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Monday Message Board

August 3rd, 2009

Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

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  1. ABOM
    August 3rd, 2009 at 23:39 | #1

    Alice, you’ve got to check out my hatchet job on Andy. It can’t last too much longer. This is painful to watch, even for me.

  2. August 4th, 2009 at 03:38 | #2

    This one is for Alice. I didn’t know this until this evening but my friend John Humphreys happens to be giving a talk at the Festival of Dangereous Ideas on Sunday 4th October at the Sydney Opera house that addresses our recent topic of discussion. The talk is titled “The Old Should Pay for Themselves”. So if you’re in town take a look.



  3. Michael of Summer Hill
    August 4th, 2009 at 08:04 | #3

    John, I find the news somewhat bemusing this morning for it is claimed Godwin Grech admits to faking the email & of cooperating with the Opposition. This suggests Turnbull is a fraud. But my nose tells me otherwise for there seems to be a big stench in the air.

  4. Salient Green
    August 4th, 2009 at 08:41 | #4

    A new Galaxy Poll shows 75% of Australians want the CPRS toughened up. Huge payouts of up to 11.7 billion dollars will go to overseas companies under the new ETS with no guarantee the money will be spent here.
    The details here. http://greens.org.au/node/5017

  5. Freelander
    August 4th, 2009 at 09:16 | #5

    Apparently this is all about ‘an error of judgement’. This is an interesting way of looking at things. Not that what was done had some moral dimension, that it was something you knew was wrong, but that it was simply a mistake like buying a suit (without trying it) that you thought you could fit into, and found to your regret that you couldn’t. I like the sociopathic thinking involved in calling it an error of judgement.

  6. Donald Oats
    August 4th, 2009 at 09:55 | #6

    The AFP and other law enforcement agencies executed search warrants at 19 locations in Victoria, at 04:30 today.
    The Australian News Paper knew a week ago that the police were at a critical point of the investigation of a suicide terrorist attack on military bases, and had been told to delay printing of the story until given the go-ahead, which was expected to be sometime today.
    The Australian News Paper published its print edition today and had it available on the street at 01:30 today. Presumably the story also made the online edition at or before that time.
    The commissioner of the Victorian Police, Simon Overland, is particularly tetchy about the release of the story 3 hours before the execution of search warrants.

    I have a few simple and direct questions for staff of other non-Murdoch news papers to ask:
    1) What were the exact instructions conveyed to the Oz staff concerning when to publish?
    2) Why did the Oz staff knowingly risk both the security of the Law Enforcement Officers and the public?
    3) Why did the Oz staff knowingly risk providing a tip-off to the alleged terrorists by printing the story before the suspects had been taken into custody?
    4) Have the Law Enforcement Officers found any indication of attempts by the suspects to destroy evidence in the time between the publication of the story and the execution of the search warrants?
    5) Have the LEO found any indication that the suspects had been informed of the raid by way of the print edition or the online edition of the Oz?
    6) Did the official release of the report into the “Utegate Email Affair” today play any part in the Oz bringing forward the printing of the story concerning the raids on suspected terrorists? In other words, are the staff of the Oz playing politics to minimise damage to the Liberal opposition pary?

    On the issue of how the alleged terrorists came to be residing in Australia:
    7) How many of the suspects are Australian by way of birth?
    8) How many are immigrants on 457 visas?
    9) How many are on student visas?
    10) How many have been granted Australian citizenship?
    11) How many are refugees, and how many spent time in Australian refugee facilities, and how much time was spent in detention?
    12) When did the various suspects form the view that terrorism against Australia was necessary, and what led them to form that view?

    I’d ask (some) of these questions via a letter to the editor, but I’m doubtful it would be published.

  7. Fran Barlow
    August 4th, 2009 at 11:05 | #7

    As most will be aware, in the US the word “tax” is as close to a swear word in rightwing circles as you can get without using one of the offical ones. That and “liberal”. Unsurprisingly, opponents of mitigation policy have tried both to cast Waxman-Markey as “a tax” and here and there have proposed a carbon tax as a simpler device for acheiving reductions. The Machiavellean logic is clear.

    I think it’s worth discussing the ethical dimension of an ETS and how it is different from a tax.

    A tax is a levy on a community designed to raise funds for state purposes. The amount and methods reflect the perceived financial needs of the state and of course the perceived capacity of the community to finance the levy.

    In so far as a cap and trade imposes costs on end users of products and services the delivery of which cause emissions of CO2, a cap and trade system is a fee for resort to an externality or service – in this case the right to dump an industrial waste product — CO2 — into the biosphere — which is a common asset of all humanity. As with any valuable commodity, underpricing it causes wasteful use and skews the market and insofar as this wasteful use imposes other costs on those
    not purchasing goods and services causing CO2 emissions (or causing them less than the average) now and in the future, the failure to recover a suitable cost amounts to a licence to embezzle assets from the public, or put in terms you might better understand, it amounts both to a public subsidy and an income and assets transfer that is unaccounted for by policy.

    Worse yet, since the bulk of CO2 emitting activity brings with it contamination of the biosphere with seriously toxic substances (mercury, CO, actinides, SO2, ozone, PM, other heavy metals, PCBs etc) the public subsidy from the commons to the emitters and their clients amounts to skewing the market in ways that poison the public without compensation. All of the costs of this illness then fall upon the
    health system as a whole or show up in lost working days.

    Perhaps worst of all the principal burden of losses falls upon those of least means. Wealthy people (who are typically the heaviest emitters) have the means to evade the worst consequences of emitting activity. They can move to areas with clean air,pay for high quality health care and so forth. Not so the poor, who tend to live in areas that are heavily polluted, and who in many cases will be most at risk from sea-level rises, will suffer greatly from drought, crop failures
    or malaria, may not have access to air conditioning during heat waves and so forth.

    In so far as the biosphere, with its bounty of clean water and clean air is the common property of all humanity and of greatest marginal value to those of least means, the most equitable measures are those that increase the value of these commons, and deny small groups the opportunity to diminish it without fair exchange. For that, one needs a suitable charge, which funds can then be used to compensate those harmed in proportion to their harm or abate the harm by removing the pernicious subsidy and encouraging less harmful activities to crowd out the more harmful ones. Far from being ‘a tax on those who can least afford it’ as some opponents argue, a suitable charge for using the biosphere as a waste dump represents a restitutional value transfer to those who lack the resources to protect their access to a life-giving asset from those seeking to appropriate it to themselves.

    Moreover, the cap and trade charge is efficient for while it removes the advantage those structuring their business in ways that convert the commons to their private advantage have over those who do not, it also ensures that those who cannot conduct a viable and necessary enterprise without such resort pay the very minimum consistent with meeting the need to protect the commons. As progress is made in
    reducing the rate at which the biosphere is converted into a waste product of lesser value to most people, the general cost of using the biosphere in this way falls. So providing the cap is an apt one at any moment in time and the measurement methods sound, then the cost of emissions closely matches the transfer from the commons. This is another way in which it is superior to a tax.


  8. Pedro
    August 4th, 2009 at 11:19 | #8

    Fran, you should investigate Pigouvian taxes. Jim Hansen is on record advocating a carbon tax instead of an ETS. If you don’t believe me google it and you will easily find the story and his clear explanation of his preference.

    The problem with cap and trade is rent seeking, as you have no doubt noticed with the local debate. The US proposal looks even worse in this respect. I’m happy to agree that, in theory, cap and trade should work well. In practice it is run by politicians and they are world champions of finding special exceptions to general rules.

