The modern era has seen many kinds of traditional authority come under challenge, but until now the “right of managers to manage” has remained largely immune. If anything, the managers’ power has increased as the countervailing power of unions has declined. But the rise of working from home and, more recently, Labor’s right to disconnect legislation pose unprecedented threats to the power of managers over information workers — those employees formerly known as “office workers.”

To see how this might play out, it’s worth considering the decline of another once-powerful authority, the Catholic Church. In the early 1960s, following the development of reliable oral contraception, the leaders of the church had to decide whether to accept the Pill as a permissible way for married couples to plan their families. Pope John XXIII established a pontifical commission on birth control to reconsider Catholic doctrine on this topic.

It was a crucial decision precisely because marriage and sex were the most important areas in which the authority of the Church remained supreme and precise rules could be laid down — and generally enforced — among the faithful.

Most people, after all, have no trouble observing the commandments against murder, and other sins like anger, pride and sloth are very much in the eye of the beholder. But the rules regulating who can marry whom and what kind of sexual behaviour is permissible are precise and demanding, to the point that the term “morals” is commonly taken to imply sexual morals. The official celibacy of priests, who thereby showed even more restraint than was demanded of ordinary Catholics, added to the mystique of clerical power.

By the time the commission reported in 1966 John XXIII had been replaced by Pope Paul VI. The commission concluded that artificial birth control was not intrinsically evil and that Catholic couples should be allowed to decide for themselves about the methods they employed. But five of the commission’s sixty-nine members took the opposite view in a minority report.

In the encyclical Humanae Vitae, Pope Paul VI made his fateful rejection of all forms of artificial contraception. As an attempt to exercise and shore up authority it failed completely. The realities of raising large families and dealing with unplanned pregnancies were far removed from the experience of priests and theologians. And the church’s evident demographic motive (the desire for big Catholic families to fill the pews) further undermined the legitimacy of the prohibition.

Previously loyal Catholics ignored Pope Paul’s ruling, in many cases marking their first step away from the Church. Doctrines restricting marriage between Catholics and non-Catholics, including the requirement that children be raised as Catholics, also became little more than formalities commanding at most notional obedience.

The breakdown of clerical authority set the scene for the exposure of clerical child abuse from the 1990s on. Although accusations of this kind had been around for many years, the authority of the church had ensured that critics were silenced or disbelieved.

It is hard to know for sure what would have happened if Pope Paul had chosen differently. The membership and social standing of Protestant denominations, nearly all which accepted contraception, have also declined, though not as much as a Catholic Church that pinned its authority on personal morality. Humanae Vitae’s attempt to exercise papal authority succeeded only in exposing its illusory nature.

In the struggle over working from home and the “freedom to disconnect” we’re seeing something similar happen to the authority of managers.

Following the arrival of Covid-19 in early 2020, working from home went from being a rare indulgence to a general necessity, at least for those whose work could be done with a telephone and a computer. Hardly any time was available for preparation: in mid March, Scott Morrison and Anthony Albanese were still planning to attend football matches; a week later, Australia was in lockdown.

Offices and schools closed. Workers had to convert their kitchen tables or (if they were lucky) spare bedrooms into workstations using whatever equipment they had available. And, to make things even tougher, parents had to take responsibility for the remote education of their children.

Despite the already extensive evidence of the benefits of remote work, many managers expected chaos and a massive reduction in productivity. But information-based work of all kinds carried on without any obvious interruption. Insurance policies were renewed, bills were issued and paid, newspapers and magazines continued to be published. Meetings, that scourge of modern working life, continued to take place, though now over Zoom.

Once the lockdown phase of the pandemic was over, workers were in no hurry to return to the office. The benefits of shorter commuting times and the flexibility to handle family responsibilities were obvious, while adverse impacts on productivity, if any, were hard to discern.

Sceptics argued that working from home, though fine for current employees, would pose major difficulties for the “onboarding” of new staff. Four years into the new era, though, around half of all workers are in jobs they started after the pandemic began. Far from lamenting the lack of office camaraderie and mentorship, these new hires are among the most resistant to the removal of a working condition they have taken for granted since the start.

Nevertheless, chief executives have issued an almost daily drumbeat of demands for a return to five-day office attendance and threatened dire consequences for those who don’t comply. Although these threats sometimes appear to have an effect, workers generally stop complying. As long as they are still doing their jobs, their immediate managers have little incentive to discipline them, especially as the most capable workers are often the most resistant to close supervision. Three days of office attendance a week has become the new normal for large parts of the workforce, and attempts to change this reality are proving largely fruitless.

The upshot is that attendance rates have barely changed after more than two years of back-to-the-office announcements. The Kastle Systems Back to Work Barometer, a weekly measure of US office attendance as a percentage of February 2020 levels, largely kept within the narrow range of 46 to 50 per cent over the course of 2023.

This fact is finally sinking in. Sandwiched between two pieces about back-to-the-office pushes by diehard employers, the Australian Financial Review recently ran up the white flag with a piece headlined “Return to Office Stalls as Companies Give Up on Five Days a Week.”

This trend, significant in itself, also marks a change in power relations between managers and workers. Behind all the talk about “water cooler conversations” and “synergies,” the real reason for demanding the physical presence of workers is that it makes it easier for managers to exercise authority. The failure of “back to the office” prefigures a major realignment of power relationships at work.

Conversely, the success of working from home in the face of dire predictions undermines one of the key foundations of the “right to manage,” namely the assumption that managers have a better understanding of the organisations they head than do the people who work in them. Despite a vast literature on leadership, the capacity of managers to lead their workers in their preferred direction has proved very limited.

The other side of the remote work debate is the right to disconnect. The same managers who insisted that workers should be physically present at the office in standard working hours (and sometimes longer) also came to expect responses to phone calls and emails at any time of the day or night. The supposed need for an urgent response typically reflected sloppiness on the part of managers incapable of organising their own work schedules to take account of the need for work–life balance.

Once again, managers have attempted to draw a line in the sand. Opposition leader Peter Dutton has backed them, promising to repeal the right to disconnect if the Coalition wins the next election. It’s a striking illustration of the importance of power to the managerial class that Dutton has chosen to fight on this issue while capitulating to the government’s broken promise on the Stage 3 tax cuts, which would have delivered big financial benefits to his strongest supporters.

Can this trend be reversed? The not-so-secret hope is that high unemployment will turn the tables. As Tim Gurner (of “avocado toast” fame) put it, “We need pain in the economy… and employees need to reminded of who is boss.” US tech firms have put that view to the test with large-scale sackings, many focused on remote workers. But the other side of remote work is mobility. Many of those fired in the recent tech layoffs have found new jobs, often also remote.

In the absence of a really deep recession, firms that demand and enforce full-time attendance will find themselves with a limited pool of disgruntled workers dominated by those with limited outside options.

Popular stories — from King Canute’s attempt to turn back the tide (apparently to make fools of obsequious courtiers who suggested he could do it) to Hans Christian Anderson’s naked emperor — have made the point that the best way to dissipate authority is to fail in its exercise. Pope Paul ignored that lesson and the Catholic Church paid the price. Now, it seems, managers are doing the same. •

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In the absence of traditional naval warfare, the rationale for maintaining large naval forces has rested largely on the idea that trade routes must be maintained. Most of the time this argument has relied on an analogue of Lisa Simpson’s tiger-repelling rock — the claim that the very existence of large navies is the reason trade flows so smoothly.

Now, however, the catastrophe in Gaza has spilled over into a conflict in the Red Sea. The Houthi rebel movement in Yemen, backed by Iran and opposed to the United States and Israel, has begun attacking ships in the Red Sea, deterring many from travelling through the Suez Canal. One estimate puts the fall in traffic at 30 per cent.

Despite the claims of naval advocates, the Houthis were not deterred by the presence of the large naval force set up to counter them. Combined Task Force-153 was established in 2022 by the Combined Maritime Forces in the Middle East to “specifically address maritime threats in the Red Sea and the Gulf of Aden.” News reports speculated that the goal of the task force was to counter the Houthi threat.

Evidently, this goal was not achieved. After unsuccessfully attacking Israel itself (in response to the invasion of Gaza, which in turn responded to the Hamas terror attacks, which in turn…), the Houthis began attacking Israeli-owned ships in November, and have since steadily increased their range of targets to include most commercial shipping.

The United States and Britain have responded with an impressive expansion of their naval forces, including a carrier strike group, Typhoon fighter jets and submarine-launched cruise missiles. Houthi drones have been downed and Houthi bases and military launch sites targeted with air strikes.

The effectiveness of this response remains to be seen. In the absence of ground forces, air strikes have rarely compelled an adversary to surrender. And the last attempt to keep the Suez Canal open by force, undertaken by Britain, France and Israel in 1956, ended in a humiliating fiasco which produced the opposite of its intended outcome.

But let’s suppose that the continued presence of this naval force is sufficient to deter or destroy Houthi attackers and allow normal shipping to be maintained. Is this benefit sufficient to justify the required expenditure on naval forces?

If the United States decided not to maintain the forces necessary for an operation of this kind, it could save the cost of one of its eleven carrier battle groups. With a naval budget of US$220 billion a year, that would be a saving of US$20 billion a year.

But what if the canal remained closed? When a land or air route is interrupted by armed conflict, the usual response is to take a longer way around. (The tragic consequences of not doing so were illustrated by the destruction of Malaysia Airlines flight MH17 over Ukraine in 2014.)

In the case of the Suez Canal and the Red Sea, the long way around is via the Cape of Good Hope, an extra distance of around 2000 nautical miles (or about 15 per cent) in the distance from Europe to Asia. About 12 per cent of world trade normally uses the canal, so the average shipping time for all goods would rise by around 2 per cent if the canal were closed. Even for traded goods, shipping costs are only about 7 per cent of the final price, so any impact on global inflation would be imperceptible.

We can look more directly at the costs by considering estimates that the cost of a round trip from Europe to Asia would increase by “up to” US$1 million. With about 8500 round trips per year, that’s a cost of at most US$8.5 billion. On that figure, even if the threat posed by the Houthis remains indefinitely and the current force manages to keep shipping flowing, the costs to the United States would far outweigh the benefit to global shipping.

But is protecting the shortest routes for global shipping so crucial an objective that it can’t be compromised, regardless of costs? It’s worth considering some alternatives.

Protecting global shipping is a form of foreign aid. For the cost of a carrier battle group the United States could nearly double its entire overseas development aid budget, saving many millions of lives. Alternatively, the money could be spent at home, for example on repairs to America’s crumbling transport infrastructure system or on making its schools safe for children to attend.

At least the United States is big enough and rich enough to afford an annual US$20 billion subsidy to the shipping industry. The same can’t be said for Britain, a smaller and poorer country experiencing a public sector crisis. Role-playing as a global maritime power is an exercise in imperial nostalgia Britain can scarcely afford.

Similar points apply to Australia, where we have spent around $500 billion this century on our navy, largely justified by the supposed need to protect vital shipping routes. We would be better off spending much of this money on improving our domestic transport system or meeting vital social needs in health and education.

More generally, the only use of military and naval force that should be treated as unquestionably necessary is self-defence against invasion. All the other supposed benefits — creating jobs, projecting power and protecting trade routes — should be subject to the same cost–benefit test as other expenditure. Many, perhaps most, military expenditures would fail that test. •

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Evidence of seemingly immovable obstruction isn’t hard to find. Oil and gas companies have resumed investment in exploration on the assumption that internal-combustion vehicles and gas-fired electricity generation will be around for some time to come. Everywhere the expansion of solar and wind power is being obstructed by NIMBY objections to new transmission lines, complex permitting procedures, and grids designed to distribute power generated by coal and gas. Higher interest rates have added to the obstacles facing solar and wind projects.

Against this seemingly immovable resistance is ranged the irresistible force of massive reductions in the cost of solar photovoltaics, or PV, and, to a lesser extent, wind. The result has been a huge expansion in production capacity, estimated at 650 gigawatts a year in China alone. Geopolitical concerns have meanwhile driven the United States and other countries to reduce reliance on China through “friendshoring,” the expansion of production capacity outside China.

The International Energy Agency estimates that global solar PV manufacturing capacity will reach almost 1000 gigawatts in 2024. This exceeds current projections of demand so much that the IEA warns “the industry is rushing headlong into a supply glut.”

That warning implies that stocks of unsold inventory will build up, as is already occurring. As the growth of stocks becomes unsustainable, prices will fall to a point where demand and supply are brought back into balance. Where will that equilibrium be found?

It is easier to look at the supply side first. Solar module prices have fallen to historically low levels of US$0.14 per watt, a decline of nearly 40 per cent since the beginning of 2023. These are stunningly low prices. In the absence of soft costs, and assuming 7 per cent interest, and 2000 hours of operation per year, the cost of electricity from such a module would be a mere 0.5 cents per kilowatt hour. Even at these prices, though, solar PV producers are rushing to invest in new production capacity.

The decline has been accelerated by a fall in the price of polysilicon, the raw material for a solar cell, as well as reductions in the amount required for a cell with given capacity. Solar cells now require only two to three grams of polysilicon per watt of capacity. With polysilicon prices now below US$10 per kilogram, that’s no more than 3 cents per watt.

The next big input to the production of solar cells is electricity itself. Solar PV manufacturing has tended to be located in coal-intensive provinces of China, notably Xinjiang and Jiangsu. But as the glut of solar modules develops, manufacturers will find it more economical to “eat their own dogfood,” using surplus modules to supply the electricity to produce new ones at ever lower costs.

Improvements in the efficiency of solar cells along with increases in the surface area of modules translate into reductions in installation costs. With solar cells now very cheap, manufacturers have an incentive to focus on design changes that produce lighter and more flexible modules, further reducing costs.

In other words, even a severe glut seems unlikely to result in sustained reductions in output. Rather, manufacturers will accept lower profit margins and seek ways to cut costs even further.

The demand for energy is growing and nearly all of this demand can be met by electricity in one way or another. As solar generation capacity increases, the benefits of using solar PV to meet the growing demand will become more and more evident. Battery storage is expanding rapidly too, threatening the role of gas-fired electricity as a source of “dispatchable” electricity — electricity that can be turned on or off at short notice.

What happens when such an unstoppable flood of generation capacity runs into the seemingly immovable barriers of entrenched interests and political resistance? The outcome will undoubtedly be messy, but one way or another the flood will find its way around, over or perhaps under the barriers.

The problem of transmission lines provides one example. New solar generation is now commonly sited near where coal-fired power plants have been shut down, thereby taking advantage of already-installed transmission lines. But once solar costs fall enough, it becomes economically sensible to buy and demolish coal plants in order to use their transmission capacity for solar. That’s increasingly true even when the plants are nowhere near the end of their operational life.

Rooftop solar provides another way of avoiding constraints on transmission capacity. It’s politically popular, so regulators have shied away from onerous permit requirements in most jurisdictions. Thanks to the incentives provided by the Small-scale Renewable Energy Scheme, as well as its sunny climate, Australia has been a world leader in rooftop solar. That will only accelerate as the cost of solar modules drops. In fact, the cost reduction associated with that decline is so great that, even in the absence of government incentives, rooftop solar will soon be an attractive option in any sunny climate.

Another possible path is the production of “green hydrogen” using electrolysis to split water into its components, hydrogen and oxygen. The low price of electricity implied by a severe glut of solar PV would make electrolysis competitive with coal-based technologies. Replacing these polluting technologies with electrolysis to meet existing demand for hydrogen would use about 2300 terawatt hours, or nearly twice the global total solar PV generation for 2022.

The shift to hydrogen would be constrained by the massively increased need for electrolysers, which are currently produced on a much smaller scale than would be needed. Nevertheless, production of even a modest share of current hydrogen demand would absorb any glut in solar PV production. And the prospect is that demand will increase sharply, most notably in steel production.

One way or another, the force of massively increased solar production capacity and ever lower costs will breach the “immovable barriers.” But compared with an efficient and orderly transition, the process will be slower than is needed, and the costs will be much greater. •

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Early in that decade the first-born of the children who made up the postwar baby boom began to challenge their parents with slogans like “Never trust anyone over thirty.” Those parents — retrospectively labelled “the greatest generation” for having endured the 1930s depression and the second world war — had come to regard their kids as lazy and spoilt.

As the children born in the 1940s became thirtysomethings and the youth revolts of the 1960s faded away, the generation gap was mostly forgotten. Its revival in the 1990s came in a quite different context. By then, the lazy equation of “boomer” and “young person” was clearly obsolete.

The members of the post-boom cohort, who became known as generation X, were seeking to make their way in the world but found their way blocked by the much larger generation above them, who occupied all the desirable cultural niches and weren’t planning to move on any time soon. Mark Davis’s Ganglands: Cultural Elites and the New Generationalism was one of the earliest expressions of this frustration.

Davis’s work was well received in Australia. But the terms of the debate were set in the United States by William Strauss and Neil Howe in their bestselling book, Generations. As well as making the now-standard claims about the characteristics of the boomers, Strauss and Howe theorised that major events caused generations to cycle through four different types: idealist, reactive, civic and adaptive.

Strauss and Howe’s model was initially accepted uncritically. This mode of classification was a boon to marketers and lazy journalists, functioning largely as a more respectable form of astrology. Rather than engaging in tedious discussions of economic and foreign policy, for example, presidential campaigns could be discussed in terms of the generations to which the contenders belonged.

Pushback came soon enough, not least from me. (Disclosure: the fact that my cohort, generation Jones, 1954–63, isn’t recognised in standard generational classification predisposes me to dislike the entire generational punditry genre.) In a piece written in 2000, I made a number of not entirely original observations:

• Claims about generations are often restatements of longstanding clichés about the laziness and irresponsibility of the young or the rigidity and hypocrisy of the old. Demographers distinguish these “age effects” (as well as “time effects,” the influences that affect all age groups) from the “cohort effects” specific to those growing up during a depression, for example, or a long postwar boom.

• Differences associated with race, class and gender are mostly more significant than those associated with birth cohort. Donald Trump might share a birthday with a Black woman paid the minimum wage to clean one of his hotels, but that doesn’t mean they have any significant experiences in common.

• The boomer generation is particularly problematic because the demographic event after which it is named doesn’t match the cultural events with which it is associated. At one end, many of the leading figures in boomer culture were actually born during the war years — in other words, before the boom. At the other end, those born after 1954 were too young to experience either the full employment of the postwar economic boom or defining cultural events like the Woodstock rock festival or the fights over conscription and the Vietnam war. Barack Obama (born 1961) is classed as a boomer, but his political awareness was shaped by the presidency of Ronald Reagan (whom he saw as a role model) rather than that of Lyndon Johnson or Richard Nixon.

• More generally, the typical gap of fifteen to twenty years between their oldest and youngest members means that generations are too big for any real commonality of experience.

As criticisms of this kind multiplied, generational analysts lost credibility, though very slowly. It was only in May this year that the Pew Research Center, widely seen as an authoritative source of survey findings, conceded most of the points made above and announced that its audiences “should not expect to see a lot of new research coming out of Pew Research Center that uses the generational lens.”

Nevertheless, the generational bandwagon rolls on. A new arrival is Jean Twenge’s book Generations, whose title recycles Strauss and Howe’s though she rejects a good deal of their analysis. Twenge adopts a narrative format to apply the generational frame to Americans born in the last one hundred years, beginning with the silent generation (born 1925–45) and ending with polars, her own term for children born since 2013.

Twenge avoids some of the pitfalls discussed above. Most importantly, she pays attention to the distinction between age effects, time effects and cohort effects. She compares the experience of different generations at the same age, and tries to take account of long-run trends like the rise of computers. She uses long-running data sets such as the Panel Study on Income Dynamics to assure consistent comparisons of different cohorts at the same age.

This approach yields some interesting insights. For example, the silent generation married and had children earlier than any previous or subsequent generation, and had more children per family. One interesting implication of early childbearing is that most of the later boomers were the children of parents from the immediately preceding generation, the silents, unlike the more common gap of two generations between parents and children.

Another, not particularly startling, observation is that boomers have been bigger consumers of alcohol and recreational drugs than any other cohort. That phenomenon has continued from the upsurge in youthful drug use in the 1960s to the present day. Younger generations like the millennials and gen Z are more abstemious, perhaps as a result of a lifetime of exposure to messaging about the dangers of substance (ab)use.

More fundamentally, Twenge makes the point that technological change has different impacts on different age cohorts. One claimed effect is increased individualism, though this ignores how the once widely held admiration for “rugged individualism” is now rarely heard in the United States.

Twenge is on stronger ground when she discusses the slower life trajectory created by two things: the need for young people to spend more time in education in a technologically complex society, and the longer life spans enabled by improvements in health. These changes inevitably alter the timing of the processes that define generations: leaving the parental home and forming new households, entering and leaving employment, old age and death. While they don’t really follow generational boundaries, they provide a useful narrative device.

Twenge concedes a related point. “It’s also true that generations are sometimes too broad: those born ten years apart but within the same generation have experienced a different culture,” she writes. “Still, too many micro-generations would be confusing and would make it harder to discern broad generational trends.”

Familiar analytical problems remain. Like nearly all generational analysts, Twenge consistently downplays the importance of class. This passage is truly striking:

The charming novel Nine Ladies, by Heather Moll, imagines the aristocratic Mr Darcy from Jane Austen’s Pride and Prejudice time-travelling from 1812, when race, gender, and class were destiny, to 2012. He’s of course amazed by smartphones, airplanes, and restaurants, but the advice the born-in-1987 version of Elizabeth Bennet gives him the most often is, “Remember, treat everyone equally.” Equality is one of the unifying themes of cultural change over the last one hundred years, making it one of the unifying themes of generational change.

This claim would have been unremarkable if it had been made in the 1950s, when America was a proudly middle-class society. But the rise in inequality and the decline in social mobility have been central to the disasters that have befallen the US polity in the last few decades, culminating in the emergence of Trumpism.

Turning more specifically to generational analysis, there is the problem that the demographic baby boom from 1946 to the early 1960s does not match cultural and economic history, which shows a sharp break at the end of the postwar economic boom in the early 1970s. Economically and culturally, as I pointed out back in 2000, the Vietnam generation has a lot more in common with the “baby busters” (the last of the silents, born during and just before the second world war) than with baby boomers:

[M]ost of the cultural icons of the Vietnam generation were actually born before 1945. Obvious examples are the Beatles and Rolling Stones, not to mention James Dean, Marilyn Monroe and Elvis Presley. Throughout the 1960s, rock music was made by the children of the baby bust, who were in the fortunate position of having the largest audience in history. Other members of the baby bust cohort took the chance to establish themselves as the social and political voice of youth, a position which they then sought to maintain well into middle age.

Twenge implicitly concedes most of this, noting that the last of the silents were anything but silent.

A more coherent generational analysis could be achieved by having the boomer generation born between the late 1930s and the mid 1950s, too young to have real memories of depression and war but young enough to come of age during the seemingly endless prosperity of the postwar boom.

Then, following the suggestion of cultural commentator Jonathan Pontell, the rest of the (demographic) baby boom could be assigned to my cohort, generation Jones. The most appealing etymology for generation Jones is the slang term “jonesing,” referring to withdrawal after a drug-induced high. As summarised by Wikipedia: “Jonesers inherited an optimistic outlook as children in the 1960s, but were then confronted with a different reality as they entered the workforce during… a long period of mass unemployment.”

On this division, the remaining boomers would be a shrinking minority in their seventies and eighties, soon to pass from the scene altogether. And without the boomers, the journalistic generation game would cease to be of much interest.

Even in the toned-down version offered by Twenge and the Pew Research Center, generational analysis misleads more than it enlightens. For serious scholarly work, five-year birth cohorts, categorised by race, gender and class background, are much more useful. For entertainment purposes, astrology is just as good and less divisive. •

Generations: The Real Differences between Gen Z, Millennials, Gen X, Boomers, and Silents — and What They Mean for America’s Future
By Jean M. Twenge | Atria Books | $32.50 |  560 pages

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There is, however, one prediction that can be made, with almost perfect safety. For the foreseeable future, Australia’s political class will continue to worry about declining birth rates and “population ageing.”

Worries of this kind have been around since the late nineteenth century, when families first began exercising some control over the number of children they had. The panic over declining fertility was briefly interrupted by an unexpected baby boom after 1945, which coincided with an economic boom. But concerns about ageing resumed with increasing force from the 1980s, when the fact that baby boomers would one day retire started to enter budget calculations just as the prospects of continued strong growth were fading. Worse, unlike previous generations, the boomers showed a propensity to live well beyond the official pension age.

This resurgence in concern has coincided almost exactly with my own working life, and I have spent a fair bit of that time trying to debunk it. My attempts began before the first Intergenerational Report in 2002, and have continued, with very limited success, right up to last month’s release of the latest.

Criticising alarmism about fertility and ageing is something of a family tradition. In 1988, my mother Pat, a demographer, produced No Rising Generation: Women & Fertility in Late Nineteenth Century Australia, a study of the first panic about declining fertility. The title, a quotation from a typically gloomy pro-natal advocate, would work perfectly well as a summary of views being stated today.

Alarm is expressed most commonly in terms of the “old-age dependency ratio”: the ratio of people aged sixty-five and over, assumed to be dependent, and those between fifteen and sixty-four, who must therefore work to support them.

The ages built into the ratio reflected the economic realities of 1909 (at least for men), when the age pension was first introduced. Most men left school and entered the workforce at fifteen, possibly after a brief apprenticeship. Young and strong, they reached their peak earning power in their twenties. If they made it to the pension age of sixty-five they were worn out and, in many cases, incapable of working any longer. At that point, they could expect to live another ten years or so.

Women, meanwhile, were expected to leave paid employment when they married, as nearly all of them did. They then undertook the work of caring for children — an activity ignored by the dependency ratio and left out of calculations of national income. Reflecting their limited employment opportunities, women could (if single or widowed) receive the age pension at sixty.

Apart from some fluctuations, these patterns didn’t change much for the next fifty years or so. The birth rate fell sharply during the Great Depression but rebounded in the baby boom. Women entered the workforce in large numbers during the second world war but were pushed out again to make room for returned servicemen. And although reductions in premature deaths (especially infant mortality) produced a big increase in average life expectancy, prospective longevity barely changed for sixty-five-year-olds between 1900 and 1960.

After 1960, though, things changed radically at both ends of the age distribution. Leaving school at fifteen ceased to be a sensible (or even a feasible) option. By the late twentieth century nearly all young people finished high school and most went on to post-school education and training. Dependence on parents, and on publicly provided or subsidised education, continued to around twenty years of age.

At the other end of the age distribution, the number of healthy years someone could expect to live after sixty-five increased steadily. The abolition of official retirement ages meant people could choose to work until they were seventy or even older. Yet the trend of the late twentieth century — exacerbated when the 1990s recession consigned many older workers to apparent unemployability — was towards earlier retirement.

