Our good friend Frank de Jong has set up Earthsharing Canada. Check the new look website where you can read Frank’s erudite writings like:

Untax Business, Uptax Nature
By Frank de Jong

Well, the federal political parties are saber rattling again, threatening an election over the corporate tax cuts which will be in the upcoming budget.

The Conservatives are sticking with their plan to roll back corporate taxes from 22% in 2007 to 15%, that corporate tax cuts are good for the economy…, while the Liberals say this is a bad idea in the face of a $56 billion deficit. The NDP are of course lined up behind the Libs.

Both sides are half right and half wrong, giving the Green Party an excellent opportunity to promote our economic program.

Harper is correct, corporate taxes are bad for the economy. Taxes on productive activities are “dead weight” taxes which make some marginal productive activities uneconomical that otherwise would be viable, creating jobs.

But the Libs and NDP are also right, that the gov should not run a deficit, should not mortgage our future, nor should it cut programs that hurt people, especially the vulnerable, and lower the quality of life.

Green economic theory agrees that governments should untax businesses to encourage economic activity, jobs, providing goods and services. There should be no taxes at all on businesses. We want businesses to be successful so why would we punish them with taxes??

But green economics is socially progressive and fiscally responsible, so clearly governments should not run deficits and governments need revenue to provide the programs we need and want.

What to do?

The Green Party solution is to untax people and businesses and instead generate needed revenue by collecting fees and levies on the use and abuse of nature. This approach will right-price nature, preserving it, and at the same time encourage businesses to be more resource efficient (conservation) and labour intensive (more jobs).

If the next federal election is fought over corporate tax cuts, we will have an excellent angle, a very strong platform.

Our slogans can be: Pay for what you burn, not for what you earn. Pay for what you take, not for what you make. The government should collect unearned income, not earned income. Government shouldn’t punish someone for having a job or punish a business for being successful!

By untaxing jobs and business and instead collecting “economic rent” (revenue without a corresponding cost of production), government would be putting renewables on a level playing field with fossil fuels, would make walkable communities attractive compared to sprawl, and bias organic, local agriculture over industrial/factory farming.

Land Value Taxation comes to Ireland

A very good development coming out of the Irish meltdown, the introduction of nation-wide land value taxation policy. http://www.thejournal.ie/government-announces-new-site-value-tax-from-20…

Site Value Taxation (or Land Value Taxation) is like the property tax except that it levies only the value of the lot underneath the buildings, not the value of the buildings (improvements). It is a tax shift, not a tax grab, since other taxes will be reduced.

One benefit is that it doesn’t punish those who renovate, expand or who build affordable housing. In Canada, multi-unit and commercial buildings pay 4 – 10 times the rate of detached houses.

Another is that it “right prices” land which will incent efficient land use, reducing sprawl. A vacant lot will carry the same charge as a lot with a building on it, encouraging people to build or sell, rather than hold land out of production for speculative purposes.

Also, assessments are more accurate and simpler when only the lot is assessed, and not the buildings, a problem which hit the papers in Ontario.

LVT is not just for the municipal level. The Ontario and Canadian governments should generate most of their revenue from land value taxes plus levies on resource use and pollution, in lieu of income, business or consumption taxes. Income and business taxes kill jobs and damage the economy, but taxing nature doesn’t.

“When capitalism started, nature was abundant and capital was scarce; it thus made sense to reward capital above all else. Today we’re awash in capital and literally running out of nature”, Peter Barnes, Capitalism 3.0

“A commons arises whenever a given community decides that it wishes to manage a resource in a collective manner, with special regard for equitable access, use and sustainability. It is a social form that has long lived in the shadows of our market culture, and now is on the rise.”, David Bollier, www.onthecommons.org
.

“Sacrifice of nature’s scarce services constitutes an increasing opportunity cost of growth, and that in turn means that nature must be priced, either explicitly or implicitly. But to whom should this price be paid?”, Herman Daly

These 3 quotes were part of a document we prepared for the Sustainable Living Festival. Download the double sided A4 paper Earth Based Economics and share it around.

Today I had the pleasure of seeing Professor Joseph Stiglitz speak on the topic of From Measuring Production to Measuring Well-Being, courtesy of the Economic Society of Australia.

I became a fan of his following his timely defection from the World Bank as outlined in Greg Palast’s The Globalizer Who Came in from the Cold. I read this article in my formative days of studying geonomics. Palast writes –

So then I turned on Stiglitz. OK, Mr Smart-Guy Professor, how would you help developing nations? Stiglitz proposed radical land reform, an attack at the heart of “landlordism,” on the usurious rents charged by the propertied oligarchies worldwide, typically 50% of a tenant’s crops. So I had to ask the professor: as you were top economist at the World Bank, why didn’t the Bank follow your advice?

“If you challenge [land ownership], that would be a change in the power of the elites. That’s not high on their agenda.” Apparently not.

Back to today’s talk.

Stiglitz framed the discussion around the importance of accurate information, following his specialty of asymmetrical information. The core focus was the need for a Green GDP measure. Paraphrasing his speech, he mentioned:

“What is measured, affects what we do. The distortion created by price (what you can con the market in to paying for a piece of land, for example) rather than value (what can be realistically earnt from that location) causes multiple problems. This lured 40% of all US investment to be channeled into real estate, delivering phony profits. 40% of all corporate profits in the years running up to the GFC bust were in finance. Again these were phony profits, not based on any form of productive value, and so were wiped out by the subsequent market correction.

This was an example of the economics of information. Measurements like GDP included phony profits, making countries look better than what life actually is for those on the ground. ‘Bad accounting leads to bad decisions.’”

Stiglitz segwayed onto the UN’s Human Development Index. He gave the tentative thumbs up to such measurements of the quality of life, saying that incorporating both health and education with GDP per capita was a more rounded measure. Eyebrows were raised when he commented that more weighting should be given to the health and education sectors of the UN HDI than economic growth.

He went on: “It would be negligent of a business not to depreciate it’s capital. This is a key component that all investors consider. Why then do we not incorporate a measure on natural resource depletion?”

Other statistical discrepancies of note included the predominance of mean measures for analysing incomes. The tremendous increase in the ultra wealthy over the last 30 years has dragged the mean upwards. Stiglitz was adamant that ‘more than all the growth in wealth was going to the top, none to the bottom tiers of society’. Far more accurate was to look at medians – measuring the income of those people half way between rich and poor.

As he has throughout the tour, Joseph threw his support behind the mining tax.

“Why does America return such poor results for the 16 – 17% of GDP spent on health? We spend a lot for so little in return. Infant mortality rates are comparable to the Developing World.”

Thoughts flowed to Alanna Hartzok’s 2006 tour when she discussed the Health Olympics (the greater the wealth gap, the poorer the health).

