Tag Archives: Economy

Abbott’s Davos Disaster

By Alan Austin                                                                                                      [h/t IA]

AUSTRALIANS WATCHED TONY ABBOTT fly off to Switzerland this week to deliver an important speech to world leaders with muted anticipation. Commentary in advance ranged between frank pessimism and outright dismay.

It is clear now the PM failed to live up to those expectations.

Fortunately, the damage done to Australia’s reputation was limited by most media declining even to mention the Abbott embarrassment.

The New York Times has extensive coverage of the World Economic Forum (WEF) in Davos, with a dedicated web page and many feature articles exploring the key themes and major players. None mentions Abbott — who, by virtue of the high regard for his predecessor, finds himself the accidental president of the G20 for 2014.

Le TélégrammeL’Humanité  and Le Parisien in France published stories from the WEF but completely ignored Abbott. L’Agence France-Presse filed multiple reports profiling the contributors, but excluding Abbott.

Le Figaro focussed on the speech by International Monetary Fund director Christine Lagarde who addressed constructively the new dangers – nouveaux risques – threatening global recovery. These are, she said, deflation in Europe, tapering of US monetary policy and distortions in global financial markets.

With an embarrassed cough, Le Figaro noted Abbott’s address as a footnote, quoting him as calling for more free trade, an idea that was a long way from the agenda – très loin de la thématique – of earlier gatherings.

Les Echos did mention the keynote speech, reporting that the thrust of Australia’s G20 presidency will be free trade. It noted it was odd Abbott didn’t mention the World Trade Organisation.

The Guardian in Britain headlined its piece “Does Tony Abbott always make the same speech?” andreported that it “struck a familiar tone and was criticised for being inappropriately partisan.”

Indeed, Abbott’s reputation as a buffoon appears to have preceded him to Davos.

The Financial Times UK’s economics editor, Chris Giles, tweeted:

‘Sign of the times. [Iran's President Hassan]Rouhani packed out the hall. Everyone is leaving before Tony Abbott explains Australia’s ambitions for the G20 in 2014.’

Abbott’s speech confirmed the nagging suspicions many have had since he assumed the prime ministership, following one of the most manipulated media campaigns in any democracy in living memory.

It repeated all the trite slogans that worked in Western Sydney:

“You can’t spend what you haven’t got.”

“Markets are the proven answer to the problem of scarcity.”

“No country has ever taxed or subsidised its way to prosperity.”

“People trade with each other because it’s in their interest to do so.”

“Progress usually comes one step at a time.”

Unfortunately, I am not making this up.

Riddled with indicators of ignorance, the speech confirmed Abbott knows little about contemporary economics.

He quoted, for example, statistical measures from China:

“China’s growth is moderating, but likely to remain over seven per cent.”

He seems quite unaware that economists no longer trust statistics from China.

All economies today use strategic borrowings, at different levels, from different sources and for different purposes. Managing borrowings is a major challenge. Abbott’s glib admonition “You don’t address debt and deficit with yet more debt and deficit” displayed a dismissive attitude to this complex reality.

There was no sense of understanding the challenges the WEF faces in 2014, let alone having insights into ways forward.

What little strategy Abbott advocated seemed contradictory. He asserted that the global financial crisis (GFC) “was not a crisis of markets but one of governance.”

And then boasted of Australia,

“To boost private sector growth and employment, the new government is cutting red tape …”

Okay. That makes sense.

The prize blunders arrived, however, when Abbott directly attacked the stimulus packages of the Rudd/Gillard administrations:

“In the decade prior to the Crisis, consistent surpluses and a preference for business helped my country, Australia, to become one of the world’s best-performing economies.”

Partly correct.

In 1996, Australia was the 6th-ranked economy in the world. But by 2007, after 11 years of a Coalition government, it had slipped back to 10th place. Still, that is one of the best.

Abbott continued:

All economies today use strategic borrowings, at different levels, from different sources and for different purposes. Managing borrowings is a major challenge. Abbott’s glib admonition “You don’t address debt and deficit with yet more debt and deficit” displayed a dismissive attitude to this complex reality.