It was in this context that Coalition treasurer Peter Costello launched the first Intergenerational Report. Its predictions (or projections) were less important than the rhetorical purpose: to spread the message that reductions in public spending, and particularly in welfare payments, were urgently needed if unacceptable increases in taxation were to be avoided.

These claims were repeated in successive reports, reaching the height of absurdity under treasurer Joe Hockey, who warned that the 2015 report would make us “fall off our chairs” and raised the prospect of newborn Australians living to 150. (He forgot to mention that these future Methuselahs would not even reach pension age until the last decades of the twenty-first century.)

The alarmist tone of the Intergenerational Reports was based on the idea that old people will represent an unsustainable burden on both the health system and the retirement income system. But most of the policy changes necessary to fix retirement incomes were well under way by the time the first report came out.

First, income and assets tests for the age pension, largely abolished in the 1970s, had been reintroduced in the 1980s. Then, beginning in the early 1990s, defined benefit superannuation schemes were replaced by accumulation schemes that put the burden on workers to plan the retirement investments on which they would live.

The final step, beginning in the late 1990s, was a gradual increase in the age of eligibility for retirement incomes of all kinds. The pension age for women was increased to sixty-five. Further changes in 2009 began the process of increasing the pension age to sixty-seven, which has just been completed.

Ironically, the most important backward steps in this process were taken by Costello himself. His tax concessions for superannuation, of particular benefit to self-managed superannuation funds, have proved both unsustainable and politically hard to undo. It has taken fifteen years of effort by governments of both parties to wind them back. The absurdly generous franking credits system, against which Labor campaigned in 2019, now looks untouchable.

The resolution of the retirement income problem was finally acknowledged, with some justifiable partisan spin, in the 2023 report. As treasurer Jim Chalmers observed, “Our population is ageing but our spending on the age pension will fall — that’s the intergenerational genius of super. Super is delivering on its promise — providing a better retirement for more Australians and a better outcome for the budget over the next forty years.”

Despite this, the 2023 report sticks with the outdated dependency ratio, noting that the term “refers to the number of people aged sixty-five and over for every 100 people of traditional working age (fifteen to sixty-four).” The only concession to twenty-first-century reality is the word “traditional,” hinting that a document supposedly designed to prepare for the future is still using the mental categories of the past.

But if we use a more realistic age distribution, and take account of the fact that both young and old people are dependent, the apparent crisis vanishes. There are currently about two people aged under twenty or over seventy for every three people in between. This ratio will barely change between now and 2063.

And what about the old bugbear of health spending? Ever since the first Intergenerational Report, critics of the conventional wisdom have pointed out that the growth in health expenditure has been driven mainly by the new and better treatments that lead to longer and healthier lives. This is the reverse of the alarmist claim that an increase in longevity (the cause of which is left unstated) means longer periods of late-life illness and greater demand for medical services.

New medical technologies are part of the process of structural change inherent in modernity. In the first half of the twentieth century, manufacturing displaced agriculture as the central focus of economic activity, only to be displaced in its turn by services. Now change is occurring within the service sector, with information technology and artificial intelligence replacing some services and enhancing the importance of others.

Much of the growth in the service sector comes from human services like health and education, which governments are best placed to provide or at least fund. This will indeed require an increase in the share of national income going to government, and therefore an increase in tax rates. Rather than calling for alarm, the Intergenerational Report ought to be raising awareness of the need for these structural changes.

Like its predecessors, the latest Intergenerational Report will almost certainly fail to create the hoped-for sense of alarm among voters. But in two crucial respects it ought to be generating some alarm in the political class that produced it.

First, the report spells out the need for more tax revenue. Yet the major parties have a bipartisan commitment to cutting taxes for those with the greatest ability to pay. The stage three tax cuts, designed by Scott Morrison first as treasurer and then as prime minister, will put a hole in tax revenue that will take decades to fill. And Labor’s 2019 election defeat led it to abandon most proposals to close tax loopholes.

Our government ought to be even more alarmed about global heating. For the first time, this year’s Intergenerational Report at least attempts to estimate some of the monetary costs of the disaster towards which we are accelerating. But the government that commissioned it is doing little to improve the situation, and a great deal to make it worse.

Every day, it seems, we read of a new coalmine being approved or a new gas project receiving massive subsidies. And every day the results are evident around the world in catastrophic fires, devastating floods and the accelerating destruction of natural habitats.

We are, indeed, driving younger generations of Australians towards a poorer future. But this poverty won’t be caused by higher tax rates or the costs of aged care. Rather, our poisoned bequest will be the unliveable planet that is already in plain view. •

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Unlike any government for many decades, the Labor government explicitly committed itself to full employment. In opposition, Anthony Albanese promised to hold a jobs summit and commission a white paper on full employment. No doubt deliberately, the fact that it would be a “White Paper” called to mind the founding document of postwar Australian prosperity, the 1945 White Paper on Full Employment in Australia.

Commissioned by John Curtin’s wartime Labor government and written by a team led by economist H.C. “Nugget” Coombs, the 1945 paper used John Maynard Keynes’s economic model as the basis for a commitment to use taxes and spending to maintain full employment.

At the same time, the Chifley government turned the Commonwealth Bank into a modern central bank. Having refused to help save the economy during the Great Depression, the bank would now be explicitly focused on maintaining full employment. Coombs was appointed governor, and retained the position after Robert Menzies’s Liberals took government.

Later, still under Menzies, the Reserve Bank Act of 1959 split off the commercial functions of the Commonwealth Bank and created a new Reserve Bank of Australia with three statutory objectives: price stability, full employment and general prosperity.

Changes in monetary policy were also in prospect when Albanese and his colleagues took government last year. The shift to inflation targeting in the early 1990s, implemented using adjustments to central bank lending rates, had put the Reserve Bank in full control of macroeconomic policy. Like other central banks, it reinterpreted full employment to mean the “non-accelerating inflation rate of unemployment,” or NAIRU, a model-based construct derived from the work of Milton Friedman. (Friedman preferred to call this the “natural rate” of unemployment.) Estimates of the NAIRU aren’t stable (they are usually above the actual rate of unemployment), but have recently been near 4 per cent.

Events since the global financial crisis have challenged the belief that inflation targeting can ensure financial and economic stability. For much of the decade after 2008, central bank interest rates were stuck at or near zero in most countries. Australia was heading in the same direction, with the cash rate down to 0.75 per cent, when the pandemic hit. Responding to this and other unexpected developments, the new government commissioned a review of the Reserve Bank.

The stage seemed set for a return to the policies that gave us the postwar Golden Age. But it didn’t take long for the lights to dim. The jobs summit turned into a “jobs and skills summit” dominated by employers complaining about “skills shortages.” It wasn’t so much a shortage of specific skills; rather, employers had come up against the fact that full employment makes it as hard for an employer to fill a vacancy as it is for a worker to find a job.

Then the word “Full” disappeared from the title of the Albanese government’s Employment White Paper, which is still a work in progress. True, maintaining full employment still appears at the head of the list of objectives, but discussion so far suggests it will get short shrift when the white paper actually appears.

When it was released last month, the Reserve Bank review reflected a similar tendency. Most attention was focused on internal restructuring, while the desirability of a higher inflation target and other issues were kicked down the road. Discussion of the full employment objective in the bank’s charter was limited. Most damagingly, the review recommended removing the treasurer’s power to override decisions of the bank via an announcement to parliament. Although it has never been used, the existence of this option was central to the integrated operation of fiscal and monetary policy in the decades before the shift to inflation targeting.

And, finally, we come to the budget. The scene had been set by the report from the government’s new Economic Inclusion Advisory Committee, which recommended a large increase in the poverty-level JobSeeker benefit and a commitment to full employment. Labor treasurer Jim Chalmers immediately signalled that the first of these recommendations would be rejected as both unaffordable and politically unpopular.

Eventually the government was shamed into a modest increase in JobSeeker, but full employment disappeared from the agenda. The budget projected an unemployment rate of 4.5 per cent — exceeding estimates of the NAIRU, let alone any measure of full employment based on actual labour market outcomes (such as requirement that there should be as many vacancies as unemployed workers). During his budget speech Chalmers described the rate as “low by historical standards,” effectively confirming that his benchmark is the last fifty years of failure rather than any notion of full employment. He then returned quickly to the central theme of the government’s policy, the need to reduce inflation.

Even this short period of full employment has had hugely beneficial consequences. Workers who previously have been dismissed as unemployable have suddenly found employers willing to take them on. Remote work has persisted since the lockdowns because employers who demand five-day attendance lose workers and can’t find replacements. Even more radical ideas like the four-day week are gaining traction.

With luck, and full employment will persist a little longer. But if it does, no thanks will be due to this Labor government. •

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A closer look reveals grounds for optimism in relation to coal, the most polluting of all carbon-based fuels. With the important exception of China, construction of coal-fired power stations has virtually ceased. Coal-fired power is already in decline in most developed countries, notably including the United States. The brief bounce in Europe following the closing of Russian gas pipelines has already ended.

According to the International Energy Agency, solar PV and wind are meeting nearly all of the growth in global electricity demand. Solar cell production is expected to increase, as is the installation of wind power following Europe’s removal of a variety of planning restrictions.

If new solar PV and wind supply more electricity at zero marginal cost than is needed to meet increased demand, they will inevitably displace coal and gas generation. Existing plants must either run at lower capacity or else be scrapped. Since China is pushing ahead fast on solar PV, it is likely that many of the coal plants being constructed at the moment will become stranded assets.

All this suggests that global carbon dioxide emissions from electricity generation will peak soon. But electricity accounts for only around a third of all carbon dioxide emissions. Transport’s energy transition is much less advanced, and that’s particularly the case with cars. The vast majority of cars on the road rely on internal combustion engines.

Demand for road travel and for motor vehicles certainly dropped sharply during the lockdown phase of the pandemic. As with most other things, though, demand bounced back as restrictions were lifted.

But this bounce obscured the fact that sales of internal-combustion vehicles had peaked even before the pandemic. A study by Bloomberg found that sales of petrol- and diesel-fuelled cars (including sales of traditional hybrids like the Toyota Prius) peaked at eighty-six million units in 2017, a year in which only one million battery-electric and plug-in hybrid vehicles were sold.

In 2022, by contrast, sales of internal-combustion vehicles fell to sixty-nine million but plug-in hybrids and battery electrics rose about ten million. With the cost of batteries falling steadily and more models coming on to the market, these trends are unlikely to reverse. Importantly, and unlike coal-fired power, China has been a leader in the transition to electric vehicles, which have already captured more than a quarter of the market there.

Declining sales of internal-combustion vehicles don’t translate immediately into a smaller number on the road. This will only happen when the number of new cars falls below the number being scrapped. Most of the cars being retired now were built ten to twenty years ago, when sales were still rising. It’s for this reason that Bloomberg estimates the number of internal-combustion vehicles on the road to remain roughly constant for the next few years before starting to decline in earnest from 2026 onwards.

Defenders of the internal-combustion engine point to a variety of obstacles to a rapid transition. The most notable are the higher initial cost of electric vehicles and the limited availability of charging stations. Neither of these objections stand up to scrutiny.

The lifetime cost of an electric vehicle, taking account of lower maintenance and running costs, is already below that of comparable internal-combustion vehicles. And, with battery prices falling, the initial cost differential is also declining.

As for charging, the technology is far less complex than the process of fuelling an internal-combustion vehicle. Electric vehicles don’t require the elaborate chain from oil wells to refineries to specially constructed service stations.

The simplest solution, for most users, will be to charge overnight at home or during the day at a parking lot or parking garage. Plug-in hybrids can be charged overnight with an ordinary trickle charger. A normal home EV charging station, sufficient to charge a fully electric vehicle overnight, will cost between $1000 and $3000.

Rapid charging at service stations is also technologically simple, even if somewhat more expensive. The availability of such stations will readily increase in line with the growth in the electric vehicle fleet.

Against this background, US president Joe Biden’s new target — electric vehicles making up 50 per cent of sales by 2030 — seems eminently feasible. A question for the longer term is how we can get post-2030 internal-combustion vehicles off the road in time to achieve net zero emissions by 2050. Given that a large proportion of vehicles run for twenty years or more, this won’t happen automatically.

One possibility is a version of the “cash for clunkers” scheme introduced in the United States and briefly proposed by the Gillard government in Australia. The US scheme involved subsidising people who traded in old gas-guzzlers and bought more fuel-efficient alternatives. The inadequately funded scheme — undermined by a complex and arbitrary set of rules about which cars could be traded in, which replacements were eligible and how the money was disbursed — was wound up fairly quickly.

A similar scheme to get internal-combustion vehicles off the road need not face the same difficulties. Once the sale of new petrol- and diesel-driven vehicles ended, complex trade-in requirements would be unnecessary; instead, a simple cash payment would be made for old vehicles. The scheme could be self-financing, with increased registration charges or petrol taxes also raising the cost of continuing to operate an internal-combustion vehicle.

As with the energy transition in general, the technological problems of a shift to electric vehicles have mostly been solved. The remaining questions are those of policy design and political will.

Unfortunately, that’s exactly what still seems to be lacking in Australia. The Labor government’s electric vehicle strategy, announced this week, included a series of small-scale initiatives but no target dates or specific goals. It committed the government to developing a fuel-efficiency target that would presumably increase demand for electric vehicles, but gave no specifics, despite already having a plan on its books prepared by the Climate Change Authority under the Turnbull government.

On this, as on many other aspects of climate policy, Australia remains an international laggard. Neither of our major political parties seems much interested in changing that.

Fortunately, the rest of the world is acting. Internal-combustion vehicles are being abandoned by most major carmakers. If government action doesn’t drive the shift to electrics, technological obsolescence will do the job sooner or later. •

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The report included sensible discussion of a wide range of options for promoting productivity, none of which were likely to provoke violent controversy. But, like Sherlock Holmes’s dog that didn’t bark, the absence of controversy is notable and revealing.

The trajectory of the Productivity Commission is a microcosm of the history of neoliberalism (often described in Australia as “economic rationalism” and “microeconomic reform”). During the fifty years since the early 1970s, neoliberalism has gone from being an economic policy revolution (or counter-revolution) to being a dominant ideology, before finally fading to near irrelevance.

The Productivity Commission dates back to the beginning of that period, in 1973, when it replaced the old Tariff Board. In those early days it was called the Industries Assistance Commission, or IAC, and it was part of the first bout of microeconomic reform in Australia.

Prime minister Gough Whitlam had recently taken power, and his government — despite its big spending program — was the first to promote economic rationalism. It cut tariffs across the board by 25 per cent and abolished the superphosphate fertiliser bounty paid to farmers, repudiating the policy of “protection all round” promoted most strongly by Country Party leader John “Black Jack” McEwen.

“Protection all round” combined import tariffs, which raised costs for farmers, with subsidies (like the superphosphate bounty), which lowered them. Struck by the difficulty of working out the net effect of these policies, one of Australia’s great economists, Max Corden, developed the concept of “effective protection.”

Decisions to cut industry assistance were unpopular, to put it mildly, in the sectors directly affected. The IAC’s job was to analyse the impact of such policies on the economy as a whole. It took on a task that had previously been split between the Tariff Board, which advised on protection for manufacturing, and the Department of Primary Industry, which dealt with assistance to agriculture.

While the Tariff Board had moved towards a more critical perspective on protection under its final chairman, Alf Rattigan, the new IAC (also chaired by Rattigan) was unabashedly ideological. Its primary objective was to “improve the efficiency with which the community’s productive resources are used.” While ordinary Australians might have understood this to refer to the efficiency of production, or “productivity,” the IAC interpreted it in the technical sense dominant in economics, which implied the need to remove all “distortions,” such as tariffs and subsidies. The paradox of an IAC rigidly opposed to assisting industries eventually led to a shortening of its name to the Industries Commission.

Disputes over tariffs dominated the work of the IAC and the IC over the 1970s and 1980s. The cause of free trade lost ground under the Fraser government before triumphing under the Hawke–Keating government and its successors. Today there is virtually nothing left of “protection all round,” or of the manufacturing sector it protected. What remains of Australian manufacturing is dominated by simple products like meat, bread and wine, along with limited processing of minerals and a handful of niche producers of high-tech equipment.

As the importance of manufacturing declined, the scope of microeconomic reform expanded. National competition policy, privatisation and public–private partnerships were all on the agenda. From a relatively limited program of “getting prices right” in the 1970s, the advocates of neoliberalism had shifted their focus to comprehensively reversing the growth of government during the twentieth century.

The glory days of the Productivity Commission were the 1990s. (The name was adopted in 1996 when the IC swallowed its main institutional rivals, the Economic Planning Advisory Council and the Bureau of Industry Economics.) Using measures newly developed by the Australian Bureau of Statistics, the PC announced that Australia was experiencing a “productivity miracle.” More precisely, this marvellous performance was not so much miraculous as “the ‘predictable’ outcome of policy reforms designed to raise Australia’s productivity performance.”

By the time the PC released an account of its first thirty years in 2003, the glow of the productivity miracle was beginning to fade. But there were still grounds for confidence that the program of reform would continue, delivering improved living standards for all Australians.

As it turned out, the process of microeconomic reform was pretty much over. National competition policy had run its course. The tide was beginning to turn against privatisation. The one major attempt at continued reform, John Howard’s WorkChoices, was a political disaster largely reversed under the Rudd–Gillard government.

Moreover, the productivity miracle fizzled out completely. Dispute remains over whether it was a statistical illusion or an unsustainable blip. But, as the latest five-year report shows, the reforms of the late twentieth century didn’t deliver a boost in productivity. Over the period since 1990 (which includes the “miracle” years), annual labour productivity growth has averaged 1.6 per cent, lower than the 2.4 per cent recorded in the 1960s and 1970s.

There are many reasons for this decline, but the most important is the transformation of the economy from one based on producing, transporting and distributing physical goods to one based on human services and information. To the extent that they were ever relevant, the policy prescriptions of twentieth-century neoliberalism have nothing to offer here. On the other hand, we have yet to see the emergence of a coherent alternative.

To its credit, the PC has responded by focusing on more relevant policy issues. The central themes of last week’s report are improving education and managing energy transition. The recommendations are sensible, with little if any ideological content.

Privatisation, once the signature policy of neoliberalism, gets only a single, negative mention, in a discussion of the impact of the privatisation of building surveyors in the 1990s. It seems likely that privatisation’s last gasp, the sale of state land titles offices, will be similarly disastrous.

The “good fight” against tariffs gets a brief run, with the argument that tariffs are now so low that compliance costs outweigh any revenue benefits. The PC’s view that they should be reduced to zero is hard to disagree with.

As has been true throughout its fifty-year existence, the Productivity Commission has produced another piece of well-written and professional analysis. But whether it is worth extending the life of a body so thoroughly tied to the era of neoliberalism is an open question. •

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But there are some bright spots. In particular, there’s a good chance that 2023 will be the year coal use finally begins a sustained decline, and therefore the year carbon dioxide emissions from electricity generation start to fall. And the transition, once it begins in earnest, will accelerate rapidly.

This is by no means a sure thing. The International Energy Agency predicts that the current equilibrium, in which nearly all new electricity demand will be met by solar PV and wind, will be sustained for several years to come. That would leave coal and gas use almost unchanged. But the IEA has a long track record of underestimating solar and wind, and there are plenty of reasons to think that this has happened again

Total electricity demand is currently a bit over 25,000 terawatt hours a year, growing at an annual rate of around 3 per cent. So, to meet the growing demand, we need to generate an additional 750 terawatt hours from solar and wind. (Other carbon-free sources, such as hydro and nuclear, have been essentially static.)

Assuming solar PV generates at full power for 2000 hours per year, each gigawatt of solar capacity generates an annual two terawatt hours of electricity. Meeting additional demand with solar alone therefore requires adding 375 gigawatts of solar PV per year, with any shortfall made up by wind.

The good news is that is already happening. BloombergNEF estimates 315 gigawatts of solar will be installed in 2023, up from 268 gigawatts in 2022. Additions of wind power have been around one hundred gigawatts a year recently, which amounts to between 250 and 300 terawatt hours per year.

Assuming the 2022 installations are already connected to global grids, we should see a reduction in carbon-based electricity generation this year, followed by steadily larger reductions. That will be true even if electricity begins to substitute for oil and gas in transport, heating, cooking and so on.

Underlying this shift is the steadily decreasing cost of wind and, even more, solar power. This trend was interrupted by the supply shocks of the pandemic and Putin’s war, which led to a big increase in the price of polysilicon as well as coal and gas. But while coal and gas prices remain high, polysilicon, though still volatile, has dropped back to more normal levels.

More importantly, new investment in solar PV is raising production capacity even further. Polysilicon output is heading for 500 gigawatts by the end of this year — which will translate fairly quickly into production and installation of solar cells — and as much as 700 gigawatts by 2025. Installations on that scale would imply a rapid shutdown of existing coal-fired and gas-fired generation.

Is this feasible? In terms of simple economics, the answer is clearly yes. Solar PV and wind have been cheaper than new coal and gas for some time. In many places they are already cheaper than existing coal and gas. And, as the example of South Australia shows, the problems of intermittent supply can be resolved with a combination of battery storage, interconnection and a modest amount of gas-fired power, in a system which now relies on wind and solar for as much as 80 per cent of its power.

The task is even simpler where pumped hydropower is available for storage, or where existing nuclear power plants can supply any remaining demand for twenty-four-hour power. (New nuclear is hopelessly uneconomic.)

And technological progress continues apace. Commercially available solar cells now routinely exceed 20 per cent efficiency; new multi-junction technologies are approaching 50 per cent.

Concerns that shortages of “critical minerals” like lithium and cobalt will constrain the process appear misplaced. Some sources of these minerals — lithium brines and cobalt mines in Africa, for instance — are indeed problematic, as is China’s dominant position as a supplier of refined ores and batteries. But there are always alternative sources.

Australia has huge resources of lithium, derived from ordinary hard-rock mining. We are now developing a refining capacity, and could easily manufacture batteries for domestic use and export. Similarly, the price of cobalt has plunged recently, partly because of competition from lithium and partly because new supplies are available as a by-product of Indonesian nickel plants.

As the urgency of ending our reliance on coal, gas and oil has become more evident, supportive policies have reduced costs. The result is that solar panels are expected to become cheaper in 2023 and beyond. In Europe, the need to respond to the cut-off of Russian gas and oil has led to the removal of some of the NIMBY obstacles to wind farms and transmission lines that have delayed the transition.

The big exception to all of this is China, where coal-fired power has resurged. Up to one hundred new coal plants have been granted permits in the last year. This doesn’t make economic or geopolitical sense for China. It does, however, make plenty of sense for regional governments desperate to keep up a flow of large projects, both to maintain employment in coal-related industries and for the corruption opportunities such projects inevitably generate. It seems likely that most of these plants, if they are completed at all, will lose money and either close early or force the early closure of competing coal-fired plants.

In our current energy system, electricity is only part of the story, accounting for around a third of energy-related emissions. But electrification, based on carbon-free sources, is the only realistic path to decarbonising transport and producing the hydrogen needed to replace coal and methane gas in industrial uses. If this is to be achieved in reasonable time, even 700 gigawatts of new solar every year won’t be enough. Production will have to shift to terawatt scale.

There’s still no sign of the urgency needed here, certainly not in Australia. But in electricity at least, progress has been faster than seemed possible ten or even five years ago. •

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That, at any rate, is the conclusion reached both by Brad DeLong in his new book, Slouching Towards Utopia: An Economic History of the Twentieth Century, and by Sebastian Edwards in his forthcoming book, The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism. Importantly, neither DeLong nor Edwards can be numbered among the neoliberals’ irreconcilable opponents. Both embraced neoliberalism for many years, though in different forms.

The Chile Project, of which Edwards was a generally sympathetic observer, ranks with Thatcher’s Britain as the paradigmatic case of what I’ve called “hard neoliberalism,” which combines authoritarianism and radical free-market policies. The success of the “Chicago Boys” — the economists who have long dominated the Chicago School of Economics — in persuading the Pinochet dictatorship to implement market-driven policies that were largely sustained under subsequent democratic governments. They included a privatised pension system, writes Edwards, along with “openness and globalisation, the fiscal rule, the taming of inflation, and austere health, education, and environmental policies.”

As the examples of Pinochet and Thatcher suggest, hard neoliberalism has nothing in common with the concern for freedom of speech that motivated John Stuart Mill and other liberal thinkers. But it was consistent with the strain of classical liberalism represented by the Austrian-born economist Friedrich Hayek, for example, who was more worried about preserving individuals’ freedom of action, particularly by minimising government interference in property rights.

The “neo” in hard neoliberalism reflects how the successes of social democracy in the twentieth century permanently discredited the kind of classical liberalism that would tolerate mass poverty alongside massive wealth. Neoliberals accepted the need for social services to raise most people above the poverty line. Provided that goal was achieved, they argued, there was no need to be concerned about political and economic inequality.

DeLong is, or at least was, a proponent of what I’ve called “soft” neoliberalism, which derives from the distinctive US use of the term “liberal.” Soft neoliberalism was epitomised by the Clinton administration, in which DeLong served as deputy assistant treasury secretary under Lawrence Summers. Outside the United States, soft neoliberalism was often described as the Third Way. Its central theme was the idea that the goals of social democracy (or liberalism in the US sense) could best be achieved by embracing market-oriented reforms, and particularly financial deregulation, while maintaining a generally redistributive welfare state.

In both hard and soft versions, neoliberalism reached its high point in the 1990s. Chile experienced severe economic crises under Pinochet, but the end of the dictatorship in 1990 was followed by a decade of strong economic performance. The government’s most distinctive reform, a pension system based on individual accounts, was seen as a model by George W. Bush’s administration in the United States.

The triumph of soft neoliberalism in the United States was announced in hyperbolic fashion by Francis Fukuyama’s The End of History and the Last Man and popularised in airport bestsellers like Thomas Friedman’s The Lexus and the Olive Tree. The stockmarket boom of the 1990s, roughly coinciding with Clinton’s term as president, seemed to promise endless prosperity.

Particularly notable were a series of corporate-friendly free-trade agreements that contained investor-state dispute settlement mechanisms allowing corporations to sue governments for policy decisions harmful to their profits. Even more striking was the embrace of the financial sector, symbolised by the appointment of former Goldman Sachs chairman Robert Rubin as treasury secretary.

Neoliberalism’s weaknesses became more evident from the late 1990s on. A series of financial crises (the Asian crisis of 1997, the Long-Term Capital Management bailout in 1998 and the dotcom bust of 2000) prefigured the massive financial disaster triggered in 2008 by the global financial crisis, which continued for most of the next decade.

