Catallaxy Files

I came across this argument by Ron Klain, Joe Biden’s former chief of staff, writing in Bloomberg.

[Right-to-work] laws aren’t right because they entitle a worker to all the benefits of a union-negotiated contract without paying any dues. In other words, they grant a free ride, aimed at undermining the desire of anyone to pay their fair share. Regardless of how you feel about unions, the unfairness of this legislation should offend you.

That very argument can be used to justify military conscription. As Klain suggests we should be very offended. Industrial slavery is just as offensive as military slavery and should be treated with precisely the same contempt.

There is an interesting article on Larry Summers in the Australian (reprinted from the Sunday Times) talking about technology in universities. A lot of it is motherhood stuff but this did leap out at me.

“It’s slightly absurd that in the English-speaking world on 15,000 separate occasions each year a lecture is given parroting the basics of capitalism,” he said.

Well it might be, it could be, I doubt it. But what evidence is there that a lecture on the basics of capitalism is given at 15,000 universities ever, let alone each year?

“Market failure” is an ancient economic term which is largely confined to when a natural monopoly occurs and the firm is able to make more money by restricting supply than if that supply were to be provided by many firms in competition with each other.  In other cases, the market system has means of ensuring that the outcome, if not perfect, is as good as it gets.

 However half-trained  economists have latched on to the phrase and reinterpreted it to mean any outcome that does not accord to their own thinking of what should be provide, chosen and consumed. 

Hence, those using economic jargon to justify market intervention claim there is:

• consumer ignorance of what they might best spend their money on offered as an excuse for market failure. 
• consumers are judged to be myopic in excessively valuing today’s savings against those available tomorrow. 
• businessmen fail to invest appropriately because of inadequate certainty about the future and businesses fail to invest because the ‘first mover’ is seen to lose out to those following the trail. 
• consumers are not making the best decisions because products like buildings are rented not owned and the owner takes decisions on the assumption that the lessee will not assign the correct weighting to features like their energy bills. 
• consumers fail to make the appropriate product decisions because the package of services in, for example a car, makes too many trade-off and sacrifices those the economic policy maker considers best serve society.

 A rich economic literature has disproven all of these so-called market failures.

 Yet they are trotted out in abundance by those wishing to impose their own values on consumers and producers.  Nowhere is this more evident than with the latest paper by the Grattan Institute on carbon taxes. 

Grattan was funded by a $30 million raid on the taxpayer by ALP governments supplemented by funds from businesses that seek to ingratiate themselves with those same governments.  It is staffed by people who use economic jargon to justify government intervention, especially in the sharp end of policy activity, energy and carbon markets.  And it is located in the University of Melbourne, just one tertiary institution the administration of which has fallen to the long march of ALP insiders. 

Even so it is unable to maintain a consistent line on its centerpiece policy theme.  Here is a summary of their positions in its two year odyssey through carbon saving matters. 

The Grattan Peregrinations

November 2009

There is a possibility that without a floor to carbon prices, lower-emission electricity generation won’t be built in time unless there is direct government subsidy – which would somewhat defeat the ultimate purpose of a carbon pollution reduction scheme. Until future carbon prices are assured, banks and investors will be reluctant to add to power capacity.

September 2010

Markets would be better than government at driving innovation at the pace and cost necessary to meet Australia’s climate targets.  In effect, this sets a floor-price for carbon emissions, something like the reserve price in a house auction. It creates more certainty for the builders of power plants, and businesses investing to reduce their direct emissions.

October 2010

The flexibility of a cap and trade scheme makes it an attractive instrument for achieving the emissions reductions that Australia committed to as part of the Kyoto process. By augmenting it with price caps and floors we can put more certainty around the economic assumptions about the costs of emissions reductions that were the basis of these commitments.

December 2010

Government and other experts consistently underestimated how much industry innovates and adapts. As a result government targets to reduce pollution were regularly achieved faster, and at lower cost than originally expected. It also finds that experts were routinely wrong in their predictions about which particular measures would be the lowest cost.

We should use broad-based pricing schemes that minimise government actively choosing in advance which projects and technologies to reduce emissions.

April 2011

Market mechanisms show by far the greatest promise for achieving substantial emissions reductions by 2020 and the longer term. Under a market mechanism, government legislates a price on pollution, or for avoiding pollution, and then allows businesses to determine how they wish to respond to the price.

Market mechanisms work because they minimise the need for government to predict the future. They provide businesses and individuals with certainty and flexibility.

Grant tendering schemes are opposed because they involve a highly complex and ad hoc approach to funding abatement activities.  Grant tendering programs tend to fall into two broad categories:

• Programs like the NSW Greenhouse Gas Abatement Program, the NSW Energy Savings Fund and the Green Building Fund.

