Contents:
Topics and introductions from new attendees
Currency trade and the Tobin Tax
Difficulties with oil extraction
Policy implications, and current policy
Attending : Paul D, Victor, Fred, Richard B, James, Aaron, David B, Myself, Pauline, Steve, Ian W, Shireen, Aston, Norma, Lionel, Mark, Damian, Graham (late)
Apologies : Brad, Richard M, Chris, Emma, Anne P, Michele, Susannah, Soraya, Paolo, Hugh
Usual qualifiers. My own memory; my own interpretation; my own additions after the event (lots!); intended to be politically broad - any bias a function of those attending - and any links with party affiliations an endorsement that the content may be interesting, not of the party; and so on ...
Ian Woolf : The Federal Government are changing the scheme for disabled pensioners so that they need to go to a regional office. Aaron noted that medical specialists move around to local hospitals to make it more convenient for patients. David wondered if it was intended to make life more difficult for pensioners.
Steve, of Speakers in the Domain, noted "Tell Me No Lies" by John Pilger, on investigative journalism; I wondered how many noxious things are happening at any given time, and how many get uncovered.
Lionel from the Economic Reform Association was particularly concerned about the environment and greenhouse effect - we discussed this in more detail later on.
Fred, longtime member of the Humanists, felt that if we could separate religion from politics and assess problems objectively we'd have a better chance with them. I observed that there were religious people who believed in the separation of church and state; they were noted in a recent documentary on the US religious right. David (?) noted that the separation of Church and State in the US constitution was originally intended to stop the State from meddling in the Church - while now the concern is the other way round, with the constitution used to prevent such influence from the church.
Aaron, involved in writing trading software, was concerned that people's happiness is related separately to economics, and that people were more concerned to earn more money than others than to actually be in a better position themselves - a study showed that (from memory) people would rather be earning 30,000 and more than their colleagues than 100,000 and less than their colleagues - a lot of what we derive from wealth is no so much the benefits themselves as knowledge that we have more wealth than someone else.
Norma, also of ERA, suggested we could get by on a a much lower consumption of resources. We noted that wealth does not correlate strongly with happiness - what makes us happy is something else.
Pauline, ex-deputy mayor of Canada Bay amongst other things was also involved in Action for World Development, which was wound down by the government because it said a lot of things critical of the government.
Damian, involved in antique auctions and previously Greenpeace, was concerned about nuclear power, saying that civilian nuclear power was prone to being put to military ends. David noted that most nuclear accidents were through testing the safety systems. Damian criticised nuclear waste processing techniques, saying that the glass encasement process would be prone to corrosion over 5,000 years through radiation. Aaron wondered if something radioactive over that time would put out that much radiation per hour. The Synroc process was brought up, and there was the question whether it has been used. Ian later asserted that the Synroc process was much less susceptible to the long term corrosion seen in glass.
Mark worked in business support and was pleased that he was amongst a group of strangers he did not have to sell anything to. He was intrigued at the change the chef Jamie Oliver was able to make in UK school food, and wondered how long the problem had been there, with a celebrity needed to prompt change. Victor noted that ministers may at times be ignorant, he remembered telling a minister something about English as a second language in schools, and it was news to the minister.
Shireen, water resource engineer and past Greens candidate for Lowe, now doing a masters in journalism, and was concerned about resource use and the role of media in informing our democracy.
Victor was originally concerned about the lack of detail being expressed, but declined my offer that he not speak at all. Some of the material he spoke on was in a pdf document attached to the list posting of 22nd April.
Victor's concern was about talking about general principles as compared to getting to details, and had mixed feelings about making his presentation given the lack detail which had been expressed. He declined my offer to not deliver his presentation, however.
Victor considered examples of problems with the economy, and of how he thought some commentators, for example, Gittins, went past the usual political biases and were looking at things objectively - looking at things objectively was a challenge, and definitely worthwhile. There was some discussion of policy choices for inflation.
I said it was worthwhile to talk in principles - something could be bad because it was a bad thing to do, not because of the result; we can debate the result as a separate issue. For example, we can say that patents on life are a bad thing, as a matter of principle; but we can reflect on how the current patenting scheme does not give credit to the current custodians of third world biodiversity (of course, they just happen to be there - but its not like first world firms have a superior moral claim, either).
James noted inflation had three sources : in terms of population growth, increasing demand for goods, in terms of the supply of money (I think). He's been reading a book which included some historical analysis. When more gold came into circulation, for example, it caused inflation as more money sought the same goods. The value of gold was not maintained merely because it was shiny - rather it was important for it to be scarce.
