Cars

January 17th, 2012

Last week I got an urgent request from the Fin for a quick-turnaround piece on the latest plan to save the car industry. I got it done within a few hours, and planned to post it here. Alas, I was as slow in doing this as I had been fast in writing the original piece (over the fold)

In the meantime, Sinclair Davidson at Catallaxy took exception to my observation that the mining industry’s nearly-free access to minerals under both private and public land was a bigger subsidy than anything the motor vehicle industry got. In support of the miners, he quoted Mitch Hooke of the Mining Council as saying

He said the proposed new tax would hit the mining industry with such a sledgehammer that it would destroy value, deter investment, reduce growth, and affect every mum and dad who has shares of equity or provides goods.

Of course, if you deleted “tax” and put in “tariff cut”, that’s exactly the same as what the representative of every industry demanding continued tariffs or subsidies has said.

What’s striking about this is the tribalism involved. As I demonstrate in the article, as far as economic efficiency is concerned, the effects of current levels of assistance to the car industry are third-order. Yet the political/cultural right denounces the car industry, while defending rent-seekers like Hooke.

This is part of a more general phenomenon on the right that I will post more on later. It’s taken for granted on the cultural right that some technologies and industries (nuclear power, oil, finance) are good and others (wind energy, electric cars, Hollywood) are evil – essentially a mirror image of what they think we on the left think. For people who are supposed to believe in the free market, this is a big problem.

Argument stuck in second gear

The news that the Minister for Manufacturing, Kim Carr, is about to use funds from the Automotive Transformation Scheme to save the local operations of General Motors through ‘co-investment’ has prompted predictable reactions.

The terms of this debate are familiar from last century, and that’s really where they belong. In 2012, the question of whether or not the government should continue assistance to the motor vehicle industry isn’t even of second-order importance, except to those directly involved.

The idea that the motor vehicle industry is central to a modern economy was valid enough when Henry Ford set up his operations in Detroit, Michigan a century ago. Ford’s choice of location attracted suppliers and skilled workers, who in turn attracted other car manufacturers including Chrysler and General Motors. In a short space of time these firms made Detroit one of the great industrial cities of the world, and contributed massively to America’s rise to global economic pre-eminence.

But that was a long time ago. The first half of the 20th century was defined by successive advances in transportation technology, but by the late 1960s (when people were still talking about the ‘jet age’) the industry had matured. Plains, trains and automobiles today are more comfortable and efficient than those of 50 years ago, but they are not fundamentally different.

From the 1960s onwards, the focus of innovation shifted to information technology and biotechnology, which have continued to advance apace. If we are looking for industries with the potential to create an expanding network of firms, they are more likely to be found in sectors such as video game design or genomics than in the assembly lines of Ford and GM.

The only areas of the car industry where we can hope for more than incremental innovation in the next decade or two are those of electric vehicles (including hybrids). The Australian industry, with its focus on large passenger vehicles was never well placed to compete in the electric vehicle industry. Any possibilities in this direction ended when the Green Car Innovation Fund was axed a year ago.

But if the case for promoting the car industry is stuck in last century, the same is even more true of the arguments against assistance. The advocates of microeconomic reform enjoyed their glory days in the tariff wars of the 1970s and 1980s, and the care industry was their biggest target. The mere mention of assistance to the industry produces an automatic reaction, with arguments about distortions the cost to consumers and so on being wheeled out unchanged from the fights of decades ago.

Under current conditions, however, the economic costs of car industry assistance policies are negligible. The general tariff on motor vehicles was reduced from 10 per cent to 5 per cent in 2010. A standard economic calculation yields the estimate that the loss of consumer welfare is proportional to the squared value of the tax rate, that is, 0.25 per cent of the sale price of each vehicle purchased. Distortions in road pricing, cross-subsidies in insurance and many other variables are almost certainly more significant than this trivial impact.

The Automotive Transformation Scheme, with total funding of 2.5 billion over 10 years, was introduced to partially offset the impact of the 2010 tariff cut. In general, it can be expected that a subsidy of this kind will be less costly, in economic terms, than a tariff of comparable magnitude.

The ‘economic rationalist’ case against car industry assistance is further undermined by the fact that so many opponents of tariff protection lined up to support the mining industry in its opposition to a resource rent tax. As with the car industry, the miners relied heavily on claims that jobs would be destroyed unless the industry continued to be given open access to minerals located under both privately and publicly owned land. This massive subsidy is far more socially costly than the remnants of the tariff, yet the leading free-market thinktanks lined up with the political advocates of ‘free enterprise’ to defend it.

In the end, the best case for the decision to use the Automotive Transformation Scheme to support another decade or so of motor vehicle production is that the government promised to do this when it cut the tariff rate in 2010. The damage done to Australian society by another broken government promise would be far greater than that of going one way or the other on industry policy.

John Quiggin is an ARC Federation Fellow at the University of Queensland

Categories: Economics - General Tags:
  1. rog
    January 17th, 2012 at 21:18 | #1

    Dick Warburton, who also advises on climate change to the libs, argues that the car industry needs to be protected as it has national importance, in case Aust is isolated and has no access to imported vehicles. Some time in the future.

