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Weekend reflections

January 30th, 2009

It’s time once again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.Weird Science film

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  1. Hermit
    January 30th, 2009 at 13:53 | #1

    I think the issue du jour must be how several Australian cities are not coping with a spot of warm weather. We have trams and trains not working or unable to use track, workplaces lacking power and the frail elderly without working air conditioning. Yet they reckon it will get hotter in the future and we will need a lot more electricity for desalination and electric cars. We’re still burning as much coal as ever while the Barrier Reef, the Murray Darling and the old growth forests are doing it hard. The whole water and energy system needs a major rethink. Oh yes and population.

  2. Donald Oats
    January 30th, 2009 at 18:33 | #2

    Now we are getting to the pointy end of the stick, with regards to global warming. A small increase in mean temperatures implies a shift in the distribution of temperatures – and here part of the problem is that the considerably warmer nightly temperatures do not allow the train tracks time to cool down between the hot days.

    As for power, if we use wind and solar we can both decentralise the power supply and flexibly increase supply (with local distribution) as needs dictate. With any of the fossil fuel stations, the capital outlay for another one makes it more cost effective to load shed when at capacity rather than building a new station.

    The population issue is indeed a growing problem, so to speak. We should be seeking replacement level not outright growth. Yes, that means dealing with a change in the age distribution with a relative increase in older people. We will just have to deal with it. It wouldn’t hurt if we promoted a zero or slightly negative growth rate for populations around the world. Why is positive population growth so valuable; what intrinsic value is there?

    Might go outside and boil an egg on the bricks for dinner…

  3. El Mono
    January 30th, 2009 at 20:59 | #3

    I spent December complaining how cold it was in Sydney, I get back to Brisbane and it looks like it s the coolest place on the mainland.

  4. Ikonoclast
    January 30th, 2009 at 23:36 | #4

    A SUPER MESS

    The superannuation thread is over a hundred comments long and seems to have gone off topic. I hope I may be forgiven for posting about super here. JQ summed it up, “This privatised approach … has been largely discredited by the crash. Financial advisers, even the honest ones, have proved to be useless.”

    This is spot on. A lot of financially naive people were forced into private superannuation. Products and investment vehicles proliferated. As always, two of the chief weapons of the opportunists in the financial industry were complication and obfuscation.

    The Hawke/Keating and Howard governments pushed privatisation of superannuation. They aided and abetted the financial industry in creating a giant “Gordian knot” that tangled everyone up in a super mess.

    Many workers were forced into private funds and investment vehicles which they neither wanted nor understood. On this point I will take my stand with our more libertarian posters like Terje. In principle, workers should not be told how to spend or invest their post tax income.

    However, it must be accepted that governments are worried about lack of savings for retirement. They were worried about future pension costs.

    A cleaner solution would be to increase taxes by a levy and allocate the extra take to a national super fund. The current recessionary period might not be the right time to start this process. This fund ought to be a defined benefit scheme which builds to a capped level for each individual. People who wished to establish larger super funds (and had the means) could invest in the stock market and private retirement funds.

    The current superannuation mess is extraordinary even for the somewhat protected APS (Australian Public Service). The old CSS scheme was closed to new entrants and the PSS instituted. The closed CSS had an actuarial “bug” in it (a flawed assumption about high CPIs continuing) and those with lengthy service who stayed in it got a huge payday which came to be called the “54-11”. This meant retirement at age 54 years and 11 months brought a large bonus and left them effectively better off that if they worked to 60 or even 65.

    Super schemes should be made as simple as possible to avoid these actuarial bugs, time bombs, pitfalls and windfalls of this sort.

    The initial PSS was also a defined benefit scheme and introduced options for lump sums as well as indexed pensions. Overall, for good national super and pension management, lump sums are a bad idea. Too many people are tempted to blow them. Lump sums should never be offered and personally I would never take one. A national super scheme should be for an indexed pension only.

    Recently, the defined benefit PSS was closed and new starters in the APS were forced into what is essentially a fully privatised PSS super. These people are now losing their contributions rapidly I guess.

    When leaving the defined benefit PSS to retire or roll it over it is impossible, due to the complexities of the fund and of tax law, to get any straight answers from the PSS scheme or from financial advisers. (Financial advisers are useless; see JQ quote above.)

    One cannot get any precise advice on what indexed pension one would get from taking any of the several options on offer. For some options one can get “indicative estimates only” and for other options the PSS scheme refuses to give any estimates at all.

    I’m of the opinion that a single, simple defined benefit indexed pension should be all that is available; one that can be simply calculated and advised.

    I know the above sounds astounding but it is true. One is forced to choose from options where the precise value of each option is hidden. A “defined benefit scheme” offers options of undefined value! It is the height of absurdity!

    In trying to protect themselves from the charge of giving wrong advice, the scheme gives partial advice or no advice at all. Ultimately, the only way to find the value of an option is to pick one and see what one actually gets when it is processed. Pick-a-box super!

