Last weekend reflections got spammed, so I’m opening another, which makes space for longer than usual comments on any topic. Side discussions to sandpits, please.
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John Quiggin 
Ernestine Gross, in the un-degraded version of Weekend Reflections suggested that proposed higher tobacco taxes were officially to combat sickness effects and unofficially to fill a budget hole, but surely reducing the health cost of smoking addresses a budget drain in a structural way. Any outbreak of long-term thinking by politicians is to be applauded.
However, the textbook assumptions of inelastic demand leading to higher tax revenue need some nuanceing. It seems that younger smokers are much more price-conscious with a 2011 Treasury paper on Issues in Tobacco Taxation reporting Australian price elasticity of demand as about 0.53 and income elasticity of 1.5. (I guess the latter means that the general increases in income over the last 20 years in particular mean that smokers increase their consumption ceteris paribus. But non-smokers taking up the habit as they can afford it? That doesn’t sound right.)
Age is a factor, and Treasury also reported US estimates of 0.8 for teenagers and 0.1 for adults. Researchers report that youngsters also are more susceptible to advertising imagery so plain packaging may be a big factor in the observed reduced consumption. ABS CPI measure suggests prices still going up (9% year to June 2013 on my calculation). This is interesting because the companies suggested that plain packaging would cut out a mfg cost, so reduce retail prices and increase quantity sold through competitive pressures. Apparently not.
@kevin1
You refer to the “un-degraded version of Weekend Reflections”. I suggest we all try to keep it un-degraded. To this end, I see a need to correct your first paragraph and comment on the others.
I did not suggest what you say I did suggest. In the predecessor Weekend Reflections I made a statement about a Rudd government policy proposal, based on a smh article, which I referenced. It is only the first part of your sentence, namely, “… proposed higher tobacco taxes were officially to combat sickness effects and unofficially to fill a budget hole…”, which partially paraphrases my summary of the content of the smh article (ie you left out the Rudd government).
I did not write anything which could possibly correspond to the second part of what you ascribe to me, namely “but surely reducing the health cost of smoking addresses a budget drain in a structural way. Any outbreak of long-term thinking by politicians is to be applauded.”
I can say surely, the first part of what you write is not generally true but depends on many parameter values in an economic system and, because I know that, I raised a few questions, which I would imagine the Treasurer, as an economist, would also have in mind. The answers to the questions I had raised require empirical data. I don’t have this data, but the Treasurer might have it. As your paragraphs 2 and 3 indicate, you can’t answer these questions either.
I don’t think your statement “Any outbreak of long-term thinking by politicians is to be applauded.” requires a response from me, other than noting again it is your statement and not mine.
Maybe PrQ can correct me if I’m wrong but I have long believed that the claim that smokers cost the taxpayer money is a lunar left-wing myth, right up there with Peak Oil, American preternaturalism, frankenfoods (GMO), false flags and toothpaste phobia.
The simple reason is that everybody dies and most health costs are incurred during the dying phase so it makes little difference if Ralph dies at 60 because of smoking induced lung cancer or 100 because of some other cause.
In fact, if Ralph lives to 100, nursing homes subsidies etc may result in a bigger taxpayer expense.
Various economic studies back this up, including this one published in the British Medical Journal:
Health care costs for smokers at a given age are as much as 40 percent higher than those for nonsmokers, but in a population in which no one smoked the costs would be 7 percent higher among men and 4 percent higher among women than the costs in the current mixed population of smokers and nonsmokers. If all smokers quit, health care costs would be lower at ?rst, but after 15 years they would become higher than at present. In the long term, complete smoking cessation would produce a net increase in health care costs, but it could still be seen as economically favorable under reasonable assumptions of discount rate and evaluation period.
Conclusions. If people stopped smoking, there would be a savings in health care costs, but only in the short term. Eventually, smoking cessation would lead to increased health care costs. (My emph.)
BTW, I support measures that cut smoking on consequentialist grounds. Ethics, rather than costs, should be the main argument against smoking.
With an issue like smoking would it not be possible to take the following approach? Set the price via additional government excises at the “sweet spot” which gives the best sum result (in public financial terms) of all factors. Thus smoking will likely be partially minimised along with equivalent or some extra revenue produced. Thus Revenue minus health costs minus compliance costs must be equal or greater to current revenue. Modelling would show where compliance problems are likely to really take off. Thus the excise should be set as high as possible before this occurs. A series of annual increases like Rudd proposes seems the empirical way to do this.
