The third in the famous trilogy of spurious Chinese curses that begins with “May you live in interesting times” is “May all your wishes come true”. I may have triggered this curse with a piece I wrote for The Conversation in March. headlined “Dutton wants a ‘mature debate’ about nuclear power. By the time we’ve had one, new plants will be too late to replace coal” which ended

Talk about hypothetical future technologies is, at this point, nothing more than a distraction. If Dutton is serious about nuclear power in Australia, he needs to put forward a plan now. It must spell out a realistic timeline that includes the establishment of necessary regulation, the required funding model and the sites to be considered.

In summary, it’s time to put up or shut up.

Much to my surprise, a few days later, Dutton chose “put up”. And even though his preferred models keep falling over, he has pushed ahead, accepting the need for public ownership and compulsory acquisition of sites.

So, we are indeed having the debate the LNP has long demanded. It’s not going well for them, I think, but Labor is hamstrung by its embrace of AUKUS and acceptance of an indefinitely continuing role for coal and gas, at least internationally.

The second in the trilogy of curses is “May you come to the attention of important people”. I don’t suppose that my little article played any real role in Dutton’s decision to cross the Rubicon on nuclear power. But I’ll be pushing hard to show how misconceived that decision is, from now until the illusion of nuclear power is finally dispelled.

My latest in The Guardian

henever I mention concepts such as gross domestic product (GDP), there’s a high probability that arguments about the merits of “growth” and “degrowth” will erupt. Almost invariably, these arguments are stuck in a conceptual framework that’s 50 years out of date, or even more.

The national accounting system, of which GDP is a central part, was developed in the 1930s. It was designed to measure the working of the industrial economy that had emerged in the 19th century and remained the dominant form of economic activity until the late 20th century.

The industrial economy could be conceptually understood in terms of three sectors. Primary industries, such as agriculture and mining, produced raw materials. Secondary industry (manufacturing, broadly defined) turned raw materials into useful products. Tertiary industry (services such as wholesale and retail trade) took the products from the factory to the consumer. Other services, such as accounting, finance and law, greased the wheels of the entire process. Activities such as education and health, which didn’t really fit the model, were thought of as reproducing and taking care of the labour force needed to keep the economy going. Finally, the waste products of the system were burned or dumped.

In the industrial economy, growth involved an increasing number of workers, each of whom produced more of everything: more primary products, turned into more manufactured goods, sold in bigger and better shops, generating more and more waste. Growth was achieved primarily by equipping workers with more capital, owned by employers (hence, the term “capitalism” to describe this economy). More sophisticated analyses took account of technological progress and of “human capital”, that is, the skills acquired by workers through education and training.

By the middle of the 20th century it became evident that this process couldn’t continue indefinitely. As was regularly observed, infinite growth in the output of physical goods is impossible on a finite planet.

As it turned out, however, the mid-20th century marked the beginning of the end of the industrial economy. The services or “tertiary” sector accounted for half of US employment by 1950 and that share has increased steadily to about 80% today. Within the service sector, ever fewer workers are engaged in the “tertiary” activities of distributing the output of farms and factories, through retail, wholesale and transport. Many more work either in directly provided human services, such as health care and hospitality. But the truly spectacular growth has been in “office jobs” relating in one way or another to information.

The industrial model, in which all stages of the production process expand in a proportional fashion, is no longer relevant – at least in rich countries. Output of physical goods, and particularly the characteristic products of the 20th-century industrial economy (cars, household appliances and so on), has largely stabilised. For example, the number of motor vehicles sold in the US has fluctuated around the 15m a year mark since 1980, even though the US population has grown.

Meanwhile, the growth in the production and dissemination of information has been so rapid as to defy traditional methods of measurement and any kind of intuition about growth. The volume of information we generate (whether useful or trivial) has grown at about 60% per year since the advent of the electronic computer. To give some intuition that means that every millisecond we collectively generate as much information as we did in an entire year in the 1970s. A concept of “growth” that averages such unimaginable rates of expansion with the nearly stationary output of cars, fridges and so on is meaningless.

And if “growth” is meaningless, so is “degrowth”. There’s no technological or ecological reason why we can’t have more and more services, from health and education to TikTok videos. And, if we can continue to improve the technology, there’s no real limit to our supply of solar and wind energy. What we need to reduce is the “throughput” of the residual industrial economy, beginning with the extraction of resources and ending with the dumping of waste. It’s here that ideas like that of the “circular economy” remain relevant.

In summary, neither “growth” nor “degrowth” makes sense as a long-term objective for economic policy. That doesn’t mean that GDP is useless as a statistical measure. If GDP drops sharply from one year to the next, it’s usually not because a society has become less concerned with material goods and marketed services. Rather, sharp reductions in GDP, such as those during the global financial crisis and the early 1990s “recession we had to have”, usually arise from external shocks or economic mismanagement. GDP statistics provide economic policymakers with valuable information about the short-run state of the economy.