• Programs that primarily aim to develop and commercialise immature greenhouse abatement technologies and include the Solar Cities, Low Emissions Technology Demonstration Program, Solar and CCS flagships. 

October 2011

Earlier this year, Grattan Institute released an analysis of the outcomes of a range of policy interventions, for which reducing greenhouse gas emissions was a core objective. The analysis showed clearly that market mechanisms not only deliver the outcome at lowest cost and compare more than favourably with schemes such as capital grants, they also produce benefits in innovation that are far better than would be delivered otherwise.

Project proponents and their financiers will always favour feed-in tariffs or power purchase agreements since the firm revenue stream is far more bankable than taking market exposure to renewable energy targets or portfolio standards. Whenever industry advocates a specific support mechanism (they never call it a subsidy), a simple question of why they would do so will usually reveal commercial alignment.

 Pricing carbon.  Third myth: Complementary measures are needed because the carbon price is not high enough.  If government responds inappropriately .. it will either make the problem worse or introduce a new problem and a new set of industry concerns. For example, a renewable target is introduced because the ETS price is not high enough to support renewable energy; then a feed-in tariff is introduced because the REC price is not high enough for solar energy; then segmented feed-in tariffs are introduced because the FIT only supports the cheapest solar etc. And, of course, every change, or even proposed change, triggers a response from those who have invested on the basis of a credible and predictable market.

February 2012

The carbon pricing scheme, while a good start, is not enough.  Policy approach should be

1. Set upper and lower bounds on longer-term emission caps
2. Maintain and expand R&D for solar, geothermal etc
3. Reduced subsidies to electricity prices, cease contracts at favourable prices to aluminium, smelters, increase time-of-use metre roll-out
4. Increase network support for renewable generation

Quite true. Nobody ever criticised John Howard for being a woman or on the basis of his femininity.

From the National Taxpayers Union – Fool me twice …

This is not the first time Chrysler has claimed a “comeback” from government assistance.

In 1983, Chrysler was bailed out by America’s taxpayers – some of this may sound familiar…
…
Of course, we know today that Chrysler was not prepared to go the distance, and faltered into government hands once more in 2009.

The American people should not be fooled again. The Clint Eastwood ad is just the latest example of dressing up a flimsy “comeback” that has cost taxpayers and the economy dearly. Let’s hope we are not writing the same thing in another 25 years.

Bob Brown seems to think that increasing taxes on superannuation will lead to low-income earners having more super. As best I can work out, he seems to think that low income earners won’t save more in super because high income earners get a tax break. Here he is explaining how that works to Emma Alberici.

EMMA ALBERICI: Now I’ll pick you up on what you mentioned just a moment earlier about your proposals for superannuation. You want to lift the taxation on contributions. Where’s the wisdom in that?

BOB BROWN: Well we want to drop it, the taxation on low income earners.

EMMA ALBERICI: But not on 12 per cent of earners.

BOB BROWN: That’s the 12 per cent top income earners who get 50 per cent of the tax breaks. Now how about the people in the middle and lower down get a fairer go? Most people in the middle won’t be affected by our proposal. But at the moment, Emma, if your income’s so low that you’re not being taxed, you pay actually 15 cents for each dollar you put into your superannuation.

EMMA ALBERICI: How many people on the lowest tax rate actually have extra money at the end of the week to put into superannuation?

BOB BROWN: We want to encourage them to do that because they deserve in retirement a bit more money in the bank. But let me say this: that wealthy people under the Greens configuration will still get a 15 per cent cut in their tax rate. Suits win-win. And …

EMMA ALBERICI: No, surely that would be a disincentive for people to put money into superannuation which potentially could starve superannuation funds in Australia of money?

BOB BROWN: It’s not disincentive if you’re paying 45 cents in the dollar.

EMMA ALBERICI: As opposed to paying 15 cents which they currently are?

BOB BROWN: And you put – yes, well, that’s right: it will increase the tax rate, but it’s still not going to go to anywhere near the tax rate they will pay on the income if you’re very wealthy. There’s still going to be a 15 cents-in-the-dollar prize for you if you invest your money into superannuation. And that’s a big win.

At the moment it needs to be understood that forgoing usual tax rates costs the Exchequer $30 billion a year, Emma, and that’s predicted to go to $40 billion by 2014-’15.

Now that’s money that’s not going to hospitals and schools, it’s going in a tax break and half of it is going to 12 per cent of the populace who are the big income earners. What we’re saying is: they can forgo a little of that.

We can help people on lower incomes have more superannuation, and roughly, the income will stay the same. It’s a pretty good arrangement.