    The biggest problem with a carbon tax is that you can’t identify a level of reduction that will flow from a particular level of tax. On the positive side you know that if you raise the price of good A by a substantial amount then alternatives B, C and D become more attractive and so you can use that to set you tax level. The tax would best be used to lower income taxes and raise benefits to provide some compensation to consumers.

  9. philip travers
    August 4th, 2009 at 11:42 | #9

    How does The Australian Newspaper in legal terms get away with it!?This is totally unfair on other newspapers an media outlets,who may have played by the rules,both stated law and implied!?On matters terrorism,unless The Australian was acting under agreement with the Law Enforcement bodies.Which means,that THE AUSTRALIAN newspaper has enough legal qualities to be entrusted as a partner in engaging a minor psyops operation within a targeted group.A target group that Police and THE AUSTRALIAN jointly consider as terrorist likelihoods.Tuesday as it is.

  10. Fran Barlow
    August 4th, 2009 at 13:05 | #10

    Pedro :Fran, you should investigate Pigouvian taxes. Jim Hansen is on record advocating a carbon tax instead of an ETS. If you don’t believe me google it and you will easily find the story and his clear explanation of his preference.

    I’m aware of Hansen’s position. I don’t share it, for reasons I’ve outline here before.

    The problem with cap and trade is rent seeking, as you have no doubt noticed with the local debate. The US proposal looks even worse in this respect. I’m happy to agree that, in theory, cap and trade should work well. In practice it is run by politicians and they are world champions of finding special exceptions to general rules.

    Well yes … so the problem involves getting a robust ubiquitous non-arbitrary and goal-determined cap and a unifrm system of permit auctions with no exceptions

    The biggest problem with a carbon tax is that you can’t identify a level of reduction that will flow from a particular level of tax. On the positive side you know that if you raise the price of good A by a substantial amount then alternatives B, C and D become more attractive and so you can use that to set you tax level. The tax would best be used to lower income taxes and raise benefits to provide some compensation to consumers.


    The problem here is that because indutry has arrogated to itself all sorts of discounts for business inputs the tax won’t flow uniformly through the system por-rata to emissions. A suitable ETS can.


  11. Pedro
    August 4th, 2009 at 13:44 | #11

    Fran I don’t think that the tax deduction system is as complicated and rorted as the special deals and compensation for the proposed ETS. Anyway the deductibility can be factored into the amount of the tax. The effect of a tax deduction is to reduce taxes, not costs before tax.

  12. Hermit
    August 4th, 2009 at 13:49 | #12

    If the ETS (CPRS Australia, Waxman-Markey US) turns out to be unworkable in practice the fault will be with politicians for lack of resolve. I think the decarbonisation process is more urgent than ever because of looming problems. They say 2010 could be an El Nino horror year and liquid fuel supplies will be parlous within five years. Therefore we need an incentive mechanism to go green well before the problems are intractable. The advantage of both cap-and-trade and carbon tax is that they are a form of forced saving. The argument is similar to that for compulsory superannuation. Pay now, be grateful later.

    I think we should start the ball rolling with a CO2 ‘fee’ of $20 a tonne for large enterprises. No exceptions or deductions. If a plea for special treatment has merit the industry could get back some of the $10 bn total revenue in the form of a highly visible cash subsidy. Those subsidies can be compared to spending on schools and hospitals. The idea would be to change both the complexity and psychology of carbon pricing.

  13. Fran Barlow
    August 4th, 2009 at 14:20 | #13


    Here in Australia, as a compromise, I’d be willing to put a carbon tax along the lines you suggest preparatory to an ETS, though I think the indicative price should be more like $50 per tonne for transport-related emissions and $100 for stationary energy. We use that to fund revegetation, land acquisition in rural areas, renewables etc. Funds to be administered and disbursed according to explicit program lines and independent of the state.

    The ETS, redesigned to impose a cap of 25-40% depending on COP15 across the board comes in in 2013. All permits auctioned. Anyone caught short pays the going rate in tax + interest at the mean credit card level. Cap to be adjusted incrementally year on year to reach the target. If we run ahead of 2020 target, the cap gets adjusted in the next year period to meet the new projected target.

  14. August 4th, 2009 at 14:34 | #14

    Are there any Big Government apologists who want to refute this piece by George Selgin?

    The Fed’s apologists suggest otherwise, of course. They note that the US spent nearly half the years between 1854 to 1913 in recession, as opposed to just 21 percent of the time since the Fed’s establishment in 1913. Who would want to go back to those bad old days?

    But consider: the US economy has actually grown less rapidly since 1914 than it did before. And inflation has been much worse, despite both the Civil War, which featured the nation’s worst inflation, and the Great Depression, which featured its severest deflation!

  15. TerjeP (say tay-a)
    August 4th, 2009 at 14:37 | #15

    Fran – in so far as the wealthy can avoid dirty air with strategies such as paying for a home in a cleaner the wealthy are paying to avoid the cost of dirty air. Paying the cost is not the same as avoiding the cost. In essence all you are saying is that dirty air is bad and it is better to be rich rather than poor. Neither of which is a revelation of any particular magnitude. In fact given the fact that rich people are better positioned to deal with all manner of problem, not just dirty air, it is of some imperative that we all get richer as soon as possible. And of course it is also of some imperative that we avoid making air dirty.

  16. Michael of Summer Hill
    August 4th, 2009 at 14:54 | #16

    TerjeP (say tay-a), you should read up on ie the aluminium sector to see whether the major polluters are doing their bit in reducing energy consumption and greenhous gases. Who is subsidising who?

  17. TerjeP (say tay-a)
    August 4th, 2009 at 14:55 | #17

    Sukrit – there was also a civil war in the US during the period 1854 to 1913 and as part of that a major monetary upset when the gold standard was first abandoned (with highly inflationary consequences) followed by a period in which the gold standard was re-established at an ill considered pre-war price (with highly deflationary consequences). So of both epochs we can say messing with the currency messes up the economy. It’s just that the messing about was of a different nature.

    IMHO what we ought to do now is restablish a fix between our currencies and gold at a well considered price point and then desist from messing with it further. Shutting down central banks would somewhat solidify the desisting process but is not altogether technically essential. Some form of Bretton Woods mark II would do. The more utopian solution would be a constitutional amendment prohibiting the government from creating any form of currency or bearer bond, prohibiting any legal tender laws and insisting that tax liabilities be denominated in gold weight. Any messing with the numerair would then require the full consent of the people. Those that drafted the Australian and US constitutions envisaged that they were in fact putting such protections in place but they underestimated the undemocratic cunning of future governments or the smoke and mirrors that would be deployed to bamboozle.

  18. Pedro
    August 4th, 2009 at 15:36 | #18

    MoSH, You won’t find TerjeP lobbying for subsidies for the aluminium refiners (sorry to put words in your mouth TP). I think you’ll find politicians behind that stupidity.

  19. Michael of Summer Hill
    August 4th, 2009 at 15:45 | #19

    Pedro, there comes a stage when enough is enough is enough and I’ll be blowed if the aluminium industry should get another taxpayers nickle in subsidies so as to do more harm to the environment. Insane. Have to go.

  20. Jim Birch
    August 4th, 2009 at 15:47 | #20

    Sukrit#14. I don’t want to go back to those old days despite the fantastic economic opportunities because of the horse poo didn’t look good on roads. But convincing me that differing growth rates in vastly different conditions, in different centuries, comes down to a single factor like the Fed would require a lot more than that short narrative. I’ll be sticking with my horse poo hypothesis hypothesis for now.

