The Forum > General Discussion > Market economies versus State run economies - discuss
Market economies versus State run economies - discuss
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Posted by Yabby, Saturday, 29 September 2007 9:57:45 PM
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YABBY.. for me it can be simple too :)
If you "State" is lucky enough to have abundant resources and enough smart people.. then a State run economy can be the best for the most. Otherwise.. law of the jungle. Posted by BOAZ_David, Sunday, 30 September 2007 2:28:32 PM
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Ok, for a start I don't think there's much useful debate to be had arguing between "Market economies" and "State run economies". My interest is examining the degree to which government involvement in a market economy is desirable.
Yabby, your statement "I'd prefer to make decisions about my own life, [rather than] let the State decide" is hard to disagree with as a principle, but it somewhat ignores the purpose of government. Many, if not most individuals aren't realistically in a position to make decisions about issues that affect the long-term future of all of society, and are happy to hand this responsibility to the government, whose job it is to make such decision. Further, a government that consistently makes decisions against the wishes of its people will get voted out - so as long as you have a stable, workable democracy, protestations about "letting the State decide" are a somewhat specious. My main interest is in examining the assumptions that "less government involvement" is always better. This "neoliberal" ideology seems to rest on several basic tenets: a) Free markets are always a more efficient way to allocate resources than governments b) Government regulation and taxation stifles innovation and prevents wealth creation that can benefit all c) Governments should never "pick winners": letting multiple private enterprises compete to bring new ideas to the market, and letting the consumers pick the winners is more democratic/efficient Now, all these principles are fine in theory, and it makes a perfectly reasonable hypothesis, but does it measure up to reality? a) Of course has been the motivation behind gradual privatisation of many once-Government provided services: electricity, gas, telecommunications. There have been calls for fully privatising the ABC, Australia Post, Medicare, Tertiary Education etc. etc. Extremists would even argue for privatising build all government-provided services, including sewers, roads and parklands, on the basis that they would be run more efficiently, and there would be more incentive for private-enterprise to look after them better than for governments. Next: dissecting to what extent privatisation has actually been successful, and how this reflects on the ideology driving it. Posted by wizofaus, Sunday, 30 September 2007 4:05:29 PM
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Aside from various (and understandable) ethical concerns about having corporations whose primary concern is the bottom-line look after vital community services, what is the evidence that private enterprise has actually allowed these services to operate more efficiently and provide better customer service and/or lower costs? And is there anyone actually doing serious historical cost/benefit analysis on these operations to determine whether privatisation was the right step to take? Further, perhaps a more interesting question is would this infrastructure have ever been created in the first place if it was entirely up to private enterprise, considering the massive costs involved, the fact that the benefits don't particularly accrue to anyone in particular?
As far as the success of privatisation in Australia goes, there’s a fair bit of material available on the internet. The majority seem to take the “mixed success” conclusion, such as in http://ceda.com.au/public/research/privatisation_contracting/growth_50_summary.html Others are more damning, such as http://homepage.mac.com/herinst/sbeder/jape.html, whereas think tanks like the IPA, unsurprisingly, have published articles describing the unmitigated success of privatization, although generally sticking to narrow examples (e.g. http://www.ipa.org.au/files/news_1353.html). On the basis of these and many other similar articles, from a purely economic point of view, the hypothesis that privatisation is always better is on rather shaky grounds – but it’s not unreasonable to conclude that privatisation, if done well, has the ability to improve the efficiency of government-run operations. I won’t go much into to whether it’s reasonable to make such decisions on a purely economic basis. Some have pointed to deregulation (the step-sister of privatisation) of airlines as “putting profits before human lives”, as accident rates have risen in tandem with lowered fares. OTOH, as a customer I’m prepared to pay less for a fare if it slightly increases my odds of not surviving the journey; after all, the risks are very low in the first place, and can never be completely eliminated. Later (when I have the time): addressing b) and c) above. Posted by wizofaus, Sunday, 30 September 2007 4:32:03 PM
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Wiz, ok I’ll give you my opinion to your questions.
I don’t think that the issue is as black and white as some suggest, but I think that there are some general trends, related to human behaviour as much as anything. The main problem seems to arise when any business has a monopoly. It seems to be that without competition,/ accountability, consumers are commonly placed last, not first. The same applies to cosy duopolies. I had a bit to do with both Ansett and Qantas, when those two had their cosy deal. What mainly hit me was the huge amount of waste in their systems. Staff knew that it was virtually impossible to fire them, so they really didn’t care, consumers were forced to pay for the lot. Bad management seemed to have a lot to do with it, but they did not seem to care too much either. The same principles seemed to apply in a number of industries, where high tariffs protected them. Innovation and cutting waste hardly mattered, they could simply increase prices every year, the consumer had no choice but to accept. In that sense globalisation has done a huge amount of good, its really shaken up those badly managed companies in many industries. When Govts run businesses, those problems are often compounded by additional factors. A well run business cuts waste. All those administrative staff, looking out the windows, watching the cars go by, have to be paid for by somebody. A well run business should be able to fire them, if they are not required. Governments often make political decisions in this regard, rather then hard nosed economic ones. They might have a cosy deal with a union, they might be chasing votes, whatever. In the end, the consumer pays for all that. So the best deal for the consumer in most but not all situations, is when there is active competition in an open market, amongst a number of companies, who do not take their customers for granted. There is an incentive to innovate and cut waste, for the consumers benefit. tbc Posted by Yabby, Sunday, 30 September 2007 9:37:32 PM
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So in cases where the free market is truly operating, I fail to see how Govt
could or should have a role, or could do better. There are however many cases where the free market is not operating at all, for various reasons. In the many cases that you list, all that Govt is doing is selling a monopoly. Creating a free market is easier said then done and the point of risk is that private enterprise will screw the consumer, rather then Govt. Telstra still owns the copper wires, if its sold or not. The same applies to electricity, gas, etc. So creating a truly free market is the obstacle here. The ABC/SBS are for me, more like an educational service, for the public good. They can afford to screen programmes without worrying about ratings, unlike commercial channels. Selling the ABC would defeat what it achieves, a market in which private enterprise is clearly not interested, so the Govt plays a role for good reasons. PBS in the US achieves similar results based on public donations, but we don’t have the population for that. To cut it short, I think a role exists for Govt to provide services, where the free market cannot truly operate or sometimes does not want to operate. b. Yes, Govt regulation and taxation are both costs which have to be passed on to consumers. Somebody always pays in the end. Extra regulations, extra taxes and charges, benefit few, apart from those public servants looking out the windows, watching the cars go by. c. Why should Govts be better at picking winners, then private enterprise? There is actually a big difference! When Govts pee money up against walls, all taxpayers are forced to contribute, even if they voted against the Govt. In private enterprise, its all voluntary. Those who disagree with management, are free to sell their shares. Only willing volunteers carry the risk of failure. Posted by Yabby, Sunday, 30 September 2007 10:45:37 PM
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I already accept that, where it makes sense, competition should be expected to produce better results than a monopoly. It is the practice of privatising services that are by their nature monopolistic, given they all users share a single piece of infrastructure that concerns me. OTOH, I don't see any need for governments to run airlines, mobile telecommunications networks, or indeed many of the operations of Telstra. My only argument is that there is simply no proof that privatising all government operations is justifiable from an economical point of view, given the mixed success of doing so over the last 10-20 years in Australia. But the "true believers" in free markets (the IPA, or the CIS, or the HR Nicholls society) will insist that this is the case, evidence aside, and their ideology has significantly affected government policy, both Labor and Liberal.
Note that there are economic downsides to competition: it forces companies to focus more on "out-selling" their competitors rather than simply developing a quality product at a low cost (the SECV never spent any money on advertising!), it tends to increase litigation and still creates significant work for governments as they now need to monitor the activities of the multiple private entities that have taken over their role. And lastly, it's more likely to lead to market failures: in the electricity supply business this can be seen today where each individual electricity supply business stands to benefit from selling *more* electricity to each consumer (thus generating more wastage, meaning more pollution, and more GHG etc.), when it would be the whole economy's best long-term interest for electricity suppliers to focus on helping customers reduce their usage, by purchasing more efficient appliances etc. (Note however, Amory Lovins has described how in California, deregulation there has lead to lower usage and more efficiency, partly because deregulation lead to higher electricity prices, but also because government policy deliberately decoupled quantity of energy sold from profits - which is hardly a typical "free market" of electricity suppliers). Next, addressing b) and c)! Posted by wizofaus, Monday, 1 October 2007 6:57:40 AM
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While the thread has moved from its starting point I want to go back for a while.
I once thought, as a child, the government could run every thing, I was wrong. Australia goes with mixed so will I , America concerns me such a great country with great ideas but such a failure. Health and some much more is based on income not need. Mixed must find a way to get results from both systems that benefit us all. This thread will attract some who remind us of our failures states and federal but how many will remember our tax base? the costs of better services in price and tax? Posted by Belly, Monday, 1 October 2007 7:08:37 AM
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Ok, you say "Govt regulation and taxation are both costs which have to be passed on to consumers."