    I strongly suspect the other reason Howard’s government structured super like this (no real advice from the scheme) was in an attempt to force people to pay for advice from the private financial advisers. It’s a nice little earner for them as “Arfur” of “The Minder” would say. Thanks, Uncle John.

  5. Kevin Cox
    January 31st, 2009 at 05:53 | #5

    Ikonoclast if the markets into which super are invested are unpredictable then we should not blame the idea of super but blame dysfunctional markets for uncertainty. Do not throw away the idea of super rather let us fix the markets.

    As an example take the market in a given stock listed on the ASX. This is where a lot of super is invested and if we want to reduce our risk then we want to invest where prices can be explained and are predictable.

    Unfortunately stock prices show chaotic behaviour. What this means is that in the absence of any external stimulus stock prices are unpredictable. Why is that? Well it is because the market in a stock has a positive feedback loop not a negative feedback loop.

    Markets are efficient if given no external influences the market will settle around a stable state. What this means is that in a properly functioning market prices will oscillate around the true value of the product. When the true value changes due to either an internal or external event then the market price will move to that. Stock price graphs should look more like step functions.

    This does not happen with stocks because the market has feedback that causes instability.

    When the price increases then supply does not increase rather it decreases as fewer holders wish to sell. When the price increases then demand does not decrease but rather it tends to increase as the stock is in demand because it is increasing.

    The market has a positive feedback and as described in Maxwells 1868 paper “on governors” it will exhibit chaotic behaviour. This now means that such a market does not set the true value of the product and it does not allocate resources efficiently.

    Stock markets are bad enough but we have money markets that behave randomly and that creates some real problems. How do we know they behave randomly? Just graph the exchange rate of the Australian dollar and see if you can explain the fluctuations. If money markets were efficient then there would be minor changes in exchange rates because the true value of a currency does not change rapidly relative to other countries.

    We build all our economic modelling and policies on the basis of efficient markets and yet markets are demonstrably inefficient.

    What can we do to solve our super investment problem.

    We could stop using inefficient markets for super investment or we could work to make our markets efficient and rid them of positive feedback loops.

    We can fix any market and make it efficient by recognizing where internal controls fail and fixing them. It is difficult if not impossible to fix markets by imposing external controls or regulations.

    To fix the feedback loop in a common stock the company could issue more stock when demand increases rapidly and could buy stock when demand decreases. My guess is that stocks that did this would find favour with super investors.

  6. Donald Oats
    January 31st, 2009 at 07:20 | #6

    Perhaps I’m missing something basic, but what technically is “true value?” If JQ and/or Kevin Cox #5 could answer that, I’d appreciate it.

    My operating perspective in equity markets has generally been that only determinants of a “true value” is the last traded price :-) (actually, I don’t give any consideration to a notion of “true value”). For myself, selection of companies to invest in is based on rules around transparency, clarity of strategy especially about growth,stability of board, product potential, debt to equity position and the company strategy concerning debt, cash held, ability to meet interest+principal repayments, and so on. There are no golden rules but I don’t use any notion of “true value” in either selection or sell decisions.

    Comparing one company against another is more of a craft than an entirely scientific process. Human behaviour invalidates many of the assumptions that may be needed to come up with fully quantifiable, reliable, selection rules. If anyone knows of an optimal, automatic selection process that is fully testable, please post it here…I’m sure it will be popular :-)

    Nevertheless, I am not tempted to be in equities in a big way just yet. Maybe 2015…

    AvagoodweekendAnddontforgettheAerogardandSP3000

    Don.

  7. Chris Warren
    January 31st, 2009 at 07:47 | #7

    Ikonoclast

    The 54/11 CSS ‘huge bonus’ has been damaged for those who followed advice of economists and financial advisers and did not switch to cash. The CSS earning rates are here:

    http://www.css.gov.au/tools/investments/earnings/earnings.html

    This represents a 20% cut for those looking at 54/11 (but not for those looking at a later age retirement). Those who switched to cash may have successfully protected their equity.

    The details are complicated, but for many, 54/11 is no more. Also the obvious problem with 54/11 is you have no choice when to action it. With all other options you can delay retirement according to circumstances.

    Remember too that some of Commonwealth super was in lieu of wage increases the rest of the community received. Fraser inmposed a Wages Pause on Commonwealth and APS salaries have never recovered.

    You can follow the sorry tale by looking at the Commonwealth Gazette over the last 30 years.

    Lower APS rates are BELOW the Henderson poverty line.

  8. Kevin Cox
    January 31st, 2009 at 08:17 | #8

    Don your description of how you estimate the price of a stock is your estimate of “true value”. The idea of markets is that if enough people do what you do then the price in the market will represent the consensus view and hence the price is true value.

    Believers in the efficacy of efficient markets (and I happen to be one) say that an efficient market will determine the “true value” being the price people are willing to pay. Not only will it give the true value but it will allocate resources to give the greatest overall value. That is efficient markets can also be viewed as algorithms for optimising resource allocation.

