Archives

Categories

Emissions Reduction Fund analytics

There is a widespread misperception that the Emissions Reduction Fund (ERF) cannot, in principle, work to effectively reduce carbon emissions. An example is in today’s article in The Saturday.  Basic environmental economics on the equivalence between taxes and pollution subsidy policies shows that this is wrong. It is also wrong to dismiss the ERF scheme as a “non-market” based scheme. It is just as much a market-based scheme as the carbon tax provided that subsidies are allocated to the low cost pollution abaters.

Economists look at carbon polluters and focus on the costs that these polluters face in cutting their last tonne of carbon emissions. To use jargon this is the marginal cost of cutting emissions (the marginal abatement cost or MAC).  If a tax per tone of emissions t is imposed on emissions from a firm with a certain MAC then, if t > MAC, the firm will abate since it is cheaper to do so for these marginal emissions than to pay the tax.   In fact firms will abate up to the point where t= MAC.  If instead the government provides a subsidy on emissions reduction s and offers to pay this subsidy to those who offer to cut their emissions at a cost to the government of less than s then firms will offer to cut their emissions and receive the subsidy provided s > MAC.  They make money by doing this because they pay less for abating than they receive from the subsidy.  Again they will cut their emissions up to the point where s=MAC.

Comparing the tax and subsidy schemes it is clear that both are market based and that both yield the same level of emissions reduction for t=s. A tax of $25/tonne on carbon emissions will yield the same level of emissions reduction as a subsidy paid to polluters of up to $25/tonne.

That the carbon tax was fixed in amount where the pollution subsidy under the ERF is determined implicitly by the budget to be spent reducing emissions changes nothing in principle provided that, as is the case, those who seek subsidies are those facing the lowest MACs.

Why then the popular opposition among economists to the ERF in favour of the carbon tax?  There are several reasons:

1. Fiscal.  The emissions tax potentially yields large amounts of revenue to the government whereas the ERF scheme costs the government revenue.  There are two responses to this claim. First the carbon tax scheme as introduced by the Labor Government was designed to be revenue neutral so consumers and many producers were offered benefits that compensated for the tax.   Thus, as introduced, the carbon tax would not have yielded any revenue.  One could counter argue that times have changed and that these offsets should not now be paid because of looming public sector deficits. That presumably was what Ross Garnaut had in mind when he claimed the other day that restoring the carbon tax and abolishing the ERF could deal with the Government’s fiscal woes if the Senate rejects its program of social welfare cuts and charge increases.  Even doing this it is easy to show (joint work I have done with Rob Waschik and Iain Fraser does this) that the revenues paid under the ERF to firms are much smaller than the revenues transferred to government by a carbon tax for all but very high (exceeding 90%) levels of abatement.  It doesn’t seem to me that the fiscal arguments against the ERF are compelling. Another possible source of non-equivalence could stem from double dividend benefits from a carbon tax.

Another claimed fiscal disadvantage of an ERF could stem from the fact that it does not yield the double dividend benefits of a carbon tax.  The claim is that carbon taxes punish a bad activity and yield an additional benefit by permitting the reduction of more distorting taxes such as income taxes on labour.  UI think now the consensus is that such double dividend benefits are either negligible or small.  The difficulty is that extra costs imposed by a carbon tax in any event reduce real incomes  which obliterates any benefit from improved tax efficiency.  That said the ERF is funded by taxes on income so, even if the absolute scale of the ERF is not great, its “excess burden” (or deadweight loss)  costs on the tax-payer should be accounted for.

