Why Morrison is wrong on tax rates

Following up on last night’s post, let’s look at tonight’s budget. First off, that tax cut.

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Why Costello is wrong on tax rates

So… Peter Costello, one of the major contributors to the problems with the budget, is calling for income tax cuts. Apparently, the levels he left it at aren’t right anymore.

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Newman government to slash solar feed-in rebate

So the Newman government, in its latest attack on anything sensible, is slashing the feed-in rebate for solar power – from 44c a kilowatt/hour to a mere 8c kw/hr. This is an absolutely insane idea – crazy crazy crazy stuff.

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Non-religious grow in Australia

Cool. 2011 Census results are out! I love Census data – it’s always so interesting.

As a militant atheist, though, the first thing I checked out was the religious affiliation breakdown. Great news: we’re continuing our advance.

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Eternal Growth Is Not Sustainable

We live in a world where economic growth has been amazing – in historical terms – for well over a century. The poorest people of the world today live in better conditions and with better health than the 90%-tile of 500 years ago. Today’s middle class live a luxurious life by contrast to even the 99%-tile of 200 years ago. The economic growth seen in the West has really lifted all boats – some a lot more than others, but nobody has gotten worse in the long term.

And we’ve done that despite the fact that the net exports of the world are precisely zero. 😉

Since the peak of 1929 (pre-crash) to the bottom point of the current GFC, the US sustained average growth, per annum, of something like 3.4%. Measure it from the bottom of the 1929 crash to the peak of the pre-GFC bubble, and it’s a sustained average growth per annum of about 3.6%. That’s exponential growth for you – over 80 years, that very modest 3.4% produces a multiplier of 14.5. World economic growth has been even more impressive – World Bank data shows that over the last 40 years, world GDP has increased by an average of 7.9%, for a multiplier of 21 times. (Both numbers, BTW, have been adjusted for inflation)

By contrast, world population since 1929 hasn’t even grown by a factor of 4. World population in 1929 is estimated at being a little over 2 billion; at the time of writing, current world population is a bit over 7 billion. So the last century has been all about sustained economic growth that significantly outpaced population growth. It’s something that has never been seen on a global scale.

Also, once this phase ends (in about 5-20 years, once China and India have caught up), it will probably be never seen again. We’ve hit a limit to economic growth – increasing cost of resources and increasing cost of energy. There’s also a demographic problem – the rate of growth of the population is declining, and is projected to peak, globally, about 2050 (at 9 billion people), and then slide down. For the working-age population, this is already happening in Japan, is just starting in Europe, and will hit the US (and Australia) in about 5 years time. So we will need economic growth – which, at the end of the day, really means more output per person – just to break even in the near future.

There’s also a distribution problem – most of the energy is used by few of the people. 20% of the world – what we call “the West” – use 50% of the energy. The next 20% – mainly China and India – use 25%; their energy demands are expected to double over the next 20 years to match the West. The remaining 60% of the world uses less than 25% of the energy – or about 1/8th, per person, of the typical Westerner. That’s going to grow as well – because people want washing machines. Giving the bottom 60% access to clean water and washing machines will double their energy usage.

All this means is that there is a huge pent up demand for energy. As the economic bonanza of the last century spreads out – and the Rest-Of-The-World had faster growth in the last 40 years than the West had in the last 80! – energy costs are increasingly going to become the bottleneck. There is a global energy budget wether we like it or not.

At some point – and that point will happen within the likely lifetime of anyone reading this – global energy use per person will have to go down. In the West, it’s going to have to go way down. I’m not just talking about what shows up on the electricity bill – all energy; transportation, manufacturing, food production, etc. We do not have the energy budget to bring all of the world even up to the level of China. We might have the budget to if we bring the West down to the level of China. But China is trying to get to our level!

We can’t grow forever. The law of large numbers shows that it is impossible – just ask the merchant who agreed to pay his clerk a dollar on the first day, doubling every day afterwards for a month. (It was a good deal for the first week – only $255 for a week! – but on the last day, the clerk was owed over a billion dollars). At a point not very far away, it becomes a violation of the laws of physics to keep growing.

We need to change our measures of the economy. Instead of focusing on raw growth, we need to focus on some other measures – growth per person (with the goal of keeping this near 1:1, so we’re not going backwards), energy use per person (goal: down!), and production per energy unit (goal: up). We can’t grow see growth per person go up simply by increasing energy use – anymore than we can continue to see spending per person go up simply by increasing debt.

(All this is independent of the need to shift to carbon-free energy sources due to the need to fight climate change, BTW – that’s a whole other topic. The only relevant point of that is we can expect costs per energy unit to go up even more)

A world where economic growth is less important than curtailing energy growth is going to be different. Much of the current economic activity is wasteful of energy. For example, digging iron and coal out of the ground in Australia, shipping it to China, smelting it into steel, and shipping that back to Australia is wasteful. Shipping that steel to Australia to turn it to cars to ship to Europe is even more wasteful. Heck, shipping the raw materials to China is wasteful even if the steel is used in China!

Consumption is wasteful. We make a lot of goods today with built-in obsolescence. Computers aren’t one of those, BTW – they rapidly improve, and become replaceable before they wear out. But we know how to make a good robust car that lasts 30 years with minimal maintenance – cars that break down the day after the warranty expires will need to go.

Debt is wasteful. The economics of “good debt” is that you borrow to invest, so that you can grow faster than the interest rate, and make a profit. If you’re not growing – esp. as a society – you can’t make the “good debt” model work. (Nothing makes the “bad debt” model – where the money is used without economic benefit to the debtor – work)

Tourism is wasteful. Business travel is wasteful. Going long distances is a huge energy hit.

Speed is wasteful. Having a non-perishable luxury item delivered by air instead of ship/train is a massive energy hit. Expect freight costs to soar.

Books are wasteful. Which is a a shame. I like books.

(For more on what a world without growth could look like, see the latest post by Do The Math. Heck, see all his posts)

Bottom line: we need to change our thinking. We need to stop selling the line that growth is good. We need to stop trying to solve our economic problems – esp. debt and inequality – via growth. It can’t be done. It’s time to look for something else. Tell your politicians. Tell your fellow voters.

Why I don’t like government subsidy of private education

Because, as shown in the Gonski report (and reported on the excellent Global Mail), it’s not effective.

Private schools perform better than state schools because they cherry-pick students – by and large, they reject problem students or students with higher educational needs. This gives them a more capable student base – so naturally they will receive higher scores on average. But that’s not a good measure – the correct measure is how well do those students improve, compared to similar students in the state system. Thanks to longitudinal studies such as the NAPLAN tests, we have an answer – students in the private system, on average, demonstrate no significant difference in performance. All that money – both public funding and the fees levied on parents – tossed away for no benefit over state schools.

(Yes, there are some schools that do cater to students who are educationally difficult – Montessori schools in particular are known for this. But they aren’t the rule in private schools – most private schools pride themselves on strict discipline and regimen – the opposite of a Montessori school)

I showed in an earlier post that the Catholic school system costs three times as much per student (by their own figures, taken from the website for the NSW Catholic Schools association). But it doesn’t deliver any additional value, let alone three times as much. While, as a nation, we should allow private education for those who insist on it, there isn’t any reason to toss public money on an inefficient system.

We, as a country, are literally pissing away the future by underinvesting and incorrectly investing in the education of our children. Instead of subsidising private education, how about we ensure that the public system provides good education for all students?