    These are good properties – finding the true value and allocating resources to their best use.

    It all works well when a market is efficient – which means it “settles” down into a stable state in the absence of external events. When something comes along to disturb the market then it will find another stable state.

    A market – like any other system – will settle down if it has within it negative feedback mechanisms. It will become unstable if it has uncontrolled positive feedback mechanisms. It is as simple as that.

    We can recognise inefficient markets – that is one where the prices are unpredictable by plotting the graph of prices and seeing if we can find a reason for the change of prices. If we can’t explain why prices move and by how much they move then the market is “chaotic” in the sense of chaos theory. If you can’t explain and understand why a price is why it is then it is most unlikely to represent “true value”.

    If a market is unpredictable then the price is not “true value”. To fix the problem we can remove the cause of the positive feedback or we can put in place another control mechanism whose negative feedback will dampen out or get rid of the effect of positive feedback. Fixing the problem is easier than trying to put in place other regulators (regulations and restrictions) on the market.

    My background is as an engineer not an economist but systems have the same system properties whether they are a steam engine or a money market. The classic paper on control of physical systems was written by Maxwell in 1868 called “on governors”. Economists could learn a lot by reading, understanding and applying Maxwells insights.

    The current financial crisis has been caused by the positive feedback between debt and money. The more debt you create the more money you create and the more debt you can now create. When people stop giving credit then the money supply dries up which causes less credit. A system with such an internal mechanism is ungovernable and must be chaotic because the change in the system state is caused by internal mechanisms – not by external shocks.

    Break this link by getting rid of fractional reserve banking and it will almost certainly fix the money market problem. If you get rid of fractional reserve banking which allows banks to create new money by lending money they do not have you have to have a way of creating new money. That can be achieved through a market place in ways to create productive assets such as giving everyone in the country a zero interest loan to be invested in producing renewable energy (or saving ghg emissions) and paying the loan back from the profits on investment. Once the asset is produced then the money invested becomes money in the regular money market.

  9. nanks
    January 31st, 2009 at 08:26 | #9

    @ Kevin – Rather than Maxwell perhaps the literature on control of chaotic systems may be of more relevance.

    on another point Kevin – How is a market autonomous yet grounded? How can a market not be perturbed by external events?

  10. Hermit
    January 31st, 2009 at 11:23 | #10

    I would like to know how Australia’s six aluminium smelters chipped in to help ease the power crisis. They pay a fraction of what households pay per kilowatt hour and rumour has it they were instrumental in getting Rudd to effectively scuttle the ETS. I wonder if upon seeing how much distress (including more deaths among the elderly) was caused by blackouts the big electricity users volunteered to go on standby mode for a few hours.

    The electricity regulator (NEMMCO) should issue a report to put our minds at ease.

  11. Kevin Cox
    January 31st, 2009 at 11:33 | #11

    nanks I agree the control of chaotic systems literature is better but most of us can understand steam engines. Besides a reference to 1868 shows that these ideas have been around for a long time:)

    Presumably you mean by the “another point” how can we know if markets are inefficient and prices are not varying because they are subjected to randomly occurring external events? This is the argument that seems to be posed by those who believe that because it is “a market” it must be efficient hence there is another explanation. Such people seem to say “we just don’t understand enough about external events to explain the variability” instead of saying the market structure itself is at fault.

    If you can’t explain the changes of state with external events but you can explain it with positive feedback models of the system why wouldn’t you decide that the market is inefficient. Minsky with his Financial Instability Hypothesis described it in the 1930s but noone seems to have taken much notice until recently.

  12. observa
    January 31st, 2009 at 11:35 | #12

    You might be like me and eschew bailouts and bank guarantees for the simple reason it leads to propping up the most obvious poor investment decisions first(Childcare, car manufacturers, caryard floor plans, commercial construction projects,…?) and keep on going down the rapidly growing list until discretion gets the better part of fiscal valour and devil take the hindmost or less profligate. Nevertheless, you might still be a big fan of fiscal stimulus to smooth out some perceived bump in the economic road or more generally bad things that go bump in the night. However you might start off with all the right intentions like Larry Summers in the big cahuna and then get waylaid by the inevitable, as succinctly described here-
    http://www.nytimes.com/2009/01/30/opinion/30brooks.html?_r=1&partner=permalink&exprod=permalink

  13. CJ
    January 31st, 2009 at 12:22 | #13

    I can’t help but wonder if the problems with power supply will influence Rudd’s decision on infrastructure spending… Would be a popular policy in Victoria and SA if he announced upgrades to the grid.