  2. rog
    January 17th, 2012 at 21:24 | #2

    The other argument put forward is that every other country subsidises it’s car industry so it is logical for Australia to do the same.

  3. Chris Warren
    January 17th, 2012 at 21:45 | #3

    Maybe we need new moral theory, where it becomes part of the standard moral calculation that the loss to ‘humanities welfare’ is the unemployment rate cubed?

  4. Robert Merkel
    January 17th, 2012 at 22:40 | #4

    One point that your column doesn’t address is not strictly an economic one, but important. Aren’t some of the other distortions surrounding car use – road pricing, for instance – at least indirectly related to keeping the Australian car manufacturing industry alive?

  5. hc
    January 17th, 2012 at 22:44 | #5

    The ATS seems to be a direct handout to transfer pricing multinationals. If you were worried about high labour costs a wage subsidy would be preferable.

    What other industries would you like to encourage with 5-10% tariffs John?

    Do you still endorse the view that such manufacturing protection provides an economically rational substitute for not levying an optimal tariff on our mineral exports?

  6. January 18th, 2012 at 00:51 | #6

    False dichotomy.

    There will be petroleum based cars and trucks for a very long time to come. There will also be electric vehicles for the urbanite. The energy density of batteries, even those that are just theory, is too low, and the cost of batteries is very high. Cars differ, especially after about 1992, and certainly since 2002, in that unlike their fragile 1950′s and 60′s ancestors, which lasted four to six years, today’s cars, both as signaling devices, and as utilitarian devices, last a decade or more. Small cars now have turbochargers for power, and are returning gas mileage that’s tolerable. Engines are much more efficient, and unimaginably more powerful. The comfort, entertainment and safety devices have made cars heavier and less fuel efficient.

    So please don’t go all utopian on us. You can’t on one hand show that technological progress is much slower than our prognostications, while at the same time assume that the current state of affairs will be rapidly altered by technological progress. The fact is that you’re illustrating a cognitive bias. It’s the cognitive bias of the ideological progressive. :)

  7. John Quiggin
    January 18th, 2012 at 05:02 | #7

    @hc I’m not making the argument you impute to me. I’m just saying that, considered as a deviation from (hypothetical) competitive prices, 5-10 per cent tariffs are so small as to be negligible, as shown by a standard welfare triangle estimate.

  8. hc
    January 18th, 2012 at 07:26 | #8

    I agree John that the welfare triangle of losses associated with paying $33,000 for a new car rather than $30,000 is not great since most of the effect is transfer to the government which will be wisely spent, no doubt.

    But this is a general argument that would seem to apply to any internationally traded good. Hence my question as to which other industries you are willing to protect in this way.

    I don’t see specific advantages in continuing to protect a local car industry that continues the Aussi obsession with medium-large cars.

    Dutch Disease problems are a concern but I’d prefer to address this by encouraging capital exports to areas of comparative advantage elsewhere as a means of taking advantage of the undervalued currencies of other countries.

  9. Chris Warren
    January 18th, 2012 at 08:15 | #9

    @Curt Doolittle

    You appear to ignore the greenhouse effect and have little knowledge of motoring industry developments.

    Electric cars based on conventional lead-acid batteries offer a 130 kilometre range (four times the distance the average commuter travels per day)

    Electric cars can charge to 80% capacity in around 10 minutes on a 200 amp AC service which gives approximately 100 additional kilometres of range per quick-charge.

    High specification electric cars With a 9″ electric motor driving each rear wheel and over 1,000 ft-lb of combined torque at low rpms, can accelerate from zero to 150 mph in one gear. They accelerate from zero to 60 mph in four seconds, faster than most exotica you can buy off the showroom floor such as the Dodge Viper, Porsche Carrera GT or Ferrari F50 and twice as quick over a short distance as most road inhabitants. They take 12 seconds dead for a quarter mile so at all legal road-going speeds, they reign supreme over all four wheelers though falling short of the fastest sports motorcycles.

    The use of 300-mile range Li-Ion packs will make them more convenient than petrol cars once the infrastructure is in place. Meanwhile, for the commuter, the car works perfectly well without any need for infrastructure.

    At this stage the main drawbacks appear to be relatively high cost, and small size. Electric cars are yet to occupy the space of ‘family vehicles’. Before getting too excited over cost, we need to know how much patent fees are embedded in the retail price. I presume most patents for average internal combustion vehicles have expired or become redundant.

    Example at: gizmag.com/a-new-breed-of-high-performance-electric-car/3069/

  10. Chris Warren
    January 18th, 2012 at 08:24 | #10

    @hc

    Tariffs should be applied to all imports from regimes using oppressed labour. They should not be applied on a commodity basis.

  11. Uncle Milton
    January 18th, 2012 at 09:07 | #11

    Nobody sensible argues that the 5% tariff is a big deal, but since it does nothing to protect the car industry, why have it at all? It’s really just a discriminatory sales tax.