2. Implementation.  There are difficulties of implementing an ERF.  Both tax and ERF schemes require monitoring of current emission levels to check that carbon emission laws are being met. But the ERF requires also that an emissions baseline be determined which determines the size of the subsidy payments to be paid.  These will depend on the difference between baseline emissions and current emissions.  The difficulty here is to make sure that polluters are not “gaming” the ERF scheme by exaggerating initial emissions in order to get higher subsidy payments.  Even without gaming issues the issue is to determine the genuine level of emissions reduction that occurs as a result of the ERF.  Emissions by coal-fired electricity generators have fallen in recent years not because of carbon charges but because of falling electricity demands.  In addition generators switched to using less polluting gas even before carbon pricing was introduced.  It would be unattractive if payments to carbon polluters were made for emissions reductions that would have occurred anyway.  Such issues do not arise with a carbon tax since a firm’s tax liability depends only on its actual emissions – there is no benefit to a firm in fudging a baseline or gaining an unwarranted advantage from a switch to gas.  While touch unwarranted payments to firms are unattractive I do not think that, again, they provide an overwhelming case against the ERF scheme given the comparatively small scale of aggregate subsidy payments.

Other issues of implementing the ERF concern selecting the least cost emitters too subsidise.  This is proposed to be done by a reverse auction where those who can abate emissions at low cost will get the subsidies.  Potentially it seems to me this can work provided firms do not collude and provided they bid a price for abatement that is close to their MAC.  Again it seems to me a detail rather than an overwhelming criticism of the ERF.

3. Time frame.  There are considerable difficulties in understanding the issue of whether firms will sustain emissions reductions.  The current ERF is scheduled to run for 5 years and presumably the Government assumes emissions reductions made during this 5 year period will be sustained into the future.  There are real issues here of the credibility of the ERF scheme.  Will firms cut emissions now in response to an emissions subsidy which compensates them for the extra costs they will occur over such a short-term time horizon?  At least the longer-term future for the ERF needs to be spelt out.

4. Non-equivalence arguments.  Environmental economics texts such as the well-known work of Baumol and Oates (BO) point out that the model outlined above suggesting that tax and subsidy policies are equivalent (in the sense that if s=t the same emissions are produced) are wrong.   BO point out that under a subsidy scheme there are reduced incentives for high polluting firms that would exit an industry under a carbon tax to in fact exit under a subsidy policy.  The reason is that their value is boosted by payments for emissions reductions. BO also point out that firms may in fact enter an industry to secure ERF type benefits.  Neither of these outcomes seems realistic in Australia where firms engaging in such behaviour would certainly expect a prompt regulatory response.  I don’t regard this as a real problem.

5. Political.  Many citizens distrust the Government on climate change.  There are many climate change “skeptics” (more accurately, “delusionists”)  in the Government and among its group of major advisors.  This is probably the major reason for disbelieving in the ERF’s efficacy and it is reasonable given the Government’s track record.

In my view the problem with the current Abbott Government policy is not its use of an ERF rather than a carbon tax to reduce emissions to 5% below those of year 200 by 2020 but the fact that this target is so miserly.  We are shamed by the intended actions of the Obama administration and by the intended actions in countries such as China and Indonesia. But to dismiss the ERF wrongly when it could potentially address climate issues is foolish.

Caution: I am working on this material.  Subject to revision.

  (1184)

Right-wing think tanks & the press

Groups such as the  Institute of Public Affairs play a dominant role in providing newspaper commentary in Australia, particularly via the Murdoch press but also in some of the better quality Fairfax papers.  Partly, no doubt, when it comes to papers like The Australian this is so because the propietor endorses the views.  But I wonder too whether it is also because groups such as the IPA provide a way of getting copy on an outsourced basis at much lower cost than using full-time journalists.  The newspapers are experiencing well-known financial problems and a major cost is full-time journalism. It is better to get copy from those with an ideological axe to grind who are willing to accept low rates of pay in order to get their ideology across.  In support of this I notice Fairfax also publishes a lot of stuff from the IPA and both Fairfax/Newscorp publish outsourced material from groups such as the Australia Institute. Rupert Murdoch’s notoriously fickle politics might make sense if you assume his attention is mainly on the bottom line – he likes to back winners but also keeps his journalism bills down.