David looked at a balance between goods and services on the one hand, and the money around to pay for them. Goods sold had to equal the money paid, which was a combination of prices, money in circulation (how rapidly money changes hands) and the velocity of circulation. If, for example, the velocity of circulation grew more than the supply of goods and services, we have inflation.
There is deflation as compared to inflation. During the economically depressed period in Germany after the Great War, deflation encouraged people to hold onto their dollars in the expectation it would buy more next week or the week after. Because people did not spend their money, it damaged the economy and was something of a vicious circle.
Interestingly, we don't seem to have inflation in barter. Money tends to move; goods can be on-sold, but they may remain in use or be consumed and disappear. Some things are "generated", others are merely transferred. For instance, labour is generated "from nothing" as it were; fruit is generated initially in an orchard, after which it is sold till it is consumed and vanishes.
In a barter system people usually don't barter directly for their labour, but rather products of their labour. "Barter prices" might change if there are unequal quantities of goods being bartered - particularly so if the goods are perishable and/or the seller really wants something on offer. But normally people only produce goods as the demand for them is apparent - there are self corrective effects. We might have "barter price" fluctuations, but this is different to the general price rise in money inflation. While bartering is naturally self correcting, I wonder if our monetary system obliges production to continue once it is started, and provides for "stored" value in dollars, where this stored value can vary in its appeal - but bartered goods are only valued when they are exchanged. I'm not sure I've gotten to the heart of it, but I find it an intriguing contrast.
There's the Government's reduction of apprenticeships. David noted the Federal Government claimed it was a state responsibility - but, equally, the Federal Government had the money, and this sort of problem was going to recur as long as we had State Governments - and hence, getting rid of State Governments would be a good idea.
James has previously said this was the result of the incentives directors have to look short term rather than long term. David thought companies had an incentive to leave the training of apprentices to other firms - hope that someone else would take responsibility for it other than themselves. This is the "free rider" problem written about by Gittins in the SMH on 23 April - some services are "non-excludable", in that if you provide it, you can't prevent others from taking advantage of it, so there's little incentive to take on the burden yourself. Defence is the typical example, but obviously apprenticeships are another. Its a reason why we have government and taxes - the taxes force people to provide for such common goods.
This brought up the issue of funding for infrastructure. Norma suggested that the Government should be able to fund infrastructure through printing money rather than loans, given that banks create money through their activity anyway; during the war the government had access to cheap loans through the commonwealth bank - but would nowadays have to make private borrowing. During war, more products are taken out of circulation rather than on-sold - ammunition and produce lost in war - and so you would tend to have inflation, with money chasing fewer goods. But, Aaron noted that war bonds took money out of circulation.
Which is worse, private loans or government loans ? James noted that the head of the reserve bank, Ian Macfarlan answered a minister's suggestion that private debt was good but government debt bad with the counter that government debt rarely went into sustaining bubbles.
(Lee Rhiannon writes at : www.lee.greens.org.au/blog/2005/050311_policyrut.htm )
How independent should the Reserve bank be ? Aaron noted that if the bank was the slave of government, world markets would react badly. Is it bad for the other directors of the bank to defer to the Governor ? I thought this better than them pursuing their own interests.
There was some discussion of the US Reserve bank; some claims that it was a private institution - James said a lot of Government reserve banks and institutions became private companies under suspicious circumstances. Greenspan was said to survive several administrations, because to be nominated for a position, both parties had to approve - so nominations were less likely to be party stooges.
There's the handling of monopolies, with the Government getting it wrong with the airports and having people involved with monopolies in charge of committees looking into monopolies.
Should the government privatise ? Should the Government own its property ? One line of thought (Aaron) is that if the Government sells its property and rents it back, it can use the different to support improved services in the meantime. However, often the government makes mistakes in these sort of endeavours - for example the charges at the privatised Sydney airport are the highest in the world - but the government contract did not limit charges. Was this the government making a balls-up, or was it corruption ? James suggested that in many cases we do have outright corruption.
We discussed the idea of private industry building infrastructure (like tollways) and returning it to the public after a period of time. This has problems when the Government has guaranteed the private company a revenue stream, particularly given the fact that private motor vehicle use may decline (see the stuff on oil and resources later); regardless it seems stupid to me - the Government risks an uncertain future for short term benefit. David noted that having infrastructure pass to public ownership means the company has an incentive to let maintenance slide towards the end of the private ownership period.
Why have companies been getting into infrastructure ? Some suggested it was very lucrative, but there was the Airport Rail Link. People noted it was really not that convenient for people with luggage, and connected places which were not really destinations.
