Professionals have certainly done a good job. Sticking your money into thieving banks would of given you a lot better return.
Posted by runner, Friday, 30 September 2011 7:04:37 PM
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*The word "need" has lost its meaning; needs are now manufactured. There's no need for them!*

Squeers, that is a purely subjective question and up to the
individual to decide. Its really not up to you or the Govt to
answer for others.
Posted by Yabby, Friday, 30 September 2011 7:39:36 PM
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Yabby,

"...up to the individual to decide..."

Yeah, sure : )

That's why the advertising industry exists - to alert us to the things we "need".
Posted by Poirot, Friday, 30 September 2011 7:44:28 PM
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The model may be fine on paper, but breaks down in reality.

What should benefit the population is often taken away by those at the top of the political system, or those at the top of corporations.

When Russia finished the Cold War, it would be thought that the Russian people would benefit because they could enjoy more free trade with the rest of the world.

However, it now appears that Vladimir Putin may have become Europe’s wealthiest man, (with $40 billion), due to owning large numbers of shares in several major Russian companies, while the wealth of most people in Russia has hardly changed.

The trickle down effect can take a very, very long time, or never occur at all.
Posted by vanna, Friday, 30 September 2011 7:55:40 PM
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*Yeah, sure : )*

Actually Poirot, its quite rational. If some can breed like
rabbits, then others can consume what they want. Or do
you plan to limit breeding now?
Posted by Yabby, Friday, 30 September 2011 8:15:02 PM
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Yabby,

Well, it's true that 300 million Americans consume the equivalent resources to 2.3 billion people in developing countries - no doubt, due to their very "rational" needs.
Posted by Poirot, Friday, 30 September 2011 8:24:08 PM
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Squeers wrote:

>>But how many of the "manufactured goods or commodities" do we actually "need"?>>

Do we need vehicles, computers, MRI scanners, tractors, cranes?

Do we need penicillin, trains, trams, telephones, telephone exchanges, TV sets?

Do we need all that goes with these objects?

Do you seriously think we could turn raw materials into trams just to satisfy the domestic market.

Sure by some measures we may be importing things we don’t strictly “need.” I suggest most of our imports are things we do need and could not manufacture entirely ourselves.

Vanna

The “trickle down” effect is nonsense. But that’s NOT a free trade issue.

I have seen a “looting elite” at work in many African countries that did not in any sense practise free trade.

A lot of the ills of society that are blamed on free trade have nothing to do with free trade.

The ills of society do need to be addressed. Sadly, governments seem to have stopped even trying to do that. But most of them cannot be rectified through tariffs.
Posted by stevenlmeyer, Friday, 30 September 2011 8:25:28 PM
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Steven,

Yes it is a free trade issue - particularly in places like Africa.

First we should acknowledge that the IMF and the World Bank are in effect doormen for the globalisation of corporate interests, the free trade principle and privatisation.

Egypt is a classic example of the free trade face of the IMF and the World Bank in partnership with a corrupt regime.

Egypt was the one of the "darlings" of the World Bank during the last decade and was one of their top "reformers". However, privatisation and structural adjustments further impoverished the general population while feathering the nest of international corporations and the corrupt Mubarak regime.

You'll never convince me that the IMF and the World Bank didn't preside over this. Organisations like these keep very close tabs on countries which are beneficiaries of their largesse. No, they knew that all the reforms were not helping ordinary Egyptians - even amidst the growth - and yet they presided over a situation alongside a corrupt regime.

The same thing is happening all over Africa, to name just one continent.
Posted by Poirot, Friday, 30 September 2011 8:49:28 PM
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*Well, it's true that 300 million Americans consume the equivalent resources to 2.3 billion people in developing countries - no doubt, due to their very "rational" needs.*

Ah Poirot, forget countries, take it at the level of the individual.
If you have 8 kids and they all aspire to one day live like Americans,
then their kids etc, your environmental footprint is in fact
quite massive, compared to any individual who does not do the same.

How many in the third world don't aspire to a Western kind of
life?

If you want to limit consumption, you will have to limit breeding,
its quite straight forward really
Posted by Yabby, Friday, 30 September 2011 8:53:03 PM
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Yabby you continue to disappoint:
<Squeers, that is a purely subjective question and up to the
individual to decide. Its really not up to you or the Govt to
answer for others>

So what, do I claim to speak for others? That'll be the day!
What I said was rhetorical, it's up to you and everyone else to hopefully "think about it" and make your own minds up--but you don't need to think to make your mind up, do you? (rhetorical, no need to answer)
My post also borrowed from Marx, Max Weber and Richard Sennett, so maybe you can take it up with them?
Judging by stevenlmeyer's latest, just in, he'd rather be reactionary too, gee that's a surprise. But in his eagerness to justify Australia's "need" for Bunnings, Dimmies, Crazy Clarks, Waynes World, Flash Harrys et al, he misses a major focus of the article:
<Advocates of global economic integration hold out utopian visions of the prosperity that developing countries will reap if they open their borders to commerce and capital. This hollow promise diverts poor nations' attention and resources from the key domestic innovations needed to spur economic growth>
...Wow, you mean it's not only about us! (rhetorical)
Poor countries (without the quarry) are too busy producing junk for Western shopaholics, for a fast buck, to worry about being sustainable themselves.
Take off your welding mask, mate!
Posted by Squeers, Friday, 30 September 2011 9:03:31 PM
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Yabby,

With all due respect, that is one of your more vacuous statements.

