December 3, 2011

Quarterly Essay

Green Army: Communications

Foundation for Young Australians:
Over the past 15 years,
  • incomes of the top 10% have grown [25% faster] than the bottom 90%.
  • Incomes of the top 1% have grown [twice as fast as the bottom 90%, and]
  • incomes of the top 0.1% have grown 2.8 times faster than the bottom 90%.]
(The New Work Order, 4 September 2015, pp 8 & 26)

Nicolas Herault & Francisco Azpitarte [Melbourne Institute of Applied Economic and Social Research]:
[The] direct effect of tax-transfer policy reforms [in Australia] accounts for half of the observed increase in income inequality between 1999 and 2008 …
(Understanding changes in the distribution and redistribution of income: A unifying decomposition framework, Review of Income and Wealth, 12 December 2014)

Milton Friedman (1912–2006):
I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.
(Jordan Ellenberg, Less Like Sweden, How Not To Be Wrong, Part 1, Chapter 1, Penguin, 2014)

George Megalogenis (1964):
This is the part of the Great Recession we did not avoid.
We had imported the American disease of budget-busting tax cuts for rich.
(p 39)

Business has convinced itself that globalisation means it owes no obligation to society other to generate profit.
(p 26)

[Indeed, business has, if anything,] become more presumptuous since [the 2008 global financial crisis:]
Give us a cut in the company tax rate.
Fund it with an increase in the GST.
There is no economic logic here …
(Balancing Act: Australia Between Recession and Renewal, Quarterly Essay, Issue 61, February 2016, p 27)

Tax Cuts for the Rich, Spending Cuts for the Poor


George Megalogenis (1964)

The default setting of politics in the 21st century — to trust the market — has proven to be bad economics.
It has left us with:
  • gridlocked cities,
  • growing inequality and
  • a corporate sector that feels no obligation to pay tax.
(p 13)

Both sides of politics have fallen for the line that in order to maintain our record run of prosperity you have to squeeze:
  • the employee,
  • the student,
  • the single parent,
  • the consumer
— anyone, really who does not run a business or own and investment property.
(p 27)

The electoral cycle runs too quickly for the investment cycle, and until the parties adopt a more mature approach, each new government will condemned to repeat the errors of its predecessor as it tries to rewrite the nation's infrastructure policy from scratch.
(p 23)

It is no use pretending that that the private sector can deliver physical infrastructure such as rail lines or roads better than the government.
The market has had two decades to prove otherwise, and its legacy is congestion.
(p 20)

The government must take the lead on physical infrastructure.
Only it has an economy-wide perspective.
The market, left to its own devices, will only build houses.
(p 21)

Household debt was 70% of GDP in 1990.
Today it is more than double that — 185%. …
(p 16)

Deregulation need not have increased household debt to the extent that it has, nor led to a greater concentration of national wealth in the property market.
These are not rational outcomes of a free market, but the result of political decisions to favour one form of investment over all others.
(p 61)

Infrastructure promotes growth, and maintains social cohesion by keeping people connected.
When the economy is weak, it has the bonus of saving jobs.
(p 22)

The danger to social cohesion multiplies because the resources boom has already hollowed out other industries.
The 140,000 new jobs jobs created in mining since 2000 matched an almost identical loss of jobs in manufacturing.
As mining inevitably contracts, where will these men go next?
They cannot simply return to their old workplace, because many of those businesses have closed down [— some driven to the wall by the boom induced high dollar.]
(p 16)

Another round of mass retrenchments is likely as Holden and Toyota wind up their Australian operations in 2017.
The question [for] the Turnbull government [is] whether the public sector can find work for tens of thousands of blue-collar men before they become a political wrecking ball.
(p 17)

Howard changed the budget from being a document primarily concerned with the economy to one with a purpose that was overtly political.
He taught people to expect a handout outside an election campaign, which created a permanent sense of entitlement. …
His successors fell into the same habit, even though the budget was in deficit. …
With each futile attempt to bribe, government wasted another opportunity to reconsider the role of the budget in the twenty-first century.
(pp 42-3)