Of course this suggests that social democrats could make a bigger impact if they combined to form a think tank that supplied copy on a regular basis to the media.  To some extent groups such as the Australia Institute and the non-aligned Grattan Institute do this but I think not as effectively as the IPA although I certainly believe the quality of the research done at Grattan far exceeds the low level prejudice generated by the IPA

http://www.ipa.org.au/people (980)

Some sound practical advice for university administrators

Ways to create and then cover up a massive blunder.  Ignore expert advice and go with your gut feelings and prejudices.  Push to one side anyone who opposes you.  Make sure that everyone who participates in the blunder is well-compensated.  Only admit at the very end that you got it catastrophically wrong.  Use creative accounting to make your case and drag your heels when objections to the accounting arise.  Make sure you have moved on to a new position in a new university before the blunder is discovered.  Then repeat the above at a higher salary.

http://www.businessspectator.com.au/article/2014/5/29/leadership/five-ways-cover-massive-blunder (772)

Amanda & the university “brats”

Amanda Vanstone makes two key points in her op-ed this morning:

(i) That university students free ride on the community by having most (about 60%) of the costs of their education paid for by taxpayers in general (including those who do not benefit from tertiary education).
(ii) That these subsidies mainly go to the wealthier sections of the community since, on average, it is these wealthier students who end up going to university.

I think she is partly right too that the current mob of protesters look like an unattractive looking bunch of spoiled brats. They don’t offer logic or arguments only adolescent slogans.

Setting low education costs can be justified if there are externalities from having a well-educated community in terms of less crime, better social decision-making and so on. The fees then cover the private benefits students get in terms of better incomes. This sort of perspective suggest a lower charge for all students attending university – irrespective of their income. 60% average subsidies suggest these external benefits are quite hefty. It might be hard – but I imagine not impossible – to come up with a solid justification for them. It is certainly crazy to seek “free education” since then people will be consuming an expensive service that yields social benefits less than the cost of delivering the service.

Another argument for subsidies is based on an equal opportunity starting point in society. This seems a much stronger argument to me. People irrespective of their socio-economic background should have the chance to attend a university if their abilities are great enough. But this does not seem to steer things in the direction of the current HECs. Rather it suggests giving targeted scholarships to those from economically disadvantaged backgrounds or perhaps highly concessional HECs arrangements for such students.

I guess a final argument that can be advanced is that education is not primarily an investment in an individual’s human capital but is a basic right that enhances a community’s sense of intellectual well-being.  As an economist I have only limited respect for these types of arguments –  current trends in the universities seem to me to suggest a diminishing role for promoting learning in general.  The universities are primarily unadorned degree factories. This is one of the reasons the protesting students appear to be such barbarians – they have not, in fact, received much of an education.

HECs is an intervention that helps people fund their educations in capital markets that don’t work well but the scheme doesn’t substantially address the inequality issue.

I am pessimistic about the future of the Australian universities on the basis of what I have seen as they have evolved over the last 30 years. The rise of managerialism and the “dumbing-down” of curricula are doing far more damage to the community than changes in the way fees are levied. But that is a topic for another post.

http://www.theage.com.au/comment/memo-to-uni-fees-protesters-stop-being-selfish-thugs-and-bullies-20140523-zrm0j.html (1461)

Cut GGE stocks not rates of GGE emission

Climate policies should target the control of stocks of greenhouse gas emissions (GGEs) in the atmosphere not the flow rates at which people are adding to these stocks.  It is a simple point – heating effects depend on the stocks not on the rate at which these stocks are being added to.  The point can be made simply by supposing a country agrees to a 90% reduction in GGE flows by 2050 which is the normal way policy objectives are set. That country could then do nothing at at all about GGEs until 2049 and then in that final year close down all coal-fired power stations and introduce a punitive carbon tax of say $200/tonne in that final year. It could even pre-announce such policies so that firms would not be subject to unexpected shocks and could be prepared for the sudden transition. The net effect is that the country would have added enormously to carbon emissions from 2014 to 2049 (it is these stocks which determine warming effects*) but would still be meeting its emission control objectives.   Clearly the appropriate target is not to reduce flows but to restrict the volume of GGEs a country is adding to the atmosphere.  Doing otherwise is to fudge the intent of GGE restriction policies.