Are you saying that mere aspiration is tantamount to consumption?...that's ridiculous!

The overwhelming majority of Indians will never have the opportunity to consume like Westerners - just ain't gonna happen - and nor will their offspring.
The Global Footprint Network suggests we'd need about 5 earths if that was to become the case.

Aspiring to something is completely different to attaining it - and aspiration doesn't leave a footprint.
Posted by Poirot, Friday, 30 September 2011 9:15:41 PM
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Squeers wrote:

But in his [My] eagerness… he misses a major focus of the article:

<Advocates of global economic integration hold out utopian visions of the prosperity that developing countries will reap if they open their borders to commerce and capital. This hollow promise diverts poor nations' attention and resources from the key domestic innovations needed to spur economic growth>

This is what is commonly called a straw man argument. There may be some advocates of free trade who put forward such “utopian visions” but I’ve never met any and I am certainly not one of them.

I’m simply making two points:

One:

We cannot produce everything we need for ourselves so we have to trade.

Two:

Many of the ills blamed on free trade – eg

>>Poor countries (without the quarry) are too busy producing junk for Western shopaholics, for a fast buck, to worry about being sustainable themselves.>>

Have nothing to do with free trade and everything to do with government incompetence and, quite often, corruption.


What I've written can be summed up in two lines:

--Free trade poses great problems and can be a disruptive force

--The alternatives are worse.

BTW we do not strictly speaking have a free trade regime. We have a liberal, rule based, trading regime regulated by the WTO.

Perhaps Keen and his groupies could explain what they would like to put in its place.
Posted by stevenlmeyer, Friday, 30 September 2011 9:54:45 PM
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*What I said was rhetorical, it's up to you and everyone else to hopefully "think about it" and make your own minds up--*

That is wonderful Squeers, but sadly so many other Marxists in
history have had the habit of making things compulsory.
Anyone can choose to live a frugal and simple life right now,
we know that.

Poirot, my point is that your environmental footprint includes
you children and childrens children, their consumption is as
much part of your environmental footprint as your consumption.

All that we know is that most of them only lack opportunity
in terms of consumption and much as you claim to, you cannot
predict the future.

Who predicted that Singapore, South Korea, Hong Kong, Japan
and all the rest, would be living a Western lifestyle today?

Fact is that plenty of Indians are already far wealthier and
consume far more, then you ever will. The same with the
Chinese and members of every single developing country.

So my point remains. Your global footprint is not just about
what you consume, but also what your offspring consume, so
if you want to limit consumption, you'll have to limit breeding.
Posted by Yabby, Friday, 30 September 2011 9:57:34 PM
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Yes Steve Keen it should be about fair trade not free trade.

There is a greater problem we should all now address, ie this debt based money creation system in which even inflationary money gets expressed as debt.

New money to equal increases in productivity,population and inflation should not be expressed as debt by private banks.In the West,the more productivity we have,the more debt we incur.This is why we have the cycles of boom and bust which destroy real growth and prosperity.

see http://www.youtube.com/watch?v=swkq2E8mswI 'The Secret of Oz' by Bill Still gives us an insight into the history of money and how the banking elites have subjuated people for centuries via this debt based monetary system.

'The Secret of Oz' is about the hidden meaning of L Frank Baum's book,'The Wizard of Oz'. This was written in the deepest of depressions in the 1890's when the elites in 1873 replaced readily available silver with their gold.The money supply was reduced by 80%.

Dorothy with her sliver slippers in the book had the power to create from nothing, the money to equal their toil.The wicked witches of the east & west were represented JP Morgan and Rockerfeller,the two major banking powers of that time.

L Frank Baum is the voice from our past telling both children and adults of the evils of power without representation from the masses that matter.

We are witnessing this evil now with the stealing of our wealth and creative soul with impunity by central banking cartels.

The issue of free trade is just an aside compared to the big issue of debt based monetary creation.Prof Michael Hudson knows the reality.
Posted by Arjay, Friday, 30 September 2011 10:04:57 PM
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Yoy flatter yourself, stevenlmayer; you haven't said anything worthy of even a strawman argument. I've made nothing so grandioss as an argument; I merely contradicted you.
As you say, "we do not strictly speaking have a free trade regime. We have a liberal, rule based, trading regime regulated by the WTO". Absolutely correct. We thus enjoy none of the putative benefits of genuine free trade. According to Mises "With perfect mobility of labor, capital, and commodities all over the earth's surface there would be a tendency for an equalization both in the rate of profit and in wages for labor of the same kind". This is objectionable to nationalists and protectionists because they want to maintain the disparities--which is the only way they can maintain their lifestyles and superiority complex. There's no way the planet can sustain everyone in Western style, so Mises "equalization" would be at a wretched level for the vast majority. Of course in Mises utopian vision self-sufficiency is a sin and national borders would be completely open to migration; indeed a state of global anarchy and unimpeded exploitation would prevail. Real free trade isn't going to happen, but the point is that quasi-laissez faire has no such putative tendency to finding equilibrium, but remains an utterly volatile and politicised paradigm prone to cronyism.
Small and non-wealthy countries that haven't already gone to the devil would be much better off being self-reliant and cultivating their own interests and sustainable subsistence, and developing according to those means and produce, and no more. Gloabalisation, or the "new international division of labour", has not only meant the loss of manufacturing in countries like Australia with high labour costs (though at least we still have "the pit", and a small share of the proceeds), but the industrial disease is moving offshore so that all the negative effects continue to accumulate.
Quasi-free trade is an instrument of global exploitation and all its pretence to humanitarianism and sustainability is a crock.
Posted by Squeers, Saturday, 1 October 2011 7:40:32 AM
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stevenlmeyer,