    There are two crises unfolding at the moment: (1) the financial/economic crisis; and (2) climate change. It appears that governments around the world intend to solve (1) through government spending and stimulus packages. Most of these appear short term, for example, Rudd’s $10 billion pre-Christmas give-away. It might require careful econometric consideration, but how about some of the following as ways to stimulate the economy (which could help 1 and 2 at the same time):

    a. Cash handouts (rebates or something) to encourage consumers to buy solar panels, water tanks, energy efficient appliances… Better than leaving them/us to buy power-hungry flatscreens.

    b. Spending on developing renewables like geothermal energy. There are a couple of Australian companies that are making good progress with this (e.g. Geodynamics, Petratherm, Eden Energy amongst others). If geothermal is as good as it looks, then the electricity generated could be used for public transport. Better than building another highway.

    c. Spending on rail. Do we really need semi-trailers and b-doubles transporting stuff everywhere? How about rail corridors with regional hubs from which smaller trucks distribute goods? This would potentially decrease emissions.

    d. Sacked miners could be employed in land rehabilitation projects. Not sure that the investment bankers would be happy getting their hands dirty though.

    There must be plenty of other possibilities. I can’t help but wonder about the simplistic response of the Aust Govt so far.

    Cheers, CJ

    PS. With super, Dad always used to say his kids were his superannuation plan.

  14. Ikonoclast
    January 31st, 2009 at 12:56 | #14

    For Chris Warren at post 7. Thanks, for a timely update about the “54/11″ issue. I was never in a position to take advantage of it but others might appreciate the “heads up” if it isn’t already too late.

    Whilst one can understand individuals taking advantage of the “54-11″ loophole while they could, one can never approve of such bungling in national superannuation policy. Some punters get undeserved windfalls and the general taxpayer has to foot the bill. That is neither equitable nor effective nor efficient.

    Your other statements – about super in lieu of APS wage rises and the lamentable level of lower band APS rates now – are all too true. Super policy, for public and private super, is a sorry tale in this country.

    The old principle of “the simplest device that will actually do the job” should be applied. Someone (maybe it was Adam Smith or JS Mill) said “A device should be as complicated as it needs to be to do the job but no more complicated.”

    Particularly under John Howard, APS Policy, Superannuation policy, Childcare policy and so on were all over-complicated and distorted to push the ideology and program of privatisation no matter what the cost. The ABC Learning Child Care debacle is another example of this misguided policy.

    The lamentable state of the APS is also an outcome of Howard’s woeful policies. perhaps, I will write about that in another post sometime.

  15. Michael of Summer Hill
    January 31st, 2009 at 13:02 | #15

    John, some might argue that the NSW Right Wing Labor government has really lost the plot for now they claim the State woes and massive budget blow-out is not their doing but a result of extraneous factors. Pull the other leg Roozendaal.

  16. Ikonoclast
    January 31st, 2009 at 13:04 | #16

    CJ writes, “There are two crises unfolding at the moment: (1) the financial/economic crisis; and (2) climate change.”

    I agree and there are also two more crises unfolding. These are a dwindling resources crisis (particularly in non-renewable energy) and a general ecological and biological crisis.

    CJ’s suggestions are spot on. Perhaps unemployed mining industry workers could get jobs on renewable energy projects. Perhaps the day will come too when the world’s great stock of drilling equipment can be more profitably employed to drill hot rock geothermal basins rather than seek oil.

  17. Hermit
    January 31st, 2009 at 13:44 | #17

    CJ I would put nonvolcanic geothermal in the same basket as carbon capture ie believe it when you see it. Geodynamics was supposed have a tiny outback town all lit up with the technology by last year now they want more time. It would make sense to rehire retrenched mining staff in western Tasmania to build wind farms already on the drawing boards. The irony is that a Vestas factory closed down then turned to mining machinery now that’s in trouble.

    I think the Cabinet is bewildered by the speed with which it is all unravelling. They caved in to business interests early on but things didn’t improve.

  18. Kevin Cox
    January 31st, 2009 at 13:46 | #18

    CJ and Ikonclast suggestions will not only solve the credit crisis, they will reduce the price of energy, solve the ghg emissions problem, prevent the creation of another dysfunctional market (an emissions permits market) and make us all wealthier.

    How? 80-90% of the cost of renewables are finance costs made up of repayments, interest, tax and profits. Give zero interest loans for renewable energy or ghg reduction infrastructure. Repayments are paid through tax on profits. The non financial running costs of renewables is of the order of 1 cent per kwh. Bulk electricity is being sold at an average of 6 cents per kwh. That is, renewables will instantly be very very profitable and we know we can sell all the energy we can produce.

    To make it fair and spread the wealth give the zero interest loans to those in the community who use the least amount of energy (as measured by their mains electricity per head consumption) but require them to invest in the best way for them to save green house gas emissions. That is make a market in infrastructure to reduce ghg emissions through which the loans are to be spent. If we make sure the market is efficient then we know the money will be spent to best effect.

    $20 billion per year for 10 years will give us zero emissions.

    Of course we need to get rid of fractional reserve banking. We don’t want the party spoilt by the banks encouraging asset bubbles through giving too many loans. The Reserve Bank can control the money supply by issuing zero interest loans for renewables (and other infrastructure) instead of trying to do it indirectly with interest rate changes.

    It will not increase the government deficit because the loans will be repaid in the future through taxes. That is instead of taxing then loaning, do what all good investors do loan then get the dividends.

