Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.
- Comment
- Reblog
-
Subscribe
Subscribed
Already have a WordPress.com account? Log in now.
John Quiggin 
Said Tony Abbott on 2GB this morning:
“The thing that worries me, Ray, is what were the regulators doing? I mean we all know there are greedy people everywhere, including in banks … but banking is probably the most regulated sector of our economy – what were the regulators doing to allow all of this to be happening? …
“My fear is that at the end of this royal commission we will have yet another level of regulation imposed on the banks when, frankly, what should happen is, I suspect, all the existing regulators should be sacked and people who are much more vigilant and much less complacent [should] go in their place.”
Abbott is 100% correct. ASIC especially needs leaders who will bring to the organisation a culture of enforcement and prosecution, not make a deal over a cup and tea and Iced VoVos.
@Smith
As if the regulators weren’t first under the thumb of the Abbott and Hockey government.
The problem is not just the regulators. Company boards have to show due diligence, transparency, and report problems to ASIC. In the case of AMP that did not happen.
http://www.afr.com/brand/chanticleer/banking-royal-commission-time-for-amp-to-show-board-accountability-20180419-h0z0m1
I found it disconcerting that the Chancellor of the University of Queensland has been a member of the AMP board since 2016.
All of the best management and regulation on all matters social and economic are of negligible worth if the fundamental structure that we depend upon is in destructive decline.
That structure of course is the Environment which is in imminent danger due to Global Warming and now very rapid Climate Change. Arctic environment in collapse, Arctic permafrost in retreat, Antarctic ice being undermined and substantial key Glaciers in danger of rapid ice release, the North Atlantic Overturning Current declining in strength, and Australia heading towards a Winterless future with agriculture impacted heavily by season change and inland water resources under severe stress even at this early stage of climate restructure.
For these reasons, today I called my local Federal Senator’s office, Doug Cameron, and Mark Butler’s office to call for a Royal Commission into Australia’s Response to the Threat of Climate Change.
The most common question asked at any seminar, lecture, discussion, etc on Climate Change is “how do we get this message through to politicians”!
A Royal Commission is the only way to ensure that every politician in Australia is confronted with the true scientific, environmental, economic, and social reality of the threat to all Australians due to the dramatically changing climate that we are all now confronted with, and do this in the absense of priority vested interest bias, “persuasion” and propaganda.
I will be following these calls up with emails and registered letters.
I ask that anyone who has a love for all things Australian, and a sincere concern for the future well being of our children and their children, also make the calls to your local Members of Parliaments and make the same call.
The courts are also part of the problem. ASIC had some big losses early in the 2000s and has been gun-shy ever since. It seems clear in retrospect that the financial institutions had the legal firepower to find loopholes and that the appropriate response was to close them, ideally with retrospective effect, as was done when the Barwick High Court undermined tax law in the 1970s.
@BilB
The elites live in a protected bubble. They are the last to feel any ill effects and yet they make all the decisions. It’s not a recipe for proactive action. By the time it gets bad enough for the elites to take action it will be much too late. The question is can we pressure them into action in time? It looks tight, not much time left now.
Just one example: CNN : Day Zero deferred, but Cape Town’s water crisis is far from over.
Indeed it is tight, Ikonoclast, but determination for political accountability is essential, especially right now as Turnbull and Freydenberg proceed to trivialise Climate Action in favour of the “CO2 emission business as usual” direction that we here know will demolish everything that we appreciated in our younger lives and hoped equally for grand children.
Please, Ikonoclast, make the calls to your Members of Parliaments. Help to Put them on notice that the people of Australalia are demanding that they properly up hold their duty of care to us and all future Australians, and that we need to publically see that they fully understand individually the real scale of our environmental peril. We need to see Australian politicians face the full body of science individually and collectively and explain the basis for their past present and future decisions.
@John Quiggin
ASIC gets plenty of wins in the courts against small players who have committed relatively minor offences. But ASIC doesn’t have the guts to after the big end of town who regards it, with complete justification, as a pussycat. ASIC needs to get people with an attack dog mentality who are relish the fight against the biggest players and who do not get intimidated by $10000 a day lawyers in $10000 suits.
“The thing that worries me, Ray, is what were the regulators doing? I mean we all know there are greedy people everywhere, including in banks … but banking is probably the most regulated sector of our economy – what were the regulators doing to allow all of this to be happening? …”
The most regulated sector but they don’t have a reserve asset ratio. Without a reserve asset ratio banking is a massive looting operation. Without a reserve asset ratio, all the other regulations is just the thieves way of dividing up the spoils between them.
Does anyone ask themselves why ought a central bank be offering cheap credit to private banks on a permanent basis? We don’t take an intellectual approach to this. We may have been born at night but it wasn’t last night and we ought not be letting these proven failures and welfare queens steal off us.
Not only did Abbott slash ASIC’s budget; they pushed self regulation as a means to diminish the costs of regulation
Government has an objective of lowering regulatory costs on business and improving market outcomes for consumers, by encouraging self-regulation, where this is the most effective option for addressing an identified problem. The Government also has the objective that industry should take increased ownership and responsibility for developing efficient and effective self-regulation.
@Smith That sounds like hiring Clayton Utz to go after the banks.
@rog The policy of self regulation/cutting red tape was during Howard.
Perhaps if directors were made personally liable self regulation would be more regular. The precedent could be ASIC’s win over Storm Financial.
http://www.asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-277mr-directors-of-storm-financial-found-to-have-breached-their-duties-under-the-corporations-act/
@rog
Nothing will change until high-profile business people go to prison for a long time. And not just the occasional light sentence for outsider mavericks like Rodney Adler, but lengthy stretches inside for establishment figures.
@Smith
I agree with you but the raison d’etre of an establishment is that its members be rich, privileged and above the law. That’s what it’s all about. You cannot reform the establishment. You have to dismantle it completely.
@BilB
#4
I agree with anyone who maintains that the ecosystem (environment) is the crucial factor for all economic social systems, past, present and future, irrespective of the names attached to the institutional (including cultural) socio-economic systems.
The critical question is then, how fast does the ecosystem renew itself relative to human usage of this system.
If the natural renewal rate is less than the human usage rate then there is a debt accumulation problem, which, in contrast to monetary debt, cannot simply be wiped out for future generations.
In the more recent past, efforts have been made to answer the critical question. Much of this research is taking place in France.
Obviously, methods to answer the critical question are complex and, no doubt, subject to much discussion. However, even if one takes the research output as only indicative, rather than measurements, then real debt accumulation is THE problem. By ‘real debt’ accumulation I don’t mean monetary values ‘deflated’ by some ‘inflation’ measure but the series of usage rate of the ecosystem exceeding the renewal rate.
The link https: / / www overshootday org/ (remove extra spaces and insert a dot in the obvious places) provides an introduction to the topic.
Now, your post, BilB, is related to the banking royal commission. I have convinced myself (if not others) that the net monetary debt generation ability of the financial system constitutes an important if not the uniquely critical mechanism for the excessive usage of the ecosystem. My reasoning is that net debt generation (ie the system wide debt exceeds the system wide savings) makes a claim on future periods ecosystem that could not be made without it. As net monetary debt grows (as it has), the ecosystem disequilibrium problem grows. There may be a secondary effect which enhances the primary disequilibrium problem. Debt demands that people ‘work hard’. But ‘working hard’ (to get more money) tends to increase resource consumption (eg working 2 or more jobs typically involves more transport to get from one to another job, etc.)