With pigovian taxes on personal consumption of harmful substances (ingestion in some form) the tax shoud find the best fit of minimsing consumption whilst not unleashing significant criminal incentives beyond the point where the increased revenue does not pay for policing and compliance.
That would be the straightforward, logical thing to do.
The Labor party “driving up the cost of dying.”
Gail Tverberg has an interesting post on “theoildrum” (no link, in case I get sent to moderation).
In my mind she generally has a blind spot on taxing the ultra-rich (corporations or people), and to some extent on “BAU” and the FF industries – but having said that it is an interesting read.
I’ll spoil it by going to the conclusion:
PS: Hi Mel! “toothpaste phobia”? Does anyone have such a condition?
@Mel
I agree it’s more complicated than would be thought at first blush, but not that it’s either lunar (as noted, it may well be correct in discounted PV terms) nor particularly leftwing. And most of the myths you mention are primarily rightwing (only Peak Oil and extreme anti-GM views are skewed to the left). For toothpaste phobia (I assume you mean fluoride) you only need to contrast Bligh and Newman in Qld
I’ll risk a link to that piece:
http://www.theoildrum.com/node/10052#more
@John Quiggin
Peak Oil is skewed to the “left”? Surely you don’t think it’s a “myth”?
For the sake of clarity: As I use the term, ‘Peak Oil’ refers to the highest daily level of production of a finite resource – “oil” (of the hydrocarbon fossil variety).
@John Quiggin which government was the only one to remove flouride from water albeit for only nine long winter days in canberra?
@Megan
That was a bit sloppy on my part. It’s not a myth that oil output has reached, or will soon reach, a maximum, but most of the inferences associated with that are wrong
https://johnquiggin.com/2007/07/26/plateau-oil/
https://johnquiggin.com/2004/05/07/are-high-oil-prices-here-to-stay/
Of course I meant the inferences often associated with peak oil, hence my capitalisation Peak Oil rather than peak oil.
Bligh wasn’t lunar left, in fact in many ways, as with privatisation, she snuck over the border into centre-right territory.
Historically the most vocal opponents of fluoridation (and vaccination) were far right anti-communist groups like the League of Rights in Oz and the John Birch Society in America. I’m not surprised that the LNP has given in to populism on fluoridation.
Frankenfoods is still a real issue on the Left- see Christine Milne’s statements since becoming Greens leader for example. I also note that you’ve been mauled on this site by some lefties owing to your more balanced perspective.
As to false flags, I’m thinking about folk associated with Chomsky and websites like this. But of course the nuttier elements on the right also have conspiracy theories and some of these conspiracies, most notably the one’s surrounding climate change, reach into respectable right wing circles.
The tobacco tax has brought out the usual eugenicist mantra “Smoking is good cause it costs more if poor people live longer”.
Come on you cheer crowd for worse health outcomes for the disadvantaged, you want to get rid of pbs, of medicare, pensions, public hospitals, vaccinations, airbags in cars, WH &S and anti-pollution legislation. I call you all out on your misanthropy and your mouthing of slogans of the capitalists.
All things are relative. A packet of smokes is a financial impost on a lonely couch dwelling invalid pensioner and apparently even Dick Smith blanches at $3k to fill the tank on his plane.
I wonder if Peak Oil is a key factor in the current economic slowdown but we can’t yet see it with the wisdom of hindsight. Oil (WTI) hit $147 a barrel in the 2008 GFC and now it has snuck back up to $108. Some say new oil won’t happen unless it stays above $85. I wonder if the correct metric not the absolute price of fuel but affordability or price relative to income. Thus oil may never exceed $150 but GDP declines to ensure reduced vehicle miles travelled. Dick Smith suggested the outer suburbs may become isolated ghettoes of energy poverty. I think it follows that sustained economic growth may not be coming back.
@John Quiggin
“It’s not a myth that oil output has reached, or will soon reach, a maximum.”
This is pretty much right. It appears that peak conventional oil occurred about 2005. However, we are now adding unconventional oil and other “liquids” like the natural gases to our hydrocarbon output. This postpones the peak, allows it to go a little higher and leads to a long gentle slope down (even a plateau for while). Given that we are still attempting to grow exponentially, I am not sure this should give us much comfort.