[Malcolm Turnbull] has to correct for policy errors on the conservative side [of politics] running across two decades:
  • the six most wasteful years of the Howard government from 2001 to 2007, and
  • the six combative years when Abbott led the Liberal Party from 2009 to 2015.
(p 8)

[He needs to remove] the blinkers of ideology and nostalgia from his side of politics in the way Curtin and Hawke once did for Labor.
(p 56)

The Coalition can't lay claim to the future until it adjusts to the two big shocks of our age.
  • The first shock is that the version of capitalism favoured by conservatives is broken.
    The [global financial] crisis entered its ninth year in 2016, which places it in the same category as the global depressions of the 1890s and 1930s. …
  • The second shock is that the international community may finally be ready to tackle climate change. …
    In its first full year of operation, 2014-15, Direct Action saw emissions rise, reversing gains made under Labor's carbon tax. …
No post-war government has increased its majority in its second term, so Turnbull could [after the July 2016 election,] be governing on a parliamentary knife-edge.
(p 57)

The open model was supposed to ensure stability by removing four key prices in the economy from political control:
  • the currency,
  • interest rates,
  • tariffs and
  • wages.
The job of steering the economy passed from government to the invisible hand of the market. …
Governments forgot that markets and central banks can fail just as spectacularly as interventionist politicians.
(p 58)

The logical answer [to rising inequality] is to dramatically increase public investment in education …
But this would require a change of mindset in the Coalition, which supports
  • private systems over public, and
  • the winners of deregulation over the losers.
The onus is on Malcolm Turnbull to repair the social contract before inequality becomes entrenched. …

He said he wants Australia to remain a high-wage society with a generous social safety net. …
[And yet he] presents as a leader who wants to cut taxes further and shrink the size of government. …
  • The tax cuts of the boom years, which favoured higher income earners, and
  • the spending cuts since the global financial crisis, which punished those at the bottom,
overturned a century of political tradition to promote egalitarianism through the federal budget.
Turnbull can't improve the open model by repeating the formula which alienated the electorate in the first place. …

[In the 1980s, Hawke and Keating] cut spending and simplified the tax system, [without reducing] overall revenue.
They explained to the public that they were correcting for the spending errors of the Whitlam era, and Labor supporters accepted the argument.
Turnbull can do the same … by explaining the budget policy mistakes of the Howard era:
  • Too much money … given to those who didn't need it, and
  • too little of it … put aside for the future.
(p 61)

The challenge for government in the twenty-first century is to think for the long term. …
Part of the problem is that the main parties are stuck in the wrong past: they keep looking to the market to fix problems that can only be solved by government. …
If Australia is to stay ahead of the pack, it needs governments that understand markets well enough to know where government belongs.
Otherwise, Australia will become globalisation's next and most unnecessary victim.
(p 63)

(Balancing Act: Australia Between Recession and Renewal, Quarterly Essay, Issue 61, February 2016)


Fiscal Irresponsibility


John Quiggin: Professor of Economics, Queensland University

The Howard government kept the budget in surplus, but it was also careful to run the surplus down in every election cycle, with the aim of precluding expensive electoral commitments by Labor.
The result was a budget with a structural deficit, concealed by the revenue generated by the commodity boom.

[Howard and Costello's greatest act] of fiscal irresponsibility was [their] massive three-year program of tax cuts, aimed largely at upper-income earners …
[And,] despite the disappearance of the projected surpluses that were expected to pay for the tax cuts, and of any possible economic rationale for aiding high-income earners, the Rudd government [went] ahead with the cuts promised in the utterly different world of 2007.
(p 102)

(Goodbye to All That?, Black Inc, 2010)


Contents


The Global War on Political Correctness

George Megalogensis: Balancing Act — Australia Between Recession and Renewal

David Kilcullen: Blood Year

David Marr: Tony Abbott — Political Jesuit

Andrew Charlton: Choosing between Progress and Planet
Robert Manne: Murdoch's Australian and the Shaping of the Nation

Waleed Aly: What's Right?
Guy Pearse: Quarry Vision


The Quarterly Essay


Morris Schwartz (1948): Publisher, Black Inc.