“But yet GDP was pushed higher by poor health outcomes (requiring even more spending).” Why not a similar Defence Spending Olympics as Joseph ridiculed how some US states spent more on new prisons than schools, despite the police and war efforts.

Professor Stiglitz concluded with the need for distinction between what society says makes it happy and what we end up doing. Families not eating together in the main was anathema to the common belief of the family first.

Measurements must reflect what we care about.

This brought me back to the MC’s opening remarks – ‘what doesn’t get measured doesn’t matter’. Why aren’t economic rents measured? Have we learnt anything from the land bubble – the giant black hole of economic analysis – that led to the GFC? Two income earners are working so many hours to cover the mortgage, no wonder they don’t eat together. How extensively would the Riches of Oz be unlocked if we captured the rents for all?

The question I would have asked if I had the chance was, ‘with price to value such an issue in a world of resource scarcity, when are we going to look beyond Reactive Economics (like struggling to find health finance) and look towards Preventative Economics (where our behaviour is influenced before the act)?’

Having sat directly behind Stiglitz pre-talk, I reminded my neighbour that I might have missed out on asking a question, but it was all about location, location. Soon Stiglitz had a copy of Hudson’s Counter-Enlightenment in the post talk rush to speak to him.

A quick prompt of him got the desired response – ‘I’m a huge fan of Henry George’.

With that I encourage you to read this insightful interview with Joesph Stiglitz (h/t – Geophilos & Wealth and Want:

Joseph Stiglitz: October 2002 Interview
with Christopher Williams, of the Robert Schalkenbach Foundation,
published in Geophilos, Spring, 2003

Q: I want to follow-up on what you had said some months ago about land reform:

JES: “The main, underlying idea of Henry George is the taxation of land and other natural resources. At the time, people thought, “not really that too,” but what was underlying his ideas is rent associated with things that are inelastically supplied, which are land and natural resources. And using natural resource extraction and using land rents as the basis of taxation is an argument that I think makes an awful lot of sense because it is a non-distortionary source of income and wealth.

Q: In Globalization and its Discontents, you write (p. 81): “But land reform represents a fundamental change in the structure of society, one that those in the elite that populates the finance ministries, those with whom the international financial institutions interact, do not necessarily like.”

JES: Yes. Let me try to approach the question a little more systematically. Once you take the perspective I just gave, that means the management should be done in such a way that it maximizes the amount of money available to the US government from natural resources because they are within its domain and control. So, looking at the United States, one of the implications of this is that a foundation such as yours [the Robert Schalkenbach Foundation, created to promote the ideas of Henry George, as expressed in Progress & Poverty] ought to be very much against the policies of the US government of giving away our natural resources. Here is a case where we not only are not taxing it much, we’re actually giving it away.

Q: I assume you’re speaking in particular of oil and mineral rights, but would not Broadband Spectrum rights also be included in that category?

JES: Yes, Broadband Spectrum rights as well. Now, giving away rights such as those would be anathema to the spirit of Henry George. And the second part is that when you sell them, you want to do so in such a way as to maximize the revenues. And whether you decide to sell it or whether you decide to rent it, would be the question of what is the way that maximizes the extraction of public revenues.

Q: And those revenues go to the people. Not to private concerns.

JES: Exactly. So you’re trying to say, from the perspective of public management, how can we take this inelastic supply of public resources and maximize the rents that we can extract from it, consistent with other public objectives? That is a very deep philosophical approach, and requires a re-thinking of how we manage all aspects of those public resources. However, much of what we do is inconsistent with that. Now, the issue of land reform is a little bit different. There, it’s a two-step analysis. My concern that I expressed about land is that in many developing countries, you have most land owned by a few rich people, and the land is relatively little taxed. But the land is worked in a system of sharecropping in which workers have to pay the landlord 50% of their output. In a way, you can look at that 50% as a tax. The sharecroppers are paying a 50% tax to the landlord. But it’s worse than a tax. Because it’s not a land tax, it’s a tax on their labor. And it’s a tax that goes to the landlord rather than to society. So the notion is that land reform could take a variety of different forms. For instance, the government could take over the land and rent it to the people. Or give it to the people and have a land tax that would not have the distortionary effect of land reform. So, in a way, these systems of share-cropping are worse even than anything that Henry George was worried about in terms of misuse of land.

Q: However, when you speak of land reform, do you have concerns about compensation as an issue in its implementation?

JES: That is one of the key issues. And there’s a program at the World Bank that’s been started in Brazil, which is called “Market-Based Land Reform” where they buy the land and give it or sell it to the workers. They use government power to obtain the right to buy it.

Q: Has President Mugabe of Zimbabwe’s misuse of government power to return land to its so-called “rightful owners” given land reform a bad name?

JES: That’s true, but it doesn’t have to be done that way. Now, one of the things that is again in the spirit of Henry George is that, if you have land taxes, then the market value of land goes down. What you’re willing to pay for land is the difference between what you pay and what you get to keep after paying your land taxes. So, in a Henry George world, the amount of compensation would be very low. So one could argue that moving toward a land tax would facilitate that reform. Once we raise rates on land taxes, the market value will have to go down. The government can buy the land and redistribute it to the workers, and they then would be able to keep the fruits of their labor. They will continue to pay the land tax, but the product of their own efforts — their labor — will be their own, as opposed to sharing fifty percent with the landlord.

Q: Do you think land reform could possibly find a way onto the political agenda in the United States?

JES: No. Land reform is not a big issue in the United States because we don’t have a lot of sharecropping. There’s some, but it’s very limited.

Q: What countries do you regard as the most politically open to tax reform as a means of achieving meaningful land reform?

JES: I think some countries in South America are moving in that direction. They’re beginning to do this form of taxation because they want the land to be utilized. Some people own land but make no use of it.

Q: You mentioned the World Bank’s program titled “Market-Based Land Reform.” Is that the only international forum in which there is a chance of gaining politically-effective support for “land value taxation” as an instrument for land reform?

JES: There’s not a lot [of] discussion going on in those circles about land reform. The World Bank is still talking about it, as in the program I was talking about. And certain countries are continuing to talk about it within themselves. But the IMF is not, and I don’t know of any NGO (nongovernmental organization) that is.

Q: What are the greatest political obstacles confronting developing countries to the extraction of economic “rent” for public purposes? Is it simply a matter of “vested interests?”

JES: Yes, it’s not very complicated. You know, in the Clinton Administration, we tried to reform the disposition of natural resources — mineral rights — by saying the US Government should not be giving this away to a few wealthy people. But the mining interests were adamant in opposing this reform.