I wonder if, on a less dramatic scale than this hypothetical example,  the Government’s Emission Reduction Fund policies are in fact seeking to do. To allow lots of pollution and then, in the 11th hour, to introduce carbon control policies that meet the miserly objective of a 5% cut over year 2000 levels by 2020. Or is it just a matter of postponing real action and eventually back-flipping to do almost nothing because “money is scarce” or some other phoney argument.

http://www.smh.com.au/federal-politics/political-news/budget-analysis-shows-climatechange-commitments-to-be-left-to-the-11th-hour-20140525-38wvx.html

* Indeed that it is stocks which matter not flows provides one argument for a carbon tax rather than an ETS.  Getting the wrong annual flow by setting a tax wrongly isn’t very costly if you can adjust the tax in future years. Policy-makers can still hit stock objectives by increasing the tax if emissions are being cut too slowly.  In addition tax policies provide a measure of carbon price stability that is useful for public and private sector planning. To be clear this is only one reason favouring a tax.  There are also many arguments for an ETS – it can be used to reflect a nations’s contributions to emission’s stock reduction, achieves exact cutback targets etc.  On balance I prefer an ETS although, of course, either a tax or an ETS outperforms the current Government’s emissions subsidy scheme. .

  (732)

Henry Ergas on universities

Henry Ergas has strolled through the corridors of a university and then claimed to understand it all - universities comprise lazy academics, incompetent, with no interest in teaching. It is the standard conservative, anti-academic view from someone employed (I believe) as an academic in a publicly-funded university.

http://www.theaustralian.com.au/opinion/columnists/creating-mayhem-more-fun-but-revolting-radicals-miss-serious-issue/story-fn7078da-1226921940480

But Henry, it isn’t only wealthy, Che Guevara-types who are damaged by huge fees but also many young people from modest and middle-income backgrounds.   How much did you pay for your education?  I wouldn’t have been able to attend university without a scholarship. Henry, did you pay all of your costs?  A loan scene doesn’t avoid a price – it only delivers a less painful way of paying that price.

Your views on inactivity in the universities are just wrong and outdated. Education and teaching are central priorities and have been for several decades. But that is just my claim just as your views are a claim. You provide no evidence to justify your impressions.  Why do Australian universities do so well in international rankings if they are so poor? Why do we attract so many international students? Is this  export success story based on wrong information? Your judgement about academics being intellectually feeble likewise reflects pure prejudice partly because many of them don’t take you very seriously. Most academics regard your politics (and your propensity to dominate verbal exchanges with long rambling monologues) with well-deserved disgust.  You are wrong about professors regarding teaching undergraduates as only a burden.  It is simply untrue – good researchers are invariably good teachers since the two things go together.

Based on your prejudiced and uninformed view of the universities as being in a crisis situation you advocate revolutionary reforms. But the main difficulty the universities face these days is a funding shortfall and that is a consequence of the types of attitudes you uncritically advance. But you don’t like public spending or taxes do you? I mean not you personally (since you have relied on such funding) but the general issue of principle you espouse.

You say HECs fees don’t deter educational participation but then inconsistently voice concerns about “price gouging”.  Why worry about the latter if…. oh forget it Henry.