No one is doubting that excessive red tape and bureaucracy increases costs unnecessarily, and there much room for improvement even today. But quite a lot of regulation has the opposite effect, of boosting innovation, and of forcing companies not to create costs that must be paid by everyone at a later date. They say "necessity is the mother of invention". Regulation in the automobile industry has forced manufacturers to innovate and perfect solutions such as catalytic converters and airbags - even though at the time industry fought against the regulations, claiming they would drive up costs and put them out of business (as they have been doing again in the US with recent proposed regulations to improve CAFE standards). There are myriad other examples, but the phenomenon has been widely written about (Google "porter hypothesis"). Regulation does not necessarily increase costs - and if it does, often the extra value created with those costs is well worth the price tag. Further, the regulations we have today regarding pollution (e.g. SO2 emissions from power plants) exist precisely because before we had them, pollution was getting so expensive to clean up. Like most thinks in life, prevention is cheaper than cure. Again, this is a case of market failure, because without regulation, the companies creating the pollution are not the ones specifically penalized by the costs of cleaning it up. Now whether the regulation should exist in the form of specifically mandating maximum pollution levels for every corporation and strictly enforcing this, or the "market solution" of trading pollution rights between corporations is still a worthwhile debate - again, there are arguments both ways (my suggestion to start with trading - but on the understanding that if no significant improvements are made within a certain time period, then there will be a switch to tougher regulation or "pollution taxes"). Next post: labour regulation. Posted by wizofaus, Monday, 1 October 2007 7:17:33 AM
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Wiz, regarding your comments as to privatising electricity supply, I don’t know
enough about your ES situation, so won’t comment. AFAIK in Europe the whole power grid is interlinked, so there is competition in power generation itself. So nuclear, coal, hydro are all in the market together and consumers would clearly benefit. I don’t see why consumers would use more power then they actually require, so can’t see your argument there, perhaps you can explain. As to using power more efficiently, more efficient appliances etc, the way I see it, that’s a role that Govt can play, not PE. Govt is already in that business, supplying subsidies for solar water heaters etc. Regulation might boost innovation, but it still comes at a cost that has to be born by somebody, in the end mostly the consumer. As to airbags, I certainly would never want one, when seatbelts do a great job at much lower cost. Quite a few people have been injured by the force of airbags. Yes, the Porter hypothesis suggests that regulation might indirectly lead to lower costs, but it also might not. The Japanese don’t sound so enthusiastic. http://www.rieti.go.jp/en/columns/a01_0103.html The core problem seems to me to be that when Govt runs a business, politics often dominates economics and nobody really needs to care about efficiency etc, for there is no incentive. I had this very discussion with a relative some time ago, he works in a Govt dept. Its virtually impossible for Govt to fire anyone, so there is no good reason for anyone to bother to innovate, improve or change things. As long as they turn up for work and at least pretend to look occupied, all is sweet. They are given an annual budget and as long as they don’t overspend, that’s fine too. If there is any money left at the end of the year, its spent if they need it or not. According to him, petty pilfering is common, as everyone looks after their little patch of self interest. tbc Posted by Yabby, Monday, 1 October 2007 3:00:54 PM
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While people hold the position that the Government is responsible for my welfare and life then the government will need more increases in taxes to meet the growing expectations. Rarely do people settle for a simple life, they want increased benifits and lifestyle.
In large Government employment work-place less and less people actually perform and are carried by a minority. They all expect the same pay at the end of the week. In Private businesses the non-performers are dismissed because they are not assisting in the creation of the budget. Socialism sounds utopian on paper, it does not work in reality unless all are committed to the same idealism. Posted by Philo, Monday, 1 October 2007 4:53:08 PM
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Yabby, you're not really posting a lot that I disagree with - especially when you sensibly couch your statements with qualifiers like "seem" and "often". However, while it may be the case that there aren't significant incentives to improve efficiency in government-run and funded organization, that doesn't automatically mean that a bunch of competing private firms will do any better. For a start, I've worked with plenty of large private firms that are riddled with all sorts of efficiencies that have existed for years (H.P. would have to be the worst). And as I said before, competition introduces new demands on operations that don't exist in monopolies.
Re customers using more electricity – this is exactly what happens as suppliers strive to provide electricity at ever lower costs. If electricity cost twice what it did now, there is no question we’d use less of it – and I would argue that if the last two decades of technological development had been focused on developing appliances that used minimal electricity, then we could have all the luxuries we do now – big fridges, widescreen TVs, you name it, at half the electricity usage. But the current structure of market doesn’t do enough to reward manufacturers that build and sell efficient appliances, and does reward suppliers that sell more electricity (and note that this applies to the wholesale market just as much as the consumer market). And it’s hard to see how a completely free market, with no regulation or subsidization at all, could have that structure. I did want to address labour market regulation next, because it's so obviously topical for this election. There have been lots of criticisms of WorkChoices, ranging from the claim that it has increased confusion and red tape for many businesses (especially with the new fairness test) to the fact that workers perceive (fairly or otherwise) that there is less certainty in the workplace, where basic conditions that have been enjoyed by all for decades are now at the risk of being swept away. Next: why labour market regulation is good for the economy. Posted by wizofaus, Monday, 1 October 2007 6:24:20 PM
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Nearly 100 years ago Henry Ford made the observation that by giving his employees reasonable conditions (no more than a 40 hour week) and good pay, he was effectively creating a market for his own products: as long as employees worked excessive hours and received minimal pay, they would have no time or money for luxuries like automobiles.
He encouraged fellow industrialists to follow his lead, arguing that everyone would be better off. It seems so obviously true, that one has to wonder why we should need regulation to ensure workers are paid adequately and not forced to work excessive hours, when it’s in the employers’ interests to do so. The problem is that such voluntary “self-regulation” is prone to the “prisoner dilemma” scenario: each individual employer logically looks at the situation and sees that they could benefit by lowering pay or increasing hours, despite the fact that all employers would be better if they stuck to better pay and reasonable hours. Because any individual employer stands to benefit if they break from the tacit agreement, there will be a certain percentage that succumb to the temptation and do just that (as we’ve just seen with the 25,000 reported cases of failing the “fairness test”). The only way to solve the dilemma is to ensure that there is a direct penalty for breaking ranks: whether that’s fines, or jail terms, or whatever. Which is exactly what labour market regulation is: a system to ensure that all employers “play by the rules” and create the best outcome for all. Of course, clearly you can have misguided regulation that sets minimum wages too high, meaning, for example, Australian businesses can’t stay competitive with overseas operations, thus putting people out of jobs etc. So getting it right is a delicate balance. But to argue that the best result would be gained from having no regulation at all is to ignore basic human psychology as demonstrated by numerous real-world cases. Next: why having the rich pay higher taxes makes economic sense. Posted by wizofaus, Monday, 1 October 2007 8:00:14 PM
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You've pretty much outlined the basics of it pretty well wizofaus.
For my two bob, in relation to the privatisation issue - privatisation can work for service delivery corporations, but when it comes to infrastructure it's a different ballgame. As a prime example: The reason why the Telstra privatisation has failed so miserably is because conflicting demands are being placed on them. Telstra is being asked to: a) Provide cheap access to competitors to its infrastructure b) Maintain the aforementioned infrastructure c) Maintain and extend the network in unprofitable areas d) Ensure cheap service delivery e) Be more profitable than companies that do not have these responsibilities. Essentially you can't logically have one company in charge of the infrastructure, but have to make arrangements for competitors to access the network - you can't just let the company dictate the prices as it would in a normal market. They have a monopoly. On the other hand, you can't dictate what they can charge - that won't be governed by market forces and will ultimately fail. They probably could have privatised a service provider element of Telstra, but quite frankly, given the nature of Australian communications, the infrastructure element was always going to be a monopoly, or have needless duplication probably funded by the taxpayer (think Opel). So the infrastructure corporation should have remained in government hands - ultimately, that's what it comes down to. Anything that is needed or desired by the public, that isn't likely to be profitable, should remain in government hands. The same goes for issues of quality control - such as water provision. Posted by TurnRightThenLeft, Monday, 1 October 2007 8:43:42 PM
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"that doesn't automatically mean that a bunch of competing private firms will do any better"
It certainly means that the fundamentals are there, for those who do, do better, to thrive. Its one of the major changes that I am seeing in the Australian economy right now, compared to say 25 years ago. Two things hit me at that time, when I compared an economy like Australia, to one like Switzerland. Firstly I felt that Australian companies in general, not all, were extremely badly managed, because so many companies were in cosy duopolies, protected by high tarrifs. There was no need to change anything. Secondly the traditional British industrial relations system of worker hates boss and tries to get even, boss despises worker and tries to screw him. Its a lose-lose situation and I think that in much of central Europe, the thinking is far more sophisticated then the old British system which Australia inherited. A country like Switzerland has little union involvement, but has always had higher wages then Australia. Most employers realise that its the best workers that earn them the most and are most productive, so it pays to retain them and higher wages is just one great way to do it. Workers realise that if they make the company money, they can justify a higher wage, so rather then screw the company, they try to make the company money. In the end, you have a win-win situation. As to PE doing better, its starting to show everywhere. Remember when Woolies was virtually broke? Now Coles, due to bad management, is about to be sold off and I think that the Wesfarmers business plan will turn them around. People forget that these companies actually work on fairly small nett margins, 3-4.5% perhaps. Cost is the big issue. So efficiency of logistics, ivory tower management, are all huge issues. Today, if a business is not performing, its sold off or reorganised, whilst in Govt they plod on relentlessly, there is no incentive to change. Posted by Yabby, Monday, 1 October 2007 8:47:01 PM