    The action is in the subsidy. $2.5 billion over 10 years isn’t a lot (though I thought it was more, but I’ll stand corrected) but the car industry and its workers are no more deserving of a subsidy than any other industry. Yes, the car industry is threatened by imports. So is the bookshop industry. Retail in general is headed for a big shakeout as consumers save more/buy less and purchase an increasing fraction of what they do spend, online. The special pleading of the car industry, based on spurious arguments about technology spillovers, and even worse arguments about how everyone else protects their car industry, so we should too, has succeeded for decades, but surely enough is enough by now.

  12. Hermit
    January 18th, 2012 at 09:11 | #12

    The whole issue of subsidies is vexing as we see in the energy industry because there are ambiguities with one-off vs recurring help, then vs now and opportunity cost of alternatives. If governments give a quota or cash to Technology X they can be accused of picking winners in advance. If X doesn’t find favour then governments have wasted money, either taxes or unnecessarily high prices.

    That danger is evident with battery assist cars. My understanding is that the US congressional bailout to General Motors was conditional on a major move to plug-in hybrid electric vehicles (PHEVs) specifically the Chevrolet Volt http://en.wikipedia.org/wiki/Chevrolet_Volt. This model may be imported to Australia this year. However for whatever reasons the Volt is not exactly flying off showroom floors. Perhaps they are simply too expensive for what you get. If the government took a hands-off approach then the market would determine what people want. That could be natural gas powered cars for example which are not on the government ‘winners’ list.

    Therefore I suggest if subsidies are to be done at all it shouldn’t involve putting too many eggs in one basket.

  13. James Haughton
    January 18th, 2012 at 09:14 | #13

    @hc
    I think Prof Quiggin’s argument (forgive me JQ for putting words in your mouth) is that the costs (in terms of time and political capital expended) of changing the status quo on car assistance/tariffs outweigh the benefits of change; which is a bit different from actively introducing more tariffs.
    Like Belkar said, “hard work pays off in the long run, but doing nothing pays off right now”.

  14. John Quiggin
    January 18th, 2012 at 10:32 | #14

    As I thought was clear from the article, I’m not too fussed either way. To restate

    The terms of this debate are familiar from last century, and that’s really where they belong. In 2012, the question of whether or not the government should continue assistance to the motor vehicle industry isn’t even of second-order importance, except to those directly involved.

    The only argument I make for keeping the subsidy is that the government promised it and,having done so, they should keep their promise. If anyone wants to debate that, I’m happy to respond.

  15. Troy Prideaux
    January 18th, 2012 at 10:35 | #15

    IMHO you could make an argument to justify tariff protection, whether you agree with them or not. Can you make an argument to justify payroll tax? Both are taxes… Oh, that’s right, tariffs are evil and impose a cost to business… yeah… [sigh]

  16. Uncle Milton
    January 18th, 2012 at 10:57 | #16

    @John Quiggin

    The government hasn’t promised to subsidise the industry in perpetuity. If keeping promises is a big deal. the government could promise today that once the current program runs out, there will be no more subsidies. But this runs into the usual dynamic inconsistency problems, which the industry exploits to the hilt.

    But the premise that governments should never break promises is flawed. The PM famously promised not to introduce a carbon tax, but was forced into it by the Greens, an outcome many people have applauded.

  17. Chris Warren
    January 18th, 2012 at 11:02 | #17

    @John Quiggin

    By definition, rightwing Labour does not keep promises. Promises are only for election purposes and to feed the media.

    If big business wants something, recent promises will not stand in the way.

    The case for a subsidy, is not that it was promised, but the social good it creates.

  18. Ikonoclast
    January 18th, 2012 at 11:47 | #18

    It’s a vexed question. I now feel like I am torn at least three ways on tariffs and subsidies. I don’t really know quite what the full correct answer is or if there is one.

    I would be happy for a relatively undistorted “regulated free market” to decide prices for energy and prices for manufactured goods that are discretionary spending. However, I would have to define what I mean by a “regulated free market”. I mean free within regulated boundaries which is not a contradictory concept. For example, legal goods can be freely bought and sold at prices determined by buyers and sellers interacting but illegal goods cannot. Finance is annother example of something that needs to be regulated to encourage productive investment rather than speculation. Another way of putting this is that every behaviour, market-related or otherwise, can be freely engaged in if it is not proscribed. This is “freedom within boundaries” and it is nothing radical. It is the standard general model of organistion for most open societies.

    Technically, cars and televisions (for example) are often discretionary spending. Almost all of us could live without televisions (but not those whose living depends on television) and many of us could actually live without cars. As a basic principle, discretionary spending items should never be subsidised or protected by tarriffs.

    With cars, all fossil fuel subsidies should be removed as running counter to the logic of carbon pricing (for the negative externality of CO2 emissions). Makes of cars, SUV’s, 4WDs, vans, buses and trucks should be variously designated by the legislation and then the registration process as discretionary luxuries, valid efficient small-scale commuters, mass transit, commercial and industrial vehicles. A combination of the vehicle type and genuine intended use would inform this determination. All vehicles rated as discretionary luxuries would attract higher registration costs and a luxury GST rate but such vehicles would have no import tarrifs imposed. This would discourage consumption and local manufacture of these item.