Having recovered somewhat in the 1990s, productivity growth slowed to a crawl. DeLong marks 2010 as the year when the “long twentieth century” of technologically driven growth came to an end. As he observes, “The years following 2010 were to bring large system-destabilising waves of political and cultural anger from masses of citizens, all upset in different ways and for different reasons at the failure of the system of the twentieth century to work for them as they thought that it should.”

In Chile, meanwhile, the much-touted pension scheme had proved to be a flop, with workers losing much of their savings to management fees. A series of reforms have gradually moved the system back towards a more traditional public pension scheme. Moreover, while absolute poverty fell, broad-based prosperity didn’t result. Those at the top of the income distribution captured most of the gains.

Edwards sees the protest movement that launched in 2019 as the beginning of the end for Chilean neoliberalism. Taking account of global trends, DeLong marks 2010 as the year when the “slouch towards utopia” slowed to a crawl or stopped altogether. Either way, neoliberalism had gone from unchallenged hegemony at the turn of the twenty-first century to full retreat twenty years later.

So far I’ve focused on the period of neoliberal dominance that began with the breakdown of Keynesianism in the early 1970s. This framing exactly fits Edwards’s book, which begins with the Chilean military coup of 1973. For DeLong, though, neoliberalism was the second act in a drama that began in the late nineteenth century. During that hundred-year first act — about which he writes as an economic historian rather than a participant — economic life was utterly transformed for the majority of people on the planet.

The story begins in Western Europe and its offshoots, most importantly the United States, and it is on the latter that DeLong focuses most of his attention. He chooses 1870 as his starting point because that was the year when “invention was invented” with the creation of industrial research laboratories. These enabled inventors to focus on innovation rather than an endless, and often futile, effort to commercialise and license their inventions. Surprisingly, despite being affiliated with the University of California Berkeley, home to twenty-six Nobel prize winners and alma mater of dozens more, DeLong doesn’t mention research universities, which provided the basic science underlying most of these inventions.

As his title suggests, the subsequent century saw remarkable progress that nonetheless failed to create the utopia many believed could emerge from the massive improvements in technology. Instead, the century was consumed by disputes over how to organise societies and economies — ferocious and bloody disputes in the first half of the twentieth century followed by an uneasy peace under the threat of nuclear annihilation.

DeLong personifies the schools of thought within the capitalist world as being those of Hayek (“The market giveth, the market taketh away; blessed be the name of the market”) and Karl Polanyi (The market was made for man, not man for the market). More prosaically, while Hayek opposed all forms of government intervention in the economy as a “road to serfdom,” Polanyi argued that people “had rights to a community that gave them support, to an income that gave them the resources they deserved, to economic stability that gave them consistent work.”

Within this schema, the decades following 1945 (Les Trente Glorieuses, as the French call them) can be seen as the period in which this tension was resolved by the combination of Keynesian macroeconomic management and the social-democratic welfare state. Hayek was victorious in the campaign against comprehensive economic planning but not in his opposition to large-scale public provision of health, education and infrastructure services of all kinds.

Polanyi’s views seemed to gain ground during Les Trente Glorieuses, with the size and scope of the state growing steadily. In the cold war setting of the mid twentieth century, many expected that the rival economic systems of capitalism and communism would converge to a “mixed economy,” with most large businesses owned or tightly regulated by governments, and market forces ruling elsewhere.

But the tables were turned in the space of a few years. Hayek triumphed in the 1970s, both in DeLong’s symbolic terms and as the intellectual star of the decade. Financial markets were deregulated, public enterprises privatised and unions crushed. The era of neoliberalism, which forms the second part of DeLong’s story, had begun.

This account leaves DeLong, and his readers, with two big problems. First, did technological progress really cease to work after 2010 and, if so, why? Second, why was a relatively short burst of high inflation enough to overthrow social democracy yet decades of poor economic performance insufficient to generate an alternative to neoliberalism?

On the first question, I am a bit more optimistic than DeLong. The twenty-first century has seen huge growth in the volume of information distributed through media of all kinds. Unlike traditional goods and services, information is a “non-rival” product: making information available to one person does not reduce the amount available to everyone else. But the infinite capacity for reproduction also makes it hard to force people to pay for information. The most common, though highly unsatisfactory, solution is to attach useful information to advertising people would not otherwise choose to look at.

In these circumstances, traditional measures of output, income and consumption become less and less relevant. At least in countries where most people have access to a basic twentieth-century set of household goods and to a variety of personal services, it may be that future improvements in living standards will come almost entirely from access to information provided outside the market.

On the second question, DeLong argues, correctly I think, that social democracy was a victim of its own success. Everyone expected accelerating growth in their incomes combined with a continuation of full employment and low inflation. When the system failed to deliver at quite the expected level, neoliberalism promised a return to prosperity. By the time it became clear that this promise would not be realised, expectations had been lowered so much that (for example) a 5 per cent rate of unemployment was seen as a success rather than the disaster it would have been perceived as in the 1970s.

Again taking the optimistic view, we are seeing a gradual rehabilitation of the institutions of the mixed economy, including activist governments, public enterprise and trade unions. At least for the moment, we don’t have to worry that our limited successes will recreate the hubris of the 1960s. Perhaps we can finally put the era of neoliberalism behind us. •

Slouching Towards Utopia: An Economic History of the Twentieth Century
By J. Bradford DeLong | John Murray | $34.99 | 624 pages

The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism
By Sebastian Edwards | Princeton University Press | US$32 | 376 pages

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This was the decade in which Heinz Arndt’s classic study of the Australian economy, A Small Rich Industrial Country, was published. Arndt’s title was not as prosaic as it might sound today: it was a dig at nostalgia for a largely imaginary past in which Australia was an agricultural country peopled with miners, small farmers and shearers. That vision of Australia had been evoked by Russel Ward’s highly successful book, The Australian Legend, published in 1958.

In reality, Australia had always been urban. As early as 1900, more than two-thirds of the population lived in cities and large towns. But nostalgia for “an Australia that grows things” was reflected in decades of policies aimed at encouraging economic activity — notably including the often-disastrous soldier-settlement schemes — outside the major cities.

Just as the industrial economy displaced agriculture in the mid twentieth century, it was displaced in turn by the service sector towards the end of the century. By 2000, services represented three-quarters of output and employment. Construction remained strong, but the overall share of employment in “making things” (manufacturing, mining and agriculture) was steadily declining. These transformations changed working life in all sorts of ways, but they didn’t fundamentally challenge the assumptions of capitalism.

A capitalist society’s central driver of growth has always been investment — in buildings, equipment and infrastructure — and investment requires capital. The proceeds from the sale of goods and services, after deducting wages and input costs, must earn a return for the owners of that capital. This is as true for cafes as it is for car factories.

All this changed with the emergence of an information economy. In economic terminology, information is a non-rival good, like Norman Lindsay’s magic pudding. Using information doesn’t reduce the amount that’s available to other people. Information is also cumulative: the more we know, the more we can find out. And information from different sources can be combined to produce new and different information. In economic terminology, the production of information displays economies of scale and scope.

But just as the plot of The Magic Pudding centred on the question of who owned the pudding, control over access to information can be immensely valuable and hard-fought. And there is no necessary relationship between producing information and controlling it.

This changes the nature of investment. Rather than investing in land, building and equipment to produce goods and services, investors focus on securing control of information and profiting from that control. The result is the economic system summed up by Jonathan Haskel and Stian Westlake in the title of their 2017 book, Capitalism without Capital.

Haskel and Westlake described how physical capital has been replaced by “intangible capital,” a concept as hard to grasp as the name implies. Examples of intangible capital include research and development, design, business process re-engineering, market research and branding. Typically, the assets created in this process take the form of intellectual property — patents, copyrights, trademarks and so on — or control over networks and platforms like Facebook and Twitter.

Some items classed as intangible capital are relatively straightforward extensions of familiar concepts. The best-known — the research and development expenditure that goes into developing new products — is as much a part of the cost of producing those products as are the labour and machinery used to produce them.

But other forms of intangible investment, such as branding and marketing, are more problematic. As Haskel and Westlake recognise, it is far from obvious that branding enhances the value of the goods and services it promotes: the efforts of one brand to promote itself through advertising largely cancel out the efforts of its competitors. There is some evidence of a net positive effect overall, but it is fairly thin.

Intangible assets differ from tangible assets in the same way information differs from ordinary goods and service. As Haskel and Westlake put it, “Those characteristics are summed up in four S’s, namely that intangible assets, relative to tangible assets, are more likely to be scalable, their costs are more likely to be sunk, and they are inclined to have spillovers and to exhibit synergies with each other.”

The spillovers and synergies mean the benefits of distributing information will often flow to people other than those who produce it. The most obvious examples are Alphabet (owners of Google) and Meta (Facebook), whose most valuable asset is not their computers and buildings but the information to which they provide access. Facebook’s information is supplied in the first instance by its users, but in many cases consists of links to content elsewhere on the internet. Google’s search engine relies entirely on information produced by other people and organisations.

In other words, the connection between investment and profit has broken down. The scalability and sunk costs of intangible assets exacerbate this effect by creating a winner-takes-all model, enabling those with an established position to capture all or most of the benefits of information.

The results are evident in the market value of companies, and particularly the value of the large tech companies that dominate the information economy. Most of the time, we’d expect the value of a firm to reflect the capital invested in it, as captured by Tobin’s Q, a measure of the ratio of market value to capital stock developed by Nobel prize–winning economist James Tobin.

Q ratios were generally near one during the twentieth century. High ratios were seen as a signal that existing capital was yielding a high return and further investments were likely to be profitable; low values suggested lower demand for investment. But this relationship has broken down in spectacular fashion. Alphabet has a market value five times the book value of its assets. The ratio is ten for Amazon, fifteen for Microsoft and twenty-one for Apple. Even Meta, which is clearly in decline, manages a ratio of three. By contrast, General Motors, the classic twentieth-century corporation, rates just under one.

The difference can’t be explained by R&D spending, which is relatively small. The real intangible here is likely to be monopoly power, generated either by intellectual property laws or control over platforms.

The tone of Capitalism without Capital was cautiously optimistic. Haskel and Westlake thought the rise of intangible investment would offset the decline in traditional forms of private investment over the course of the twenty-first century. While acknowledging the growth of inequality and other problems, the pair concluded that “strategies that go with the grain of the long-run rise of intangible investment… are more likely to secure prosperity than those that go against it.”

But in the wake of the pandemic and the (first?) Trump presidency, the problems are clearly much more severe than they seemed — as the subtitle of Haskel and Westlake’s new book, Restarting the Future: How to Fix the Intangible Economy, makes clear. “When we think about the state of the economy today, it is hard not to think, it wasn’t supposed to be like this,” they write. “The world is richer than it has ever been, remarkable technologies are transforming every facet of our lives — and yet, everyone seems to know that, from an economic point of view, something is wrong.”

Many of the things that are wrong can be traced, they say, to problems with intangible capital. Their examples include:

Stagnation: Despite impressive technological progress, economy-wide productivity growth has slowed. Investment in intangibles has declined; so too has economic dynamism, as measured by such variables as the number of new firms. Most notably, the IT sector is now dominated by five firms: Amazon, Apple, Microsoft, Facebook/Meta and Google/Alphabet. Using a combination of incumbency and acquisition, the same firms have maintained their dominance even as the sector has been transformed by cloud computing and other web services.

Inequality: Having increased throughout the developed world since the 1980s, inequality has become the subject of steadily increasing concern. It is aggravated by the scalability and synergies of intangible investment, which reward a relatively small number of companies and wage earners.

Dysfunctional competition: Ideally, with many firms in the market, competition offers better products at lower prices. But once markets become sufficiently concentrated, competition tends to take the form of zero-sum efforts to weaken the position of competitors or extract unearned rents. At the extreme are the “patent trolls” who make intellectual property claims over well-known ideas and methods, then extract licence fees from anyone seeking to use this idea.

Inauthenticity: In an intangible economy, it is difficult to distinguish between spurious branding efforts and investments that genuinely enhance the usefulness of products. The result is the general feeling of “fakeness” that accompanies much of modern life.

Fragility: The intangibles economy is vulnerable to both internally generated crises like the global financial crisis and external shocks like Covid-19. In part, this fragility arises because intangible investments are “sunk.” Once an enterprise fails, intangible investments in organisational structure, corporate culture and so on are lost. By contrast, buildings and equipment can be sold when a business is liquidated, saving much of its economic value.

Although Haskel and Westlake frankly acknowledge all these problems, they don’t conclude we should slow the shift to an intangible economy. Rather, they want to change our institutions to complete what they see as an unfinished revolution. To do this, they propose improvements in the financing of research and development and the financing of investment, and offer some worthwhile but tangential suggestions about urban design and school reform.

The standard solution to the problem of financing R&D is for governments to fund “pure” research while private enterprises fund “applied” research, or the development of marketable products. But the characteristics of intangible capital, particularly its spillover effects, mean that producing intangibles is more like pure than applied research.

Haskel and Westlake are sceptical of traditional modes of public research funding. They suggest prizes be used more often to stimulate goal-oriented research (an idea that goes back to the competition that led to the discovery of a method for determining longitude at sea) and subsidies be made to open-source software and data collections. They also endorse the general preference of economists for less stringent patent and copyright protections.

Their analysis of financing focuses on the decline in the neutral real interest rate — that is, the interest rate (adjusted for inflation) at which monetary policy is neither expansionary nor contractionary. Correctly linking the rate’s welcome decline to reduced investment in intangibles, they propose ways of encouraging pension funds and venture capitalists to fill the gap. In a world of very low real interest rates, they also recognise the need to shift away from inflation targeting as the basis of monetary policy.

What’s striking, though perhaps not surprising, is that Haskel and Westlake don’t consider the possibility of an end to capitalism, or even a substantial change in the role of government. To the extent that intangibles are public goods, mainstream economic theory suggests they would best be provided by governments. Private firms can rarely capture the spillover benefits of intangibles without imposing access restrictions that reduce their social value.

Haskel and Westlake discuss traditional spheres of government activity — the defence-related R&D that gave us the internet, for example — but they don’t consider whether governments should become active investors in intangible capital.

The possibilities are full of promise, but also potential pitfalls. Governments could expand the informational role of public media services like the ABC, reversing the cuts of recent decades. They could systematically strive to make information of all kinds available in an easily searchable form, bypassing advertising-driven search engines like Google. And they could provide platforms for social media on a common-carrier basis, requiring easy interconnection and discouraging the use of “algorithms” (a misnomer) to keep people inside a “walled garden.”

It’s easy to point to the problems that would arise if these possibilities were pursued in a world where trust in governments is low. But these are the kinds of arguments that need to be made when the existing economic model is failing so clearly.

Despite the limited scope of the reforms they consider, Haskel and Westlake’s work tackles fundamental questions considered by few other writers. Restarting the Future is essential reading for anyone interested in the future of capitalism, or in the possibility of a post-capitalist future. •

Restarting the Future: How to Fix the Intangible Economy
By Jonathan Haskel and Stian Westlake | Princeton University Press | $34.99 | 320 pages

The post Go with the grain appeared first on Inside Story.

Commentators generally agree a Chinese takeover of Taiwan would involve the following elements, alone or in combination:

• a decapitation strike, using special forces to kill or capture the Taiwanese leadership and install a Beijing-aligned government

• a seaborne invasion, with a large force crossing the Taiwan Strait

• an extensive bombing campaign using aircraft and missiles

• a blockade of the Strait to cut off Taiwan’s imports and exports.

All of these approaches have been tried by Russia, under highly favourable conditions, since it attacked Ukraine. All have failed.

In the lead-up to the 24 February invasion, the Russians were able to assemble large forces on Ukraine’s borders while maintaining ambiguity about their intentions. For fear of inflaming the situation, Ukraine could do little to prepare, and its allies provided little or nothing in the way of lethal military aid.

These conditions were ideal for Russia’s opening move. A rapid assault on Kyiv was planned to begin with the takeover of Hostomel Airport by elite airborne troops, who would be followed in by a much larger airborne force. Things didn’t go to plan: the assault force was driven off with heavy casualties and the main force turned back. By the time Russian land forces reached Hostomel, the chance of a surprise attack was lost.

Even if the strike had not been a military failure, the political calculation on which it was based turned out to be absolutely wrong. Far from welcoming Russian invaders as liberators, Ukrainians fought back furiously. Even in Russian-speaking cities like Kharkiv, Putin found little or no support.

A decapitation strike against Taiwan would face immensely greater difficulties. There would be no possibility of surprise. Taiwan’s air defences have been built up over decades. Reunification has essentially zero support among Taiwanese. And even if the current leadership could somehow be eliminated, local replacements would be equally or more hostile.

The most commonly discussed scenario for forcible reunification is a seaborne invasion. Even before the Ukraine war this idea seemed far-fetched, as a comparison with the Normandy landings in 1944 shows. The Allies had complete air superiority, the narrow English Channel to cross, a wide choice of poorly defended landing sites and a numerical superiority of five to one. The Germans didn’t detect the attack until landing craft were within reach of shore. Even so, the Allies fell far short of their Day 1 objectives.

A Chinese invasion fleet, by contrast, would have to cross the 170 kilometre Taiwan Strait with no chance of avoiding detection, then land on one of a handful of well-protected beaches and face numerically superior defenders.

The Ukraine war drives the lesson home. Before the invasion, Russia’s Black Sea fleet was widely seen as a major strategic asset. When the initial attacks on Kyiv and Kharkiv failed, a seaborne attack on Odessa was generally anticipated. Ukraine had only a handful of domestically produced anti-ship missiles, and its own navy had been wiped out on the first day of the war. Russia was in complete command of the sea.

Yet the attack never took place. The sinking of the Moskva in April by a Ukrainian Neptune missile proved that the Russians had been right to hold back. Russian naval forces were inadequate even to defend the famous Snake Island, kilometres from Ukrainian mainland. With Ukraine’s acquisition of increasing numbers of modern missiles, most of the fleet has been withdrawn entirely to the relative safety of Novorossiysk on the eastern shore of the Black Sea.

Ukraine repelled the Black Sea fleet with a handful of missiles. Taiwan has hundreds, including American-made Harpoons and domestically produced missiles easily capable of hitting Chinese ships before they leave port. Many are truck-mounted and effectively impossible to destroy even with an intensive air campaign.

All the evidence suggests that China understands this. While it is politically necessary for the government in Beijing to maintain that it has the capacity to reunify China by force, the announced plan for doing so is outlandish. It involves securing landing sites with a handful of craft then sending in the main force on lightly modified civilian ferries. No sensible person could take such a plan seriously.

Much the same points can be made about the idea of an extended bombing campaign. Bombing an enemy into submission has been tried many times since its initial success at Guernica in 1937 and has almost invariably failed.

Moreover, Russia’s massive air force has proved incapable of overcoming Ukrainian air defences, or even driving the much smaller Ukraine air force from the skies. With the exception of the mythical “ghost of Kyiv,” air-to-air combat has been almost non-existent, and crewed aircraft have played at most a marginal role. It is highly unlikely that the Chinese air force, operating under far less favourable conditions, could do any better against Taiwan.

Finally, there is the possibility of a blockade. Like the other options for an assault on Taiwan, this idea has always been problematic. It would be easy enough to close the South China Sea to shipping, but that would be more damaging to China than Taiwan, which could use air transport or develop ports on its eastern coast.

By contrast, Russia’s strategy of blocking Ukrainian exports through the Black Sea looked relatively easy, and for a while it seemed to work. But a combination of military failures (notably the loss of Snake Island) and global condemnation forced it to abandon the idea. The resumption of Ukrainian grain exports (billed as a “goodwill gesture”) has reversed one of the few successes of Russia’s war.

Taiwan is clearly aware of this, and has shifted its focus  from traditional air and naval warfare to a defensive “hedgehog” strategy based primarily on anti-ship and anti-aircraft missile warfare. (Sam Roggeveen of the Lowy Institute has suggested a similar “echidna” strategy for Australia.)

If an invasion of Taiwan is militarily impossible, why is it continually discussed? The answer is that it is in the interests of all the major parties to pretend that an invasion is a real possibility. The Chinese government can’t concede that it lacks the capacity to unify the country by force. The Taiwanese government has every reason to present itself as being threatened by China. And the US military, particularly the navy, has no incentive to downplay threats that demand high levels of defence expenditure.

This continued focus on conflict over Taiwan, and more generally in the South China Sea, increases the risk of accidental escalation, possibly even involving nuclear weapons. Moreover, it distracts attention from arguably more serious threats, most notably the rise of North Korea as a rogue nuclear power under effective Chinese protection. It also undermines possibilities for cooperation, particularly in relation to climate change.

A realistic Western approach to China would accept that it is a powerful adversary in a number of strategic dimensions but a necessary partner in others. The same realism is needed on the Chinese side. Focusing on the chimerical idea of an invasion of Taiwan is counterproductive on both sides.

The post Why an invasion of Taiwan would fail appeared first on Inside Story.

This view is entirely at odds with Berejiklian’s public record. In Australia, as in most countries, pork-barrel politics is an entrenched practice. But, as the Marquis de la Rochefoucauld put it, hypocrisy is the tribute vice pays to virtue. Governments have typically pretended to allocate funds on the basis of community need, and ministers have lost their jobs when the rorts have become too obvious.

Berejiklian’s government, by contrast, has stood out for its brazen embrace of practices bordering on corruption. Prior to his own surprise resignation, her deputy premier happily referred to himself as John Pork-barrel-aro. Berejiklian defended as normal politics her government’s $250 million Stronger Communities Fund, in which 95 per cent of the grants went to Coalition electorates, mostly on the nomination of the local member.

At this stage, ICAC’s investigation is no more than that, and it is entirely possible that Berejiklian will be cleared of any wrongdoing. But the idea that this tough and ruthlessly effective politician should be granted a plea of diminished responsibility on the basis that she was led astray by love is as absurd as it is patronising. It’s hard to believe that such a view would have any currency if the genders were reversed.

Another example of the persistence of twentieth-century ideas is the decision, a few weeks ago, to honour Dr Brendan Murphy with the title of Father of the Year. In his capacity as chief medical officer and then head of the health department, Murphy played a central (if inevitably controversial) role in the national effort against Covid, and no one would be surprised to see him honoured in various ways as a result. But there is little on the public record to support the view that he stands out as “a distinguished father who has demonstrated support, guidance and love to his children or other children through his working role or family life.”

Murphy is known to be a private person, and a profile by the online news site Crikey reported his love of opera, red wine and single malt whisky, making brief mention of his two sons, Ben and Alex, both in their thirties. The Father of the Year citation is a little more forthcoming, including a picture of Murphy with his sons and his year-old granddaughter, along with some generic, though doubtless sincere, sentiments about fatherhood. This is par for the course. The award is routinely given to men in their sixties or beyond whose children have long reached adulthood and whose working roles (for example, as politicians or military leaders) are not particularly associated with the provision of support, guidance and love to children.

We seem at least to have avoided a repetition of the fiasco in which Bob Hawke received the Victorian Father of the Year only to have it publicly disputed by his then wife, Hazel. And that was not the worst. In 1959, the Queensland inaugural Father of the Year award was given to the childless and notoriously corrupt police commissioner Frank Bischof.

If the criteria were taken seriously, the award would be given, every year, to a man whose contributions to the public good were obscured by the fact that any time he might have spent in the limelight was instead devoted to his family. This wouldn’t be difficult. For twenty-five years, the less prominent Mother of the Year award was given to a woman nominated by her own children. (Barnardo’s, which created the award, announced this year that it would end because of the resource pressures created by Covid.) In recent years, the Father’s Day Council has followed this example with a Community Father of the Year, though it receives far less attention.

A third example of lingering twentieth-century attitudes is the use of the “pub test” as a criterion for the credibility of political claims. The implied image is of discussion among (mostly male) drinkers at a public bar. Although a large number of Australians enjoy a pub meal from time to time, only a small minority go to pubs to drink with any regularity. There is no reason to think that the opinions of this minority are either representative of the public as a whole or the product of down-to-earth realism.

A much more representative and gender-balanced sample of the population goes to cafes, and many of them discuss the events of the day there, but no one would ever think of referring to the cafe test. Indeed, the only cafe reference common in Australian politics is to the dreaded cafe latte, allegedly consumed only in the inner city.

The masculinist assumptions that underlie most political analysis in Australia are spelt out in Lech Blaine’s recent Quarterly Essay, Top Blokes: The Larrikin Myth, Class and Power. Blaine does a nice job of unpicking the blokey personas of political leaders like Hawke, Anthony Albanese and Scott Morrison (with John Howard as an exception that proves the rule). His central focus is the shift in masculine support from Labor to the conservative parties.

The conservative capture of the “bloke vote” is an Australian manifestation of a global trend, and a reversal of the old gender gap. In the twentieth century, it was women who were more likely to support conservative parties. The opposite is now the case. Blaine’s essay touches briefly on this point, but, as his title implies, the main focus is on men.

Despite the presence of women at every level of Australian politics, including the top jobs, assumptions based on the gender roles of last century permeate the way our political class thinks and talks about itself. The sooner this changes, the clearer will be our understanding of the challenges we face in the twenty-first century. •

The post The twentieth century still has us in its grip appeared first on Inside Story.

Two insights played a crucial role in this surge of interest. The first, associated mostly with the economists Thomas Piketty and Emmanuel Saez, rested on new historical data about the share of income flowing to the richest 1 per cent of households. Piketty and Saez found that the share of income going to the top 1 per cent was substantially larger than previously supposed, and growing rapidly. Most of the benefits of economic growth were flowing to a relatively small part of the population, while living standards for everyone else stagnated or even declined.

The second insight, reached by a broad range of researchers, was that social mobility was declining in the United States, and was lower than in more egalitarian countries in Europe. The chance that a person with parents at the top (or bottom) of the income distribution would end up in the same or a similar position, they found, was now higher in the United States than in Europe. Until at least the late twentieth century, there had been good reason to think that the opposite was true.

Low social mobility is partly a predictable consequence of inequality. Where incomes are relatively equal, only a modest improvement in income is needed to move up the scale.

But inequality is also self-reinforcing, challenging the common distinction between “equality of outcomes” and “equality of opportunity.” The greater the disparity in resources available to households, the easier it is for the better-off to give their children a head start. Since the desire to look after your children is both natural and admirable, there is no real way to offset this tendency except by resisting increasingly unequal outcomes using tax policies and other mechanisms.

One particularly striking piece of evidence, drawn from a study by economists Richard Reeves and Isabel Sawhill, is that rich kids who make bad choices do pretty much as well as poor kids who do everything right. Poor university graduates have only a 20 per cent chance of ending up in the top 10 per cent of earners, marginally greater than the chance of rich high school dropouts ending up there.

