Garnaut and greenhouse caps:

Peter Wood writes: Re. “Garnaut loses the plot” (yesterday, item 1). Professor Garnaut’s idea to put a cap on the total greenhouse gases released by 2050 rather than a cap each year or a target each decade is an interesting one, but must be treated with caution. While this method of setting the trajectory would work in well functioning markets in the absence of uncertainty, there are some market failures that we should be aware of. Climate change policy depends on how much the future is valued, and firms are likely to discount the future much more than utilitarian or ethical considerations would suggest. In other words, “descriptive” discount rates are much higher than “prescriptive” discount rates. For example, firms often will not invest in energy efficiency measures unless the payoff period is about three years or less. Another issue is the problem of facilitating international cooperation. If an international agreement that aims for deep cuts is jeopardised because some countries want to undertake some policy experiments, the global environmental outcome will be worse. Furthermore, because there is uncertainty in how much climate change will impact on the planet, there is a small chance that global warming will be much much worse than the most likely possibility. A cap on total emissions by 2050 will only work if it is in addition to caps over smaller time frames and if it does not jeopardise international cooperation.

Geoff Russell writes: The idea of setting carbon emission targets and letting the market decide how to meet them is seriously flawed as described recently by NASA’s climate modeller James Hansen:

The fact that energy and climate advisors, in Germany, the United States, and elsewhere, do not understand the problem is starkly illustrated by repetition of goals to reduce CO2 emissions by a percentage (say 40% by 2020, 80% by 2050, or other numbers), while at the same time allowing construction of new, more efficient, coal-fired power plants that do not capture and sequester CO2. However laudable and ambitious the goals are (in some cases they may be unrealistic), this approach spells doom for life on the planet.

The detail is spelled out here. Here’s my summary. If we burn all known reserves of oil, then atmospheric CO2 levels will be above the level tipped to seriously destabilise the global climate (e.g., rapidly melt 1 or 2 of the 3 major ice sheets, etc). Oil is such great stuff that we will not leave it in the ground. It is transportable and efficient. Therefore there is no room for ANY emissions from coal — effective immediately. No tax, no price signal, no pure market mechanism based on costing CO2 will stop the building of new non-sequestering coal fired power stations. The cessation of coal fired power stations, except where sequestration is complete, must be upfront policy — the market just won’t do it.

Saying sorry:

Joan Huggett writes: Re. “A sorry tale of politics, pragmatism and principles” (yesterday, item 4). Why is there so much discussion about saying “sorry” to the stolen children? What about all the other injustices that white settlement has imposed on Australian Aborigines, like taking their country away from them, employing them for no wages, poisoning their waterholes (their food in some instances) and shooting them down when they got to be nuisances? Knowing something of the events at Appin in the early 1800s (circa 1816), I looked it up yesterday morning from the Register of Historic Places and Objects, SHI 4671006. The details obtained from there are much worse than I ever could have imagined. I live in the Southern Highlands, not so very far from Appin. We need to get real and apologise for all the rotten things white settlement has done to Aborigines, not just the removal of some of their children.

Andrew Lewis writes: It is another low watermark for Crikey yesterday, when Chris Graham’s article included the statement that some former members of the Howard Government “are unfortunately still stealing our oxygen today”. Then it lists a number of former Howard Government members; Wilson Tuckey, Malcolm Turnbull and Brendan Nelson. My question to Chris Graham is: Which of these men do you want dead? Obviously if you want them to stop stealing oxygen you want them to stop breathing. Does Crikey have editors, or do you just publish articles as you receive them? I struggle to discern who is more at fault: Graham for writing this garbage, or Crikey for publishing it?

Ignaz Amrein writes: Chris Graham deserves a gold medal for this article, hitting so many nails on the head in one story has to be rewarded!