I read Prof. Keen's article as a another critique of economics' intellectual underpinnings, it's a theme he expanded in his book 'Debunking Ecomomics'. Anyone who has studied economics must have experienced some scepticism as to the validity of, at least some, of its 'laws'.

You're really drawing a longbow by claiming that Keen or any of his 'groupies' are advocating a regime of economic autarchy.
The Japanese, Koreans and Chinese didn't develop their ecomomies through free trade, they employed mercantilist policies.
Posted by mac, Saturday, 1 October 2011 8:40:51 AM
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Yabby,

Are you positing that people who have yet to exist possess a footprint?
I don't agree. I believe that we can project and predict their footprint, but footprints are only measurable by what it materially taking place. For instance, the average American consumes about eight times the amount of resources per hectare as those in developing countries. That is happening now.

Your other point is that those in the developing world only lack opportunity has no impact on their future footprint. As Squeers, pointed out, these people are so engrossed in manufacturing crap and trinkets for the West that they have little resource left to plan and work on their own sustainable industry. Most are still living a hand to mouth existence. How do you ever think a country such as India is going to have a comparable consumption rate to the U.S.?...where are the resources for such a paradigm shift going to come from?

Besides, the West can't even keep it's own house in order. Everything has been bought on credit and sovereign debt in Europe is only the latest sighing breath threatening to teeter the house of cards. We've already entered the double-dip recession - watch this space.
Posted by Poirot, Sunday, 2 October 2011 7:59:51 AM
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*but footprints are only measurable by what it materially taking place*

Poirot, if you want to claim to measure the effect that a persons
life will have on the environment, that effect will be dominated
by how many children they have. So if you don't allow for that
in your calculations, you are frankly peeing into the breeze.

*where are the resources for such a paradigm shift going to come from?*

where did the resources come from to create 850 million Indian mobile
phone subscribers or half a billion Chinese on the internet? Do you
think that they will just stop at that?

*Everything has been bought on credit and sovereign debt in Europe is only the latest sighing breath threatening to teeter the house of cards*

I agree with you. We have shocking polticians and the market has
finally decided that even countries will fail, if they keep borrowing
more, so they have stopped lending to them, thus the present crisis
in Europe. It just once again shows that Govts can't really run
anything too well.
Posted by Yabby, Sunday, 2 October 2011 11:56:22 AM
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Yabby,

I understand the point your are making about population. But you seem to ignore the proposition that calculations using a universal figure for resource use per person is an not an accurate yardstick. If an American has two children then his offspring will use the equivalent resources per hectare of 16 people in the developing world.

Btw, I'm fascinated by your measuring stick for a viable and sustainable way of living...mobile phones and ipads.
India has one of the worst scores on the Global Hunger Index, so judging a country's affluence using that particular model is a trite misleading - perhaps they've got their priorities a little askance in their rush to emulate Westerners
Posted by Poirot, Sunday, 2 October 2011 12:32:20 PM
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Look, America's broke. It's broke 3 times over. It's allowed to PRINT Mickey Mouse money to buy overseas goods services, properties, commodities, farmland, rivers, power stations and mines to grow its economy.

The question is: I'm broke because my dollar is at parity with America's Mickey Mouse dollar: so why am I a criminal if I Print Dollar bills to do the same things?

Printing money to solve debt when you have a nuclear arsenal to back it up is JUST STEALING!

It's THEFT. And no amount of historical goodwill will ever make up for the crimes against humanity that the US of A is inflicting on Australia and every other nation as we speak.

If I were a politiTian and could pass laws to DOUBLE my salary to make up for American Larceny of Australia's natural bounty then I would probably remain silent on the matter as well.

The trick is, if we ever get REAL AUSSY politicians, for them to refuse to sell any Australian goods to the US AND to BUY up real assets in the US with US$ funny money bills. That way when the whole global economy crashes, we will be holding all the REAL ESTATE and the US will be holding all OUR useless dollar bills.

But how to get rid of the legions of Welsh, english, chinese, lesbian and southern Euro-trash that are infesting Canberra and all the state goverments?
I'll leave that one to YOU!