It’s becoming clear that solar, wind, hydro and a few other renewables can provide our stationary energy needs. This can be seen to be true now despite the gainsayers who still like to blindly ridicule these energy sources. However, finding a replacement for all hydrocarbon liquids for transport and other needs will prove more difficult and require a re-engineering of our entire transport system. I am not sure yet how we are going to respond to this challenge.
I thought Dick Smith’s doco last night was pretty superficial, and sort of funny for the way that every five minutes he was jumping into another type of flying machine (not known as the most environmentally friendly transport) for some repetitious and unnecessary shots of something from the air.
I’ve been reading this blog-site for many years. During this time I learned about seemingly complex methods of political category formation, an art, the practice of which, is beyond me. I am quite sure about this.
On the other hand, I feel very comfortable with ‘social democracy’, as a label for all people who aim to use a non-dictatorial approach to addressing socio-economic-political problems as they manifest themselves over time. This may include people, who for some time or even always have been a member of a politicl party that does not carry the name social-democratic. It also includes politicians who have represented a social democratic party. Maybe the majority of people who are not a member of a political party are social democrats.
To illustrate the difference between harleymc’s beliefs about politics and the tobacco tax, I’d like to note that Helmut Schmidt smoked and apparently continuous to do so at the age of 92, even though he was the leader of the German Social Democratic Party and he was Chancellor of the Federal Government during 1974 to 1982. During this period the provison of social services (health, unemployment benefit, education) were improving and labour market conditions were better than now, and public servants had tenure. It was also a time when the top marginal tax rate was higher and the Deutsche Bank wasn’t a known integral link in the proverbial Wall-Street bankers cum rating agencies grip on the world (to name a few important events).
(The above information about Helmut Schmidt can be verified quickly with a Google search.)
So, I believe the social democratic perspective allows a public discussion of the role of tobacco taxes in the 21 century as a means to raise revenue (to compensate for the lower top marginal tax rate) versus its role as a monetary incentive to reduce the negative health effects, These negative health effects are now common knowledge. It is also common knowledge that nicotine is addictive.
ref Ikonoclast
Surely we’ll respond to the challenge of re-engineering our transport system the same way that we respond to the challenge of managing the bread supply of Paris:-
Allow prices to rise and fall, and let households and entrepreneurs each decide what to do.
The process isn’t instant, but it works.
Besides, we don’t need to eliminate all use of fossil hydrocarbons for transport fuel, merely around 95% – 98% of current use. There’s a big difference in feasibility between that and ‘all’.
By the way, one matter which Smith kept going on about last (legitimately) was the intermittent supply from solar power, and of course solar thermal as a partial solution got a fair bit of coverage. The fact that its heat storage capacity was only 17 hours seemed to be quickly glossed over, though!
I don’t really understand why it seems rare to hear of the possible use of natural gas at such a station to help keep the salts hot on extended cloudy days. I mean, turning a whole power station from coal to gas burning may involve a lot of infrastructure, but how hard can it be to add burners under a vat of hot salts?
One other thing bothers me: I just can’t imagine solar thermal power being of substantial use at all during the winter season at Port Augusta, which featured last night as a potential site. Isn’t it below about Sydney that the weather switches from wetter summers/drier winters to the Melbournian dry summers/wet, cloudy winters. My hunch would be that solar thermal would work most throughout a year in the northern half of the country, yet the potential for projects there seem to be rarely mentioned…
@steve from brisbane
From plants in Spain and the US it looks like solar thermal with storage will cost at least 3X as much as carbon taxed coal and still needs winter backup. I guess Pt Augusta has the people and the infrastructure to do a replacement thermal plant, for example seawater cooling albeit a bit warm and briny so high up in the gulf. An inland plant may need air cooling (c.f. Kogan Ck coal station) and fresh water to wash dust covered mirrors.
There was to have been a solar/gas hybrid plant at Chinchilla Qld which doesn’t seem to be going ahead. I think in a decade or so we will be looking at ways to save precious gas in which case wind and solar (thermal or PV) will have a role to play. The problem is I can’t see aluminium smelters hanging around with such high priced electricity.
@Hermit
Hermit: why does it cost so much, I wonder?