EMMA ALBERICI: But the government that brought in superannuation, the whole idea of the concessionary tax rate was to encourage Australians to put away money for their future. Now if you’re essentially doubling and more what people are paying in tax for their contributions, then surely they’ll revisit that investment and perhaps put their money elsewhere, which again as I stated earlier, might well starve Australian superannuation funds of cash.

BOB BROWN: Well I don’t think it will. There’s a lot of people out there support this. And remember: part of the superannuation philosophy was to have people rather than going onto the pension, having money stored away for when they retired. And we want to encourage more Australians to be able to do that.

So, lifting the potential for that to many more of the 88 per cent of Australians who aren’t in that rich bracket is a good thing. We want to see more Australians feeling independently able to make ends meet when they retire and not worried about how they’re going to get along with a pension.

Pensions are essential. They’ll be there for good. But if people can save a bit more than that, well, that’s what we’re in the business of encouraging.

EMMA ALBERICI: It assumes that people in the low tax brackets, those earning $30,000, $40,000 a year, have spare cash to voluntarily contribute to superannuation, which is simply not borne out in the facts.

BOB BROWN: Well, I don’t know that you’re right there. I think most Australians want to have good superannuation when they retire. I haven’t run into any who don’t.

EMMA ALBERICI: It’s about having the spare cash to commit to it though, isn’t it?

BOB BROWN: Well, yes, but, you know, let’s be – let’s again get back to the fact that women across the board earn less money, still, in this country. Why shouldn’t we be helping those who are on lower incomes in that system be able to put a bit more aside for their retirement?

We should be doing that. And this scheme is one that I think Labor will look seriously at, by the way. There is a new superannuation round table, proposals like this will no doubt be seen by that superannuation round table. They’ll go to Treasury. But they’re for making this a fairer, happier society, and that’s what we’re about.

(HT: Andrew Bolt)

Word is that there might be a Bladerunner II. Bladerunner remains one of the greatest movies ever – if not the greatest. Up there with The Godfather.

After all this time a sequel would only annoy the fans* and destroy the original – especially if Harrison Ford reappraised his role as Deckard. Not that there was anything wrong with his original portrayal, I’m daggy enough to have enjoyed the narrated version of the movie over the Scott director’s cut. Recall the last Indiana Jones crystal skull movie – was it any good?

* think about the Star Wars prequels (now in 3D – how long will that last?) and the ghastly post Frank Herbert Dune series.

From Max the sniffer dog

Normally I don’t read Greg Barnes’ musings. They are about as useful as those deposits we dogs like to have our human companions clean up. But his latest effort is below the collar and unwarranted.

We enforce the law. If Barnes doesn’t like a ban on cannabis and party drugs he should contact his local MP. But these drugs are illegal and sniffer dogs are an integral part of the enforcement of those laws.

Do you hear of sniffer dogs going on strike? Do we campaign for higher pay? Do we complain about our work?

No, sniffer dogs are dedicated, happy, effective and productive.

Julia Gillard would do well to employ dogs as media advisers – if she had employed a dog rather than Tony Hodges the Australia Day riot would not have occurred and she would have saved a lot of taxpayers’ money on the considerably lower pay a dog would accept. Moreover, dogs are very effective at shaping opinions and leading people around. Imagine how much more effective Julia would be if her office comprised a pack of dogs – german shepherds, beagles, golden retrievers etc. They would see off any Kevin Rudd challenge!

We sniffer dogs are highly trained and efficient at our jobs. We can help detect cancer. We are able to detect explosives, illegal (and legal) drugs, help find bodies, and even solve murder cases. We can find termites and hunt for truffles.

Barnes says that there are too many false positives – but that is the nature of sniffing. As noted in a NSW report, the initial detection is followed by a police check which either confirms or fails to find the drugs which we have detected. No one gets arrested purely on a dog’s initial sniff. Sometimes we find legal drugs, hence some of the false positives. As noted in the report, 9.7 kg of cannabis was detected by dogs during the review period. Also, as noted in the report, NSW Police estimate an accuracy rate of 70 per cent when taking into account admissions by those found of prior contact with illegal drugs (but not in their possession).

Again, if Barnes thinks cannabis should be legal, he should campaign for a change in the law. But don’t attack us sniffer dogs who are dedicated and effective at our work.

For tens of thousands of years dogs have proven to be mans’ best friend and will be so in the future. All we want is some affection, food and the occasional pat. Is that too much to ask?

Greg Combet has just released a presser saying the Coalition’s economic credentials are in tatters. Debt and deficits anyone? Anyway this is what he said.

Opposition climate action spokesperson Greg Hunt is trying to frighten workers by claiming that a carbon price will cut real wages.
…
he facts are that Treasury modelling of the Gillard Government’s clean energy future package shows that under a carbon price:
Real wages will increase by 20 per cent by 2020 and almost 50 per cent by 2050;
…
Mr Abbott and Mr Hunt consistently misrepresent Treasury modelling.