  • Blood Year: Terror and the Islamic State, Issue 58, May 2015.
    David Kilcullen: Counterinsurgency Expert.
  • The White Queen, Issue 65, March 2017.
    David Marr (1947).
  • Political Animal: The Making of Tony Abbott, Issue 47, September 2012.
    David Marr.
  • Choosing between Progress and Planet, Issue 44, November 2011.
    Andrew Charlton.

    Rich countries are islands of prosperity in an ocean of poverty.
    We are one billion …
    [They] are six …
    For decades we have shared too little of the fruits of our economic growth with them.
    We should not be surprised that they are now reluctant to help us clean up the consequences of that growth. …

    If we give priority to climate change over development, the poor countries will not agree to be part of the solution.
    Since they will account for the vast bulk of the growth in emissions in coming decades, nothing we do in the rich countries alone will be enough.
    On the other hand, if we give priority to development over climate change and continue to use resources in the way we have, we will inflict huge damage … on our own wellbeing. …

    [There] is no choice between progress and planet.
    If we focus on one, we will destroy both.
    The only way out of our predicament is to reconcile economic development and environmental sustainability.


    What We Learned in Copenhagen


    A fraction of the world’s people had become rich by plundering our planet to the point of exhaustion; now the still-poor majority wanted to do the same.

    [A] German colleague said to me.
    The world is split between those who want to save the planet and those who want to save themselves.

    Progress and planet


    Children are twenty times more likely to die in infancy in southern Africa than in Australia; those that survive can expect a life no longer nor healthier, than that of an English person during the reign of Queen Victoria. …
    (p 6)

    In China and India hundreds of millions of people live below the international poverty line of $2 per day — half the price of a cup of coffee in Australia. …

    For two decades rich countries have tried to force poor countries to accept their solutions to climate change, including a binding treaty to cut global emissions and a global pricing scheme to raise the cost of fossil fuels. …
    The lesson of Copenhagen is that rich countries can no longer impose solutions to global problems that ignore poor countries or assume their acquiescence in the rich countries' agenda. …
    (p 7)

    [Two] of the biggest environmental and economic challenges we face [are] resource scarcity and climate change. …
    In both cases we need new frameworks that reconcile progress and planet by harnessing technological means to achieve green ends.
    (p 8)


    Resource Scarcity


    Food scarcity: can we feed another 2 billion?


    It took nearly 10, 000 years … the the world's population to reach 1 billion in 1804.
    … 123 years … to reach 2 billion in around 1927.
    The third billion came … thirty-three years later in 1960.
    The fourth billion took … fourteen years.
    The fifth billion … thirteen years.
    In the last two decades we have been adding people … at a rate of a billion every twelve years. …

    [Every] kilogram of meat … requires seven … of grain to produce.
    (p 10)

    [Environmentalists] argue that modern agricultural practices [use] soil and water much faster than they can be replenished …
    About half the woodlands that once covered the earth are gone.
    Each year … 130,000 square kilometres of tropical forest disappear, most being cleared for agriculture. …

    Nitrogen based fertilisers are altering the biology of water systems eutrophying rivers and lakes.
    Pesticides are reducing biodiversity in soil structures.
    [Livestock] are responsible for millions of tonnes of methane emissions. …

    In 1798 Thomas Malthus … predicted that the ever-expanding human population must inevitably run out of food. …
    (p 11)

    Alexander von Humboldt[ brought] samples of Peruvian guano … home … from … South America [in 1804. …]
    (p 12)

    Guano … helped Europe's population to double by the end of the century. …

    In 1898 the president of the British Association, William Crookes, warned that supplies were nearing exhaustion [due to imprudent management. …]

