Painting Fakes

Climate change and energy policy go hand in hand.  The biggest source of greenhouse gases, and the easiest to change, is electricity generation.  Of course we need to reduce emissions in other areas too but the electricity system, as a unified system relying on a relatively small number of large scale generators, is an ideal place to make a big impact.  No surprise, then, that in Australia this is the policy area that is most fraught, as politicians and industry players jostle for position and advantage while trying to deflect blame for things that go wrong.  Sometimes it seems impossible to get at the truth in the cacophony of mutually incompatible assertions and accusations. I've recently been trying to get more of a handle on this subject and among other things have just finished reading Matthew Warren's new book, Black Out: How is Energy-Rich Australia Running Out of Electricity? Warren is an energy economist who has worked for the Minerals Council of NSW, the Australia

In Lady Windemere's Fan  Oscar Wilde has one of his characters define a cynic as someone who 'knows the price of everything and the value of nothing'.  This much quoted aphorism provides the title of Mariana Mazzucato's recent book, The Value of Everything: Making and taking in the global economy. Mazzucato is an academic economist, born in Italy, educated in the USA and currently working at University College, London.  Her central concern is, how does value get created in modern economies?  In an earlier book, The Entrepreneurial State,  she examines the often overlooked role of government in creating valuable and even game-changing innovations.  This book repeats some of that, but focuses mainly on the position of the financial industry.  Does this industry create value, or simply extract it? The problem, she says, is that economists, and hence the rest of us, are confused about what value actually is.  The classical economists - Adam Smith, David Ricardo, Karl Ma

The rich get richer and the poor get poorer.  We all know that.  The question is, how do they do it? A couple of years ago I reviewed French economist Thomas Piketty's opus,  Capital in the 21st Century .   Piketty shows, using an impressive dataset and some simple equations, that the normal state of capitalist economies is that capital generates larger returns than labour, meaning that over time more and more of the resources in a society go to those who have capital. In Western societies this process was reversed in the immediate post-war decades by a combination of factors.  Rapid economic growth was driven by the recovery from two world wars and the Great Depression.  This led to wages growth and inflation, which redistributed income away from capital and towards labour.  To add to this, governments funded the reconstruction through high rates of inheritance tax, limiting the ability of capital to accumulate across generations. Since the end of the resulting boom in the 1

In the wake of Joe Hockey's comments about housing affordability in Sydney there are various memes circulating which suggest he, and the Coalition government in general, are out of touch with ordinary Australians.  I've been wondering if this is what the comments really show. Now, if the question was "did Joe say something foolish and insensitive" then the answer would almost certainly be "yes".  No surprise here.  Joe often says foolish and insensitive things.  But that's not the question.  The question is, is he out of touch? The context was a press conference about an ATO investigation into possible breaches of foreign investment restrictions on real estate.  Apart from the actual subject at hand, Hockey made two key statements about Sydney housing.  The first: "The starting point for a first home buyer is to get a good job that pays good money,"  And the second: "If housing were unaffordable in Sydney, no-one would be buy

After reading Thomas Piketty's Capital in the 21st Century  late last year, I found myself wanting to read more economics. I'm not an economist, but as a social policy professional I need to know enough about economics to recognise when economists are having me on.  If the economics gets too technical or includes too many equations it's right over my head, but if it's written in plain English I can usually understand it. In the last couple of months I've read two books written in the aftermath of the 2007 Global Financial Crisis - one about Australia and one about the USA. The first, published in 2011, is The Sweet Spot: How Australia made its own luck - and could now throw it all away  by Peter Hartcher.  Hartcher is not really an economist, he is a political journalist working for the Sydney Morning Herald.  If you've read his columns you'll know that he is on the "dry" end of the Fairfax spectrum, but at least he doesn't work for Murdo

Some of last week's thoughts about privatisation  were prompted by reading French economist Thomas Piketty's Capital in the Twenty-First Century, passed on to me by my generous cousin Michael. Piketty's book is economics on a grand scale.  He sets out to tell the story of global capital accumulation over the past two centuries.  To do so, he draws on an impressive (if not quite truly global) collection of historical data on wealth collated by himself and a number of other economists over the past decade, published in sources such as the World Top Incomes Database . This is not exactly an easy book to read, but nor is it the kind of impenetrable tome produced by so many professional economists.  Anyone who has some basic economic literacy will have no trouble grasping his arguments and if its 500-plus pages seem daunting take heart, there's a fair amount of repetition involved.  If you take economic issues seriously (as we all should!) this book is essential reading.