That is a lot of words. Why doesn’t Combet show people a picture – like this one from the 2008 modelling exercise.

How did Treasury describe that?

In the short run, real wages are assumed to be sticky, taking up to 10 years to
adjust, resulting in some temporary unemployment. However over time, real wage growth slows,
demand for labour increases, returning employment to reference case levels (Chart 6.12).

Wage growth will decline and unemployment will grow. But only for ten years or so – after that you’ll be able to get a job at lower wages. What’s the problem?

A bit too scary? In the second modelling exercise the Treasury showed the levels and the relative decline.

This how Treasury explained what would happen.

Pricing carbon affects the demand for labour, as a result of slower output and capital growth. Real wages grow slightly more slowly than in the global action scenario. The level of employment is largely unaffected. Around 1.6 million jobs are added to 2020 in both the core policy and global action scenario, with a further 4.4 million jobs added by 2050 with or without carbon pricing.

Given that unemployment is now higher than when it came to office, it is good to see that they’ll be pursuing policies that create 1.6 million jobs.

Nonetheless Combet is very careful to talk about the levels and not the decline in growth and not the increase in unemployment (carefully whitewashed out of the second Treasury modelling report).

Combet also says

This puts them at odds with economists and policy experts who advise that a carbon price is the lowest cost and most efficient way to transform the economy for a clean energy future.

Makes you wonder if he’s read the AFR today. Tony Wood of the ALP government funded Grattan Institute tells us

It is increasingly clear that a carbon pricing scheme alone will not do enough to enable low-emission technologies to generate enough of our electricity at sufficiently low cost.

Locking into a future dependent on gas would be expensive.

He concludes with

Otherwise, the low carbon future will be too expensive.

We knew that and said it all along.

(HT: New Gold Dream)

Update: The Coalition presser is here (emphasis added).

Real wages are expected to fall by almost one per cent than otherwise by 2020.
This means for an average worker a cut in salary of $600 a year.
By 2050, the cut in real wages is six per cent, which is equivalent to an annual pay cut of $6,000 a year.

Exactly consistent with the Treasury modelling.

Warwick McKibbinn now an occasional columnist for the AFR, has established himself as the ‘sensible’ technocrat economist acceptable to many sides of politics. He has campaigned for a pure form of carbon tax that the execrable Grattan Institute once promoted before concluding, in a paper, which also gets an op ed in the AFR today, that even a very high carbon price would not bring about the renewables nirvana they promote – for Grattan the reasons are some mumbo-jumbo about failure of ‘first mover’ advantages. 

 But back to McKibbin.  In his first AFR column (sub. required) he says:

The crisis inEurope ….  has come to a head because of large-scale, macro-economic mismanagement, but this was a result of a wide series of policy errors over time which have merely been exposed by a sudden unexpected shock.

 So far so good.  And he adds

Some of these mistakes include: too much government focus on redistributing wealth rather than generating wealth; a focus on large-scale intervention to meet environmental goals set by the emergence of the green parties rather than serious assessment of the costs and benefits of policies; wasteful industry support through massive subsidies that badly distorted markets over many years; the idea that governments drive the economy and create jobs rather than the idea that governments provide the conditions through markets and transparent regulations that enable the private sector to create jobs; a reliance on Keynesian economics that led governments to create an enormous overhang of government debt generated by spending on activities that did not generate sufficient return to service that debt; and labour market rigidities preventing real wage flexibility when an economic shock occurs.

Nobody, other than the government shills, can argue with this.  

But then we come to his solutions.  He says,

Governments and the private sector need to work together, rather than sequentially.

Opps.  Sounds a bit Gordon Brownish! He continues,

It is clear that there is a role for government in redistribution and regulating markets and providing funds for research and development. The extreme Right is wrong to focus on unfettered markets and the extreme Left is wrong to dismiss markets and leave everything to government. The best policy will balance the potential benefits of markets with good government regulation.

So he is positioned as the wise man arguing for sensible government intervention not the rapacious type that others less talented than himself would favour.  Just to prove his free market credentials he pontificates against support for the car industry which has, he argues, been based on inadequate analysis.  Then he rounds it all off by arguing,

Decisions will be made by politicians, but they need to be based on clear evidence using the input of experts to debate the issues, and using hard data to focus on reality rather than dreams.

Nowadays he may argue that the massive evidence (including his own) marshaled by Treasury, Garnaut and other ostensible unbiased parties that was used to support the carbon tax and mining tax does not meet the bill.   Undoubtedly he is seeking an enlarged role for the Productivity Commission, everybody’s favoured government analytical body, but perhaps he alone is the only expert capable of delivering.