Rudd makes political mileage out of financial crisis

Self-proclaimed economic conservative, Kevin Rudd, is economical with the truth in the explanation he gives for the global financial crisis. Rudd sanctimoniously gave his version of history in a speech last year:

Mortgage salespeople preyed on the aspirations of vulnerable families, soliciting them to take out home loans. Lenders confused working-class people, non-English-speaking families and first-time borrowers with hidden fees, ratchet interest rates and confusing repayment terms. Predatory financiers inflated borrowers' income and overstated their ability to pay back a loan.

These were the most obvious manifestations of the culture of greed and short-termism that pervaded large parts of the US financial sector. This culture was never challenged by a political and economic ideology of extreme capitalism. And this crisis bears the fingerprints of the extreme free-market ideologues who influence much of the neo-liberal economic elite, free-market ideologues who have a naive belief that unrestrained markets are always self-correcting and that markets left to themselves will always achieve optimum outcomes. Ideologues who believe that any regulation of private business is fundamentally wrong.

The truth is that it was misguided regulation rather than lack of regulation that was behind the lax lending standards which fuelled the housing bubble. The US government implemented a series of reforms that weakened lending standards with the aim of increasing home ownership among the poor and ethnic minorities. Lenders were compelled to give mortgages to borrowers on low incomes to satisfy regulations that were imposed by the Community Reinvestment Act (CRA). The government-sponsored enterprises (GSEs), namely Fannie Mae and Freddie Mac, had to meet "affordable housing goals" under the 1992 Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) by purchasing a certain percentage of mortgages for low and moderate income borrowers and those living in "underserved" areas.

Rudd's ideological posturing has not gone without criticism. Sinclair Davidson, Professor in the School of Economics, Finance and Marketing at RMIT and a Senior Fellow at the Institute of Public Affairs, gave his thoughts on Rudd's anti-capitalist remarks in an opinion piece that was published in The Advocate:

There really is nothing new under the sun. So too with the current financial crisis. But moralists are making hay while the sun shines. Prime Minister Kevin Rudd has blamed the financial crisis on 'extreme free market ideologues' who have 'resisted the regulation of financial markets.'

In contrast to what Kevin Rudd has argued it is a failure of regulatory capitalism. The causes of the current crisis are not 'greed and fear'; but rather the unintended consequences of do-gooders, bureaucratic intervention, and anti-capitalistic prejudice.

Rudd intends to continue with his campaign to ideologically indoctrinate Australians using the global financial crisis as an example of a failure of capitalism. While Australians are losing their jobs, Rudd has been writing a 7,000 word essay calling for greater government intervention in financial markets, even though he agrees that our financial system is among the most well regulated in the world.

IMF on the composition of stimulus packages

Contrary to the claims being made by the Federal Treasurer, the IMF is not advising against the inclusion of tax cuts in fiscal stimulus packages. The following is stated in the executive summary of an IMF staff position note titled Fiscal Policy for the Crisis:

Looking at the content of the fiscal package, in the current circumstances, spending increases, and targeted tax cuts and transfers, are likely to have the highest multipliers.

Olivier Blanchard, Economic Counsellor and Director of the Research Department, and Carlo Cottarelli, Director of the Fiscal Affairs Department, gave their views on this issue in an article published in IMFSurvey Magazine. They recommend that tax cuts be targeted at consumers who are credit constrained. Blanchard states:

Consumers who are credit constrained are likely to spend any extra money derived from a lower tax bill.

Cottarelli also mentions the importance of diversity in the composition of stimulus packages:

Given the complexity of this crisis, policymakers have to recognize that there is an unusual degree of uncertainty about the impact of specific policies. Thus, they should not put all their fiscal eggs in just one basket, and the right package probably includes a mix of different policies.

Layoff trackers tally the carnage

Corporate razor gangs have been working overtime as the global slowdown takes grip on the real economy. The gravity of the crisis became clear to the world in September and October of 2008 with the collapse of many major financial institutions and the crash of the stock market, and since then many companies have moved to downsize their workforce.

The mass layoffs we are witnessing are just the beginning of the global slowdown and we can expect them to continue for quite a while. Steve Ballmer, CEO of Microsoft, which just announced cuts of 5,000 to its workforce, offered his thoughts on what lies ahead:

We're certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy.