But it is worth noting that these one-step-up-from boat-people so-called-politicians are a bloody disgrace and their only representative capability is in selling every asset in this country to their FAVOURITE Foreigners for a pittance while taxing Australians more & more each day to cover the inevitable losses.
Posted by KAEP, Sunday, 2 October 2011 12:32:23 PM
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In light of KAEP's input..."Welsh, chinese, lesbian,and southern-Euro trash" etc, etc, I think this thread is just about done for me...but, Yabby, I'm sure you'll enjoy having the last word : )
Posted by Poirot, Sunday, 2 October 2011 12:47:53 PM
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Poirot, of course I'll have the last word :)

The thing is, just because we use resources, does not mean that
its unsustainable. I can use water, it can be recycled. I can
use steel, copper, etc, it can be recycled. I can buy newspapers,
they can be recycled. But if I go out hunting in the forest and
eat the last of the wild bonobos, they cannot be replaced, once they
are gone. So how we affect the planet is far more complex then
simply what resources that we consume.

If some are starving in India, blame Indians, not me dear.
Posted by Yabby, Sunday, 2 October 2011 1:35:27 PM
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Yabby,
clearly you never read this fascinating link http://tinyurl.com/3go6qj5 I provided in another thread.
The trouble with OLO is there too many settled opinions.
My views are familiar to me and open to challenge here, and I'm grateful to anyone who shows me my errors. I show others their errors, or at least what's questionable, and they resent it. It's about time people realised that whatever is intuitive or comfortable is probably wrong.
Posted by Squeers, Sunday, 2 October 2011 3:15:04 PM
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Ah Squeers, no I had not read your link. The old energy chestnut.

The 800 page book I'm working through right now makes it clear
that we are not about to run out just yet, it will just get a bit
more expensive, so Bazz can relax. But yes, at some point we'll have
to address energy and rely on something like the sun.

Which brings us back to the key issue, ie in 100 years the human
population, on the back of cheap oil, has gone from 1.5 billion to
7 billion, increasing at another billion every 12 years. Its not
sustainable, so eventually its going to crash one day and nature
will sort it out, just as Darwin predicted. I've accepted that
long ago.
Posted by Yabby, Sunday, 2 October 2011 5:16:37 PM
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Anyone of those million dud economists who believes in a technological “energy revolution” to save the global economy either don't understand the SECOND LAW OF THEMODYNAMICS or understand it but simply refuse to believe it on the grounds that it is BAD for the economy.

The only way forward is GEOTHERMAL POWER.

And until coal and oil monopolies are forced to comply with a movement into a sustainable Geothermal human future and not a looming WWIII pogrom of the twittering poor, facebooked useless & 'used up' then GEOTHERMAL will NEVER be invested in except as a token along with wind, solar and ocean energy scams.

At the end of time, its the talentless 'purchase everything with printed monopoly money' rich who will prevail over those people and things of merit. And Australia is complicit with the Global market's best joke, Treasurer-of-the-decade Swan, Swanning around in Monopoly money up to his armpits.

How else could a perfectly robust human presence ever become extinct?
Posted by KAEP, Sunday, 2 October 2011 7:36:34 PM
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I have not read all the comments here because the whole discussion is
redundant.
Globalisation is coming to an end. We are now seeing the "End of Growth".
It is geology that is making the new rules and it does not negotiate.
Soon the cost of the manufacture and world wide transport of those
manufactured goods will become unmanageable.
Everything but everything will become local and we will not be making
all the products we now buy. The Ikeas of the world will disappear.

How soon ? Well why do you think there is such a problem with debt ?
Debt is paid for with growth and your GDP has been eaten by the cost of coal and oil.

It is already happening. It is just that the financial people and
economists are still asleep.
You do live in interesting times !
Posted by Bazz, Monday, 3 October 2011 2:26:09 PM
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No-one in this entire thread has made any valid argument against free trade.

Steve Keen's opening comment contends that "the Neoclassical model that dominates economics today is riven with logical and empirical fallacies."

I'm sure it is; but he doesn't identify any, and he makes no argument against free trade. All his argument boils down to is this: "how do you convert [a] wine press into a spinning jenny?".

But that doesn't refute Ricardo's theory at all. Keen is saying that, when trade is "liberalised" ie when restrictions are removed, capital is lost, and society accordingly impoverished, precisely to the extent it was misallocated because of the original protectionist measures. That's not an argument against free trade, it's an argument against protectionism.

But if such an argument is valid as against free trade, why not restrict all trade? All the protectionists keep foundering on this point, which none has made any attempt to answer.

At best Steve's argument amounts to mere conservatism, advocating measures that actively make society poorer, because of the disruption caused to unfair vested interests by getting rid of them.

Squeers repeats the old fallacy, that "[because trade restrictions exist] "We thus enjoy none of the putative benefits of genuine free trade."

Wrong. The benefits of free trade do not depend on an imaginary state in which the whole world abandons protectionism in all its forms. If it did, we would all be at our primitive ancestors' standard of wealth.

Imperfect free trade is still more beneficial to all participants than any protectionism. All it means, at worst, is that one country is taxing its citizens to provide a free handout to the citizens of another country. Daft, but no reason why we should do likewise.