The combination of these various findings yielded the new and much gloomier picture of inequality presented most clearly in Thomas Piketty’s Capital in the Twenty-First Century, which became a surprise bestseller in 2013. In the absence of political action, said Piketty, growing inequality would ultimately return us to the kind of “patrimonial” society that prevailed in the nineteenth century. Those were the days when wealth and social position came primarily from inheritances, and marriage was used to consolidate fortunes.

To illustrate his point, Piketty referred to Jane Austen, Honoré de Balzac and other classic nineteenth-century novelists. In their narratives, every possible marriage is graded in terms of the wealth and annual incomes of the prospective partners. Romance might have required that the relatively impoverished heroine wins the affections of the wealthy hero, but reality meant that financial calculation usually triumphed.

This point is even more evident in the “industrial” novels of the later nineteenth century, whose plots are driven by the impossibility of ascending the social scale simply through hard work and intelligence. With the authors of these novels unable to contemplate a political solution, their characters’ dilemmas could be resolved only through “a legacy, a marriage, emigration or death” (in the words of the protagonist of David Lodge’s novel Nice Work). Either play by the rules of patrimonial society and win, or leave once and for all.

Is this the future that awaits us? Recent movements in the distribution of income and wealth suggest it is. Although the clearest evidence is from the United States, Piketty also found signs of growing inequality in Britain and France. Even in Australia, where the shift has been moderated by relatively progressive tax and welfare policies, similar trends are emerging.

The news on inequality in the United States is nearly all bad. The top 1 per cent might have lost more than most during the global financial crisis, but that was just a blip. Between 2009 and 2015, the top 1 per cent of American families picked up more than half of total growth in real income. Their share of national income reached 22 per cent, one of the highest points since income tax records were first collected in 1913.

The top 1 per cent have attracted most attention, but focusing on this group can be misleading. Within the top 1 per cent, like a set of Russian dolls, the pattern of inequality is replicated: the top 0.01 per cent, which may be seen as “the 1 per cent of the 1 per cent,” has done much better than the remaining 0.99 per cent of the top 1 per cent.

Within that group (about 16,000 families), the top 1 per cent (that is, the top 0.0001 per cent of households, amounting to a few hundred people) own substantially more than the bottom 50 per cent of all households. In the racially divided context of US politics, it’s worth noting that the top 0.0001 per cent own more wealth than the entire African-American population, even including billionaires like Oprah Winfrey.

Beyond the top 1 per cent, have high-income professionals and business owners benefited from shifts in income distribution? To some extent they have, but not nearly as much as is often imagined. When Emmanuel Saez broke the top 10 per cent of income earners into three groups — the top 1 per cent, the next 4 per cent, and the next 5 per cent — he found the top 1 per cent to have done very well indeed. Their share of total income bounces about because much of it takes the form of capital gains, but the upward trend is clear and strong. The next 4 per cent have also done well, adding around five percentage points to their share since the 1980s.

But the next 5 per cent haven’t done nearly so well. Their share of total income has barely budged since the 1980s and now appears to be falling. Households in this group have seen their incomes grow in line with the average growth of total income in the United States, which has been considerably slower in recent years than in the 1950s and 1960s. In other words, this group did better in postwar decades of relatively equal income and strong economic growth.

The picture is much worse for the rest of the population. Incomes among households outside the top 10 per cent have declined consistently in relative terms; for many, the decline has been absolute. These disastrous outcomes are reflected in, and reinforced by, a variety of social stresses, including an epidemic of opioid addiction and declining life expectancy for large sectors of the population.

The one apparent bright spot is that those at the top were more likely to earn than inherit their riches. In particular, most of the very wealthiest Americans have made their fortunes from the technology boom that began in the 1990s. This might seem like a refutation of Piketty’s prediction, but in reality it mostly reflects the time lags involved in building dynastic fortunes.

The fact that currently wealthy Americans have not, in general, inherited their wealth follows logically from the fact that their parents’ generation didn’t accumulate wealth at such a rate. Compared with earlier periods and with the current one, income and wealth were more equally distributed between 1950 and 1980. Inequality of income must precede growing inequality of wealth, since wealth is simply the cumulative excess of income over consumption.

So, given the current era of highly unequal incomes and social immobility, we can expect inheritance to play a much bigger role in explaining inequality for the generations now entering adulthood. That will include direct transfers of wealth, mainly via inheritances, as well as the effects of increasingly unequal access to education, early job opportunities and home ownership.

Australia typically follows the United States, with a lag. Between 2003 and 2017, the most commonly used measure of wealth inequality, the Gini coefficient, rose from 0.57 to 0.62 (the higher the number, the more unequal the wealth). By 2017, the top 20 per cent of households held 63 per cent of all wealth. Ownership of shares and other financial assets is particularly concentrated; with asset values increasing faster than wages, this implies an increase in the importance of inheritance.

For the mass of the population whose financial wealth is limited to a superannuation account, a different form of inherited inequality is becoming evident. With median house prices exceeding $1 million in Sydney, it is more or less impossible for young people on average or below-average incomes to enter the housing market unaided. Far more commonly, young people rely on parental assistance to provide a deposit and, in many cases, to guarantee a loan.

What will a patrimonial society look like? Most obviously, it won’t be pleasant for those born to families who lack the resources needed to give them a head start in life. More generally, it is likely to be economically and socially stagnant. A patrimonial society inevitably wastes much of its talent, instead putting its privileged children into positions of power and influence for which they may have little aptitude.

In a society of this kind, as Thomas Gray observed in 1751 in his “Elegy Written in a Country Churchyard,” most people’s opportunities are circumscribed from birth:

Full many a flower is born to blush unseen,
And waste its sweetness on the desert air.

Some village Hampden, that with dauntless breast
The little tyrant of his fields withstood;

Some mute inglorious Milton here may rest,
Some Cromwell guiltless of his country’s blood.

This doesn’t mean that no one can ever rise to the top. Given even the smallest opportunity, those of exceptional ability will rise in any society, as did both Oliver and Thomas Cromwell. But the odds against such an achievement are long.

Indeed, we have probably already passed the point where the growth of inequality and the accumulation of massive fortunes, particularly in the finance sector, have become a drag on economic growth. Even the OECD and other advocates of liberalisation recognise that the finance sector, which has created massive fortunes, has reached the point where it reduces growth, makes economies more vulnerable to crises and undermines the living standards of most households. In Australia, the governor of the Reserve Bank has expressed alarm at the consequences of stagnant or declining wages.

What, if anything, can be done about this trend? The Biden administration is pushing hard to reverse some of the measures that have increased inequality. Most notable is the proposal to tax the unrealised capital gains of assets passed on through inheritance, which would substantially reduce inherited inequality. Precisely for this reason, it is the object of vigorous attacks from lobbyists for the wealthy. In view of the Democrats’ narrow majority in Congress, it remains to be seen whether this measure will be passed, but the fact that it has been put forward at all is significant.

In Australia, by contrast, things are only going to get worse. There is no prospect of any kind of tax on wealth or inheritance. The Coalition’s stage three tax cuts, legislated with Labor’s support, will massively reduce the progressivity of the tax system. Worse, the magnitude of the cuts, rising to $30 billion a year over time, combined with the hangover from the pandemic, means that governments will have little or no capacity to spend money on any measures that might reduce inequality. The current government is already looking for cuts, and Labor has made it clear that the pro-equality proposals it put forward in 2019 are off the table.

Whether we like it or not, the patrimonial society seems to be on its way. •

This is an updated version of an article first published in July 2017.

The post The coming boom in inherited wealth appeared first on Inside Story.

Back in the 1960s and 1970s, when our population was around half its current size, more than 3000 people died every year on Australian roads. After a long series of interventions, beginning with seatbelt laws in Victoria, the annual number of deaths has fallen to around 1000, despite a significant rise in population. The likelihood of dying on the roads today is about one-sixth what it was fifty years ago.

This is not primarily the result of improvements in vehicle safety. In the United States, a comparable country in many ways, the number of deaths has remained broadly stable since the early 1960s, approximately halving relative to population. There, road safety laws are enforced much less rigorously.

Is Australia’s lower level of road deaths acceptable? Victoria’s Transport Accident Commission doesn’t think so, pointing out the hidden implications of the language we use. “The problem with talking about ‘road toll,’” it says, “is that it implies that road trauma is an acceptable cost of having roads. A toll is the price we pay for using something — with toll roads, for example, it’s a few dollars.”

The view that road deaths are still unacceptably high is embodied in Vision Zero, a campaign that has set a target of no road deaths in all major capital city CBD areas and on high-volume highways by 2030, and no road deaths anywhere in Australia by 2050.

Why such a long time? Partly, it’s because making roads fatality-free is a difficult business requiring significant investment. But in large measure, it’s because governments have moved slowly out of a well-grounded fear of provoking resistance from people with the same attitudes as those now denouncing Zero Covid.

Virtually all the safety measures introduced since 1970 (compulsory seatbelts, random breath testing, speed traps, and limits on young drivers) could have been implemented fifty years ago if we had had the collective will. Instead, they were introduced incrementally, gradually wearing down the resistance of those for whom freedom to drive dangerously was more important than their own lives or those of others.

Exactly the same points may be made in relation to smoking. Fifty years ago, around half of all Australian men smoked and women were rapidly catching up. A long series of measures, including restricting advertising, banning smoking in public places and, most recently, gruesome plain packaging, have pushed the proportion of adult Australians who smoke below 15 per cent. Rates of lung cancer mortality for men peaked around 1980, but the turnaround was much slower for women and their mortality (always lower than for men) has only just begun to decline.

Again, our progress was slow not because the task was impossible. We have chosen to live with high death rates, and to reduce them only gradually, because of the resistance from some smokers (others were keen to quit and welcomed pressure to do so) and from the corporations that profited from them. Plans to end smoking and the deaths it causes are now on the policy agenda. They include making cigarettes prescription-only and raising the smoking age steadily over time until it is effectively illegal for everyone.

As for domestic violence, until relatively recently we didn’t so much choose to live with high death rates; rather, we ignored them altogether. We didn’t even have a standardised system of collecting and reporting data. But now that the problem is out in the open, no one seems to be saying that Australian women should “live with” domestic violence and accept that some will die.

With those examples in mind, let’s go back to influenza. As with the other examples listed above, we have accepted hundreds of flu deaths as one of those things we need to live with. There was no campaign to “stop the spread.” Vaccination wasn’t even free for most people. The government paid for vaccinations for the most vulnerable groups but seemed not to recognise the nature of an infectious disease — if you want to protect the vulnerable, you need to vaccinate everybody. Before the pandemic, vaccination wasn’t even compulsory for aged care workers.

For the past two winters, however, the annual flu season effectively hasn’t happened. That reflected the combined effects of closed borders, improvements in handwashing and other prevention measures, and a reaction against the culture of “presenteeism” or, in the slogan promoted by Johnson & Johnson’s Codral brand, “soldiering on” (in other words, going to work when you’re ill).

There’s every reason to think we could permanently suppress seasonal influenza without recourse to drastic measures like lockdowns. The first step would be to mandate flu vaccination wherever Covid vaccination is required (for international arrivals and high-contact workers, and as part of any vaccine passport scheme).

Next, we would introduce a continuing campaign to ensure that adults don’t go to work with flu and that sick children (major spreaders of flu) stay home from school. That will only be feasible with more comprehensive sick leave, including carer’s leave.

Plenty of people will no doubt argue that this is all too burdensome, just as they have in response to all sorts of policies to reduce avoidable deaths, and perhaps they will have some success. But they should not be allowed to get away with using weak policy in relation to one deadly danger as grounds for adopting similar policies across the board. •

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Until about five years ago, debates on climate policy lined up the extensive evidence of rising global temperatures and modelling showing worse to come against statistical quibbles and “sceptical” arguments that came down to the belief that “scientists are always predicting disaster but it never happens.”

In 2021, though, we no longer need to look at models to see the effects of climate change arriving faster and more destructively than most of the modellers thought possible. For Australians and many others around the world, climate change has taken the form of almost unstoppable bushfires. For those who have yet to feel climate change directly, the pandemic provides life experience of a long-predicted disaster that has turned out worse than most people imagined.

Even this direct experience has turned out not to matter much to some people. The fact that the New England area was devastated by fire in 2019 hasn’t shifted the denialist/do-nothingist position of its local MP, Barnaby Joyce, and probably won’t cost him his seat at the next election.

The same is true, in spades, of Covid. In the United States in particular, conservatives who have seen friends and relatives die around them continue to insist that the whole thing is a hoax. There’s now a whole genre of stories (reminiscent of deathbed conversion narratives) in which people dying of the disease finally urge their friends to get vaccinated or, occasionally, go to their graves still denying everything.

Despite all this resistance, we have collectively made enormous efforts to control Covid. For the most part, we have accepted handwashing, social distancing, masks, travel restrictions and periodic lockdowns even while being unsure which measures will work and which will turn out to be unnecessary. Now that vaccines have become available, the majority of the population has rushed to protect themselves and everyone else. And there is increasingly little patience for the selfish or misguided minority who refuse, even when given every opportunity to get vaccinated.

The contrast with climate change is striking. We know, from looking at successful examples, that we can greatly reduce greenhouse gas emissions at costs too small to be detectable in the aggregate economy.

By 2025, most European countries will have eliminated coal-fired electricity altogether; several have already done so. The main policy instrument used to achieve this goal has been an emissions trading scheme that requires firms burning coal, iron or gas to buy a tradeable permit. The permit price was below €10 per tonne for some years, but has now risen to €50. Since generating a megawatt-hour of electricity using coal emits roughly a tonne of carbon dioxide, the scheme effectively adds around A$80/MWh (or 8 cents/kWh) to the cost of coal-fired electricity, with a smaller effect on gas-fired electricity.

Since the emissions allowed under the EU scheme are currently around 1.5 billion tonnes, the annual value of permits used is roughly €75 billion, or around 0.5 per cent of the European Union’s GDP. This is not an economic loss; it is a transfer from polluters to society as a whole. The actual economic cost is even smaller.

The same point can be illustrated by Australian experience. The Gillard government’s short-lived carbon tax/price significantly reduced emissions. But despite Tony Abbott’s claims about a “wrecking ball” going through the economy, neither the imposition of the tax nor its removal had any measurable effect on GDP or other indicators of aggregate performance.

Ending coal is only a first step. But an extension of the same policies — a doubling of the EU carbon price, for example — would see a rapid replacement of gas-fired electricity with a combination of solar, wind, battery storage and other zero-carbon options. And even if the economic impact were quadrupled it would still be so small as to be undetectable against the background of ordinary economic fluctuations, let alone crises like the pandemic.

If the electricity supply were decarbonised, electrifying the vehicle fleet would eliminate emissions from road transport. Again, we have examples to show how easy this would be. Norway has committed to ending sales of internal combustion engines. Already, electric vehicles account for more than half of the country’s new car sales and around a fifth of the total car fleet. This outcome was achieved with a mix of fairly modest measures, such as exemptions from purchase taxes and parking fees. As the cost of electric vehicles has declined, some of the more generous measures have been scaled back.

A number of national governments have committed to ending sales of internal combustion engines, and car manufacturers have announced plans to switch to producing electric vehicles. But current policies will leave lots of petrol and diesel vehicles on the road well past 2040. Incentives on the scale of those being offered in Norway, combined with a hard deadline for removing internal combustion vehicles from the roads, if announced now, could put an end to transport-related emissions by 2035.

The main economic cost would be the scrapping of vehicles before the end of their usable life. But owners could be compensated with a version of the “cash for clunkers” scheme that ran in the United States a few years ago. This isn’t an elegant policy solution, but when we are faced with the prospect of destroying the global climate we can’t afford to worry about such things.

Other responses, including drastic limits on air travel, might seem more draconian. But we have all put up with near-total bans on international travel, and lots of constraints on domestic travel, imposed with little or no notice in response to pandemic outbreaks. Replacing business travel with Zoom has turned out to be easy. As for recreational travel, a very simple response would be to replace frequent short “getaways” with the longer holidays, taken once a year or less, that were normal in the twentieth century. This would allow trains to substitute for planes in many cases.

We have more time to act on climate than we did on Covid. But that time is running out, and we are not using it well. •

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It remains to be seen whether these shifts will help Labor win the next election. The initial reaction was not promising, with an Essential poll reporting a sharp decline from 41 to 34 per cent in favourability for Anthony Albanese. And despite an appalling month for Scott Morrison, his commanding lead as preferred PM was unchanged.

We shouldn’t make too much of this. It’s always difficult to attribute changes in polls to particular current events, though this is exactly what the Labor “hardheads” have done in attributing the party’s narrow loss in 2019 to particular tax policies. By the same logic, it will be hard to disentangle the effects of Labor’s tax policies whether it wins or loses next year.

What can be said with more certainty is that, even if Labor wins the 2022 election, its capitulation on tax policy will make holding office for more than one term very difficult. The concession on negative gearing, while regrettable, was mainly symbolic. The lost revenue could be made up in other ways, or else with tolerance of a modestly higher budget deficit.

But the tax cuts are big. They will cost the budget around $15 billion in their first year of operation and the cost will rise steadily after that. That’s more than the entire annual value of the spending commitments Labor took to the 2019 election, which would have reached $11 billion in 2022–23, according to the Parliamentary Budget Office.

In other words, to offset this concession, Labor would need to abandon its entire program, and then find even more savings.

Richard Denniss and Matt Grudnoff of the Australia Institute have argued for a “Buffett rule,” inspired by American billionaire Warren Buffett’s views on the responsibilities of the rich, which would apply a minimum rate of tax on income for high-income earners before deductions. Although Anthony Albanese has advocated such a policy in the past, it’s hard to see him putting this, or any other new tax policy, forward before the election.

The other option is to allow the budget deficit to expand further. But the scope to do this is limited by the productive capacity of the economy. Unless employment can be increased greatly, additional recurrent public spending must come either at the expense of private spending or through higher imports. Domestic shortages or a fall in the Australian dollar will then cause inflation, reducing the real value of both public and private expenditure.

In this context, it’s worth pointing out the fallacy of claims by some (not all) economists associated with Modern Monetary Theory that tax cuts for “the rich” don’t fuel inflation because rich people don’t respond to changes in their income by spending more. Households with incomes between $200,000 and $400,000 have plenty of ways to spend more money, whether in Australia or overseas. And having paid down debt during the pandemic, many will be eager to spend any government largesse.

Labor is already preparing to be a do-nothing government. Announcing the party’s decision on the stage three tax cuts, shadow treasurer Jim Chalmers said Labor would be more responsible in its spending than the Coalition. “We think we can get better value for money for the Australian people. That means spending it more effectively on some of the priorities that we’ve identified.” In practical terms, this means that any new spending will be financed by cuts to other programs.

Labor will instead campaign on the argument that the Morrison government deserves to be kicked out for its failures in dealing with the pandemic. While that’s a fair judgement and a plausible election strategy, it’s scarcely a basis on which to form an effective government.

What options are open to those who would like to see a genuinely progressive government? The logical alternative is the Greens, a party that has long been closer to traditional social-democratic views than Labor. But it has remained stuck at around 10 per cent of the vote nationally.

There seem to be three main reasons for this ceiling on the Greens vote. First, there is an enduring association with a flaky New Age image. The pandemic ought to have dispelled this to some extent: rather than being dreadlocked Greens-voting hippies, the anti-vaxxers are dominated by the political right, including prominent government backbenchers like Matt Canavan and George Christensen. Labor hasn’t been spectacularly good either, most notably in Anthony Albanese’s attempts to work both sides of the street on AstraZeneca hesitancy. On economic policy, the Greens have been consistent and principled, unlike either of the major parties.

The second problem is that many people, including many political commentators, fail to understand how the preferential voting system works and imagine that a primary vote for Labor is more effective than a first-preference vote for the Greens with Labor ranked second. In the usual case, where the Greens finish behind Labor, the two ways of voting are effectively the same. And in the rare case where the Greens finish ahead of Labor, they are more likely to attract (mainly Labor) preferences and defeat the Coalition candidate.

The final obstacle to a Greens vote is rusted-on identity politics of the kind exemplified by Albanese himself, who regularly appears to equate voting Labor with barracking for the (traditionally working-class) South Sydney Rabbitohs. On this view of politics, Labor’s adoption of right-wing tax and expenditure policies is of no more importance than a decision by the Rabbitohs to poach players from the (traditionally silvertailed) Sydney Roosters. It’s loyalty to the team that matters.

Only the threat of losing seats to the Greens (and particularly seats that can’t be dismissed as being filled with inner-city elites) is likely to divert Labor from its current course. In the absence of that unlikely event, we can look forward to years of right-wing government, alternating between two parties with no higher ambition than to buy votes with tax cuts. •

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Similar measures are on the agenda everywhere, with the most sweeping of them regulating movement across national borders. International travel has always been subject to vaccination requirements, but these were impractical in the current pandemic until the vaccine became widely available. Now, travel to the European Union and between EU countries is being opened up with the Europe-wide Covid-19 passport. At the same time, new quarantine restrictions similar to those in Australia are being imposed on unvaccinated arrivals in countries including Spain, Portugal and Malta.

By the end of the year, it’s likely that nearly all national borders, except perhaps Australia’s, will open to fully vaccinated arrivals. Restrictions on unvaccinated travellers, already stringent, are likely to harden into permanent prohibitions.

The next stage in the process — the stage that prompted the protests in France and other European countries — is the exclusion of unvaccinated people from bars, restaurants and other indoor venues. With infection levels still high, it’s become evident that this is the only way the vaccinated majority will ever get back to a normal life.

The logic is depressingly simple. In the absence of restrictions and vaccination, the Delta variant has a basic reproduction rate of close to 5. In other words, in the absence of any countermeasures each person who catches the virus will infect an average of five others. To keep the disease under control, it is necessary to hold that number below 1, so that outbreaks fizzle out over time. To meet that figure, 90 per cent of the population would need to be fully vaccinated with a 90 per cent–effective vaccine (or, less reliably, immunised by a previous infection).

Purely voluntary efforts will get us nowhere near that. The only solution is a combination of incentives for vaccination (including negative incentives for not getting vaccinated) and restrictions on the unvaccinated, similar to those we have all endured over the past eighteen months.

The logic is having an effect even in the United States. After taking steadily more extreme anti-vaccination positions over many months, leading Fox News commentators and Republican politicians alike suddenly jumped off the anti-vax ship, announcing that everyone should be vaccinated as soon as possible. As usual in such cases, most of them claimed they had always supported vaccination, and that any suggestion to the contrary was a liberal smear.

Republicans are beginning to realise that this is a culture war they can’t win, or even play out long enough to mobilise voters for an election victory. The vaccination debate no longer fits the standard culture war playbook in which an easily demonised outgroup is imposing its way of life on decent (that is, white, heterosexual and Christian) Americans.

Campaigns of this kind can naturally be presented in terms of the preservation of liberty — not liberty in any abstract or universal sense, but the liberty of the dominant group to do things as they have always done them, whatever the effects on others. But in the vaccination debate, the roles are in the process of being reversed. As the proportion of American adults who have received at least one shot creeps towards 70 per cent, the unvaccinated are a declining minority, even among Republicans.

The result has been a political fracture, with some of the far right becoming even more extreme while others break ranks. Perhaps demonstrating accurate political intuition, Donald Trump has stayed on the sidelines, claiming credit for the development of vaccines but doing nothing much either to promote them or to support the vaccine resisters.

The painfully slow rollout of vaccines in Australia means we have yet to confront these issues. But the lockdown in Sydney is raising the same challenges here, with unpleasant implications. Even the state’s very effective contact tracing — which has kept infection levels much lower than Victoria experienced during its flare-up last year — hasn’t been the silver bullet it was once hoped to be.

In these circumstances, a massive increase in vaccination rates is urgently needed. New South Wales has the capacity to greatly increase the rate of vaccination. We have a huge stock of AstraZeneca, belatedly endorsed by the ATAGI expert group as the right choice for everyone given that alternatives won’t be freely available for months. What is missing are the measures to achieve high vaccination rates.

The failures of the past year, including the complacency brought on by early success and the bungled advice about AstraZeneca, mean that a strategy of “offer it and they will come” isn’t going to work. What is needed is an effort on the scale of our response to the initial outbreak. That means income support during the lockdown combined with substantial incentives for vaccination. Equally importantly, it requires continued restrictions on those who choose to remain unvaccinated.

We aren’t ready, as a society, for the arrival of vaccine passports. But unless the current outbreak is brought under control soon, we may have no choice. •

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Wishful thinking was particularly evident on the part of the Morrison government, where talk of an early election was still going on even as the virus took hold in Sydney’s eastern suburbs. If the virus could be controlled indefinitely without lockdowns, then voters would ignore the failure of the vaccine rollout, the government hoped, on the basis of our successes in the first phase of the pandemic.

Poor understanding of uncertainty was evident in the rush to label New South Wales as the gold standard and assume that a handful of successes was evidence that there was nothing to worry about. This conclusion didn’t take account of the fact that the policy could not afford even one failure. All high-risk strategies share two key features: they work until they fail, and they are likely to be hailed as the product of genius until they are not.

A re-emergence of state parochialism was inevitable because of the federal government’s failure to mount any coherent response, and the resulting divergence of policies at the state level. But it was exacerbated by the re-emergence of the ancient rivalry between Sydney and Melbourne, which seemed until recently to have faded.

Despite extensive evidence of incompetence and corruption, the political class in New South Wales, including normally left-leaning elements, mostly stood behind “their” government. The same pattern held true to a large extent in Melbourne, with the exception of the rabidly partisan Murdoch press.

Looking back at the Melbourne outbreak with the benefit of hindsight, two things stand out. First, the massive, but inconclusive, inquiry into precisely how hotel quarantine failed in Melbourne now appears to have been a waste of time. Eighteen months’ experience has shown that hotel quarantine doesn’t work.

The central problem is that the virus isn’t just spread by contact that can be prevented by careful attention to hygiene and cleaning in a hotel setting, as originally assumed. Now that we know transmission is primarily airborne (including through aerosols) it’s evident that hotels might as well be purpose-designed to spread the virus. But the belief that contact tracing could stop any leak from turning into an outbreak encouraged the Morrison and Berejiklian governments to believe that shifting to dedicated quarantine facilities with separate cabins, as at Howard Springs, was unnecessary.

The second striking thing is that all of the Andrews government’s mistakes, starting with slow and geographically limited lockdowns, have been replicated in Sydney. The belief that New South Wales had nothing to learn from experience elsewhere also played a crucial role.

It has become clear, particularly with the emergence of more contagious variants of the virus, that contact tracing alone is insufficient once an outbreak has spread beyond a handful of cases. With more than 14,000 close contacts identified, and thousands more untraced, the NSW system has already been overwhelmed.

This means that the only way to prevent future outbreaks from getting out of control is to ensure that the reproduction rate R (the average number of new cases generated by an existing case) is pushed below 1. Experience has shown that the only way to achieve this in a population with no immunity from previous exposure is with vaccination and stringent restrictions on movement.