The foregoing is the basic reason why I don’t concur with JQ regarding debt financed government expenditure solving contemporary economic problems (except very short term, like in the response to the GFC to avoid a downward spiral of all monetary prices and mass bankruptcies). Redistribution of wealth within countries and, over time, across countries, seems to me to be a necessary step to take, after bounds have been placed on the financial system.
None of what I say excludes grass root measures, including entrepreneurship, micro-businesses, and, if you like, internal trade among family members.
I am amazed Newspoll has Labor ahead 51/49 when 2 weeks ago it was 52/48[Malcolm’s Waterloo].
This is after the evidence of Banking etc. corruption and Coalition complicity . Come on !
Ernestine as an inventor, entrepreneur, manufacturer and net exporter I tend to agree with the a performance based economy which operates cash ahead. This is what responsible business does, as disinct from the Harvard (my perception of) business model which seems to promote maximum exploitation.
As you mention overshoot (thanks for the link), frankly we are way past that. A simple metric which I have heard from various sources is that humans are now moving more material (other than air and water) than all of natures process combined by a factor of between one and ten, and we use stored fossil fuel from some 300 million years ago to achieve this large depleting that stock in just 150 years. Some people convince themselves that this is OK because nature is replacing the coal on a daily basis,….not so. I recently picked up the fact that the only reason why there is the amount of coal stored in nature is because at the time of the laying down of this massive amount of vegetation, the microbes that feed on vegetation to produce CO2 had not yet developed so the dead trees just layed down and accumulated. In today’s world dead vegetation is aggressively attacked and broken down and CO2 is released in the process.
For some time I have been attempting highlight the folly of buring coal just to make easy economic performance. The fact is that the coal is the richest form of condensed carbon on earth. Once it is all consumed collecting carbon for the manufacture of goods becomes massively more difficult. When coal is burnt for its energy alone it is dispersed into the atmosphere, 50% into land and vegetatgion and 50% into the oceans. Recovering that carbon from the broad environment is not possible other than from the plants.
Our future physical world will depend on ready access to Carbon, and right now our genius politicians are demanding that this be squandered just to keep their business friends secure, and the environment be dammed.
The fact is that this consumption is not even good business. The kilo chunk of coal that Morrison and Joyce were passing around in parliament was worth just 10 cents as a fuel for energy. However that same chunk of coal when used to make Carbon Fibre for the building of the many products that make our economy vibrant, it is worth (the final product) $50.00, a 500 fold difference in economic value. Not only that but the carbon fibre is totally environmentally stable, moreso than bio char, and becomes permanently sequesterred as useful products, planes, cars, moulded products, buildings , etc, etc.
The fact is that once our economy has transitioned to predominately renewably sourced energy, the vast quantities of coal can be sipped away at to responsibly become the building material of an advanced civilisation that does not destroy its environment simply to achieve economic growth.
Responsible use of fossil carbon is a very simple concept, but is invisible to those who cannot think beyond their present life process.
One of the most confronting realities before us is (I did not make this realisation my self it was another blogger who did and I criticised him as being wrong until I did the calculation to discover that he was right) that to enable the life style of every man woman and child in Australia 7 kW of energy is consumed 24 hours 365 days per year. And that is all fossil energy consumption more than two thirds of which is wasted as unuseable heat. That is a staggering amount of energy, and I invite you to do the calculation yourself. The good use is that an renewably electrified economy will need just one quarter of that at just under 2 kW of energy to power our lives continuously. That is far more managable from a renewable perspective. Another little fact to tuck away is that my next trip to London (and every one elses for that matter) requires the consumption of 27 megawatt hours of energy. Guilt quilt.
So keep that little fact in mind, for a family of four the daily national energy load is around 200 kWhrs per day in an energy decarbonised world. Also though in a fully decorbonised Australia there are many other efficiencies that will bring that energy load down much further.
However to my #4 post, what I am really doing is recognising that we are right out of time for starting Climate Action, there is no time left for self serving ideologues, the energy action war footing must commence now. The only way that this will happen is for there to be a process that puts politicians aside and gets down to fully understanding the science and actions are put into motion to decarbonise our economy. Turnbull’s 28% is just straight up obstructionism and cannot be tolerated.
That is why I am calling for a Royal Commission into Australia’s Response to Climate Change.
The only connection with the Banking Royal Commission is that it was the activity that triggerred the notion of that process solving our environment problem.
I have a lot to say about debit funding, but I am more interested in the origin of the funds being sourced. I believe that the global credit oversupply is due to the huge amounts of funds sloshing around the world in tax havens looking for high return opportunities to earn even more funds for the crooks that stole the money from their parent economies. I would be interested in a process that determines provenance of funds, meaning that undocumented funds could be confiscated by governments under certain circumstances.
@BilB
I just read all of your long post and I agree with all of it on a first reading. I mean this except for the last para on debt. I haven’t properly considered your debt comments yet.
Thanks for your support, Ikonoclast.
I just sent this to Will Steffen at the Climate Council, and I will pledge $1000 to the Climate Council if they publicly engage in calling for a Royal Commission.
“As a lifelong environmentalist I follow Climate Science closely. What I am seeing as the most common question after seminars, addresses, lectures, etc is
“how can we get this message through to government?”
Scientists rightly point out “we are scientists, that is what we do, and advocating is not what we do well!”.
…and they are right, being good scientists is what we need them to be.
The other aspect of the material we are seeing now is that the Arctic environment is in rapid decline, the Arctic permafrost is collapsing, now it is clear that the Atlantic overturning Current is being affected by Greenlands ice meltwater, Heat is penetrating further into the Arctic Ocean, key Antarctic glaciers are being undermined by warm currents and are at risk of accelerated ice shedding, sea levels are rising and could rise more rapidly that previously thought, and Australia is moving steadily towards a Winterless climate.
The situation is dire and time has run out for our Australian Politicians.
For this reason I am calling for a Royal Commission into Australia’s Response to the Threat of Climate Change.
Whereas I would like to support various aspects of the Climate Council’s advocacy programme, I see that such support would be futile without resolving the glaring issue of Australia’s conservative politicians refusal to understand the degree to which Australia’s Climate is threatened and their refusal to act responsibly in the environmental interests of all Australians.
If the Climate Council takes up the call for a Royal Commission I will donate generously to promoting that outcome.
I look forward to having some real hope for the future of my daughters
Yours Sincerely“
I imagine that the aspect of my debt comment that applied your brakes was the notion of confiscating funds. A simple international transaction tax managed by the United Nations for the benefit of solving human and wildlife sufferring globally would be the vehicle. Pulling that one off would take a collection of trully incredible leaders.
By the way I wish I could remember the name of the blogger who identified the 7kW per person figure. I was not kind to him, and had to later apologise when my brain had caught up with the reality. To him I apologise yet again. It is truly a vital understanding, and it was a very succinct way of quantifying it.
@Ernestine Gross
Essentially, I agree with your comments on the environment and debt. For my own interest, I have been researching and writing essays on metaphysics (specifically on monism, complex systems and ontology in general) and applying my conclusions to economics.
Long story short, I have come to the conclusion that economics must start with ontology. Economics has to start out by deciding its framing ontology, what are to be the basic units of analysis in economics? What are the basic existents of economic import and effect, have these been reliably demontrated to be fundamental existents and how do these existents interact? If one does not get this right then all the economic theorising which follows will be false.