  21. August 4th, 2009 at 15:57 | #21

    Terje, you wrote “there was also a civil war in the US during the period 1854 to 1913″. What civil war are you referring to? The only one I can find is the one from 1861-1865.

    You’re right, what we ought to do is consider alternative monetary arrangements. Many have been offered – Hayek wanted competing currencies, Larry Sechrest has written on free banking, Rothbard wants a 100% reserve classical gold standard. We could set interest rates through the market, not through the central bank. Unfortunately, mainstream economists aren’t quite smart enough to think creatively: all they can offer us is more of the same – fiat money whose value is manipulated for political reasons, at the expense of the average person.

  22. August 4th, 2009 at 15:58 | #22

    @Jim Birch
    I take it you believe that economic principles don’t apply between centuries then? Interesting. Perhaps we can repeal the law of gravity next century then.

  23. jquiggin
    August 4th, 2009 at 16:05 | #23

    Sukrit, if you are looking for apologists for a monetary-policy only approach to macro policy, you are looking in absolutely the wrong place here. Try Catallaxy instead.

  24. Fran Barlow
    August 4th, 2009 at 17:37 | #24

    While I doubt your claim is right, Sukrit, even if it were I’d still prefer the latter period. Volatility is undesirable.

  25. Jim Birch
    August 4th, 2009 at 18:00 | #25


    that’s an interesting incidental point because there is some recent evidence that suggests the physical constants like gravitational constant might not actually be constant, but that’s on scale of billions of years. The question isn’t resolved though.

    The drivers of economic growth, on the other hand, are absolutely constant throughout space and time (and it all relates back to the Fed) just sounds a bit dreamy to me. I don’t pretend to know what they are but I’d be looking to things like natural resources, technology, political and social stability, population, literacy and numeracy, etc, to build a theory of growth. It’s been noted that economic conditions in medieval Europe were much closer to an IMF prescription than virtually anywhere today – and AFAIK there was no Fed – but growth was virtually non-existent.

  26. rog
    August 4th, 2009 at 18:04 | #26

    @Fran Barlow

    In China tax evasion is a national sport – what conclusion can you draw from that?

  27. Alice
    August 4th, 2009 at 18:41 | #27

    @TerjeP (say tay-a)

    Terje – if one of your friends is giving a talk on “the old should pay for themselves” at the Festival for Dangerous Ideas…I cant say Ill be joining the audience with enthusiasm (Id rather do something mildly dangerous – like go to the nearest pub and attempt to analyse why anyone would even suggest such a thing!)

    But you should definitely go Terje.. You cant miss your friend talking (they may take him to the madhouse first though).

  28. Alice
    August 4th, 2009 at 18:44 | #28

    Im going home to look up your hatchet job on Andy ABOM (LOL – poor Andy gets clobbered again and again BUT ABOM, he doesnt stay down! He jumps up smiling! He is the original rubber banker zombie – thats rubber not robber!)

  29. pedro
    August 4th, 2009 at 19:11 | #29
  30. August 4th, 2009 at 19:16 | #30


    Oh I think you’ve got it wrong. How about a micro policy only approach to macro policy?

    Actually John is right to an extent. Better monetary policy is not a panacea. I’m not entirely happy with it, it has been a learning process but it is a big reason why we’ve had mostly good times since 1983.

    The credit induced boom talked about my Mises and popularised by Alexander Shand makes a lot of sense and can fit in with most of the standard macroeconomics discourse.

    What we shouldn’t do is reject mathematisation (kudos to Sechrest) nor should we follow the short sighted approach of “liberal” reformers like Rothbard who effectively wanted to shut down banking as we know it.

  31. pedro
    August 4th, 2009 at 19:29 | #31

    Sorry John Q, here’s some support for monetary only responses to the recession


  32. ABOM
    August 4th, 2009 at 19:33 | #32

    Seriously, I’ve tried everything to get to him. Humour, rudeness, anger, logic, legal argument, economic argument, references…. Nothing’s stopped him. He is the very definition of financial insanity. Please try to give it a go…. You seem to have more energy than me….

  33. Fran Barlow
    August 4th, 2009 at 19:57 | #33


    Nope … the reference is too subtle. You’ll have to develop that thought if you expect a substantive response

  34. August 4th, 2009 at 20:13 | #34

    Why not try actually thinking and considering the possibility you may be wrong?

  35. Michael of Summer Hill
    August 4th, 2009 at 20:28 | #35

    John, today it has been revealed that Godwin Grech took it upon himself to fake a Treasury document (email) for reasons unknown to others at the time and must now pay the price for his stupidity. As for what Turnbull said or didn’t say about the fake document after it was created is of little relevance for Godwin Grech’s intent was to mislead and deceive practically everyone.

  36. August 4th, 2009 at 20:38 | #36

    Terje, you wrote “there was also a civil war in the US during the period 1854 to 1913?. What civil war are you referring to? The only one I can find is the one from 1861-1865.

    Yes that civil war. The consequences of the associated monetary manipulation endured well after the war ended.

    Looking at a chart of the gold price you can see the disruption of the gold standard during the civil war.


    Whilst the pre-war gold price was re-established by 1880 the assocated deflation would have been working it’s way through the economy for much of the next decade. So I think it fair to say that from 1861 – 1890 monetary influences would have been disruptive to the general economy.

    A notably disruption is that anybody who borrowed dollars or contracted goods or services (eg salaries) when the dollar was worth only 1/55 of an ounce would have had a hard time paying back the principle or honouring the contract when those dollars were subsequently worth 1/21 of an ounce (2.6 times as much).

  37. Alice
    August 4th, 2009 at 21:48 | #37

    Well – isnt it amazing ? Did I or did I not predict (without any model) that the nest we would hear is that Godwin Grech would pop up in an insane asylum and he would be made to bear the brunt of “concocting” the fake email. The fall guy. Godwin Grech…..
    and yet he hints he was “under immense pressure”

    Under immense pressure to deliver a concocted email into the hands of Turnbull.

    A set up in other words.

    This sucks. I read the paper …and what can we expect? A column two inches long by two inches wide saying Grech is in a psychiatric institution and has “admitted concocting the email.”

    BS. The newspapers are biased. This would make front page news if it was the Rudd Govt that concocted a fake email. It would make a two page spread.

    Even my conservative hubby says – yeah I wondered about that….it seemed such a small piece after all the fuss.

    Whereupon I hit him over the head with the facts as usual (and he fell asleep).

  38. Alice
    August 4th, 2009 at 22:01 | #38

    @TerjeP (say tay-a)
    Terje – it might be the sole thing we agree on. A return to money backed by gold or some other real asset. This free global market in fiat money is a mistake.

  39. Alice
    August 4th, 2009 at 22:02 | #39

    Oh no ABOM – Andy is alive and well….Ill give it a try!

  40. August 4th, 2009 at 22:13 | #40

    BS. The newspapers are biased. This would make front page news if it was the Rudd Govt that concocted a fake email. It would make a two page spread.

    Funny thing being in government. Good or bad everything you do gets noticed more. I would not necessarily call this bias.

  41. Alice
    August 4th, 2009 at 22:14 | #41

    I got him ABOM – on his home turf.

  42. Alice
    August 4th, 2009 at 22:16 | #42

    @TerjeP (say tay-a)
    A two inch by two inch announcement that Godwin faked the email Teje? Ha. Its a joke – the newspapers are biased and when your own conservative other half thinks its weird (the lack of media play)…Its weird Terje and its biased. The newspapers are trying to sink the stink so to speak (around the liberals).