Privatisation, lately rebadged as "asset sales", is electoral poison for political parties and their leaders in Australia.  In 2008, after NSW Labor Premier Morris Iemma proposed to privatise parts of the state's electricity system, he was rolled at the party's State Conference by a huge margin and resigned as Premier soon after. Queensland's Labor Premier Anna Bligh didn't quite manage to learn the lesson.  Soon after her government's re-election in 2009 she announced a privatisation process that included parts of Queensland Rail, various forestry assets, the Abbot Point Coal Terminal and the Port of Brisbane.  Anger at this announcement was heightened by the fact that not a word was breathed on the subject during the election.  She may have hoped this anger would have faded by the 2012 election but it clearly hadn't and her party was almost wiped out . All this left the incoming LNP government with a problem.  The combination of the Global Financ

So now it's official, Joe Hockey's first budget is a shocker. His metaphorical language has taken a new turn.  Along with the task of "budget repair" we now now have the image of lifting.  Australians, he says, are "lifters not leaners" and this budget is about doing "heavy lifting" to get rid of government debt and move us back into surplus. It is highly debatable whether getting back into surplus is as important as Hockey wants us to think, but this morning I'm worried about less esoteric questions.  Like, who exactly is doing all this lifting?  Joe himself and his parliamentary colleagues are symbolically doing a little, accepting a 12-month pay freeze.  Meanwhile, 16,500 lower-ranking public servants will do a lot more, losing their jobs and having to look elsewhere, perhaps ending up doing real lifting as labourers on one of the many road building projects flagged in this budget. However, by far the heaviest lifting will be done b

Tuesday will bring the unveiling of the first Abbott-Hockey budget, so I thought I'd prepare by reading the report of the National Commission of Audit .  What a sorry dog's breakfast it is! It's hardly a surprise that the report is a highly ideological affair.  Not only was it commissioned by an ideologically-driven government freshly elected to office, it is controlled by a hand-picked group of right-wing opinion-makers.  The Commission's chair, Tony Shepherd, was until recently President of the Business Council of Australia and its secretariat is headed by the Business Council's Director of Policy Peter Crone.  Other commissioners vary from politically committed right wingers to more moderate conservatives.  The commissioners are supported by a substantial team of officers from Treasury and Finance, but none from the operational departments whose programs they comment on with impunity. What did  surprise me was how careless and slipshod the whole thing is.

Amid much hoo-har over the past few days, recycled Prime Minister Kevin Rudd has been reported as announcing his government will scrap the carbon tax.   Of course these reports are greatly exaggerated, possibly with Rudd's tacit approval.  Rudd and his supporters will do no such thing.  When the Gillard Government introduced the carbon tax in 2011 (with operation beginning in July 2012) they did so with a two stage plan.  From July 2012 to July 2015 industries which emit carbon would have to pay a fixed price (a carbon tax) per tonne of carbon emitted - starting at $23 and climbing with inflation.  Then from July 2015 this scheme would be transformed into a market based emissions trading scheme similar to (and linked with) the one in Europe, in which permits to emit are sold through a market mechanism to the highest bidder.  What Rudd has announced is that his government will start the second phase a year earlier, in July 2014. This gives us a glimpse of the medium term futu

We're having a lot of sound and fury about bank regulations at the moment, but I've been noticing another debate that's been going just a fiercely, although with slightly fewer headlines.  It's the debate about cutting spending. Apparently, in the "little red book" of briefings provided by Treasury and Finance to the incoming Labor government, they recommended substantial cuts to government spending.  This was needed, they said, to prevent the economy from growing too fast and putting upward pressure on inflation and interest rates. What occurred to me (and I'm sure I'm not the first person to think of this) is that Keynesian economics has left us with an inbuilt tension in the way we think about Government spending.  After the Great Depression governments in the developed world adopted Keynes' idea that government spending should be used to smooth out fluctuations in the market economy.  When there was a downturn, governments should increase t