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As to your comment about efficient appliances, once again that’s a global
issue. Manufacturers are hardly going to develop energy efficient equipment, just for the Australian market. As it stands, other countries already pay quite a bit more for energy then we do, but the equipment you speak of has not yet been developed for them. The global warming thingy might now trigger those sorts of developments, but it’s a very recent issue in political terms. 10 years ago, when you saw pictures of China, you saw mainly bicycles, 5 years ago Gottliebson was only just predicting the China boom. Now we suddenly have another 2 billion people chasing our lifestyle and its become an issue globally, but very recently. It still amazes me that nobody has developed a solar powered air conditioner. When its 43deg outside, one would think that somebody would come up with a way to use that heat energy for efficient cooling. Air conditioners used to be a luxury, now they are becoming standard, like plasma screens. I doubt if people will go back to doing without. They will simply demand a payrise, to compensate for the higher price of energy. As to a regulated labour market, that’s a can of worms that we can discuss, but one point is the dilemma it creates. Workers want permanent employment and security. But many businesses simply cannot provide that, due to the nature of their business. They can tender for a job and win it, so have extra labour requirements in the short term, or miss out, in which case people would be standing around picking their noses on company time. Once you put too many conditions on hiring and firing staff, as they have done with say young people in France, the result is that nobody takes the risk of hiring them in the first place. They then complain about unemployment or move to Britain, which is more flexible. So were all your regulations really such a great idea? Posted by Yabby, Monday, 1 October 2007 10:07:02 PM
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TurnRightThenLeft,
Thnks for you r interesting post. The topic of Telstra was raised on another Forum at http://forum.onlineopinion.com.au/thread.asp?discussion=1040#18752 Also you might find some useful information on a web site concerning Telstra, which I have maintained. It's neglected and somewhat dated, but you may still find it useful. The original site is off-line due to a problem with the Domain Name Server. However I have created a mirror. It has the ungainly URL of http://candobetter.org/citizensagainstsellingtelstra.com/html/news.html Our case is at: http://candobetter.org/citizensagainstsellingtelstra.com/html/ourcase.html ... and our submission to a Senate Inquiry of 2003 is at http://candobetter.org/citizensagainstsellingtelstra.com/html/resources/cast-senate-submission-Oct-2003.html When the DNS problems are fixed all of that will be found within http://citizensagainstsellingtelstra.com It's noteworthy that 70% of Australians opposed privatisation when the full privatisation bill was passed through the Senate in September 2005, and this opposition to privatisation has been consistent throughout the years. One Liberal Senator Brett Mason who voted for privatisation practically boasted that 95% of the constitutents who contacted him at the time opposed privatisation. Evidently, he thought that others would see voting in this way against the overwhelming wishes of his own constituency as true strength of character. Posted by daggett, Tuesday, 2 October 2007 1:09:37 AM
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Yabby again, your posts are largely addressing points somewhat tangential to mine. I would love to see Australia lose the "workers vs employers" ethos too, although I have to say it's not something I've ever come across in the software industry, which has never had union involvement, and never needed a minimum wage etc. Unfortunately I think WorkChoices (and the predictable reaction against it) has given a significant boost to that ethos, perhaps because it was pushed through parliament without consultation with unions and other employee representatives.
Hence achieving that goal isn't simply done by removing or loosening existing regulations - after all, Switzerland still has labour market regulation, including maximum workings hours, and collective bargaining arrangements that effective control minimum wages. Switzerland also has fully government-funded tertiary education, and spends almost 6% of its GDP on education and research, compared to less than 5% in Australia. Regarding appliance/consumer-goods efficiency, absolutely, it requires a global adoption of energy market regulation to give this a boost. But you raise a good point: how come New Zealand, population 4 million, has Fisher&Paykel; Singapore, pop 4 million, has Creative Technology, Sweden, pop 5 millon, has Asko and Electrolux; Denmark, pop 5 million, has Bang & Olufsen; Finland, pop 5 million, has Nokia; The Netherlands, pop 16 million, has Philips, whereas Australia, population 21 million, has no household name manufacturers of any electronic/electric goods that I can think of...at least, since Electrolux bought out Email, which some have blamed partly on deregulation and tariff reduction. There really is no reason Australia could not have a high-tech consumer goods manufacturing industry, but it would require examining what sort of government policies exist in previously mentioned countries that do support such an industry, and if that means, for instance, import tariffs to allow the industry to get off the ground, then this needn't be seen as automatically a "bad thing" because it goes against neoliberal ideology. After all, the international manufacturing playing field is far from level, and sitting around waiting for it become so is not really doing Australia any favours in the mean time. Posted by wizofaus, Tuesday, 2 October 2007 8:08:14 AM
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Wiz, whilst I think that in the past, the Australian labour market
has been way too overregulated, I do agree that Workchoices was what can be considered badly introduced. Sometimes its how we say something, not what we say, that is critical. Peopleskills matter and in this case they wern't applied, so that will highly likely cost the Govt the elections. I disagree with your proposal to create another consumer goods industry in Australia, unless you can give me a really good reason, where the benefits outweigh the many disadvantages. Today thats a global industry and comparative advantage matters. Many Nokia phones are designed in Finland, but more and more are made in China. Fair enough. Ikea does the same, many other brands. Electrolux makes some products here that are designed in Europe. If there was some superb entrepreneur of Australian origin, who designed goods that people actually want to buy, then making them in China would maybe be the way to go. Clearly none has appeared, many companies closed down. Consumers are voting every day about which products they want to buy, so they should be able to. Bringing back tariffs would strongly disadvantage the poor and would in fact disadvantage all Australians, limiting choice. If the costs of consumer goods goes up, standard of living goes down. Australia doesent even have the labour force. We are short of doctors, nurses, teachers, building workers, meatworkers, chefs, restaurant staff, miners, engineers and a host of other jobs. Perhaps more effort should be placed on making sure that those people who want to work in these professions, are actually given a chance to do exactly that. Abbott denies it, but 10 years ago the Govt cut back on educating doctors, as it was felt that there were too many. So they screwed up on that one. Singapore, NZ, Holland, Finland etc don't have a mining industry sucking up every available employee. Mining is where we have a comparative advantage, not in making consumer goods. Posted by Yabby, Tuesday, 2 October 2007 7:35:26 PM
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I never made a "proposal" that there should be an effort to create a consumer goods manufacturing industry in Australia; I'm simply stating that the current global situation makes it impossible, without allowing that some sort of tariff protection would help it get off the ground. There are significant economic risks in letting Australia's manufacturing sector die off, and as a consumer, it annoys me that I don't have the choice of buying "Australian" when I would be happy to pay a more to do so. I certainly don't accept that we don't have sufficient workers willing and able to take part in such an industry - I've yet to see it ever explained why 4% unemployment is considered somehow economically "ideal", considering that in the 70's we had 2% or lower unemployment. 2% of the Australian population that is willing and able to work is at least 200,000 workers - far more than enough to support a robust manufacturing sector.
I agree that protectionism is not a good long term solution, but historically, is has proven a very effective technique at allowing local industry to "get a foot in the door", so to speak. A lot of claims are made about protectionism that may make sense on the surface, but we need the hard evidence to back those claims up, and objective examination of the historical reasons behind their introduction and the likely long term economical consequences of phasing tariffs out - not just unthinking acceptance of free-market ideology which claims that any government "distortion" of the market economy is necessarily a bad thing, no matter what. For instance, protectionism in the agricultural industries, something that has been criticized from both the Left and the Right, is in no small part an acceptance that food availability is so critical to the functioning of a economy that it's too risky to allow one nation to become too dependent on others for supply of food. Any number of developments can quickly lead to a situation where supply chains can be cut off, and without sufficient food, economies will collapse within weeks. Posted by wizofaus, Tuesday, 2 October 2007 8:24:20 PM
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Wiz, I don't think that manufacture has to collapse, it has to
restructure away from consumer products, into "intelligent manufacture". If you look at the Swiss success story and the wages they pay, they don't compete with the Chinese etc. They make high value niche products, not products by the million. Lots of those, make up for a diversified and active industry. In Australia we are not bad at making specialised mining and agricultural equipment for instance, apart from ferries. There is a farming machine called a DBS, costing hundreds of thousands. He even exports to Kenya and Mongolia! Thats just one example. As to the 4% unemployed, the question is how many are actually employable. Take out those on drugs, those who refuse to work, those who are mental, you won't have much left. You can't go employing anyone on ice, give him a knife and put him on a meat chain for instance. Those industries are screaming for workers, but can't find them. WA officially has 3% unemployed, but in reality there is simply nobody left to employ. As far as food goes, there is such a diversity of it, nobody is going to starve lol. Just that this or that might not be available, when consumers want it. They also need to sort out their priorities in the Murray Darling, which is a mess. Its pointless supplying water for irrigated pastures, whilst the bloke growing veggies or fruit is cut off his water supply, for instance. If you do silly things like that, there is bound to be a problem. Food supply has other risks, not even considered by most. Go to your local dairy and they make the bottles a few hours before they fill them. Those machines are French. If a major part breaks, the whole thinggy stops until a part from France is available. You won't distribute much milk without bottles! Posted by Yabby, Tuesday, 2 October 2007 9:37:23 PM
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Well as far as competing with China goes, again, no reason Australia shouldn't be able to do at least as well as other smaller nations with healthy consumer-goods manufacturing industries - even if it means some stages of the manufacturing process are outsourced to China. Eventually however I see the rise of the middle-class in China as providing a huge boost to manufacturing opportunities here, as you have a massive new market to sell to. However I agree that focussing on high-tech and perhaps lower quantity manufacturing that doesn't require significant amounts of low-skilled labour makes the most sense for Australia, and I think government policy will (and should) have a significant role in allow such an industry to prosper.