    Vehicles rated as valid efficient small-scale commuters, mass transit, commercial and industrial vehicles would have import tarrifs but no local sales tax. This might encourage local manfacture in these useful items. Not sure if all this would work though.

  19. Jim Birch
    January 18th, 2012 at 12:01 | #19

    While the premise that that governments should never break promises is certainly flawed that doesn’t force the opposite position, that promises can be broken at will. In an ideal world we might select governments on general policy positions and allow them to implement them as appropriate to the circumstances. In practice, no one has the time to understand all government policy and a lot of people understand very little so politicians are elected to a significant degree on their (intuited) personal trustworthiness and forthrightness. Breaking promises conflicts with these qualities so even when it might actually be correct policy to break specific promises the loss of faith in the politicians – and political process in general – should to be taken into account.

  20. Chris Warren
    January 18th, 2012 at 13:18 | #20

    @Jim Birch

    Huh?

    … that doesn’t force the opposite position, that promises can be broken at will.

    Love the naivety here. The “Wages and Incomes” Accord was a Sahara of broken promises – they implemented the wage cuts but ignored the incomes. Lionel Bowen promised that, if elected, the ALP would establish labour attaches overseas (never happened).

    Keating and Hawke broke promises like eggs at breakfast.

    At local levels, it is even worse.

  21. Ikonoclast
    January 18th, 2012 at 13:30 | #21

    Nothing worse than lefties who turn right wing in middle age (Hawke and Keating) or purely out of opportunism like Gillard, though I doubt Gillard was ever anything but a self centered opportunist.

    To still be or to become left, democratic-socialist in old age is the mark of true wisdom, humanity and good all-round anti-sclerotic tendencies.

  22. Happy Heyoka
    January 18th, 2012 at 14:15 | #22

    I don’t have anything particular understanding of the systemic effects of the tax and tariff stuff.
    I don’t have any particular love of the car companies themselves, personally I think they have been digging this hole for themselves for a while now.

    I do have a lot of sympathy for the concept that supporting advanced manufacturing is a good thing for Australia in general.
    People who bring up IT and Biotech as the “way of the future” all the time fail to actually walk into these places and look around – every time I hear this I think of the “stone soup” story.
    We don’t make (near as dammit) any of the fancy equipment that those industries use… more shame on us, we probably couldn’t make much of it even if we tried.

    Making the leap into any new areas of endeavour requires that you at least have the people with the tools (and the skills to use them) to make that leap.
    Australia has an exceeding crappy track record with this.
    So if the government is going to bale out the car industry (and then they leave anyway) we should damn well make sure they leave their toys behind.

  23. Troy Prideaux
    January 18th, 2012 at 15:05 | #23

    Happy,
    I agree with much of what you say, although I’m much more compassionate for the car industry – they have tried hard and innovated well. It’s a tuff game.
    I can’t remember those free trade economic rationalists factoring in 2 speed economies and whatnot when they provided their dollar & market based mechanisms for competitive equilibriums :(

  24. Jim Birch
    January 18th, 2012 at 15:17 | #24

    @Chris Warren
    Aren’t you demonstrating what I said, ie that broken promises deplete faith the political process?

  25. John Quiggin
    January 18th, 2012 at 15:17 | #25

    @Uncle Milton
    The car promise has a specific time limit (2020, IIRC). There’s no commitment to continue the subsidy beyond the expiration of the current plan – in fact, it’s pretty clear that this is meant to be temporary adjustment assistance, to offset the cut from 10 to 5 per cent.

    On the carbon tax, it’s obvious that the formation of a coalition government (or a minority government relying on the support of another party) means that no party gets to implement their entire platform. In this specific case, the carbon price was a dealbreaker for the Greens, while Gillard had merely sought to get the issue of the table. So, the claim of a broken promise doesn’t really stand up.

  26. Happy Heyoka
    January 18th, 2012 at 15:21 | #26

    @Troy Prideaux
    Troy, my criticism is more of higher level business choices, choice of models etc.
    Even then it’s hardly an informed opinion :-)
    I have a better idea of about the technology (metallurgy, plastics, electronics, automation etc)… this is the stuff we need to keep here – my argument is that if we must subsidise these manufacturers then the price should be that we get to keep the tools and the people here.

  27. Peter T
    January 18th, 2012 at 16:08 | #27

    There’s an argument for maintaining a core of competence in critical technologies, simply because it can take 30 years or more to build (or re-build) the expertise, and the world can change a lot in 30 years. Cars are arguably a nest of such technologies: mass production, high end metallurgy and machining, plastics and so on. As for the view that these are old technologies – they seem to have a lot of life in them. Modern cars come with 100,000 km warranties, reflecting continuous improvements in machining, metallurgy, assembly etc. Same for rail – TGV anyone?

    We spent a century trying to avoid the social and economic fates of countries that are just sources of raw materials – an effort mirrored in our comparative success. If we are to keep avoiding this fate, anyone want to nominate the industries or sectors we should keep?