A few pages tracking the mounting layoffs have appeared on the Web:

Layoff Tracker — Forbes.com
Tech layoffs: The scorecard — CNET News
The Wired.Com Tech Layoff Tracker — Wired.Com
TechCrunch Layoff Tracker — TechCrunch
Vault Layoff Tracker — Vault

Forbes.com is also giving a weekly layoff report:

The Weekly Layoff Report: Jan. 23, 2009
The Weekly Layoff Report: Jan. 16, 2009
The Weekly Layoff Report: Jan. 9, 2009

Recently announced mass layoffs include:

Citigroup — 52,000
Bank of America — 35,000
Circuit City — 34,000 (bankrupt)
Woolworths Group — 27,000 (under administration)
Hon Hai — 20,000
Rio Tinto — 14,000
Alcoa — 13,500
AT&T — 12,000
BT Group — 10,000
Dell — 8,900
Sony Corporation — 8,000
TDK — 8,000
BHP Billiton — 6,000
Sun Microsystems — 6,000
Intel — 5,000-6,000
Credit Suisse — 5,300
Eaton Corp — 5,200
Dow Chemical — 5,000
Ericsson — 5,000
Laird — 5,000
Microsoft — 5,000
Stora Enso — 5,000

The cost for a simple meal in Zimbabwe

If you find all the doom and gloom about the world economy a bit depressing, spare a thought for the people of Zimbabwe, where inflation now runs at %11.2 million per annum, according to the CIA World Fact Book. Below is a receipt for a simple meal at a hotel in Zimbabwe, which came to a total of Z$1.2 billion.

Zimbabwe's economy lays in ruins after farms owned by whites were seized in a brutal land reform program. It now has an unemployment rate of 80% and a GDP per capita of US$200, the lowest in the world. The GDP per capita of Australia for 2008 was US$39,300.

Fact sheet: biosequestration

Fact sheet included in the Coalition's press release on its proposed Green Carbon Initiative.

What is it?

Biosequestration involves offsetting greenhouse gases by capturing and storing carbon in soil and plants. This includes restoring soil carbon through better land management; revegetation and reforestation; and biochar (converting biomass into charcoal, which can be fixed in soil).

Land Management

• According to the Garnaut Review, 70% of Australia is arid and semi-arid rangeland degraded by marginal grazing. Garnaut estimates approximately 50% of Australia’s 2006 CO2e emissions (approximately 576 million tonnes, or Mt) could be absorbed each year for the next 20-50 years by improved practices on Australian cropping and grazing lands, and by revegetation¹.
• According to scientist Dr Christine Jones an increase of 0.5% in soil carbon on 2% of Australia’s agricultural land would absorb a volume of CO2e exceeding Australia’s 2005 emissions².
• Steps to improve land management include changed practices for animal management and husbandry, select breeding, grazing techniques, fodder quality, and animal shelter. Improvements would enhance animal live-weight gains and abate greenhouse gases.

Revegetation

• CSIRO scientist Dr Phil Polglase estimates plantings to abate carbon emissions are profitable over 9.1M hectares of economically marginal low rainfall land at a carbon price of $20/tonne. Such plantings have potential to remove 143 Mt of CO2e each year – equal to approximately 25% of Australia’s 2006 emissions³.
• Forestry and revegetation are already partly recognized as carbon offsets under Kyoto.

Biochar

• Created by heating biomass in the absence of oxygen - a process called pyrolysis. Half the carbon is turned into biochar (charcoal) and fixed in soil. The other half is transformed into biofuels used to generate green energy.
• Advocates such as 2007 Australian of the Year Tim Flannery contend its widespread adoption could, over 20 years, remove the 200-250 Gt of carbon added to the atmosphere since 1850⁴.
• Resources firm Alumina estimates its existing pilot project⁵ can scale to offset 6 Mt of CO2e yearly. Alumina estimates total biochar potential of WA’s wheat belt at 25 Mt yearly, and total national potential at 100 Mt yearly – equal to approximately 17% of 2006 emissions.

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¹http://www.garnautreview.org.au/pdf/Garnaut_Chapter22.pdf
²http://www.soilcarboncredits.blogspot.com/
³http://www.afg.asn.au/resources/pdfs/AFG08/Session_3_B3_1.pdf
⁴http://beyondzeroemissions.org/2008/03/19/tim-flannery-australian-of-the-year-2007-talks-bio-char-why-we-need-to-move-into-the-renewable-age
⁵http://www.aluminalimited.com/index.php?s=about&ss=sustainability&p=risk_management#regulatoryRisk

Fact sheet: energy efficiency

Fact sheet included in the Coalition's press release on its proposed Green Carbon Initiative.