    It is all so simple and the political climate is right to allow it happen.

  19. CJ
    January 31st, 2009 at 16:25 | #19

    #17 – I’m not quite so sure that investment in renewables will resolve all of the economic problems out there. I just think that it is part of the solution, and I’m amazed that so far it has been overlooked by the Govt.

    #16 – You could be right about geothermal, although I wouldn’t write it off just because of delays (many things end up being delivered late, but working perfectly well). Of course, the Australian Government would need to consider a range of possible projects and make an assessment of those that merit funding. Wind in Tasmania, geothermal in South Australia, solar in the Pilbara, biofuels in the NT… I’m not too fussed as long as the projects are vetted, and as long as we’re not looking at another coal fired power station somewhere. I might not be your average voter (afterall, I am reading this blog on a Saturday afternoon), but I’d forgive a government that spent a couple of hundred million on R&D in renewables even if only one project ended up working out.

  20. January 31st, 2009 at 16:56 | #20

    I am interested to know why so little is being said about the $30 billion package ($2 billion government funds, $26 billion government debt and $2 billion from banks) to rescue the banks loans to shopping centres and other property assets.

    Rudd claims this will rescue 50,000 jobs. Take him at his word that’s $600,000 per worker. But its a lot more than that because if there were defaults the new property owners would employ many of these workers.

    Rudd didn’t get advice from the RBA (as with the foolish total insurance package for bank deposits) and the whole thing looks like a very rushed job.

    Rudd today has endorsed John Q’s line that the current crisis is a failure of ‘economic liberalism’ so governments must rescue capitalism. This is partly true but it doesn’t mean that any sort of stupid government scheme makes sense and this seems stupid to me.

    Or is Labor using the crisis as an excuse to have a big public spend?

    Why specifically targeted job support schemes that seek protection of specific bank loans? Is this type of policy to be replicated elsewhere – e.g. in the mining sector?

    Brian Toohey in the AFR points out today that the only affect of this move is to sustain asset values on which the private banks have issued loans by transferring the risks of these loans to Joe Citizen.

    It is poor public policy from our hyperactive if not very thoughtful PM.

  21. January 31st, 2009 at 17:03 | #21

    Brian Toohey makes a poignant case for child care in the Federal cabinet because the property market intervention quickly followed urgent appeals from the banks without any RBA review. The same sort of thing happened with respect to the concessions to Woodside on natural gas compensations – contrary to what was sensible Woodside got what it wanted.

    This suggests to Toohey that our PM needs supervision:

    “There’s a legitimate role for argy-bargy in public policy formation. But when a prime minister is a complete pushover, cabinet should supply constant adult supervision’.

  22. Alanna
    January 31st, 2009 at 17:12 | #22

    19#hc

    Could this be to rescue banks from loans made to Centro?

  23. nanks
    January 31st, 2009 at 17:44 | #23

    I remember seeing some references to a PhD on party funding in Australia that mentioned the largest funding group were property developers. Does anyone here know the actual figures?

  24. nanks
    January 31st, 2009 at 17:46 | #24

    I’ll answer my query at #22
    “the 2007 Australian Electoral Commission figures showed that property developers and development companies provided $5.1 million of the $13.9 million donated to the three major political parties. ”
    taken from http://www.democrats.org.au/speeches/index.htm?speech_id=2362

  25. Tony G
    January 31st, 2009 at 17:57 | #25

    HC @ 19 Said

    “John Q’s line that the current crisis is a failure of ‘economic liberalism’ so governments must rescue capitalism. This is partly true”

    JQ’s statement is far from the truth.

    As JQ stated here;

    “By any relevant historical standards, these institutions were effectively unregulated.”

    When the banking practice is fractional-reserve banking it is ludicrous not to supervise the banks. If you have fractional-reserve banking, then it needs to be ultra regulated. If it is’nt the government looses control of money supply and the financial system will become unstable, which is what has happened.

    The government was asleep at the wheel and not supervising the supply of money properly, it has nothing to do with ‘economic liberalism’.

    It was the government who allowed the sullying of commercial bank money (money created through loans) with the use of derivatives and securitisation, that has caused the current crisis, not some obtuse philosophy.

    It is governments role to supervise capitalism not take it over. If they had done their job properly we wouldn’t be in this mess.

  26. Kevin Cox
    January 31st, 2009 at 18:23 | #26

    CJ I did not say that renewables would solve all the problems. I gave it as an example of the idea that investing in infrastructure and at the same time creating “new money” is the way to solve the problem that arises when we stop banks, lending money they don’t have, to create new money.

    Tony G we can try to restrict the creation of money through fractional reserve banking by more regulation but that is not as good as stopping it entirely which means it cannot get out of control.

    External regulation of a market is much much harder to get right than simply removing the need for regulation.

    One of the interesting side effects of fractional reserve banking, which I suspect is the reason it has lasted so long, is that new money is allocated to people who already have lots of money – not to the other 99% of the population.