As for location, my impression has always been that the whole renewable energy issue suffers badly from a lack of overall, co-ordinated planning on national and international scales. I mean, how much sense does it make for Germany to have gone mad on rooftop solar, when you have other parts of Europe (and, indeed, Northern Africa) with much better weather for solar at larger, presumably more efficient, scale?
I have speculated for some time that using some capacity of solar thermal to split water into hydrogen might be helpful (although I gather it’s not efficient to then use the hydrogen to heat the salts on a cloudy day.) I see just now that a new technique is proposed for hydrogen production using solar thermal. Unfortunately, moving hydrogen around is not so easy, I think, but using it in house scale fuel cells might be one way of helping with intermittent direct supply from the grid.
I am interested in the linking of Australia’s ETS with the european market.
A comment made on this blog which seemed to get an endorsement from Prof Q was that the carbon price could be increased by pursuing a deeper cut. A similar comment was made by Henry Ergas last week (I know he’s super partisan, but it shows some sort of consensus from left to right).
I must say this generally contradicts my understanding of it, but am happy to be corrected (and please do).
My understanding is that if Australia were to take a more ambitious target this would have two effects:
a) yes an increase in the carbon price, but a very small one as Australia would only be a small part of the carbon market changing the Australian target would have relatively little effect.
b) a decrease in the carbon price revenue as fewer permits are locally available. Most likely Australian companies would be buying permits from the EU market.
It seems that the advantage of linking is that deep cuts can be made at a low carbon price but on the other hand achieving deep cuts will result in reduced revenue and therefore less money available for compensation. At the extreme Australia could make a 100% cut resulting in no revenue being collected but essentially the same carbon price.
Is the something wrong in my reasoning?
@Ernestine Gross
OK, I didn’t intend to misrepresent you, but there may be some ambiguity as I ran your comment followed in the same sentence by mine (from “…but, surely etc.”). I should have expressed myself more clearly.
On the issue of tax revenues since the 2010 25% excise hike, the Excise and Customs Duty Receipts table from Budget Statement 5: Revenue has become more opaque and tobacco doesn’t have its own excise line item in the last Budget. This is for company confidentiality reasons as one of the mfrs packed up and left – I’m guessing there are 2 in Australia. The one who relocated now pays its obligations via customs duty rather than excise, a second complication in making sense of the figures. Penny Wong stated last Sept that combined duty and excise for tobacco was down since the 2012 Budget, although it’s not clear that the report here http://www.heraldsun.com.au/news/national/tobacco-tax-revenue-falls-by-341m/story-fndo48ca-1226480197863 appreciates that both duty and excise need to be measured so its figures may not be right.
In its 2011 paper, Treasury said the rate of pop growth and excise indexation has largely offset the percapita consumption decline, but tobacco excise in real terms and as a % of govt revenue is down to 1.6% in 2008/09. Wayne Swan’s last Budget change of excise adjustments to reflect AWE increases rather than CPI increases has two benefits to the govt I can see: the political objective of reducing its inflation contribution, but also as an attempt to take advantage of the high income elasticity estimate of 1.5 and ride on the back of economic growth.
If my microeconomic knowledge is not rusty, the latest changes will increase sales revenue so long as the new prices don’t move into the elastic section of the demand curve. But cigarettes are now a big part of a low income earner’s budget (in the region of 20% for a pack a day smoker?) so significant price increases could really change demand elasticities and cut consumption a lot. If that happens, looking at the companies’ behaviour, the removal of non-price features as competitive variables, may increase price competition and see the companies absorb more of the tax incidence to keep sales volumes.
@Greg vP
I’d agree, “it works”, but if and only if the income distribution is not allowed to become ‘too unequal’. The behaviour of the income distribution of households should be a very important statistic in policy formation frameworks.
@David Rohde
It seems to me your concern disappears if the assumption of the carbon tax being a revenue raising instrument is discarded.
@David Rohde
There’s a downloadable pdf from the climatechange website titled Starting Emissions
Trading on 1 July 2014 Policy Summary. If I understand it correctly an Australian emitter can buy up to 50% EU permits I’ll call ‘debits’ and 6.25% ‘credits’. The Europeans can also buy our carbon farming credits, as if. It seems likely the cash flow will be overwhelmingly towards the EU since their prices are so low.