Is the currency market stable, best left to itself, or inherently unstable, and worth intervening on ?
Aaaron felt it had a lot of self-correcting mechanisms which worked most of the time, but failures were events which, while rare, were of concern and prompted some sort of insurance.
David noted we'd be stuffed without these markets; but that's different to saying they're best left to themselves. He outlined his model for hedge points to stabilise currency values so importing and import-export firms were guaranteed reasonably stable currency (see posting 12 March). Aaron said that this would only work if the transactions were anonymous, so people couldn't observe the hedge operation; also, if whatever authority which put the hedges in place worked by predictable rules, someone would find a way to abuse them. A Soros-type individual could buy past all the hedges till the currency was finally "his". But, David thought the authority could be inscrutable to some degree.
Aaron noted the games which were played in markets, often because the corporate memory was too short. Oil platforms would be shut down "for maintenance" - but no maintenance took place - the objective was to start up the oil rig at a later time to increase profits from hedges. Indeed, its claimed that to have a stock market crash, you need enough people who have forgotten the crash of the last bubble in order for another bubble to develop.
The Tobin tax was noted to reduce volatility slightly through a reduction in liquidity - but David found it difficult to believe it would prevent the problems of a rush on currency. Prices can change dramatically with very few trades. The Tobin tax would also permit the taxation of some of the funds flowing into and out of tax havens (an echo of the argument for GST).
But would be possible to implement a Tobin tax - be it on currency transactions or armaments sales - if one nation said it was not going to play ?
Originally the Tobin Tax was suggested as something to be used in "Development" - separately to other issues. Perhaps we could use it to buy off third world debt.
There was some discussion of Third World Debt - that we could consider some debt as "odious debt" - the money which was lent to third world despots - often just transferred to their Swiss bank account (James) - and which the citizens of a nation should not have foisted onto them. Forgiving / writing off such debt would give banks an incentive to make sure their debts were to good people for good reasons. James also suggested having different "types" (tranches) of debt, some which were to be paid back definitely, and others given that some economic undertaking delivered, and having an independent body to oversee and assess the nature of unpaid loans.
David noted that giving nations the expectation that their debts will be forgiven gives them an incentive to waste the money. Further, there's nothing to stop a nation from just refusing to pay back loans - though it could make future trade and loans difficult.
There is the notion of a looming oil shortage. Different projections are for oil production peaking between now and 2009, and going into decline thereafter. What will its effects be ? How readily will the economy adapt ?
David notes the following web page :
http://www.av8n.com/physics/energy-reserves.html
(Separately to the "world oil situation", James notes that Australia running out of oil will cause financial pressures on the balance of trade).
Its important to realise that oil is an input into much mobile transport. However, electricity (including electric trains) can be generated using coal. Some electricity can be generated using oil - and Richard noted that improving technology can provide increased efficiency which will delay the impact of the declining oil supply.
Oil is becoming more difficult to extract - Lionel talked about how you used to be able to extract about twenty five barrels of oil for the energy in one barrel of oil, and now its down to about seven. You need to worry about the reserve quality, not just their size.
Effectively, this ratio reduces the size of the reserve - if you need one barrel of oil to extract two barrels, the size of the reserve is halved - for a ratio of seven, its reduced to 86% of the original - for a ratio of 25, its reduced to 96% of the original (it also proportionately increases the pollution associated with each barrel of oil).
It makes no "energy" sense to extract a barrel of oil if it takes more energy than it provides. But, it might be worthwhile to use a fixed source of energy (eg nuclear electric) to extract the "transportable energy" which is oil (David B); also, oil is an important raw material for plastics, chemicals and pharmaceuticals, and it may be worth spending that extra energy.
However, I wonder what the energy costs of extraction are as a fraction of the pump price. A lot of the price could be the cost of running and maintaining an oil rig, refining and distribution costs. The oil rig "running energy cost" will be only be a part of this. Also, the price of petrol might increase not because it more expensive to extract, but rather because more people want the supply - this is the "scarcity price". The price at the pump will be some combination of the two.
You could view these price changes as the necessary factors to redirect the diminishing supply of oil to the activities in society which are more "necessary".
A web page which goes into some issues about oil (pushing a solar cell - solar energy viewpoint - but makes some interesting observations) is :
http://www.oilcrisis.com/apollo2/ises2000.htm
David has pointed to some web pages on this issue; one dealing with US oil consumption :
http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_market_basics/Dem_image_US_cons_prod.htm
And another looking at the world view (a pdf document) :
http://courses.eas.ualberta.ca/eas493/Class_17_World_energy_use_PDF.pdf
Its also possible to extract oil from shale oil and tar sands - but this is expensive and and has a higher environmental impact.
