97 thoughts on “Weekend reflections

  1. The Australian Industry Group’s opposition to the ETS and MRET is unsurprising. Conservatives always want business-as-usual even when you’d think it is no longer in their interests. The timeline if I have it right was that the ETS was conceived in late 2007, discussed at length in 2008 (Garnaut et al), watered down to near irrelevance and renamed the CPRS in late 2008, discussed even more (like now) in 2009 and is scheduled to start mid 2010. That’s indecent haste according to the AIG and they need more time to get the paperwork sorted out or something. Meanwhile Melbourne suburbs get to 48C while swathes of Queensland are underwater. I suggest the issues no longer represent business-as-usual nor can they be postponed.

  2. The opposition to an ETS, and the parallel reluctance of the US to admit its banks are dead and nationalise them, illustrates to me how much debate about political economy has degenerated in recent decades and how slavishly bound to market solutions we have become. Markets are usually the best solution, but not always. So when we have a serious problem the market can’t fix, shouldn’t we have a government solution instead?

    I was struck by this link from Tim Lambert’s blog recently:
    http://www.thebigmoney.com/articles/hey-wait-minute/2009/02/11/surprise-economists-agree
    So most economists agree global warming is a problem, the fix is affordable, and inaction costs more. Plus we know a majority of voters want action too. We also know its an example of market failure. So why do we have to find a market solution?

    If we can solve global warming with that level of spending, government should regulate to prohibit the harmful causes, spend to replace them with new infrastructure etc, and tax us to pay for it. If other countries don’t do the same we tax their imports to reflect the cost of their emissions to us. Some of our exports will be less competitive, but only by a few %, except for industries we too must restructure anyway if we are serious about solving this. If this sounds crazy, it seems from my reading that the cost is no more than the world is currently spending to (barely) fix the GFC. The spending to fix global warming would probaby restart our economy anyway.

    So I think the problem with global warming is not scientific (we know the problem), not technical (we know the solution), not economic (we can afford it), nor social (there are game theoretic solutions) but ideological (we are obsessed with finding a market solution).

    Please note this is not a criticism of those working on an ETS. If an ETS could be politically accepted that would be fine. But if it can’t (seems to be the case) then we need a Plan B. I say that is direct government action.

    Off to do the shopping.

  3. More evidence that China is in recesssion:
    China Tax Receipts Show Marked Fall in Incomes

    “Tax data show much sharper deceleration in income and consumption in the past few months than suggested by official retail sales or income growth figures,” Goldman Sachs analysts Joshua Lu, Caroline Li and Fiona Lau wrote in a note today.

    Also, Setser on China’s falling exports:

    China’s 17.5% y/y fall in its January exports is far smaller than the falls in the exports of other major Asian trading powers. Japan is down 46%. Korea, 33%. Taiwan, 44%.

    That strikes me as one of the key puzzle’s of today’s global economy. One potential explanation is that China is taking market share. One potential explanation is that the big fall in China’s exports is in the pipeline, as China is the last stop in Asia’s assembly chain. And one potential explanation is that a significant domestic downturn in China is adding to the downturn in the exports of other Asian economies.

    Which prompted this amusing comment:

    Another potential explanation: the Chinese government figures are lies.

  4. Regarding the idea of a boycott of Pacific brands, last year I remember reading about legislation in the Australian Parliament that would make the advocacy of such a boycott illegal. Is this the case?

    A related but separate question, would the TWU fall afoul of the law by blockading the transport of Pacific Brands machinery out of Australia.

  5. All this hand wringing about executive salaries is just silly. Companies should be able to pay whatever they like for their executives. All the government needs to do is add a marginal rate to the tax scales of 90 cents in the dollar for any compensation package (including share options etc.) over $500K.

    You can live a very good life in Australia on $490K per annum. But if a company wants to spend more than that on its executives then that’s fine – the government can always use the extra tax revenue for the good of the common wealth.

  6. Socrates says, “So most economists agree global warming is a problem, the fix is affordable, and inaction costs more. Plus we know a majority of voters want action too.”

    This is the case and yet we cannot get any meaningful action. This tells us much about the current ineffectiveness of our democracy and the stranglehold that undemocratic corporate influence has over public policy.

    Rudd’s “do-almost-nothing” policy gives free kick after free kick to the big corporate polluters and shafts the public twice over. One, we pay for the current (in)action in dollar terms and then we pay again as climate change decimates our economy, our environment and finally us.

    The key struggle of our time is to wrest power democratically away from the corporations and back to the people. Corporate power must be severely restricted and effective democratic power re-established.

  7. Ikonoclast

    I agree. Hayek only got it half right. There are two road to serfdom; one is a too big government trampling over individuals. The other is a too small government not stopping powerful private interests trampling over individuals. Ironically, serfdom was largely created in Russia by the Boyars, because the central state was too weak.

  8. #8 Socrates, I agree with your comment.

    “There are two road to serfdom; one is a too big government trampling over individuals. The other is a too small government not stopping powerful private interests trampling over individuals.”

    Economists amongst us should recognise that to ignore a broader concept of equilibrium is a danger. The holy grail economists seek is not so small as to be restricted to mere equilibrium in the market for goods and services.

  9. This tells us much about the current ineffectiveness of our democracy and the stranglehold that undemocratic corporate influence has over public policy.

    I doubt it is corporate influence that gives pause to the Rudd government after all they rolled back Work Choices. I suspect it is the likely corporate response to an aggressive ETS and the subsequent knock on effect to voters that gives them pause.