Couple of problems, first how do we fund the ongoing carbon tax compensation? Second in the physical world of atmospheric chemistry does it actually make a difference? In my opinion EU credits based on the clean development mechanism are largely illusory therefore fraudulent. They suggest CO2 is worth less than $5 a tonne, way less than $24.15. As to other issue such as wider coverage it’s hard to fathom. If/when we get into it the problems may become more evident. Decision review system required.
At current prices, of course.
I agree. And nuclear, which is also a high-priced source of electricity, would be no more of an incentive for them to remain. In the long run, the aluminium smelters will all move to where the hydro is.
The IPA did research not long ago which concluded that it is cheaper for the government to have a larger population of smoker citizens rather than a smaller one . I guess people whose health is a bit compromised can still be productive workers until their likely early death .
@Hermit
H , I’ve wondered if it was just a coincidence that oil spiked in price to $147/barrel as the 2008 GFC began .
Thanks for the responses.
I don’t have a concern, just a query, what are the economic consequences of pursuing a deeper cut? I still think the consequence would be (almost) the same carbon price with reduced revenue (and hence less compensation). Although if the schemes were not fully linked as suggested by Hermit that would complicate things further… and the Australian price may differ from the EU price.
Of course if the whole market changed the target that would be different and the price really would change.
My main point is that in a fully linked market, the government can control the target which will have a fairly large effect on the carbon price revenue, but little effect on the carbon price.
@sunshine
Is there a link to that research?
The only material on the IPA website is “Plain packaging ploy likely to go up in smoke“, published April 2010, which conspicuously avoids mention of health system outcomes, but complains that the then-Rudd government will be sued by tobacco companies over copyright infringement and have to pay them off with taxpayer money.
@David Rohde
I don’t pretend to be able to answer your questions comprehensively. There is one variable which hasn’t been mentioned so far, namely the exchange rate. The A$ has already depreciated significantly against the Euro (about 20% during the past half year) and further depreciation is quite conceivable. There are related variables, namely financial transactions costs, including hedging.
@Megan
Gail Tverberg says: “One can argue that EROI has nothing to do with these issues. But if this is the case, what is the point it analyzing it in the first place?”
That is a good question. What is the point of EROI analysis? As it generally provides no useful information, it’s hard to avoid the conclusion that there is no point, at least if the goal is to understand something.
Of course, that article (like all Gail’s articles) is essentially a catalogue of the bad assumptions made by Peak Oil pessimists (e.g. the US is the world; money is really energy in disguise; renewable energy is really fossil fuels in disguise; etc) and therefore can’t be taken seriously.
@Tim Macknay
Needless to say, I mostly disagree.
As I made clear in my original comment, I have reservations about some of Gail’s thinking. Yes, one of those reservations (applicable to TOD generally) is how US-centric the outlook is.
But that aside, do you understand the concept of EROEI (Energy Return On Energy Invested)? It is a simple fact that if you need to burn a barrel of oil (or the equivalent in a finite resource) to get a barrel of oil (or equivalent) the process is pointless in the real world.
Since “our” economy, lifestyle and society largely run on oil falling EROEI is actually a pretty big issue. Could you expand on what you mean by:
@Tim Macknay
I agree. Gail Tverberg’s analysis has gone of the rails. She started well some time ago. The original premise was correct. This is a finite world with finite resources. The decline in oil and the decline in high EROEI energy sources like convetional oil was and is going to impact on our economies.
There is a point to EROEI analysis but it seems Gail can no longer see it as she has shifted her focus to financial analysis. The point to EROEI analysis is this. Any process which uses more than 1 energy unit to get 1 energy unit in return is unsustainable for bulk energy needs. It makes sense for specialised, particularised energy sources like food where we can use more hydrocarbons energy in agriculture than we get in the food ouput.
EROEI analysis also seems to point out there is a certain energy profit needed to run a high energy modern civilization. Opinions differ but it seems the minimum is about 10:1 or maybe down to 6:1 if we get highly energy efficient. Since solar and wind can now do better than 10:1 this makes them viable at least for stationary energy. Intermittancy problems are being solved as we debate by thermal storage, distributed networks and so on.
Gail is a blind opponent of renewable energy and has closed her mind to recent developments. I also had great doubts about the ultimate viability of solar and wind (in terms of EROEI) but since I kept my mind open to new evidence I have had my mind changed on this issue.
