David Wilkie said:
“Where we economists are most useful in climate change discussions is the question of how to change the behaviour of humans and how to organise the production of public goods. Because the climate is a world public good, individual behaviour that affects it involves an externality and our training as economists leads us to particular answers as to what can be done about this externality. ”
But are you using that training? Have you answered the following questions:
1. What characteristics does the ideal climate of the earth have? How does that differ from the way the earth would change if carbon emissions had not been politicized?
2. What is your preferred level of CO2 at sea level? And if it is lower than 1600 parts per million, why are you opting for less net primary production?
The other thing is that the Pigouvian model is just bad economics. Since Australian economists fail to define economics as the “science of wealth creation” they are short-sighted when vetting their models for inclusion of capital accumulation over time. They define economics as “the allocation of scarce resources” and are very quick to jump up and start attempting to do just that.
The typical graph with curves, slopes, and regions, that would go with this externality business just does not show capital accumulation over time in response to policy. Which is always the key to wealth creation. We ought not be surprised to find out therefore, that taxing externalities does not ever come close to maximising welfare in the real world.
Suppose a kid is creating noise pollution with his drumming and keyboard playing. The neighbour is a shift worker and is woken all the time. A third party taxes the kid and sends the money to the UN. The UN’s consultants gobble it up and no-one poor is helped. The kid loses his confidence in his ability to pursue music seriously but he still whacks out a beat when he knows the tax doesn’t apply. Which keeps the shift worker awake since he works odd hours. How is this welfare maximisation?
Its very clear that compulsory savings for remedial investment is the better model. Here the kid puts away three times as much as what the tax was in a dedicated account. He decides to access it for a practice-pad, some headphones and some sound-proofing. You see these purchases are analogous to investments in remedial action. Later he still gets to on-sell these purchases when the reason he had to have a set-aside fund is no longer applicable. Its simply not true that taxing a problem and sending the funds to the UN is the best and cheapest option. You might think its true but its not. Not even where purely theoretical economics concerns are taken into consideration.
All problems require SPECIFIC knowledge and a strategic mindset.
Public servants are always conflating their simplistic models with reality and they don’t review their training enough to see how applicable the models really are. Some knee-jerk reaction on this basis would be acceptable in 1990 when the issue was first put about in a big way. But there is really no excuse for an economist to be pretending that he does not need to know about the science or the energy industry or biology, insofar as these subjects relate to the controversy …. after all this time … and in 2011.
If capital accumulation is the goal along with trying to make ambient CO2 less than some prescription. Or less above some prescribed optimum (an optimum MUST be named and justified) If this is the goal then the quickest way to achieve this goal is to always run surpluses at every branch of government, get rid of taxes on retained earnings ….. and crank up coal royalties for coal sold overseas.
Very fast. It will work. And if there are no royalties on the locally used stuff, and huge royalties on the overseas sold gear, then that forms the basis for Australias re-industrialisation.
The next thing is to bring biology and earth sciences into it. With regards to Australia we have so much desert land. Since water and CO2 form the basis of life, the quickest way to suck the CO2 out of the air is to bring fresh water to the deserts. So that the best solution for Australia is to set up a slowly growing series of covered (by ETFE) saltwater canals, that passively produce fresh water. The canals can also, of course, be used for transport. Therefore farms, towns and wlldlife areas ought spring up on either side were we to get the rules right.
The key to making this cost effective is to look closely at the NBN and do everything the opposite way. Daily funding for this scheme ought never stress the capital accumulation needed such that costs are blown out. So you start painfully slowly and only pick up the pace when costs fall in response to you doing so.
In summary the public servants train their underlings to compartmentalize everything. George Bernard Shaw said that all professionalism was a conspiracy against the laity or words to that effect. He also said that candy was dandy but liquor is quicker. So he knew what he was talking about. But the thing with this compartmentalization is that it often becomes akin to a old-fashioned demarcation arrangement in a too-millitant union. Or the four families dividing up a city on the basis of conducting criminal operations. Non-holistic solutions are no solutions at all. All aspects of the problem must be considered and then a creative solution has a chance at being arrived at.
Bob Ellis came up with just such a creative solution on a small grab on a TV program. It consisted of diverting one river into another. It was indeed a fantastic solution but Penny Wong wasn’t the least bit interested. There just aren’t the Bob Ellis types around on the left any more.
Posted on 03-Aug-11 at 3:21 pm | Permalink