Why Henry do you get paid to write this nonsense?  Your fantasies are dangerous, wrong and based on your ideology not on evidence. (1071)

Free markets in higher education promote inequality

(Provisional thoughts)

There are two factors that determine participation in higher education: The level of fees charged for the service and the high school entry scores (ATARs) that determine eligibility to join particular programs – this is a price even if the price is funded by HECs.  Education, at least in elite G8 universities, is in excess demand at present  with more people wanting to go to university than there are positions. With current fees, excess demands are accommodated in such elite institutions by setting minimum ATAR scores which “ration” entry to those with the highest ATARs.   With higher fees being charged as a consequence of liberalisation the numbers applying to enter universities will fall but numbers actually achieving entry will increase because of the higher price being offered to the university suppliers. This must mean that admission standards will decline.  Academic institutions, particularly elite institutions, will be happy to accommodate more students because they are offered a higher price but entry standards must fall as entry becomes determined more by price than it is by academic standards. Elite institutions will be dumbed down.

How pronounced will these trends be?  That depends on how close domestic fees are to fees that charged to international students  which, in turn, will reflect international education costs.  In addition it matters how  these international fees are to the level that would maximise returns to Australian universities.   With a straightforward profit-maximisation agenda local fees can treble to about the level that universities can extract from foreign students.  The only question then is how large these international prices are to levels that would maximise returns to local universities?

Given that Australia is a significant exporter of higher education services it seems likely that Australian higher education costs are lower than those prevailing in comparable institutions internationally.   In this case, fees with liberalisation will overall meet demands locally for education entirely on the basis of price with no need at all to rely on entry scores.  Local universities will be willing to supply more positions than local students demand with any gap being filled by international students.  Adjustments towards this outcome are likely to involve fewer local students going to university and those who do gain entry doing solely on the basis of their ability to pay higher fees.  The quality of student intake into courses will decline and those who do gain entry will be the sons-and-daughters of the well-to-do.  Any excess supply of positions will be taken up by foreign students.  This is a slight exaggeration since the universities will mask these efforts by offering a raft of scholarships to conceal their intent but the general thrust will be in the direction of maximising returns.

Non-elite universities currently experience lower demands for their offerings and often currently set lower ATAR admission standards.  Following price liberalisation there are likely to be two effects on non-elite institutions.  These non-elite institutions will experience increased demands for entry by able students who simply cannot afford the high prices charged by the elite institutions.  This will be a positive effect on the institution as a whole since having high ATAR students will provide positive external benefits for other students.  On the other hand with fee increases there will be fewer low ATAR students who can afford entry into these non-elite institutions, a negative effect. The negative effects here are likely to exceed the positive effects if it is this case that low-ATAR students come from low income backgrounds. In addition high ATAR students from poorer backgrounds will tend to concentrate in non-elite universities – they will provide external benefits but at a private cost.

The upshot of the Kemp-Norton-Pine reforms seems to me to be a university system that places greater emphasis on parental wealth and less on student abilities.  Overall it is profoundly regressive. It takes Australia backwards. Earning a good income on the basis on your skills and hard work is a good thing. Doing the same because your parents could fund you through elite institutions with lower academic standards is less socially desirable.

  (867)

Emissions Reduction Fund is now definitely revealed to be a bad joke

I saw this morning that total planned funding for the government’s ERF of $2-55b will not be increased after 4 years. This is to be TOTAL funding through to 2023/2024.

This pathetically weak scheme is now revealed to be more than weak – it is a bad joke. There is no way targets of 5% reductions in emissions over year 2000 levels will be met by 2020.

In terms of the overall budget this is a “small potatoes” issue. But the Abbott Government is clearly walking away from any serious attempt to reduce carbon emissions.

http://www.misaustralia.com.au/p/national/budget/environment_organisations_lose_out_4hBpgmcE5vdJDndPYR0i8N (847)

Reforming economics teaching

I have a fair bit of sympathy with some of the complaints in this The Guardian article about economics teaching. We do need to teach more about institutions and we do need to be more pluralist. Economics is much more than a quantitative methods “hurdle-jumping” contest though, to be clear, quantitative methods are very important.

http://www.theguardian.com/business/2014/may/11/after-crash-need-revolution-in-economics-teaching-chang-aldred