    [The] Swedish Academy of Sciences awarded [Fritz] Haber a Nobel Prize for Chemistry in 1919 …
    Today the Haber process produces around a million tonnes of [synthetic] nitrogen fertiliser every year …
    It is said that 2 billion people on our planet would not be alive without it.
    (p 13)

    Further discoveries in the twentieth century — including Normal Borlaug and Orville Vogel's high-yield wheat varieties, and improvements in irrigation, pesticides and fertilisers — [have allowed] our planet [to] support seven times as many people as in 1800 …

    Organic farms produce lower yields per acre …
    John Krebs [Food Standards Agency, UK]:
    The current scientific evidence does not show that organic food is any safer or more nutritious than conventionally produced food.
    Organic guidelines in many countries allow the use of "naturally occurring" chemicals, even though these can be more toxic than synthetic chemicals.
    (p 15)

    [Genetically] modified crops can produce more food with less environmental damage … less land and fewer chemicals[; and in] the past fifteen years [there has not been] a single case of harm to human health [WHO. …]
    [Genetic modification] has the capacity to [create] more nutritious strains of wheat and rice that could improve the diet of billions.
    (p 16)

    [On] 14 July 2011, members of Greenpeace broke into a CSIRO experimental station [and destroyed] a trial crop of GM wheat. …

    [In addition to GM food, we] also need
    • improved soil fertility and land management,
    • better water and transport infrastructure in poor countries,
    • improved warehousing and
    • reduced waste right along the supply chain.
    [GM food] is one more innovation besides Von Humboldt's guano discovery and Haber's nitrogen fertiliser that has the capacity to expand the realm of human possibility beyond the constraints of our environment.
    (p 17)


    Resource scarcity: are we running out of materials?


    Oil, coal, iron ore, copper, silver, palladium nickel gold, lead and a range of other commodities … are non-renewable. …

    On current rates of growth, the global economy will be nearly fifteen times bigger … by 2100. …
    [Tim Jackson asserts that economic] growth is using our resources and damaging our environment at a rate that cannot be sustained [and] proposes an alternative economic model which seeks to fulfil human needs without economic growth. …
    (p 18)

    In 1941 the US government announced that [oil] production would run out in ten years.
    In 1939 the US Department of the Interior declared that reserves would be exhausted by 1952. …
    In 1978 President Carter announced that all proven oil reserves would be used up by 1990. …

    [Improved technology driven by] higher prices [increase oil] recovery rates.
    A rise of 35 or even 50% recovery rates would boost the world's [economically recoverable] oil by more than the total of today's proven reserves.
    (p 21)

    The [International Energy Agency] says that serious reduction in oil use will come [from] efforts to reduce climate change rather than exhaustion of fossil fuels. …

    China consumes …
    • 47% of all iron ore produced in the world,
    • 45% of global steel,
    • 46% of global coal and
    • 38% of global copper. …

    [High] prices will cause entrepreneurs to:
    • invent new materials that can substitute for scare commodities
    • [develop alternative technologies … that require smaller quantities of expensive inputs, and
    • increase mineral exploration and expansion of new mines.]

    (p 22)

    [For example, as] the copper price has risen, telecommunications companies have begun replacing copper with fibre optics and power utilities are beginning to switch to aluminium cables. …

    … Australian engineer James Bradfield Moody has pointed out … that some of the biggest gains in resource efficiency will come … from innovations that reduce waste and improve the efficiency of resource use.
    (p 23)


    The Climate Challenge


    [The] average person [today] uses fifty times more power than … in 1750, does 250 times more travel and uses nearly 40,000 times more lighting.
    These [improvements in] heat, light and mobility …. were made possible by the [concentrated] energy stored in fossil fuels …
    Steven Chu [Secretary of Energy, USA]:
    We have lots of fossil fuel. …
    We won't run out of energy …
    [But] there's enough carbon in the ground to really cook us.
    (p 27)


    The Kaya Identity: are Australia's targets weak or strong?