BTW, given your interest in Switzerland, I assume you know that Switzerland has been rated as the world's 9th freeest economy, with notably higher government expenditures than Australia, supposedly the world's 3rd freeest economy (according to the Heritage Foundation). As I see it, the Swiss government is doing a much better job of supporting their nation's private enterprises than our own, and I believe this partly because they not so beholden to the idea that less government is always better. On food supply; no amount of diversity is going to help much if there isn't enough of it. Obviously Australia has little to worry about here; even with the drought we're a long way from not being self-sufficient in food production. I don't believe Australia *or* the U.S. needs tariff protection for their agricultural industries, but I accept that in some parts of the world (e.g. Europe - including Switzerland!) it might be justified. Getting a bit off topic now, I wanted to get back to discussing the economic benefits of a progressive tax system, as opposed to flat or even zero tax systems that some free-market economists have proposed. Posted by wizofaus, Wednesday, 3 October 2007 7:22:26 AM
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While only a small minority of free-market economists have seriously proposed flat taxation, or even no income taxation at all as the best way to promote economic growth, it's still a general tenet of more conservative governments that "less tax is better", especially "less tax on the rich".
Interesting, even the highly conservative WSJ opinion page came out recently with an article accepting that more progressive taxation was needed, mainly to prevent a severe political backlash by the significant percentage of the voting populace that had been disadvantaged by globalization, and certainly the political impossibility of trying to sell completely flat taxation (as was seen with Thatcher's Poll Tax) makes it slightly academic. There are various "fairness" arguments in favour of progressive taxation (including the mostly reasonable claim that the rich generally benefit the most from infrastructure provided by the government), but as I see it, from a purely economical point of view, it makes no sense to level taxes in such a way that the bulk of the population are left with minimal discretionary income, while a much smaller number of very wealthy individuals are left with their discretionary incomes more or less intact. Unfortunately, there’s no space to show the figures here, but a flat income tax in Australia would almost completely remove the discretionary income for as much as 30% of the population, and at least 50% would be left with minimal discretionary income, meaning that the size of the market for any non-essential product or service in Australia would shrink dramatically. Hence, the business opportunities for those who run corporations providing such goods and services are dramatically limited, and all the extra cash they now have in their pockets from those tax cuts isn’t going to very useful. Realistically the only way out would be for company executives to collectively agree take voluntary income cuts, and pay their workers more…but we’ve been through why that isn’t likely to work in practice. Now no-one’s going to be proposing flat taxation anytime soon, but similar logic applies to any proposal to reduce taxes and/or flatten the tax structure. Posted by wizofaus, Wednesday, 3 October 2007 11:58:09 AM
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Wiz, some points about your last two posts.
A while ago I read an article in the Economist, about the booming sales in China, of European luxiry goods. Despite the many fakes produced there, Chinese wanting status are buying 5000$ Hermes handbags and 10'000$ Rolex watches, like there was no tomorrow! All produced by expensive European labour of course... Europe, including Switzerland, got it exactly arse about, compared to Australia, thats why we still have a reverse situation when it comes to industry and farming. Heavy subsidies apply to agriculture. The net result is that farming the taxpayer is a major industry for agriculture, which an efficient manufacturing sector can no longer afford to subsidise. Australia in reverse, so to speak. If Australia is serious about assisting exports, they should stop picking industries, like MV etc and start by cutting out things like payroll tax on all exported products at least. Taking money from efficient industries and giving it to unefficient ones, is not how to improve exports. I don't have a problem with progressive taxation, depending on the limits of course. People have a sense of what is fair and when Govts go over the limits, they respond. The rich have it easy, they can take their money offshore and pay no tax here. The higher the tax levels, the more people will cheat. If marginal rates are too high, people won't bother earning that extra Dollar. I know people now, who when they have to pay over 40c in the $, say its not worth the bother of the extra work, best to put the feet up and have another beer. Keating tried making housing investment less attractive. The result was less houses being built, so less available in the rental market. The idea failed. Best to release more affordable land, if there is a shortage of houses. Posted by Yabby, Wednesday, 3 October 2007 12:37:34 PM
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My understanding of at least some of the subsidies given to European agriculture is that they are there to partly prevent over-farming: farmers are paid not to farm a certain percentage of their land, so as to ensure that in times when external events (e.g. the weather) are responsible for unavoidable drops in productivity, there is 'backup land' available. This makes sense in a densely-populated region where leaving land fallow is forgoing significant short-term profits. While perhaps less of an issue for Australia, as we have no shortage of land, I would suggest that current water availability crisis could have been prevented by similarly long-sighted policies, that accept short-term economic pressure to farm land intensively will tend to outweigh the collective need to recognise long-term limits.
Cutting payroll tax on exported products sounds eminently sensible to me...and I do want to address the whole "government picking winners" debate next anyway, but just to answer your other points: a) Where is the evidence that productivity is lower in countries with higher taxes? Better productivity is not to be gained by having anyone work more hours for a start, so your "preferring to put the feet up and have a beer" argument doesn't make a lot of sense to me. FWIW, personally I intend to switch jobs next year to one that will pay less, but where I am confident I will be more productive: and I know others in similar situations. b) I'd like to see figures backing up your claim that Keating's attempt to reduce property investment incentives was responsible for less housing stock being built. It doesn't make a lot of sense to me: most investors are buying existing stock and renting it out. Releasing more land sounds fine in theory, but you only need to look at current property prices to realise that most people want to live in existing residential areas, close to urban centres - not out in the sticks where plenty of land exists. But a lot of the property in existing residential areas is owned as investment property, thus crowding out first-time buyers. Posted by wizofaus, Wednesday, 3 October 2007 3:25:55 PM
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European farming subsidies have now started to change. They were consuming a larger and larger portion of the EU budget
and distorting world trade. As EU prices were well above world prices, they created lakes of wine, mountains of butter, freezers full of meat etc, all which were then dumped on global markets at a huge loss. Australian farmers, African farmers, EU taxpayers, were all huge losers from all of this. The plan now is to pay farmers for guardianship of the environment, rather then dumping more fertilisers and sprays onto crops, because subsidies deem it economic to do so. Putting your feet up to have a beer, makes perfect sense to those working hard physically to earn their money. In the country it’s a common argument heard from people like shearers, although its less now, since tax rates are a bit more reasonable. If one would ask them to finish a mob on the weekend, the common answer was, that it was not worth it due to tax, but cash would make it worthwhile. People act out of self interest in the end, a great deal of the time. I’ve read articles about workers in Sweden, where high tax rates encourage labour bartering. If I’m a plumber and you are an electrician, it pays us to do a deal of hours worked, rather then face punitive marginal rates. I think they did some studies on all of this when Reagan dropped tax rates. I didn’t like Reagan, but apparently they collected more taxes then before, as people had less reasons to cheat. I don’t have the figures on hand about the Keating attempt, it’s a fair few years ago now, but I remember it and have since seen it mentioned in a number of economics articles. Perhaps there is somebody like Rhian reading the thread, who have their fingers on the statistical pulse of economics, as I certainly don’t.. The stats that normally interest me are global in nature and for that my subscription and access to the Economist website tends to be enough for those things. Posted by Yabby, Wednesday, 3 October 2007 4:44:22 PM
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Wiz, if you google "Keating negative gearing" there are
a number of references as to what happened last time and why he had to reverse his decision, as rents skyrocketed as a result. Posted by Yabby, Wednesday, 3 October 2007 11:56:20 PM
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There's no doubt that important lessons have been learned from experiments in what we would now see as excessive protectionism. But the solution to excess isn't necessarily abstinence. I have no problem seeing tariffs and subsidization as a last resort or special case measure where a significant but assumed-to-be temporary imbalance exists in the international playing field, or where it is necessary to counterbalance the tendency of free markets to overly discount the future in favour of short-term profit, and abolishing protectionism completely carries just as many economic risks as letting it grow to unsustainable levels.
Regarding Keating's negative gearing rollback, I would argue that simply because it failed previously doesn't prove that the adjusting investment incentives was the wrong call entirely - for a start, it obviously makes sense to provide incentives for property developers to build new housing (and/or refurbish existing housing that has become unlivable). But what possible reason is there for encouraging investors to buy up existing housing stock, when there is already an excess of demand from first-home-ownership aspirers? Again, most people do NOT want to live out in the sticks where new land exists, and further, the risks of allowing current patterns of urban sprawl to continue should be obvious to anyone who has been paying the slightest attention to world oil supply and demand forecasts (not to mention the myriad other costs associated with a car-dependent society). Regarding your statement “People act out of self-interest in the end” – indeed, that’s exactly the reason why significant government oversight of free enterprise is necessary. Decades of research in game theory, sociology and psychology have shown that individuals will act for their own short-term gain, even when cumulative result makes everybody ultimately worse off. When living in tight-knit communities where your actions are transparent to all, these tendencies are held in check, but given the nature of the global economy, the natural mechanisms that have evolved for that purpose don’t tend to function so well: I’m sure exploitative sweatshops wouldn’t last long if we had to walk through them before buying the products made there. Posted by wizofaus, Thursday, 4 October 2007 9:08:20 AM
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The last issue I wanted to address was government picking winners.