Gail’s money analysis makes the mistake of concretising money. Treating money as if it is somehow as real as real rescources. Gail sees financial limits (really financial inefficiencies, financial mistakes and market failures) as binding when only real limits are binding; real physical limits and real resource limits. On the political economy side what is limiting us is not finances but our lack of proper application of our intelligence, knowledge, imagination and will. We are persisting with failed political economic systems like neoliberalism. We are persisting with wasteful extravagance in consumer items rather than turning more of our resources to solving the climate change and resource crises.
Gail’s analysis now ends up giving succor to the view of “burn it all and be damned what happens after that.” Wittingly or no she has through her defeatism and negativity become a useful minion for the “do nothing” fossil fuel lobby.
Raising taxes on tobacco does discourage smokers, particularly teens starting out. However many mentally ill people smoke, and can’t give up. Increasing the price of cigarettes may reduce their consumption marginally, but mainly it will reduce their expenditure on those things that make their lives more interesting.
The government should put some effort into cheaper and less harmful forms of nicotine delivery to those addicts who can’t quit.
@Ikonoclast
I agree with most of your general criticisms of Gail’s thinking.
I was particularly critical of her trip to South America (as a guest of Exxon) to put a smiley face on Exxon’s environmental destruction through shoddy oil handling – it could go into the category of “those silly natives ruin all the good we do by attacking our oil pipelines and letting them appear to be a bad thing”.
But, the point she was arguing was that an EROEI of about 5:1 is probably about the lowest before the exercise becomes impossibly pointless (whereas, theoretically it is 1:1).
So, your figure of 6:1 is probably closer to the point I was intending to convey than suggesting we have an argument about Gail or ‘Peak Oil Pessimism’.
Ikonoclast, I agree with your point about the notion of EROEI. This measure is an application of the notion of productivity to the finite resource, energy, as you have described.
(We can feed potatoes to pigs to grow meat because usually potato growers can harvest more than 1 potatoe from planting 1 potato. ‘Usually’ means in aggregate and under contemporary environmental and technological conditions. We can drive motor cars with petrol because the EROEI is still positive. This is fundamental, whether the accountants, bankers, shareholders [and macro-economists] like it or not)
@Megan
Megan, of course I understand EROEi – it’s not rocket science. I admit to being a tiny bit facetious in suggesting that it has no point. However, I do think it is much less important than it’s advocates believe. It’s really only significant in very marginal cases, and most energy sources under serious consideration are not marginal cases. It also suffers from the problem that the results of an analysis are heavily dependent on its scoping assumptions. I think part of the problem is that its advocates tend to treat it as if it’s a kind of natural science whereas, as Ernestine points out, it’s more akin to an economics concept, with the higher levels of uncertainty and greater assumption dependence that entails.
I’m not aware of any evidence that the decline in the EROEi of conventional oil has had any significance for society at all. Of much greater significance has been the environmental impact of its cumulative use, and the geographical distribution of the resource. It’s also difficult to ascertain how much it has declined, because the figures are rubbery (it’s often said that the EROEi of conventional oil was 100:1 at the beginning of the 20th century, but despite trying I’ve never been able to find an original source for this factoid, so I can’t help suspecting it’s made up).
As for my other remarks about Gail’s efforts, Ikonoclast’s comment above pretty much covers what I was getting at.
Ernestine & Tim,
As an experiment, what would you imagine to be the immediate impacts, locally, of petrol at $2 a litre or of rationing to say 30 litres a week?
EROEI is precisely about how much you can have and how much it will cost you to have it.
Of course we can/could/should have moved away from this reliance long ago – but we didn’t. And we’re here, now.
I am honestly bamboozled that anyone can think “energy” in the current way we use it is detached from “economics” in the current way we accept it.
Professor J.Q. has, at least on one occasion and maybe more, made the point that as energy is a low proportion of the total input costs for our economy then rises in energy costs are not all that important. I hope I have not misrepresented his point.
However, it seems to me that there is a flaw in that logic at least if it is taken in a crude sense. Food costs are a low proportion of the total costs for my family yet food is still vital to our existence. In the same way, energy costs might be a low proportion of total costs in the economy yet energy is still vital. Without energy nothing else can happen. Acquisition, fashioning and use of every material requires energy.