Mainstream or neoclassical economics commences with Cartesian dualism which no doubt relates to the time of the historical development of mainstream economics. This can now be seen to be a grave error, in my view. Cartesian dualism has been insupportable since science moved on from mechanistic science to systems science and ideas around relativity, uncertainty, complexity, adaptation, evolution, supervenience and emergence. These developments in science demand that philosophy, especially metaphysics, reform itself or become obsolete. They also demand that mainstream economics reform or become obsolete.
Monism, specifically what I term Complex System Monism, is now the only supportable position. The cosmos is a single monistic system. This philosophical thesis may be developed out from the success of relational theory in physics and thence into metaphysics as a requirement that all systems, including even mind systems, be regarded as physical; this being, in the first instance, a physicalist position. Working from one monistic complex system with all existents as relational and interrelated sub-systems of the whole system, one generates the theoretical position where all phenomena may law-bound i.e. subject to universal laws which might be discoverable. The regular laws are the only dependable things we can discover.
We may contrast this with Cartesian dualism which propounds two “substances”; 1. Physical stuff like a rock or a human body and 2. Non-physical stuff like a mind or soul. Cartesian dualism then posits an unknown and, in principle, unknowable boundary between physical and non-physical substance. We cannot know the characteristics of this boundary nor how it transmits anything from information to impulse between the non-physical and physical. All the laws of physical science are useless for explaining the interactions at this boundary and what might exist hypothetically on the other side of this hypothetical boundary.
There is a wrinkle in that banishing the category of “non-physical” means the term and category of “physical” also will have no meaning. What is left for examination are existents, which turn out to be sub-systems of the entire monist system, the cosmos, about which existents we pass no judgement on their essential nature for we cannot. They are to be regarded as neither ideal nor physical. What remains for investigation is the uncovering of “universal laws” describing relations between existents. We aim then to discover universal laws or approaches to universal laws so far as we can and to use knowledge of these laws for connected explanations and directing of causation effects to our ends and requirements.
Mainstream economics has not, to my knowledge, relinquished its Cartesian dualism framing. This is really the basic reason for its making both historically and even today, its egregious errors of ignoring biosphere system inputs (both stock and flow inputs) to the economic system. One does not have this kind a blind spot if one sees reality as only the macro system (the cosmos) and thence as systems within systems “all the way down”.
When it comes to formal systems (like the legal, ownership and financial accounting systems of capitalism) these are also real systems in one sense (there being nothing but real systems in the cosmos) while being formal systems in another sense. Real systems and formal systems are nominally and epistemologically separate categories but are not ontologically separate categories. The key here is that real systems have “laws” like the laws of physics but nominally formal systems have rules. They have rules which humans make. Formal systems can be “axiomatic” in the sense that following the rules of the formal system can axiomatically lead to certain outcomes. What you describe with a debt-driven system, where formal rule sets are used to “command” the economy, is a situation where the direction set by the formal rule set system can run counter to the real requirements of the real system, the biosphere or an ecological system in that case. I hold that Cartesian dualism, as an ontology, is at the base of this economic mistake, this mis-contrual of real constraints being non-existent or non-operational for economic purposes.
We find a particularly florid expression of the Cartesian ontological mistake in this passage from
an ealry essay in the Neoclassical mode. It comes from “The Philosophical Basis of Economics: A Word to the Sociologists”, Sep. 1897, by Sidney Sherwood. He opens;
“This paper is a study in social causation. Its aim is to show that the acts of men in society, social institutions, and social changes are the creation of the choices of individuals. Individual choice, however, is governed by the economic law – greatest satisfaction with least sacrifice; greatest utility at least cost.
The fundamental and general science of man’s activities, therefore, is economics. Economic science, if it would fill out its legitimate scope, must follow the workings of the economic law into all the lines of man’s choice and into the formation and change of all social institutions. The self-conscious, self-willing, self-acting individual is the unit of investigation. Social causation must be traced along lines of psychical not physical forces. Society itself is the creation of choice and choice is always essentially economic. In other words society must be studied primarily in its relation to individual mind – not in its relation to the physical cosmos.”
For goodness sake, what are “psychical” forces? We are actually enjoined to study society via economics “primarily in its relation to individual mind – not in its relation to the physical cosmos”. Could anything sum up better how the philosophy of Neoclassical Economics gets its basic ontology and thence its basic units of investigation so wrong? I don’t think so.
Another solar milestone. The trade website pvinsights.com reports that the average spot price ex Shanghai (or maybe Taipei) for basic polysilicon solar modules has fallen below 30 US cents per watt. Higher-quality modules (PERC poly, mono, and thin-film) are all below 40 cents per watt. This is a trend, not a cycle.
Every day above ground is a Pyrrhic victory.
@BilB
I am not familiar with the expression “cash ahead”. Does it mean making a cash profit or does it mean first having the cash and then investing or something else.
Your point about the importance of coal for carbon based manufactured things may not be generally appreciated. Is it possible some advocates of coal fired power station are totally unaware of it and therefore assume if coal isn’t dug up now for generating electricity the deposits are ‘wasted’? I have no independent knowledge in the area. However, my gut reaction to reading your comment was: Why doesn’t everybody talk about this?
The tax haven problem is an additional problem to the net debt generation I mentioned. The former is an important regarding public debt as well as wealth inequality that has grown to an extend that cannot be understood in terms of different abilities, efforts, and circumstances such as being at the right place at the right time. The latter is directly related to environmental resource usage. The usage of environmental resources is brought forward in time by net debt (ie not debt for which there is a corresponding saving). With say 2 billion people and a once off net debt creation, there may not be an observable effect in the ecosystem while people may well feel they are better off. But let population grow and let net debt grow period after period after period such that a money economy system is created where more and more net debt will be required to stop a system collapse, then we get to an ‘overshoot’ problem in the physical system. At such a point the most tenuous link between wealth measured in units of account we call ‘money’ and wealth in terms of the resource base is broken. I don’t want to be around when this happens everywhere.
Electric bus anecdatum: chart from BNEF reporting their assessment that the impact of electric buses of oil consumption is four or five times higher to date than that of electric cars.
******c1cleantechnicacom-wpengine.netdna-ssl.com/files/2018/04/BNEF-Diesel-Conusmption.png
This isn’t surprising. The market share of electric buses in China is a quarter, ten times higher than that of EV cars; and buses do five to ten times the annual mileage of cars. The impact on air pollution is even more disproportionate.
Ernestine Gross,
At their website, PlasticsEurope say;
“Plastics are derived from natural, organic materials such as cellulose, coal, natural gas, salt and, of course, crude oil. Crude oil is a complex mixture of thousands of compounds and needs to be processed before it can be used. The production of plastics begins with the distillation of crude oil in an oil refinery. This separates the heavy crude oil into groups of lighter components, called fractions. Each fraction is a mixture of hydrocarbon chains (chemical compounds made up of carbon and hydrogen), which differ in terms of the size and structure of their molecules. One of these fractions, naphtha, is the crucial compound for the production of plastics.”
I recall reading elsewhere that a lot of our plastics precursors come from natural gas and oil refinery by-products. Coal is probably harder to use for that purpose; harder meaning it would likely take more energy and create more pollution to create a given amount of plastic.