Unfortunately, the chances of getting R below 1 with voluntary vaccination alone are negligible. Estimates of the basic reproduction rate for the Delta variant are around 5. Even with a 90 per cent effective vaccine and no other measures, the vaccination rate required for herd immunity is over 90 per cent. (In effect, less than 20 per cent of the population would be unprotected: the 10 per cent unvaccinated, plus the 10 per cent for whom vaccination is unsuccessful.) Under these conditions, each existing case generates, on average, one new case (20 per cent of five).

Based on surveys and international experience it’s highly unlikely that the current efforts will get vaccination coverage anywhere near that. That means we must either find incentives to greatly increase vaccination or require voluntarily unvaccinated people to adhere to stringent restrictions for the indefinite future.

The latter outcome is likely to happen by default, as restrictions of various kinds are relaxed for fully vaccinated people. We are already seeing this in the United States, as corporations drop mask restrictions for vaccinated workers and customers. The suggestion that vaccinated international arrivals will be allowed the option of home quarantine is another example.

But it would be much more effective to make a clear statement of principle now. It should explicitly state that, for the foreseeable future, people who choose not to be vaccinated will not obtain the freedoms envisaged in the four-stage plan that recently emerged from the national cabinet. The only alternative is to wait for enough people to be infected that we achieve herd immunity, at the price of thousands of lives. •

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Most notably, the US Congress is now considering massive infrastructure programs that could costs trillions of dollars. Some, but not all, of this spending will be funded by extra taxation.

Governments have funded these massive budget deficits by selling enormous quantities of government bonds, most of them purchased by central banks. In the process, they have completely repudiated the previously unchallengeable assumptions that budgets should be balanced and public debt is always undesirable.

Those assumptions rested on the belief that a dramatic increase in public expenditure and debt will invariably produce sharp increases in interest rates. Nothing of the kind has happened. Although inflation has spiked in the United States, driven by shortages arising from the pandemic, long-term interest rates remain near all-time lows.

Even more striking are the interest rates being paid on a type of bond called an “inflation-protected security,” which offer investors a return calculated according to the rate of inflation. If the inflation rate is 2 per cent, for example, and these bonds guarantee a real return of 1 per cent, then the return would be 3 per cent.

Until recently, most market rates of interest were higher than the rate of inflation, so buyers of inflation-protected bonds expected to receive a guaranteed positive rate. But since the pandemic, this is no longer the case. The Australian Treasury’s ten-year inflation-indexed rate is now negative, at –0.75 per cent. And, while there has been a modest uptick in the expected rate of inflation in recent months, massive growth in government debt has had hardly any effect on inflation-indexed interest rates.

This is consistent with experience elsewhere. In the wake of the economic crisis of the 1990s, the Japanese government issued bonds in huge quantities, reaching more than 200 per cent of GDP. Although most of the funds raised were misused on large-scale construction projects with modest benefits, economic growth wasn’t adversely affected in any obvious way. Japan’s GDP per person has grown at a rate of 0.8 per cent since 2000, unimpressive by historical standards but similar to that of other OECD countries. Despite these high levels of debt, Japanese five-year government bonds yield negative returns, just as government bonds do elsewhere. Even bonds with a term of thirty years offer interest rates below 1 per cent, less than the current rate of inflation.

Experience in the aftermath of the GFC has also underlined the dangers of austerity. In Europe, far from stimulating growth, austerity policies led to a decade of severe depression. In the United States, where the swing to austerity was more limited, the recovery from the GFC was sluggish and still incomplete when it was ended by the pandemic.

What does this imply for Australia? Even after the massive expenditure needed to deal with Covid-19, Commonwealth gross public debt amounts to only 40 per cent of GDP. And with ultra-low interest rates, the cost of servicing this debt is minuscule.

Of course, interest rates may not remain this low forever. That’s why the government should seek to lock in as much long-term debt as possible, as long as investors are willing to buy bonds. But how long is long-term? The upper limit at the moment has been set by Austria, which has issued one-hundred-year bonds with a rate of 0.88 per cent.

In reality, though, government bonds needn’t be limited to a fixed period. Rather, as the American economist John Cochrane suggests, we should follow the example of British governments in the eighteenth and nineteenth centuries and issue perpetual bonds. In their case, the funds were often used to fight wars; post-Covid, the necessary spending is just as great but much more peaceable.

For Australia, the most appealing form of perpetual bond would be an inflation-protected bond. Investors would receive a periodic return sufficient to maintain the real value of the sum invested, along with a specified rate of interest, if any. In view of the continuing fear that expansionary fiscal policies will ultimately generate inflation, such securities should be attractive to many investors, even at very low rates of interest.

As Cochrane observes, the great advantage of a perpetual bond is that, whenever issued, the bonds would trade in the same market, creating a deeper market with more liquidity. Long-dated bonds with different maturities don’t have that advantage. This is particularly important for a small country, like Australia, seeking to offset the tendency of international investors to favour their home countries. The more liquid our market, the more attractive it will be to international investors.

Inflation indexing would also help reduce the premium currently observed on Australian dollar bonds. Although exchange rates fluctuate over time, in the long run they are determined primarily by differential rates of inflation. If an upsurge in Australian inflation produces a depreciation of the dollar, foreigners holding ordinary bonds will lose money. But if they are holding inflation-protected bonds their returns will rise, offsetting the depreciation effect.

How much could be raised in this way? A recent offering of $15 billion in thirty-year bonds received $37 billion of bids despite the fact that they would return less than 2 per cent a year. Assuming that the Reserve Bank succeeds in holding inflation between 2 and 3 per cent, that implies a negative real rate of return.

It seems reasonable to hope that Australia could market between $25 billion and $50 billion in inflation-protected perpetual bonds a year, at very low interest rates. Over five to ten years this would be enough to take up all the additional debt taken on as a result of the pandemic.

And what if investors were unwilling to buy these bonds? That would, at least, suggest that they expect real interest rates to rise at some point in the future. At this stage, though, it is hard to see any evidence supporting this view. Despite historically low interest rates, private business investment in productive assets has remained weak. Lacking any other outlet, money is flowing into absurd speculative assets like cryptocurrencies and non-fungible tokens.

What is needed now is a massive expansion of public investment in both physical and social infrastructure. The returns will be sufficient to service perpetual bonds indefinitely. •

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Some of the worries are prompted by old-fashioned, not to say primitive, concerns about birthrates as an indicator of “national vitality.” But they mainly reflect a twentieth-century view of the economy that is deeply embedded in our ways of thinking and economic measurement, even though it is now almost completely obsolete.

Underlying this view is the notion that “a surplus of young people” is needed to “drive economies and help pay for the old,” as the New York Times put it in its report on the 2020 figures. But this model of the economy only emerged in the twentieth century, and it looks likely to end in the twenty-first.

For most of human history, old people were expected to work as long as they could, just as children were put to work as soon as they were able. The very young and the very old depended on their families to support them.

That changed radically with the emergence of the welfare state at the end of the nineteenth century. Children were excluded from the workforce and required to attend school until the official leaving age, typically around fourteen. Governments paid for schools but generally required parents to support their children in other ways, as they’d done in the past.

At the other end of life, the new system of age pensions meant that old people (most commonly those over sixty-five) became entitled to public support, sometimes subject to a means test. Pensions were paid out of taxes or contributions to social security schemes.

Either way, the cost was borne by the “working-age” population, generally defined as fifteen to sixty-four. With a high birthrate, the age distribution of the population was shaped like a pyramid, with a large working-age population at the bottom supporting a small group of retirees at the top.

Underlying the pyramid was the idea that physical work predominated. Young, strong and needing only on-the-job training, workers would leave school at fourteen and immediately start contributing to the economy. By sixty-five, they would be worn out and ready for retirement. The more young people the better.

To see what’s happened to that assumption, we need only look at the US data on employment by age. At the turn of the twenty-first century, the pyramid concept looked reasonable enough. Around 60 per cent of young people aged sixteen to twenty-four were employed, compared with barely 30 per cent of those aged fifty-five and over.

By 2019, though, before the pandemic, the gap had largely closed. Just over 50 per cent of people aged sixteen to twenty-four were employed, compared with 39 per cent of those over fifty-five. While many of the jobs held by young people are now part-time and low-waged, older workers are typically earning just below the peak they reached at around age fifty. The figures suggest that average earnings per person are already higher among the old than among the young.

The modern economy is quite different from the one assumed by the conventional population pyramid. To become a productive member of the community, young people need academic or vocational post-school education, and that requires large-scale spending by government or parents, or through loan schemes like HECS. Even as the proportion of young people in the population has declined, developed countries like Australia and the United States have been able to maintain or even increase the proportion of national income allocated to education.

A return to high birthrates over the next few years would create the need for a large increase in education spending. The pay-off in terms of a more productive workforce would not be fully realised until the second half of this century, when the expanded age cohort entered the prime-age workforce in their late twenties and early thirties.

At the other end of the age distribution, official retirement ages have been abolished, and the eligibility age for the pension has been pushed to sixty-seven, with further increases in prospect. For a significant group of manual workers, physical exhaustion still makes retirement a relief. The undervaluing of older workers persists, pushing many into retirement whether they want it or not. But working past sixty-five is an increasingly attractive economic option for a large group of white-collar workers.

A realistic model of the future workforce is one in which productive workers are mostly aged between twenty-five and seventy. Given that life expectancy will never be much above ninety-five, the typical person will spend about half their life in the working-age population and the other half evenly divided between education and retirement.

In other words, despite the concerns expressed since the 2020 population figures were released, the age distribution associated with a lower birthrate is unlikely to cause major problems in how people in countries like Australia are supported during the years they spend out of the workforce.

Meanwhile, a lower birthrate is having an unambiguously beneficial impact on the size of the world’s population. The world is already overcrowded, and the growing population is straining the capacity of the planet. Even with falling birthrates, the world’s population is certain to rise between now and 2050.

By 2100, the total figure might return to the current level of eight billion, or perhaps a little fewer. The idea that we should push people to have more children in order to lift this number, rather than make marginal adjustments to the economic institutions we have inherited from the twentieth century, is simply nonsensical. •

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Wayne Swan promised a surplus “come hell or high water” when he was treasurer, and even announced one in his 2012–13 budget. But his forecast was derailed by a slowing economy, and that attempt to deliver a surplus also failed.

Nearly a decade later, in the 2019–20 budget, Josh Frydenberg echoed Swan, announcing that Australia was “back on track and back in black.” But last week’s budget recorded two massive deficits and foreshadowed another decade’s worth.

The 2020–21 budget’s projected deficit, and the deficits of its two predecessors, can be put down to the need to rescue the economy from the effects of the pandemic. But Covid-19’s effects (except for permanently lower population growth) are expected to have washed out by 2023–24. The reason the government still projects a substantial deficit is simple: it has stuck with its commitment to large tax cuts, directed primarily to high-income earners, and added a substantial increase in spending on aged care. It’s safe to say that it no longer sees budget surpluses as a high priority.

If surpluses are the thylacines of Australian politics, public debt has been a Yowie-like monster figure. From John Howard to Tony Abbott, the Liberals in opposition have driven debt trucks around the country denouncing Labor’s fiscal profligacy. Labor has returned the favour whenever the Coalition has found it necessary to increase the limit on government debt.

But nearly every country has needed massive increases in public debt to respond to the pandemic. Importantly, they’ve done that without any upsurge in inflation, the usual corollary of a leap in indebtedness. Expansionary monetary policy has driven short-term interest rates to zero or below, and long-term interest rates are at historically low levels.

In this situation, past assumptions about the government’s taxing and spending are of little use. We need an entirely new approach to fiscal policy, and that also implies major changes in monetary policy.

The problem is that the Coalition, having abandoned the old certitudes, shows no sign of seriously thinking about alternatives. For the moment, the budget’s forward thinking ends with the next election; nowhere in sight is a new framework for fiscal policy.

Labor’s contributions to this debate have been worse than useless. It had the opportunity to defend the Rudd government’s management of the global financial crisis, and to drive home how the Coalition has abandoned the “debt and deficit” rhetoric it used to justify its claims to be a superior economic manager. Instead, Labor’s leaders have attacked from the right, deriding the Coalition’s eight successive deficits.

Rather than worrying about absolute levels of debt, fiscal policy should be focused on the long-term real rate of interest. It’s this that determines whether long-term projects are sufficiently profitable to justify the necessary investment.

Long-term real interest rates have been declining for decades, and are now zero or negative. The current interest rate on Australian government thirty-year bonds is 2.7 per cent, almost exactly equal to the midpoint of the Reserve Bank’s target inflation range of 2 to 3 per cent. Borrowing in these conditions is essentially free, and likely to stay that way for quite some time. Inflation-adjusted rates are similarly low everywhere in the developed world.

The global upsurge in absurd speculative assets like Bitcoin, Dogecoin and non-fungible tokens is clear evidence that the anticipated rate of return on private business investment is too low to absorb the supply of savings. The same factors are driving the latest housing boom in Australia.

In these circumstances, we need more public debt, not less, to restore a positive real rate of interest. That requires public investments with returns large enough to service the debt. Unlike business investments, this return need not be in the form of profit: providing that public investments yield a sufficiently large flow of benefits to society, they can be serviced through taxation while leaving the public better off. Investments in schools, universities and TAFE, for example, benefit those who receive the extra education in monetary and non-monetary ways, but also lift their capacity to pay the taxes needed to service the government’s borrowing.

Current interest rates mean that the burden of interest payments is low even for large volumes of debt. At today’s ten-year bond rate of 1.7 per cent, a debt of a trillion dollars requires interest payments of $17 billion — less than 1 per cent of our national income or 4 per cent of Commonwealth revenue. As long as government revenue grows more quickly than the interest payable on that debt, the budget needn’t be in surplus. A small deficit would increase debt more slowly than the annual increase in GDP, which would mean the overall debt burden declined relative to the size of the economy. For this reason, among others, the Reserve Bank should target the nominal growth rate rather than, as at present, the rate of inflation.

Interest rates may rise in the future. But what matters most in managing the risk of interest rate changes is not the absolute amount of debt but the structure of that debt. In any given year, the government needs to borrow to cover its operating deficit and to roll over existing loans as they mature. An increase in interest rates will affect the cost of new borrowings, but not the interest it pays on existing debt.

As the volume of debt becomes larger, more of this debt should be long-term (ten years) or very long-term (twenty years or more). It might even be worth reviving an inflation-protected version of the perpetual bonds issued by the British government in the eighteenth and nineteenth centuries.

We have a lot to learn about the new world in which we find ourselves. But it’s time to start exploring. •

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What explains this shift? It is largely a matter of generational change within the Democratic Party. Despite being led by the oldest president in American history, the Democrats are predominantly the party of the young. Exit polls revealed voters aged eighteen to twenty-nine overwhelmingly supporting Biden over Trump by a margin of 62 to 35 per cent. Biden also won easily (52 to 45 per cent) among voters aged thirty to forty-five. Young Democrats have little interest in the centrist politics of the Clintons, or even of Barack Obama.

It’s worth distinguishing this observation from the pop sociologists who divide the population into “generations” — boomers, millennials, gen X and so on. Most talk about the differences between generations mainly consists of repackaged age-old clichés about the laziness and irresponsibility of the young, the growing conservatism of the middle-aged and the rigidity and hypocrisy of the old. And the idea of sharp distinctions between groups like boomers, millennials and gen Xers is nonsense: most of the time, differences in class, race and gender are far more important than the fact of being born in the same year, let alone within the spans of fifteen years or so taken to define generations.

But some experiences shared by members of a given generation can make a permanent difference in the typical attitudes of that generation. (Bear in mind that these are only averages, with lots of exceptions.) Among the most important of these is the state of the economy when people make (or fail to make) the transition from education to employment. Entering the labour force during a recession has a permanent adverse effect on lifetime earnings, and that experience flows on to social and political attitudes.

Political views formed in early adulthood are quite durable, particularly when they are the result of very good or very bad economic outcomes. While the New Deal of the 1930s produced a generation with large numbers of lifelong Democratic voters, the prosperity of the 1950s gave rise to the Republican majorities elected by the “silent generation,” a very early attempt to sum up a whole generation using a catchy label.

Until recently, the leading voices among Democrats came from a cohort whose views on economic policy issues were formed during the rise and seeming triumph of neoliberalism, from the early 1970s to the end of the twentieth century. The ideal among this group was to be “socially liberal and economically conservative” without going too far in either direction.

Rather than focusing on birth dates, it may be better to identify this cohort with a cultural reference. The TV apotheosis of “soft neoliberalism,” The West Wing, aired from 1999 to 2006, just as the times that created it were coming to an end. The character of Matt Santos, elected president in the final series, was apparently modelled on Barack Obama.

West Wing Democrats like Obama are being replaced by party figures who experienced only the growing inequality and periodic crises of the twenty-first century. No one under forty can have any clear memory of the “end of history” announced in 1992 by Francis Fukuyama or of the boom years of the 1990s. No one under thirty (with the exception of a few precocious teenagers) watched The West Wing.

Americans who have come of age since 2000 (millennials and gen Z, in the standard typology) have seen few if any positive outcomes from financialised capitalism. The century began with a recession caused by the collapse of a speculative bubble in dotcom stocks, similar to the current bubble in absurdities like Bitcoin. Although that first recession of the new millennium wasn’t severe, recovery was achieved only by an expansionary monetary policy that sowed the seeds of its own destruction. In an underregulated financial market, low interest rates are bound to lead to speculation, unsound financial innovations, and ultimately disaster.

Even as the economy slowly recovered, the combination of growing inequality and greatly increased college debt left middle-class millennials with the prospect that they might never be as well-off as their parents. For those without a college education — people whose real wages (on standard measures) peaked around 1980 — that prospect was already a grim reality. The boom in “deaths of despair” is one outcome of this process. Among Democrats, the result has been an abandonment of the 1990s rhetoric about “rising tides lifting all boats” and the implicit assumption that those tides are generated by the gravitational pull of the free market.

A striking illustration of the shift is the recent ostracism of Rahm Emanuel, a special adviser to the Clintons who went on to be Obama’s chief of staff and later mayor of Chicago. Emanuel, who is generally assumed to have been the model for Josh Lyman, arguably the central character in The West Wing, is an outcast in today’s Democratic Party. His attempts to secure a position in the Biden administration were met with furious opposition.

This is not because Emanuel has changed his views but because he has stuck to the same positions he held twenty or thirty years ago. He was close to big business, a promoter of Bill Clinton’s draconian 1994 crime bill, hostile to teachers unions, and contemptuous of “liberal theology” ( “liberal” in the American sense). Joe Biden, by contrast, who shared many of the same positions then, has shifted left along with the party as a whole.

These shifts are not yet set in stone. But if Biden succeeds, as he seems to be doing at present, the cohort of young Democrats who elected him will be a powerful force in US politics for decades to come. •

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On 22 April, Joe Biden will hold a virtual climate summit aimed at persuading world leaders to take more ambitious action to reduce greenhouse gas emissions. The US president has correctly identified climate change as an “existential threat,” and his US$2 trillion infrastructure package includes substantial investment in renewable energy and electric vehicles. His climate ambassador, John Kerry, has identified Australia as one of the holdouts, linking us to the Bolsonaro regime in Brazil. “Australia has had some differences with us, we’ve not been able to get on the same page completely,” he said during an interview in February. “That was one of the problems in Madrid, as you recall, together with Brazil.”

Brazil’s president, Jair Bolsonaro, appears to have taken the hint: his climate denialist foreign minister has been forced to resign and his government has publicised a letter from Biden offering cooperation on climate policy. Australia could easily end up in a minority of one at the summit, unwilling to move beyond the government’s patently inadequate offer of a 26 per cent reduction in emissions by 2030.

Everyone outside the lunatic fringe of the government’s backbench knows that the final outcome of this process will be a commitment to net zero emissions by 2050. We can do this voluntarily or we can wait to have it forced on us by the trade sanctions being prepared by the European Union and foreshadowed by the United States. Morrison has already inched towards this position by acknowledging that it would be desirable to reach net zero preferably by 2050.

It would make political as well as economic and environmental sense to make the commitment in time for Biden’s summit. At best, it might shift the domestic focus from the scandals besetting the government. Even if that doesn’t happen, it could hardly do any more damage than the daily run of disasters. Some backbenchers might shift to the crossbench, as Craig Kelly has already done and Andrew Laming will probably be forced to do before long. But they won’t vote to bring down the government, and Morrison has survived minority government before.

The big problem is that, having announced a 2050 net zero target, the government needs to map out a policy that might plausibly get us there. The task is made more difficult because the simplest and most economically sensible way of reducing emissions, a carbon price, remains unacceptable to the Coalition.

This month’s release of former chief scientist Alan Finkel’s Quarterly Essay, Getting to Zero: Australia’s Energy Transition, seems to provide the perfect opportunity for the government to reset the debate. Finkel focuses almost exclusively on technology, mentioning a carbon price only in the context of the high price required to make carbon capture and storage economically viable. He is diplomatic about the very limited efforts made by the current government, most notably the Emissions Reduction Fund, suggesting that it could form the basis of a transition program.

Even so, adopting Finkel’s plan would require Morrison to dump some longstanding positions. It would also upset a significant proportion of his base.

Finkel begins by dismissing as “non-starters” two technologies he has previously suggested might be part of the solution. These are “clean coal” (supercritical coal-fired power stations, with or without carbon capture and storage) and nuclear power (including small modular reactors), both of which have plenty of supporters in the Coalition parties.

Finkel’s list of solutions makes plenty of sense but would require Morrison to eat his own words on a number of issues. He summarises his proposals thus: “Step 1: Replace all the existing electricity generation with zero-emissions electricity. Step 2: Generate lots more zero-emissions electricity, so that we can use it for stationary energy [manufacturing, building, mining and so on] and transport. Step 3: Generate lots more electricity, so that we can use it to make hydrogen for those instances where electrons are not ideal. Step 4: Generate many times more electricity, to produce hydrogen for export. Step 5: Produce lots more electricity, to produce goods that embody large amounts of energy, such as zero-emissions steel and zero-emissions aluminium.” All these steps, he adds, can happen simultaneously.

Steps 1 and 2 pose the biggest problems for the government. Step 1 will require abandoning years of rhetoric about the supposed unreliability of wind and solar power, as well as making some significant policy shifts. Step 2 will force Morrison to walk back his silly pre-election jibes about the abolition of the weekend.

But Finkel’s analysis of improvements in battery storage provides Morrison with the opportunity to say that technological change has delivered this part of the government’s “technology roadmap” sooner than expected. And with the vehicle industry itself calling for emissions standards, the time will never be better for the government to embrace the shift to electric vehicles.

The export part of the proposal is also critical. Along with sections of the Labor Party, the government is clinging to the idea that Australia can be the “last man standing” in the global coal trade. But the export of renewable energy, either as electricity or in the form of hydrogen and ammonia, should appeal to the conservative side of politics.

With one exception, Morrison’s track record suggests he will duck the hard decisions, prefer spin to policy, and shift the blame for failure wherever he can. But that one exception is a big one. As the scale of the pandemic became apparent early last year, the government shifted rapidly from its plan for a small-scale, targeted response to the all-out effort of JobKeeper and JobSeeker. In the process, a decade of rhetoric about the wasteful and unnecessary nature of Kevin Rudd’s response to the global financial crisis was thrown out the window.

The climate crisis might not be as fast-moving as the pandemic, but it has caught up with us now. Let’s hope we see the Morrison of March and April 2020 one more time, and not the PR man we usually get. •

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In the developed world, one historical episode might reasonably be regarded as a golden age. Between 1945 and 1973, countries in Western Europe, North America and Oceania experienced strong economic growth combined with very low unemployment and sharply declining inequality. The dominant policies used Keynesian macroeconomics to stabilise the economy and develop a fairly comprehensive welfare state to protect citizens from falling into poverty due to old age, incapacity or unemployment.

Those Keynesian policies produced, or at least coincided with, the longest period of widely shared prosperity in the history of the developed world. Not only was economic growth consistently strong and unemployment low, but income distribution was equalised to a degree not seen before or since. At the time, this “Great Compression” was seen as part of the natural evolution of a capitalist economy; in retrospect, it is quite exceptional.

Whereas unemployment rates during the Great Depression had risen to levels of 30 per cent or more, the golden age was characterised by nearly continuous full employment. In Australia, unemployment was below 1.5 per cent, on average, and exceeded 2 per cent only once.

With the women who had entered the workforce during the second world war having been encouraged to make way for returning servicemen, the benefits of the buoyant economy initially flowed mainly to male workers and their households. But by the end of the golden age, most of the formal gender inequality in the labour market had been swept away. The bar on employing married women in the Commonwealth public service was abolished in 1966. Equal pay for men and women doing the same work was achieved in 1972.

We might have expected this exceptional period to be the focus of intense study. How were its best features achieved? What went wrong? How, if at all, can we create a new golden age? Strangely, these questions have received remarkably little attention.

At the time, the Keynesian economists whose ideas were dominant during the golden age believed the sustained high employment was easily explained. The correct application of Keynes’s views had replaced failed policies based on the fallacious ideas of classical economists.

The same explanation applied to other aspects of postwar prosperity. Modern technology gave developed societies the capacity to meet everyone’s essential needs. Mass poverty had largely been eliminated. In the United States, Michael Harrington’s landmark book, The Other America: Poverty in the United States (1962), brought public attention to the fact that poverty still persisted and created a new drive to deal with it. But, as his title indicated, poverty was seen as a deplorable exception to general prosperity.

Harrington’s work had some lasting consequences in Australia. It led to the creation of the Henderson poverty inquiry in 1972, which encouraged the Whitlam government’s significant extension of the welfare state. Henderson’s “poverty line” is still regularly updated, and has been given new urgency by debates over the proposal for a universal basic income, most recently advocated in Ross Garnaut’s new book, Reset.

At the peak of the golden age in the 1960s, there seemed no reason why poverty and economic want could not be eliminated once and for all. President Lyndon Johnson’s War on Poverty was an expression of a faith that was shared by the Whitlam government in Australia, though it had the misfortune to be elected just as the economic crisis of the 1970s brought the golden age to an end.

Like the disappearance of mass poverty, the decline in economic inequality during the golden age wasn’t seen to require much in the way of explanation. In the 1950s, Simon Kuznets, the American economist who played a central role in developing national accounting, observed that economic inequality, after rising in the early stages of industrialisation, had fallen in the United States and other developed countries, reaching unprecedentedly low levels by the middle of the twentieth century.

Kuznets suggested that the process might be explained by the transfer of the workforce from a low-wage agricultural sector to a high-wage industrial sector. But most commentary was keener to celebrate (or occasionally deplore) the rise of a “middle-class society” than to explain it.