  27. Mike
    January 31st, 2009 at 19:02 | #27

    Suggested stories and reading:

    Todays (Friday U.S.) Newshour on SBS had a string of very interesting stories regarding the state of the economy and regulation, the level of debt etc.

    For anybody interested in the Club of Rome’s Limits to Growth.

    “A comparison of The Limits to Growth with 30 years of reality”. Global Environmental Change 18 (2008) 397– 411. Available online

    In summary, it “business of usual” prediction has proved to be remarkably (some might say alarmingly) good. Of particular interest is the section in the introduction where he points out how the report was cherry picked or simply miss quoted by critics (section 2.4) e.g, the report never predicted collapse by the year 2000 and the claim that it predicted various resources would be exhausted by now was not their prediction, but a US Burea of resources prediction.

  28. Socrates
    January 31st, 2009 at 20:44 | #28

    Regarding the heat wave adn rail and power failures in SA and Vic, it is only partly global warming. The biggest problem in both cases has been simple lack of investment and inadequate maintenace funding in the past. It gets hotter in Qld adn NW WA yet they rarely have tracks buckle. One of the reasons is they have almost entirely concrete sleepered track which is much better at restraining buckling. To be fair to the current govt there is a track upgrading program in Adelaide that will make this less likley to happen. Only problem is, like a lot of long term investment shortfalls, it will take 5 years to catch up.

    Likewise with the power grid – under investment has led to a lack of spare capacity making it more vulnerable.

  29. Jill Rush
    January 31st, 2009 at 21:31 | #29

    hc@19

    I don’t know why this hasn’t been discussed but it does have the look of a pay back to the property industry for their investments. The State governments are in the thrall of the property developers which is possibly why we have such poor planning laws and the Qld and Fed governments are so mute about water allocations around the Warrego. How can it make sense for the taxpayer to pay so much to buy back water allocations because the Murray is dying to resell them higher up to developers wanting to grow dry land crops?

    Of course the creation of the property bank is being lost in the summer heat, kids going back to school, tennis, cricket, worries about the job and mortgage. Perfectly timed really to have it go through without any kind of opposition. Especially as the Opposition cannot get its act together anyway and is disinclined to upset the developers.

    #2 In a heatwave there is nothing better than solar energy which will help meet the demand whilst not causing too much in the way of global warming. There is a lot of talk and govt money to support this aim; however why would the individual householder subsidise the big polluting industries who will get the carbon credits for nothing.

    The Rudd government was brought to power by the little people disgusted with Howard’s treatment of them. Rudd is looking as if he is behaving the same way. The only thing that will keep him in place is that the Liberals have lost the confidence of the people because they were caught in so many deceptions.

  30. carbonsink
    January 31st, 2009 at 21:56 | #30

    I’m a sucker for a good graph. My favourite is December retail sales.

  31. nanks
    January 31st, 2009 at 23:10 | #31

    #28 Jill Rush – I alluded to the relation between property developers and politicians in my post at 22adn 23. It is worth noting that the direction of influence in that relationship can potentially go either way.

  32. observa
    February 1st, 2009 at 00:26 | #32

    “In a heatwave there is nothing better than solar energy which will help meet the demand whilst not causing too much in the way of global warming.”

    Sorry to burst the solar bubble here but my $20k for 2100W maxm output, solar to grid system has some serious shortcomings. Firstly it produces nothing at night even when the temp doesn’t drop below 33degC after hitting 44.5 deg during the day. Now in early spring after some clearing rain and bright cool sunshine I’ve seen the inverter readout read above 2000W around midday on a clear sunny day a couple of times. On an overcast winters day it can read 150-250W well into the day but on mild sunny days it will be sitting around 1500-1700W for most of the day. With temps in the high 30s to low 40s that knocks back to 1200-1300 max as heat reduces panel efficiency(around 2.5% for every degree over 25C by manufacturers own figures)When you need it most for aircond it sadly goes missing. Also when ETSA were load shedding in the heat my $20k system was just as useful as all the poles and wires to my meter box and its new $500 meter.

    How does it all stack up? Because I have some burnable dirt base load power stations and some gas fired peaking plants, plus interstate and Bass Strait interconnectors supplying the rest of my needs when I want it at around 24c/KWhr summer peak, whilst my supplier mandatorily pays me 44c/kwhr for my excess, after getting $9500 subsidy and RECs to defray the prohibitive capital cost. I guess if my Govt cook up a similar deal with the capital cost of hybrids and subsidise my petrol to the same extent, I’ll be driving a hybrid to complete my Oztentatious green lifestyle. I just have this nagging feeling there’s a snag in there somewhere but so far so good.

  33. Sean Morris
    February 1st, 2009 at 01:10 | #33

    Economic Liberalism has not failed, Chinas mercantilism is what really failed, and screwed the whole show up.

    Fact is if interest rates had not been distorted by Chinas monetary policy then the banks would not have been chasing risky and risker investments such as the statist bonds pioneered and issued by freddie and fannie.