Plastic pollution is a major waste problem from the global economy.
https://news.nationalgeographic.com/2017/07/plastic-produced-recycling-waste-ocean-trash-debris-environment/
Ernestine Gross made some excellent points. The link between the so called ‘money economy’ and the ‘real economy’ is one many writers have ponder over for more than one hundred years. John Maynard Keynes pointed out that the ‘money illusion’ will always distract economic managers who tend to be reactive rather than proactive. Social costs and benefits are always hard to quantify. The real wealth of a nation lies in its population not in its trade. Malcolm Turnball is a politician so cannot see the wood for the trees. It is much better to spend money on health and education than it is to spend money trying to get free trade deals. His mantra of “Jobs and growth” would be funny if it was not such a tragic distraction to the real needs of our nation. Creating low paid casual jobs is no substitute for improving our human capital.
Follow-up. BilB was talking about carbon fibre. However it is mostly used with plastics and the manufacture route for CF looks as bad environmentally as that for plastics;
“Carbon fiber reinforced polymer, carbon fiber reinforced plastic or carbon fiber reinforced thermoplastic (CFRP, CRP, CFRTP or often simply carbon fiber, carbon composite or even carbon), is an extremely strong and light fiber-reinforced plastic which contains carbon fibers.” – Wikipedia.
“About 90% of the carbon fibers produced are made from polyacrylonitrile (PAN). The remaining 10% are made from rayon or petroleum pitch.” – ZOLTEK.
“Polyacrylonitrile (PAN) was first synthesized in 1930 by Hans Fikentscher and Claus Heuck in the Ludwigshafen works of the German chemical conglomerate IG Farben.” – Wikipedia.
“All commercial methods of production of PAN are based on free radical polymerization of Acrylonitrile (AN).” – Wikipedia.
“Acrylonitrile is produced by catalytic ammoxidation of propylene, also known as the SOHIO process. In 2002, world production capacity was estimated at 5 million tonnes per year.[3][10] Acetonitrile and hydrogen cyanide are significant byproducts that are recovered for sale.” – Wikipedia.
“Acrylonitrile is highly flammable and toxic at low doses.” – Wikipedia.
With modern production you can follow the money, you can follow the chemistry or you can follow the waste streams. In all cases, what you discover does not make you happy.
@Greg Pius
Agreed. You write; “The link between the so called ‘money economy’ and the ‘real economy’ is one many writers have ponder over for more than one hundred years.”
Some of my own self-directed research has lead me to the consideration of real systems and formal systems and how they interact. The biosphere is a real system. The ‘real economy’ is a real system. The rules of government, institutions, the legal system, the financial system and even customs are all formal systems. Even language and mathematics are formal systems.
I’ve developed a schema which examines the interactions of “laws” and “rules”. The term “laws” is used for the discovered hard laws of real systems. An example would be the “laws of physics” or as a more specific example “the laws of thermodynamics”. The term “rules” is used for the rules of formal systems. Thus I point out that legal laws, for example, are actually “rules” made by humans just as are say “the rules of the road”, traffic rules.
Rules in many cases can be made one way or another way. For example, a road rule could be to drive on the left hand side of the road or on the right hand side of the road. However, it is possible for rules to be congruent with real systems or to be incongruent and to break the laws of real systems. The latter is a rule which cannot be followed. We can make a rule (legal law) to execute those found guilty of murder (not a good idea morally in my view). But if we make a rule “legal law” to retrospectively give life back to someone who was wrongly executed, we cannot make the rule functional.
If we make rules or a rule system which is in essential contradiction with real systems but this contradiction is sufficiently time dealyed (like the climate crisis) then we can think our rule system is okay as it is currently successful by standard measures.
There is another aspect to this. Our rule systems can become so complicated they have internal conflicts and internal dynamics. Internal conflicts can persist. Put it this way. In some, perhaps many, formal systems you can “run through a brick wall”. In real systems you cannot “run through a brick wall”. The formal system furthermore can have internal dynamics which set you up to run into a brick wall, first formally and then in reality if you persist with strict adherence to that formal system.
Thomas Piketty recently discovered and demonstrated an internal dynamic of capitalist economy ownership and financial accounting which means that: “If rate of return on capital is greater than economic growth then inequality increases”. More and more wealth goes to fewer and fewer people. This is what I can an “axiom” of the formal system in question. If the condition is satisfied then it is axiomatic that the result will follow. There is no limit in the formal financial system. However, the real economy has real people in it. Because of various psychological and biological imperatives (the latter including the need to eat) real people cannot tolerate an endless downward spiral into increasing immiseration.
Now, it is possible for other rules to be invoked and implemented to alleviate immiseration. However, these reactions are often grievously delayed just as our reaction to deal with climate change is dangerously delayed. It would be better to early on discover and elucidate the axiomatic dangers of the formal system and amend the formal system (the actual ownership and income stream laws of capitalism in this case) before the system has run too far down the wrong track.
For this schema to work first philosophically and finally economically, we have to return to ontology. What needs to be posited is a schema of nested real systems within a single real system, the cosmos. The a priori justification (and adherence to Occam’s razor) for such a form of Complex System Monism is the success of Relational Theory. The overarching and implicitly monist principle in modern physics is that of Relational Theory.
Form this it follows that all sub-systems of the monist system are also real systems. This leads to a minor crisis in the ontology when one attempts to develop out how formal systems could come to exist in real systems. The resolution of this question sheds a great deal of light on all the questions under investigation from ontology to economics. I am time pressed now but I can return to this point later.
Ernestine,
In my little world operating cash ahead is running a business without an overdraft.This requires that you have to have sufficient cash to cover bills as they fall due. You may have a property mortgage or have lease financed equipment (both of which are secured against an asset of sufficient value to cover the rfesidual debt in the case of a failure), but operations are self funded and secured.
Why don’t people talk about carbon as an important asset to be preserved? Because the penny hasn’t dropped on that one yet. There is an assumption that carbon is easy to come by, its every where..after all trees just appear out of nowhere and they are made of carbon aren’t they. Twenty years ago,….and it is important to understand that that time frame covers the knowledge base of most of our politicians….the fact that the substance of trees was drawn predominately from the atmosphere was not generally appreciated. There is a very significant difference between knowledge and understanding. Knowledge is information in a database (mental) that can be drawn upon if needed, understanding is “experienced” knowledge, knowledge that is in constructive use. So whereas many people “learnt” about CO2 in high school, if that “knowledge” is not understood then it is next to worthless as an asset of…..forethought….ie before the accident. I once bailed up the then New Zealand’s minister of energy and environment, Richard Prebble, wit hthe question “ there is a huge tree in a field, twenty years ago it was not there. This tree is solid and strong, where did its substance come from? How did it become to be there?” He did not know that the mass of the tree was drawn from the CO2 that exists in the atmosphere in a trace form, and yet he was making decisions about new Zealand’s Environmental future and the future use of New Zealand’s fossil fuel assets.
That is why people don’t talk about Carbon as a valuable asset. Empirical evidence suggests that Carbon is easy to come by. Economic evidence would say the very opposite. It is about perceptions, and perceptions are what we base our prejudices and preconceptions upon.
As you say tax havens are a consequence of greed low moral principles and corruption, and a problem all on their own (there is an interesting loop own now won).
Regarding your thoughts prior to the money consequence, this is a bit like looking at mathematical equations by rearranging their operators to understand them from various perspectives.
I once put together a concept for what I called an Economic Power Factor Analizer for Policy Decision Making.
This looked at an economy from the perspective of Fuels…Engine…Accelerators…and Brakes.