  10. Rudd has been snookered by the same people who caused trouble in the late 80’s early 90’s on dealing with AGW – the Fergusons and Grays in the Labor party. And Heather Ridout simply played the usual waiting game – make soothing noises until the deadline is near, and only then start to say that there is a problem with the legislation/conditions/implementation blah blah blah. The Waiting Game is well known among experienced politicians but Rudd seems to have been blind-sided and has panicked. Furthermore, in setting such a low initial target Rudd and Wong have played into the psychology of people going “Why make an effort if that is all we are aiming for?”

    I have taken Kevin Rudd at face value on this election promise. If he is unable to deliver a meaningful cut by a meaningful deadline, then there isn’t going to be another chance at this. With the way the current targets are going, I’m beginning to wonder if Rudd wanted to back out of ETS all along since winning the election. I suspect that the government is effectively counting on AGW being totally incorrect, meaning that the government hopes there is no anthropogenic component to any warming, and also that there is no warming (via CO2, methane, etc) anyway.

    Am I being too harsh on Labor here, or are others feeling discouraged too?

    [PS: Personally I reckon AGW is quite correct to the degree of understanding that we can have at the present time: meaning that there is a warming trend that is statistically significant, that CO2, methane, etc provide the forcing via the greenhouse effect, that the human contribution to GHG is statistically significant YoY, that we have adequate models for quantifying the response of the atmosphere, ocean and land, and water in all of its phases, to have qualitatively correct results from simulations and boundary value problem formulations. As measurement technology improves so too will the models.]

  11. John, the Pacific Brands saga is in its infancy but until the government’s audit of the company’s finances become public, Australians will be in the dark as to whether any fraud was involved. However I do believe the whole of Australia is behind the unions collective action in trying to stop the company from moving its machinery overseas unless as TWU national secretary Tony Sheldon says ‘the company repays $17 million in Federal Government assistance’ back.

  12. A lot has been said about the corrupt or unethical practices of bankers, ratings agencies, regulators and deregulators. Bonuses paid by directors to themselves is another case in the news. The Coalition says that the problem would be solved if legislation made shareholder approval necessary. As institutions are major shareholders, and these institutions are run by peple who vote eachother bonuses, isn’t this another market failure?

  13. Bruce @14

    I believe there have been a few celebrated instances where shareholders have rejected the remuneration report presented at the annual general meeting (Telstra?). If the vote was binding directors may think twice about their recommendations for bonuses. But your right, major institutions are probably going to side with the directors. There is nothing so sanguine as a chairman with a pocketful of proxies from a compliant institutional investor.

    If we were really going to be radical we would change the corporations law to give each individual shareholder one vote independent of their actual share holding. Now that would turn the shareholder/director power arrangement upside down!

  14. Pacific Brands behaviour compares poorly to Mitsubishi. When they closed their Adelaide plant I recall they paid back some of the government funding they had received, and paid workers full entitlements too. So much for our patriotic Aussie companies.

  15. Bruce

    Exactly. The directors have much to answer for in corproate excess. The problem si the way they are appointed. Most shareholding is tied up in funds. How can fund members complain about the behavior of their fund managers? Retail funds still only have a vountary code of conduct. It doesn’t matter what we do with corproate regulation as long as this loophole is left open.

    Interestingly, after the collapse of Enron, only one investor sued the directors (successfully) for breach of fiduciary duty, recovering some millions. It was the trustees of the California Schools Board Pension Fund. None of the retail fund investors pursued it. Some of the directors were their appointees of course.

  16. Re Pac Brands,
    buried in the corner of a newspaper last night , was a Gillard statement on about secondary boycotts being illegal, blah, blah.
    A sort of IR equivalent to Garrett’s pro Gunns environmental nonsenses or Wong’s “conservation” measures and rhetoric re Darling/Murray. And we never learn, when it comes to Labor.
    “…new boss, same as the old boss;
    won’t get fooled again”.

  17. re carbonsink #4
    US GDP shrinks 6.2%
    Age website

    February 28, 2009 – 9:03AM

    Do note that this figure, like the 3.8% figure, is one quarter’s figure times 4 (‘annualised’). So in 6 months the US economy has contracted by 2.5%, which is still severe, but not as scary as figures quoted by journalists (who generally forget about the “annualised” bit).

  18. Socrates i am coonfused as to why the political barriers which stop an ets would dissolve for direct government action. I think that the correct goernment actions are no more likely than the correct market mechanisms.

  19. What i mean to say if the lobbies are gonna lock us in to 5% reduction then it will not matter if we use an ETS, Carbon tax or direct government actions we are still gonna fall well short of what needs to be done.

  20. El Mono

    True but I suppose it depends on whether the obstacles are internal or external. If internal what you say is true. If external then perhaps we need to resort to a unilateral approach, rather than trying to get multi-lateral agreement. It seems to me that the task of getting an ETS to work makes it harder because its too easy to defect at every stage. Whereas with direct action, once the commitment is made, it will proceed. Either way though, I agree with previous comentors that the whole ideology of free markets for everything needs to change.

  21. Hi all – Im chaning my nom de plume to Alice (and thats because at times I think Im living in wonderland) eg Bruce #14 says (referring to excessive executive remunerations..)

    “The Coalition says that the problem
    would be solved if legislation made shareholder approval necessary.”

    Then why didnt they do it when they were obscenely excessive and when they had the chance when they were in government? Lets not kid ourselves.

    This is politicking only.

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