  28. Rob
    January 18th, 2012 at 17:52 | #28

    The thing I don’t get about public discussion about “what type of industries should we protect/keep/etc” is that the answer is pretty self evident: we don’t ssem to care about any particular industry, we make consumer choices based almost entirely on price.

    The “success” of globalisation supports this. Australians and consumers in other countries have happily sent their labour intensive domestic industries (clothing, textiles, cars, electronics, etc) into the ground, preferring imports from where-ever labour is cheaper.

    So the consumer says “I only want cheap” and the government says “no, you also want local, and I’ll use some of your money (i.e. tax) to prop these industries up, and I’ll decide who lives and who dies”. No wonder its a heated and confusing debate!

  29. rog
    January 18th, 2012 at 18:00 | #29

    The problem is the globalising of jobs, not many workers want to relocate to China or some other 3rd world country. And workers are voters so jobs is (or should) be the govts priority. No 1.

  30. January 18th, 2012 at 19:33 | #30

    I’ll just mention that I don’t think that we make cars in Australia, but we do assemble some. Some parts of cars we assemble are made in Australia, while a great many are imported. In fact I don’t think any nation builds cars all on their own anymore. At least, not the sort of cars it’s legal to drive in Australia. I don’t think nations haven’t built cars on their own for decades. Anyway, if we stopped assembling cars in Australia I’m sure we’d still continue to make bits of cars to be shipped overseas and assembed there. And if we continue to assemble cars in Australia I’m sure a very large portion of the bits will continue be made overseas and shipped here.

  31. boconnor
    January 18th, 2012 at 19:47 | #31

    It may well be that there are rational arguments in favour of subsidy of the car industry, and also true that its not excessive compared to other subsidies to industries such as mining. However, there is the bigger issue of the opportunity cost of taxpayer money and where it is spent. For instance $2.5 billion over 10 years would be better spent raising the health status of indigenous kids, or helping them become literate, or reducing the drug and alcohol dependence in indigenous communities.

    The so called “bang for buck” arguments are equally applicable to social capital issues as they are for industry capability. The impoverished rather than business should get the extra marginal benefit of government expenditure.

  32. January 18th, 2012 at 22:01 | #32

    While I agree with your article, to say “The ‘economic rationalist’ case against car industry assistance is further undermined by the fact that so many opponents of tariff protection lined up to support the mining industry in its opposition to a resource rent tax” doesn’t make sense to me. Certainly there are people behaving hypocritically, but that doesn’t undermine an objective case against support.

  33. January 19th, 2012 at 04:28 | #33

    I want to make an emotional nationalist-”masculinist” argument for protecting the automotive industry. My father was panel beater mechanic and what I remember from working in the garage was the camaraderie of men, mostly WWII vintage. It was a good thing.

    I don’t fancy a world where all men poke around in computerised chook pens. Its unmanly.

    The techies and tradies who labour in the car industry are mostly men, many of them getting on in years. If we were to abandon this industry they would be reduced to menial work, “Full Monty” style. More so since the multiplier effect would be amplified by the shutdown of regional industrial centres (think Geelong).

    More generally, the ability to make cars is a symbol of national pride, somewhat akin to a national airline carrier. If the Koreans can do it, so can we.

    Finally, cars are beautiful, the machine that most men love.

    Viva la machina!

  34. Ikonoclast
    January 19th, 2012 at 05:38 | #34

    @Jack Strocchi

    “I don’t fancy a world where all men poke around in computerised chook pens. Its unmanly.”

    And I imagine a hunter-gatherer male would say (translated into Jack’s style of English), “I don’t fancy a world where all men poke around in smelly, greasy, dingy workhuts and then walk up to a food hut and exchange bits of round metal and coloured paper for smelly, greasy long dead meat. Its unmanly.”

    Jack, you are succumbing to the fallacy that what happened in your day (or your father’s day) is a positive norm and should form the pattern for all society for all ages.

    Finally, cars are not beautiful. They are ugly and dangerous and have been the agent of more damage to the natural world and humans than any other single machine.

  35. January 19th, 2012 at 06:24 | #35

    I’d be willing to spend a good deal to avoid seeing the men Jack describes doing “Full Monty” work. (although that film also reminds me that the in the age of low emissions engines the car no longer performs its cradle-to-grave duty as a personal suicide booth).

    I wonder when/if off shoring panel beating will become practical: Give the customer a really good loaner, load 1000 damaged cars onto a ship and take them to Thailand to be fixed… Seriously, why is panel beating such a ‘cottage industry’? Are there weak economies of scale?

  36. BilB
    January 19th, 2012 at 08:46 | #36

    I heard a guy on the Drum last night suggesting that “maybe it is time to let the car industry go, and concentrate on the IT industry. Australians are highly educated and could do well in this field”.

    For starters not everyone wants to sit behind a computer every day. Secondly the automotive industry maintains the viability of our precision engineering industry, and this cross feeds to a large number of other sectors. Each section of industry that is rationalised away increases costs on other sectors, which in turn become targets for further “economic rationalisation”.

    The assumption that everything should be sought to be the absolutely cheapest that it can be is a massive fallacy.