This to me depends a lot on what exactly is meant by the phrase. The reality is that governments are required by their very nature to be competent economic managers, and have to "pick winners" all the time anyway, when they decide what types of infrastructure to build, what tenders to accept when contracting out work to private enterprise, what equipment/IT systems to buy etc. Further, there's an abundance of technological success stories that owe their existence to government-funded programs (especially military and space research in the U.S.). Why is this fundamentally different to a government, using the best advice it has available, determining that a particular industrial sector has the potential to flourish, but is struggling due to conditions outside its control? A good example is the renewable energy industry - the Australian recently had an opinion piece with the usual "MRETs are bad because governments shouldn't pick winners" line. But it hardly takes a genius to see that a) renewables can’t compete with existing energy technologies on a level playing field, due to existing infrastructure and historical subsidies, and b) while certain renewable energy technologies may end up being dead ends (or at best niche markets), no-one is seriously doubting that renewables are going to be an essential part of reducing GHG emissions and fossil fuel dependency. Now, if the government grants to renewable energy developers were significantly disadvantaging other potential candidates for GHG emission reduction, the criticism might have some validity, but given what the government is also pumping into clean coal and nuclear, this could hardly be said to be the case. Having said that, if 11 years ago (when the necessity to reduce emissions was already quite apparent), we had introduced a simple emissons tax, and allowed low-emission technology to thrive naturally as it become more economically competitive, we probably wouldn’t need such direct government interventions like MRETs. But 11 years ago Howard was so opposed to any government influence on the market that we’re now forced to take more extreme measures. Posted by wizofaus, Thursday, 4 October 2007 9:33:31 AM
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Wiz, I think that what Keating’s experiment shows, is that there can be unintended
consequences, as people reacted differently to what was expected. At the end of the day, the problem is a lack of houses for the given population. Whether they rent or buy, is not even the major factor. If there were far more houses available then buyers, both rents and house prices would drop. Many people buy houses as a nest egg for their super fund. They rent out those houses, they don’t stand empty. That has the effect of lowering rents in the end. One option would be to make interest on houses by owners tax deductible, but then as long as they paid capital gains tax on the huge profits made, when they sell them. There are some people making multi million $ profits on their homes, all tax free. I don’t see why you are concerned about urban sprawl, you being concerned about energy etc. I remind you that the most unsustainable form of living is high density living. Go back 50-100 years, people had a quarter or half acre, ran some chooks, grew some veggies, fruit trees etc, worked locally, the kids cycled to school. People coped with very little oil, life was about the surrounding local community. If an energy crunch comes, we could well go back to that kind of lifestyle, its quite a pleasant one. Young career types might not want to live in the sticks, but look at the sea changers and tree changers in their 50s. More and more are putting lifestyle above money and are moving onto lifestyle blocks on the outskirts of cities, as by then they realise that the rat race is not all its cracked up to be. I disagree that 11 years ago, reducing emissions was so apparent. If the Govt jumped, every time some scientist raised a concern, they would be jumping at shadows. The real problem is the China-India story. Australia hardly matters in the big scheme of things. Posted by Yabby, Thursday, 4 October 2007 3:39:22 PM
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If we truly didn't have enough housing stock, compared to, say 30 years ago, then either there’d be a lot more homeless people, or the average number of people living under the same roof would be much higher, and I’m reasonably sure that neither is the case. Now accepted, as long as our population is growing, there will always be a need for more housing, but the high barrier to home-ownership entry that we have now logically must, to a significant extent, be due to the fact that of the existing housing stock, a considerable portion of it is owned by investors, who can demand much higher prices than young families hoping to buy their own homes. I also suspect that negative gearing reduces the incentive for investors to find renters, increasing the percentage of unoccupied investment property.
Now it's hard to see how much could be done to reverse this scenario significantly without creating a lot of losers (i.e. the investors), but at least we could ensure it doesn't get any worse, and aim for a gradual re-balancing of ownership between owner-occupiers and investors. I'm curious...what have you read suggesting that higher density living is less sustainable? Sure, there have been studies showing that per-capita carbon footprints of those living inner-city are often higher than those living in outer suburbia, but that's far more to do with affluence and tendency to purchase more consumer goods, engage in discretionary travel etc. than anything intrinsic about housing density. The outer suburbia we have today is far from sustainable - families of 2, 3 or 4 living in oversized, poorly built and insulated single-standing residences that require huge energy usage to heat and cool, and who travel over 50km every day just to get to work and back (not mention other trips to shops and schools etc.). Sure, if we all drove electric cars, and all electricity came from clean sources, it probably would be sustainable, but that's 40 years off at least, and it's clearly not how most people want to live, or the property prices would reflect that. (tbc…) Posted by wizofaus, Thursday, 4 October 2007 4:49:07 PM
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OTOH, very few people want to live in pokey units or huge apartment buildings - my preference would be to encourage the development of new urban medium-density (e.g. duplexes, terrace housing) mixed residential/commercial zones, which have proven to be a popular, affordable and reasonably sustainable way of living for centuries (e.g. most Europe cities), as well as a very successful recipe for generating and maintaining prosperity. Disused or dying industrial zones might prove feasible locations for such projects.
11 years ago was 1996, one year before Kyoto, and 15 years after the first climate models were predicting significant temperature increases. The science hasn't changed that much since then (and I've been following it pretty closely). Stating that the "real problem" is "somebody else" is of course what everyone does. For a start, India's emissions are only twice ours, despite having nearly 50 times the population. And Australia is in a far better position to reduce our emissions than India - cutting our emissions in half, for instance, would give India the flexibility to grow its emissions as much as 25% (temporarily of course) with no global increase. Anyway, I guess we're drifting quite off-topic now: and while the debate has been interesting it would be good to have more participants with different perspectives (OLO’s site design and posting restrictions are a big part of the problem). My general conclusion is that neoliberal ideology has a lot to answer for, and while large sectors of the population are already beginning to pay the price, it will get a lot worse before it gets better. Private enterprise and market economies are a vital part of maintaining prosperity and standards of living, and there’s no reason they shouldn’t stay that way, but it’s essential we accept that markets do fail, and do have limitations, and that informed leadership, forward-thinking and decision making not motivated by short-term gains will be what ensures that our prosperity is maintained and enjoyed by all. Posted by wizofaus, Thursday, 4 October 2007 5:11:41 PM
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I can’t see how more housing relative to demand, would not reduce prices.
The problem is the price of land. Nobody is going to build, if blocks are too expensive and they are too expensive. I’m told that US houses are cheaper, as there is less regulation when it comes to land release. There is a fine balance between the two. If its cheaper to build people will, as long as land is available. If housing prices would go down, less would be built, unless the price of land went down. So the price and availability of land are the key to the debate. Have you ever been in a large city when the power cuts out? Everything stops, elevators, sewerage, you name it. Cities are totally dependant on everything being trucked in. Compare that to an eco house in what you call urban sprawl, it could be what used to be called a village. Add a bit of permaculture to the grey water, some of those guys can just about sustain themselves off their little patch of dirt. If houses are built right, facing North etc, hardly any heating or cooling is required. In a village environment people can cycle to work, shopping and school. Traffic is not congested, like in cities. People only travel 50km to work, as fuel is so cheap. If it cost more they would think twice about where they worked and lived. BTW, American venture capital thinks they might have cracked the solar energy solution, using Australian technology. http://www.abc.net.au/7.30/content/2007/s2047734.htm 11 years ago, in 1996, we had 880 million less people on the planet. Australia uses huge energy so that others might consume, like aluminium smelters for instance. We could move them to India or China, then pat ourselves on the back about our great emission figures. Why would that make any sense? Why does it make no sense to address the 880 million extra people? With one new coal power station every 10 days in China being built, there are indeed good reasons to say that what we do here, does not matter . Posted by Yabby, Thursday, 4 October 2007 7:45:05 PM
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Well I’m not sure I’d wanting to be looking to the US for solutions to housing affordability, given the recent real estate crash, and the levels that suburban sprawl has grown to there. If you release large amounts of land 40 or 50km from employment centres, then there will always be a percentage of the population who find the temptation of cheap land prices irresistible, and somehow think they can manage the long commutes and the costs of fuel/car maintenance etc. But what you do think happens to those people once the eventual build up of traffic means that commutes chew up 3 hours of every working day, and petrol price spikes mean their entire disposable income is wiped out by the cost of car dependency?
Your idea of village-style living is all very nice, but that’s not what outer suburbs are, by a long short. Perhaps you’ve never driven through such suburbs, but it’s not hard to drive for 20 minutes without seeing a single shop, let alone larger commercial or industrial zones that could provide significant levels of employment. And susceptibility to blackouts and energy shortages is not the same as unsustainability – however of course a decentralized grid based on multiple renewable sources will help with both. Regarding aluminium smelters and the like – I completely agree that government policy that encourages such polluters to move to China would be entirely counter-productive. But the solution to this isn’t to recoil from introducing an emissions taxation scheme, rather to ensure that the government works closely with such industries to ensure that they can remain competitive here, given Chinese smelters exist that aren’t subject to the same levels of regulation. And if that means the occasional “special allowance”, then so be it. Posted by wizofaus, Friday, 5 October 2007 9:45:28 AM
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Wiz, what the US shows is that land is the problem and if cheap
land is available, then housing is affordable. The present drama in the US has little to do with that, but with agents flogging loans to people who could not afford them. Those loans were repacked by investment banks and flogged off as AAA, the suckers that bought them have lost big time, mainly overseas insitutions. Now nobody trusts nobody, thats the real problem. If you are travelling 20 minutes without seeing a shop, thats all due to Govt planning. They establish the zones. I live near a regional town of about 5000 people. Virtually everbody works within that town, doctors, nurses, teachers, you name it. A few medium industries employ others. There is hardly a service that is not available, within walking or cycling distance of the town centre and houses around it. Sustainability is about the total ecological footprint of a community. Communities like that would have a far lower one, then high density areas, also less dependant on the outside world for everything, as cities are. Suburbia in a similar structure would work fine. But suburban planners havent set it up that way. The 80 million per year or 880 million extra people per year over 11 years, is something that many avoid commenting on. But its a fundamental and huge problem and has to be addressed, or its fairly pointless me worrying about what kind of light bulbs I use, as anything more then a feelgood exercise. Posted by Yabby, Friday, 5 October 2007 10:34:22 AM
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No disagreement that many of the ills of outer suburbia today are due to poor government planning - but again, the solution to poor planning is good planning, not no planning. Again, look at many European cities. In some cases that may mean re-examining or loosening current zoning regulations or building-height restrictions, in others it may mean strengthening existing regulations, and being less beholden to commercial interests when planning infrastructure (More than one commentator has argued that the Victorian State Government's love-affair with PPPs and privatisation is preventing sensible infrastructure decisions that would lead to a more sustainable and livable city).