While we are very wasteful of energy there is always plenty of low hanging fruit. We can save fuels and save by money by economising on energy and reserving more of it for vital functions. If we can begin harnessing relatively new energy sources efficiently (wind and solar for example) we can stretch existing traditional fuels and transition over into a more renewable economy.
The main challenge that looms on the energy front will be transitioning our economy from its current status (still heavily reliant on fossil fuels) to an entirely electrical economy reliant on solar, wind, hydro and some other power sources. Within that challenge, the harder part will be replacing not stationary energy plants but mobile energy plants (cars, trucks, ships and aircraft with IC or jet engines. On land, our best bet is to move to an entirely electrical economy. IC engines are horribly inefficient and we have released too much CO2 for climate safety already.
I foresee a period where conspicuous and extravagent consumption (consumerism in all its forms) will cease to be a “value” or even an option for the 99%. A great deal of our resources will instead have to be devoted to this total revolution in our industrial and transport base; retooling and re-engineering our entire system. If this sort of crisis effort is not made we could squander our chance to make a successful transition at all.
So energy is not detached from the economy. Both price and availability have an effect on economic activity. Those who think the transition will be easy or who think the “magic” of the market will solve all problems are likely to be in for some considerable surprises. Re-tooling, re-engineering and re-building an entire global civilization to run on renewable fuels not fossil fuels will be a gargantuan task. This will also have huge labour and industrial implications. The world automobile industry will have to be reduced by about 90% and all that labour and plant converted and retooled to build trains, buses and renewable energy systems. That’s just one example.
“As an experiment, what would you imagine to be the immediate impacts, locally, of petrol at $2 a litre or of rationing to say 30 litres a week?”
Petrol at $2/litre would cause a lot of grumbling and a modest increase in the inflation rate. It would have almost no impact beyond that. A rapid increase to, say $5 a litre might have an effect, but if it took place over a decade or two, it would be easily absorbed. A crucial problem with the Peak metaphor is the idea that the maximum will be followed by a rapid decline. In reality, oil consumption per person in the world has been falling since 1979 and no one has noticed.
Rationing is a bad policy except under extreme conditions, but, as it happens, Australian consumption is approximately 30 litres/person/week, so there would be a lot of trade in ration cards to no purpose
@John Quiggin
However, when exponential population growth meets exponential oil decline (or bell curve decline)* this soothing tale could be modified. I am not now saying transition is impossible (though perhaps I used to say that). But I am still saying the transition will be economically difficult if not handled correctly. The developing world is now using more petroleum than the developed world. Petroleum use is being competed away from the developed world. Thus the deline in use per head in the developed world will become more marked.
The issue is: can we re-tool and re-engineer our entire energy system, stationary power and moving power, in about one generation and handle the great changes in social, industrial and labour patterns required?
I suppose that if everyone over the age of 18 were issued with a stored value card specifying the ration and able also to store credit, and you could trade these rations over a site like Ebay or Gumtree, then the beneficiaries would be people not needing to use 30 litres per week.
While some of the much maligned “inner city latte and chardonnay sipping elite” (John Howard (c) some time in the 1990s) would benefit, I daresay the main beneficiaries would be at the bottom end of the income scale.
@Ernestine Gross
Yes, the example of “the bread supply of Paris” was based on a story about a Soviet economist visiting the West, but it also resonates with Marie Antoinette, “let them eat cake”, and all that.
A modest degree of inequality, with policy guided by the aim of enabling everybody to live a respectable life, seems to work the best, out of the methods tried so far.
In his/her comment Ikonoclast seemed to imply that central planners can do better than prices. True in theory, but in practice I think we should wait till we have artificial intelligences as powerful as those depicted in Iain Banks’s “Culture” novels.
Since this thread is titled “Reflections”, I’ll note that I speak as someone with a strong “engineering” bias. Central decision-making is my first reaction, too.
It’s been a long struggle for me to truly accept the idea that distributed decision-making does better than even enlightened centralised decision-making. I needed a lot of evidence.
I also needed to properly understand that ‘freedom’ is a very valuable thing — not merely abstract freedoms like free public speech, but day to day, week to week, and year to year freedoms to choose what to do and where and how to live, to be able to move around freely and interact with anyone, and so on. And also the negative freedoms: freedom from unchosen illness, hunger, oppressions. Universal practical freedom is the goal.