  43. Donald Oats
    August 4th, 2009 at 22:41 | #43

    Kudos to Alice for predicting the next step in the Godwin Gresch affair. Given the calls by Malcom Turnbull for the prime minister to resign (about as serious a demand as could be made of a prime minister, I would have thought), and the way in which this unfolded, I reckon it is perfectly proper to further investigate the roles of Turnbull and others who met with or communicated with Gresch in the lead up to the senate inquiry.

    Given that the opposition saw fit to chase the current government over the use of the ute, and demand resignation of the PM and treasurer, perhaps it is time to stop letting bygones by bygones, and for the government to properly investigate the AWB funding of the enemy, whom our troops later fought. Alia might be the place to start.

  44. August 4th, 2009 at 22:42 | #44

    Alice :@TerjeP (say tay-a) Terje – it might be the sole thing we agree on. A return to money backed by gold or some other real asset. This free global market in fiat money is a mistake.

    Sorry to blow your bubble with a technicality but I never suggested that currency should be backed by gold. I suggested that currency should be denominated by gold. It is not the same thing. For instance given the relavant directive the RBA could realign it’s open market operations tomorrow to fix the Australian dollar at a value of say 25 milligrams of gold. It could do this quite readily whilst also electing to own no gold at all. Assuming they retained the 25 milligram target we would be on a gold standard and the value of the dollar would be denominated by gold but there may be no gold in the vault and the currency would not be backed by gold.

    Personally I don’t overly care what the currency is backed by so long as it is backed by some prudently chosen asset. Government bonds would do. Just give me an appropriately priced gold standard.

  45. August 4th, 2009 at 22:47 | #45

    This free global market in fiat money is a mistake.

    Whilst I’m splitting hairs I’ll also mention that we don’t have a free market in currency. There are numereous legal barriers to entry for private currencies and what is generally traded on global currency markets are the monopolistic public currencies imposed by governments. Pre 1910 Australia had something more akin to a free market in currencies.


  46. August 4th, 2009 at 23:38 | #46

    You may want to check. You just “got” ABOM. Oops.

  47. rog
    August 5th, 2009 at 08:15 | #47

    @Fran Barlow

    There is plenty of evidence, just google it

    Tax avoidance has become one of the social “cancers” of China. Though a group of well-known enterprises, including the Legend Computer Group and the Bank of China, were recently cited as examples of upfront taxpayers, there were at least 200,000 enterprises in Beijing whose employees paid no individual income tax last year, an official from the municipal taxation department has disclosed.

  48. Fran Barlow
    August 5th, 2009 at 08:28 | #48


    That’s as may be. Why are you putting this point to me?

  49. Ikonoclast
    August 5th, 2009 at 09:27 | #49

    Fran Barlow,

    Any environmental trading scheme for carbon pollution (Cap and Trade) suffers fatally from the following faults;

    (a) Rent Seeking (including corporate lobbying and political patronage);
    (b) Complex conditional legislation which intentionally obfuscates the fact that the cap is illusory (the cap can float up as much as the governments and corporations wish it to); and
    (c} The impossibility of ensuring compliance because (i) ensuring genuine measurement and compliance is an enormous, complex and well-nigh implossible task, (ii) the governments are not serious about ensuring compliance in any case and (iii) the corporations will fake compliance in covert collusion with weak government compliance measures.

    One of the few things our very imperfect democratic governments are serious about is taxation. This is because taxation pays for police, courts, army, welfare (as a tool to purchase re-election) and the general retention and exercise of political power. Therefore, a carbon tax is the only answer for the above and the following reasons;

    1. Tax compliance and tax collection is something that governments are relatively good at;

    2. Taxing carbon fuels is simplicity itself. Each fuel has a known carbon weight compared to its total weight. Each fuel is sold or consumed in known quantities by each business. The apparatus of the GST is already available for accounting purposes.
    Carbon pollution by other businesses (agribusiness for example) is more complex but not impossible to treat in this carbon tax manner.)

    3. A carbon tax can replace all other excises on fuel. A surcharge over the existing excises can be added as the new carbon tax and this can be calibrated with regard to the removal of all fossil fuel subsidies to set the overall effective new tax.

    4. Whilst any “cap” is illusory (as proven above), a strong carbon tax will give real reductions albeit (initially) of unknown size.

    With respect to point 4, we can see that the simple choice is between an illusory “fixed cap” and a real but initially unknown reduction. However, the real system will give us the empirical feedback on a year by year basis. The carbon tax can then be adjusted by mathematical goal-seeking modelling to reduce us to zero net carbon pollution by 2050. That should be our goal if we are serious about saving the planet.

    What I am saying is this. Remove the overall command decision (which is about saving the climate for all) from the market by using taxes and tariffs. This means putting the command decision where it belongs, with democratically elected government. However, allow the market to do the rest. That is, allow the market to price energy sources (fossils and renewables) according to the pressures applied by the taxation reduction model. Tariffs equal to carbon taxes would be applied to nations which refused to implement like and sufficient carbon taxes.

    The cap and trade system will fail us and is failing right now as it stumbles nowhere good. It will be totally subverted by dishonest governments and dishonest corporates. The only solution is a democratic demand from the people that the democratic governments exercise their power for all the people (not just the corporates) and implement the only solution that will actually work.

  50. Alice
    August 5th, 2009 at 10:52 | #50

    @Andrew Reynolds
    Huh???? I got ABOM? I would never do that Andy. I love ABOM.

  51. Fran Barlow
    August 5th, 2009 at 11:32 | #51

    @Ikonoclast #49

    I’m untroubled by (a). Why people do stuff is less important than how one’s behaviour bears upon the legitimate interests and claims of others. I don’t know what to make of (b). I’m for setting a cap at a realistic time in the future and producing a performance curve along the way to get us there. If we do a little better than we thought early, then let’s adjust the end point accordingly and advise everyone at the start that that is our plan. I see (c) as spurious. There are no significant technical difficulties measuring emissions associated with combustion of fossil fuels or cement manufacture. Measuring CH4 and CO2 from livestock may be a little trickier but not really all that hard. By comparison, accounting is a far more tricky business. In any event you will have to find a way to that with a non-arbitrary tax. I also wonder how you can conclude that if governments and industry are as likely to collude and deceive as you claim why they’d not simply draw up a tax regime that reflected this appetite. You want tariffs as sanctions on recalcitrants but that simply isn’t going to fly at the moment. No significant state is going to put itself at odds with major trading partners. Australia certainly won’t so you do need something that is going to fly in both jurisdictions.

    More broadly, carbon taxes assume that the marginal costs of avoiding emissions are identical when plainly they are not. Nor are they capable of being adjusted in anything like real time. And in the end, a tax regime tempts every putative claimant to office to propose abolition of ‘taxes that make us uncompetitive’ and they will have near uniform industry support for that. Wedging the business groups is an important tool of policy.

    In a world rather closer to the ideal than the one we have now, we’d simply say: here’s what’s happening to the business community and proceed to implement a low emissions world economy ignoring the wailing and gnashing of teeth. But as you note, Ikon, the governments of the world are not honest brokers and so we have to put some obstacles in the path of their appetites to collude. A transparent cap and trade system with a strong cap is an exercise in dividing our enemies and having a goal-driven outcome which they can’t resist.

    While the current proposed ETS is unsupportable a carbon tax will simply muddy the waters further and be every bit as poor. At best, we could improve it in the future rather more easily, but I fear that that day will never come.