Regional towns definitely can be a helpful model for what suburbia might look like, but I wouldn't be so sure that such towns are as self-sufficient as you believe - for a start, regional areas are often "propped up" economically to a certain extent by larger cities that generate the bulk of the country's economic wealth, and were an energy crunch to cause rapid economic downturn in the cities, it would very quickly be felt outside them. (If you don't believe this, name me one economically prosperous large rural area anywhere in the world!). OTOH, current policies that encourage immigrants to move to regional towns could potentially be helpful at abating urban sprawl and relieving housing affordability, especially if a regional town can gain sufficient economic self-sustainability to be a major source of wealth generation in its own right - but it's not clear which (if any) Australian regional towns are realistically placed to undergo such a boom currently. Yabby, your belief that nothing you can do personally will help reduce global emissions is exactly why emissions aren't being reduced: because everyone thinks the same thing! My suggestion is to find ways of reducing emissions that have other benefits: e.g. set yourself the challenge of reducing your annual electricity bill by $100. It may not be much, but if you're anything like me, you might be quite surprised at the sense of achievement you get from succeeding. Posted by wizofaus, Friday, 5 October 2007 11:11:35 AM
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Yabby wrote: "The 80 million per year or 880 million extra people per year over 11 years, is something that many avoid commenting on."
Well I never have. As a member of Sustainable Population Australia (http://population.org.au), I have long argued that excessive human numbers are the biggest threat to the global environment and to the long-term viabiity of human civilisation. Also note material on my own web site at http://candobetter.org concerning population and immigration. --- Yabby wrote: "If you are travelling 20 minutes without seeing a shop, thats all due to Govt planning. ..." It's always possible to find examples where town planners have not done a good job, however to undemocratically hand over the responsibility of town planning to the private sector rather than to the democratically elected political representatives of the communities concerned would be the worst possible mistake. Brisbane's the pits today precisely because past Governments handed too many of their planning responsibilites across to land speculators and property developers. Posted by daggett, Friday, 5 October 2007 11:25:11 AM
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Wiz, I can think of plenty of regional areas around the world that
create huge amounts of wealth, including in Australia. Australia got wealthy based on farming and mining after all. Its just that cities have more people, control the purse strings etc, so city voters can easily outvote country electors, certainly that is the case in West Australia. If State planners change their planning, I don't have a problem with that. Its just their notion that high density living is the future, that I have a problem with. I lived in Paris for two years in my teens and all those mega high rise apartments surrounding Paris are little more then human zoos. I compare how those kids grow up, compared to country kids for instance, its like night and day. Large scale logistics is a pretty fuel efficient way of moving things around, far more efficient then everyone jumping in their cars and driving long distances to go shopping. Energy crunch? In my town a friend of mine is opening a biodiesel plant, using tallow, mustard, canola etc, grown locally. Another friend now powers all his vehicles on self grown crops. These guys are pioneers no doubt, but thats the future for you! As to my own energy use, my house was designed to suit the weather, so no large energy costs. My hot water is solar powered, my water is all from rainfall. Solar power of the air conditioner would make sense to me, if somebody starts to build them. My point was rather that alot of people go on a guilt trip if they use a bit of energy for something, I certainly don't. We need mega global solutions and the rise of the global population is right out in front there as a problem. Why was it not even mentioned in Kyoto? IMHO Catholic politics is the real problem and everyone is too polite to address it, so nothing gets done. Posted by Yabby, Friday, 5 October 2007 2:42:48 PM
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I have mixed views on overpopulation. Perhaps naively, I believe that each of us individually has the potential to be an integral part of the Earth’s ecology, that enriches and contributes towards it, rather than acting as a strain or demand upon it – and that achieving this is more realistic and more desirable than any attempt to deliberately reduce our numbers. Nothing (other than a planetary-wide calamity) is realistically going to stop the human population hitting at least 9 billion by mid-century, so it’s absolutely critical we learn how to adopt a mode of existence that doesn’t continually strip away at our planet’s ability to support us, or we will pay a terrible price.
OTOH James, I think it would be wrong to assume that private developers are incapable of designing and building sustainable and livable communities – as community attitudes change, and with sensible government oversight and an informed regulatory framework, there is profit to be made from developing housing estates that genuinely put sustainability first. Where the free market fails here is that builders are not the ones paying the energy bills, hence have little incentive to build well-insulated, well-situated housing. Once that failure is allowed for, via tax breaks/subsidies/mandatory building codes etc., then I would much prefer to see housing built by creative and innovative private developers than by government departments staffed by bureaucrats and politicians. Ideal density of living is always going to be a subjective judgment. The apartment towers of Paris were definitely not what I was referring to when I said “many cities in Europe”, and a definite example of government planning gone wrong. I have a hard time accepting that Australia’s wealth was “built on farming” – agriculture has never been responsible for more than a small fraction of our GDP. Even mining only generates ~5% of our GDP, and I would argue that if we were to better value-add to our raw resources in our cities, we could be a good deal more prosperous. At any rate, I think a city-vs-country debate is rather pointless – both need each other. Posted by wizofaus, Friday, 5 October 2007 5:06:23 PM
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Wiz, I have to disagree with you about population. Humanity has gone
from 1.5 billion to 6.5 billion in 100 years, based on cheap oil. In nature, if something is not sustainable, it eventually collapses. At the moment we are simply stealing more and more resources from other species. Its a moral argument for me and morality is subjective, but I believe that other species should have a right to a bit of this planet too. At the moment in Africa, with its surging population increase, they simply shoot the wildlife for food, its easier then farming. Whole forests are being shot out in the name of an ever increasing human population. We are a destructive species, we really are. At the end of the day, without biodiversity there won't be a humanity. Its something that economists don't understand, when they try to value biodiversity. So why not provide women of the third world with family planning? The Catholic Church is the problem. As to farming, yup, Australia's wealth was built on the sheeps back. Before nylon came along, wool was worth up to a pound a pound, that was alot of money in the 1950s. The last figures I saw, every export $ multiplies itself about 6 times, as its spent in the community and passed along etc. So farming does not need to be a high % of gdp. Perth basically exists to service farming and mining communities. As West Australia creates around 40% of Australia's export wealth, without us you would be a banana republic! Because of mining and farming, nearly all exported from here, you then have service industries that provide machinery, parts, services etc to those two industries. But the people who provide the services, once again need service providers, stores, teachers, lawyers, etc. etc. Take out the farming and mining, what is left? Virtually nothing Posted by Yabby, Friday, 5 October 2007 8:03:37 PM
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"At the moment we are simply stealing more and more resources from
other species" Well a) all species arguably "steal" resources from other species, and b) we are capable of doing better than that. The reason for the massive destruction of forests in Africa and elsewhere is because of a lack of technology and knowledge that allows more intensive farming of smaller areas. The choice is not even necessarily "more artificial fertilizers/pesticides, diesel-powered farm machinery/GM crops" vs "chopping down vast tracts of forest for hopelessly inefficient centuries-old farming practices" - farm machinery can be run off renewable energy sources, and modern organic and permaculture farming techniques are beginning to realistically match the crop productivity of fossil-fuel based farming. And of course eventually we may have little choice but to accept GM crops, if the alternatives are mass starvation and wholesale habitat destruction. It's easy to blame the Catholic church for the world's population, but look at Italy - the home of said church: it now has below replacement fertility. 50 years ago I accept that much of Australia's wealth stemmed directly and indirectly from farming. But I would not be surprised to see Australia's agricultural sector to gradually shrink down to providing only what is necessary to keep ourselves feed, and our economy will be no worse for it. But "export wealth" isn't a necessary measure of anything - an economy can be perfectly prosperous with no external trade at all – as is our global economy (we haven't yet started trading with alien species that I'm aware of). Nor is resource mining an essential driver of wealth creation - after all, in principle we could recycle all materials and never dig anything up from the ground: the only thing required is the energy input to drive that process (and of course inventing and mastering the technology necessary to do it efficiently). In that sense, the biggest "base-level" driver of wealth creation in Australia are our fossil-fuel mining and extraction companies. The second most important driver of wealth creation is education and scientific research. What was the topic again? Posted by wizofaus, Saturday, 6 October 2007 6:34:38 AM
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"because of a lack of technology and knowledge that allows more intensive farming of smaller areas."