Q: In your opinion, would it be more effective to attempt to achieve support from economists about the need for such reform, or to bypass them in seeking to build popular support independently from them, in that the views of mainstream economists on the topic of land reform might fairly be characterized as an “intransigent”?

JES: There are some economists who are interested in this. I think most economists would like the idea, and would support it. But, economists spend their time on things that they think have marketability. So it isn’t that they don’t think it’s a good idea; they don’t think there’s any resonance in it. President Bush is still talking about the inheritance tax, and income tax, and they want to get involved in what other people are talking about. It’s a social phenomenon, I think. So, if you get a lot of other people talking about it, then they’ll join the fray.

Q: You are aware that Henry George was a critic of the moral foundations of our economic institutions. What do you think of reform efforts toward land value taxation based on an appeal to morality?

JES: What it fits into is that there is a wide view today that we should tax environmental “bads” such as pollution and the like. And switch from taxing good things like labor. So, in a way, that’s where it comes in: let’s stop taxing good things like labor, and tax things that are resources. So the argument is, “why tax things that are contributing to society?”

Q: I’d like to move to topics related to globalization because I read your book, Globalization and its Discontents, and, like many other people, found it fascinating. What has happened to the idealism that was supposed to make institutions such as the World Bank and IMF serve the inclusive interests of everyone in what was then called the Third World? You make the point that these have become institutions that serve the interests of wealthy nations almost to the detriment of poorer ones.

JES: The problem is that they believe that by helping the rich you help the poor.

Q: The old “trickle down” theory?

JES: Yes, “trickle down.”

Q: But that’s been fairly discredited, hasn’t it?

JES: Yes, it has. But as a general phenomenon, nobody likes to think badly of themselves. They always end up in arguments about why it’s in the “General Good.” But, on the other hand, I think that self-interest is a very strong force. That’s what Adam Smith said, and I see it all the time.

Q: But haven’t these institutions detached themselves from the grass-root interests of land-less people around the world?

JES: The IMF never thought of itself in that way. It began as a club of the rich countries to help each other out. And when the colonies got released, and the developed countries managed their own economies better, they went in and became the new imperialist power. That’s an over-simplification, but they then became the agents of the advanced industrialized countries.

Q: You criticized “The Washington Consensus.” From reading your book, I see that you summarize that set of doctrines as “1) Fiscal Austerity, 2) Privatization, and 3) Market Liberalization.” What are, in your view, the central weaknesses of the policies that flow from the Consensus?

JES: It didn’t work. I mean, the weaknesses are not that these are necessarily bad in their own right, but it’s the balance. Fiscal prudence is a good thing. But they pushed it beyond where it ought to have been. Market Liberalization is a good thing, but not if it’s done too fast.

Q: Would you say, then, that there is a structural flaw in the market system?

JES: There are many limitations. We all know that there are lots of examples where markets fail, and you need a role for government. So where the structural problem is, it’s their belief that there’s not a role for government to play. And that markets can solve every problem. That’s the structural failure: “Markets are perfect, and can solve every problem.”

Q: For this interview, I also read George Soros’ book, On Globalization, which I know you reviewed in the New York Review of Books. In it he states, “It is market fundamentalism, which holds that the social good is best served by allowing people to pursue their self-interest without any thought for the social good — the two being identical — that is a perversion of human nature” (p.179).

JES: Yes, George and I are very similar in our views.

Q: Don’t you think we need to go deeper and look at the rules that govern the unequal bargaining power between the rich and the poor? Isn’t that what really has to be attacked?

JES: Yes, that’s what I’m saying in the book. The underlying problem is the way the rules are made. If the rules are bad, you need to ask the question, “how did those rules get established?” And it’s the processes by which the rules get made that is the underlying source of the problem.

Q: Do you think that changing the rules is possible?

JES: I wrote the book because I believe that, in a democratic society, pressure can be brought to bear on the rule-making process. As you become aware of who’s at the table, why things are biased, they’re responding, criticizing. Even if it doesn’t quickly change, it circumscribes the ability to continue with self-interest. The World Bank is already changing enormously. That was relatively easy. President Clinton appointed someone who has a very different mind-set from previous World Bank presidents. The rest is very hard. The IMF has not made that kind of change. It’s still a long, hard road for both of them. In some ways the WTO [World Trade Organization] is in an even more difficult position. But that’s the great thing about democracy: we have so many critics. We have newspapers, and people like me and George Soros writing books.

Q: Aren’t you also saying that the real impetus will come from democratically-elected representatives with the political power to make changes?

JES: But they also respond to public pressure. In the last Presidential Debate between Bush and Gore, both sides said that we had to change the IMF. Clearly, the issue of the IMF had raised itself to a level — it’s still not in everyday talk in that it’s not what most Americans think about — that it got thirty seconds or a full minute in a Presidential Debate between Bush and Gore. Well, that’s a big achievement from where it was before. The IMF is a very important institution for developing countries and most Americans have never heard of it.

Q: I was at a conference recently on the French concept of “mondialization” as opposed to “globalization.” The French consider the spirit of “mondialization” to be more “generous” towards less developed countries, in contrast to the American idea of pursuing our national interest without regard to theirs. Would you call yourself a proponent of “mondialization” rather than of “globalization”?

JES: It is interesting that my book has been selling fantastically in France, so they obviously sense the commonality on our views.

Q: Let me ask you about Russia. President Putin has been a prominent advocate of the need to shift the fiscal base away from people’s wages and savings and on to the rents of natural resources. But this strategy flew in the face of conventional tax wisdom, which favored a “broad tax base” that included the use of “stealth” taxes. The IMF, by its actions (if not its public declarations), strenuously opposed the Putin strategy. What might President Putin do to remain engaged in the process of pro-market reforms while retaining the support of foreign investors and at the same time shifting the tax base on to the rents to be derived from Russia’s natural resources?

JES: Russia provides another good example of what I’ve been talking about. The fact is that their economy has been imploding. And it’s become nothing more than a natural resource economy as a percentage of the GDP — about 60 to 70%. At that point, natural resources become the only major source of revenue. So they’ve been forced to move in that direction by necessity. And, obviously there’s a political economy tension: the rich guys don’t want to give it up. But that’s the distinction they’re going to move in because there’s no alternative.

Q: Your academic work led you to formulate what you called “The Henry George Theorem.” This demonstrated that public spending — where this was efficient — generated additional rental value that surfaced in the land market. Other distinguished scholars, such as the late Nobel prize winner, William Vickrey, confirmed your findings. You also noted in one of your books, co-written with Anthony Atkinson, that the Henry George Theorem was attractive both because it was the revenue-raiser that did not distort private incentives and because “it is the ‘single tax’ required to finance the public good.” [Anthony B. Atkinson & Joseph E. Stiglitz, Lectures on Public Economics, London: McGraw-Hill, 1980, p. 525] Now, public investment, unless of the wasteful kind designed to serve the privileged interests of rent seekers (the classic type being a land speculator), should be viewed as working in partnership with the private sector and not a drain on the community. How can the reputation of publicly provided services and investments be rescued?