(As it was in 1992 and for what it is worth…)
Fuels are
Ideas
Opportunities
What you get from Nature for Free
The engine includes
People
Human energy
Communication
Establishment (infrastructure)
Commerce
Planning
Services
Machinery
Accelerators include
Population Size
Entusiasm and Quality of Life
Depth of Philosphy (understanding)
Satandard of education
Pertinence of the knowldge Base
Co-operative Structure
Connections
Fluid Wealth
Foresight
Tangible goods and services provided from Taxation
Overall Degree of Automation (this is a very impotant factor for which there used to be an index)
Applied New Technology
Quality of Environment
Returns on Exports
Brakes include
Age and Health
Level of Unemployment
Standard of Living
Racial Intolerance religious Zeal
Taxation
Nature of Government
Defence Spending (degree of national paranoia)
Cost of Crime
Indebtedness
No of Hierarchial tiers in Organisations
Age of Technology
Cost of R&D
Environmental Protection Cost
Cost of imports
__________________________________
For most of these items there are parameter and assumption based researched relationships.
The Economic Power Factor for any intended change was measureable by the sum of the total function. The intention is not to define an economy, but to determine the relative overall impact any collection of new policies would have. I am neither an economist nor an academic so I could not complete or test the concept, but for what it is worth there it is. Most importantly it is an attempt to remove decision making out of the realm of rhetorical argument and into the realm of quantitative evaluation ecompassing all factors, not just the economic ones.
Take not of Sarah Kendzior, a very talent young lady from whom we will hearing more and more.
Ernestine I would appreciate it if you had a look at the Capital Growth Restrained Property Title concept at http://www.cgrpt.com , the message is not very well laid out but most of the information is there. I would appreciate your thoughts. I think you will find that it works towards minimising individual indebtedness in our present day ponzi world.
Cgrpt become necessary due to the changes that John Howard’s government made in 1997 (just 20 years ago) and the roling impact upon our lives and economy.
In principle John Howard killed the Australian “Fair Go” in 1997.
Donald Trump killed the American Dream in 2018.
Vladimir Putin killed world order in 20xx?
We want to think very hard how we can create a society noted for labour shortages. Thats the only way we can be free people. Of course it has to be in the context of falling debt and not growing debt. That ought to be obvious since growing interest-bearing debt of any kind (public, private, domestic or international) is not sustainable. As well it should be a regenerative situation ecologically.
Now this ought not be too difficult. Yet if I were to go to Catallaxy and ask this question I’d be banned right away. Try it some time. You will be ignored and if you can no longer be ignored you are likely to be banned.
@Ikonoclast
Your @21.
“The Philosophical Basis of Economics: A Word to the Sociologists”, Sep. 1897, by Sidney Sherwood.”
If you consider Sherwood to be an authoritative source on Neoclassical Economics, then I agree with you regarding Cartesian dualism. Note, my agreement is conditional. I am not an expert on the boundary of Neoclassical Economics. I don’t know whether it is possible to classify economic writings in Economics into distinct and not overlapping categories; I doubt it but I don’t know.
Interestingly, the Cartesian dualism has been mentioned to me as a critique of economics while I was working at a management school. It made no sense to me since the notion of ‘preferences’ is not the same as psychic. (For example, it is observable that people want to live as long as possible. This observation is representable by strictly convex preferences defined over dated goods and services. Rational individuals will therefore try to ‘consume’ stuff which sustains their lives today, tomorrow, and they plan to do this for as long as they can do it. IMO, the link to the physical world is quite obvious.)
I have used the term ‘the philosophical basis’, too. However, never in the absolute, as Sherwood does, but only in relation to a particular theoretical framework. Hence one (I certainly do) can conceive economies differ over time as well as over space or both due to different philosophical bases. These differences are reflected in the institutional environment.
Economics has developed since Sherwood wrote. I am confident in saying that all major theoretical work since at least the 1950s do take the physical (natural) environment into account one way or another and environmental economics has developed into an increasingly important specialisation.
I am grateful you quoting from Sherwood so extensively. It is the first time I can see where you are coming from regarding ‘neoclassical economics’.
@Ernestine Gross
I hope you have also read my post 29. It might make my views a little clearer.
In your view, I appear as a layperson uneducated in economics (true) and seemingly attacking a 19th C straw-man construction of economics. Having lived through the monetarist and neoliberal “counter-revolution” in economics, as a worker and as a citizen of Australia, it does not seem to me that Sherwood’s views are a straw-man. It seems to me Sherwood’s style of views remains contemporaneously powerful. Such views still walk among us today, perhaps as what J.Q. would call zombie ideas.
Daniel Kahneman quotes Bruno Frey second hand, “The agent of economic theory is rational, selfish and his tastes do not change.” Then Kahneman critiques this view in his (Kahneman’s) essay “A Psychological Perspective on Economics”. I am not so much interested in the critique here as in the similarities between Sherwood’s and Frey’s formulations which are about eighty years apart. To me there does not seem to be much change. The Frey view appears to be the Sherwood view repeated.
I am also not much concerned with the “rational” part of the formulation. I can envisage an elaborated definition of “rational” as “bounded rationality” with other qualifications, for example, notions of “rational choice” condensing into habit. (1) Kahneman deals with the other issues and I am happy enough with his conclusions, at least provisionally.
The problem I have is not so much with the idea of the “rational agent” and the other factors, at least as Kahneman has indicated they are being re-worked. No, my problem is with the notion that economics in toto can be developed up ontologically with these “fundamental units” as the starting point. This seems to be the position of neoliberal economics if not modern neoclassical economics: namely that all economic phenomena can be explained by rational choice and markets
The very notion of “fundamental units” (fundamental existents) from which an economic theory is built up is wrong in my opinion. It’s an ontological mistake. Economics needs to be a “relational theory”. Relational Theory presents a system model which regards all that is existent, in the scope of the discipline, as a single, unified system such that the positions and properties of objects, processes and fields are manifested only in relation to the positions and properties of other objects, processes and fields. Specific local properties are conferred, with greater or lesser influence according to time-space separation, field influences and other factors, by the interrelations of all parts of the entire system.
That last definition is drawn from physics and it is clear we cannot make a simple transposition of physics method to economics. That would lead to another kind of mathmatico-deductivist nightmare. But it is clear that economics or rather an economy must be regarded as a complex system where each and every part of the system (parts being sub-systems) conditions and determines (and is conditioned and determined) by every other part of the system.
The problem is to find a method (methodology) which deals with the extensive complexity and emergent behaviours of such systems and in particular deal with the difficult issue of real systems and formal systems (institutions, ideologies, financial systems etc.) interacting.
If we limit ourselves to choice and markets, we have left about 90% of the system out. Earlier ideological and moral choices condition how we construct the market. The availability of real resources conditions how we construct the market. How we construct the market conditions what we do the environment which conditions what the environment does to us and our markets. And so on.
As I say, we need a method, in theory and in practice, to deal with this complexity and it actually involves (in my view) a reduction in the importance of markets as decision and allocation systems. Science (for example) and direct statist action, in a democratic polity, guided by science would become more important. The correct response to market failures, in some critical issues, is not to seek to amend or extend the market, making it more fundamental to our economy, but to bypass the market completely and act immediately.
Note 1: I might have commenced buying a coffee brand ten years ago because I thought it was the best tasting and I was willing to pay the price charged for it. I keep buying it to this day and never revisit my decision. Unbeknownst to me, there might be a better coffee (to my taste) on the now much longer and more crowded shelves for the same price. But now I am a creature of habit and laziness and am more concerned about the time opportunity cost of tarrying in supermarkets and less worried about the money cost of the coffee. None of this fatally wounds the “rationality” thesis.