    One alternative might be to push compliance as close to the end of the chain as possible. Give every individual adult (and in the case of families — the household heads by proxy for their children) a carbon card that would have to be produced to purchase any service. Everyone could get a quota and if they exhausted it they’d have to buy more credit from someone who was under or from the state and a premium to the market. Every product would have to supply authenticated pre-purchase carbon costs (including carbon miles) so people could decide what they could afford. And no card, no purchase.

    Businesses could get a similar one based on world’s best practice in emissions at the time. This allowance would be decremented over time to meet the projected CO2 target.

    I’m not sure that’s politically viable but that might work technically.

  52. philip travers
    August 5th, 2009 at 11:35 | #52

    With the tolerance of Prof. Quiggins here,The Dam Clarence River Plan has developed like a sewerage turd by natural osmosis has turned into a very large monument to the power of water.Well the Plan is certainly not a wellspring,or even a naughty boy,but is stalking the land again.I am actually very fond of large cylindrical concrete pipes..cannot get enough of them.I dont own even a lousy one,but,if I had a few, I could,in a pinch,find a use for them.One use of them,if I had all the other expletive equipment,and an agreement by Government ,that the costs would be shared later whilst down payment on the pipe and costs was initially paid up front.Would be, to not only set a Guinness Book of Records attempt at placing large pipes one on top of the other vertically at their ends,with minimal supports,but also to set off inside the concrete pipes the frequency range,now known to produce the required water conditions from the atmospheric moisture content in the night.Then again the Councils of N.SW. and Government bodies and even buying enterprise,because there maybe some, could simply seek scientific and technological advice as to the merit of such an idea,and proceed to experiment forthwith.On their way to landing them where they are required to be placed.There is even a rather Green person who Prof.Quiggins has made some disparaging remarks about in the past,who knows and dreamed up a future pulling down atmospheric moisture in this way with frequency matters, the pipes could have some internal lining at low cost to achieve a ,what are the words for it, attenuated harmonics extended.And it is entirely possible to apply the principle of anodic cathodic matters on each end of the configuration by extremities of temperature!? Who will have the guts to see if what I outlined is theoretically impossible,if, money is available to see if it could work!?

  53. Alice
    August 5th, 2009 at 12:15 | #53

    @Donald Oats

    Don – good comments – yes it is interesting isnt it – did the papers release this info on terrorism early to create a media diversion?

    Today we have 4 pages of a terror threat in the Telegraph (and it seems a bit odd that they are somalis?

    Grech makes page 9 BUT this is part of his email communication to his political master Turnbull on 5th June (before Turnbull claims to have known anything about it).

    “I really beleive there is meat in this one. Swan is probably more exposed than Rudd….perhaps we should talk to sort out next steps..I am happy to meet you and Abetz (no staffers) bla bla bla.

    The little manipukator and now he wants us all to beleive he isnt a well man.
    He may not be, but he was well enough to use his treasury position to plot and scheme against the incumbent government, in cahoots with the tragic opposition.

    Grech is finished. His career is over and his reputation is in tatters and Turnbull and Abetz look like mafioso dirty tricks pimps.

    I have one question – why did Joe Hockey also phone Grech on the weekend he was holed up in his house?

    Now that Turnbull has stuck the knife into Grech as a nutcase (convenient excuse but not at all true) he better watch his own back. Why did Hockey call Grech? Why arent we hearing anything about that?

  54. Michael of Summer Hill
    August 5th, 2009 at 15:23 | #54

    Alice, I’m not taking sides but the Godwin Grech saga started from the supposedly lost email he received from the PM’s office. Now the real issue is who’s lying, the PM’s department or Grech. I can only assume the AFP are focusing on this one issue.

  55. Donald Oats
    August 5th, 2009 at 15:27 | #55

    I must say I’m still confused as to what on Earth Grech’s true motivation was, given that Turnbull and Abetz are overflowing with rat cunning – apologies to rattus rattus everywhere – the question is why did Grech try to play them with a fantastic email? His answers don’t go toward an explanation IMO. Anyone know what the cops thought about all this, or are they still investigating? As for Grech being mentally ill, I would not be at all surprised if that much is true, given the crazy workhours he allegedly put in, and the fairly major health problems that have plagued him. Whether his current condition is due to just this event, or whether it is due to cumulative pressure from living a double life during the previous Liberal government’s reign of error – allegedly providing Howard and co. the juice on Treasury by night while being a diligent, non-partisan public servant by day – only he can say. If he was suffering from relevance deprivation syndrome after the Liberals lost power, and concocted the Utegate evidence as a means of regaining the thrill of the glory days of being a Liberal mole in Treasury, well in that case I have less than zero sympathy for his plight.

    BTW, our local copy of the Australian (Murray Bridge) has the Utegate all over the front page, and this was the early edition apparently. The 1:30am metropolitan Melbourne edition had the headline story concerning the raids on properties of suspected terrorists.

    Finally, won’t someone somewhere look into AWB thoroughly…please?

  56. Donald Oats
    August 5th, 2009 at 15:32 | #56

    In my second last paragraph it was the Tuesday edition of the Australian, both in Murray Bridge and Melbourne.

    AWB AWB AWB AWB AWB, come on Mike Moore, do some investigig invistigi investivigi investigative reporting!

  57. August 5th, 2009 at 16:08 | #57

    Thanks for the admission that you did get him.

  58. Alice
    August 5th, 2009 at 16:30 | #58

    It was a horrible accident Andy!

  59. August 5th, 2009 at 17:10 | #59

    Hey – you were right. No shame there.

  60. Ikonoclast
    August 5th, 2009 at 17:38 | #60

    One quote from this site.


    See carbon-tax-needed-not-cap-and-trade-emission-trading-scheme-ets

    “Larry Lohmann (climate economist, The Corner House, London, UK); summary of book “Carbon Trading”, by Larry Lohmann, editor, 2006 [implicit in the GHG pollution cessation argument is taxing GHG pollution out of existence]: “The main cause of global warming is rapidly increasing carbon dioxide emissions — primarily the result of burning fossil fuels. Some responses to the crisis, however, are causing new and severe problems — and may even increase global warming. This seems to be the case with carbon trading — the main current international response to climate change and the centrepiece of the Kyoto Protocol. Carbon trading has two parts. First, governments hand out free tradable rights to emit carbon dioxide to big industrial polluters, allowing them to make money from business as usual. Second, companies buy additional pollution credits from projects in the South that claim to emit less greenhouse gas than they would have without the investment. Most of the carbon credits being sold to industrialized countries come from polluting projects, such as schemes that burn methane from coal mines or waste dumps, which do little to wean the world off fossil fuels. Tree plantations claimed to absorb carbon dioxide, in addition, often drive people off their lands and destroy biological diversity without resulting in progress toward alternative energy systems. This exhaustively-documented but highly-readable book takes a broad look at the social, political and environmental dimensions of carbon trading and investigates climate mitigation alternatives. It provides a short history of carbon trading and discusses a number of ‘lessons unlearned’. Detailed case studies from ten Third World countries — Guatemala, Ecuador, Uganda, Tanzania, Costa Rica, India, Sri Lanka, Thailand, South Africa and Brazil — expose the outcomes on the ground of various carbon ‘offset’ schemes. The book concludes that the ‘carbon trading’ approach to the problem of rapid climate change is both ineffective and unjust. The bulk of fossil fuels must be left in the ground if climate chaos is to be avoided.” [7].

    The empirical facts are already in. Carbon trading schemes and offsets already in place are entirely shonky and are in fact leading to accelerated climate damage. A carbon tax has some chance of working but cap and trade never. Go and read the green paper and draft legislation for the capping mechanism. This cap is not real. It is lawyers words with gitant holes and escape clauses all over the place. I honestly can’t believe people are so naive as to fall for this.