    However, R Merkel’s comment above is a very important observation. Our whole transportation model should be put under review in the light of Climate Change and Resource Depletion, not its individual components. The cost of maintaining our means of getting around dwarfs subsidies to industry sectors that will be essential to have available as the need to adapt to Climate Change accelerates.

  37. BilB
    January 19th, 2012 at 08:56 | #37

    Seriously, Tom Davies.

    “why is panel beating such a ‘cottage industry’?”

    Broken cars are distributed uniformally

    Fixing them is not satisfactory for mass automation thus requiring one on one operation

    People who fix cars are distributed uniformally

    Sum of the above equals “cottage industry”

    Did you really need to have that explained?

  38. BilB
    January 19th, 2012 at 09:05 | #38

    boconnor

    The losses to government revenue and the increased costs through higher social welfare support as a result of allowing the automotive industry to collapse outweigh the cost of supporting that industry many fold.

    Forrests and trees. This requires a broader focus than looking at one single item on the ledger.

  39. BilB
    January 19th, 2012 at 09:27 | #39

    Gosh Curt Doolittle,

    “unlike their fragile 1950′s and 60′s ancestors, which lasted four to six years,”
    and
    “The energy density of batteries, even those that are just theory, is too low”

    What planet are you living on?

    I think that your shallow knowledge of things automotive automatically exclude you from the discussion here.

  40. mozzie
    January 19th, 2012 at 09:30 | #40

    By Hooke or by crook …

  41. derrida derider
    January 19th, 2012 at 09:52 | #41

    John’s central point – that the economic costs and benefits of this assistance are really small beer in the overall scheme of things because the assistance is now so small – is of course completely correct. Except that:

    - so long as we’re in an environment where tax increases are off the table, every taxpayer dollar given to Detroit is a dollar taken for someone else who needs it. What the federal and State governmnts propose to spend on this industryu, for example, is more than the money needed to fix our scandalously bad treatment of the long term unemployed. Fixing that would yield vastly larger gains in human welfare than we could conceivably get from bribing Detroit (BilB is simply wrong on the maths).
    - give in to one bunch of rentsekers and you become fair game for other such lobbies. And that could end up costing you a lot more.

  42. Ernestine Gross
    January 19th, 2012 at 10:10 | #42

    One implication of the theory of incomplete markets is that, relative to the theoretical (complete) market prices – the level playing field idea – all prices are ‘wrong’. IMHO, this opens the assessment of price adjustments via taxes and subsidies.

  43. BilB
    January 19th, 2012 at 10:54 | #43

    Self defeating argument, DD.

    The long term unemployed are “rent seekers” of another kind. You have to keep in mind which side of the ledger your rentseekers occupy, production or overheads. Auto industry rentseekers are on the production side. Longterm unemployed are on the overheads side. if you killoff a production side rentseeker you weaken you income base while at the same time increase your overheads. This is the Greek model for government. Are you saying that this is direction Australia should be heading?

    Addressing the needs of the long term unemployed is indeed a part of the social contract that we engage in by being a modern nation and a country in which every thing is “owned”. If the long term unemployed are indeed disadvantaged then that must be addressed. However I fail to see any connection between supporting productive sectors of the economy on the one hand, and better management of a disadvantaged social group on the other.

  44. Happy Heyoka
    January 19th, 2012 at 10:59 | #44

    @derrida derider : I personally don’t give a damn about cars or Detroit and I don’t care for corporate welfare either.
    The tools and the skills to use them? That’s different. How to preserve those things and assist the car companies without literally writing them a cheque to “hang around” is the question.

    @boconnor and @BilB : the argument that there are broader issues (such as the social captial thing) appeal to me – I’ve spent the last 30 years as an “IT professional” but I started out in a trade school and I’ve worked in plenty of factories (about a decade doing industrial automation).

    I believe I’m in a strong position to argue that the whole “they can all work it IT” argument is unmitigated bullshit.

    First we need to take into account the broad spectrum of human abilities and desires; @boconnor, the solution to your desired outcomes lies in there somewhere.

    Second, as I mentioned before, we make zero (statistically speaking) IT equipment in Australia.
    I’m pretty sure you could substitute almost any high tech manufacture into that. Chasing down that path is as dumb as saying that we can all get jobs in retail.

    What really gets me steamed up is that we have been here before, several times in our history.
    I admit that my nationalism underpins some of that feeling.

    @Ikonoclast mentioned televisions – I believe on of the reasons we don’t make them is that the (Whitlam?) government changed tariffs to make the cost of importing parts more expensive than whole televisions (ie: can’t make them as cheap as you can buy them).

    I understand the whole “buggy whip” argument, and I’m not arguing for sheltered workshops.
    My point is that there are tools and skills that are pivotal to making a leap into new types of manufacturing; you can’t get there from here ever if you loose those skills.

    There’s a great document about “Optical Munitions” in the (web) archives of the Australian War Memorial, also a DSTO document called “Anticipating Tomorrow’s Defence Needs”.
    I’m by no means a hawk, but certainly “strategic industries” is part of my thinking and both of these documents have some great historical stuff reinforcing my argument that we keep coming back to this place.