    I have a nagging suspicion that JQ is too a mercantilist. He seems to believe in command and control, or economic conservatism.

  34. Sean Morris
    February 1st, 2009 at 01:15 | #34

    ..and another thing, when designing new political and economic/financial systems you might wish to consider why the internet keeps going when parts of it fail.

    It seems a lot of financial and political systems these days are so interdependent through the blind faith in Internationalism and Globalism that they have built into them “Single Point of Failure, (SPOF), charicteristics.

  35. Donald Oats
    February 1st, 2009 at 07:53 | #35

    Thanks Kevin, for responding (#8).

    On a different note, we have some of the best mineral sands and pure sands in the world. Why don’t we have large scale chip fabrication in Australia, and especially solar? Seems to me the raw ingredients are here, the skills are here, and it would allow a domestic solar energy industry (and other) to grow here. It would also mean that CSIRO (aka Commonwealth Science *and* Industrial Research Organisation) could justify much more extensive renewable energy research for solar at least. A real competitor to their carbon capture and storage research, I would expect.

  36. Oceanic
    February 1st, 2009 at 08:05 | #36

    I found under your Environment section while surfing your blog the following gem and can’t understand why it didn’t occassion any discussion, considering the importance of the topic. If the contentions made are valid then this available technology would solve our emission problems, not least the Yallorn Valley smog.

    Danny Stewart Says:
    November 24th, 2008 at 6:28 pm
    John Quiggin,

    I am a retiree with an interest in the energy debate. Your blog was mentioned on the radio so I had a look. Here is my reaction to the brown coal debate it you are interested.

    The history of coal is that it has been burnt for centuries. In the latter part of the 19th century it powered steam ships and the railways, drove industry, heated homes and provided gas for heating and light. When the automobile industry started, petrol was made from coal. Coal made pharmaceuticals, fertilisers, dyes, tars and industrial chemicals. Coal has many, many applications but when it came to burning coal the process has been the cheapest and easiest. This lead Professor Striner to say………

    “Coal, as it is and has been consumed, is a waste of a natural resource. Coal should not be burned in its raw form but should be so processed that it is utilised in the most efficient and economic manner possible”

    These words were first penned in 1951 by Professor Herbert E. Striner and appear in his 1979 book An Analysis of the Bituminous Coal Industry in Terms of Total Energy Supply and a Synthetic Oil Program. Arno Press at page 184.

    Coal was used efficiently in England in response to a tragedy.
    London had more than 4000 deaths due to smog in 1950 and responded in 1956 with the Clean Air Act.

    In compliance with the Act a smokeless fuel based on Thomas Parker’s Low Temperature Carbonisation Process developed in 1906 was produced. It was called Coalite and I believe is still available. There were different brands of smokeless fuel. I do not think pre-cleaning coal was practised elsewhere although British smokeless fuel was exported to many countries.

    Other similar processes have been devised. The cleanest and most efficient method from available information is the Karrick Process from the United States. The various technologies are available but not used.

    Burning coal directly to produce electricity is about 30% efficient. There are many ways to increase the efficiency, and it is quite possible to double, if not treble, the efficiency. This does not reduce the CO2 output per ton of coal, but halves the CO2 output per unit of power, and allows other toxic emissions and particulate matter to be captured.

    Strangely there seems to be no interest in the efficient use of coal as an interim method of reducing CO2. There seems to be no realisation that we could half our fuel bill, increase the value of our exports, and provide China with not clean but smokeless coal which would make their cities smog-free. We could do all this and incredibly obtain oil as a by-product. Oil that can be refined into a cheap reliable supply of petrol, aviation fuel and diesel.

    Coal, even brown coal, is the eighth wonder of the world. We have not yet learnt the value of its efficient use. Instead we invest in schemes that burn coal in pure oxygen and try to sequester CO2, both horrendously expensive and neither sustainable.

    Coal is not the problem, we are. If we used simple proven methods of burning coal efficiently we could meet the 2050 targets in 2020.

  37. Donald Oats
    February 1st, 2009 at 08:18 | #37

    On the Super thread, the PSS defined benerfit fund moved under Aria, as I understand it. New APS workers get placed on the CSS accumulation fund. For those on the PSS though, I have a question: how does the Future Fund performance affect the entitlements of those on PSS?

    In principal it shouldn’t…but…Nick Minchin took care of finer legal details while Peter Costello sorted the economics out. I noticed at the time of the legislation for it that it was seemingly possible for the FF to use derivative products via the backdoor, even though the introductory blurb and Minchin said that they wouldn’t use them. I couldn’t get an answer from my relevant staff association rep or any other knowledgable bod.

    On the financial news I heard that the FF’s conservative investment strategy made them a whopping -5.9% for the December quarter ex Telstra shares, and Heck knows how bad when Telstra share losses are included. Considering the FF portfolio is approximately 50% cash that’s tragic.