There was no sense of understanding the challenges the WEF faces in 2014, let alone having insights into ways forward.

What little strategy Abbott advocated seemed contradictory. He asserted that the global financial crisis (GFC) “was not a crisis of markets but one of governance.”

And then boasted of Australia,

“To boost private sector growth and employment, the new government is cutting red tape …”

Okay. That makes sense.

The prize blunders arrived, however, when Abbott directly attacked the stimulus packages of the Rudd/Gillard administrations:

“In the decade prior to the Crisis, consistent surpluses and a preference for business helped my country, Australia, to become one of the world’s best-performing economies.”

Partly correct.

In 1996, Australia was the 6th-ranked economy in the world. But by 2007, after 11 years of a Coalition government, it had slipped back to 10th place. Still, that is one of the best.

Abbott continued:

“Then, a subsequent government decided that the Crisis had changed the rules and that we should spend our way to prosperity. The reason for spending soon passed but the spending didn’t stop because, when it comes to spending, governments can be like addicts in search of a fix. But after the recent election, Australia is under new management and open for business.”

Two stupidities.

First, it was precisely that extensive rapid spendingthrough the GFC which saw Australia rise from 10th-ranked economy in 2007 to the world’s top ranking by 2012, a reality all those present with an awareness of the G20 economies would have known.

Secondly, attacks on domestic opponents are never acceptable abroad.

In New York last October, Abbott was roundly condemned for a political attack on Kevin Rudd.

American Academic Clinton Fernandes said he created an image of

“… coarseness, amateurishness and viciousness.”

Political scientist Norman Ornstein surmised:

“Perhaps you can chalk it up to a rookie mistake. But it is a pretty big one.”

Clearly, Abbott has learned nothing from that humiliation three months ago.

Abbott then continued to spruik domestic politics — the commission of audit, paid parental leave, cutting the numbers of pensioners, and infrastructure, especially roads:

“… because time spent in traffic jams is time lost from work and family.”

He concluded with a final hypocrisy — following his attack on Labor for spending so much on infrastructure during the GFC.

He gobsmacked anyone still listening with this:

“Then, there’s the worldwide ‘infrastructure deficit’, with the OECD estimating that over 50 trillion dollars in infrastructure investment is needed by 2030.”

Several questions arise.

Why such an appalling performance? Where are his advisers? Does he think he needs no advice? Or is the whole Coalition this amateurish and oafish — or worse?

And why, as ABC News highlighted, is he still battling Kevin Rudd and Julia Gillard?

Does this reflect self-doubt about his capacity in the role? They had a vision for the nation; he does not. They had plans to improve the prospects for pensioners, students and people with disabilities; he does not. They nurtured the economy; he cannot. They had character, integrity and authority; he simply does not.

Perhaps it confirms that Abbott knows deep down that the 2013 ‘win’ was illegitimate — that it was secured only by deception and dishonesty.

Perhaps it is time for his party to consider the matter of leader.

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Is the Current ALP government really wasteful?

I’ve downloaded a copy of Tony Abbott’s “Real Solutions” to critique, as I did with his Direct Action Plan and the proposed dam plan.

My initial cursory look over the booklet found a blatant attempt to hide the decline, through an inappropriate comparison of the current government’s record with work days lost against the previous Liberal government. Placed into context, the ALP haven’t done too bad without stripping worker rights, as my info-graph showed.

With that in mind, I have since become increasingly weary of the validity of the graphs throughout the booklet – Abbott’s team seem to think we’re idiots and will not look at the actual sources.

One source that I was led to was the Mid-Year Economic and Fiscal Outlook 2012-13 (MYEFO), which is referred to time and time again.

Every Aussie who has been anywhere apart from under a rock must now be familiar with the negative commentary provided ad nauseum by the Coalition on the ALP, especially on economic matters such as spending.