Nope, in Africa its faster, easier and simpler, to just shoot the wildlife to eat and chop down the forests to export for wood, required by an ever increasing human population. As the people of Easter Island found out, eventually the whole thing ends with a thud and nature has to sort it out. Most of Europe, including Italy, have told the Catholic Church where to go jump when it comes to family planning, not so in Africa, where people are less educated, more supersticious etc and the Vatican has a larger influence. http://news.bbc.co.uk/2/hi/africa/7014335.stm Export wealth certainly is required, whilst there are imports. Manufacture is to some degree about economies of scale. The products we need are too diversified to make them all ourselves efficiently, thus globalisation. Whilst agriculture plays a smaller role in export generation compared to mining, its still a major player in Australia. No exports= banana republic. Not only that, but much of the manufacturing industry left in Australia is to service farming and mining. Education and scientific research can only happen, if there is wealth creation to bankroll them. Its all very well to speculate about what might be possible if this or that applies, but we need to deal with reality now. Richt now, an ever increasing population is a global problem leading to more GHG etc, right now we also need exports, to pay for our imports Posted by Yabby, Saturday, 6 October 2007 10:52:13 AM
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wizofous wrote, "... I think it would be wrong to assume that private developers are incapable of designing and building sustainable and livable communities – as community attitudes change, and with sensible government oversight and an informed regulatory framework, there is profit to be made from developing housing estates that genuinely put sustainability first."
The experience has been otherwise. Developers will make far greater profit by trashing the environment than by caring for it. How many examples can you provide where this has not been the case? Even if examples of truly "sustainable and livable communities" built by private developers can be found, they are insignificant compared to the others which are not. The only hope of halting the large scale enviornmental vandalism caused by private developers is to remove the corrupting infuence that they have over all state governments and the federal government (largely thorugh their funding of the major political parties), and for governments to assume full responsibility for town planning through open and accountable decision-making processes. Posted by daggett, Saturday, 6 October 2007 11:26:50 AM
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"My suggestion is to find ways of reducing emissions that have other benefits: e.g. set yourself the challenge of reducing your annual electricity bill by $100. It may not be much, but if you're anything like me, you might be quite surprised at the sense of achievement you get from succeeding."
Wiz, this comment by you, kind of sums up my point about population, energy use etc. Clearly your sense of achievement makes you feel good! Thats one motivation, endorphins are released in the brain etc, as you pat yourself on the back. But will it make a scrap of difference? Apart from your motivation of feeling great, not really. You accept another 3 billion human population as a given, when alot of it could easily be solved by doing what we have done in the West, ie give women access to modern family planning. They don't have that in the third world, largely due to the fact that the Catholic Church has fought it all the way. Thats why I refuse to get excited about 100$ worth of power. Until we as a global community address some of these mega global issues, its all fairly pointless, apart from the feelgood factor. Posted by Yabby, Saturday, 6 October 2007 1:35:05 PM
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"In Africa its faster, easier and simpler, to just shoot the
wildlife to eat and chop down the forests" Exactly. Partly this is because of insufficient government regulation, but partly because the technology to harvest food and generate wealth in less destructive means is not available. I generally don't believe in hand-outs, but technology transfer to the 3rd world (when combined with proper education) will be a significant part of addressing environmental destruction and alleviating poverty, which go hand in hand. " Italy [has] told the Catholic Church where to go jump when it comes to family planning, not so in Africa, where people are less educated" Precisely: education. There's no point telling the Catholic Church to give up its dogma. "Export wealth certainly is required, whilst there are imports." Of course. And I'm not proposing that Australia's economy has any need to be completely self-contained, just that it's in-principle possible. "Education and scientific research can only happen, if there is wealth creation to bankroll them" Again, true, but it's a virtuous circle - indeed that's the basis of capitalism - use the capital you generate initially (from mining, agriculture), invest it in a higher level of wealth creation, and generate even more capital, etc. etc. The reason I see it as a "given" that there’ll be 3 billion more of us by 2050 is the structure of the current population pyramid. It's so heavily weighted towards the low end that even if the fertility rate magically dropped to 2 children per female tomorrow (i.e. just on replacement rate), we would still be looking at over 8 billion by 2050. But at the current rate (~2.6, falling steadily), that gives about another billion extra. My point re reducing your own energy usage is that I see it as a “win-win-win”: you make a (very minor) different to the total GHG emissions, you save a small amount of money, and you gain a sense of achievement. You only lose if you think watching bigger TVs, having a bigger fridge or running the A/C constantly is what makes life better. Posted by wizofaus, Saturday, 6 October 2007 2:03:57 PM
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Daggett, I might as well ask for examples where having the government take control of everything has been good for the environment. Russia? China?
Once the right regulatory/taxation framework is in place, along with the swing in consumer attitudes, the activities that "trash the environment" will no longer become profitable. That way, free enterprise and market economies will, I believe, have a chance to truly prove their effectiveness. Posted by wizofaus, Saturday, 6 October 2007 2:07:32 PM
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wizofaus, I think you need to read my post more carefully.
I wrote, "The only hope of halting the large scale enviornmental vandalism caused by private developers is ... for governments to assume full responsibility for town planning through open and accountable decision-making processes." Now, I don't believe that I have ever attempted to argue that decision-making processes in either China or Russia were open and acountable. ... or do you maintain that they were? --- I think that your hope, that a regulatory framewrk which can deter private corporatians from their natural inclination to destroy the natural environment can be found, is naive. It would be far simpler, than setting up a complex framework of regulation and financial incentives, for the community, who will bear the direct consequences of any harm done to their environment, to assume this responsibility through open and accounatable local government. Posted by daggett, Saturday, 6 October 2007 2:39:07 PM
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I don't see how it's less naive than your hope! I don't know of one successful "eco-friendly" housing project that has been funded, planned and built by a government acency. OTOH, there are many examples built by private builders (not, unfortunately, in Australia). Because the financial incentives at this point are not great, many of those projects have been not-for-profit, but non-project organisations are realistically only ever going to be able to fill a small niche of the market.
Sensible regulation and the right taxation incentives have proven a successful formula in reducing and reversing the environmental damage caused by industry over the last 30 years - governments stepping in and "taking over" is always a possible last resort, but, like Orwell, I'm rather skeptical how truly open and accountable any government with excessive powers can remain. Posted by wizofaus, Saturday, 6 October 2007 5:40:27 PM
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wizofaus wrote:
"I don't see how it's less naive than your hope! I don't know of one successful 'eco-friendly' housing project that has been funded, planned and built by a government acency." Well, why don't you check out all the material on the net how the terrible Cuban socialist system handled a suddenreduction of ol imports? (google: Cuba Peak Oil) You can view a trailer of the award-winning movie "The Power of Community: How Cuba Survived Peak Oil" right now at: http://www.powerofcommunity.org/cm/index.php "When the Soviet Union collapsed in 1990, Cuba's economy went into a tailspin. With imports of oil cut by more than half - and food by 80 percent - people were desperate. This film tells of the hardships and struggles as well as the community and creativity of the Cuban people during this difficult time. Cubans share how they transitioned from a highly mechanized, industrial agricultural system to one using organic methods of farming and local, urban gardens. ... Cuba, the only country that has faced such a crisis - the massive reduction of fossil fuels - is an example of options and hope." If their housing projects were not 'eco-friendly', I don't think they would have coped. In fact, you will find, if you watch the movie, that everything was not centrally planned. The Cubans might not get a say in who runs their national government, but they sure get more say than we do in how their local communities are run. wizofaus wrote, "like Orwell, I'm rather skeptical how truly open and accountable any government with excessive powers can remain." Don't you think that's why Thomas Jefferson wote "The price of liberty is eternal vigilance"? There can be no guarantee agsint government more remote form the people if the people relax their vigilance. Nevertheless, we stand much greater chance of having things work properly and in the interests of everyone, if the people through their democratically elected and accoutnable government representatives directly control urban planning. Posted by daggett, Saturday, 6 October 2007 7:02:43 PM
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Hehe Wiz, you can regulate all you want in parts of Africa, its
about survival of the fittest. There is plenty of aid money for education, but if women are forced to have far more children then they actually want, they will never get out of the poverty cycle. In Zimbabwe they had all the farming technology, education, you name it. Right now to survive the easiest option is to shoot the wildlife, so thats exactly what is happening. We are a destructive species because we can be, thats the core of the problem. The Catholic Church might not give up its dogma, but population as part of the GHG issue needs to be highlighted as much as reducing them, or its a bit like a dog chasing its tail and we might as well just accept that the "tragedy of the commons" will apply and not bother. Nature can sort it all out with a thud one day. I repeat my point, fussing over Australia not signing Kyoto, but ignoring 880 million extra people since Kyoto, is nothing more then a feelgood exercise. Given the huge constant increase in population, as well as a few billion more people aiming for a Western lifestyle, either we'll solve it with new technology, or the planet will simply spin one day with little but ants and cockroaches onboard, a bit like it used to Posted by Yabby, Saturday, 6 October 2007 7:21:03 PM
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Well Zimbabwe is a rather special case, and a classic example of why you should never give Governments too much power.