"There's no way the planet can sustain everyone in Western style"

Squeers, Poirot and Bazz presume to know all the production possibilities in the whole world now and in future, and on that basis to tell other people they can't be free to engage in peaceful, consensual and mutually beneficial exchanges now. They live in relative luxury decreeing others should starve.
Posted by Peter Hume, Saturday, 8 October 2011 12:55:39 AM
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Peter says, <Squeers repeats the old fallacy, that "[because trade restrictions exist] "We thus enjoy none of the putative benefits of genuine free trade."

But my comment was based on this from Mises:

"With perfect mobility of labor, capital, and commodities all over the earth's surface there would be a tendency for an equalization both in the rate of profit and in wages for labor of the same kind".

I was saying that in the absence of such conditions no such "putative" tendency (of course it's nonsense) to equilibrium is occurring, quite the opposite! But Mises' position is ludicrously idealistic anyway and would tend to anarchy rather than free-market equilibrium.

Then to my comment, "There's no way the planet can sustain everyone in Western style", Peter says: "Squeers, Poirot and Bazz presume to know all the production possibilities in the whole world now and in future, and on that basis to tell other people they can't be free to engage in peaceful, consensual and mutually beneficial exchanges now. They live in relative luxury decreeing others should starve".

This is the rational optimist line, in denial of the physical and biological limits of a resolutely closed and fragile system. Who knows what miracles of innovation the free market might develop in the face of said constraints, eh? So it's damn the torpedos, full speed ahead!
I didn't know you were a man of faith, Peter? So you do believe in miracles? Free market miracles, and your willing to risk everything on the efficacy of your magic? And you condemn us because we're not. And never mind the species and habitat destruction wrought by an unimpeded free market, your willing to consign other life to oblivion on the way to your earthly paradise?
But sorry, I know such sentimentality is offensive to the rational optimist.

But yet you say the free market is also "peaceful, consensual and mutually beneficial". So you're a Romantic after all, Peter!

You ought to write a novel, the genre being Fantasy. I'm sure such a world is possible as fiction, and people need something to believe in.
Posted by Squeers, Saturday, 8 October 2011 6:22:54 AM
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“I was saying that in the absence of such conditions no such "putative" tendency (of course it's nonsense) to equilibrium is occurring, quite the opposite!”

The absence of free trade is not the fault of the advocates of free trade, but of their opponents.

Why do you say it’s ‘nonsense’ of Mises to say:
"With perfect mobility of labor, capital, and commodities all over the earth's surface there would be a tendency for an equalization both in the rate of profit and in wages for labor of the same kind"?

He shows his reasoning. You don't.

On the one hand you think capitalism is exploitative and unsustainable, and that free trade makes societies poorer, so that rules out private ownership of the means of production and free trade.

On the other hand, the alternative is…? What? You’ve never said.

If it’s true that free trade make societies poorer, why not ban it altogether? Oh that’s right, you don’t answer questions that disprove you.

“But Mises' position is ludicrously idealistic anyway…”

Mises’s statement is not normative; he’s only stating what the logical consequences would be. He doesn’t, like you, pretend to know what everyone else in the world should be forced to do.

“and would tend to anarchy rather than free-market equilibrium.”

So every decision that’s not dictated by government “is anarchy”, is it? So we have anarchy in the supply of socks and pizzas do we, and personal relationships “anarchy” do we?

The category you are perpetually missing is “freedom”.

“[Freedom] is the rational optimist line”

As opposed to your irrational line?

“in denial of the physical and biological limits of a resolutely closed and fragile system.”

This assumes you have knowledge of all production possibilities and ecological parameters in the world. You don’t. You’re not God.

“So it's damn the torpedos, full speed ahead!”

How do you prove that government attempts to manage the economy and ecology will not result in worse economic, ethical and ecological consequences, even in your own terms?

Specify your alternative.
Posted by Peter Hume, Saturday, 8 October 2011 9:39:29 AM
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Someone asked why we should plan for local manufacture.
First there are a lot of people who just want to go to work in a
factory and go home to the wife & kids.
Second, we have no choice. As energy becomes expensive global trade
will wither. We have left it too late to make a smooth transition to
whatever would have been a replacement energy system.

We may no longer have the resourses to develope the infrastructure
to support an energy system to keep us in the style to which we have beome accustomed.

That is why I said this discussion is redundant.
What resourses we do have left should be spent on getting geothermal
systems working. Ultimately it is the only method that we can afford
that will give us energy for hundreds and indeed thousands of years
at a price we can afford.

Everything will become local whether the "Free Traders" or "protectioners" agree or not, geology will make the rules so live with it.
Posted by Bazz, Saturday, 8 October 2011 11:00:01 AM
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Its not all your claimed gloom and doom, Bazz. Yergin's book makes
for interesting reading. He explains how they used to pump only
30% or so of a well, now with technology, that is moving up and up
and up. So oil will continue to be available, just not at bargain
basement prices of the past. Then we have shale oil, tight oil,
shale gas, etc. An interesting point which he raised. Around 10
million barrels a day of oil, comes as condensate from gas production.
Given that Australia is about to triple its natural gas production,
sounds to me like alone the condensate from that would supply our
own requirements.