JES: That’s a very good question. What we did when I was at the Council of Economic Advisors was some studies to try to show what the social returns would be to public investment in R&D, etc. And we became convinced that the rates of return of those investments are very high. So you ask the question, “what can we do to restore confidence in public investment?” We need to realize how much we depend on them. I keep telling people, “The Internet.” That’s one example. It was publicly funded. It’s now a public-private partnership. The government did the basic research, and the private sector ran off with it. But, arguably, we would never have had the Internet if it were not for government expenditure. So I think a major industry in the United States — biotech — is based on NIH (National Institutes of Health). NIH does all the basic research.

Q: From the conference on “mondialization,” I saw a major difference in attitude among the French with regard to public investment. The French believe strongly in public funds for public works, whereas Americans believe they shouldn’t be taxed more in order to support public projects. Which view do you agree with?

JES: There’s been a lot of so-called “bad rhetoric” in this whole area. The real point is that we need to recognize that there are some things in the area of “the public sphere.” We’re not having investment in basic research; we need to have the government do it. And that’s what I’ve consistently been arguing; you don’t want the government building steel factories. But you do want the government doing certain research, and the relative size of that depends on the society. Right now, we should be spending far more on basic research. So what is the message. I think how much we depend on the government. And the new economy, we take it for granted, but it is the public sector. I think you’re right that we have the wrong view. But I keep saying, “The Internet.” How much as it changed our lives? And it’s [the result of] the government.

Q: And yet, in American society, the idea is instilled that one ought to take for one’s own benefit, so as to have the big cars and houses, etc., that will impress other people, rather than to give in order to promote a public benefit. Aren’t those the actual values of American society?

JES: We need to realize that our livelihood today depends on our innovation, and our innovation depends on our sciences. Our livelihood depends on our global position. For example, we have to be able to fly, to go to the airports.

Q: I wanted to ask your view on the adequacy of land as a tax base. At one time, as you know, there was a “Single Tax” movement, for the purpose of deriving revenues sufficient to run the government solely from land value taxation. In your view, how feasible is that today?

JES: Most economists would say that you cannot run the US economy on the “Single Tax.” In my mind, the “Single Tax” is the wrong way to think about it. The question is: “Would it be better if we had more taxation of land and natural resource, and more revenue from natural resource management, and I would include atmosphere and spectrum.” And less tax on income and savings. And I would say, “Yeah.” And I think many economists would agree with that. So, if you want to sell it as a “Single Tax,” then, no, you won’t get anyone to agree that there’s enough revenue there. If you look at is a more “central” tax, then, yes, you will get most economists to agree with you.

Q: A former Director of Robert Schalkenbach Foundation was given a grant recently to research the adequacy of land as a tax base. He’s a professor at the University of California, Riverside, named Mason Gaffney, and he wrote a book titled, “The Corruption of Economics.” Are you familiar with his work?

JES: No.

Q: I’ll send you a copy of the book. Basically, he argues that the founders of neo-classical economics, which, as you know, is the paradigm taught in schools such as the University of Chicago, distorted the science of economics to protect vested interests. For example, Rockefeller money was spent to hire professors of economics with a view to their discrediting the ideas of Henry George. Did that happen?

JES: My general impression is that most donors that give money to universities don’t take a very strong view of [who should be on] the faculty. Sometimes it ends up on one side, sometimes on the other. It would have been unusual [at Chicago], but it could have happened there. What is striking about Chicago as a school of economic theory is that it’s very conservative. One would have thought that Henry George was someone who would have been liked by “Conservatives.”

Q: In that George wanted to reduce tax on the fruits of one’s own labor?

JES: Exactly. And you want non-distortionary taxes, so I would have thought that every “Conservative” would be in Henry George’s camp. Now, as far as I know, I’m one of the few people who keeps emphasizing that you ought to view Henry George in a broader way, to include natural resources. I didn’t think that people thought about that a hundred years ago. But if they had, and maybe Rockefeller was smart — he realized that he obviously didn’t want a tax on natural resources.

Q: He wouldn’t have wanted rents flowing from natural resources to go to the people rather than to him.

JES: Yes, he obviously wouldn’t like that perspective. But I don’t know if that view was at that time recognized, and I just don’t know whether he actively intervened at Chicago.

www.wealthandwant.com

… because democracy alone hasn’t yet led to a society in which all can prosper

photo credit: Torley

Selling the environment in order to save it?

Frank Stilwell

Professor of Political Economy
University of Sydney

As published in our Progress Magazine

The Rudd government’s review of climate change policies, chaired by Professor Ross Garnaut, has issued its interim report and will present its final report later this year. Many environmentalists welcomed the interim report because it stressed the magnitude of the climate change problem. The final report looks likely to be more problematic though. The main recommendation will be for the implementation of an emissions trading system. Creating a market for licences to pollute will be our big step forward. It is pertinent to ask what is being sustained here – our environment or free market capitalism?

The challenge of sustainability is fundamental and multi-dimensional.  Economic sustainability requires the reproduction of productive capacity, including the replacement of depreciating capital, whether natural, human or manufactured.  Social sustainability implies the reproduction of acceptable social structures, social capital and social cohesion. Ecological sustainability is a yet bigger challenge. It requires the maintenance of biodiversity, ensuring ecological integrity, maintaining the stock of natural capital and providing for intergenerational equity. That means that the quality of the physical environment passed on to the next generation should be no worse shape than was inherited by the current generation.

All these requirements are threatened by climate change.  The scientific community, though not unanimous, has generally accepted that the threat is real. The Stern Report in the UK shows that taking remedial action is good economics too. Agreement to remedial policy measures has a strong economic rationale as well as meeting environmental and social needs because the costs of inaction will substantially exceed the costs arising from policies to prevent climate change accelerating. So we have to carefully consider what it means to move to a more sustainable set of economic and social arrangements. Can this transition be made in a way that is consistent with concerns about social justice? Or will market criteria and the exercise of corporate power dominate?

Environmental Economic Policies   

As a professional economist, Ross Garnaut will surely emphasise environmental policies that use economic policy instruments to change market prices. An earlier report that he wrote for the Hawke government on the east Asian ascendancy argued that Australia should specialise in environmentally damaging industries because that is our comparative advantage relative to the nations of Asia. It was not an auspicious beginning for his engagement with environmental issues! One hopes that Professor Garnaut’s thinking has moved on. However, the emissions trading policy that is at the top of his – and the federal government’s – policy agenda at present has similar roots in orthodox neoclassical economic theory.