“As I say, we need a method, in theory and in practice, to deal with this complexity and it actually involves (in my view) a reduction in the importance of markets as decision and allocation systems. Science (for example) and direct statist action, in a democratic polity, guided by science would become more important. The correct response to market failures, in some critical issues, is not to seek to amend or extend the market, making it more fundamental to our economy, but to bypass the market completely and act immediately.”
Its not as complicated as you guys are making it out to be. There are some very fundamental reasons why our current policy settings don’t deliver the goods like the Austrian and British Classical schools would let us believe we ought to expect. But they are all tied up with taboos. This is the same in many areas of science. For example modern physics and cosmology. The oligarchy just hammers in certain taboos and then the rest of us make things more complicated then they have to be.
@Ikonoclast
To be frank, I don’t read all your posts – you write so much and so fast. One point though after skim reading.
It is quite possible but not surprising that ideas, theories, points of view, like those of Sherwood are not only alive within the current populations but are also revived in public policies even though they have long ‘died’ in the Economic research literature. It is not surprising because it is impossible for each member of a society to do nothing else beside keeping up-to-date and contributing to Economic research – who would grow the potatoes? In short, your coffee brand selection example is an example of a general state of affairs regarding the dissemination of information among time constrained humans. Bounded rationality is a term sometimes used.
Yes, life on earth is complex. But even more so than what you seem to think because there is not one socio-economic system in the global economy but many that may be partially linked and they evolve over time. I would suggest an important factor is the memory in each individual’s head, memories that include ideas (philosophical ideas), customs, traditions, life experiences, formal education, …., observing how his own coffee brand selection changes over time. I wish you good luck in arriving at a description of THE complex ‘system’ that is so general that you can cope with all of this and without using mathematical objects and high level abstraction. Assuming you will manage, would it be democratic, in whatever broad sense you wish to interpret this word, if you then demand everybody has to think in conformity?
Some time ago, you wrote in one of your many posts something to the effect: ‘We all try to make sense of our lives, using whatever method we happen to be familiar with.’ This made sense to me.
@Ernestine Gross
For sure, I could just be mythologizing to try to make sense of my life and the little slices of philosophy, history, economics and real life I have come into contact with. Blog debates with you certainly give me pause and I feel less certain about some of my ideas after these debates. This prompts me to try to refine my thinking and strongly reminds me that I will likely persist in many errors until I die.
In retirement, after paid work, I set myself a goal of better understanding the world I find myself in. Metaphysics (and ontology specifically) certainly walks the line between mythology creation and the generation of ideas which might be testable. My favorite quote on this matter:
“The best that can be done is to supply a hypothesis, not devoid of all likelihood, in the general line of growth of scientific ideas, and capable of being verified or refuted by future observers.” – C. S. Peirce.
But that too is a conceit. Who would pay attention to my ideas? Ultimately, it becomes akin to that form of fishing which is simply about passing time and not catching fish.
@BilB
“the fact that the only reason why there is the amount of coal stored in nature is because at the time of the laying down of this massive amount of vegetation, the microbes that feed on vegetation to produce CO2 had not yet developed”
The microbes took a good while to evolve an answer to the evolutionary development of lignin in woody plants. In that time a large planetary recycling process took a huge hit with much refuse going to landfill. The Carboniferous Period ended with a minor extinction event: the Carboniferous Rainforest Collapse. We don’t have 60 million years to fix current problems, but as for history pre-history also rhymes.
Pre-historic Nature got back to recycling ‘waste to life’, but now with the cessation of shipping waste to China the Australian Government, is opting for ‘waste to energy’ via incineration, with much of that waste originating in fossil carbon feedstocks. So it’s to be more fossil carbon derived Frydenberg energy, producing yet more atmospheric carbon pollution, to presently accelerate our “Great Dying” rhyme already accentuated like no other before.
@Ernestine Gross
Putting aside my existential angst (expressed in #36), the issue is about “possible worlds”. I mean that phrase in an everyday sense and not in any specialist philosophical sense. You seem to demonstrate a considerable scepticism about planning: that we can’t plan and implement the world – social, economic and environmental – that we want, at least not at the macro level.
I happen to think it is the matter of degree we differ in. I am sure there are many endeavours, including socioeconomic projects, which you agree people in our system can plan, like the building of a university or an airport. However, it seems to be that conscious planning to change parameters of the system itself is where we part company. I advocate going further in that direction than you accept as possible or advisable. However, even I see limits and risks. I have stated, somewhere above, that I couldn’t envision going further than worker cooperative firms competing in a market socialist economy. I also stated we would still need, in that vision, a welfarist state and a social wage to support those people who never become members of a worker collective or drop towards precarity from a failed one.
So, I can’t envisage how the state would wither nor how we could run a modern economy entirely without markets. I don’t even know if those would be a wise or a foolish goals. That’s the limit of reasonable vision in that direction in my view.
When it comes to risks, I think there are risks in excessive radicalism (like proposing a stateless, marketless socialism when we don’t have a clue how that could possibly work) and risks in excessive conservatism (like proposing that we reform neoliberalism a bit back towards welfarism but that we don’t need to tackle the more fundamental issue of the current institutional constructs of the ownership of the means of production).
Thanks for that comment, Svante. That lignin fact I only learnt recently, but it explains a lot.
I don’t engage in many topics any more as it is a pointless exercise to attempt to resolve so many minor issueas when the one glaring issue, the one of the continuity our future living environment is intentionally ignored.
This interview from Arctic News website spells out what I am saying.
The climate picture is changing dramatically while the the political picture is static. The problem is that politicians are not competent at understanding how the climate will change, how and to what degree it will impact on our lives, and then how and at what rate to react.
What will certainly occur is a food equivalent of Cape Town’s water shortage. Only once it happens there is no fix, people will die simply because our food supply system is based on a day to day demand and delivery. Nobody carries long term food stocks in their homes, nobody preserves and stores.
Do we have to have a national crop failure before we can say publicly that the Denialist Liberal National Country Party are derelict in their duty to the public?
@BilB
You are right about the political picture remaining static. We tend to blame politicians and billionaires but the political problem is with the mass of ordinary people. They don’t understand the enormity of what is happening ecologically and in the biosphere. They also don’t understand the truly radical level of change we would need to make to our political economy and thence to our methods of production and modes of living to have any chance of avoiding civilisational collapse.
I tend to avoid public gatherings and celebrations but my better half dragged me to the opening ceremony of the Commonwealth Games. I enjoyed the indigenous elements but overall the “ceremony” or rather the entertainment was kitsch. At another level there was this disturbing disconnect between the myth-making of our culture (the earth is our mother and we will care for it) and what we are actually doing to the biosphere and ecology. This disconnect is going on all the time in our modern system.
To run this entertainment, we burned more fossil fuels, we used lots of plastic objects in the celebration and then we brought in the white whale Migaloo in effigy. From the novel Moby Dick, there is no clearer symbol of our destructive rapine and pillage of the environment than the hunt for the white whale and the intended celebration over its carcass. In the novel, the whale escapes. In reality, we fill the oceans with plastic including plastics from our celebrations about how wonderful we humans are and how much we care for the world. How many in the crowd could see that contradiction? And was Melville right to depict the white whale escaping? If the whale is a symbol of all nature animate and inanimate, then nature will indeed remain after humans and real whales are all gone.
