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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

governing the boom « Previous | |Next »
November 6, 2006

George Megalogenis in an op-ed in The Australian about the Howard style of governance makes a good point. He says:

Reciting Howard's policy record reaffirms that this year, his 11th in power, has been devoted to completing the agenda of the 1980s. As it goes, this may not be an entirely bad thing. Treasury secretary Ken Henry, in his keynote address to the Making the Boom Pay conference on Thursday night, reminded governments that there are some policies on the nation's to-do list "stretching back over generations". He nominated indigenous disadvantage and "the fragmented, uncommercial arrangements for the supply of water and energy".

Megalogenis then adds:
The latter, of course, is the sharp edge of the climate change debate. Yet Howard is wary of market-based solutions to secure the nation's water supply and to wean the economy off the dirty teat of coal. This is the strangest part of the story. On water and global warming, Howard, the supposed economic rationalist, is siding with the forces of protection, namely irrigators and state electricity authorities.

Climate change takes us beyond the 1980s agenda. It's the shift over point. Howard is increasingly being locked in to defend the irrigators and the coal lobby, who talk about the Green religion and see the environment in opposition to the economy. That refusal to rationally address market externality limits his room to move, doesn't it.

Ross Gittens, writing in the Sydney Morning Herald, addresses the flaw of the econcrats---namely, their partial analysis that focuses on the economy as though it can be managed and mended in isolation from the environment. He says:

It can't, of course. The economy exists within the natural environment and there's much feedback between the two, so that things happening in the economy affect the environment and things happening in the environment affect the economy.We ignore those linkages at our peril. And yet it's the easiest thing to do. Economists focus on markets and the prices they generate, which reflect the private costs and benefits of buyers and sellers, consumers and producers.The trouble is that most environmental costs and benefits are public rather than private (they affect all of us in general, rather than just the specific individuals engaged in particular economic transactions) and so aren't reflected in market prices.Environmental factors are thus "external" to the market. And this gives us "market failure" - we can't just leave market forces alone and expect them to solve environmental problems for us.

Giddens adds that economists are always yielding to the temptation to ignore externalities. And if the econocrats can't see the hidden environmental implications of policy decisions, don't expect their political masters to see them.

| Posted by Gary Sauer-Thompson at 5:50 AM | | Comments (2)


Thanks for that anaylsis Gary,

Yes it is a surprising thing that Howard is failing to help the economy move toward a new more efficient form.

He is heading us to Stern's 20% reduction in GDP -I wonder if even the coal and energy intense industry lobbyists don't see this now - I'd say many of them have pretty good economics degrees or at least an ability to sense business risks.

Bob Brown in his speech to the National Press Club last week said:

"Before John Howard came to power, Australia produced as many solar panels as Japan. Now Japan produces nearly half the world’s solar panels
and Australia produces less than one percent. That is because the Japanese government has both financed research and development, and priced
carbon to drive investment in commercialisation."

He then went on to detail other surprising Howard / Costello led market failures which is seeing solar revolutions and significant leaps in technology happening in many countries but not sunny Australia.

Rob Paterson

Hi Rob,
yes I attended Bob Brown's National Press Club Speech last Wednesday as I was in Canberra. Still am.

The speech was all about green manufacturing and the failure of the Howard Government to foster it-- nay, prevent it from happening. Hell, Howard even subsidizes the bads.

The irony is, as Gittens points out:

The irony in all this is that "economic instruments" offer by far the best way to reconcile the conflict between economic activity and the needs of the environment.The trick is to use taxes, subsidies and other mechanisms to "internalise" the externalities - to get social costs and benefits incorporated in market prices so that the normal incentive we have to minimise costs and maximise benefits works towards reducing environmental damage.

This is the rationale for introducing a carbon tax, which would raise the cost of engaging in activities that generate greenhouse gas emissions and so discourage people from doing so much of those activities. It would encourage people to seek out improvements in technology that allowed them to continue doing what they wanted to do but emit less greenhouse gas in the process.