The Liberals/Nationals merger:

John Venus, president, the Nationals South Australia, writes: Re. “Outpoll, outwit, outlast: time for conservative Survivor” (yesterday, item 2). David MacCormack writes a load of crap when flaunting his obvious paranoia with the Nationals. Does he not know that the Nationals are comprised of five distinctly separate parties (plus the CLP in the NT) which come together to form a type of federated organisation in the national arena. It is either naive, or more likely a poor attempt to be sensationalist, to lump them all into the one basket. What he says may well be true of some sections of, or even some of the parties but it is certainly not true about all (perhaps Queensland — but they are very close to the sun!). Many of the members of these parties are either right up the centre or even slightly to the left of centre. In South Australia the party is far more interested in doing what is best for its constituents, albeit with only one member at present, than kow-towing to major urban corporations. In fact many of the Nationals are very much to the left of the hard right urban Liberals whose economic rationalism, far from being “…for the betterment of all Australians”, has only served to bolster the fortunes of their corporate masters, to the detriment of the ordinary Aussie. MacCormack is happy to ignore the damage done to regional and rural Australian communities by these hard right Liberal policies. He obviously has no connection with life outside the city limits and possibly believes that milk comes from cartons.

Terry Costello writes: The National Party are disproportionally represented in the Federal parliament. How is it possible that one party gets 5.5% of the votes and gets ten seats in the house of Reps and another party the Greens gets 7.8% of the votes and doesn’t have a single member in the house of Reps? Also how is it possible that before the 2007 election when the liberals had over a 20 seat plus majority in the Lower House, Labor needed to gain some 30000 votes in key marginal seats to claim government whereas at the next election in 2007 the ‘decimated’ Liberals only need to gain something like 10000 votes in the 11 most marginal labour seats to claw back office in 2010. So much for the 2004 and 2007 election results being emphatic victories. The reason an undemocratic electoral system that does not uphold the principle of one vote one value. Most voters do not influence who wins office because their seat is safe Liberal/Nat or Labor. It is only the perhaps 30 to 35 marginal seats that may possibly change hands that determine who wins office. New Zealand has done away with single member electorates and now has multi member proportional representation. Perhaps it is time Australia follows suit, however this would involve the current punters in power and the previous punters in power having to agree to give away their unfair political advantage.

Carey’s waning star:

Dave Liberts writes: Re. “Wayne Carey is, like us, entitled to the presumption of innocence” (yesterday, item 15). Greg Barns, as always, provides a sound wrap-up of the legal issues without any thought as to the real world. It seems to me that lawyers hate not having the control over the court of public opinion that they have over real courtrooms. Barns is undoubtedly correct that, legally, Wayne Carey deserves the benefit of doubt for the time being. But it is cloud-cuckoo-land stuff to suggest that his various media employers should pay no attention to public opinion in considering Carey’s future employment with them, or that Christine Nixon was “unfortunate and highly prejudicial” in suggesting that this buffoon is a poor role model for children. Even Victorian police don’t use pepper spray and handcuffs for absolutely no reason, and Carey’s long history of questionable behaviour would force any media proprietor to consider their involvement with him.

Media apologetics for Suharto:

Peter Burnett writes: Re. “The Oz on Suharto: at least the regime ran on time” (yesterday, item 11). Jeff Sparrow is right to complain about the media apologetics for Suharto, but he missed a couple of important contributions. Academic Jamie Mackie’s obituary for The Oz refers to attacks on the PKI in 1965, escalating “to a point where its mass base was destroyed.” This is a shameful euphemism when we’re talking about the murder of hundreds of thousands of people, even for a foundation member of the Jakarta lobby like Mackie! And when asked on ABC radio about “Suharto’s appalling record on human rights and the corruption that was so transparent in Indonesia at that time”, Alexander Downer replied: “Well, we didn’t know of course in those days. I don’t know who did really, but we didn’t know too much about the level of corruption…” Which might explain something about AWB.

The cricket:

John Walters writes: Re. “Retired legends give Test cricket a chance to regain its magic” (yesterday, item 19). I wouldn’t mind betting that the next cricket super-power will be India and it will occupy the same prominence as Australia has up to now. God help us if they ever really get their game into gear over there, encouraging young cricketers with scholarships to cricket academies, ensuring they get good exposure overseas, etc. they will be unstoppable. Except that here may be one ray of hope for the rest of the cricketing world — the administrators. With their justly earned reputation for cocking things up this could be the only hope that we have of ever winning a test series against India again.