But I have far stronger complaints about the role of untrained administrators “dumbing-down” business curricula by leaving out virtually all economics and statistical training and replacing such with courses involving low level, non-analytical nonsense and psycho-babble. This is a crime that will take years to undo and will lead to many students ending up with poor business educations and making poor business decisions. A business curriculum which doesn’t teach how consumers and firms make their decisions, how public goods should be supplied, how levels of employment, economic activity and interest rates are determined, what determines international trade  and how externality issues should be addressed is inevitably of low usefulness.  Finance courses which teach people investment analysis without teaching the basic consumption-smoothing rationale for lending and borrowing is likewise of limited worth.   Finance grew out of microeconomics and indeed is inter-temporal microeconomics.  Separating finance from microeconomics and teaching finance to students who don’t understand government budgeting and interest rate/exchange rate determination is a waste of intellectual endeavour.  Students who study marketing without knowing some consumer demand theory know only a fragment of what determines consumer behaviour. Students who study “human resource management” without having a basic course in labour economics likewise know very little.

Finally, it is ironical that those administrators and business academics who so vehemently detest economics training often themselves need of a sound economics education.  Their poor decision making skills that downgrade curricula and worsen the financial position of universities are often the result of poor economic decision making.

  (1026)

Cairns bleg

I am thinking about buying a home unit in Cairns north Queensland.  I like the tropic climate – particularly as an escape from the Melbourne winter but also because I like the mix of natural habitats that lie in and around Cairns – from Port Douglas and the Daintree to the Atherton Tablelands.  I probably would want to live in Cairns rather than an outlying area though I might consider Mareeba, Mossman or Port Douglas.  I probably would want to live in reasonable proximity to urban facilities, restaurants and so on and particularly the airport.  I want a unit as I want to be able to lock up and leave. Cheap air tickets to Cairns from Melbourne – around $256 return – along with relatively inexpensive real estate are an attraction.  I’d probably continue to spend the summer and spring in Melbourne.

I’ve spent a few days checking out the options via the web and will probably visit the area in June to have a careful look around.

I’d be interested to hear views of any people with experience of Cairns as a place to live in. What’s it like to live there for extended periods?  Any problems? What are good parts of Cairns to live in? Why does the real estate there seem so inexpensive?

If you don’t want to post a comment online you can email me or use the FB message service.

Many thanks. (985)

A case for increasing (or at least indexing) the petrol excise

There never was any strong reason for John Howard pegging the petrol excise at 38 cents per litre and plenty of sound reasons for at least indexing it with respect to inflation.  The tax provides a rough (and admittedly imperfect) tax on congestion and fuel-induced air pollution and provides quite a reasonable application of the benefits (or “user pays”) principle of taxation in relation to funding of new roads and the maintenance of existing roads – those who use lots of petrol, particularly heavy vehicles, should pay much of these costs.  An excise also provides motorists to think forward and shift away from liquid fuels which will inevitably become more expensive. Finally, in terms of deadweight losses (or “excess burdens”) a tax on fuels has only moderate inefficiency costs because the demand for fuel is relatively price inelastic.   To achieve these desired features in a growing economy subject to inflation the tax should grow with the economy and not be set in stone.

I therefore support moves to revisit the setting off the excise. The tax yield from the fuel excise has fallen by about 40% which costs the government around $5b.  Increasing the tax by 20 cents and then indexing it to inflation would recoup much of the revenue lost because of the Howard decision to reindex the tax and would cut the size of the underlying structural deficit facing the economy by about 1/3.

Longer term one would hope that road use charges related directly to congestion, pollution and road damages would be introduced.  These are better ways of taxing externalities than a rough fuel excise. But still I think the fuel excise should be retained.  It is a broad-based tax that still would have the desirable properties mentioned of generating relatively low efficiency costs and of forcing us all to shift our allegiance away from fossil fuel-based energy sources.