Looking at the MYEFO, I was surprised to learn that when reviewing this source for the “Real Solutions” booklet, Abbott’s team missed the opposite message throughout. For instance, on page four, Australia’s GDP has remained persistently above other advanced economies, such as the US, Europe, the UK and Japan post Global Financial Crisis.

gdp

Australian debt, as a percentage of GDP is a fraction of the size of any of these other economies (page 12).

debt1

It’s like the Global Financial Crisis and other economic factors in the northern hemisphere (think of the combined troubles of the EU, for instance) hit like a tsunami that, by the time it found us, was barely a ripple.

Being an advance economy intrinsically means we were not immune to these, however we have avoided the worst of it, even with all the hung political nonsense and drama over recent years. And this is supposed to be economic mismanagement?

In my book, that’s a success story, not what the negative spin doctors of the Coalition harp on about wherever they find a microphone.

The Honest Truth of Australia: we need a different economy

The Aussie tradition is so strong that you can almost hear it sign, “We build this country… We built this country on sheep and coal!” [noting the need for Starship’s melody]

However, what does this mean to us today?

“Oh, do you remember…”

Shoosh! We’ve moved on from raw primary producers regardless of the urgings of Gina Rinehart.

Australian’s in fact do want to work, but they expect more than a couple dollars for their efforts – how else are they expected to buy essential goods and services at Australian prices?

So we’re told that Australia is moving away from production and into services, but do we really believe it? Wherever possible, companies making money off of Australians do so at the expense of Australian jobs. Manufacturing is increasingly seeking greener pastures where they needn’t share so much of their returns with their labour force. Even “made in China” is getting too expensive as that country develops.

The same is true with services provided through telecommunication. The bulk of our enquiries by phone and internet are increasingly answered by third party groups overseas where business can get away with providing lower wages.

The latest news from ANZ shows that this venture is being contemplated within the bank as well, regardless of their health profit growth.

So Australian labour is too expensive for much production and services, at least as far as businesses are concerned. Yet, moving all these jobs overseas also risks the other side of business lust – the consumer. How can you spend if you don’t have a job from which to earn? Debt growth is the only option.

Without change, we risk the erosion of the economic prosperity Australians have come to expect. Acting like a third world economy will lead us back to one.

We need to think differently.

Agriculture provides a suggestion; wine and cotton are so appealing, where the climate allows for their production, due to their high returns to weight ratio. It reminds me of the economic successes of Switzerland who rely on specialty manufacturing for export.

Take Australia; thinking third world, we dig up and cut down raw material and ship it away at rock-bottom prices, only to buy the back premium goods from these materials at top dollar. That’s mind-blowingly silly.

We could refine our uranium locally. We could process our meats locally (as opposed to live export). We could work the wood into paper and furniture, sending none of it as logs overseas. In each case, we build industries and sell the goods at a higher price.

Further, we have excellent tertiary education and revenue that could go into additional research and development. We could be exporting tomorrow’s medicines, medical equipment and medical strategies (ie. international students paying to learn at our universities). We could be leading the way in green technology, urban development, agricultural practices and technology in much the same way.

We still have a strong enough economy at least for the time being. We ought to be capitalizing on that and specialising for the top dollar, not scrounging around for quick dirty pennies.

Unless we make a change, aiming high, our economy will drift into obscurity as business erodes locally locked in an unrealistic portrait of Australia in the twenty first century; incapable with the Australian of today.

China’s Coal Power and Australian Devotion to Obscurity

Climateinst

“Why should we do anything when China is building a new coal power station every week?”

I had this one hurled at me just the other day over dinner. It is both misleading and irrelevant, but serves the point of misinforming.

Moreover, the Climate Institute / GE Low-Carbon Competitive Index, released today shows that China is actually a high performer, rating 3rd (up from 7th) on the index. On the other hand, Australia  rates 17th and the US has declined from 8th to 11th.

Far from world leaders, we seem devoted to a carbon economy that is quickly being left behind. This would seem especially so if the LNP come into power and Mr. Abbott lives up to his promise of scrapping a market-based mechanism designed to decouple economic activity from carbon emissions, namely, the price on carbon.