World trade is not about to end either. For if countries can't afford
the shipping, no grain would be transported, so people would starve.
They are already looking at sails and nuclear ships. So don't
put all your eggs in one basket, or you will be proven wrong.

Freight moved around the world before oil and without modern
technology
Posted by Yabby, Saturday, 8 October 2011 1:34:16 PM
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You are right Yabby, it will not happen overnight but it will happen.
As far as Yergin is concerned he never got any predictions of price
etc right and probably won't start to soon.

It will come on gradually, but then something will become unobtainable
and it will trigger the complex systems collapse.
It would only need something that was necessary for a power station
and you could imagine the result as an example.

Yes, they are getting more out of existing wells but as usual there is
a catch 22. They stopped using those wells because it was too
expensive to get the last bit. So at some expense they have gone
from, say 40% to say 30% because of the higher price available.
However they are just scrambling for the last drop and it does not
keep up with demand. It just stretches out the plateau.

Read Jeff Rubin's "Your World is About to get a Whole Lot Smaller".
Read Richard Heinberg's "End of Growth"
Google them, they are on Utube and they have web sites.

Anyway it is interesting, no one can be certain just when we will see
the first real signs if you don't believe that the current financial
crash was caused by the $147 oil price in 2008.
Posted by Bazz, Saturday, 8 October 2011 3:05:27 PM
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Bazz, nobody has ever been accurate about prediting the price of
oil. Hubbert, who came up with the theory, was out by a factor or 4. I remind you that after it hit 147$, it also dropped back into
the 30 $ price realm for a while. What caused it is once again
explained, alot of politics in the third world etc affecting
supplies.

I remind you that when the West spends more on oil, oil producers
are busy living it up, buying more from places like Australia.

So IMHO, unlike your posts encouraging panic, there is indeed no
need. What will happen in 100 years, none of us will know. Perhaps
all that CO2 from burning carbon will thin down the population,
so be it, if what we did was unsustainable.
Posted by Yabby, Saturday, 8 October 2011 4:06:01 PM
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Keen writes:
<<Since capital is destroyed when trade is liberalised, the watertight argument that trade necessarily improves material welfare springs a leak. If economics were a real science, this real-world complication to Ricardo's argument would be considered, but it has never been seriously addressed.>>

Keen’s assertion is patently false and highlights why he is ignored by serious economists and people interested in real solutions.

To test this just google “free trade with adjustment costs” or “general equilibrium with adjustment/transactions costs” and you’ll find plenty of serious scholarly works within the neoclassical tradition that allow for adjustment costs impacting on the owners of industry-specific capital and skills.

Here are 2 examples:

Trade liberalisation with costly adjustment, Alvaro Forteza and Rossana Patrón*
http://decon.edu.uy/~alvarof/TradeGov10.pdf
Evaluating Labour Adjustment Costs from Trade Shocks: Ramon L. Clarete, Irene Trela, John Whalley
http://www.nber.org/papers/w4628
Posted by grateful, Saturday, 8 October 2011 4:09:48 PM
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Peter,
history shows that whatever the mode, capitalism is a rapacious and utterly dysfunctional economic system, prone to inequities, recurrent crises and incongruously dependent on endless growth in a closed system (thereby defying the second law of thermodynamics), yet you want me to offer a better "alternative"--as though the current one is working just fine!

As it happens I have suggested alternatives; a wealth and assets cap and society pegged sustainable replacement and husbandry.
The big problem of course is that any alternative necessarily takes over from the dog's breakfast left by capitalism. Not only must it offer an alternative to capitalism, but it must also address the unsustainable practices and collateral damage done by it.

But it's all gone too far and imo nothing can save us from an overall collapse, or in your terminology, a "rationalisation" of human populations and systems.
But I'm bored with this subject, so cheerio.
Posted by Squeers, Saturday, 8 October 2011 4:16:14 PM
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*As it happens I have suggested alternatives; a wealth and assets cap*

What a foolish idea, Squeers. You clearly have not thought it through.

I remind you that JP Morgan bankrolled Edison to invent the lightbulb
and a heap of other things. IIRC it was Rockefellar foundation
money which bankrolled the development of penicillin, after Govt
had no funds. Steve Jobs would have stopped at 30, when his best
work came at the end of his life. Fact is that innovative people
need money to innovate and if you are going to limit their wealth,
they won't take the risks that they do now. Thus you sit in the
light, due to venture capital.

I'm really not sure why you are so obsessed with rich people. They
die just like you and I and their money is recycled, taken in tax
or whatever. But the innovation and knowledge which some of them
achieved, stays with us. Philanthropy is a huge issue amongst the
mega rich. For some reason you'd rather that everyone was poor.

Fact is that its only innovation which can dig humanity out of
its overpopulation hole, not poverty.

Next time you switch on a light globe, thank a banker.
Posted by Yabby, Saturday, 8 October 2011 8:38:40 PM
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Squeers

You give no reason (oh that's right, you don't do reason - that's just bourgeois rationalism) for thinking that taxing or capping wealth would make matters better or more equal *even in your own terms*, which in any event you haven't defined.

Besides, why just cap wealth? If your reasons are sound, why not abolish this evil altogether? Or if the desideratum is equality, why not enforce it uniformly? But then you contradict yourself by setting yourself up as the unequal authority for the whole world on what should be permitted to have what of the fruits of their labours.