That meant letting go of a lot of paternalism–the urge to “do to” people, or “fix” their problems for them. I still struggle with that.
Interesting to see in the Guardian this morning that someone has leaked the climate change authority report, with Prof Q extensively quoted in the article.
I guess there could be debate about whether it’s a good thing to have it out there before the election (along the lines of an have an informed debate vs scare the horses and thereby potentially increase support for the LNP, perhaps?). Personally I think the Authority has a responsibility to get some kind of recommendations out before the election otherwise the policy debate will proceed in a bit of a vacuum (also wish the recommendation was higher, but 15% is much better than the ridiculous 5%). Prof Q I wonder if you can tell us why the Authority is not intending to do that? Of course I read that they want to have consultation etc, but they should at least set some parameters for election policy surely?
@Greg vP
I have followed a fairly similar course to that you describe, but I wouldn’t put matters as you do here:
I strongly suspect that at best, “a modest degree of inequality” will mark human societies for the next few hundred years. Those of us who self-describe as egalitarians and advocates of social justice and inclusion can occupy ourselves with narrowing the gross inequality one sees now without abandoning the struggle for equality in the long run.
I don’t agree that any economic inequality or social exclusion “works best”. It’s probably the case that attempting to force complete equality and social inclusion amidst scarcity and current cultural norms would produce outcomes that failed the general utility test. Human equality is something that must arise (if it does) from cultural changes in the population driven by the material context in which they discover their humanity.
I wonder if Pr Q as a public figure on the Climate Change Authority will say anything about the rumoured proposal to increase the emissions cut target from 5% for the period 2000-2020 to 15%. I agree with the tougher target but there are some thorny issues. Buying cheap permits from the EU might be seen as both a copout and cultural cringe. As in aren’t our offsets good enough? I suggested upthread there is some doubt as to whether they represent genuine emissions savings; some say it’s a scam.
The higher target clashes with our high immigration intake. If our population growth persists at 1-2% a year then nearly 1% annual emissions cuts (15%/20 years) will be tough. Then there is the question of who or what gets sacrificed next. We’ve gone from 6 to 5 aluminium smelters perhaps another could do the right thing and relocate to China. Re which I’d also like the Climate Change Authority to make an official statement on coal exports.. as in good or bad.
@Fran Barlow
Fran, I was thinking of the gradations that the US Federal Reserve uses in its communications: modest, moderate, (no adjective), strong, very strong.
Modest inequality I would put in the Gini coefficient range 0.15 to 0.25. Nearly every country is some distance north of that range, and moving in the wrong direction. I’m completely agree with you about the need to work against this.
I should have added a word like ‘impermanent’. If inequalities are fixed, they do harm. If there is the possibility of erasing or reducing them, they motivate us to do better. That’s all I meant.
@Greg vP
Just about everybody today seems to forget that the prime central planning agency of our democratic society is the distributed intelligence of the entire electorate. When we won’t let our democractically elected government make decisions and instead let unregulated or poorly regulated markets make decisions for us then we are failing to use our prime and most equitable (one person, one vote) distributed intelligence system to do its work.
If we leave it all to the market then we get decisions which suit the rich and nobody else. Who can doubt that the enormous problems and lack of progress we have faced in dealing with climate change have come from entrenched rich interests and the obstructionist campaigns they mount. The notion that markets can strategically plan our society and our progress into the future is dangerous nonsense. The market system suffers market failure of various forms and has few or no ways to account for natural capital (the environment) and its destruction or to properly project and “price” risk into the future.
Markets are not automatic systems which treat all participants equally and impartially. Markets (today) are humanly created sets of rules set up to favour mainly the rich and the corporations and to ignore common interests, environmental interests and many equitable standards. Markets (as they are now) are a rigged game devoted mainly to the interests of a rich few. In so far as our society does not totally reflect my characterisation of markets, this is because democratic pressures have enforced some regulation of markets, some redistribution of wealth and some attention to values other than market values (human values, environment values and so on).
To take the old saying, markets are a good servant but a bad master. If we use regulated markets correctly they are be a very useful mechanism for various pricing and efficiency tasks. If we blindly make markets the master of our whole society you will get something like the crony capitalism of Mexico. A few mega-multi-billionaires and 100s of millions of people in total poverty.