This is the reality behind such banter as, “they’re telling us what light globes we can use!”

Well, no. If you’d like, why not use a washboard or go all out and move next door to the Amish?

The money to be made in the 21st century will increasingly be carbon neutral and the trend setters will be on the cusp of such technologies and social changes. By fighting against the inevitable economic and social trends, we are damaging our own long term prosperity.

Unlike much of Europe and the US, our economy has not faced as much hardship in the last few years. We ought to have been investing in tomorrow’s industries and exporting it to a hungry world.

Instead, we’ve decided to pitch up tents on either side of the political soap opera being played out, while people like Rinehart make a healthy dollar from common resources and pay for the priests of misinformation to carry out an Orwellian-styled sermons around the country, with equality, progress and unity the antagonist and business-as-usual the messiah.

We should want a globally competitive economy. The pro-business-as-usual message that seems to have sucked many Aussies in just isn’t in our national interest.

So, What Do I Think of the ALP’s Price on Carbon?

I know I’ve focused upon the alternative. This is due to it being an election year, with the Coalition doing so well in the polls with initiatives that are contrary to the interests of Australia (I say this, not as a personal opinion, but based upon my analysis of their Direct Action Plan, which seems too immense and thus ineffective as well as expensive to carry out).

So, what of the ALP’s price on carbon?

In my criticisms of the alternative measures, I often state that I see sense in a price in carbon. It is a method that provides a market-based incentive to decouple economic activity from carbon emissions, which is the ultimate goal for a prosperous markets place into the twenty first century.

That said, I fear the ALP’s approach is weak and ineffective at best.

Sure, we need to buffer the market as it moves in the right direction and so using the revenue obtained from the carbon price to provide a safety net is essential. Yet, where does this buffer simply blinker spending activities, thereby undoing the motivational force behind such an initiative?

I think the APL have failed to answer this point correctly. Moreover, a large part of the revenue would better be used to subsidise alternative markets that have low greenhouse gas emissions (I do not rule out nuclear for a transitional power source, although I suspect it will end up like fossil fuels whereby we will exploit it ever more efficiently, but use more per capita, depleting the supply far quicker than initially anticipated, leaving us with an even greater deficiency beyond peak nuclear fuel).

It is here where the initiative fails the process entirely. Providing avenues for cheaper alternative markets is by no means stimulated as much as it could be.

It is likely, regardless what Tony Abbott says, that whichever party is elected in September, they will push to bring in an ETS as quickly as possible (it will be very difficult to actually remove the carbon pricing and so, by moving quickly to an ETS, the Coalition can say that the price on carbon, as it was, is now gone). However, an ETS, in my opinion, is not essential.

We hear a lot about our competitiveness on the global market, but at the same time, we sell our fossil fuels, uranium, wood and meat often in an unprocessed state at the lowest price, where instead, we ought to refine our resources, producing more local jobs and sell these resources at their deserved premium. While it remains as it is, such noise regarding our global competitiveness should rightly be ignored. In the same way, this should include the price on carbon or an eventual ETS.

So while I believe the price on carbon is the only sensible market-based method to motivate us away from a carbon base economy, the approach we currently have is sorely lacking. It is stuck within a political culture more akin to competing soft-drink brands than public representation and leadership. We have the answers, but lack the political will to achieve any meaningful and inspiring targets.

Will the Opposition’s Direct Action Plan work?

The Coalition has promised that if it takes government in September, it will get rid of the price on carbon emissions established by the Australian Labor Party. In its place, the party will implement a Direct Action Plan, its way of reducing emissions. This plan relies mainly on carbon sequestration and funding industrial improvements through taxpayer-funded initiatives.

While the Direct Action Plan outline has been removed from the Coalition website, Opposition Leader Tony Abbott and the shadow Minister for Climate Action, Environment and Heritage, Greg Hunt, continue to state the plan is their climate initiative.

What does the Direct Action Plan promise to do?

The plan says:

The single largest opportunity for CO2 emissions reduction in Australia is through bio-sequestration in general, and in particular, the replenishment of our soil carbons. It is also the lowest cost CO2 emissions reduction available in Australia on a large scale.