According to that economic orthodoxy, if a limit is set on the total amount of allowable carbon emissions, and permits to pollute up to that limit are issued and traded in the market, those permits will then be acquired by businesses with the greatest need to pollute and the greatest ability to pay for doing so. The prices of goods and services will then rise to the extent to which the purchase of emissions trading permits adds to their costs of production. Products whose manufacture and supply requires the burning of much fossil fuel would become significantly more expensive. Aluminium products are a case in point, because their manufacture involves the use of enormous amounts of electricity, typically produced by burning coal. Proponents of emission trading argue that, once such products become heavily taxed, consumers will seek to switch to cheaper, less environmentally-degrading products.

The implication of this conventional economic reasoning is that patterns of production and consumption will adjust to changes in market price signals. Technological changes will also create products and processes that use less of the increasingly scarce and non-renewable energy sources and create less pollution. Indeed, the changed market incentives that result from emissions trading could be expected to generate some such responses. However, the overall effectiveness of the policy in practice depends upon how strictly the limit on acceptable pollution is defined, how vigorously it is policed, whether the initial allocation of permits gives preferential treatment to existing polluters, and the conditions under which the market operates. All these practical considerations can result in the application of an idealised neoclassical theory producing a much a muddier outcome in the real world. The experience of emissions trading policies in European nations to date has not been encouraging.

One recurrent problem relates to concerns about equity, understood either as fairness or equality of sacrifice.  Wherever the price of goods rises they become less accessible to the poor.  In the extreme, access to environmental resources – even to the requirements for life itself – becomes a matter of ability to pay. A yet more fundamental concern is that economic policy instruments for ‘environmental fine-tuning’ seek to conserve the environment by putting a price on it.  ‘Selling the environment in order to save it’ is indeed a strange principle.  A narrow market logic does not recognize the more fundamental problems associated with capitalism as an expansionary economic system, and how the extension of markets created the environmental stresses in the first place. 
 
The Australian environmental scientist, Sharon Beder, has written an excellent book, Environmental Principles and Policies, exploring these problems more deeply. She shows that policies based on orthodox economics simply do not measure up against important environmental protection principles – the sustainability principle, the polluter pays principle, and the precautionary principle.  Nor do they rate highly according to three relevant sets of social principles – the equity principle, human rights principles and the public participation principle.  Assessing the proposed economic instruments for pollution control against these six criteria produces strongly negative conclusions. Another prolific Australian author, Ted Trainer, has been arguing a stronger variant of this view for many years, emphasising the environmental limits to growth that require radical changes in our economic structures, going far beyond the ‘fine-tuning’ that leaves the underlying orientation towards relentless profit-driven economic expansion unchanged.

Alternative Policies

A carbon tax would be preferable to an emissions trading system, albeit still subject to some of the same limitations of any market-based policy. Like emissions trading, its effect would be to make products whose manufacture involves intensive use of fossil-based energy resources significantly more expensive. If it replaced the existing flat-rate goods and services tax (GST), other goods and services – those not involving fossil fuels in their making – would become cheaper. Alternatively, if added to the existing GST, then the carbon tax would generate more revenue which could then be used for expenditure by government on promoting renewable energy development, for example.

Why would a carbon tax be better than emissions trading? An orthodox economist would say that both can achieve the same outcome. The former sets the permitted level of output (of carbon emissions) and allows the market price to vary. The latter sets the price and allows the output to vary, in which case the tax rate can be adjusted until the acceptable level of emissions is attained. However, what that orthodox economic reasoning ignores is the power politics. An emissions trading system hands over the market to private interests and thereby creates a powerful political lobby with an economic stake in shaping how the market operates. A few major players – particularly the electricity producers – can be expected to dominate. With a carbon tax, on the other hand, the key relationship is directly between the government and consumers. Adjustments to the tax rate in the light of experience would be politically contentious, no doubt, but less problematic than having a powerful business lobby directly contesting any attempt to reduce their number of tradeable emissions permits.

Public ownership warrants more attention in these circumstances. It cuts against the grain of the privatisation process that has been such a central theme in the neoliberal transformation of the state in Australia, and in many other nations, during the last quarter century. Public enterprises do not necessarily adopt more ecologically sensitive technologies than private enterprises. However, taking the current issue of electricity privatisation in New South Wales as a case in point, it is clear that the prospective shift from public to private ownership would close off policy options.  Privately owned energy providers have a direct stake in increasing the demand for their product.  What is needed is precisely the opposite.  We need electricity to be provided by institutions that will encourage their customers to use energy-efficient appliances and develop strategies to reduce electricity consumption.  From this perspective, public ownership, if not a pre-requisite for the adoption of more ecologically responsible managerial practices, at least keeps open the progressive possibilities.

Government expenditure and subsidies are also a necessary means of promoting the development and implementation of alternative technologies that are less environmentally damaging. Investment in more ecologically sustainable transport technologies is a case in point. It is no good making car use more expensive, for example, through higher taxes on petrol, unless there are readily available public transport alternatives. The provision of better infrastructure and public transport services is therefore a precondition for lower emissions and less per capita fuel consumption.  More comprehensive subsidies for installing solar power, encouraging the use of renewable energy sources and providing the industry policy arrangements necessary for the development of alternative technologies can also contribute directly to more ecologically sustainable outcomes.

Direct regulation is the yet more emphatic role for government. It is implied in ‘cap and trade’ emissions trading, to the extent that the ‘cap’ (on the total amount of permitted carbon emissions) is set by the government regulator. More regulation is anathema to neoclassical economists because they regard restrictions on economic activities as less sensitive than market incentives to change. But  the outright prohibition of particularly environmentally hazardous activities may be increasingly necessary. Having a high energy-efficiency rating could be a condition for permitting particular electrical goods or motor vehicles to be on the market at all. Getting serious about sustainability needs changes to the market rules, rather than allowing the market to rule.

Global Dimensions

It is at the international scale that yet more dramatic challenges arise. Three are particularly important – the challenges arising from uneven development, from neoliberal free trade policies and of making transitions to local production for local consumption. A radical paradigm shift is implied, going well beyond the current agenda of the Garnaut review.

The problems that result from uneven development are fundamental. Glaring international economic inequalities require that the more advanced industrialised nations take a lead in substantially reducing carbon emissions, as a precondition for gaining the cooperation of poorer countries.  The latter are understandably more reluctant to embrace policies that they see as likely to slow their rates of economic growth, unless they see yet more vigorous initiatives from the wealthier nations. A recent report, International Assessment of Agricultural Science and Technology for Development, illustrates the importance of this distributional dimension. It notes that “the unequal distribution of food, and conflict over control of the world’s dwindling natural resources, presents a major political and social challenge to governments, likely to reach crisis status as climate change advances and world population expands from 6.7 billion to 9.2 billion by 2050″. The report further argues that the present system of food production and trade has created a very unequal distribution of benefits and created serious adverse ecological impacts, contributing to climate change.