FACT SHEET: ENERGY EFFICIENCY

What is it?

Reducing energy use and greenhouse gas emissions from buildings by incorporating a variety of technologies and design features (such as passive heating/cooling) and retrofits (such as insulation).

• According to the Green Building Council of Australia, 97% of existing Australian buildings are too old to have been built with energy efficient features¹.
• Energy-efficient buildings have been cited as a major opportunity for low-cost (and often self-funding) carbon emissions abatement by respected climate change authorities and researchers including the United Nations IPCC, the Stern Report, the Garnaut Review², and McKinsey & Co³.
• Globally, the IPCC found that by 2030 about 30% of global projected greenhouse gas emissions from energy use in buildings can be avoided at minimal or zero economic cost.
• Locally, the Australian Sustainable Built Environment Council (ABSEC) estimates 27-31% of existing emissions from buildings can be abated at zero net cost - but the price signal contained in the Rudd Government’s CPRS will deliver less than one fifth this amount. ASBEC estimated by 2030 abatement of 60 Mt per year was achievable – about 11% of Australia’s 2006 emissions⁴.
• McKinsey & Co estimates the Australian building sector can, by 2020, achieve emission reductions close to 50 Mt of CO2e – about 8% of 2006 emissions.
• The Centre for International Economics estimates cuts of 39-45 Mt of CO2e can be achieved at a low cost (or net gain)⁵.
• Many green retrofit options are financially self-funding over time. Estimates for the payoff horizon for retrofitting an average existing building are in the 8-11 year range.
• Policy options to deliver gains from energy efficiency include:
  • Education campaigns to overcome information inefficiencies and alert building owners to the net economic savings from retrofits.
  • Accelerated depreciation for green retrofit expenditure.
  • Increased capital expenditure investment allowance for green capex.
  • Selective retrofit of existing government buildings.
  • Constructing new government buildings to Green Star standard.
  • Routine assessments of any regulatory burdens imposed on building owners, to ensure measures to encourage energy efficiency are not a drag on the economy.
• The Rudd Government has failed to so far provide a $500 rebate for the installation of insulation in rental properties - 18 months after it was first promised.

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¹ Green Building Council of Australia, the Dollars and Sense of Green Buildings 2008, found at http://www.aela.org.au/publications/Dollars_and_Sense.pdf
² The Garnaut Climate Change Review, found at http://www.garnautreview.org.au/index.htm
³ McKinsey & Co., An Australian Cost Curve for Greenhouse Gas Reduction, 2008 found at http://www.mckinsey.com/clientservice/ccsi/pdf/Australian_Cost_Curve_for_GHG_Reduction.pdf
⁴ http://www.asbec.asn.au/files/ASBEC%20CCTG%20Second%20Plank%20Report%202.0_0.pdf
⁵ “Building Energy Efficiency” CIE February 2008 at http://www.thecie.com.au/content/news/Final%20CIE_TPB_Perth%20(with%20animations).pdf

Coalition announces Green Carbon Initiative

Today I received a copy of the Coalition's press release on its proposed Green Carbon Initiative from Senator Mathias Cormann. A transcript of the speech delivered by Malcolm Turnbull, Leader of the Opposition, has been published on his website at the following URL:

http://www.malcolmturnbull.com.au/Pages/Article.aspx?ID=97941

This is a significant announcement that will put pressure on the Rudd Labor government to deliver more in its environmental policy. Many environmentally minded voters who fell for Kevin Rudd's pre-election rhetoric have been left bitterly disappointed by the Rudd Labor government's emissions targets.

Because the Coalition has delivered a superior but practical alternate policy vision, the Rudd Labor government must now justify its actions—wasting question time with irrelevant blather or giving unacceptable responses such as “this information is not publicly available” will not be good enough.

LEADER OF THE OPPOSITION
THE HON. MALCOLM TURNBULL MP
FEDERAL MEMBER FOR WENTWORTH

GREEN CARBON INITIATIVE

The Coalition has today committed to a sweeping climate change strategy that unlocks vast and currently untapped opportunities to abate Australia's greenhouse gas emissions.