Through the Emissions Reduction Fund a Coalition Government will commit to a “once in a century” replenishment of our national soils and farmlands.

Through the Fund we will support up to 85 million tonnes per annum of CO2 abatement through soil carbons by 2020 – and reserve the right to increase this, subject to progress and evaluation.

The favoured sequestration strategy is soil carbon storage. This methodology is still controversial, and a review by CSIRO demonstrates the large uncertainties involved in long term storage of carbon in soil.

Because of these difficulties, the Coalition may need to supplement soil sequestration at least in part, if not entirely, with more certain sequestration methodologies, namely tree plantation, if it is to have any impact on Australia’s net CO2 emissions.

The plan does include forestry measures. And on February 5, 2013, Greg Hunt confirmed on ABC News Breakfast that tree plantation would make up part of the plan.

I analysed the sequestration component of the plan to test its viability. To ensure the plan was given the best chance for success within this analysis, the selected assumptions were purposely designed in its favour.

This largely involved assuming soil sequestration would work and that, if not, the best quality plantations could be established and that the necessary high quality land could be sourced.

The species I selected as sequesters were the Tasmanian Blue Gum (Eucalyptus globulus) and Shining Gum (E. nitens), with optimum wood density of 600kg per cubic metre and an annual yield of 30 to 35 cubic metres of wood per hectare.

Can it be done?

A relatively modest reduction of 5% below the Australian emissions of CO2 in 1990 yielded a sequestration target of around 77 million m3 of wood per annum.

Sequestration within biomass accounts for around 50% of that biomass’ dry weight. For this reason, sequestration becomes a major project if expected to compensate for greenhouse gas emissions on the order of many millions of tonnes.

To achieve the pledged return of an annual 85 million tonnes of CO2, Australian wood production would need to be around four times what it currently is by 2020. The minimum land requirements for this additional wood production would be close to two times the size of Sydney by 2020.

As my analysis relied upon the most optimistic assumptions, real-world limits to tree plantation were ignored and optimal yield was used. The real scale of the Direct Action Plan would be much larger physically, in management and in cost, with real world conditions.

If tree plantation becomes the favoured option, this also presents the additional land and fire management requirements of such a large project.

Sequestration will play a role in mitigation of anthropogenic climate change. However, it would need to be of an immense size, spatially and financially, if it is considered a primary activity, rather than complementary.

In short, while sequestration is of value, to rely upon it at this magnitude is unlikely to be viable, especially by 2020.

Is it cost-effective?

Sequestration is of value, but the scale the Direct Action Plan calls for appears unlikely to be viable, especially by 2020, and is likely to become very expensive as the scale is adjusted over time to deal with increasing emissions reduction targets.

It is unfeasible to imagine that any sequestration initiative of the magnitude required can be achieved without significant additional expense.

Placing this hand-in-hand with funding improvements to industrial efficiency increases the cost to the taxpayer. In the case of the latter, this would be to the benefit of polluters. The Coalition has stated that this will be achieved without further taxes. The only other option is a retraction of standing public services.

The ultimate goal will necessarily be to achieve carbon neutrality. In this case, soil sequestration simply could not fulfil such obligations without major shifts away from a carbon driven economy – we will have to reduce emissions if we hope to sequester all we create.

The Direct Action Plan seems unlikely to be a viable counter pathway to the established price on carbon, because a carbon price has intrinsic market-based motivators to decouple carbon emissions from economic growth.

Ultimately, a quick analysis demonstrates the plan is very unlikely to provide the returns promised by the Coalition and is most likely to increase in cost beyond what has been promised by the Coalition. This is especially true if the Coalition eventually plans to scale up to meet future reduction targets or if it becomes necessary to scale up, simply due to returns failing to meet current targets.

The full report, A Review of the Viability of the Coalition’s Direct Action Plan, can be downloaded here.

Tim Lubke does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

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Future of Food: Water Woes

They even showed a rice crop, happily evaporating that water away…