We must surely be coming to the end of the period of neoliberal globalism in which creating unrestricted growth of international trade has been the dominant drive. The challenge is not just to a dominant economic ideology though.  It is also to the power of the transnational corporations that are so dominant in the capitalist economy today, and to the World Trade Organisation, the International Monetary Fund and other institutions that are deeply wedded to economic practices that prioritise profit-seeking over deeper societal and ecological concerns. The free trade policies promoted by these institutions are prodigiously expensive in terms of energy and other scarce resources. Bilateral trade agreements are equally problematic because they frequently inhibit the autonomy of national governments, including their ability to implement environmental protection policies.  Yet Australia is locked into such agreements, such as the free trade agreement with the USA, and other similarly restrictive agreements are currently being negotiated.

Australia’s capacity to transform itself into an international environmental exemplar is also constrained by its economic dependence on mineral exports. It is the world’s largest coal-exporting nation. This creates a particularly strong tension between the economic gains from environmentally unsustainable production and the moral imperative to embrace radical reform.

It would not be practical to envisage the Australian coal industry being closed down in the next few years,  but the Rudd government needs to introduce a transitional program if it is serious about making the structural changes in the economy that are necessary for ecological sustainability in the longer term. That transitional program would require arrangements for shifting workers to new, sustainable jobs, and regional policies to address the particular needs of coal-mining areas like the Latrobe valley, the Hunter valley and the Illawarra region. The development of those industry policies and regional policies would indicate a government commitment to actively engage with the challenge of climate change, going beyond the easy options. But don’t hold your breath waiting for the Garnaut review to embrace interventionism like this that lies ‘beyond the market’.

Nor is the principle of ‘local production for local consumption’ likely to get a guernsey. This principle is the antithesis of the neoclassical economic orthodoxy that has underpinned the push for free trade and the growth of international trade agreements. It is a heresy deserving particular attention in the current environmental circumstances though. A prodigious use of energy and transport resources is involved in moving products around the world to increase the variety of products available to consumers. The ‘global supermarket’ rests on factory production and agribusiness activities in low-cost nations and complex networks of long-distance sea, rail, road and air cargo movements. These arrangements are not sustainable in the context of increased resource scarcity and the threat of climate change.

There is sometimes an environmental economic rationale for long-distance transport. It is better to import pineapples to Tasmania than to grow them locally, for example, because the latter option would be technically feasible but highly energy-inefficient. However, introducing energy-efficiency and environmental criteria into considerations of trade would generally favour more local production for local consumption. Some consumers are already starting to recognise the advantages – including food freshness – of consuming products that are local in origin. The embrace in government policy of a preference for local rather than global sourcing would indeed signal a significant paradigm shift.

The Politics of Change

We are not on the ‘level playing field’ assumed by orthodox economic theorists. It has been dramatically tilted by the problem of climate change, and furrowed with the problems of resource depletion, uneven development and the unsustainable character of current economic production and transportation. These complex problems cannot be adequately resolved by creating markets for licences to pollute nor by tinkering with the price system. The emissions trading system expected to result from the Garnaut review is a modest starter, at best, and perhaps a false start.

A more comprehensive policy package is necessary, breaking with the neoliberal orthodoxy that prioritises market arrangements and the extension of trade. Charting that radically different direction is the big political economic challenge created by concerns about climate change. It confronts two interrelated constraints – one arising from the vested interests of corporate capital and the other arising from the timidity of government.

The constraint imposed by business interests and organisations is particularly problematic. As Clive Hamilton documented in his book, Scorcher, corporate interests in Australia have played a pernicious role in obstructing the embrace of more ecologically responsible policies. Of course, businesspeople are citizens too, and ultimately just as vulnerable to the problems of climate change and environmental decay. In the short run, however, many of them profit from the very activities that create the environmental problems. That is the sense in which the challenge of sustainability is a class issue.

Business organisations are not monolithic though, and there are promising signs of awareness about the need to change.  Some are embracing principles of corporate social responsibility and a triple bottom-line accounting that monitors environmental and social, as well as financial, outcomes of business activity.  It remains to be seen whether the rhetoric is matched by behavioural change. Meanwhile other business interests remain dug in to reactionary positions. A recent editorial in the Australian magazine Wealth Creator began by saying ‘Kevin Rudd’s decision to sign Australia up to the Kyoto protocol could cost the country billions of dollars and hundreds of thousands of jobs’. This sort of aversion to anything that threatens their short-run profitability is a long-standing feature of capitalist businesses, as is the attempt to represent the threat as one to the nation or to their employees.

The constraint imposed by governmental timidity is equally troublesome. The federal Labor government led by Kevin Rudd is evidently committed to differentiating itself from its environmentally negligent predecessor. That is a good start. So too was its signing of the Kyoto protocol immediately on coming into office. Environment ministers Penny Wong and Peter Garrett also have strong personal commitment to making lasting change, but they operate within evident political constraints. The continuing adherence of Federal Labor to neoliberal economic principles – and Kevin Rudd’s own declared preference for a conservative approach to economic issues – bodes ill for the adoption of a more progressive environmental agenda. If market criteria dominate, then the prospects are correspondingly poor. Indeed, to have a NSW Labour government proceeding with electricity privatisation at a time when we should be emphasising energy-efficiency rather than increased electricity supply is symptomatic of the political problem.

The Rudd government’s response to rising petrol prices in recent months also shows lack of clarity in responding to the changing environmental economic conditions. The government should be telling the public that rising prices are inevitable, irrespective of the influence of monopolistic elements on short-term price fluctuations in the market, because oil is a depleting natural resource. Simultaneously, it should be investing substantially in public transport and renewable energy technologies so that people can adjust to the increasingly economically stressful situation. The rising fuel prices should be treated as an early-warning signal of the growing tension between the environment and material living standards. Maximising economic growth without regard to environmental hazards cannot continue to be the principal policy goal. Therein, of course, lies the direct confrontation with the interests and ideologies that pervade modern capitalism and unlimited consumerism. ‘Waiting for Garnaut’ is not a plausible excuse for facing up to this tough conclusion.