Yabby, I fully share your concerns regarding population growth and global warming - but I'm wondering how much you're prepared to accept that our current dependence on fossil fuels and the effect this is having on the planet is very a much a symptom of neoliberalism. Free-market-fundamentalist think-tanks (especially in the US, such as the Cato, Heartland and Marshall institutes) have been the ones trying their hardest to convince governments and businesses that global warming is some sort of enormous scientific or left-wing conspiracy to bring down capitalism. The free market is not going to solve global warming on its own, indeed quite the opposite. As long as there is a dollar to be made from burning oil, coal or gas, and no immediate penalty, then people will. James, (sorry, daggett), I mentioned the Cuba agricultural mini-revolution myself in the thread that launched this one. But if Cuba's housing is "eco-friendly" at all, it's because they couldn't afford anything else, not because of any intention to build it that way. Posted by wizofaus, Sunday, 7 October 2007 6:53:24 AM
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“As long
as there is a dollar to be made from burning oil, coal or gas, and no immediate penalty, then people will.” They probably will. The point is, if its not one country, its another. What market economics has done is speed up the whole process, as more people in poor countries are becoming richer. Compare Chinese energy use 10 years ago and today, it’s a huge issue, happening far faster then predicted. My point is, there is more to it then simply trying to make the West feel guilty about energy consumption. You have to look at the whole picture. http://news.bbc.co.uk/2/hi/science/nature/4208564.stm According to that article about 1 billion tonnes of CO2 is released a year, from peatbog fires in Indonesia. More land is being cleared with rising Indonesian population, which is predicted to rise to 500 million by 2050. To virtually ignore these huge contributors to the problem and go on some guilt trip, is fairly pointless. That would be a bit like me saving pennies and feeling proud about it, whilst my wife blew the family bankbook at the pokies. Govts can set informed guidelines etc, but I think that novel solutions will come from market economics, venture capital etc, by virtue of the sheer scale of money and technology that is now starting to be thrown at the problem. I don’t know if you have ever been to or lived in Africa, it’s a very different place then what many from the West think. To give you an idea of how different that thinking can be, if you ever come across a book called “No Mercy” by Redmond O’Hanlon, about his travels through the Congo, it’s a fantastic read. It will certainly explain why your notions of Govt regulation, simply don’t apply in much of Africa. Posted by Yabby, Sunday, 7 October 2007 12:04:09 PM
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Who said anything about a guilt trip? I personally can't control what goes on in Indonesia, but I can at least make an effort to minimise my own environmental impact - and I certainly can't think of a good reason *not* to (other than that the fact that it appears to annoy my wife, which is a boat I know others are in!).
I agree with you that free enterprise under market economy conditions will be vital to at least commericalising the technological solutions that will be required to phase out existing GHG-emitting technologies, but it will also depend on government funding for scientific research, stricter government regulation over existing industrial practice, some sort of emissions trading or taxation framework, and government involvement in any required infrastructure changeover (e.g. a national HVDC network). If it was up to those that thought the free market should be left to sort it out entirely on its own with no government involvement at all, burning fossil fuels would remain the most profitable means of generating energy until they genuinely started to run out, and in 100 years time there'd be as much CO2 in the atmosphere as there was 200 million years ago, when the entire planet was 5 or 6 degrees warmer and sea levels 25 metres higher (which would take a few centuries, but would be virtually unstoppable). But as I said, most free-market fundamentalists prefer to pretend it's not even a problem, seeing as it's as a fairly obvious case of drastic market failure. Africa's problems are varied, but poor government, especially corruption, is surely chief among them. Indeed much of Africa might well do better with no government at all than the useless approximation of it that it has now. I'll keep an eye out for that book, sounds interesting...thanks. Posted by wizofaus, Sunday, 7 October 2007 4:02:34 PM
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wiz, you might not be on a guilt trip, but alot of people are.
Not only about this topic, but things like organic farming etc. I know that you say that all the info was there 11 years ago, but we humans have cried wolf many times, only to find out that we forgot some variables. So as a skeptic, I sit back and am careful to not yell out that the sky is falling, a bit too early. You might know Ian Plimer, a well known skeptic and geologist of some repute. He's not so sure as you are about the data. http://www.news.com.au/business/story/0,23636,21543358-462,00.html So I've kept a bit of an open mind, to hear what eveyone has to say. What I do know from biology however, is that when you overload ecosystems, eventually they collapse. So our attempts to dominate nature for the benefit of an ever increasing human population, could well end with a dramatic thud. Thats why I rattle the cage for every woman on the planet to have access to family planning. Its been shown that when its available, they will use it. Better to do something about it whilst its still voluntary, then land up like China, being forced to take drastic measures. Posted by Yabby, Sunday, 7 October 2007 5:56:30 PM
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Trust me I know all about Ian Plimer...I used to be a big supporter of his when he took up the debate against creationists. Now...I don't know what to think. I can only assume his close association with mining companies has somehow clouded his mind. There's no way you can call anyone who denies the seriousness of global warming a "skeptic" - scientists are skeptical by nature, and if you read the IPCC report, or realclimate.org you'll see plenty of good examples of skepticism - accepting that there are unknowns, that there is more to work, that some hypotheses regarding potential effects of global warming are, at best, controversial. OTOH, Plimer is a best contrarian, or just plain in denial. He's certainly well out of his depth regarding climate science, at any rate. And let's not even get started on Bob Carter. But whatever...their opinions on the matter are pretty irrelevant.
Posted by wizofaus, Sunday, 7 October 2007 7:19:44 PM
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Wiz, like you, I admire Plimer for his stance in the creationist
debate. He is clearly no fool. So I will reserve judgement until I read as to what he has to say and what his critics say about his claims. As a geologist of some repute, he should actually know quite alot about this topic, but I'll wait and see. If his arguments are all wrong, he'll soon be shot down in flames by others. I happen to live in South West Western Australia, the area claimed to be the worst in Australia in terms of the effects of climate change. Certainly in this district, I'm actually having one of my best seasons ever and climatologists predictions regarding this season have been very wrong. So we clearly don't quite understand it all yet. Main thing is that Al Gore has stirred up enough debate for people to start seriously looking for answers. Not only that, the Americans finally realise that the Arabs have them by the proverbial testicles when it comes to energy, so they have to do something about it. Those things I feel will lead to positive technology developments and change. If the planet does warm by 5 degrees, due to our activities, then clearly we have not been living sustainably and nature will sort it all out with a thud. Perhaps only a couple of billion humans will be left. Hopefully they at least will have learnt through pain, that sustainability matters. At the present time, a whole lot simply won't accept that. But then its always been my claim that people are smart enough to invent new things, not smart enough to always use them wisely. They also seem to need pain to learn. Posted by Yabby, Sunday, 7 October 2007 9:33:44 PM
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Posted by freediver, Monday, 8 October 2007 1:43:05 PM
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Freediver, I guess I must be one of those few "lay" economists who would generally prefer to see an emissions tax (offset with reductions in either payroll tax or GST) over a trading scheme. I agree - neither mechanism is really any more or less "market-oriented" than the other. Indeed, even mandating maximum emissions levels and simply charging penalty fees for breaching these levels would arguably lead to much the same result (and there is evidence that mandating pollution levels is actually more effective than trading schemes, when comparing SO2 reductions between Europe and North America).
The only real advantage of trading schemes is that they reward companies that actively sequester existing emissions. But there is a lot of debate as to how well we understand this process (e.g. some forestation may actually increase global warming, because it lowers the Earth's albedo), and how feasible it is to measure emission sequestering. At any rate, you could still have a system where a heavy GHG emitter, say BHP, paid for another company to sequester existing emissions (e.g. by planting tropical rainforests), and was allowed to deduct that from their output before the tax charge was worked out. The most critical elements of any such scheme is to minimize bureaucracy and red-tape, reduce opportunities for abuse, and to plan for a gradual introduction, over at least a 10 year period. Yabby, some of Plimer's claims about CO2 emissions (e.g. wrt seismic activity) make me question his expertise as a geologist, not to mention any understanding he may have regarding climatology, or marine ecology (claiming that the Barrier reef will benefit from global warming!). I hate to say it, but it does seem like he's becoming slightly potty in his old age. Posted by wizofaus, Monday, 8 October 2007 5:03:19 PM
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It's good to hear someone else on the tax bandwagon. Would you consider contacting your local reps, senate candidates and the major party candidates for treaurer about this? I spoke in person to Bob Brown, Andrew Bartlett and Claire Moore about this on the weekend. They are definitely receptive to the idea, but more of a push is needed. Also, you could consider joining the mailing list for the sustainability party:
http://www.ozpolitic.com/sustainability-party/sustainability-party.html "The only real advantage of trading schemes is that they reward companies that actively sequester existing emissions. As you suggest, a tax scheme could also do this, either by a direct subsidy for sequestration, or by an exemption from the tax for offset emissions. Of course, the technical issues remain. I think it would be better to leave the sequestration in government hands, at least until the techniques are proven. "and to plan for a gradual introduction, over at least a 10 year period I think that a tax on CO2 emissions from power stations and petrol could be set up almost overnight. Provided the taxes were offset with tax reductions elsewhere, the impact on the economy would be minimal. The tax scheme allows for gradual change by allowing polluters to pay a predictable price until they can make the necessary changes. Maybe you could hike up the tax in ten years if faster change was deemed necessary. Posted by freediver, Monday, 8 October 2007 5:57:06 PM
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world and two posts per day is proving a bit limiting,
so this is the thread to expand the debate, for those
who are interested.
Some posters have expressed admiration for the likes
of Castro of Cuba and Chavez of Venezuela. I am
quite surprised, as for me its all bleeding obvious.
I prefer to make my own decisions about my life, then
let the State decide. As a consumer, I enjoy voting
with my wallet every day and I certainly benefit
from being able to do that.
Anyhow, its election time, so for those who want to
discuss economic systems, feel free to speak your mind.