    Emissions (E) = population (P) × consumption per person (GDP/P) × energy efficiency (E/N i.e. emissions per unit energy)
    Expressing this as changes over time …
    Emissions reduction target = population growth impact + economic growth impact + energy efficiency impact + energy emissions impact
    (p 28)

    For Australia …
    • emissions target is a 5% cut
    • population growth is forecast to by 1.7% per year between now and 2020;
    • annual economic growth per person will be around 1.6% per year; and
    • energy efficiency can be assumed … to continue to improve at … about 1% per year
    (p 29)

    As of 2010, Australia's emission were already about 5% higher than 2000.
    Population growth and economic growth make our target harder to achieve by 15% and 15 per respectively between now and 2020.
    [This is] equivalent to a 31% reduction in Australia's emissions. …

    Australia's target may appear weak … but … is actually extremely ambitions. …
    Energy-wise … we have the highest emissions relative to the size of our economy. …

    To achieve our target, more than a third of Australia's total electricity generation will be need to be clean energy by 2020.
    Since Australia's electricity generation will be around 300 [TeraWatt Hours] in 2020 … we will need to build more than 100 TWH of clean-energy facilities.

    Currently we generate about 9 TWH …
    • 5 TWH from wind,
    • 0.5 TWH from solar and
    • 3 from biofuels
    (p 31)

    On the governments forecasts … emissions will rise to 12% above 2000 levels by 2020, even with a carbon price.
    We will reach our target by buying [two-thirds of our] emissions reductions from other countries. …
    Treasury:
    [The] carbon price produces:
    • around 58 Mt CO2-e of domestic abatement and
    • 94 Mt CO2-3 of international abatement in 2020.
    (p 33)

    [If] Australia is to play its part in the longer term, we will need to reduce our emissions by as much as 80% by 2050. …


    Developing countries: can we ask the poor to reduce emissions?


    If cutting emissions in a rich country like Australia seems hard, spare a thought for the poor countries. …

    Nearly 1.5 billion people (or 20% of the global population) live without access to electricity. …

    Nearly 3 billion people still cook on indoor stoves using wood, crop waste or dung because they don’t have access to modern electricity.
    Smoke from indoor stoves and kerosene lighting is one of the world’s biggest killers, taking 1.5 million lives every year — twice as many as malaria. …

    Climate change cannot be solved by reducing energy use or making dirty fossil-fuel power more expensive.
    In developing countries [there is an urgent need for] more, and cheaper, energy. …

    Renewable energy technology simply isn’t good enough to meet our 5% emissions reduction target at a reasonable cost.
    … 100% renewable power [is not] affordable [or] achievable in the near term …

    For some countries nuclear power will be an essential weapon in the fight against climate change. …
    A single 1000-megawatt reactor produces the same power as 770 square kilometres of wind turbines. …
    France added 48 gigawatts of nuclear capacity — roughly equivalent to the entire capacity of Australia’s electricity system — in just over a decade.
    France now produces nearly 80% of its power through nuclear reactors and has among the lowest emissions in the industrialised world. …

    The IEA reports that coal has been the fastest-growing global energy source over the last decade, meeting 47% of new electricity demand.
    Chinese coal consumption[doubled] over the five years from 2002 to 2007.

    [Clean-coal] technology is an essential part of any realistic plan to tackle climate change.
    In the pathway proposed by the IEA, CCS accounts for one-fifth of the envisaged cut in emissions by 2050.
    This will require 100 CCS projects to be operational by 2020 and 3000 projects by 2050. …
    [Without] clean coal, the overall cost of tackling climate change increases by 70%. …


    Global Climate Change: Plan B


    Instead of seeking to make fossil fuels expensive, we should focus on making clean power cheap. …

    Rich and poor countries should work together to develop breakthrough technology to deliver cheaper energy for the world.
    Only when clean energy is more efficient and cheaper than fossil fuels will it be embraced by poor countries. …