You can't justify the policies you propose even in your own terms because all you have is a jumbled load of self-contradictions at every turn.

The restraining factor that obviously annoys you most is the human desire for life, health and an improvement of material conditions. So spare us your pretence to be more concerned for people, than people.

But thanks for showing us how the objections to free trade amount to nothing more than anti-rational, anti-human, curmudgeonly prattling Marxism.

I don't know where you got the idea that you're some kind of superior kind of philosopher. You wouldn't know a syllogism if you fell over it.
Posted by Peter Hume, Saturday, 8 October 2011 10:27:25 PM
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Keen writes:
<<Since capital is destroyed when trade is liberalised, the watertight argument that trade necessarily improves material welfare springs a leak. If economics were a real science, this real-world complication to Ricardo's argument would be considered, but it has never been seriously addressed.>>

Keen’s assertion is patently false and this can be shown both in terms of theory and for applied analysis. In terms of applied analysis, one need only google “free trade with adjustment costs” or “general equilibrium with adjustment/transactions costs” and you’ll find plenty of serious scholarly works within the neoclassical tradition that allow for adjustment costs impacting on the owners of industry-specific capital and skills.

Here are 2 examples:

Trade liberalisation with costly adjustment, Alvaro Forteza and Rossana Patrón*
http://decon.edu.uy/~alvarof/TradeGov10.pdf
Evaluating Labour Adjustment Costs from Trade Shocks: Ramon L. Clarete, Irene Trela, John Whalley
http://www.nber.org/papers/w4628

In terms of theory, a standard model that all international trade students are taught early in their semester is called the "specific-factors model" . This will assume at least one factor, labour or capital, is specific to a sector, so when the terms of trade changes (eg due to a lifting of tariffs) then the model makes predictions about the impact on real returns to the specific factor, income distribution, production and trade patterns and the allocation of resources.

This is exactly what Keen is saying economics does NOT do. Using Keen's terminology, the ''capital destroyed'' would be the capital specific to the sector that is competing against imports (he does not mention the capital specific to the export-sector which would gain...eg mining equipment in Australia's case).

Keen is plain ignorant about his favouraite topic ("economics") and should be ignored by anyone serious about public policy and trying to gain an understanding the economics of the underlying issues.
Posted by grateful, Sunday, 9 October 2011 1:57:47 AM
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Yabby,
"What a foolish idea, Squeers. You clearly have not thought it through".

Yes I have thought it through; of course I'm aware of the implications and how everything holds together, and what impacts even such a measure as a wealth tax would have. I'm hardly at liberty to follow all the extrapolations here. I am talking about alternatives, and I've already opined that overall collapse is inevitable. Nature shall ultimately impose much sterner and more disruptive measures than a wealth cap.
BTW I did speak of "personal" wealth and assets cap. I'm aware that industry needs investment dollars and that funding would have to be provided. As far as I'm concerned though a great many industries generated by the wealthy could just fold.

I see disproportionate wealth and privilege as not only wrong and indefensible in itself, but as the root cause of all forms of corruption and abuse of power.

But I'm done here. Catch you later.
Posted by Squeers, Sunday, 9 October 2011 5:54:26 AM
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Interesting variety of posts. For my few cents, I'd say:

Squeers: I've got to agree with Yabby in terms of defining what we do and don't "need". The Chinese regime has decided that the people don't "need" access to information about say, Liu Xiaobo, the dissident arguing for a separation of powers. What this amounts to is restriction.

So yes, we don't actually "need" plasma TVs. (In fact, I don't have nor want one). As I see it, there are only two options - restrict or don't restrict people from having luxuries and consuming resources. Sure, you can discourage people from having them, but judging from the limited success of say, anti-binge-drinking campaigns, changing ingrained cultural habits are hard and I think in this case, it's presumptuous to think you can decide for everyone.

And you would need to be deciding for everyone. Human nature being what it is, regardless of whether we reduce our consumption, other nations are forging ahead with theirs. My experience is with China, and if anything, many of the wealthy there are far more enamoured with gaudy, resource-intensive status symbols. Hell, Rolls Royce is releasing a limited edition Phantom with gold dragons on the side, for just under a cool million US dollars.

Continued:
Posted by TurnRightThenLeft, Sunday, 9 October 2011 10:16:26 PM
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I agree with you in that we do live in a closed environment. Some spent resources can't be recovered. This is also true. But if we have a free(ish) market, then as the price of a non-renewable resource becomes prohibitive, then alternatives become more viable. Consider for a moment, this biofuel - a grass that can be grown in poor quality soil.

http://news.bbc.co.uk/2/hi/uk_news/wales/mid_/8378232.stm

A viable prospect now? Probably not. In the future? Who knows?

Granted, there are problems. Consider the fact that we burn oil that can be used to produce long-lasting polymers. This is indeed short sighted, but unless you have an alternative economic system that is not also subject to imperfection via the potentially faulty predictions of experts and governments, then I don't see what other choice we have.