The inevitable cry will be that such a tax is regressive and that it falls on the poor.  The Grattan Institute have begun this very standard sort of moan that is raised whenever any efficiency-based reform (e.g. congestion pricing) is proposed. What matters is the overall incidence of the tax-transfer system not the equity character of a small part of the tax base.  Of course the level of excise in Australia is low relative to excises in most European countries.

http://www.theguardian.com/world/2014/may/07/drivers-excise-hit-cabinet-searches-budget-savings

Update: 8/5/14. It seems that a 3 cent increase in the levy will happen.  I don’t think, however, this would raise $1b as this article suggests.  More like $500m. (1147)

Water provides a source of comparative advantage

The problem of water shortages around the world is not due to the fact that the total volume of water available is inadequate. The problem is that the world’s water supplies are distributed very unevenly. Moreover it is difficult to directly trade water internationally because it is bulky and heavy.  Products which are relatively water intensive can, however, be traded.  This helps to indirectly allocate water resources to where they are most needed and improves the global efficiency of water use.

This paper by Peter Debare shows that water is a source of comparative advantage in the sense that relatively water abundant countries do tend to export water-intensive goods.  Thus water is indirectly traded internationally through trade in goods which are more=or-less water intensive. Comparative advantage in water therefore undoes some of the effects of an uneven distribution of water globally. But water contributes much less to the pattern of international trade than other productive factors such as labour and capital.  Hence changing water supplies due to climate change should cause only moderate disruptions to international trade.  For example,  if Australia experienced a 10% drop in precipitation due to climate change, Debare calculates that overall Australian exports would fall by 5.2%. Not negligible from Australia’s perspective but not catastrophic either.

It is a fine paper. I’d suggest that the failure generally to price water at its scarcity value limits the comparative advantage role that water plays in world trade and also limits the ameliorative role that such comparative advantage might play in mitigating the effects of climate change. Of course we also want water priced efficiently to achieve sound patterns of water use and prompt adaptations to climate change even in the absence of international trade.

http://pubs.aeaweb.org/doi/pdfplus/10.1257/app.6.2.32 (829)

The Sunset Limited

Watched a movie version of Cormac McCarthy’s play “The Sunset Limited”  featuring Tommy Lee Jones (also director) and Samuel L. Jackson.   An born-again Christian black ex con (SLJ) argues with a white professor  (TLJ) about the case for despair or going on.   SLJ has saved TLJ from an attempt to throw himself under a train (“The Sunset Limited”). Gripping drama – as much poetry as drama.  In my view despair wins in one of the bleakest of bleak McCarthy conclusions.  Salvation into an post-”world gone wrong” afterlife would be “Kafka on wheels” for TLJ – the “ultimate horror”, “the ultimate despair”.

McCarthy was involved in the direction of this movie version of the play. Superb performances .  It was originally produced for HBO television in 2011. (422)

Levying a tax

I liked the article (unfortunately paywalled) by Jacob Greber in the AFR today on the proposed income tax hike.  The motivation is to avoid a decade of widening fiscal deficits.  The government promised no new taxes but promised also not to spend less on pensions, education, health and defence while, at the same time, reducing the fiscal deficit. It almost must break a promise. The underlying (ignoring temporary factors) budget deficit is around $15b and this will grow if unaddressed.  The temporary income tax hikes would reduce that by one third but, if they are temporary, their effects will last only while the increases are in place, supposedly around 4 years.  Again either the government will then be forced to retain these temporary measures or get more serious about cutting spending.  2/3 of the current deficit already needs to be addressed by spending cuts.

My own preference would be to state now that the income tax increases would be retained permanently and that the governments foolish direct action plan to address climate change (that will cost it $4-5b) be replaced by the carbon pricing scheme that bLabor would introduce that would yield it $10b annually as revenues.

