Monday, October 20, 2008

Wong slips one under the radar at London School of Economics

Last week Penny Wong delivered a 14 page speech to the London School of Economics about The Australian Government's plans for emissions trading, without mentioning how the industries which will be affected will not be losing a million plus jobs.

The speech was delivered far away as the $10.4 billion Rudd rescue package for retailers, via consumer pockets, was being unveiled, so it slipped under the domestic media radar.

Wong found time and space to trot out statistics about Australia's per capita emissions but not to mention that more than 70per cent of the growth in national electricity consumption since 1990 has been business related and facilitated by access tosome of the world's cheapest, coal-fired power. In round terms, power stations in Victoria, NSW and Queensland, which supply most of Australia's power and a large part of generation-based emissions, are burning 20million tonnes more black coal and 21.5million tonnes more brown coal today than in 1990, and this is feeding business demand that is three-quarters more than it was then.

One-third of total electricity consumed is used by the energy-intensive manufacturers, another number that would have provided context to the data used by Wong.

She took the opportunity of the speech, delivered soon after her colleague Wayne Swan had ducked a television current affairs question about whether the global crisis might cause the Government to put off implementation of emissions trading, to strenuously assert the need for sticking to the mid-2010 deadline.
The author was the CEO of the Electricity Supply Association of Australia.

Read more here.

(Stolen from Wand in comments...)


bruce said...

"Laissez-les manger le g√Ęteau."

Thanks Wand, sounds better in the French.

What is it with people now, though?

When I was young you could get a laugh with 'let them eat cake', because it was obviously ridiculous. Now it's, 'What's wrong with that?'

Mark Steyn linked to a 2006 piece by David Warren about how urban people don't know where their milk comes from, and how they have medieval-type superstitions of the almighty govt as lord and benefactor.

So - Bread? Cake? Yeah you get them from the shop, cost about the same, eat bread, eat cake, whatever dude.

kae said...

Here you go, Bruce. Is this the article by David Warren that you mentioned?

bruce said...

That's the one, Kae.

Wand said...

Bruce. I’ll reply here to your comments on the Rudd Economic Titan thread.

bruce: Wand, I didn't see that Costa was talking about banks at all, except in warning Rudd not to act so hastily to regulate them. What to speak of regulation, Costa is saying he's against all forms of protectionism, and that Rudd is in danger of taking us backwards to discredited WWII 'Old Labor' socialist ideas.

What Costa is mostly talking about is monetary policy.

I take your point about Costa talking about monetary policy. However I still think he is being disingenuous about sheeting home the cause of the current financial problems to the failure of central banks to regulate. Whilst the central banks have a key role, there is more to the story than just that.

You suggest that allowing interest rates to find higher real market levels commensurate with actual risk was what should have happened all along and then there would be no crisis. An interesting suggestion but I’m not sure what the mechanism would be for the market to set base interest rates. In any case, the market does set interest rates by valuing all the commercial paper that is on offer and traded at any time. And where a central bank sets a cash rate and the currency may float, the market responds to a changed cash rate by re-valuing the particular currency against other currencies. Historically when exchange rates and interest rates were all fixed by a central bank, such as with China today, the economy trundles along usually until a large trade imbalance occurs and then sudden adjustments are forced. A fixed exchange rate will often lead to a black market for the currency depending on the proximity of the fixed rate to the market valuation. So there is always a market. But even in the free market, currencies can become undervalued, which I would say has happened to the Australian dollar, because no one wants them now. It could be that the valuation at this time is more a reflection of the size (and implied strength) of the Australian economy vis a vis the world or it could be just the usefulness of the $A across the world’s financial markets. And of course it could be reflection of the change in commodity prices though I suspect that explanation may be weak because most commodities are traded in $US.

Anyway, back to the US Federal reserve. I was unaware about how it sets its interest rates, but a quick Internet search brought up this, “Its overall concern is the well being of the national economy, which it seeks to achieve through a number of measurable goals, including price stability and full employment. These goals it achieves, in turn, through three principal means at its disposal: the control of the money supply by the issuance of currency to member financial institutions, the setting of interest rates at which it loans funds to those institutions, and the open market purchase of government securities.”

Interesting but fairly standard stuff in a free market economy. It’s all very well for Costa to talk about central banks executing a ‘correct’ monetary policy but what precisely were the banks to do. I think that all the US Federal Reserve has done is to follow its charter and keep the US economy moving. I’d guess they certainly were aware of the underlying weakness in the sub-prime loans but who knows if they were aware of the extent of the problem. In any case, let's assume they were aware. Any major movement of the economic levers at their disposal could easily have set off a reaction that could bring markets down. And of course the (US) government (Republicans) had seen the problem and tried unsuccessfully to bring controls to the loan mortgage market but were blocked (by Democrats). I think I have that is basically right.

So with Costa, there’s more to the picture than he was admitting and that may be because of his political views and allegiances. Still perhaps he has matured a little with age and moved beyond his reputation in the portfolios that he held as someone who shoots from the hip.

BTW, this afternoon I watched a little of the Governor (of the RBA) Glenn Stevens’ address to business

I’ve not read the full speech yet to see if it contradicts anything I've said, but I’ll leave that to others to correct me if I’m wrong.

I note that Stevens’ answer to the financial crisis is to restore confidence by governments pumping liquidity into the markets, with conditions (collateral required) and an overall objective of exiting their positions at some time when the clouds have blown away. I’ll now go away and read Stevens’ speech.

bruce said...

I appreciate your writing this Wand and I'll ponder it carefully. I agree Costa's stance is probably politically skewed.

I used to spend a lot of time on the late Charles Murton's Diogenes blog and he was of the 'Austrian School' of economics which I was exposed to there. I had to learn the discredited Keynesian Multiplier Effect to pass Econ 101 too, and I've never been able to reconcile it all. So I resort to simplistic analogies, which is the first sin for the Austrians.

I think they are regarded as abstract purists, as no one fully agrees with them but they always have a powerful polemical perspective. Apparently Econ was Costa's uni major, so attacking from an Austrian purist perspective probably sits well now he's out of govt.

bruce said...

My overall impression is that there seems to have been pressure to keep interest rates artificially low. And that pressure came ultimately from the US:

"Federal Reserve gets help from abroad on holding down interest rates"

(Not a crucial article but suggesting the pattern)

'Home ownership' is really the 'Bread and Circuses' of our era. Few really 'own' their homes outright yet governments worldwide appease the masses with this deceptive promise. Fannie and Freddie and subprimes were extreme byproducts of what we might call this 'home-owner' mass-hysteria, but the artificially low interest regime geared toward mass 'home ownership' made them possible, and so may be the bigger problem.

Mass hysteria in that it is unprecedented and irrational (yet commonsense - I also want to 'own' my home).

While we may not see clearly right now how to let interest rates find a 'natural' level, it does seem they were 'pushing' against our attempts to repress them.

(20 yrs ago I was a high-risk and had to borrow at 19% to fund a Sydney Real Estate purchase, then live austerely to pay it off. It was worth it.)