Yabby: for the most part I agree with your points and in general I agree about kids needing to be factored in, but you also need to appreciate that there is a kind of sustainable ecological equilibrium (granted, few of us get anywhere near there, at least not without the input of time and resources that is beyond most of us). Thus, while we need to factor in children to our ecological footprint, it is possible that eventually we'll find ways to live within a more sustainable way - indeed, we may find we eventually have no choice.

KAEP - you're a racist bigot who isn't worth listening to. No amount of capital letters changes that. Instead of the capital letters, tone down the offensive rhetoric and provide backing for your arguments instead of shouting them in capitals at us like we're all toddlers.
Posted by TurnRightThenLeft, Sunday, 9 October 2011 10:16:45 PM
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TRTL, thanks for the article about ryegrass. What I think it will
come down to in the end, is that energy is energy, no matter if its
used as a human fuel or an engine fuel. The thing is though, it
would still need fertiisers to replace nutrients removed from the
soil, or its essentially mining.

*So yes, we don't actually "need" plasma TVs. (In fact, I don't have nor want one).*

Ok, so you don't need a plasma, but do you need a TV? If you do,
then what if I tell you that instead of a plasma, you could buy
an LED TV. The picture would be as good as plasma, but the power
consumption would be less then your old present tv, so you'd
be saving energy by switching to it.

Its the same with an Ipad. No more rooms full of books and cupboards
full of old LPs etc, which chewed up their share of oil to manufacture. All on a small unit weighing a few hundred grammes.
Posted by Yabby, Monday, 10 October 2011 12:25:56 AM
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TRTL, I think it is most unlikely that any form of land grown plant material can ever be used to produce a viable transport fuel. That is, unless we can find some way of harvesting the methane produced by cows grazing the plant growth.

Once we have to expend the energy necessary to grow, harvest & transport that material to a factory for conversion, it all falls apart. Honest researchers are now admitting that the use of ethanol not only consumes more energy than it provides, but it increases over all CO2 production for distance covered.

However all is not lost, there have been considerable advances made using Legume based resins, & cellulosic materials that could replace petroleum based plastics. Everything was built of wood/plant material for so long, & it is likely to be so, again. I think that's neat.

Of course, as Yabby says, that is really another form of mining, just without digging holes.

Algae that could be easily harvested could be a better idea, than land low volume plants, & a recent post from Spevenlmeyers linked to work on synthetic photosynthesis, which could produce hydrogen directly, which sounds quite possible. Now that really would be solar power.

It may not be what the greenies want to hear, but new technology does seem to be showing civilisation will survive. It is just not the ones, like wind & solar, so loved by greens & pollies alike that are going to get us there
Posted by Hasbeen, Monday, 10 October 2011 1:44:50 AM
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Hasbeen,
There is all that heat down there under the ground in granite
with enough to last for hundreds or thousands of years.
Once built it would be very ERoEI good.
From what I have read the rock is heated by radio active decay in the
granite. If the half life is some thousands or even 100s of thousands
of years it would seem to be a crime not to make an all out effort
to make it work. They have already made steam blow out of the hole.

Perhaps it is because it comes from radio activity it is a no no for
the greens and government.
Posted by Bazz, Monday, 10 October 2011 10:37:20 AM
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Bazz I hope you're right. I don't care where the power comes from, as long as it comes. Perhaps someone in a shed somewhere is working on an idea which will make them richer than Bill Gates, & keep the lights on.

Unfortunately for us, the best hot rock sights so far found in Oz are a long way from a good water supply, or from the sight of most power use, but that may change. I've have read however, that our rocks cool down too quickly to achieve economical power production from them.

Back on topic, there has to be something going wrong in this trade thing somewhere.

Some years back I was producing some brass products. It was getting hard to compete.

I was amazed to find that Asian countries could;
Buy our copper & zinc concentrates;
Ship them to Asia;
Follow them with our coal to power the conversion of them to brass;
Use that same power to make finished products;
Then ship those products to Oz, to land into my store for less than I could buy the brass to make them in Oz.

The same appears to be the case with steel fabrications, using our iron ore & coal. Value adding doesn't seem to be our forte.
Posted by Hasbeen, Monday, 10 October 2011 11:18:55 AM
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Ahhh, yes Hasbeen,
Isn't it marvelous what you can do with cheap energy and low wages.
Pity it won't go on forever.
Posted by Bazz, Tuesday, 11 October 2011 7:31:18 AM
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Hasbeen,

Back on topic?

THE greatest economist fallacy is about OIL and Coal lasting forever OR until some magical future power source WILL be found.

The discussion about GEOTHERMAL highlights this & is MOST definitely ON TOPIC!

TRTL,

Racism is in the eye of the beholder. SUSTAINABILITY is EVERY PERSON's concern and must be CAPITALISED if indeed ignorant 'toddlers' insist on believing in santa claus economics, tooth fairy solutions and too recent immigrants in Australian politics desiring sustainable population with sustainable practices.

PS When comments are based on the Second Law of Thermodynamics no further proof is required. Unless of course you don't understand basic Physics. Unless you don't understand this country cannot sustainably support more than 20 million first-world aspirant people.
Posted by KAEP, Wednesday, 19 October 2011 11:43:44 AM
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