  38. Kevin Cox
    February 1st, 2009 at 08:37 | #38

    Donald,

    I couldn’t agree more. There are many great ideas out there waiting for investment funds. I recently saw a solar power unit that generates electricity and hot water. The hot water is used in a heat exchanger to heat a liquid that turns into a gas that then loses its heat and cools the house. Something like 60% of the energy falling on your roof can be turned into useful energy.

    The problem is getting finance to commercialise these innovations. Many of them will fail and so it is difficult to get investment because the way our money system works is that investors have to risk their existing assets to fund innovations. This makes it extremely difficult and expensive to get investment for innovation. To fund my current start up business in electronic identities – which is innovative (and risky) – investors are looking for at least 10 times their money back within 5 years. Banks and super funds rarely fund startup innovative companies.

    However, if we had money to invest in innovations where our losses were not our existing assets but our possible future assets the psychology changes and it becomes easier to get funds and for a lower cost.

    One of the things we would sell in our infrastructure market place would be direct investment in shares in new innovative companies – and of course I have a way of making sure the share values will be “real value” :) as we will require companies to put in place negative feedback mechanisms in their market to keep their share price stable.

  39. Jim Birch
    February 1st, 2009 at 12:10 | #39

    Economic liberalism hasn’t failed it’s just been seduced at a candlelit dinner and maybe overdid it but will be ok after a couple of beroccas and a glass of coke. Seriously. Late 20th century ideas on organising society aren’t good, bad or indifferent but are actually the absolute optimum solution for human welfare and will never be improved on. Seriously. It’s just the government and the Chinese that caused the problem. Seriously.

    I took the liberty of correcting a typo

  40. Donald Oats
    February 1st, 2009 at 21:30 | #40

    I thought it might be better to continue the following thread (http://johnquiggin.com/index.php/archives/2009/01/30/a-bit-more-on-bank-nationalisation/#comment-227600) here: it’s about Dawkins-isation of the university sector.

    Another secondary consequence, one which I believe was an intended one, was to convert the culture of academics from professionals with a high degree of autonomy, to something closer to normal employees. A conversion from setting one’s own agenda to taking orders from above. As an example, creating teaching only and research only positions in a number of universities has led to employees who teach, while retaining a few big grant getters as research only staff. Admittedly the research only staff still possess significant autonomy, although they are often pushed to keep the grants rolling in.

    The teaching only employees tend to get the raw prawn (or in Gareth Evan’s vernacular – “They were fed a sh*t sandwich”, or something along those lines): they are usually casualised labour or entry level contract lecturers. They don’t have much of a career path compared with research only staff.

    I don’t know where to from here for our university sector. There should be some place in society for pure, curiosity driven, research. No agenda, no trying to please a particular commercial interest group, no pressure from the university beyond the expectation that you do your job well. The return to society at large is beneficial – often as simple as opening up a person’s mind to greater possibilities, or to a satisfying comprehension of some small corner of our universe.

    I’m hoping that the more naked elements of profit driven collaboration (eg mining companies and geology departments, or electricity production and carbon capture and storage researchers) can be kept from crowding out curiosity driven research. It’s tough to ignore the extra cash…

    ‘Nuff said by me for now.

    Cheers,

    Don.

  41. nanks
    February 1st, 2009 at 22:41 | #41

    #40 I think you are spot on about the D-reforms. They were to bring academia into the public service and thereby under political control. However my experience was that the (full-time) teaching academics were also meant to be research academics but with full time loads in both areas. Which is ridiculous and I’m glad to have left. With respect to Alanna’s point about wages – I left in part because of the 80 hour weeks but primarily because of the vicious internal politics which were beyond disgusting. I guess if I had been paid twice as much I could have put up with it for a few more years.

  42. Kevin Cox
    February 2nd, 2009 at 20:27 | #42

    #40 HECS would be improved if all fees could be paid by HECS loans, and if Universities could teach whatever courses they wished, as many as they wish and charge whatever they wished. Universities would get an amount for research and they spend it however they wish. The size of the research grant is a base amount plus an amount of money they collect from HECS paid by research students.

    This would make a “true market”. It would emphasise teaching because money would flow into the Universities based on how much they teach rather than how much research is done.

    The best students will go to the Universities that do the best job of teaching whether it is teaching for research or for other professions.

    Of course there can still be research organisations (Universities) that do nothing but research but perhaps they should be called something else unless they teach or mentor research graduates or students.

    If the government wants to encourage particular sorts of teaching – say medicine – because the community is lacking in that area then the HECS loans for that area can be worth more to the University than their face value to the student.

    The amount of money paid back as extra tax could be extended for more years to reduce the burden on new families. It does not matter how long it takes to pay the money back.

    An important thing is that the money is spent in as free a market as we can make. The current system of HECS with quotas on University places is a mockery of a market place.

    Of course the HECS idea could be extended so that every young person gets a zero interest loan at the age of 18 for education. This loan must be spent on further education but it could be any recognised education establishment – and people do not have to use it if they do not wish.

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