  61. Ikonoclast
    August 5th, 2009 at 19:47 | #61

    This article sums up the issues well. It’s called “Obscenity of Carbon Trading”


    I like this quote;

    Tom Burke, visiting professor at Imperial College London, has observed: “The reality is that applying cost-benefit analysis to questions such as [climate change] is junk economics… It is a vanity of economists to believe that all choices can be boiled down to calculations of monetary value.”

  62. Ernestine Gross
    August 5th, 2009 at 20:17 | #62

    Ikonoclast, There are economists who would agree with Tom Burke. The situation with CO2 is difficult. Both, a carbon tax and cap and trade are potentially manipulable. The cap and trade idea was developed during the era of ‘globalisation’ and, I believe, the idea was to allow international trades in carbon credits. Personally, I don’t like the link to GDP in the analysis because GDP numbers contain what I call ‘commercial values’ (ie monetary prices which emerge in an economy with incomplete commodity markets but money and credit). These prices are ‘wrong’, relative to theoretical ‘market prices’ because they exclude costs for significant negative externalities (incomplete markets) . However, I imagine governments are interested in GDP numbers because taxation revenue depends on it.

    I have a question. In one of your posts you speak out against neo-classical economics. I am not convinced there is a clear cut boundary for neo-classical economics. Can you give me a hint as to which literature you have in mind?

  63. Michael of Summer Hill
    August 5th, 2009 at 20:45 | #63

    John, it seems like Rudd is getting an earful at the Pacific Islands Forum summit for seven of the smallest forum members are asking Australia and other developed countries to slash their greenhouse gas emissions by 45 percent by 2020.

  64. Michael of Summer Hill
    August 5th, 2009 at 21:06 | #64

    John, don’t tell anyone but a Dargo real estate agent is advertising on the internet a property for $21,000 instead of the asking price of $210,000. A real bargain.

  65. Alice
    August 5th, 2009 at 21:07 | #65

    @Michael of Summer Hill
    Michael, if its a job to help one car dealer even assuming Grech didnt lie about the original email that he couldnt find and decided to re-invent – lets look at the facts – how bad is helping one Australian car dealer when under JH the AWB was helping Saddam Hussein, and how bad is it compared to the libs not only investing in the fake Firepower pill but promoting it on the international stage, and how bad is is it compared to JH selling the last of the old Australian Wool Board wool stockpile to a coterie of selected private citizens?, and how bad is when people like Windschuttle and Albrechtsen got well paid ABC board positions under JH (what the hell did they have to offer broadcasting?? Bugger all)

    Lets get this in perspective and lets get Godwin Grechs attempts to humiliate Rudd into perspective. Even if Grech wasnt lying about the original emails it is nothing but small fry compared to what JH handed out around town to his mates and friends. Piddlingly small fry compared to that.

    Grech is just a tragic…really…a tragic pathetic case of a liberal mole and a… (I cant say the rest – its just too rude).

  66. Michael of Summer Hill
    August 5th, 2009 at 21:09 | #66

    John, the above should read Bairnsdale real estate agent.

  67. Michael of Summer Hill
    August 5th, 2009 at 21:23 | #67

    Alice, let’s wait and see what the AFP’s findings are before more damage is done. A lot of people have their careers at stake.

  68. Alice
    August 5th, 2009 at 21:45 | #68

    Listen Michael – we dont need the AFP findings.

    Grech was a liberal mole. What part of that dont you understand? Did you read his letter in the paper today? It was just sad – here he is critcising Rudd for trying to help a mate in the car delaing business and Grech freely admits to making phone calls to people about a liberal car dealing mate (same industry) who he knew was a liberal party donor and here is Grech trying to help him (because he was bloody liberal party donor).

    Get with whats going one here Michael – Grech is making calls to help a liberal party donator and at the same time trying to sledge Rudd with concocted emails ABOUT THE VERY SAME THING.

    I couldnt give stuff about Grech’s career. He doesnt desrve to be in the public service in any position because he is NOT impartial as he is supposed to be…

    Public servants are supposed to be impartial (neutral, apolitical, and just give advice to the best of their skills and abilities. A politicised public service is an ineffective useless and dangerous public service that shows evidence of breakdown.

    He should be fired and it is quite right that it be so. He doesnt deserve a career as a Treasury official. Its plain and its simple.

  69. Michael of Summer Hill
    August 5th, 2009 at 21:51 | #69

    No Alice, Australia awaits the AFP findings.

  70. Alice
    August 5th, 2009 at 21:57 | #70

    Notwithstanding the AFP findings Michael, Grech’s career is finished Michael. This will become evident with or without the AFP findings.
    Because he did not show impartiality. He breached the implied responsibilities of his role. Mark my bet here.

  71. Alice
    August 5th, 2009 at 22:01 | #71

    And Michael, for someone who so energetically supports Rees and State Labor (without question we get thumbs sup every time from you?), I do now question your ambivalence to supprting the Fedral labor Govt under Rudd???????? Whats with that Michael?

    Its rather odd of you, if I do say so myself (although others have indicated they are annoyed at the “thumbs up Rees” thingy as well).

  72. Alice
    August 5th, 2009 at 22:14 | #72

    AFP findings = Grech faked the email.

    We know that.

  73. Michael of Summer Hill
    August 5th, 2009 at 22:22 | #73

    Alice, let’s wait and see what the AFP come up with rather than speculate who did what.

  74. Alice
    August 5th, 2009 at 22:36 | #74

    We know who did what Michael. Everything else is will be a post hoc fallacy.

  75. Alice
    August 5th, 2009 at 22:39 | #75

    But you didnt answer my question Micheal. Why the unquestioning allegiance to State Labor but not Federal Labor? I find this aspect of your persona here very intriguing. Is NSW Labor paying you for any reason? Im starting to suspect you are the local brach rep!

  76. Michael of Summer Hill
    August 5th, 2009 at 22:44 | #76

    Alice, it is the unknowns which are unknown and until the AFP findings are made public no-one knows what the unknowns are for it is unknown.

  77. Donald Oats
    August 6th, 2009 at 03:01 | #77

    Grech is being played up as some kind of whistleblower hero by George Brandis and other Liberals; let’s compare Grech against another “whistleblower”, shall we.
    GG: provides a fake email, prepared questions and responses, seemingly designed to attack the Labor government over a rather small issue – which turned out to be false, anyway. Cops find “email” originated from Grech’s home computer. Grech admits to being the author. Liberals run around parading GG as some kind of whistleblower hero.
    Kessing: denies providing a real document – which he is the author of – to journalists. The document is found on his home computer by police (maybe he wrote some of it while working from home) He is found guilty and convicted with suspended sentence. As a result of the document being leaked, the Howard government had to perform $100 million of Airport Security upgrades. Result? Liberal government buries him, the courts convict him of leaking confidential documents – even though he has maintained his innocence all along – and he loses most of his public service entitlements including his job. Loses the rest of his super fighting the decision through the courts.

    One “whistleblower” is feted as a public hero and faked his leaked document. The other “whistleblower is public enemy No. 1, even though the leaked document was a report on Airport Security, clearly in the public interest, he was the bonafide author of the document, and he has consistently denied ever leaking it in the first place.


  78. Michael of Summer Hill
    August 6th, 2009 at 07:33 | #78

    Crikey John, Fielding has got under the skin of Greg Combet and now Combet let loose giving him a mouth full saying Fielding uses populist non-peer reviewed science and of wasting the time of Australia’s chief scientist Penny Sackett. Spot on.