Tony Abbott achieved power by lying about Coalition policy intentions and by abandoning environmentally responsible and economically beneficial carbon pricing policies.  If he keeps lying he will end up in the same situation as the Labor Government and will be replaced. (635)

Piketty on inequality

Economics has a best seller. Thomas Piketty’s, “Capital in the 21st Century”. I couldn’t get a copy locally (the book is not available even at Amazon.com such is the demand) but have read a few reviews and watched a video where Piketty presents his ideas that are then analyzed by Paul Krugman, Joseph Stiglitz and Stephen Durlauf.

One can see this book becoming part of an intellectual fashion.  The core thesis – that inequality is exploding, is non-new but the claim that this reflects trends in inherited wealth and “patrimonial capitalism” is distinctive.   Several commentators have recognized the role of the book in synthesizing various contributions.  Several too have simply acknowledged the skills of the translation from French into English. Continue reading Piketty on inequality (1210)

Abandoning the US alliance

Malcolm Fraser argues that Australia should pursue an independent foreign policy so that it does not get dragged into unwanted wars between, for example, China and Japan.  I found this discussion (with Robert Manne) fascinating.  US military installations at Pine Gap and in Darwin are portrayed as a chain around our neck.  ANZUS ineffective.  And finally a return to the “populate or perish” ideas of 1945. Now we would need a population of 45 million to be a viable independent country.  Fascinating discussion. (440)

Chinese agriculture

Nearly 1/5th of Chinese agricultural land is toxic.  Forget about measured economic growth targets – this is a madness. (675)

Privatising universities & finally killing them off

Non-academics Andrew Norton and David Kemp recommend privatisation of the university system with subsidies paid to private as well as government suppliers. Universities don’t only supply private goods so I am unclear of the motivation here though libertarian thrill seekers will get a jolt of blood through their arteries when they read this proposal. Of course the profit-motive may not drive good outcomes if students cannot easily assess the quality of a supplier and an asymmetric information externality (AEI) arises. That’s typically the case and indeed the rationale for education – people come to learn because they are otherwise ignorant. The AEI is built into the idea of an education – the idea that there are teachers and those taught with the teachers assessing a field and informing those interested in but otherwise ignorant of that field. That’s why academics not K-mart dog food salespeople (or  propagandists from the Liberal Party) should manage university programs. If asymmetric information issues are ignored then “lemons” problems emerge and universities enjoy a competitive race to the bottom that will maximise profitable output at the expense of any semblance of quality.

On the other hand the mock entrepreneurs who dominate the current university system and who rattle on about KPIs and market-determined outcomes are so awful and incompetent that I doubt full privatisation would do much worse in terms of delivering bad outcomes. Maybe quality dog food salespeople will outperform the current pretenders who couldn’t organise a riot! The latter cretinous lot have already substantially damaged the Australian universities so, from here on in, further damage may add little to social costs. When the river is full of shit an extra defecation or two adds little to social cost.

  (1133)

Redundancy bleg

The meaning of an employment redundancy is, I assume, that a position is either no longer required or if an employer is bankrupt. I’ll ignore the second possible reason for “redundancy”.

I assume that a “redundancy” does not arise if a worker on a high salary is replaced by one on a lower salary and the previous work activities continue since, in this case, the position is still required. It is only that it is now being argued that the work can be carried out more cheaply by a less costly worker – for example, by employing a casual or on a lower salary.

Does anyone know if there are laws limiting redundancies from occurring in this latter situation?

  (1059)

Technological unemployment

This thoughtful piece in the Economist examines the prospects for technological unemployment and a continuation of the trend by which income gains go to owners of capital.  Economists have conventionally rejected this idea but recent trends in developed countries – the failure of US wages to grow for 4 decades – suggest that economic theory needs to consider some of the secular unemplyment possibilities considered by Keynes.This signals to me a case for increased investment in education, a redistribution of ownership claims on capital, a much more comprehensive social welfare system that offers a guaranteed minimum wage and shorter working hours for the workers who do choose to work and earlier retirement ages. Society should not be worse off as improved technological options become available. (2174)