The strategy would greatly broaden Australia's response to climate change well beyond the Rudd Government's narrow, costly and overly complex Emissions Trading Scheme. It would also deliver large gains in agricultural productivity, environmental quality and energy security.

“It is a plan that will create new jobs and new enterprises – without exporting our industries and emissions overseas,” said the Leader of the Opposition, Malcolm Turnbull.

“Our Green Carbon Initiative will ensure Australia is able to achieve greater reductions in carbon dioxide than those proposed by Mr Rudd, at relatively low cost and with enormous additional benefits to our own country's environment and productivity,” Mr Turnbull said.

“We will aim to achieve additional annual reductions of at least 150 million tonnes of carbon dioxide equivalent by 2020.”

Drawing on the advice of climate change experts from around the world, the plan focuses on three directions for abatement that have been virtually ignored by the Rudd Government:

• A Green Carbon Initiative to offset greenhouse gases by capturing and storing large quantities of carbon in soil and vegetation – ‘biosequestration’
• Measures to encourage improved energy efficiency in buildings, where 23% of all greenhouse gas emissions originate
• Increased investment in new technologies to address climate change – particularly clean coal, which is vitally important to the Australian economy

The Green Carbon Initiative includes commitments to restore soil carbon through better land management; to invest heavily in the revegetation and reforestation of the Australian landscape; and to pursue sequestration of large quantities of carbon via biochar (the conversion of biomass into charcoal, which can be fixed in soil).

Measures to encourage energy efficiency in the built environment are one of the lowest-cost opportunities for abatement – and often pay for themselves. But there are many obstacles to them being realised. The Rudd Government has ignored this area, making the cost to Australian families of cutting greenhouse gas emissions higher than it should be.

More broadly, the Rudd Government, in its haste to implement its poorly designed ETS, has neglected all alternative paths to a low carbon economy. Biochar, improved land management and much revegetation activity are all excluded from the proposed ETS.

“An ETS is not an end in itself,” said Mr Turnbull. “It is only part of the solution, one tool in the climate policy tool box, and, in fact, no solution at all without new energy sources and new low emission technologies.”

The Coalition will respond to the Rudd Government's proposed ETS at a subsequent date, after receiving its own economic modelling and reviewing the detailed legislation.

24 January 2009

Rumours about the future of Alcoa's Kwinana refinery

An atmosphere of gloom hangs over Alcoa's Kwinana refinery as rumours spread about the future of its alumina operations. The refinery has been in operation since 1963 and employs about a thousand personnel. The Western Australian refinery, located about 22 km south of Perth, produces about 2 million tonnes of alumina annually.

Alcoa previously announced that it will shed 15,000 jobs globally but there will be no cuts to its workforce in WA.

Federal Liberal Party publishes Facebook profiles of parliamentary members

The Federal Liberal Party has published details of the Facebook profiles of members within the Parliamentary wing, which are as follows:

The Hon Bob Baldwin

The Hon Chris Pearce

The Hon Christopher Pyne

Senator David Bushby

The Hon Joe Hockey

Senator The Hon Judith Troeth

The Hon Julie Bishop

The Hon Kevin Andrews

The Hon Malcolm Turnbull

Senator Mathias Cormann

Mr Stuart Robert

The politics of stupidity: Cyber Safety likely to go the way of FuelWatch

The government requires the support of all 7 cross-benchers in the Senate to pass a bill opposed by the Coalition. A vote of no by any one of these senators can sink the government's bill, which puts them in a powerful position. This is how the FuelWatch scheme was killed off.

The cross-benchers are as follows:

Australian Greens

• Bob Brown - Senator for Tasmania
• Christine Milne - Senator for Tasmania
• Rachel Siewert - Senator for Western Australia
• Sarah Hanson-Young - Senator for South Australia
• Scott Ludlam - Senator for Western Australia

Family First Party

• Steve Fielding - Senator for Victoria

Independent

• Nick Xenophon - Senator for South Australia

The Greens, who have described the plan as "daft", will almost certainly vote against this legislation.

The positions of Senator Fielding and Senator Xenophon are unclear, but they support the idea of Internet censorship. Senator Fielding is the most likely to vote in favour of the filter because of his party's socially conservative values.

Links

• Conroy's internet filtering trials must not remain secret—Liberal Party of Australia
• Cory's Comment - ISP Filtering—Cory Bernardi, Liberal Senator for South Australia