  79. Fran Barlow
    August 6th, 2009 at 08:59 | #79

    I note that Senator Brandis on Lateline last night persisted describing Grech’s defamatory fabrication as “silly” and an “error of judgement”.

    This makes it seem like something that reasonable people might have contemplated at the time but which, with hindsight didn’t work out as well as one supposed it might have — rather like the dinner party host who decided to go with beef stroganoff without knowing that half her guests were vegan.

    So the alternative AG thinks tortious, and possibly criminal conduct is simply unwise?

    These people are unfit to be anywhere near government.

  80. Fran Barlow
    August 6th, 2009 at 09:04 | #80

    This just in from the Courier Mail

    Attachment C provided by Opposition Leader Malcolm Turnbull contained a second set of possible parliamentary questions – and interpretations of possible answers –drawn up by Grech.

    The last question – which, unlike the previous seven, is in italic typeface – says this:

    “My question is to the Prime Minister. Is it not the case that Mr Godwin Grech, who is apparently associated with the ACT Branch of the ALP, was despatched to do a deal to look after Mr John Grant? Is this not a stark illustration of the gross politicisation of the Treasury?”

    Given everything else we know about Mr Grech – his links to Mr Turnbull, his pursuit of favours for a Liberal donor, his insistence that he refers to himself and the Opposition leader as “we” – this is an extraordinary question to suggest be asked in Parliament.

    Liberals ignored red flags in Godwin Grech affair

    They knew he was a longstanding Coalition ‘asset’. He’d worked under Howard in PM&C … How did they “miss” this?

  81. Ikonoclast
    August 6th, 2009 at 09:06 | #81

    @Ernestine Gross


    I think I would take Steve Keen’s article on his blog (Neoclassical economics – mad , bad and dangerous to know) as providing a basic implicit definition of neoclassical economics. I am not trained in economics so perforce I have to say, “What he said.”

    Namely, “Neoclassical economics contributed directly to this crisis by promoting a faith in the innate stability of a market economy, in a manner which in fact increased the tendency to instability of the financial system. With its false belief that all instability in the system can be traced to interventions in the market, rather than the market itself, it championed the deregulation of finance and a dramatic increase in income inequality. Its equilibrium vision of the functioning of finance markets led to the development of the very financial products that are now threatening the continued existence of capitalism itself.” – Steve Keen.

    I have, as a layperson, read Das Kapital Vols 1 and 2 (a long time ago) and Adam Smith’s Wealth of Nations (a while ago too). Other than that, I have read critics of the “excessive economic” approach which said excessive economic approach leaves out other values particularly those of social democracy. I refer to critics such as John Ralston Saul and Micheal Pusey. In other words, I am highly suspicious of the “free markets solve everything” approach. Cap and trade seems to be imbued, or perhaps I should say infected, with this philosophy.

    With respect to your closing statment, “I have a question. In one of your posts you speak out against neo-classical economics. I am not convinced there is a clear cut boundary for neo-classical economics. Can you give me a hint as to which literature you have in mind?” Maybe I am a little paranoid but do I sense a certain “expert” superciliousness and sense of intellectual superiority coiled insiduously in your question? I’m not educated in your field but I’m not a mug.

  82. Alice
    August 6th, 2009 at 10:26 | #82

    Ikono – I dont think Ernestine means to sound like that….ie its a genuine question from Ernestine. If you cant answer it – dont because Ernestine is probably hoping someone else may have a link to the relevant literature.

  83. Alice
    August 6th, 2009 at 10:42 | #83

    Oh and JR Saul is brilliant (so is Pusey) but he is a political scientist and a historian who has won numerous literature awards and did his phd thesis on the modernisation of France under De Gaulle. Thats likely a different field to Ernestines and he would not reference the sort of literature Ernestine would be after. Many consider Saul an economist (I do) though because of the incisive nature of his books and because many cover economic concepts with considerable insight.
    The loss of people like Saul / economic historians, who addresses the big picture is pretty apparent in economics now. Economic history was driven from the profession in many unis (how many economic historians have jobs now) as a result of neo liberal agendas in unis actually. We could start with the nasty split in Sydney uni in the 1970s where over 2000 students went on strike over the dry empirical culture that was starting to invade economics departments and the separation between the two fields (a wrenching apart actually ….key personalities involved then? Warren Hogan (the pusher of an empiricism prevails approach) and Frank Stilwell ( who has always suggested economics needed both approaches ie qualitative research as well – not to be overweight in empiricism).

    Anyway, the empiricists won and hence the reason many are asking questions now…about the questionability and usefulness of the science itself.

    The split should never have happened and was politically motivated but thank goodness we still have the Sauls, the Stilwells, the Puseys, and the Quiggins of the world. You cant keep good men down!

  84. Ikonoclast
    August 6th, 2009 at 12:44 | #84

    I think Ernestine knows what the term means and wonders if I mean the same thing as people’s definitions differ. Either that or Ernestine considers the term is rather vague in general and she may be right. There are many proponents, opponents and positions.

    According to the Wikipedia;

    “As expressed by E. Roy Weintraub, neoclassical economics rests on three assumptions, although certain branches of neoclassical theory may have different approaches:

    (1) People have rational preferences among outcomes that can be identified and associated with a value.
    (2) Individuals maximize utility and firms maximize profits.
    (3) People act independently on the basis of full and relevant information.”

    In addition, Steve Keen identifies neoclassical economics as possessing;

    (1) a belief the innate stability of a market economy,
    (2) it’s corollary, that all instability in the system can be traced to interventions in the market

    Keen states;

    “The fallacy that dynamic processes must be modelled as if the system is in continuous equilibrium through time is probably the most important reason for the intellectual failure of neoclassical economics. Mathematics, sciences and engineering long ago developed tools to model out of equilibrium processes, and this dynamic approach to thinking about the economy should become second nature to economists….

    An essential pedagogic step here is to hand the teaching of mathematical methods in economics over to mathematics departments. Any mathematical training in economics, if it occurs at all, should come after students have done at least basic calculus, algebra and differential equations—the last area being one about which most economists of all persuasions are woefully ignorant. ” – Keen.

    In addition, I would also add the reminder that economics is always political economy, not just economy. Economics is always moulded by political decisions, aspects of the standing social order and so on. This means that true economics will be an extremely difficult profession as it will encompass history, politics and mathematics and will also embody key and extensive inputs and methods from engineering, computing, evolutionary biology, environmental studies and physics. Without doing this, mainstream economics will remain like a cross btween the medieval schoolmen and the religious metaphysicians, i.e. in need a Francis Bacon to break them out of their navel-gazing guild, their academic hair-splitting and their general unempirical and faith-based approach.

    Perhaps economics needs to become a profession of general practitioners, specialists and “specialised generalists” (the latter being akin to physicians in medicine) along the lines of medicine. This last is rather off the cuff thought so it may be a bit whacky. Or it may be happening now. I don’t know, I’m not in any loop let along the economists loop.

  85. Ikonoclast
    August 6th, 2009 at 13:01 | #85

    Addendum addressing Alice’s point about the 1970s split in Sydney Uni. Steve Keen was in the thick of that and so could characterise it better than me. I think the neoclassical mainsteam can be characterised as willfully ignorant and rejecting of history and of the political in political economy. Their empiricism is however only a pseudo-empiricism for it is based on easily refutable assumtions namely;

    (1) People have rational preferences among outcomes that can be identified and associated with a value.
    (2) Individuals maximize utility and firms maximize profits.
    (3) People act independently on the basis of full and relevant information.
    (4) The market economy is innately stable and can be modelled with an equilibrium model.
    (5) Exponential physical growth can continue indefinitely in the economy as the earth has an infinite capacity to support growth.