When the Keynesian social-democratic model ran into trouble in the early 1970s, most attention was focused on the inflation that emerged in the late 1960s. Milton Friedman and other resurgent supporters of classical economics proposed policies that would reduce inflation and — after a period of painful but necessary adjustment — lay the basis for a return to sustained prosperity.

For a while, during the economic expansion of the 1990s, it seemed possible that this promise might be met. Only after 2000 did it become clear that the neoliberal economy offered nothing like the broad-based prosperity of the postwar era. The global financial crisis, and the ensuing years of austerity have made this clear to nearly everyone.

But the golden age was already ancient history for an economics profession in which the mastery of the latest theoretical tools is valued far more highly than any long-term perspective. Most economists, to the extent that they considered the issue at all, were content with simplistic explanations of the golden age as, for example, a straightforward result of the economic activity generated by postwar reconstruction.

This isn’t the place to attempt a detailed explanation of the golden age. But it’s a reminder that we shouldn’t be satisfied with a return to the pre-pandemic economy, in which periods of marginally positive growth in real wages, and occasional reversals of the trend towards ever-greater inequality were treated as triumphs. Rather we should be looking harder at what went right in the mid twentieth century and how we can recapture broadly shared prosperity. •

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The passing of Biden’s legislation is the result of both his presidential election victory and the run-off elections in Georgia, which gave the Democrats fifty votes in the US Senate (with vice-president Kamala Harris holding the casting vote). The central issue in the Georgia elections was the choice between the relatively modest stimulus package passed by Congress in December 2020 and the much more ambitious proposals from the Democrats. In hip-pocket terms, the distinction was between the payments of US$600 per taxpayer from the Republicans and a total of US$2000 offered by the Democrats.

That wasn’t the only difference. The Republican legislation allocated nearly a third of funds to the Paycheck Protection Program, a version of Australia’s JobKeeper, but gave nothing to state and local governments. Because their tax revenues have been reduced by the pandemic, and because they have little or no capacity to run deficits, state and local governments in the United States have been forced to cut spending and employment. Biden’s package includes large-scale support for these levels of government.

The measures in the Rescue Plan are temporary and most are expected to cease as the economy recovers. But the package includes funding for policies the Democrats would like to make permanent, the most important of which are increases in the Earned Income Tax Credit and the Child Tax Credit, the two main measures that assist families with children. If sustained, these increases would reduce child poverty by an estimated 40 to 50 per cent.

Republicans’ opposition to the package may safely be dismissed as political posturing, given their eagerness to pass the Trump cuts. But some more credible commentators, most notably Larry Summers (who held senior economic positions in the Clinton and Obama administrations), have expressed concern about the scale of the stimulus.

These concerns have mostly focused on inflation and the growth of budget deficits and public debt. A more useful way to consider the problem (an approach sometimes referred to as functional finance) is to ask whether the resources available to the economy are sufficient to meet both the extra public expenditure in the stimulus package and the rise in consumption and private investment expenditure that follows.

For the moment, finding those resources isn’t a problem. The conditions created by the pandemic have reduced private consumption and investment expenditure. Households whose incomes have been unaffected by the pandemic have used the money saved by working from home and limiting holidays to pay down debt. Businesses have held off big investment decisions.

But once life returns to normal, and spare capacity in the economy is exhausted, households will want to start spending the liquid assets they have built up. Their increased demand will collide with permanently higher levels of public expenditure and renewed investment to produce a level of aggregate demand beyond the capacity of the economy to supply.

The outcome will create shortages, rationing and bottlenecks — which means none of these demands will be satisfied. Eventually, the shortages will produce higher prices and wages, and a renewed burst of inflation. But inflation is just a symptom of excess demand; it’s the shortages, and the problems they create, that are the real source of economic damage.

Once the economy recovers, the only way to meet the need for increased public expenditure, given the productive capacity of the economy, will be to reduce the spending power of private households through taxation. Given the highly unequal distribution of income in the United States, most of the reduction must be borne by those in the top 10 per cent of the income distribution and particularly those in the top 1 per cent. Since these groups were the biggest beneficiaries of the Trump tax cuts, the immediate response must be to repeal part or all of those tax cuts.

What about the public debt built up during the pandemic, and the further increases in debt implied in sustained budget deficits? In the short run, much of the debt has been monetised: the US Federal Reserve has bought around US$4 trillion in Treasury bonds since the pandemic began, and will be able to buy more to offset the increase in public debt associated with the latest stimulus. But the Reserve’s capacity to do this is limited by the public’s willingness to hold cash and zero-interest deposits rather than spend their wealth or invest it in higher-yielding assets. Once this willingness is exhausted, further monetary expansion will translate into higher expenditure and therefore run the economy into resource constraints.

To resolve the situation, the ratio of debt to GDP will need to be reduced during the expansion created by the stimulus package. Fortunately, low interest rates mean that will happen automatically, as long as tax revenue is sufficient to cover government “primary” expenditure (exclusive of debt).

But a faster reduction is probably desirable. The small policy adjustments (such as twenty-five basis points in central bank interest rates) that seemed to work in the couple of decades before the global financial crisis aren’t adequate for managing the unstable economy we can expect for the foreseeable future. The larger the stimulus we want government to provide in bad times, the bigger the surpluses it should run when private demand would otherwise be excessive.

All that is for the future. If Biden’s stimulus plan achieves its goals, it will be the clearest demonstration in many years of the central role of government — in the United States and countries like Australia — in stabilising the economy and delivering outcomes more sustainable and equitable than those of unregulated capitalism. Let’s hope it works. •

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In Texas, the results were disastrous. The electricity generation system failed, leaving millions of people without power for days on end. Dozens of people froze to death or died from carbon monoxide poisoning when they used car heaters to keep warm. In many places the water supply system failed to restart even after power was restored.

Immediately after the blackouts came an outbreak of culture war blame-shifting familiar from extreme weather events in Australia. Republican politicians amplified by Fox News claimed that the power failures were a result of a rapidly increasing reliance on wind power. Wind turbines, ill-prepared for extreme cold, simply froze.

But it soon became clear that coal-fired and nuclear plants had failed too. And gas-fired power stations were responsible for the biggest falls in output, not because they are uniquely vulnerable but simply because they are the main source of electricity in Texas.

The real question is why Texas lost power when neighbouring states, also experiencing the freeze, did not. The answer involves regulatory failures, some of which have important implications for Australia.

The first part of the problem is that most of Texas is not connected to the rest of the US power grid. This is deliberate: the Texas Interconnection has been kept separate to ensure that it remains under Texas rather than federal control. That means the state can’t draw on electricity from the major “power pools,” notably the Southwest Power Pool. By contrast, the city of El Paso, which is connected to the SPP, maintained its power supply throughout the extreme weather.

Texas kept itself separate so it could replace its traditional integrated electricity supply with a structure that combined a pool market for the generation stage of electricity supply with a competitive market in retailing, and lightly regulated transmission and distribution. The system is run by ERCOT, the ironically titled Electric Reliability Council of Texas.

Australia’s system bears an uncanny resemblance to Texas’s. The National Electricity Market, which works in much the same way as ERCOT, was established on the pretext that it was needed to manage the National Grid, which has connected systems in Eastern Australia since the 1990s. In the market reform era, the alternative of integrating the separate state-owned systems into a single national system was never seriously considered.

After this month’s crisis, it seems unlikely that ERCOT can avoid interconnecting with the SPP. But the United States really needs a single national grid. To move away from carbon-based fuels, the entire economy will need to be electrified, which will increase the need for a reliable supply. And the benefits of interconnection will only grow as time-varying sources like solar and wind become more important. With a national grid, mid-afternoon sun in California could send power to meet early-evening peak demand in the eastern states.

A truly national grid would require connecting the eastern and western United States with transmission lines, probably using high-voltage direct current transmission. In technological terms, this is a big but manageable project. The real challenge is dealing with the political and regulatory obstacles. It will be interesting to see whether the Biden administration attempts to tackle this task and, if so, whether it succeeds.

The other failure in Texas had to do with the operation of the electricity market run by ERCOT, which was the reason the grid was kept separate. As in Australia, it’s an electricity pool market in which generators bid to supply power to the grid each day. The power failure highlighted two problems that turn out to be interconnected.

First, when lots of power plants went offline, the market price of power soared to US$9000/MWh, producing ruinous bills for customers who had chosen supply deals based on the wholesale price rather than a fixed rate. Second, the system made it unprofitable for generators to invest in “winterising” their plants to protect them against rare extreme events like the polar vortex.

The connection between the two is that in an “electricity only” market, ultra-high prices are supposed to encourage firms to invest in generation capacity or backup systems that will be used only very rarely, when the rest of the network fails. In an extreme shortage, though, prices could theoretically go far higher than the US$9000/MWh observed in Texas. That’s why, as in Australia, the designers of the system imposed a limit on the price the market can reach.

The result is a system that falls between two stools. The maximum price is high enough to create both risk and opportunities for market manipulation, but not high enough to provide incentives to invest in reliable supply.

In response to this mess, some electricity regulators have reintroduced an element of central planning by making “capacity payments” to generators willing to guarantee supply. Australia has responded with a hodgepodge of interventions run through the Energy Security Board at the national level, along with state measures such as South Australia’s “big battery.”

We need to take this further by creating what might be called a “capacity only” market. Rather than bidding to supply power in the short term, generators should tender to supply power to the market for a period of several years, specifying both their generating capacity and the reliability with which they can supply power. The market operator would then use an “order of merit” to decide which generators should operate at any given time, just as was done in the pre-privatisation days of an integrated electricity supply industry. Such a system would maintain competition in generation and retail, but would otherwise be centrally planned. •

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Last year, former prime minister Kevin Rudd described this idea as a “hackneyed phrase that has become part of the self-affirming psychology of our wider national inertia.” Recent events have shown him to be correct.

Apparently with the aim of pleasing the Trump administration in the United States, the Australian government took the lead in pushing for an inquiry into the origins of the Covid-19 pandemic, in terms generally seen as seeking to pin blame on China’s initial response to the emergence of the virus in Wuhan in December last year.

Given that Australia has suffered less than most other countries in the pandemic, there was no obvious reason to take the lead in this matter. Unsurprisingly, given its increasingly aggressive “wolf warrior” stance in international matters of all kinds, China retaliated. Beginning by escalating an existing dispute over barley, China has restricted imports of all kinds from Australia, including coal, wine and beef. The exception, so far, has been iron ore, our most valuable export and the one China can least do without.

We have at least had the sympathy of other countries, some of whom have also been bullied by China, in this fight. There was even a suggestion of an initiative to buy Australian wine to make up for the loss of the Chinese markets. But sympathy goes only so far. The United States has been eager to meet China’s demand for more barley to replace the Australian product.

Unfortunately, any consideration we might have gained as the victim of Chinese government bullying over the pandemic response has been thrown away because of the government’s refusal to respond to the even larger crisis of global heating. With the adoption of a 2050 net zero emissions target now becoming the norm for developed countries, the Morrison government has been paralysed by the fear that any action would provoke a backbench rebellion. As Rudd observed in 2019, “The current government’s attitude to our place in the region and the world is driven by one organising principle, which is the extension of domestic politics by other means.”

In the domestic context, having killed off Labor’s carbon pricing policy just as it was beginning to reduce emissions, successive LNP governments have relied on dodgy accounting and grandly titled but ineffectual gestures, including the Emissions Reduction Fund, the Energy Security Board, and the Low Emissions Technology Roadmap, to give the impression of action while doing nothing to offend the extremists among its supporters.

The assumption has been that this meaningless symbolism would work at the international level as well. In the lead-up to the weekend’s Climate Ambition Summit, and following discussions between Morrison and the joint host, British prime minister Boris Johnson, the government assumed that the world was so eager for our participation that any kind of concession would be sufficient for a warm welcome. The concession chosen was to finally abandon the claim that we were entitled to meet our 2030 target with surplus credits from the Kyoto round that finished in 2012.

Much to the government’s fury, Morrison did not receive the expected invitation to speak, which was extended to seventy other world leaders. Australia was lumped in with the worst climate offenders: Brazil, Russia and Saudi Arabia. To make matters worse, China was given a prominent role, reflecting a desire among the summit organisers to encourage that country’s positive steps — especially the recent announcement of a net zero target for 2060 — and play down more negative developments, such as the surge in coal plant permits issued by provincial governments.

The affronts will keep on coming as long as our do-nothing stance is maintained. Yesterday it was reported that the Britain’s Labour Party has demanded that the British government opposes Matthias Cormann’s nomination as secretary-general of the OECD. The only ground cited was Australia’s foot-dragging on climate policy.

To return to the boxing metaphor, China is a heavyweight and can’t easily be pushed around. The rest of the world can reward positive developments there, but it can’t enforce them.

Australia is a lightweight, and we are fighting out of our class. If we want to succeed on issues like our trade dispute with China, we can’t afford to poke our potential allies in the eye by suggesting, as Scott Morrison has repeatedly, that our climate policy will be determined by our own national interests and not by our obligations to the rest of the world. •

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Invariably, the real Australians turn out to share the political views, usually conservative, of the speaker. Despite the evidence of opinion polls and plebiscites, real Australians are generally held to oppose marriage equality, not to want to do much about climate change, and to reject progressive taxation.

The latest entrant is Chris Bowen, the member for McMahon in Sydney, who tells us that Labor needs to win the trust of suburban voters. Taken literally, this claim has the merit of being trivially true. Labor never wins a majority of seats in country areas, and virtually everyone who doesn’t live in the country lives in a suburb. So, Labor can only win government if it wins most suburban seats.

Bowen seems to think, however, that lots of voters (though not enough to give Labor a majority) live in a place he calls the “inner city,” and that Labor is paying them too much attention. Does this stand up to scrutiny? Let’s look at the electoral outcomes for the Sydney metropolitan area in 2019, when Labor’s performance was pretty disappointing. (Hat tip to Peter Brent, who posted this on Twitter just when I needed it.)

Sydney since the 2019 election. Australian Electoral Commission • Click to enlarge

If we define inner city in the way I would understand it — meaning an area close to the CBD where most people live in apartments or terrace houses — the only clear contenders are the electorates of Sydney and Grayndler, both of which Labor holds. Even on a slightly broader definition taking in the eastern suburbs and the North Sydney area, there are only a handful of seats, most safely conservative.

Presumably Bowen means to say something more than simply observing that one or two electorates in Sydney (and a couple more in other major cities) don’t constitute a majority.

So, let’s divide the Sydney suburbs into three roughly equal groups:

• “Silvertail” suburbs (Wentworth, the North Shore and the Northern Beaches), where Labor can’t expect to do well.

• Inner and middle-ring suburbs (the arc from Parramatta to Cook), of which Labor holds seven and the Liberals hold Reid, Banks and Cook.

• Outer suburbs, of which Labor holds six and the Liberals hold Lindsay, Mitchell and Hughes.

The map shows that Labor, even in a disappointing year, hasn’t lost touch with non-elite suburban voters in the way that Bowen implies. And the seats Labor could plausibly hope to pick up don’t have any obvious commonalities beyond being suburban. Nor are they massively different from the neighbouring seats Labor holds.

Although the result of the 2019 election was a disappointment for Labor, it was every close. If the party had won a couple of seats in the inner and middle-ring suburbs of Sydney and a few more in Brisbane and Melbourne, Bill Shorten would now be prime minister. Half a dozen wins in outer-suburban seats would have produced the same outcome. To identify some particular part of Labor’s support base for special attention while attacking another part would be an exercise in futility.

To put it another way, Labor’s support base consists primarily of non-elite urban voters while the Coalition depends mainly on rural, regional and well-off urban voters. This would be unsurprising if it weren’t for the fact that so much political commentary, including Bowen’s, assumes the opposite.

Even less surprisingly, Labor needs to get more votes (or Greens’ second preferences) than the Coalition in order to win government. In this context, it’s worth observing that despite spending most of the period since 2000 in opposition, Labor has averaged 49 per cent of the two-party-preferred vote in the seven federal elections held this century. If two in a hundred Australians had consistently voted differently, Labor would have been the dominant party.

As Labor’s troubles at the federal level have shown, there’s no magic recipe for winning those extra percentage points. Labor would do best to present a coherent centre-left platform and seek to appeal to all its current and potential supporters rather than focus on some and deliberately alienate others. •

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Contrary to Scott Morrison’s blustery claim — “I tell you what, our policies will be set here in Australia” — most of the important decisions about our energy future will be made elsewhere, by governments in Washington, Beijing and Brussels, and by energy companies and financial institutions headquartered in New York, London, Frankfurt and Tokyo.

Their decisions are reflecting the widening realisation that the world must abandon coal sooner rather than later, that our reliance on oil must also end and, increasingly, that gas is part of the problem rather than of the solution. As many commentators have noted, commitments to net zero emissions by China, Japan, South Korea and other major emitters, as well as the election of Joe Biden in the United States, have left the Australian government increasingly isolated. A recent New York Times article linked Scott Morrison’s climate denialism to that of Brazil’s authoritarian demagogue Jair Bolsonaro, someone who certainly won’t be welcome at the White House after 20 January.

Yet the government and its supporters are working on the assumption that commitments by most of our trading partners to net zero emissions by 2050 (or 2060 in the case of China) are rhetorical gestures with no real-world implications. Whatever Coalition ministers might say, they are assuming business as usual, particularly in relation to coal and gas.

The plausibility of that assumption has been gravely undermined in recent weeks by a series of announcements from the heavy engineering companies that build coal-fired power stations. After adverse publicity for their involvement in the Vung Ang 2 project in Vietnam, Samsung and KEPCO announced they would take on no further coal-fired projects. General Electric, Black & Veatch, Siemens and Toshiba have all made similar pledges over the past two weeks.

These moves reflect two main factors. First, many of these companies have global brands that are being tainted by their association with coal. Samsung stated as much in its announcement. Second, just as the pipeline of coal-fired power projects has shrunk, many existing plants have been operating at a fraction of their capacity. With the added pressure of the pandemic, the argument for getting out of coal now rather than later has proved overwhelming.

A couple of dominoes remain standing, but they are likely to fall soon. The biggest remaining Japanese firm in the field, Mitsubishi Heavy, faces the same problems as Toshiba and Samsung, with the toxic reputational effects of coal damaging its entire Mitsubishi brand. Other parts of the corporation, such as Mitsubishi UFJ Financial Group, have already dumped coal assets, taking big losses in the process. In South Korea, the Doosan Heavy group, which is involved in Vung Ang 2, is deeply indebted and facing intense pressure to pull out of coal. In India, Bharat Heavy and other firms are operating at 50 per cent capacity, the result of a shrinking pipeline of projects and intense competition from China.

At this stage, indeed, it is only China that is keeping the global coal industry afloat. Provincial governments have embarked on a program of building coal-fired power stations as a form of fiscal stimulus. Finance for new coal projects depends heavily on Chinese banks and on Xi Jinping’s Belt and Road Initiative. And, with the withdrawal of most of their competitors, Chinese heavy engineering firms like CITIC will have the business of building coal-fired power plants all to themselves.

This is a major foreign policy problem for Australia. As the Xi regime becomes more repressive domestically and more aggressive internationally, our economic dependence becomes more and more problematic. Our differences with China have already led to informal trade barriers being imposed on a wide range of products, including coal. Moreover, as its announcement of 2060 zero emissions indicates, the regime is capable of rapid policy shifts. If Xi decides to mend fences with the Biden administration, firm action to stop uneconomic coal-fired projects would be an easy first step.

Labor needs to make a choice between following the government’s line — according to which we have already done everything we need to — or committing to a policy framework consistent with the Paris agreement’s goal of holding the increase in mean global temperatures well below 2°C. Until now, the policy has been as non-committal as possible in an attempt to satisfy the majority of the party’s supporters, who want strong action, and those who pretend that inaction is a serious option.

Joel Fitzgibbon’s resignation gives Labor the chance to resolve the issue. By aligning Australia with Biden’s pro-climate position, it can regain the initiative and avoid the prospect of global isolation. •

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At the time of its announcement on 15 September, the gas-fired recovery policy was hailed as an example of Morrison’s “middle course pragmatism.” This assessment was based entirely on domestic political calculations, with no consideration at all of the global implications.

The political problem was simple: how could the government appear to act on climate change without losing the support of the climate denialists and coal advocates who dominate the National Party and the government’s backbench? To the extent that the global implications were considered at all, the assumption was that the government could use accounting tricks to claim a 26 per cent reduction in emissions by 2030, and leave the future to take care of itself.

It took only a week for the wheels to start falling off that strategy. On 22 September, Chinese president Xi Jinping announced that his country would commit to zero net emissions by 2060. The announcement was almost certainly motivated by the likelihood that China would face new trade sanctions under a Biden administration if it failed to take decisive action to reduce emissions.

Then, last week, Japan announced a commitment to net zero emissions by 2050, with deep cuts by 2030, including the closure of coal-fired power stations that don’t use the most modern technologies, which are known as ultrasupercritical or integrated gasification combined cycle systems. That criterion would see the closure of all of Australia’s coal-fired power stations, most of which use ancient subcritical technology. Japan is still building some new coal-fired power stations, but the program has been scaled back sharply.

South Korea followed suit a few days later, also with a 2050 net zero commitment. More significantly perhaps, industrial heavyweights Samsung and Kepco entirely pulled out of the construction of coal-fired power stations. Having suffered serious reputational damage for their involvement in the Vũng Áng power station in Vietnam, the two companies announced they would not pursue any further coal projects.

If Joe Biden wins the US election as expected, he too will pledge his country to a 2050 target. Australia will be standing almost alone in the developed world, and against most of the developing world, in refusing to commit to stopping climate change. It’s hard to imagine any Australian government standing up to the pressure that will be generated as a result.

The problem for Scott Morrison is that none of this has got through to his own supporters, who are now almost completely disconnected from reality. This point may be illustrated by the hyperbolic reaction of agriculture minister David Littleproud to ANZ’s announcement that it will end its direct lending to coal-fired power generation and thermal coalmines — a policy that is actually weaker than that of most international financial institutions, which have already dumped coal.

Littleproud threatened to revoke the government’s deposit guarantees, which were introduced in response to the global financial crisis. If it were carried out, this threat would almost certainly generate a run on the affected banks. In the already fraught context of the pandemic, the financial system might well collapse.

This irresponsible threat by a senior government minister hasn’t been withdrawn. Yet no one has taken it seriously. Everyone understands, at some level, that the National Party, along with much of the political right, is now concerned more with culture-war posturing than any concept of government. Their reaction to even a symbolic commitment to ending net carbon emissions will be furious.

It’s hard to see how Morrison can resolve this problem. His successful management of the pandemic, following close on the heels of the catastrophic bushfires, presented him with the chance to radically reset the climate debate. Having embraced massive fiscal stimulus to deal with the pandemic downturn, he could have reinvented himself as a leader willing to ditch stale dogmas in order to deal with the real crises facing Australia. It’s hard to see how either the denialist right or the demoralised Labor opposition could have resisted him.

Instead, he has chosen what might have looked like the safe, middle-of-the-road course. But, as Texan populist Jim Hightower once observed, there’s nothing in the middle of the road but yellow stripes and dead armadillos. •

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In some senses, this is not surprising. The cost of solar PV has been declining steadily for decades as a result of technological innovations. The cost of the silicon wafers on which solar cells are based has fallen dramatically, the efficiency with which they convert sunlight into electricity has increased, and all aspects of the manufacturing process have improved. Advances in wind power have been only slightly less dramatic.

At the same time, and despite laggards like Australia and the United States, governments around the world have committed to decarbonising the global energy system.

But the sharp change in the IEA’s analysis wasn’t primarily a reflection of technological progress or climate policy. Rather it was prompted by a decline in the interest rate used to calculate the cost of investments in energy.

Solar modules cost virtually nothing to operate, and last a long time. Manufacturers’ warranties typically run for twenty-five years, guaranteeing at least 80 per cent performance. Experience and experimental evidence suggest this is conservative: even after thirty years, modules installed today should still be working at around 85 per cent of their initial capacity. A working lifetime of twenty-five years is therefore conservative.

Solar PV is so cheap to operate that its cost arises almost entirely from the need for investors to earn a rate of return on the capital they put into constructing a solar project and connecting it to the grid. This is commonly expressed in terms of a “payback period,” the time in which a successful investment must return the capital invested. Until now, the IEA has used real rates of return ranging from 7 to 8 per cent, which implies payback periods of nine to ten years.

In its 2020 report, the IEA acknowledged how low interest rates have fallen by reducing the cost of capital to between 2.6 and 5 per cent for Europe and the United States, with somewhat higher rates for China and India. On average, the cost of capital has almost halved, implying a near doubling of the time a project needs to pay a full return to investors.

Now suppose, instead of private capital, solar projects were financed using thirty-year government bonds. Remarkably, the real rate of interest on these bonds has fallen to zero or below — and if the current judgements of investors are correct, rates will remain at or close to zero for decades to come.

Ultra-low interest rates have been obvious to anyone with a bank account or a variable rate mortgage. Until recently they have been seen as an anomaly, the result of emergency measures taken in response to the global financial crisis and then the Covid-19 pandemic. But twelve years after the GFC, and with years of low rates ahead of us, emergency conditions have become the norm.

The Australian government recently sold $15 billion in thirty-year bonds offering a yield of 1.7 per cent, less than the likely rate of inflation. European countries like France and Austria are selling bonds with maturities of fifty and even one hundred years. The US government is selling inflation-protected bonds of the same maturity for negative rates of interest. Some economists (including me) are now suggesting governments issue perpetual bonds, with a real return of zero (that is, an interest payment exactly sufficient to offset inflation).

What happens in the extreme case where interest rates fall to zero? In these circumstances, the notion of a payback period ceases to be relevant. All that is required for an investment to be justified is that its lifetime returns should exceed the cost of construction.

Once a solar module has been installed, a zero rate of interest means that the electricity it generates is virtually free. Spread over the lifetime of the module, the cost is around 2c/kWh (assuming $1/watt cost, 2000 operating hours per year and a twenty-five-year lifetime). That cost would be indexed to the rate of inflation, but would probably never exceed 3c/kWh.

There is, then, a real possibility that solar PV and other renewable technologies could fulfil the promise made decades ago by the promoters of nuclear power: that they will deliver electricity “too cheap to meter.” (Even with access to cheap capital, nuclear power never delivered on that promise.)

The prospect of electricity this cheap might seem counterintuitive to anyone whose model of investment analysis is based on concepts like “present value” and payback periods. But in the world of zero real interest rates that now appears to be upon us, such concepts are no longer relevant. Governments can, and should, invest in projects whenever the total benefits exceed the costs, regardless of how those benefits are spread over time. •

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In diplomacy, the regime has adopted a “wolf warrior” style, responding aggressively to any hint of criticism by threatening to disrupt international trade. Xi’s much-touted Belt and Road Initiative has funded the worst kinds of boondoggles in developing countries, leaving them heavily indebted for worthless projects.