In the long run, however, GDP is not a useful measure. And in an economy subject to the wildly divergent trends we now observe, there is little value in looking for a single number (such as a statistical measure of happiness) that will replace it. We can and should seek better and richer lives, while reducing and repairing the harm that the industrial economy has done to our natural environment and, most notably, to the global climate.

From The Conversation

Opposition Leader Peter Dutton’s plan to build seven nuclear power plants in Australia has attracted plenty of critical attention. But there’s a striking feature which has received relatively little discussion or criticism: the nuclear plants would be publicly owned and operated, similar to the National Broadband Network (NBN).

On the contrary, it received enthusiastic endorsement from free-market advocates such as The Australian’s Judith Sloan, who observed: “It’s how the French nuclear plants were first constructed.” It is also the way Australia built its biggest single piece of energy infrastructure, the Snowy Mountains Scheme.

But there’s a fundamental problem here. Over the last three or four decades the federal public service has been hollowed out in the name of “new public management”. This became very clear during the COVID pandemic, when state governments – who have preserved their ability to act far better – ran most of the response. There is a very real question over whether we have the governmental capacity to achieve net zero.

From NBN to National Nuclear Network?

Dutton’s acknowledgement of the publicly owned NBN as a model worth using is a welcome advance on the view of Malcolm Turnbull, one of his predecessors as Liberal leader.

A decade ago, then-prime minister Turnbull embarked on a disastrous “mixed mode” redesign of the NBN. This reflected his belief – expressed publicly after leaving office – that a publicly owned broadband network should never have existed.

Labor is in no position to oppose Dutton’s calls for public ownership. State Labor governments in Victoria and New South Wales have re-established publicly owned electricity enterprises, while South Australia’s Labor government has floated the same idea.

Whatever technological choices we make, it is clear our days of relying on the private sector to provide vital infrastructure are coming to an end. The question now is whether the public sector can recover to take the lead.

The National Energy Market, for instance, was meant to promote competition and drive electricity prices down. It has failed to do so, resulting in a string of government interventions, some more successful than others.

Arguably the biggest failed intervention was the now-defunct Energy Security Board, a politically driven response to South Australia’s statewide blackout in 2016.

The board sought to patch up the National Energy Market with a capacity market, which was immediately dubbed “CoalKeeper” due to incentives for old coal plants to keep going, as well as new grid access charges, promptly dubbed “Solar Stopper” due to discouraging new investment in solar. Energy experts did not favour this approach.

What proved more successful as a response to South Australia’s big blackout was the decision by the state government to fund the Horndale big battery, which was, when built in 2017, the world’s largest utility-scale battery storage.

Should new power be private or publicly owned?

Both major parties are flagging more intervention. The federal government has stopped waiting for markets to provide clean energy in favour of seeking tenders for new renewables through a capacity investment scheme. The scheme received 40 gigawatts worth of bids from renewable developers, far beyond the goal of 6GW.

This shift has come in response to developments bogging down, hampered by inadequate regulation and local opposition driven by a combination of genuine concerns about environmental impacts and culture-war driven science denialism.

Labor’s current renewables-led strategy requires 10,000 kilometres of new publicly built transmission lines, to meet our net zero goals. We’d need even more transmission if we are to become a major exporter of clean energy, either as electricity or in products such as green hydrogen and ammonia.

On the Coalition side, no private firm is likely to accept the risks involved in creating a nuclear power industry from scratch. Government would have to lead.

As Nationals leader David Littleproud has now acknowledged in relation to finding sites for nuclear plants, the national need for clean energy is too important to allow “not in my backyard” opponents – some with only a tenuous connection to the area in question – to slow or stop government plans.

If government is to lead, it must have the capacity

What Dutton’s nuclear gambit shows us is that, surprisingly, Australia’s two major political parties are in strong alignment on the need to rebuild state capacity.

Whether it’s Labor working to get transmission lines and offshore wind up and running or the Coalition working to create a nuclear industry from scratch, it will take a strong government with the capacity to articulate a plan, and the legal, financial and human resources to make it a reality.

All of these requirements were met when we constructed the Snowy Mountains Scheme, a decades-long federal government initiative undertaken in cooperation with Victoria and NSW.

Are they still in place? Not yet. Government capacity to act has been eroded over decades of neoliberalism. Particularly at the national level, public service expertise has been hollowed out and replaced by reliance on private consulting firms.

To rebuild the federal government’s capacity to act will require recreating the public service as a career which attracts the best and brightest graduates – many of whom currently end up in the financial sector.

The private sector still plays a central role in the construction of infrastructure, as was the case with the Snowy Scheme. But it’s up to governments to take the lead in finance and planning.

