Gina Rinehart on the future of mining and prosperity in Australia

Many in Australia may not like the way Gina Rinehart, the billionaire mining owner is going for Fairfax Media however, what she has to say about mining and the future prosperity is critical.

The latest data is showing that more and more businesses are going bust in the non-mining states like South Australia, Victoria and Sydney. And the carbon tax and mineral resource tax along with red tape and immigration issues will kill the mining states. Within no time Australian citizens may lose the wonderful life they have now. We cannot take these things for granted.

It seems too easily forgotten that people who know what it is to hire people – even thousands of Australians, also understand better than most what could prevent them from doing so. While I have many investment options in a globalised economy, the place where I most want to create sustainable jobs is Australia.

Yet others are increasingly feeling forced to make a different choice.

West Perth, where my offices are, for instance, is filled with companies investing in low-cost, highly resourced Africa.

Now the evidence is unarguable that Australia is indeed becoming too expensive and too uncompetitive to do export-oriented business (businesses that must sell their product in the world economy at world market, not Australian, prices). What was too readily argued as the self-interested complaints of a greedy few is now becoming the accepted truth, and, more ominously, is showing up in incontrovertible data.

ANDEV members and I have been voicing our concerns and warning about this over the last two years. What hurts business can devastate our already grossly in-debt nation.

Solar Force: the effect of Sun on the climate

A very well researched documentary on the plausible theory of how the sun effects climate change rather than CO2. For me, this kind of thinking is quite important. Irrespective of which theory is right we have to look at creating a better environment, diversifying our energy sources as a goal of national security, having a cleaner environment, and working towards managing the effect of climate change on the Earth.

 

However, what we should not do is let governments create carbon tax or carbon trading legislation which provides a lot more power in the hands of the government, more legislation and regulation and more chances to make mistake. Also, it provides more tax dollars to create special interest groups, for transfer of payments to influence voting and other ill effects of being part of a democracy.

 

 

 

Behaviour economics and welfare/stimulus payments

Business week has an interesting story on the role of designing policies based on behavioral economics. In short, behavioral economics suggests that people are not rational and that they will make decisions not entirely based on rational cost benefit analysis. Well, who knew.

The “making work pay” program in the US was designed to give people stimulus money in small additional payments to their salary and in theory they would have spent the money. What actually happened was that people did not see the small additional difference and saved the money. That by itself is not a bad consequence just that it does fit with the Keynesian stimulus economics.

What is interesting here is that in Australia it was the other way round. There is clear agreement here that lumpsum money is spent immediately on big ticket items. For example, Kevin Rudd when he was Prime Minister decided to give $900 in stimulus for most people and a lot more for families with children. There were stimulus ads everywhere for people to spend that money. And they spent.

Another example is the baby bonus. In Australia when we have a child the government provides $5000 as a baby bonus to families. What was observed that for some families that created a negative situation in how the money was spent. Now, the bonus is paid over 13 weeks and it seems to work better.

What I am not sure is how did the behavioral economists in the US came to the opposite conclusion for the spending of stimulus money?

Carbon emissions and basic algebra

When the countries around the world announced emission reductions, cuts, plans the media cheered. However, if we all did some basic algebra it would be different.

For example, the US announced its plans based on 2005 rather than the 1990 conventional numbers used in Kyoto. Why? Because US emissions grew a lot from 1990 to 2005 and reductions from a large base is easier. Australia is using 2000.  China uses 2005 and India another number. So every country is talking a different benchmark. So, we cannot actually compare.

May be we should GDP per capita as a benchmark.

On the second set of numbers.  US announced reduction in carbon emissions and China, India announced carbon intensity reductions. Both are as different as apples to oranges. But the press misses this. For an example check out the Ny Times. Just to clarify, I support the carbon intensity focus of the developing countries. My gripe is with media reporting.

Some good analysis from Matthew Khan,

I am happy to hear that China has pledged to reduce its carbon intensity by 40% by 2020 but does this guarantee a smaller global carbon footprint? Recall that carbon intensity = tons of CO2/GNP. China’s economy has been growing by 8% per year. Make the big assumption that this average growth rate will continue until 2020 and ignore compounding. So, in ten years their economy will be 80% bigger and their carbon intensity will be 40% lower than it is now. So, according to my logic relative to today, China’s total carbon emissions will be .6*80% or 48% higher. From Al Gore’s standpoint, is that progress? At the same time that President Obama is pledging a 20% reducing in CO2 emissions (under these growth assumptions), China’s government is pledging that their emissions will be 48% higher.

Carbon models and economic models

Don’t count on the economists to have a good “Computable General Equilibrium” model to yield valid estimates of how each nation’s economy will evolve in the presence of a carbon tax. If we introduced uncertainty into our models the confidence intervals would be huge. But today a group of economists are getting rich peddling their “scientific” models as truth in predicting very difficult policy counter-factuals.

The modern economics profession has made great progress estimating partial equilibrium relationships. See almost any NBER applied micro paper to get a taste of this. We have made much less progress on multi-sector dynamic general equilibrium models with endogenous innovation, irreversibilities, learning and uncertainty. Introduce all of these bells and whistles and you have the issue of climate change. Now economists like to be quoted and we are self confident but if we currently do not have good answers to policy questions should we follow the Nobel Laureate Robert Lucas and modestly say; “I don’t know”? If we follow this path, we are well aware that some bozo out there will fill our place offering the politicians an even sillier answer. So, we must pick our poison.

via Environmental and Urban Economics: Copenhagen and International Carbon Politics.

Copenhagen Prediction Market (COPPM)

Despite the general optimism in the lead-up to the conference, the chances of such deal still look to be at long odds. But if you want to play the climate change market, in the absence of our own ETS, there is a way. The UNSW Centre for Energy and Environmental Markets and legal firm Baker & McKenzie have set up a Copenhagen Predictions Market, in which participants using “experimental dollars” (E$s) can bet on a range of outcomes, such as deadlines for legally binding agreements, aggregate reduction targets, and the long term stabilisation target.

You can bet on an outcome of less than 10 per cent, between 10 and 15 per cent, between 15 per cent and 20 per cent, and so on. UNSW expects the price of these shares to vary as new information about negotiating positions becomes available. You can even bet on individual country reduction targets, including for Australia, and the design of REDD mechanisms (reducing emissions from deforestation and degradation) and the future of the CDM (clean development mechanism) market. There are no fees, and no real money at stake, but the three winners in each category will each get a prize.

via COPENHAGEN CALLING: Rudd’s cool reception – Giles Parkinson – News – Business Spectator.