Climate policy has been going much the same way. Having previously tried to stop the proliferation of coal-fired power stations — most of them developed by crony-capitalist provincial governments — the central government took off the brakes last year. China’s pandemic recovery policies, like Australia’s, have been entirely backward-looking, trying to juice up construction and heavy infrastructure projects.

In these circumstances, what should we make of Xi Jinping’s new pledge that China will be carbon neutral by 2060? The European Union has already committed to a 2050 target, and most member nations have made individual commitments consistent with that goal. If China delivers on its latest commitment and a Biden administration puts the United States on a path to net zero emissions, the prospects for stabilising the global climate will be transformed.

It may not be sufficient to hold warming below 2°C, but it should be enough to shift the world from its current catastrophic path towards 3°C or 4°C.

China’s announcement isn’t entirely about climate. It reflects two broader issues: a recognition in Beijing that Xi has bitten off more than he can chew in terms of international disputes, and an acknowledgement that backsliding on climate creates enemies everywhere. Making sure provincial governments reduce the construction of coal-fired power stations won’t be easy, but it’s probably the least-cost way of generating international goodwill. Xi is surely aware that coal-fired power is uneconomic and hugely destructive in terms of human health, even without considering the implications for the climate.

The move also anticipates the likely change of administration in the United States. While Joe Biden would wind back Trump’s attacks on trade in general, he has indicated he will apply a carbon-adjustment fee to countries that are failing to meet their climate and environmental obligations. While this policy is applicable to any country without a plan to decarbonise, it is clearly directed at China.

What does this mean for Australia? National commitments at the Paris climate talks included not only emissions targets for 2030 but also policies to hold warming well below 2°C beyond that date. Instead, the Australian government has treated its unambitious 2030 target — to be achieved (if at all) using statistical trickery — as its only goal, followed by emissions growth stretching indefinitely into the future.

Dragging the chain on our Paris commitments already looks like costing us a trade deal with the European Union, which is demanding a commitment to decarbonisation. Yet pro-coal commentators here seem to imagine that simply labelling a commitment to save the planet as “protectionism” will make the problem go away.

More than any other government in the world (with the exception of Benjamin Netanyahu’s in Israel), the Morrison government has bet its future, and ours, on the belief that Trump will score another win against the odds, just as Morrison did last year.

Taking the lead on investigating Chinese responsibility for the Covid-19 pandemic curried favour with Trump and earned fresh hostility from the Chinese government. But it didn’t win any friends on the Democratic side of US politics, where the “Chinese virus” is correctly seen as an excuse for Trump’s mismanagement. More generally, national leaders in the developed world correctly see Morrison as one of Trump’s few allies.

In a month’s time, we could find ourselves internationally friendless to an extent that we have never before experienced, still at loggerheads with China and tied to a Trump administration that seems likely to be not just defeated but also disgraced.

Having used the prospect of growing Chinese demand for coal as an excuse for continuing to mine, we have been left in the lurch by Xi Jinping. By getting in early with a commitment to decarbonisation, Xi shows that he has read the warning signs. It’s time for Scott Morrison to exhibit his well-known pragmatism and follow suit. •

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These contradictory impulses are evident in the government’s economic policies. Having abandoned its denunciation of fiscal stimulus back in March, the government has now, of necessity, dropped the idea that budget deficits are a sign of poor economic management. Whatever choices are made in next week’s federal budget, we can be certain that the outcome will be massive deficits for years to come.

But the government must also do something about its planned tax cuts, legislated years in advance, which were rationalised by projections of a decade of surpluses. Always dubious, those projections are now entirely fanciful.

At this stage, the budget appears likely to include an acceleration of the stage two tax cuts legislated for 2022, rebadged as a fiscal stimulus measure. This would be a mistake for a number of reasons.

First, unlike stage one, the stage two tax cuts give most of the benefit to above-average income earners. The largest cuts (expressed as a percentage of income) go to taxpayers with individual incomes above $120,000 a year, or 135 per cent of average full-time earnings. The stage three tax cuts, legislated for 2024, are even more skewed in favour of high incomes.

Even granting the idea that, before the pandemic, tax relief for high-income earners was justified in terms of equity, that is clearly not the case today. As for everywhere in the world, the pandemic has had a huge impact on lower-income earners (temporarily, and partially, cushioned by JobSeeker and JobKeeper) while leaving most high-income earners unaffected.

The second problem arises from the attempt to rebrand these tax measures as a stimulus while cutting back JobSeeker and JobKeeper. The crucial feature of the pandemic is that many businesses have been forced to close, and workers left unable to work, because of measures to stop the virus spreading. Income support has allowed businesses to pay their bills, including wages, and permitted unemployed workers an income sufficient to live on. All, or nearly all, of this support has been reflected in higher spending.

By contrast, the main impact of the pandemic on higher-income earners has been to reduce opportunities to spend. With their incomes mostly unaffected, they have increased their holdings of cash and paid down debt. They already have plenty of untapped spending capacity, so a tax cut would be unlikely to stimulate more demand.

Most importantly, the pandemic has exacerbated basic problems in our society. Inequality, already increasing before the pandemic, has become substantially worse, and a period of high unemployment — with all its effects on individuals and households — will compound the problem.

In these circumstances, rather than rewarding those who have already done well, we need to fundamentally reorient our income support policies for those who are unable to find stable paid work in the modern economy, or whose other commitments prevent them from doing so.

In a recent ANU Policy Brief, Tim Dunlop, Jane Goodall, Troy Henderson, Elise Klein and I have suggested that the problem could be tackled within the current budget framework by creating a Liveable Income Guarantee. Under this plan, a payment equal to the age pension, and subject to the same asset and income tests, would be extended to everyone who is willing to make a contribution to society consistent with their capacity to do so.

Those contributions would be broadly defined to maximise the opportunities for inclusion. Examples include full-time study, volunteering, caring for children and starting a small business, as well as job search.

Unlike some proposals for a universal payment, this policy would be relatively inexpensive, perhaps as little as $20 billion a year. This is comparable to the budget cost of the tax cuts legislated in advance and now proposed for accelerated delivery.

In addition to the Liveable Income Guarantee, a wide range of measures could be used to provide short-term stimulus more effectively than tax cuts. Measures supported by the great majority of Australian economists surveyed this month by the Conversation include spending on social housing and education. Economists also support a permanent increase in unemployment benefits, which is the first step in our Liveable Income Guarantee.

Having survived the worst of the pandemic so far, it is crucial that the government chart a course for a positive future. Measures such as accelerated tax cuts represent an unsustainable attempt to restore the policy priorities of the pre-pandemic era. •

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But the twentieth-century economy imagined in most of these discussions — an economy based on an ever-increasing range and quantity of physical goods — is gone forever. The shape of the society and economy that will replace it is still up for grabs. But whatever form it takes, it will be dominated by information and services, not by goods.

The last significant new consumer product to hit the market was Apple’s iPhone, introduced in 2007. That device is still popular enough to make Apple the world’s most highly valued company, surpassing US$2 trillion. But the global market for smartphones has been saturated by lower-cost competitors, with sales peaking in 2018 and declining through 2019 before crashing in the recession. The same pattern is evident for computers, cars and domestic appliances

Not surprisingly, a saturated market for manufactured goods translates into fewer jobs. Manufacturing employment in the OECD has been declining for decades. Until relatively recently the decline was often portrayed as a loss of jobs to China and India, a theory that still grips the Trump administration. In reality, though, manufacturing employment in China peaked around 2014, and in India even earlier, around 2011. While the manufacturing sector in some smaller countries like Bangladesh is still growing, the global picture is one of contraction.

Less widely noticed but more significant in many respects are the implications for investment. Investment in capital equipment was the driving engine of the industrial economy; indeed, it is where the term “capitalism” comes from. But business investment has been on life support since the global financial crisis, and arguably since the dotcom bubble burst at the turn of the century.

Central banks have cut their core interest rates to zero and even below, company tax rates have been cut and governments have sought out public–private partnerships to fund public infrastructure — but all to no avail. Private investment has remained sluggish at best, deterring central banks from returning interest rates to the twentieth-century levels.

Until recently, Australia has been something of an exception to this pattern. The mining boom raised aggregate investment, and the Labor government’s successful response to the GFC, which made Australia one of the few OECD countries to avoid a recession, helped sustain investment in other sectors. But as long ago as 2013, Philip Lowe, then deputy governor of the Reserve Bank, observed that “if we take into account public investment, which is also low, then total non-mining investment, as a share of GDP, is below the trough that was recorded in the early 1990s.”

With the end of the mining boom, business investment collapsed, an outcome reflected in Lowe’s increasingly vocal advocacy of an expanded role for public investment.

Until recently, the weakness of private investment might have been seen as reflecting the lingering effects of the GFC. But changes in long-term bond markets show that the effects are permanent. The interest rate on thirty-year inflation-indexed US Treasury bonds has been trending down for years and is now below zero. In other words, investors would rather pay the US government to hold their money for them, interest-free, until 2050 than seek out a reasonably safe private investment with a positive real return.

Ultra-low returns aren’t confined to government bonds. Microsoft (one of two remaining US corporations with a AAA rating) is currently offering a rate of 2.5 per cent on thirty-year bonds, and has exchanged lots of outstanding debt for new bonds at that rate. Assuming the Federal Reserve maintains its inflation target, and assuming Microsoft doesn’t default, these bonds will have a real return close to zero.

But tech firms like Microsoft, which now determine stock market values, don’t need much capital. The book value of Microsoft’s capital stock is less then 10 per cent of its market value. The rest is made up of intangibles, a polite word for monopoly-power network effects, intellectual property, and good old-fashioned predatory conduct.

Without any need for private sector investment, interest rates will remain low unless public investment picks up the slack. With the physical goods economy fading into the past, though, we don’t need more of the transport infrastructure projects governments automatically turn to at times like these. Rather, we need to invest in human services like health (mental and physical), education and childcare, and in information platforms that break the monopoly power of the tech giants.

These are the investments that will allow Australia to flourish in an economy dominated by information and services rather than industrial production. •

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Even more striking is the ratio of Apple’s share price to the book value of assets. Most of the time, the market value of a company is about equal to the value of its physical capital, so that the price-to-book ratio is close to one. For Apple, the ratio is a startling twenty-seven to one.

Much the same story can be told about other leading tech stocks. Along with Apple, Alphabet (owner of Google), Amazon, Facebook and Microsoft account for around 20 per cent of the total value of the S&P 500 Index. They have price-to-book ratios ranging from five (Google) to twenty (Amazon).

The difference between the book value of physical assets and the stock price is commonly explained by “intangibles.” That term can cover all sorts of things, and is often taken to refer to some special aspect of the firm in question, such as accumulated research and development, tacit knowledge or the “goodwill” associated with its brand.

At most, R&D is a small part of the story. The leading tech companies each spend between ten and twenty billion dollars a year on R&D, a tiny fraction of their market valuations. And while the big tech firms still retain plenty of goodwill among consumers, the attitude of their business partners is better described as one of resentful dependence. Software developers who want access to the iPhone market have little choice but to go through Apple’s App Store and give Apple 30 per cent of their revenue. Amazon’s Web Services platform has a similar hold on e-commerce. And so on.

The main intangible asset held by these companies is their monopoly power, which arises from network effects (every extra user adds to the value of the business for all users), their intellectual property, and good old-fashioned predatory behaviour. In this context, the crucial point about intangibles isn’t that they aren’t physical, it’s that they can’t be reproduced by anyone else.

No one can sell a Windows or Apple operating system, even if he or she were willing to invest the effort required to reverse-engineer it. While there are competitors for Google’s search engine (I recommend DuckDuckGo), the barriers to entry are huge, notably including the fact that the product is “free,” or rather supported by advertising for which all consumers pay whether they use Google or not.

There’s a complicated relationship here between the rise of monopoly and the development of the information economy in which the top tech firms operate. Information is the ultimate “non-rival” good. Once it’s generated by one person it can be shared with anyone else without diminishing in value. As the cost of communication has fallen, it’s become possible for everyone in the world to gain access to new information at essentially zero cost.

What this means is that there is very little relationship between the value of information and the ability of corporations to capture value from it. The protocols and languages that make the internet possible are a public good, created by collaborative effort and made freely available. The information on the internet is generated by households, businesses and governments using these protocols.

Without these public goods, Google would be worthless. But because advertising can be attached to search results, ownership of a search engine is immensely profitable. Similarly, Facebook’s value is derived entirely from the contributions of its users. Apple and Amazon are more like traditional businesses, but increasingly rely on internet services for their profits. Thus, a network created in the public sector has become the underlying infrastructure for private monopolies.

It is easier to diagnose the problem than to suggest a cure. Traditional remedies such as reversing anti-competitive mergers might improve the situation a little. But the ultimate solution is likely to require returning the internet to its non-commercial roots and treating crucial services like search and e-commerce platforms as public utilities, subject to tight regulation or public ownership.

Such changes would require a radical reversal of the opposition to public ownership that is still the default position of public policy, despite decades of failed market reforms. But if there is one thing that the last few years have taught us it is that, for good or ill, radical change only seems unthinkable until it happens. •

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Most of Thatcher’s policy program, including privatisation, financial deregulation and reduced union power, was implemented decades ago, in Australia as well as Britain. What remains of the Thatcher program is a decidedly uninspiring ragbag of policies that turned out to be either unworkable (money supply targeting, for instance) or so politically toxic that they are unsaleable even forty years later (notably the poll tax, which destroyed Thatcher’s prime ministership).

It’s also important to remember that the trend in recent years has been to reverse significant elements of the privatisation agenda, including Britain’s hallmark Private Finance Initiative, which was abandoned by the Conservative government in 2018.

But even if Thatcher’s policy program is obsolete, she serves as a model in crucial respects. She came to office at a time of crisis, when the model of economic and social policy that had prevailed since 1945 had clearly fallen apart. While others sought to patch it up, muddling through a series of disasters, Thatcher saw the need for something radically different.

In doing this, she was following a familiar pattern. The postwar economic and social model had itself emerged from crises: the disaster of the Great Depression and the shared sacrifice of the second world war. Elected as the war ended, the Attlee Labour government had created a comprehensive welfare state, notably including the National Health Service, and used Keynesian economic management to maintain full employment. Attlee’s government nationalised key industries and changed industrial relations laws in favour of unions. Similar measures were introduced in Australia under the Curtin and Chifley governments, and in varying forms in all developed Western countries. The Keynesian social democratic model, underpinned by  the Bretton Woods system of fixed exchange rates, delivered decades of prosperity.

By the time Thatcher became prime minister, the Bretton Woods system had fallen apart under the impact of rising inflation. Britain in particular had experienced a decade of high inflation, low growth and severe unemployment. A string of attempts to fix the problem, most notably through prices and incomes policies, had failed.

Thatcher saw the opportunity for a radical change and took it, using tight monetary policy, budget cuts and privatisation. In the process, she transformed Britain from a declining industrial power to the home of global finance, vaulting the City of London past its European and Japanese rivals, and even past New York. That transformation had both good and bad consequences, but it suited the times. Deregulation produced an explosion in financial transactions, and hence in the income and wealth accruing to the financial sector.

The crises facing the world today are every bit as severe as those faced by Thatcher in 1979, if not on the scale of the Depression and the second world war. When the pandemic hit, major economies had still not recovered from the global financial crisis and the decade of austerity that followed. As well as exposing even further the disastrous effects of austerity-driven budget cuts on public services, the pandemic has exacerbated rising inequality and accelerated the breakdown of the globalised trade system.

The need to deal with the pandemic has also distracted attention from the even greater threat of climate change. On the positive side, the decline in energy use has reinforced the transition away from carbon-based fuels. In Australia, though, responses to the pandemic from both the government’s hand-picked National Covid-19 Coordination Commission and the pro-coal faction of the Labor Party suggests that the longer-term picture is bleak.

What would a genuinely radical response to the crises of the twenty-first century look like? Certainly not like the fag ends of the 1980s reform agenda being pushed by Josh Frydenberg. Most obviously, the obsessive focus on debt and deficits that has dominated Australian politics for decades has proved to be almost entirely irrelevant in a real crisis. In addition, a sustainable response to the climate crisis must include a complete decarbonisation of the energy system.

Going beyond this, the pandemic points up the need to put more resources into public health, education and welfare, with a corresponding reduction in the consumption of physical goods. We should also broaden our conception of work beyond the predictable slogan, “jobs,” interpreted as work for market wages.

The necessary rethinking has barely begun. But as the crisis looks set to drag on, Mr Frydenberg will have plenty of time. •

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As the title of that book suggests, Keynes wanted to replace a “special” theory with a theory that covered all likely eventualities. The special theory that worried him was the central tenet of classical economics: that the economy always tends to full employment unless governments or unions get in the way. Keynes compared classical economists to those practitioners of Euclidean geometry who clung to their theory in the non-Euclidean world discovered by Albert Einstein. (Keynes’s title also echoes Einstein’s distinction between special and general relativity.)

The central implication of classical economics — which was articulated during the Great Depression by the American banker Andrew Mellon (“liquidate the rottenness”) and following the global financial crisis by the advocates of “expansionary austerity” — is that governments must respond to a recession by cutting taxes, cutting spending even more to balance the budget, and letting the private sector expand as it naturally will.

The disastrous failure of that approach, particularly in Europe, has put its advocates on the defensive. Nevertheless, the idea that deficits are always bad has plenty of intuitive appeal (think of Angela Merkel’s Swabian housewife carefully balancing the household books). Austerity has a particular grip on those in the policy elite whose thinking was formed in the “inter-crisis” period between the breakdown of the Bretton Woods system in the early 1970s and the GFC. That accounts for just about everyone in the political class aged over forty, with the exception of a handful of people who stick to positions they adopted in the 1960s or just afterwards, such as Jeremy Corbyn and Bernie Sanders.

Public expenditure has expanded everywhere in response to the pandemic, and the need for more spending will continue long after the virus is controlled either by continued restrictions or a vaccine. The fight against austerity will begin with the expiry of time-limited emergency measures, which will happen in the second half of this year (September in Australia and much sooner in the United States).

But if we can fight off the push for austerity, there’s another special theory that needs to be dealt with: Modern Monetary Theory, or MMT. The central point of MMT is that it’s best not to think of taxes as a way of funding public expenditure. Rather, for any given level of public spending, taxes ensure that the budget balance is at a level sufficient to keep the economy in a stable equilibrium with full employment and low inflation. (In conventional accounting terms, that may be a surplus or a deficit budget.) As long as inflation is not a problem, there is no need to balance increased public expenditure with higher taxes, and no need to worry about budget deficits.

MMT effectively assumes that the economy is always in what Keynes called a “liquidity trap” — in other words, economic activity is so depressed that cutting interest rates to zero has no effect on demand. People simply pile up money rather than spend it. The only solution in these circumstances is government spending. And, as long as the liquidity trap continues, governments can keep increasing their spending, financed either by creating money or issuing zero-interest bonds.

The problem with MMT is that, if it’s applied successfully, it destroys the conditions under which it works. Once the economy reaches full employment, any increase in public expenditure requires a corresponding reduction in private expenditure. The only sustainable way of achieving this is through taxation, and the only just way of doing it is through progressive taxation. Those in the top decile of the income distribution need to give up a bit more of their consumption, and those in the top 1 per cent need to give up a lot more.

MMT advocates like Stephanie Kelton concede this theoretical need for taxation, but continually dance around the point. They agree that increasing the progressivity of taxation would be a good way of reducing inequality but push the idea that it is an optional extra rather than a necessary condition for greatly expanded public programs such as a Green New Deal.

Economists Yeva Nersisyan and L. Randall Wray seem to agree. In a recent paper they suggest that the Green New Deal can be financed without “taxing the rich” (a problematic term for progressive income taxation, since so few people admit to being rich), relying instead on “well-targeted taxes, wage and price controls, rationing, and voluntary saving.” “Well-targeted taxes” turns out to be a euphemism for a payroll tax surcharge, the most regressive form of broad-based tax.

Nersisyan and Wray draw on proposals Keynes made in his paper “How to Pay for the War,” which include measures such as rationing and deferred pay, along with large trade deficits. But the central point underlying Keynes’s analysis was that the war could not last forever. One way or another, the struggle with Hitler would be decided. Given that prospect, and with the total mobilisation needed for a life-or-death struggle, measures like deferred pay and rationing were a way of sharing a necessary sacrifice. They were additional to, not a substitute for, steep increases in income and consumption taxes.

A permanent change like the original New Deal or a Green New Deal can’t be sustained with temporary wartime expedients or expansionary fiscal policy. What is needed is a transfer of resources from private consumption and privately directed investment to public use. That can be achieved through various forms of predistribution (by strengthening unions, for instance), which would reduce the pre-tax incomes of those receiving excessive rewards, or by taxation. While both need to be pursued, it’s unlikely that predistribution can do all the work.

For the moment, however, traditional Keynesians and MMT advocates agree. We need a lot more public spending to deal with the current crisis, and there is no need to worry about budget deficits. As Keynes said in 1937, “the boom not the slump is the time for austerity at the Treasury.” •

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These groups, mostly poorly paid, are in service occupations. But professionals — most obviously, health professionals, from public health experts to doctors and nurses — are also critical to our response. Parents who have suddenly had to oversee homeschooling have been made aware of the hard work done by teachers.

On the other side of the coin, millions of workers have lost their jobs, or kept them only because of the JobKeeper scheme. Those losses have been concentrated in tourism, restaurants and cafes, universities and other service sectors.

Most of the industries shut down by the pandemic, as well as most of those we’ve relied on in the fight to control it, are large employers of women. Job losses have been particularly concentrated in industries that employ young people, who are trying to make the transition from education to employment.

Yet anyone looking at the recovery strategies put forward by governments at state and federal levels would barely be aware that these occupations exist. The focus of all of these strategies is on the kinds of workers (mostly men) who wear hard hats and hi-vis clothing.

The federal government’s National Covid-19 Coordination Commission’s strategy is based on expanding the oil and gas industry, which employs about 20,000 people. The NSW government is even more backward-looking, attempting to extend the life of the doomed coal industry. The Queensland government’s strategy, focused on agriculture, mining, manufacturing and construction, is little better, but at least gives a nod to industries of the future. A fresh airing was given to other perennial proposals, including very fast passenger trains and the Bradfield scheme to turn back northern rivers.

It is hard to overstate how misconceived these strategies are. But it may be useful to look at some statistical evidence before going any further.

Australia’s workforce falls into three groups: manual workers (trades workers, machinery operators and drivers), service workers (community services, clerical and sales) and professionals (including managers). In February 2019, professionals constituted the largest of these groups (36 per cent of employed people), followed by service workers (33 per cent), with manual workers (30 per cent) making up the smallest group. This represents a reversal of the pattern in 1986, when manual workers made up 40 per cent of the workforce, service workers 32 per cent, and managers and professionals only 27 per cent.

Industry data makes the same point. As of February 2019, agriculture, mining and manufacturing accounted for about 10 per cent of the workforce, and construction less than 10 per cent. In total these hard-hat industries are slightly smaller than the combined totals for healthcare and education, a little over 20 per cent of all employment. The remaining 60 per cent of employment is spread across a range of service industries.

An industry strategy focused on hard hats would be misconceived at the best of times. But it is particularly inappropriate in the context of the pandemic. The industries being promoted as the way forward are not only declining in terms of employment share, they are overwhelmingly dominated by men and (with the partial exception of construction) by prime-age (twenty-five to fifty-five) and older workers.

Yet the pandemic has affected female workers, and young people of both genders, far more severely than prime-age men. Women have suffered both in terms of job losses and from the increased burden of domestic work arising from school closures. Younger workers were badly affected by underemployment even before the pandemic and are likely to suffer reduced income throughout their lives as a result of the crisis.

Sadly, none of this seems to matter to politicians faced by a photo opportunity in a hard hat. This is a time when we could do with some radical, even utopian, thinking about the way we organise life and work after the pandemic. Instead, we get policies that resemble an episode of Utopia. •

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Strikingly, the technology to do this has been available for years. It took the pandemic to make people try something different, work through the initial difficulties and conclude that the new way is better. The shift in sentiment has been such that the stock market value of Zoom exceeds that of the world’s seven largest airlines combined.

But the really big change has been the transformation of income support. On 1 March, when Australia recorded its first fatality as a result of the coronavirus, the government was still committed (at least officially) to a budget surplus. It had resolutely refused to increase the Newstart unemployment benefit, frozen in real terms by the Howard government in 1997.

Despite ample evidence to the contrary — including sharply increasing rates of underemployment — the government’s operational assumption was that anyone who wanted a job could get one, and an individual’s unemployment reflected his or her personal defects (a lack of job readiness, misguided job searching or just plain laziness). This assumption was reflected in a range of policy initiatives, including punitive compliance regimes, the Work for the Dole scheme and the rollout of cashless welfare cards.

Within a few weeks, everything changed. The government suddenly discovered that none of the usual rules applied. Unemployed workers could be paid a liveable income, called JobSeeker, at twice the value of the grossly inadequate Newstart. Under a second program, JobKeeper, businesses could continue to employ workers even if there was no work for them and no money coming in to pay them. Contracts were not inviolable laws of nature but social conventions that could be varied to meet the needs of the crisis.

The JobSeeker and JobKeeper programs have been highly effective in maintaining income for Australian households, even as the economy has gone in to what the government has called hibernation. There has been little evidence of the widespread economic suffering experienced in countries with weaker responses, most notably the United States.

But these schemes can’t last forever in their current form. The fact that JobKeeper is higher than the age pension is hard to defend, either politically or in terms of social welfare. It is an emergency response to the very specific circumstances of the pandemic, in which many businesses have been forced to close temporarily.

The Morrison government’s “snapback” would simply end JobSeeker and JobKeeper in September, six months after their inception. But most economists, notably including Reserve Bank governor Philip Lowe, doubt that this can be done without pushing the economy into a deep recession. Regardless of the macroeconomic analysis, there’s a more important question: even if we could return to the policies of the pre-pandemic years, should we?

The free-market economics underlying the desire to cut back public spending were discredited by the experience of the global financial crisis and the disastrous failure of austerity in Europe and elsewhere. The politics of welfare restriction are those of division and culture war, and are now directly opposed to the “we’re all in this together” lesson of the pandemic.

One way of extending that lesson into the post-pandemic era would be to adopt the concept of a liveable income guarantee or — to use the term put forward just before his untimely death by the great British economist Tony Atkinson in his book Inequality: What Can Be Done? — a “participation income.”