  45. Tom N.
    January 19th, 2012 at 12:00 | #45

    It’s taken for granted on the cultural right that some technologies and industries (nuclear power, oil, finance) are good and others (wind energy, electric cars, Hollywood) are evil – essentially a mirror image of what they think we on the left think. For people who are supposed to believe in the free market, this is a big problem.

    I’ll be interested to see how you unpack this statement, John, as I fear you’re probably attacking another straw economic man. Your statment basically says that the “cultural right” doesn’t believe if the free market, which is a problem because they are meant to. So, who are these hypocrits, and what evidence can you bring to bear on this matter?

    For the record, I know plenty of people labelled “economic rationalists” (and have been so labelled myself), and they and I have no preference for any particular technology over any other, except insofar as a particular technology would be able to outcompete another in an efficient market. Whether that technology happens to be nuclear, or oil or wind, so be it.

    Now, if you are willing to distinguish between “economic rationalists” and the “cultural right”, then perhaps your statement above might stand. To date, however, my impression is that you tend not to properly delineate these labels, with the effect that economic rationalists get tarred inappropriately with your right wing brush.

  46. January 19th, 2012 at 17:02 | #46

    Pr Q @ #25 said:

    On the carbon tax, it’s obvious that the formation of a coalition government (or a minority government relying on the support of another party) means that no party gets to implement their entire platform. In this specific case, the carbon price was a dealbreaker for the Greens, while Gillard had merely sought to get the issue of the table. So, the claim of a broken promise doesn’t really stand up.

    This sounds like special pleading on behalf of a sympathetic political figure.

    Gillard promised that there would be no carbon tax under her government. She is the head of the ALP government, in which there are no Green ministers. And there is now a carbon tax in the pipeline. Promise broken.

    I would like to see the proof that “the carbon price was a dealbreaker for the Greens”. I am not buying that Gillard’s minority+ government had no option to “implement their entire platform”. That implies that if Gillard had kept her promise to put a carbon tax on hold then the Greens would have voted with the L/NP in a lower-house vote of no-confidence against the ALP plus any pro-government independents.

    I can’t see that happening, although I am happy to be corrected.

    Face it, Gillard is a Machiavellian who is prepared to use bad means to achieve good ends. Whether or not this tactical philosophy is a winner is now in the lap of the electorate.

  47. boconnor
    January 19th, 2012 at 17:03 | #47

    Bilb @ 43

    I was wondering if one way to think about the issue of government money for industry vs. the poor / impoverished is to treat the government as deciding between two potential bets.

    Bet A is money to industry. The payoff is reduced likelihood of unemployment for the workers in the industry (compared to no assistance) or, more optimistically, increased employment in the industry. For declining industries its more the former than the latter. And the prevailing health of the economy is an important factor: in a buoyant economy retrenched workers may get a job elsewhere vs. potential long term unemployment in a stagnant economy.

    Bet B is money for programs that assist the poor and disadvantaged. The payoff is potentially moving someone from long term unemployment to part-time or full-time work, or reducing drug dependency, or any of the myriad negative social consequences from disadvantage. The payoff includes not only the immediate benefit to the individual so assisted but also for those around them – their partners and kids. And it includes the benefits to government of increased income and tax revenue and reduced welfare payments as people have more productive lives.

    I see them as bets because the money is upfront and can’t be recovered, and the payoff happens in the future and is uncertain. And I’m sure working out the intricacies and timeframes of the respective payoffs is difficult. But, intuitively, it seems a better choice to go with Bet B than Bet A. Bet A maintains the status quo of those already productive and by definition less in need of help than those under Bet B. Whereas Bet B unlocks human potential for people to be productive, and contributes to a society less unequal.

  48. John Quiggin
    January 19th, 2012 at 17:49 | #48

    So, who are these hypocrits (sic), and what evidence can you bring to bear on this matter?

    Here’s Jennifer Marohasy, formerly with the IPA and now running their environmental front group, AEF on wind farms
    http://jennifermarohasy.com/2011/11/wind-farms-are-useless-says-duke-of-edinburgh/

    Here’s a twofer, Andrew Bolt linking to Terry McCrann

    http://blogs.news.com.au/heraldsun/andrewbolt/index.php/heraldsun/comments/greens_kill_birds_to_save_planet/

    If you go to any rightwing site, you’ll find it taken for granted that GM’s electric car efforts must fail.

    Do you want more?

  49. John Quiggin
    January 19th, 2012 at 17:54 | #49

    A little closer to home, here’s one of many pieces on Catallaxy advocating NIMBYISM wrt wind power

    http://catallaxyfiles.com/2011/08/30/wind-farms/

    It may be that there are still some people out there who call themselves economic rationalists, but are not aligned with the right wing of Australian politics as represented by IPA, CIS, Catallaxy, the Murdoch press etc, and I would expect that any such people would take the correct pro-market line, including support for a carbon price. But since I didn’t mention economic rationalists in my post, I don’t feel any need to investigate this point.

  50. Fran Barlow
    January 19th, 2012 at 18:07 | #50

    @unlemilton note that Gillard has not broken her promise on a “carbon tax”. What we have is the preliminary and transitional phases of an ETS which she committed to pre-election.