This poses particular challenges for the Liberal Party, which has long favoured the interests of businesses small and large, and has been historically opposed to public ownership. But from the late 1990s until relatively recently, Labor was also keen on privatisation.

The French Prime Minister Georges Clemenceau once observed that “war is too important to be left to generals”. As we are discovering to our cost, infrastructure investment is similarly too important to be left to private investors.

From The Guardian

The release of recent data suggesting that inflation appears to be stuck at 4%, above the Reserve Bank of Australia’s target range of 2% to 3%, has raised plenty of concern among economic and political commentators. These commentators might be surprised to learn that many, perhaps most, macroeconomists who have looked at the question have concluded that a 4% inflation rate would be the ideal target, at least providing that wages and other incomes kept pace.

The underlying reasoning is simple. Interest rates are the main tool of monetary policy. In a deep recession such as that following the global financial crisis, or in an emergency such as that created by the Covid-19 pandemic, it is desirable that the interest rate should be well below the rate of inflation. That is, the real interest rate, adjusted for inflation, should be negative.

But if the rate of inflation is too low, this policy is limited by the fact that interest rates can’t go below zero. Well, not much below – the European Central Bank cut its policy rate to -0.5% for several years, relying on the fact that banks could take a cut in their margins, while still charging positive interest rates to borrowers.

Once the zero lower bound for interest rates is reached, central banks are forced to rely on direct purchases of bonds and other securities. This policy, variously referred to as “quantitative easing”, “open market operations” or, less politely, “printing money” worked to prevent economic collapse, but created plenty of problems.

The majority of US economists in a 2017 survey agreed that a higher inflation target would enhance the ability of central banks to stimulate the economy during a recession. By contrast, there is no consensus on whether a 4% inflation rate would have any significant effect on the economic welfare of households.

If a low inflation target is such a dubious idea, why was it adopted in the first place? The answer, surprisingly enough, comes from New Zealand. The first central bank to adopt an inflation target was the Reserve Bank of New Zealand in 1989. The policy was introduced by the then Reserve Bank governor, Don Brash, later to reinvent himself as a rightwing (and then far-right) politician. Brash was backed by then finance minister, Roger Douglas, whose political career followed a similar trajectory.

A range of 0% to 2% was picked, without any theoretical basis, as the lowest that could plausibly be pursued. As Douglas said later, “I just announced it was gonna be 2%, and it sort of stuck.” While the NZ central bank was the first to adopt a 2% inflation target, others were quick to follow. The most important shift was by the US Federal Reserve, which also chose a 2% target, while initially avoiding a public commitment.

At the time, New Zealand was seen as being a star performer in economic reform, likely to overtake Australia in a matter of years. Even among those who did not share in the enthusiasm, it seemed reasonable to assume that, as it had done for most of the 20th century, New Zealand would maintain living standards similar to those in Australia.

In reality, though, New Zealand’s economic performance has been miserable. Income per person is below the Australian level. Net emigration to Australia (currently running at around 20,000 per year) reflects the higher wages and living standards available here.

While many explanations have been offered for New Zealand’s relative decline, the simplest is that of repeated failures in macroeconomic management. New Zealand has experienced a string of recessions since the adoption of inflation targeting, mostly reflecting excessively rigid application of tight monetary policy. Contrary to the idea of a recession as a temporary disruption, these recessions (particularly that of the early 1990s and the global financial crisis) seem to have shifted the country onto a permanently lower growth path.

Elsewhere, inflation targeting worked reasonably well until the GFC. But in the long period of depressed activity that followed, central bank interest rates were stuck at or near zero. Despite this failure, central banks retained the power and prestige they had attained in the early days of inflation targeting. Unsurprisingly, they have been highly resistant to any change to inflation targets, even though they have no convincing defence of the status quo. Instead, they rely on the fact that any change would be bad for faith in the central banks.

The recent review of the RBA spells this out. After conceding the strength of arguments for a higher inflation target, the review panel concluded: “Regardless of the merits of higher inflation in general, the Review does not recommend increasing the inflation target during the present period of high inflation. To do so could undermine the credibility of the RBA in responding to future periods of above-target inflation.”

Of course, once we have ground our way back down to the target, the idea of raising it will be dismissed; it would be throwing away costly gains.

So, if you are struggling with higher interest rates or worried about higher unemployment, remember that this is the price we have to pay to restore the “credibility” of the Reserve Bank.

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Referring back to this 2002 post defining “neoliberalism”, I find the claim that the “The (UK) Conservative party is hovering on the edge of extinction”. That wasn’t one of my more accurate assessments, and I’m bearing it in mind when I look at suggestions that the party is now “facing a defeat so dramatic it may not survive.” (that’s the headline, the actual suggestion is that the future may be one of “long periods of Labour with occasional periods of Conservative governments”

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