42 thoughts on “Weekend reflections

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

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

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

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

  2. Suggested stories and reading:

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

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

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

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

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

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

  4. hc@19

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

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

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

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

  5. #28 Jill Rush – I alluded to the relation between property developers and politicians in my post at 22adn 23. It is worth noting that the direction of influence in that relationship can potentially go either way.

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

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

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

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

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

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

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

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

  9. Thanks Kevin, for responding (#8).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  12. Donald,

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

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

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

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

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

    I took the liberty of correcting a typo

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

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

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

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

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

    ‘Nuff said by me for now.



  15. #40 I think you are spot on about the D-reforms. They were to bring academia into the public service and thereby under political control. However my experience was that the (full-time) teaching academics were also meant to be research academics but with full time loads in both areas. Which is ridiculous and I’m glad to have left. With respect to Alanna’s point about wages – I left in part because of the 80 hour weeks but primarily because of the vicious internal politics which were beyond disgusting. I guess if I had been paid twice as much I could have put up with it for a few more years.

  16. #40 HECS would be improved if all fees could be paid by HECS loans, and if Universities could teach whatever courses they wished, as many as they wish and charge whatever they wished. Universities would get an amount for research and they spend it however they wish. The size of the research grant is a base amount plus an amount of money they collect from HECS paid by research students.

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

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

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

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

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

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

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

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