Political change won’t come until we see what I call “salutary disasters”. These will be serious disasters unambiguously attributable to climate change and which will harm, dislocate and kill hundreds of thousands of people. Then humans will know the seriousness of the situation and finally do something significant. However, because of delayed feed-backs, momentum in the system and tipping points, it may be all too late by that point.
BilB at 30
Sorry for the delay in responding.
1. Net debt system wide vs net debt for an individual actor (businesses, households, governments).
Thanks for telling me what you mean by ‘cash ahead’ and associated information about the financial structure of your enterprise. Essentially, you are talking about responsible management of a business enterprise in the sense that net wealth – owners’ equity – (in accrual accounting) is always strictly positive and therefore there is no ‘net debt’. (Whether or not a business uses an overdraft is not crucial; it depends on the business.)
In my original post I didn’t talk about ‘net debt’ of economic agents (businesses, households, governments). referred to system wide net debt. The financial system generates debt (‘money’). Borrowing and lending via a banking system or otherwise among economic agents is not a problem. On the contrary, borrowing and lending enables agents to transfer purchasing power (via buying and selling financial securities, including bank deposits) across time and space and it is quite possible that some agents have a net debt for some period of time (eg student loans). This is not a systemic problem.
In my original post I was talking about system wide net debt generated by the financial system, ie generating ‘money’. This feature of the system is quite well known in economics and for a long time. Many argue this is a good thing because it facilitates ‘economic growth’. Yes, but. The but concerns where is the limit. As is evident from Roy Radner’s work in the mid-1970s, there is no natural limit on the numbers written on financial securities. The system is fundamentally ‘unbounded’ (in contrast to the physical world).
During the Keynesian monetary system, governments and central banks had more tools than now to limit debt creation via the financial system. (Using these tools allowed providing a bound on the system – talking on a more abstract level.) IMO, JQ’s position on debt financed government expenditure makes sense under the Keynesian monetary system but not now.
2. Socio-economic modelling. You provided a list of factors that need to be considered. There is one important one missing: What are the thoughts on ‘how the economy works’ of every other individual in a society? And, how do these various mental models of individuals interact with each other? May I refer you to my post to Ikonoclast @ 35 regarding the difficulties one encounters in economic theorising and economic modelling. As an aside, it seems to me macro-economic models are so popular in the media as well as in some business enterprises because of the deceptively small number of variables and the apparent mechanical nature of the thing. Strange though, these public commentators don’t seem to notice the endless contradictions.
3. Housing. I don’t believe creating a capital capped title is helpful. The reasons why there is a housing affordability problem in Sydney and Melbourne are, IMO, quite well understood (debt, taxation, population growth, developer influence and associated speculation – called ‘wealth building’). Suppose the state and federal governments had borrowed from the central bank funds to construct public housing instead of private banks lending to real estate investors and giving capital gains tax concessions and allowing negative gearing. IMO, the housing problem would not be as serious as it is now. So, instead of capital capped titles I see the financial market and the taxation system to be the major contributing factor to the housing problems in Sydney and Melbourne. (Sydney and Melbourne are not the only cities experiencing similar problems globally.)
None of what I said negates the problems created for public finance by off shore tax havens.
Late stage monopoly finance capitalism is a giant swindle. It works against the environment and against the people (other than the top 1%). The system is unsustainable. It will collapse spectacularly and catastrophically at some point. I though it would collapse by 2020. I very well may be wrong. We might make it to 2030. It seems highly unlikely to me that we will make it to 2040.
Hi Ernestine,
2. Economic modelling. The notion of the Economic Power Factor Analyzer wasn’t to create an economic model ie a simulation of the economy in which to observe changes, it was an attempt to create a device to determine the probable potency of policy proposals to a more complete spectrum of socio economic factors without needing to commission a study in the first instance.
3. Housing. You don’t believe that the capital growth restrained (not capped, growing with incomes and inflation) title would be helpful, for various reasons, okay, but how does that opinion assist people, the very large number of people don’t get a chance to afford a place to live in the mature community where they were born? It is one thing to know how a problem developed, and to be able to say that if this had not happened and if this policy was undertaken then we would not have the problem. It is the hind sight thing. It is another thing to be able to make the situation fair for all participants. The problem is that the situation HAS devloped and there is no way of undoingthe past.
The community to function needs people of a full variety of means to be able to live together. The property market model with opportunistic policies serves only the highest bidder and not the community. In our reality the only incomes that are increasing are those of the top 20% of income earners as the balance of income earners must compete with economies with much lower standards of living. Our major capitals are heading down the same path as cities such as San Francisco where in order to buy property one must have an income of $300,000. Sydney will over time be the same, but how are the 60% of the population with incomes insufficient incomes to afford the lowest priced houses to either buy or rent?
There is absolutely no doubt that the capital growth restrained (not capped) property will produce permanently affordable housing by my evaluation. i am keen to hear why you think it will not. So far you have redefined the problem. How would you correct the probelm from this position? you can’t unilaterally declare properties to be of a lower value, as that would collapse the economy. Building social housing requires government investment, management, and becomes a permanent temptation for overspending governments.
Consider the situation. There is a need for 3 million affordable homes over the next twenty years. The current property market cannot deliver dwellings for less than the market mean value, and these dwellings are therefore automatically too expensive for those on $60,000 or less. Lower incomes are static, property values are dynamic but only in the positive direction, upper incomes are steadily increasing and there is a steady supply of wealthy immigrants seeking a secure lanscape who will pay the market price what ever it is. How do you service the housing needs of the 60% on lower incomes?
Good evening BilB,
1. Economic modelling (Economic Power Factor Analyzer). You clarified the list by noting the idea is to “create a device to determine the probable potency of policy proposals to a more complete spectrum of socio economic factors.”
I assume you justify the word “probable” by pointing to empirical research on individual items. Unfortunately, in socio-economic contexts, research is often if not always out of date, some more so than other, when policies are based on it. An important example of this is M. Friedman and others having based their policy recommendations on data from the Keynesian era. The adoption of the recommended policies (some more than others, depending on the particular society), resulted in a different data set. So, as a rule of thumb, empirical research is useful only if policy changes involve small changes, say changes in parameter values but no changes in the set of parameters. I know ‘evidence based’ policy is a popular argument for quite some time and yes, evidence is necessary. However, not without asking whether the evidence is relevant in the context of a particular situation.
“Potency” per se is not a sufficient criterion for evaluating policy because a very potent policy can have disastrous consequences for a lot of people.
Your list indicates to me, rightly or wrongly, that you feel policy makers don’t think through the consequences of their actions. There is a lot of fragmented information on various items but coordination is missing – frustration all around.
So, at least one needs criteria for evaluating policy. Now, what are the contemporary important issues? Although not all people (including economists) may not put it that way, I believe when one distills the long lists of concerns, issues, complaints, then the following items crystallize:
a) Financial stability (not in the sense of banks not going bankrupt but in the sense of sustainable financial services such that housing, share market and other asset bubbles are avoided, …. among a long list of other problems, some of which are coming out in the Royal Commission )
b) Income and wealth inequality within countries and across countries
c) Environmental degradation
So, every policy proposal should be evaluated by requiring that it improves at least one item without making any of the remaining two worse. Do this for say 10 years and observe the consequences.