    All of these absurd premises can be easily refuted. BTW, in essential theory and in practice, they really do make assumption five.

    Furthermore they are not equipped with the hard science skills of mathematics, physics, engineeering etc to properly investigate reality. Neoclassical economics is an ideology with transparent pretensions to empiricism and scientific method.

  86. Ian Gould
    August 6th, 2009 at 13:13 | #86

    “I think I would take Steve Keen’s article on his blog (Neoclassical economics – mad , bad and dangerous to know) as providing a basic implicit definition of neoclassical economics. I am not trained in economics so perforce I have to say, “What he said.””

    It’s nice to see you don’t let your ignorance of the subject impede you from lecturing others about it.

  87. Ian Gould
    August 6th, 2009 at 13:17 | #87


    Australian employment rose in the month of July.

    I look forward to the usual suspects explaining how this is entirely consistent with their predictions of the eminent demise of Rudd/Obama/Capitalism/the ETS/the global warming hoax/fill in crackpot obsession of your choice

  88. Michael of Summer Hill
    August 6th, 2009 at 14:08 | #88

    John, the federal government should not be perturbed by Miles Prosser pleas that the imposition of an extra $700 million burden over the next 10 years will harm the aluminium industry for the AAC has already stated in their submission that ‘existing facilities will not literally be “moved” overseas’. Rather the AAC should be penalised for the harm done to the environmental and forced to clean up their mess.

  89. Ikonoclast
    August 6th, 2009 at 14:50 | #89

    Thanks Ian, your comments are pure “Gould”. Perhaps you can enlighten us all on the characteristics of the main schools of neoclassical economics.

    I am not trained in Medicine either. However, I do have a tertiary education covering a wide selection of subjects in the humanities and the sciences. I can, for example, discern the difference between science based Medicine and the various schools of alternative quackery which have little empirical basis including naturopathy, chiropractic, herbalism, traditional Chinese medicine, hypnosis, homeopathy and acupuncture to name a few.

    In like manner, I can discern between genuine attempts at science based economics (which are further informed by a study of history and political economy) and the self-serving ideological quackery of the neoclassical and Austrian schools with their patently absurd and easily refutable premises and doctrines. They are simply the apologists (in most cases) for the neoconservatives, corporations and oligarchs seeking to enrich themselves at the cost of impoverishing the main body of the public and destroying the environment.

    Finally, do you think one little monthly up-blip in employment in Australia means it’s all over? (The Global Financial Crisis, the imminent Global Environmental Crisis and the imminent Global Resource Shortage?) I don’t think you are following the big picture at all.

  90. Alice
    August 6th, 2009 at 15:24 | #90

    @Ian Gould
    Ian – thats a good sign isnt it? (is it really?) A one month jump in employment of 32,000 people when the unemployment rate is 4 times the post war decades and has been fudged so many times if you even so much as wink at a prospective employer you are counted as employed and it says nothing about a growing pool of underemployed. I cant really get your figures into the perspective they are due Ian. A drop by a drop in a bucket of unemployment?

  91. Alice
    August 6th, 2009 at 15:38 | #91


    Ikono – in regards to this comment ”
    Any mathematical training in economics, if it occurs at all, should come after students have done at least basic calculus, algebra and differential equations—the last area being one about which most economists of all persuasions are woefully ignorant. ”

    I personally think they should do NO mathematics until they have studied some economic history and the history of economic thought (the models of which can then be revisited later after the mathematical training). I think the students would also prefer that approach and find it more interesting. Where are the details of our own economic development in economics undegrad degrees? A basic pre-requisite I would have thought. Its almost as if someone at some point in our history decided that economists should not look back, only forward. If they had been taught to look back over longer time periods (imagine what might happen here – if more economists studied economic history..they might uncover that a particular government policy was a mistake and that another govt policy was an unmitigated disaster…) Cant gave that, can we? Best to stick the blindfold on, fire up the stats pack and wait for the print out on a here and now micro market result.

  92. Alice
    August 6th, 2009 at 15:51 | #92

    Indeed Ikono – but the comment at 36 was not a comment but a snark.

  93. Ernestine Gross
    August 6th, 2009 at 17:11 | #93

    Ikonoclast @34, I thank you for your careful reply. My motivation was indeed as you stated.

    If one characterises neo-classical economics by the statements given, then I would concur that it is pretty hopeless. Some of these characterisations are empty – what exactly does it mean to say it is assumed that the economy is in a continuous state of equilibrium? What type of equilibrium? Why do some people assume that others have a ‘utility function’ – where is it – in the hip pocket. It is easy to make fun of everything that has ever been written. It seems to me the idea of unlimited ‘growth’ belongs to some version of macroeconomics.

    Your point about the knowledge prerequisites is a good one, IMO. In the early 1980s I had the pleasure of meeting Professor Debreu. His advice was that it is useful to be a little older when studying Economics. I assume he didn’t suggest people should waste their young years.

    I am not so sure about the importance of economics and politics for everybody. However, our host is a good example in support of your point.

    Apropos Sydney University in the 1970s. I was there too. Professor Simkin was there too. One day the engineers put on a parade shouting: What do we want? We want politicl engineering. When do we want it? After lunch!

  94. Alice
    August 6th, 2009 at 17:18 | #94

    @Ernestine Gross
    Ernestine – economics should not be divorced from political economy. It was political economy before it was termed economics and each is important and so is political engineering.
    Right now it shouldnt be put to “after lunch” or am I missing something in your comment?

  95. Alice
    August 6th, 2009 at 17:37 | #95

    Economics not all about the mathematically efficient quanitities of meat relative to gravy in the humble pie in the humble pie makers factory. Why on earth when things reach crisis point in the larger macroeconomies (like the catastrophic GFC) do people ask quite legitimately – what the hell is going on in the economics profession? They want answere to large problems not just small problems that can be solved relatively easily empirically. The larger interactions – not quite so easy Ernestine. Models…models…someone needs to look at the faulty assumptions underlying models if they plainly dont work (despite widespread application eg EHH).

    New models required and braver economists to say – bloody hell…it doesnt work like we thought it would.

    Political economy asks these questions Ernestine and to leave it until after lunch is somehwat lax (as a profession) I would have thought.

    I like your empirical understanding of models Ernestine but its not the be all and end all of economics. We need to go deeper than that. At times I think you do but there is a certain intellectual snobbery there as well…”if you cant understand the mathematical aspects of a particular model …you have no right to question it”?

    People will question regardless.

  96. Alice
    August 6th, 2009 at 17:38 | #96

    should say EMH

  97. Michael of Summer Hill
    August 6th, 2009 at 17:57 | #97

    John, it seems like the Ozcar poker game has disintegrated into a game of bluff and Steve Fielding wants to be part of it.

  98. rog
    August 6th, 2009 at 19:01 | #98

    @Ian Gould

    Perchance are you referring to the recession we had but didnt have?

  99. rog
    August 6th, 2009 at 19:07 | #99


    “You cant keep good men down!”

    Is that how an efficient market works Alice?

  100. Ikonoclast
    August 6th, 2009 at 19:33 | #100

    If I post quickly I will get comment 100. Yay!

    Employment is up in Australia on the latest monthly figures. However, if one looks behind that one sees that full time emp is down and PT emp is up. Furthermore, aggregate hours are down. Mr Gould’s point pops and evaporates like a soap bubble.

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