Another alternative is agricultural oil and alcohol - grain for alcohol, or canola oil (rapeseed oil as Aaron told us) as biodiesel, but probably more expensive than the current cost of oil.
We also have "generic" solar power. (agriculture is in a sense solar power, plants use sunshine.) Solar heaters can run turbines, or indeed solar cells - and the hot water systems on people's houses. My understanding is that solar cells are expensive (but people say they're getting better), their production is polluting and it would be a heluva task to produce the necessary solar cells - David's first website above talks about covering an area 250 miles square to provide the entire US energy demand ( The calculation does not consider a solar boiler - turbine generation system, which might be more efficient.).
Hydrogen helps us transport energy - we might for instance generate hydrogen at a solar power station from water and use it as a power source for vehicles - but it does not present an "original" source of energy.
What would this do ? We would probably get rid of private cars (initially expanding car pooling; motorcycles might also become advantageous), having "individual" cars for emergency services only. Transport would have to be pedestrian, cycle and public transport. Air travel would become something like the luxury item it was in the 60's. As goods might still have to be transported using vehicles, the price of goods would increase dramatically (a web site above notes that 7.5 calories of oil are embodied in every calorie of food produced by western industrial agriculture.) What is the proportion of oil used in trucking ? Victor has since pointed out the following web page :
http://www.aip.com.au/industry/fact_trans_fuels.htm
Diesel consumption is about 1/3 of road transport usage, which provides some indication of the truck usage; same cars in the UK use diesel, however.
David's "international" comparison above notes the following :
Oil consumption by sector (1998) Electric Utilities 1% Residential - Commercial 2% Industry 9% Transportation 88%
Oil Products Diesel fuel (7% of crude oil). Gasoline (45% of crude oil). Heating (25% of petroleum products). Engine grease (2% of petroleum products). Jet fuel (7% of petroleum products).
25% of jet fuel used by the military.
Trade between countries would become more expensive. One claim was that the amount of oil used in shipping was the same as the oil used by domestic cars in the US.
Equally, person power - trailers towed by cycles and similar - might become economic. How much will labour be worth compared to (a) food and (b) oil - based transport ?
However, there is the possibility that after a transition phase, it might be possible that we re-introduce personal vehicles (Aaron). This might be through agricultural oil and alcohol, shale oil and tar sands oil extraction, solar power stations generating hydrogen, fuel cells for cars and so forth. Fossil fuels have provided us with a lot of energy each year - would alternatives be able to provide a similar total quantity ? The "infrastructure costs" could be extreme, assuming we can imagine some on the scale which would provide for current needs - not to mention the changeover costs - as we move from (say) petrol stations to hydrogen stations - making going metric look trivial ! Still, its a possibility - if it is possible, the question is how long the gap will be between a decline in motor vehicle use and a significant increase.
Aaron pointed out that petrol companies would want to remain in business, and maximise profit. While "the world" may hit an oil crisis, the oil companies may see it differently - during much of the "oil crisis", there would be sufficient oil that they can maintain a profit. Its only a problem for them if : (a) alternatives mean the demand for oil drops to below their distribution capacity (even then, a 'crisis' only takes place when it drops below the point of _profitability_) or (b) their supply of oil drops to below the point at which their infrastructure can be profitable.
While the changeover cost of society may be considerable, oil companies may be able to move into the control of alternatives at their leisure. Not everything will be susceptible to their control - eg coal, wood and electricity - but they might take control of the distribution of biodiesel, alcohol and hydrogen - if we have something like the current "service stations", they'll have an advantage - they just have to make sure the service stations don't all close down during the gap.
How should we anticipate this future ? For sure, we should not be building infrastructure which depends on petroleum and cars as we know them. Building new developments around the motor car makes no sense when they should be built around public transport. I noted the Benefit-Cost analyses for Motorways have assumed that car usage will be the same as today - which is quite a mistake.
We're also aware of naive statements by the Minister for Roads, Costa, that "people like driving in cars" - Victor suggested that writing to Government to inform them if this would be a good idea. But the links below suggest Costa is negative and set in his ways.
brief article : www.envirotalk.com.au/forum/index.php?showtopic=3924
letter : www.smh.com.au/text/articles/2005/04/07/1112815665562.html
I've written a web page, more on issues to do with Georgism, but it also reflects on issues of Land Use and Transport, to some degree relevant to these issues (but perhaps I'll bring it up again separately), at :
http://arachid.apana.org.au/johna/george.html