Conclusion

Responding to the challenge of sustainability requires a different mindset and policy stance.  A shift from competitive and individualistic to co-operative and collectivist behaviours is implied. So too is the embrace of a comprehensive policy package – for industry restructuring and regional development, investment in new technologies using renewable resources, sustainable ‘green’ jobs, energy-efficient consumption patterns, and new approaches to international trade and development. Action for sustainability, if it is to embrace social justice, must also challenge the interests and power of the dominant political and economic institutions. Environmental ‘fine-tuning’, driven by economic instruments that work through market processes, will not suffice. Market-based economic incentives, Garnaut-style, are more about sustaining capitalism as an economic system than about sustaining a planet on which we can live in reasonable harmony with nature.

Still in shock at the ALP’s audacious handout to the nation’s biggest polluters, we thought it time to broach a few of the details hidden within the 824 page Carbon Pollution Reduction Scheme (CPRS) White Paper.

Billions of dollars of the commons is proposed to be given away by the climate scheme. Permanent and inalienable carbon permits will be handed over to the biggest polluters if it passes both houses of parliament. These do not expire. Five year windows have been announced where ’4 year vintages’ of the proceeding trading period permits are sold, presumably in tranches.

If the rapidly melting permafrost demands a drastic reduction in carbon permits, the taxpayer will have to compensate the polluters in buying those permits back. However, even then a case could be mounted in the courts to delay this.

Pricing Undermined

The CPRS relies on the pricing system to reduce outputs. However, the pricing system will be undermined by the ability to import carbon permits from international markets.

The international market will be flooded with permits, as world wide the development of carbon sinks has been growing but the purchasers are yet to come online. Australia will be one of the first carbon markets with a viable demand for carbon permits.

This will ensure that the carbon price will be low, threatening the viability of the system and risking the need for buybacks from polluters.

One wonders about the credibility of foreign permits that may not undergo the same levels of compliance in terms of qualitative property rights. A preliminary vetting of international permits has been announced, but one wonders how stringent this will be. Consider the example of a smokestack lobbyist owning a forest in PNG (probably bought for next to nothing). One can imagine it will not take them long to receive approval to import carbon credits from ‘their’ forest.

All this and more with $3.9bn in hard cash handed over to polluters with no strings attached. Over two thirds of the heavy polluters’ permits will be grandfathered in the first 5 year period.

What must be asked is whether we can expect polluters to billow their pollution quantities over the next few years as they attempt to prove they deserve “x” amount of carbon permits in handouts. Perhaps the ensuing carbon administration ‘will be learning’ so they can fudge these figures.

One must ask whether we learnt anything from the grandfathering of the European Trading system?

And to think the white paper quotes:

This was echoed by BP Australia:
A well-functioning market and its resulting forward carbon price expectations is a particular need in the oil & gas sector, with its long development timelines and requirements of significant upfront capital investment. (Submission 355, p. 6)

How will plummeting carbon prices during the first 5 year free for all, contrasted with rapidly escalating cases of extreme weather, hold true to long term ‘developmental timelines’? This contradiction in behaviours will only serve to undermine the system as weather patterns devolve.

Speculative Playground

The playing field has been arranged so that a speculative playground is possible. The unlimited banking of permits, the security of property rights plus the ability for foreign ownership of our carbon permits will ensure middlemen manufacture capital gains at the expense of the market. The absence of holding charges on these ever more valuable permits is of great concern. If speculation is harmful to our objectives, we will face no option but to compensate those middlemen and buy them out to enable reform.

Of particular danger is the possibility that polluters could play the market, using the speculative profits to offset the costs of purchasing more permits, just like Enron and others have done in the past.

Necessary Reforms

Under an ETS (Emissions Trading System), if carbon permits are re-sold, the secondary market could be charged a holding cost for these permits, ushering speculators out of the market.

However, why have millions of transactions amongst the people, when we could go upstream to the source of the pollution with a carbon tax and ensure that the 1000 or so major emitters pay the majority of the polluting costs? Then polluters deal with the compliance directly.

A carbon tax is much easier to administer.

A carbon tax sees the government earn revenue, whereas the ETS sees middle men and industry take the profit. This is magnified when so many permits are given away or can be imported. A carbon tax could be revenue neutral such that company taxes are reduced at a similar rate. Alternatively, the GST could be reduced as many large companies only pay 3% of the 30% in company tax they are expected to contribute (due to the prevalence of tax loopholes).

The government’s white paper says that not enough is understood between the inverse behaviour of pollution and pricing to rely on a carbon tax. With the fate of the planet in peril, one would hope the government would be willing to be conservative and understate its tax impacts. If we do cut back more on pollution than expected, then that helps future generations. This danger is nothing like the loopholes that the ETS allows. Any family or business doing the right thing by investing in solar power is simply subsidising the price of carbon for polluters. This would not happen under a carbon tax.

Under the ETS, one way to avoid the ‘solar panels subsidising polluters’ side-effect is for any clean energy development to trigger a reduction in carbon permits equivalent to the carbon savings such renewables deliver. This will be an administrative challenge. it will also be a legal challenge as any such move threatens the property rights of polluters.

Neither an ETS or a carbon tax is enough on its own to deal with the monumental challenges of sustainability and affordability. Still needed is a holistic approach to climate change from an economic perspective. We desperately need the most accurate economic tools on our side. The planet is demanding urban density, self funding public transport/ infrastructure and more time to slow down and live a sustainable life. A green tax shift off our labour and incomes and onto natural resources can ensure this happens. Tax efficiency, affordability and sustainability are then harmonious.

Tohm Curtis continues his slightly sarcastic journey into the underpinnings of economics

Okay in Lesson 1, I concluded with the not so startling revelation that the economy was ultimately limited by the external environment or reality. Economics is a science because it’s constrained by reality, and hence people use observations to make predictions on how the natural environment will behave.

But so too is physics, mathematics etc. Lets go further now and look at economics as the study of decisions and what makes a good or bad decision. What is the result of a good decision?

Profits – Doing More with Less:

I’m from a business school and thus naturally in my mind, the result of a good decision is profit. Don’t let that turn you off as an activist though. Hopefully you would agree that profit occurs as a result of a decision where our return exceeds the cost of making that decision. The cost – benefit analysis.

So the recipe for profit is efficiency, in every manifestation in the corporate world, the business world, in trade, in economics, profit is derived from doing more with less. Sometimes it is getting more of the customers’ money, for the same product, then you are using your customers efficiently. Or it is from selling the same product to new customers, instead of developing new products which are expensive. Or it is from reducing your product and selling it at the same price.

Staff cutbacks intend to deliver the same product using less staff. They are trying to gain a greater return from their investment in wages.

Wanting Less Now, and More Later:

Imagine some cave person. Their aim in life is simple; eat enough to live long enough to reproduce. Maybe they are trying to choreograph a dance masterpiece in their lifetime, but let’s keep it simple.

This cave person has access to a stream with a bunch of fish in it, and they also have access to a sharp stick. The cave-person can skewer a fish out of the stream and eat it.