  51. rog
    January 19th, 2012 at 19:13 | #51

    The argument against wind farms and other technologies seems to be based on “because there was once a cart drawn by a donkey all carts, or variations thereof, and all traction devices incl donkeys are doomed because they are inefficient etc etc”

    And then it is back to boiling more water for the steam driven mills.

  52. Tom N.
    January 19th, 2012 at 19:49 | #52

    Do you want more?

    The point of my post was to make you differentiate between the “cultural right” and “economic rationalists”, which your article did not do.

    In your response above, you’ve managed to cite some right wing hacks who you see as guilty of hypocracy*. Those hacks may well rank as part of the cultural right but who certainlyl don’t rank as economic rationalists if that terms is to be anything more than a convenient perorative.

    I hope that you will now carry the distinction between cultural right and economic rationalists through into future articles and blog posts.

    _____

    As Sinclair pointed out over at Catallaxy, there is not necessarily anything hypocritical in supporting lower tariffs on cars and resisting higher taxes of mining. Certainly, both policies take one closer to a “free market” (if not necessarily an economically efficient one in the case of opposition to higher mining taxes). However, that’s another debate.

  53. Tom N.
    January 19th, 2012 at 20:08 | #53

    Woops – sorry John, I overlooked the last paragraph in your post #49. Nevertheless, your article does in fact mention economic rationalists or, at least, it makes the claim that the “economic ratiionalist” case for lower car industry assistance is undermined by the fact that opponents of tariffs lined up with the mining industry against the MRRT. I put it to you that most readers would take from from that the people who ‘lined up with the mining industry’ are economic rationalists – and hypocrtics. I would thus repeat by call for a more careful delineation of economic rationalists/rationalism from the cultural right in future – or, better still, that you desist using the pejorative “economic rationalist” which is poorly understood by most readers and leads to the type of unjust smearing I mentioned in my first post.

  54. John Quiggin
    January 19th, 2012 at 20:24 | #54

    OK, as I said, I wrote the post a week after the article, and specifically used the term “cultural right” to identify a group, including, for example the Catallaxy crew. Most of these people claim to support free markets, so picking winners and losers among tehcnologies are hypocrites.

    As regards the original article, many of the people who lined up against the mining tax were self-proclaimed economic rationalists – some (eg IPA) have consistently shown themselves to be hypocrites, others may simply have been inconsistent because they aren’t very good economists, and react to words like “tax” in a knee-jerk fashion (see, eg, carbon tax). Unfortunately, it seems to me that members of the same group were more prominent among the opponents of the car policy than were the consistent economic rationalists who supported the mining tax and carbon tax. I think it weakens the presentation of a case against subsidies if those making it have just been arguing for subsidies .

  55. Peter T
    January 19th, 2012 at 23:01 | #55

    What happens if you re-frame this argument in terms of the choices that the various parts of the Australian political nation saw from the 1840s to the 1950s? They looked around and saw that Australia could be like Fiji, Mauritius and some of the West Indian colonies – a place where a small number of British immigrants lived well on the labour of imported indentured labour, a few other British immigrants lived off the first group, and some others hung around. Everything except raw materials would be imported, but those at the top would live really well. This vision had its partisans – particularly in Queensland, but some elements fitted with some British views of what colonies were for. The alternative was to develop as much of an industrial economy as could be managed, which meant tariffs, subsidies, limited non-white immigration and high wages, selections and state development of infrastructure. This vision had a wider appeal – certainly partly racist, partly fearful of Asia, but also hostile to reproducing the wide class disparities so many immigrants had escaped from, and much more committed spreading the wealth – not by politically-divisive redistribution but by building an economy where just about everyone who wanted one could get a reasonable job that paid reasonably well.

    We have thankfully ditched most of the racism, and some of the fear, and seem pretty happy with a less discriminatory immigration policy. All good things. But we have also ditched a good deal of the commitment to a high minimum wage and the accompanying commitment to as deep an economy as possible. And redistribution is always a politically messy and often long term unsustainable way to deal with need. Maybe a bit of rebalancing is in order? And if it involves paying a bit more for cars, I won’t object.

  56. Charles
    January 21st, 2012 at 07:23 | #56

    The general tariff on motor vehicles was reduced from 10 per cent to 5 per cent in 2010. A standard economic calculation yields the estimate that the loss of consumer welfare is proportional to the squared value of the tax rate, that is, 0.25 per cent of the sale price of each vehicle purchased.

    ?

    It just doesn’t make sense; you have given us the squared value divided by 100.

  57. Charles
    January 21st, 2012 at 07:31 | #57

    It just doesn’t make sense; you have given us the squared value divided by 100.

    Yes it does, you have to worry about the base when multilpying percentages.

  58. Tom Davies
    January 21st, 2012 at 08:02 | #58

    Easiest to convert the percentages to factors before multiplying, ie 5% becomes 0.05

  59. PeterD
    January 25th, 2012 at 22:54 | #59

    “so many opponents of tariff protection lined up to support the mining industry in its opposition to a resource rent tax” really? who?

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