Government spending:

Michael Tunn writes: Re. “IMF calls: More government spending please” (yesterday, item 22). I agree totally with Richard Farmer, I can’t believe the Rudd Government would risk a slow down in the economy by dropping its spending as signs are all around us of an International Monetary crisis. The bad conditions have crossed the line from sub prime, to prime in the United States as over inflated housing prices start to crumble and are now hurting middle America, what does Mr Rudd know that we don’t about our own housing market, the argument that we have 300,000 new immigrants a year doesn’t wash, as prices of houses are not in tow with rents, the real values of our real estate market may be well under the trend line that Australian’s have taken for granted in the boom years. And the idea that China, and thus the Australian commodity boom can continue, without the help of the American consumer is fantasy, if America stops buying, China stops growing. While I trusted Labor to be good economic managers, there rush to control inflation (most of which is a little out of our hands anyway, such as oil and the cost of money), rather than to protect growth means the government have their rose coloured glasses on, apparently blinding them to the big bear bearing down on the globe.

Interest rate questions answered:

David Hand writes: I’m not an economic expert but I’ll have a go at the interest rates questions in your comments section. First to Jeff Bye’s question (yesterday, comments). The link between interest rates and inflation is not so much taking money out of our pockets but making us pay the true price for the credit. Inflation is really a loss of purchasing power of our currency. We believe prices will go up so we spend it quickly to avoid the loss. This becomes a self fulfilling prophesy as our lack of faith in our currency drives up prices. We then make it worse by doing it with borrowed money. In the 70s when financial markets were regulated, two effects were that the cost of borrowing was lower than inflation and therefore also, you couldn’t get a loan. Deregulation of this sent interest rates to astronomical highs. Lenders were saying, “If you want to buy that thing with our money, go ahead but you’ll give us a realistic return” We collectively decided that 20% was a bit much and reined in our spending, reducing inflation. Since then, an interest rate rise in the face of inflation is making us give a reasonable real return to lenders and then it’s our choice. One of the more interesting phenomena right now is that the reserve bank is giving us the message and we are collectively taking no notice. By the way, it has amazed me for a long time how easily Howard and Co got away with the high interest rates cheap shot and the Labor Government when it was a necessary, painful correction to get us to trust our own currency again, for everyone’s benefit. As to Brian’s question (Friday, comments), Reserve Bank interest rates are what Government is willing to pay to trade in money. The Government carries by far the best credit rating through its ability to raise money through taxation so everyone else must pay more. Though there may be long term credit arrangements which are immune from interest rate fluctuations, most interbank lending and borrowing is done through short term instruments which wash through pretty quickly. This was demonstrated by the Centro problems where cheap finance disappeared far quicker than the management and directors anticipated. As to the other question about whether the banks are acting like a cartel and ripping us all off, I have absolutely no doubt. Maybe a real economist could give me a grade!

Paul Bellhouse writes: I doubt that offering a possible answer to Jeff Bye’s question deserves the title “financial whiz kid”, but here’s a try. Raising interest rates puts more money in the hands of lenders, many of whom live overseas, while reducing money in the hands of borrowers, as Jeff noted. Borrowers and lenders have different time frames for spending. Lenders look at a longer period, assuming they could be in an income peak, allow for some troughs, try to average out, and make provision for a drought, or “rainy day”, whichever you prefer. Borrowers work on a shorter period, spending money as they get it, and some money even before they get it. A strong economy needs both, but in balance. When one part of this “teamwork” is moving to excess, to prevent a serious economic crisis, the interest rate better be moved to restore the balance.

Send your comments, corrections, clarifications and c*ck-ups to [email protected]. Preference will be given to comments that are short and succinct: maximum length is 200 words (we reserve the right to edit comments for length). Please include your full name – we won’t publish comments anonymously unless there is a very good reason.

Peter Fray

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