    If the rate of climate change accelerates unexpectedly, we could find ourselves dealing with drowning coastlines and devastated agriculture.
    These may not be the most likely outcomes, but prudence requires us to prepare for them. …

    Geoengineering proposals include
    • schemes to pump sulphates high into the stratosphere to reflect sunlight …
    • using ocean spray to generate artificial clouds;
    • fostering oceanic plankton to absorb more carbon;
    • turning carbon from agricultural waste into charcoal and burying it in the ground (biochar); and
    • global dimming using reflective mirrors in space.
    The field of geoengineering needs much more work. …

    [The IEA] estimates that every year between 2010 and 2050 the world will need
    • up to 14,000 new onshore wind turbines (more than twice the current rate of installation),
    • 215 million square metres of solar panels (more than eight times the current rate),
    • thirty-two nuclear power plants (twice as many as have ever been installed in a single year),
    • up to 3750 offshore wind turbines (more than thirty times the current rate),
    • fifty-five fossil-fuel plants fitted with CCS (none have been successfully done yet at scale), as well as
    • more geothermal, solar thermal, biomass and hydro power.

    Economists broadly identify two ways of developing better technology.
    The first is called “learning by doing,” whereby deployment leads to efficiency improvements over time …
    [If] we build a hundred wind farms, the last few will be cheaper and better than the first ones by dint of experience.
    [Spanish] solar projects have achieved falling costs over time as manufacturing and assembly techniques improve.
    [The] essential feature of learning by doing is incrementalism — gradual improvements to known technologies.

    The other method is research and development. …
    It looks for breakthroughs.
    This type of research is often difficult to commercialise immediately and hence does not attract significant private funding, so much of it is done through universities and research organisations …

    [Many] governments around the world are focusing too little on basic research and too much on deployment. …
    [We] need massive direct public support for energy technology research [—] US$10—100 billion per year in additional research funding. …

    Carbon pricing [by itself will not] lead to the infrastructure investment and technological innovation we will need to reach our long-term targets. …
    Jeffrey Sachs [Director, Earth Institute, Columbia University]:
    Europe’s carbon-trading system has not shown much capacity to generate large-scale research nor to develop, demonstrate and deploy breakthrough technologies.
    A trading system might marginally influence the choices between coal and gas plants or provoke a bit more adoption of solar and wind power, but it will not lead to the necessary fundamental overhaul of energy systems.
    A carbon price will help us reach the “low-hanging fruit” [ie the incremental] gains from energy efficiency, energy conservation and “near commercial” clean technologies [such as gas-fired power stations. …]

    The United States has abandoned its emissions trading legislation and is instead devoting resources to clean-energy research and technology as well as to investment in new nuclear reactors.
    India has implemented a carbon tax at a low price of around $1 per tonne of coal for the purpose of financing its National Clean Energy Fund. …

    China is perhaps the world’s best example of this new “climate pragmatism.” …
    On the one hand, China is constructing hundreds of new coal-fired power stations and belching ever-greater quantities of greenhouse gases into the atmosphere.
    On the other, it is investing billions in renewable energy, setting serious targets to reduce the emissions intensity of its economy and trialing a limited emissions trading scheme in some provinces. …

    China’s energy priorities are very different from those of the West.
    Its first priority is development.
    China’s second priority is energy security. …
    Third, China is increasingly concerned about the environmental impact of its development. …
    Fourth, China wants where possible to contribute to the global emissions reduction effort. …

    The Copenhagen Accord, widely seen as a failure because it was not a legally binding treaty, may actually represent a step forward towards a more flexible framework that allows countries to formulate their own strategies.
    More recently, global negotiations have focused on developing countries, technology transfer and investment in new technology.


  • David Marr (1947), His Master's Voice, Issue 26, 2007
  • Breach of Trust: Truth, Morality and Politics, Issue 16, December 2004.
    Raymond Gaita.

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