2. Housing. It is true I wrote one counterfactual after giving a short description of the known reasons for the housing affordability problem. The counterfactual does contain one policy measure though and there is nothing to prevent implementing it.
Your capital growth constrained idea, like UBI, goes in the direction of cementing a class society; a cast system. While I have no problem with income and wealth not being numerically equally distributed (people do differ in terms of abilities and efforts and not only good luck), there is somewhere a line between a reasonable degree of inequality and a cast system. I believe it is important not to cross this line by accident (ie the best intentions leading to an unanticipated and difficult to correct negative consequence). My belief is related to the notion of ‘minimum wealth constraint’ found in all theoretical models of ‘competitive private ownership economies’).
Using the above decision making framework, I would propose:
a) Financial sustainability: Eliminate negative gearing and capital gains tax concessions, introduce an inheritance tax on the beneficiaries (not too punitive, but progressive, linked to number of direct descendants, with a reasonable tax free amount for each beneficiary, excluding family businesses, particularly rural properties….) to be used for public housing, eliminate first home buyers grants, impose huge taxes on houses and apartments that are left unoccupied for longer than say 6 months and, if necessary, restrict lending for housing further (the small APRA measures are showing signs of being effective). I would be surprised if such measures wouldn’t send a clear signal to overseas investors that their are no speculative gains to be had from real estate transactions in the land of downunder. Yes, house prices would decline or at least not rise for quite some time, the NSW State Government would have to become a little less ambitious in spending revenue on constructing new stadiums, etc.
b) Income and wealth inequality. The housing affordability problem is a problem of income and wealth inequality. Therefore, the measures in item a) would not make this problem worse.
c) Environment. In my memory the fashion for McMansions followed the TV series Dallas. Architects I have listened to say these McMansions are unsustainable in the sense that the construction method and size of these houses use too much energy and the buildings, which are close to the edges of the properties reduce area for the planting of trees, which in turn increases the demand for air conditioning (in some areas wildlife suffers too.) Smaller dwellings, leaving room for trees and water storage, are more affordable because the construction costs are smaller too.
Ernestine Gross,
Good policies. I would agree with those to initiate a progressive program. However, I believe we have left change too late on the environmental front. The climate is destabilising now, as are ocean currents.
https://www.technologyreview.com/s/609642/the-year-climate-change-began-to-spin-out-of-control/
Hi Ernestine,
2a. Caste system. Not so. One of the key advantages of the CGRPT is that due to being locked to the CPI (I asked Bill Mitchel if this index was suitable and after running through some options settled on the simple and well understood CPI) any grants, concessions, bequests, benevolence, discounts that can be applied in the creation of the property (land plus building and improvements) become “locked” in the title, ie remain permanently available to owners. The problem with first home buyer grants is that they serve to add pressure to house prices and are cashed up to the benefit of the receiver at the first sale, and so every new home buyer must be given the same advantage. Under the CGRPT a first home buyer grant is a grant to all future buyers of that same property.
Secondly as CGRPT properties become steadily cheaper relative to market stream properties an owner has the advantage of a better savings profile relative to the high morgage loaded market stream buyer, and so has a better standard of living and different investment options. CGRPT properties are projected to be half or less the price of Market stream properties in the same area at the time of title creation. This is possible for a range of factors.
The whole purpose of the title is to make property available for an income bracket in a market that makes property ownership impossible. The fact is that the “cast” is already in place only these people are street living, couch surfing, house cramming (shared rental). These people have no present nor future prospect for property ownership of even rental affordability without a “breakout” option such as CGRPT. There are a number of organisations attempting to achieve the same thing as the CGRPT but with Torrens Titles and Covenents. The problem with those initiatives is that they generally are dependent on the longevity of a managing organisation and so their future is clouded by the possibility that in the future those organiations will change their nature, as is the case with government created and owned social housing.
The CGRPT title makes it possible for governments to stimulate the creation of permanent social housing without any direct permanent involvement or responsibility. The properties once created remain permanently affordable to the income bracket that could afford tghem at the outset.
Corporate buyups: it may be required for the CGRPT’s for some time until the stock has expanded to the optimum level to require that any person renting a CGRPT will have after 2 years occupancy an automatic right to buy that property from its owner. With this rule the temptation for corporate operators (of the likes of Jarred Kushner) to buyup the whole free CGRPT property stock for rental exploitation will be subdued.
The reason why changing the negative gearing and capital gains taxconcessions rules at this stage is not a solution is simply because this will do nothing to property affordability for the several million people currently locked out, and locked out by a huge factor of 2…not a minor unaffrodability. Property values will not fall the 50% required to solve affordability problem, if for no other reason than if they did, this would collapse the economy.
The one suggestion put forward by a housing supplier that actually made sense was to……
Take the negative gearing away from investors,……and give it to first home buyers,…for a ten year period.
This would reduce the buying pressure from investors and increase the number of first home owners in the market without applying new pressure to prices.
One of the larger user groups of CGRPT’s is projected to be the property downsizers. This is the group who have windfall property wealth but minimal cash to fund their retirement. These people will be best served by being able to create a CGRPT property at the much lower cost, and bank the difference between the cost of the CGRPT and their heritage property. The other advantage is that the length of their need for the CGRPT will be much shorter than a family buyer, and so the CGRPT that they created will be made available for reownership sooner.
Thje CGRPT concept recognises that very few people profit from the capital growth of the property that they live in in their life time. Revenue from a market stream property sold is fully required to buy another and the stamp duty for the transaction is substantial.
Sales of CGRPT’s will mostly be direct sales not requiring an agent so the combined savings further serve to advantage the “caste”.
2b. Understanding the nature of the problem, again, does not solve it as the disparity is so huge.
2c. The hidden reason for the McMansions is that when subdivisions are planned they are planned to maximise the return from the opportunity. The achievable price is determined, the land is priced to optimise its profit, and the building is planned to maximise the return to the speculator and guarantee a quick sale at that price. The price of the building does not reflect the cost of producing it, profits are huge.
I wil come back to the other items tonight. I have to complete a body of work post haste.
BilB,
You had asked me to look at CGRPT and comment. I’ve given you my opinion and there isn’t anything I feel I should change as a consequence of your post @47.
I could add a few further criticisms arising from #47. (eg what if CPI grows faster than Torrens title prices? Downsizers (retirees) have many other options, eg moving out of Sydney and Melbourne. Your 2b is not a good idea. Solving problems without understanding the nature of the problem often if not always results in solutions that are new problems; 2c is an argument in favour of public housing; the public sector is not as inefficient as is often maintained. The system of negative gearing, capital gains concessions and first home buyers grant seems to have been designed by someone whose objective it is to cause a Fed government budget deficit; the CGRPT isn’t going to stop this. There isn’t a need for ‘negative gearing’ for first home buyers; making interest payments on home loans tax deductible would do – long before the the hike in house prices and rents in Sydney during 2016 and 2017, I suggested on this blog-site to allow a 50% tax deduction of interest payments for owner-occupiers and reducing tax deduction of interest payments by investors to 50% as a means to scale down this glaring problem with the taxation system.)
So far JQ hasn’t stopped these lengthy discussions on the Monday Message Board. Perhaps we shouldn’t overstretch his generosity.
Thanks very much for your considered input Ernestine, it is very much appreciated.
This is a good reference graph to help appreciate the scale of the income disparity. ACT and NT are interesting.
Pleasure, BilB. I did like your “the cast is already there”. Thanks for the reference on State income distribution data.