Simply put, the cave-person made a good decision to skewer the fish, because they profited in terms of energy, the fish they caught provided more energy than was expended catching the fish.

What if they caught 7 fish? At some point presumably they would have a surplus. They couldn’t eat all the fish they caught. So not only is the energy expended catching that surplus fish wasted, imagine if the dead fish spoiled overnight. If left in the stream it would stay fresh and be eaten tomorrow when it was useful/profitable to do so.

Cave-person in the Corporate World:

So in the above example the cave-person attempted to consume what it wanted, which unfortunately was not only more than it needed, but more than it could consume. Bad, inefficient decision.

Imagine though that that cave-person is now head of a big company listed on the share market. It makes $1 million dollars of profits, and the cave-person or CEO has to decide whether to pay out all these profits and make the shareholders happy now, or reinvest these profits to make shareholders happier in the future. Does it want more today or more tomorrow?

Same for any wage earner, do you save your money to consume another day, letting it accumulate into a big pile you can roll around in naked, or do you go out today and drink it all? Do you want your money more today or more tomorrow?

Under-consumption for Activists:

Thus we establish the basic criteria for good vs bad economic decisions, and by extension good vs bad policy. Paying attention to the fact that policy is a piece of paper that dictates what decisions are to be made in what circumstances.

For example, I, a rebellious youth, often jaywalk. But I have a policy when very drunk to ALWAYS wait for the green man before crossing the street, often mumbling ‘green-man, green-man, green-man’ to myself. …back to the mythical criteria. Since we live forwards and not backwards, we generally should take good economic decisions to be those that will make our lives easier in the future or long term and bad decisions to be those that make life harder, period. There’s a quasi middle ground that muddies up the issues and allows defenders of lies, injustice and stupidity to get away with sounding like they know stuff about economics. This grey area is called the short term. A decision can look good in the short term, but be bad in the long term.

To avoid confusion, let me be clear, a decision fitting the above criteria is a bad decision. It is inefficient.

Homework exercise 2: Short Essay Competition

Why in Australian society do people need to pay for gym, in order to lose weight gained from eating food they also paid for? Are they efficient consumers? Think about it.

photo credit: mhalon

as according to Tohm Curtis

a new series outlining why Economic Rehab is crucial

What does ‘Economics’ mean…there’s some confusion as to whether it is a science or a philosophy? Wikipedia can provide some insight into the history of economics. I think though that maybe the simple starting point is:

Economics is the study of reality.

Okay so what do I mean when I say Economics is a study of reality? What I mean is that this is really what makes it a science. I would say the exact same thing of Physics, I would say the exact same thing of Mathematics. Bertrand Russell incidentally said ‘Pure mathematics consists entirely of assertions to the effect that, if such and such a proposition is true of anything, then such and such another proposition is true of that thing.’

In Physics this means Isaac Newton’s description of gravity as any two masses exerting a constantly attracting force on each other is true. That is what happens in reality. For Physics to work, you can’t have a law of gravity that has exceptions. A theoretical world where some people fall towards the earth and other people float up into the sky would not hold as science. The laws have to conform to reality. They must be based on observations of things that happen.

Economics supposedly represents a scientific reality. Just we seem to get surprised in Economics much more regularly than we do in Physics or Mathematics.

When Richard Dawkins talks about the difference between religion and science. He says that a science is capable of accepting that if you go your whole life believing one thing and then are presented with evidence to the contrary, the scientist accepts the new contrary position. Once the evidence has been peer reviewed, the new evidence is what is taught from then on.

However, he suggests a religion is something that holds its truths to be absolute and rejects any new evidence no matter how compelling.

So you can’t just have an ‘Economic Theory’ that doesn’t conform to reality. Because reality places constraints on what Economic Theory can be. Economics, as the study of the management of the household, is challenged by the reality of scarcity.

Both are wedge issues that CEO’s are making the most of as they nervously await their next round of share option bonuses. “If these wedge issues continue I will be able to cash out in time and retire with some real wedge of my own!” Rational beings cannot expect all 193 countries to agree on a trading system within the next 2 – 3 years. However, decisive, unilateral action is needed immediately and PM Rudd should be commended for showing this.

It was pleasing to hear Garnaut comment that if too many industries put their hand out, then a Carbon Tax will be preferred. We strongly support a Carbon Tax over an ETS. Then no industry can pay others so they can pollute (what an ETS allows by default). No speculators can distort the market. Little delay is required to implement it.

When property rights are created, a great danger lurks within an ETS in that speculative middlemen will seep into the market, snapping up carbon permits and enforcing scarcity onto the marketplace. This will force the price of carbon, and thus of related inputs, higher and higher. This in turn will undermine the ETS and possibly return us back to square one.

We can see this occurring after just the first 12 months of the ETS, with prices jumping higher than they should and the disadvantaged screaming. Investment banks will applaud the system whilst bank rolling new ski trips to Aspen. The ALP will announce another inquiry. Economic theory will be avoided yet again in preference for another piecemeal system that favours rent seekers over the productive economy.

A number of searches through the 586 page Garnaut report, jokingly subtitled No Pain, No Rain, fails to reveal any definition on the lifespan of each permit. The longer the time frame, the greater room for speculators to extort the market.

This could be avoided. A holding charge must be placed on all carbon permits. From this we can use our knowledge of Georgism to analyse how far we take it. Should the holding charge be placed only on those permits sold during the trading period? This would act like a Mill Tax, where any increase in the re-sale value is rightly captured by the government on behalf of the people. We must remember that we are not privatising the sky for the benefit of investment bankers and their speculative clients. Carbon is part of the Global Commons we were all lucky enough to inherit as our birthright.

Should we place a holding charge on all permits, this would inflate the price of carbon but deter speculators from even thinking about it. The extra revenue raised could be used to fund the abolition of payroll tax, indirect taxes like the GST or income taxes on lower incomes. This tax shifting would assist in keeping the prices of goods steady.

Looking at the big picture, the ETS is just the beginning of the Resource Rental system we are inevitably moving towards. The ability for behaviour to change is difficult when we are still paying more than any other generation for housing. The hours spent at work to pay the mortgage make it hard to remember the green shopping bags, let alone cycle or walk to the shops. The land banking speculators are forcing the sprawl further and further into the greenfields that should be soaking up our carbon. Our worldwide infrastructure deficit (ie lack of public transport, ageing transport, lack of affordable hospitals) sees society trapped in it’s ability to adapt to the looming climate shift. A Resource Rental system can alleviate these pressures by correcting the leakages prevalent in today’s post-autistic economic framework.

It’s only a matter of time before the content of these pages becomes vital for the survival of all living beings on planet earth.