The idea of a participation income rests on the principle that everyone has a right to a living income along with an obligation to contribute to society. The first part of that principle has long been recognised in systems of income support for those unable to work because of age, disability or unemployment, or because they need to care for young children.

Under the market liberal ideology that has held sway since the 1970s, eligibility and support in all these categories have been tightened. The qualifying age for the pension has been increased to sixty-seven (from sixty-five for men and sixty for women). The Austudy scheme has been restricted to students over twenty-five. Applicants for disability pensions face increasingly stringent tests. Supporting parents are pushed onto Newstart as soon as their youngest child turns eight. Unemployment benefits have been frozen and compliance measures made ever more punitive.

The first step towards a participation income would be to reverse the changes of the past thirty years by setting all benefits at the same rate as the age pension and restoring more generous eligibility criteria. If we could afford these policies thirty years ago, we can afford them now.

Apart from jobseeking, what kinds of activity might we consider to be participation? Most of the many possibilities have precedents, but they haven’t been considered as part of a comprehensive program of social participation. They include:

• volunteering in support of organisations and causes, which might include firefighting and surf lifesaving, women’s refuges, or major public events like the Commonwealth Games

• working on grant-funded community projects, along the lines of the Community Employment Program introduced under the Hawke–Keating government

• setting up a small business

• artistic and creative activity (which were a notable aspect of the New Deal–era Works Program Administration in the United States)

• full-time study.

Obviously, the participation payment would not be available to people who are already in full-time employment. And, as with the age pension, assets and means tests would apply to people who receive investment income.

How we deal with intermediate cases — people with limited income from part-time work, for instance — would be guided by the principle that a well-integrated tax–welfare system should avoid creating the high effective marginal tax rates that result from the interaction of marginal income tax rates and the rates at which benefits are withdrawn through means tests.

Compliance measures within the tax and welfare systems should also be integrated. Currently these are massively asymmetrical, with the tax system essentially operating on the basis of self-assessment, subject to auditing, and the welfare system working on the assumption that recipients are cheats and must therefore be subject to draconian compliance rules.

The extreme example was the robodebt scheme (abandoned for now, but still set for a comeback) in which repayments were demanded from recipients on the basis of a mechanical and unreliable estimate. The asymmetry is even more striking when we remember that a single form of tax avoidance (profit-shifting by multinationals) is estimated to cost the Australian public nearly $10 billion a year, many times the amount recouped (and often then repaid) through the robodebt scheme.

As with the tax office’s business activity statement, the appropriate compliance regime for a participation income is a return, submitted quarterly and subject to audit. The assumption should be one of social solidarity rather than division.

How much would this cost? The current JobSeeker supplement is estimated to cost $14 billion over six months, or $28 billion if it were extended for a full year. If the benefit were set permanently equal to the age pension, the cost would be about half this much at the high rates of unemployment associated with the pandemic, and no more than a third (less than $10 billion a year) in the context of a recovery.

The number of people potentially eligible for a participation income but not currently receiving a benefit is harder to estimate. The largest group that might fall into this category, totalling around one million, are those who would like to work but are not currently searching. But many of these people are already receiving benefits or live in high-income households. Assuming half a million additional recipients and a cost of $24,000 per year, the budget cost would be $12 billion a year. Some of this would flow back to the government through a higher level of demand and resulting increased tax revenue.

The cost of the proposal may be compared with the revenue cost of the federal government’s Stage 3 tax cuts proposed for 2024–25, most of which benefit high-income earners. Treasury has estimated this as $95 billion over six years, or $16 billion a year.

Some observers might worry that people will be tempted to drop out of the paid labour force and rely on a participation income instead. As mentioned, the high prevalence of underemployment suggests that this would not be a huge problem. Most people would rather have a full-time properly paid job than a welfare benefit. To the extent that the system is incapable of providing this, a participation income is a reasonable alternative.

As we emerge from the first phase of the Covid-19 crisis, and also look back on the global financial crisis, we can, if we choose, try to patch up a system that is manifestly failing to deliver good outcomes. Or we can draw on the success of our collective response to the pandemic and start building something better. Contrary to Margaret Thatcher’s famous remark, There Is An Alternative. •

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The contrast with school education, where the government accepts a responsibility to educate all children either in public schools or publicly funded private schools is striking. The distinction dates back to the nineteenth century, when the states legislated for free and compulsory school education through government education departments. The sandstone universities were established around the same time, also under state government legislation.

University education was confined to a tiny elite who could afford to pay fees beyond the reach of the average family. Unlike schools, they were set up on the English model as independent institutions not directly answerable to their state government. They could accurately be described as quasi-non-government organisations (unlike many other organisations given the widely used, and misused, label of “quango”).

As the demand for education increased after the second world war, the Menzies government greatly expanded federal funding. New universities were created and existing universities expanded. The process continued through subsequent decades, with teachers’ colleges and institutes of technology eventually converted to universities.

Tuition fees, which had largely been offset by Commonwealth scholarships in the 1960s, were abolished under the Whitlam government after is election in 1972. Although a reintroduction of fees was raised repeatedly, the eventual outcome was the HECS-HELP loans scheme, under which student contributions are collected by the Commonwealth through the tax system.

The result is that universities, despite their theoretical independence and their state-level legislative authorisation, depend primarily on the federal government for their funding; and that funding comes with a wide range of conditions. Even as the funding has been constrained, the conditions have grown more onerous, boosting the size and power of university bureaucracies. Yet the fiction of independence allows the government to deny its responsibility to provide enough funding to educate Australian students. Universities have had no choice but to enrol large numbers of fee-paying international students.

As well as serving two government masters, therefore, universities must answer to a third, the global education market. The result is a set of institutions with the rigidity of government bureaucracies and the marketing and management bloat of private corporations. Universities compete with each for students and other resources, but are under no obligation, individually or collectively, to provide higher education to all who could benefit from it.

Until the pandemic, this arrangement was convenient both for university managers and for the federal government. Vice-chancellors could pay themselves million-dollar salaries on the basis of comparisons with private sector chief executives, and surround themselves with fleets of senior managers and assistants. Meanwhile, the subsidy from international students gave the government an excuse to reduce its own funding.

The pandemic has exposed the unsound structure of the whole system. The Morrison government is maintaining that the universities’ reliance on international students was a bad business decision rather than a choice necessitated by its own funding decisions, and has refused to inject extra funding. For their part, university managers have rejected the National Tertiary Education Union’s proposals to protect jobs, which involve temporary wage cuts — with the largest being borne by those at the top — jointly overseen by unions and university managers.

In rejecting the union’s proposal, managers at Melbourne University and elsewhere have argued that the nineteenth-century state legislation under which they operate prohibits them from sharing the management role with workers. As Campus Morning Mail points out, their rejection of the union offer gives the federal government a perfect excuse for continuing to exclude public universities from the JobKeeper package, despite Scott Morrison and his colleagues having shifted position in order to bail out private universities.

The situation of universities might be bad, but the plight of vocational education is far worse. Free-market reforms aimed at promoting competition have gutted most states’ TAFE systems while generating a swarm of shonky operators. Although the worst abuses have been checked, we are further than ever from a reliable system of vocational education and training.

The pandemic crisis provides the opportunity for a radical restructuring of the entire system. In place of the current hodgepodge we need a unified national system of post-school education and vocational training. It should be funded by and responsible to the Commonwealth, which can use the income tax system to manage HECS-HELP funding.

All young Australians should have the right to free post-school education and training, appropriate to their needs. Rather than competing among themselves, and replicating each other’s offerings, universities and TAFEs should cooperate to ensure that students have access to a full range of educational opportunities. •

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For many conservatives, industrial relations reform is little more than a way of attacking the power of trade unions. Yet cooperation with the union movement has played an important role in creating an effective response to the pandemic.

The same was true in the Accord era following the severe recession of the early 1980s. The original Accord, negotiated between the Australian Council of Trade Unions and the Hawke–Keating government, allowed increased government spending to produce a rapid economic recovery while winding down the rate of inflation. Any post-pandemic weakening of the union movement through industrial relations reform would make this kind of cooperation much less likely.

The other major thrust of industrial relations reform has been the replacement of standard forms of full-time permanent employment with a variety of alternatives that provide more flexibility for employers while in most cases reducing workers’ control over their own lives. Permanent employees working under award conditions have been replaced by casuals, converted into supposedly independent contractors, outsourced to labour-hire firms or pushed into the gig economy. This has reduced the effectiveness, and complicated the implementation, of the JobKeeper program, which starts from the premise that workers have jobs with the employer for whom they do their work.

The same point can be made about unemployment policy. Reforms to welfare policy since the end of the 1990s recession have been premised on the assumption that jobs are plentiful. Hence, if people are unemployed for more than a short time, they must either be deficient in employability or shirking. The consequent policy is a combination of “case management,” designed to improve job readiness, and coercive measures to force the unemployed to seek work.

The assumption is that no one needs to be unemployed in the long term, so there is no need to provide an unemployment benefit sufficient to meet basic needs over an extended period. Unemployed workers can simply draw on savings or defer non-urgent expenditures.

Beyond reducing working conditions and demonising the unemployed, not much else is left in the neoliberal reform toolbox. Scott Morrison has referred to the Productivity Commission’s five-yearly Shifting the Dial review, which he received as treasurer in 2017. As I observed at the time, that report was a grab-bag of policy recommendations dating back as far as the 1990s; the fact that they were still on the agenda was mostly because — as in the cases of carbon pricing and road pricing, for instance — they were in the too-hard basket. Not surprisingly, hardly any of them have since been implemented.

Shifting the Dial’s most significant contributions focused on improving “human capital,” the workforce skills and capabilities generated by better education and better health. This would undoubtedly be a good starting point for a long-term reform agenda, if the will exists.

Any reforms to employment and unemployment policy should be based on Australia’s successful response to the pandemic rather than a doubling down on policies that, even before the crisis, produced stagnant wages, growing inequality and high levels of underemployment.

The ideal response would be to use the JobSeeker and JobKeeper schemes as the basis for a fundamental transformation in our approach to work and welfare. JobSeeker could become the basis of a “participation income,” set at a liveable level (say, equal to the age pension) and available to anyone with no market income and a willingness to contribute to the community, whether through job search, full-time study, volunteer work, or caring for children or disabled or elderly relatives.

JobKeeper could be the starting point for a renewal of the commitment to full employment that was a central feature of the decades of widely shared prosperity after the second world war. In the absence of continued support from the federal government, neither the Reserve Bank of Australia nor the business sector has the capacity to prevent sustained high unemployment, even after lockdown restrictions are relaxed.

If we truly want reform, we should not trawl through the remains of the neoliberal agenda of the late twentieth century. Rather, we should aim to achieve a positive transformation of our society and economy, and end this crisis better than we started it. •

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We know all this, and yet it was alarming to read claims by the International Monetary Fund that the world is about to experience the worst recession since the Great Depression. One journalist wrote excitedly of “a decline in global output thirty times greater than during the global financial crisis.” The basis of that alarming statement was an IMF graph showing a global output decline of 3.0 per cent from the pandemic, compared with 0.1 per cent during the GFC.

Source: International Monetary Fund, World Economic Outlook, April 2020

Even more strikingly, the IMF assumes that the pandemic can be brought under control relatively rapidly, without an indefinite lockdown. A longer lockdown, the IMF’s analysis implies, would mean a bigger downturn.

The reality is less dire. If the pandemic can be controlled while most economic activity is allowed to resume, and if stimulus policies can be sustained (that’s two big ifs) then most of the developed world will suffer less severely than in the GFC. Moreover, while the biggest economies in the developing world, those of China and India, will be significantly affected, both are projected to experience positive economic growth for the year as a whole.

How can this be so? The IMF statement is misleading for two reasons. First, it compares the single years of 2020 (for the pandemic) and 2009 (for the GFC). But the GFC, like the Great Depression, lasted much longer than that. The official length of the GFC-induced recession in the United States, as estimated by the National Bureau of Economic Research, was eighteen months. And the adverse effects on employment and incomes continued for nearly a decade, right through the Obama administration, leading economists such as Brad DeLong to label it the Lesser Depression.

Europe’s experience was even worse, with the bailout of banks producing the sovereign debt crisis of 2010 and the disastrous period of austerity. GDP did not return to the pre-crisis level for years, and the losses appear to have been permanent.

By contrast, the IMF is projecting a “V-shaped” virus-induced recession during 2020, with most of the output lost this year being regained next year. The reasoning is straightforward. If the virus is eliminated or effectively contained, businesses like restaurants and retailers will reopen quickly and consumers whose spending has been constrained by the lockdown will be keen to patronise them.

The second factor is the treatment of China and India, both of which experienced stellar economic growth in the first decade of this century. India was largely unaffected by the GFC, and China’s fiscal stimulus policies (like Australia’s) minimised the impact. As a result, they maintained positive economic growth and, because of their size, effectively cancelled out the impact of the GFC in the developed world.

When the virus emerged, by contrast, China and India were already growing more slowly than in the past. In China’s case, this was largely because it had exhausted the easiest sources of growth (technological catch-up and migration from agriculture to industry). India’s slowdown reflected a series of missteps by the Modi government, notably a botched currency reform. With a lower initial growth rate, the pandemic pushed growth in these countries closer to zero. Already, in the March quarter, China has experienced negative growth for the first time since it began producing national accounts, and India is likely to follow.

On the plus side, China’s lockdown appears to have contained the virus, and the economy is beginning to recover. Lockdowns elsewhere seem to have followed a similar course, taking a month or two to produce a substantial reduction in infections. If these low levels can be sustained with appropriate social-distancing measures, a V-shaped recovery is possible.

The big risk for Australia, in health terms, is that excessive alarm about the economic consequences of lockdowns will lead to a premature removal of controls and a renewed outbreak of the pandemic. Any relaxation of controls must be based on a careful analysis of the benefits and costs.

In economic terms, the biggest danger is an early attempt to return to pre-crisis “normality.” Even if the upturn begins in a few months, industries such as international tourism will take years to recover. Income-support measures will need to be maintained well beyond the six months for which the current legislation provides. Moreover, the crisis has exposed the complete inadequacy of the support provided to unemployed workers and people with disabilities under successive governments.

Rather than a “snapback” to the supposed normality of the recent past, we need a policy that takes account of the reality that our economic system is subject to regular crises, generated both by external shocks like a pandemic and by its own inherent instability. •

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If you answer that question wrongly, your modelling will get everything else wrong, no matter how careful you are with the details.

Unfortunately, or perhaps fortunately, the government’s expert advisers appear to be using the wrong answer, or at least they were in the modelling report released on Tuesday. That modelling, undertaken before we had experience of lockdowns, assumes that R will be greater than 1 even after we’ve locked down. This implies that the infection will keep spreading until it is limited by “herd immunity,” where so many people get infected that the growth rate has to finally slow, and R shrinks below 1.

But all the evidence, here and overseas, suggests that lockdowns push R below 1 regardless, which means the number of new cases declines over time. In the absence of a vaccine, that decline will be reversed if the lockdown is relaxed substantially, pushing R back above 1.

With smaller numbers of active cases, though, it should be possible to expand testing criteria to include all contacts of cases, whether or not they are symptomatic, and to undertake random testing, as is being done in Finland. This would provide better guidance on the stringency required for continuing controls.

The importance of R can be illustrated by the most familiar example of exponential growth, that of compound interest.

Suppose you invest $1000 and earn a 5 per cent rate of return. At the end of a year, you will have your original $1000 and a return of $50, meaning that R would equal 1.05. If you leave the interest to compound, after two years you will have $1050 plus the next year’s interest of $52.50, bringing your sum to $1102.50. And so on.

Suppose, however, that you simply put your money under the mattress. Then R would equal 1 and your $1000 wouldn’t grow.

Worse still, suppose that while your money sat under the mattress, prices were going up at an annual rate of 5 per cent. It would mean that after one year the purchasing power of your $1000 would have shrunk to $950 at the original price level. Over many years, with enough inflation, the value of your money would shrink to almost nothing.

This simple example illustrates the knife-edge property of R=1.

Of course, even with R greater than 1, exponential growth can’t go on forever without running into limits of some kind. In the case of an epidemic, the limiting factor is that, for most diseases, people who have been exposed and recovered acquire partial or complete immunity.

As this happens, R falls.

Suppose, for example, that each infected person passes the virus on to two others. R would equal 2. After a time, though, when half the population has been exposed, each infected person can only generate an average of one new infection, meaning R equals 1. After that, the infection rate will decline to below 1.

This “flattening the curve” graph released by the government illustrates the point. The uncontrolled case corresponds to R=2.53, estimated on the basis of the early stages of the Wuhan outbreak.

Social distancing (including lockdowns) is assumed to reduce R to between 1.69 and 1.9. Quarantine and isolation have a slightly more complex effect. The end result in the government’s publication is that, whatever measures are adopted, R stays above 1.

Source: Australian Government, Impact of Covid-19

What these assumptions mean is that the best thing we can hope for is to slow the spread enough for the hospital system to cope.

This is a gloomy picture, but it is important to recognise that modelling is an ongoing process and the official position is evolving. The research this week is based on early experience in Wuhan and does not incorporate evidence on the results of lockdown measures here or in other countries. So far, the decline in new infections suggests that stringent lockdowns are sufficient to push R well below 1 after only a few weeks.

Everywhere a sufficiently tight lockdown has been imposed, the number of new cases has peaked and declined long before herd immunity became relevant.

China used the most drastic measures and has reduced new cases to a trickle. South Korea (where statistics are more reliable) has done the same with more moderate restrictions. Even in European countries like Italy and Spain where the pandemic got out of hand before the controls were imposed, new cases have begun to decline.

For the moment, any problems with the government’s modelling don’t matter much. Whatever the value of R, it makes sense to maintain the existing lockdown measures for now.

But an assumption that R will stay above 1 might lead to ill-judged choices in the future, allowing a steady spread of the virus.

As New Zealand has made clear, our objective ought to be eradication. So long as R is less than 1, and extensive testing is used to control any outbreaks (locations or occupations in which R is greater than 1), there is no reason to think this is impossible. •

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The reality is quite different. The vast majority of Australia Covid-19 cases acquired overseas had a recent history of travel to Europe or the Americas, or arrived on cruise ships such as the Ruby Princess. Hardly any (in fact none, as far as I can determine) were new migrants to Australia.

It could scarcely be otherwise. Australia (or at least some Australians) welcomed 162,000 migrants in 2019. The same year saw forty-two million passenger arrivals. On average, a Boeing 787 landing in Australia with a full load of 300 passengers contains just one permanent migrant.

This is the contradiction within the thinking of immigration restrictionists. While many like to cast themselves as “left behind” “stayers” — in contrast to “rootless cosmopolitans” — lots of them enjoy international travel. This was strikingly illustrated by the Brexiteers’ attachment to the traditional blue-covered British passports — hardly something that would matter to anyone content to stay in their home country.

More generally, the push to reduce international migration has been matched by all-out efforts to promote tourism. Scott Morrison embodies these contradictions. As managing director of Tourism Australia he famously asked, “Where they bloody hell are you?”, inviting the entire world to enjoy our beaches and charming cities; as prime minister, he cut the immigration intake by 30,000 (about one day’s worth of passenger arrivals) declaring “enough, enough, enough… The roads are clogged, the buses and trains are full.” Tourists, of course — who are by definition engaged in travel — use our roads and public transports at least as much as permanent migrants.

It’s not only migration that ethnonationalists have in their sights, but also any kind of international cooperation (unless it involves waging war). Greg Sheridan, foreign editor of the Australian and admirer of Hungary, Poland and other anti-democratic regimes, says that “coronavirus is the hunter-killer enemy of globalisation”:

The centre of every citizen’s sense of accountability for this virus is their national government. No one asks: what is the Indian Ocean Regional Association for Co-operation doing about this? They ask: what is Canberra doing?… When the Morrison government first banned direct travel to Australia from China, Beijing was furious. Then a lot of countries did the same.

That was on 18 March. The next day, the sidelining of “Canberra” began, with the premier of Tasmania announcing that the state would effectively be closed to interstate travellers. South Australia, Western Australia and Queensland quickly followed suit, with Queensland introducing an internal border to protect vulnerable Indigenous communities in the Cape York Peninsula.

As the federal government floundered, state governments increasingly disregarded its edicts, closing schools and accelerating the process of locking down the economy. The same was true in the United States, where state governors have responded to federal inaction with increasingly drastic measures of their own.

The absurd, but inescapable, implication of Sheridan’s argument is that we should recognise state difference by unwinding not only globalisation but Federation and breaking Australia up into six to eight separate countries. But the reality is that viruses pay no attention to states, nations and confederations. The appropriate restrictions on travel, and other preventive polices, will be determined by physical realities, whether or not they respect national boundaries.

The other crucial factor is what public policy analysts described as “state capacity.” This is the ability of a government (supranational, national, state or provincial) to formulate a coherent response to a problem, such as a pandemic, and the effectiveness of the tools at its disposal. The coronavirus crisis has revealed huge gaps in capacity at the federal level in Australia. The much touted Border Force, for example, has proved incapable of implementing basic health checks at our borders. (The blame-shifting between Border Force and the NSW health department over the Ruby Princess fiasco is a prime illustration of weak state capacity.) Similar breakdowns are even more evident in the United States.

Inevitably, state-level governments have stepped into the breach, with varying levels of effectiveness. Readers can make their own judgements as to how they have performed. Strikingly, though, a crisis seemingly tailor-made to enhance the power and prestige of national governments has, if anything, done the opposite, even as the need for action by all levels of government has become so much more urgent. •

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Even without precise numbers, though, the fire apocalypse should signal a radical change in how economists think about climate change and climate mitigation. So far, the issue has been framed largely in terms of the costs we should be willing to incur now in order to reduce the impact of climate change on future generations — a framing that was always problematic, since the future generations in question are, to a large extent, already here. Children in school today can reasonably hope to still be alive towards the end of this century, which is about as far as the effects of climate policy can be foreseen with any accuracy.

In weighing present costs against future benefits economists use the concept of opportunity cost. What do we have to give up now in order to achieve a given benefit at some point in the future, say 2050? What we give up might be more goods and services or an alternative investment, such as an improved transport system, which would have longer-term economic benefits.

To weigh the present against the future more precisely and formally, economists use “discount rates,” which rely on the properties of compound interest. Money invested at an interest rate of 2.5 per cent a year will double in value over roughly thirty years. So, if we spend $100 today to mitigate anticipated climate damage in 2050, we would want to be confident of preventing at least $200 worth of damage in thirty years’ time. Otherwise, we would be better off investing the money and using the proceeds to offset the damage in 2050.

This issue was the subject of vigorous debate after the 2006 release of economist Nicholas Stern’s report, The Economics of Climate Change, in which he argued for a low discount rate, roughly equal to the rate of return on government bonds, which is typically between 1 and 2 per cent. On that basis, an investment of $100 now, offsetting damage that would cost $200 to fix in 2050, would be justified. His critics, led by future Nobel Prize winner William Nordhaus, argued for a higher rate, based on the rate of return on private investment, which is around 5 per cent. By that measure, the future benefit would have to be at least $400.

As it’s turned out, the costs of climate change have arrived much sooner than we expected. While a full economic analysis must still evaluate the stream of future costs and benefits of mitigation, it’s now possible to justify a large cut in emissions in terms of benefits that will be realised within a much shorter time frame.

That doesn’t mean discount rates are completely irrelevant. If we manage to decarbonise the global economy by 2050, benefits will keep accruing well after that. But even if we stopped the analysis at 2050, we would still have a substantial net benefit. The likely cost of near-complete decarbonisation now looks to be less than a 2 per cent reduction in national income. Reducing the frequency and severity of disasters like Australia’s bushfires will more than offset that cost.

Another area of contention between Stern and Nordhaus was the weight to place on “extreme” outcomes, with Stern arguing for a great deal and Nordhaus for much less. Here, the language is a little misleading, as I pointed out a couple of years ago. My central point was that climate outcomes with a probability of 5 per cent or less (“extremely unlikely,” in the terminology of the Intergovernmental Panel on Climate Change) were still much more likely than risks we take seriously in our daily life, like dying in a car crash. At that time, the chances of an event like the bushfire disaster seemed to be less than 5 per cent, at least within a few years. Yet it is has now happened, and it seems clear that worse is to come.

The debate has also been changed by good news. One thing agreed on by Stern and Nordhaus, along with virtually the whole of the economics profession, is that a price on carbon dioxide emissions is the best way to reduce them. Only in the European Union is such a price applied systematically, and even there the price is lower than was recommended by Nordhaus and much below what Stern’s analysis implied. Yet even this modest price will wipe out coal-fired electricity generation in most European countries within the next five to ten years, and is paving the way for a shift to electric vehicles.

The economic case for sharp reductions in carbon dioxide emissions is as clear as the scientific evidence for the reality of human-caused climate change. All (!) that remains is to convince fearful politicians to act, and to drive the remaining denialists out of public life. •

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Among the many problems with this kind of journalism, one immediately stands out. On the definition used by the Pew Research Center, millennials were born between 1981 and 1996. Hardly any of them still fit the image of “young people,” who are typically between sixteen and twenty-five. The oldest millennials are approaching middle age (which is generally said to start at forty-five) and some of them have children old enough to be in the workforce or attending university. Yet articles about millennials scarcely ever talk about the experiences of thirty-something parents.

As I’ve been pointing out for twenty years now, most of what passes for discussion about the merits or otherwise of particular generations is little more than a repetition of unchanging formulas about different age groups — the moral degeneration of the young, the rigidity and hypocrisy of the old, and so on.

This isn’t surprising. The experience of youth and early adulthood doesn’t change much from one decade to the next — at least in the absence of a war or an economic depression, which rarely coincide with the lines drawn by players of the generation game. The standard “young people these days” story hasn’t basically changed, and so the lazy equation of “millennials” and “young people” has lingered on.

As children become adolescents and then adults, they have to discover a great deal about themselves. This self-absorption is easily cast as narcissism, a diagnosis routinely levelled against millennials, just as it was against their then-youthful boomer grandparents in the 1960s. On completing their education, young people must find work in a labour market that is increasingly difficult for new entrants, fully aware that they’ll be sacked the moment that becomes more profitable than keeping them on. Not surprisingly, they look out for their own interests and take the best offer they can find at any given time. This is denounced as job-hopping by people in secure jobs, who forget the difficulties they may have had in landing them.

Even the genuine differences between age cohorts largely reflect changes in society as a whole. Take the fact that young people are drinking less than earlier cohorts did at the same age. Given that alcohol consumption in Australia peaked at an annual thirteen litres per person back in 1974–75, that’s hardly surprising. The hard-drinking culture of the time was alternately celebrated and denounced in films like The Adventures of Barry McKenzie and Wake in Fright, and was personified by the immensely popular Bob Hawke, holder of a world record for fastest consumption of a yard of ale (eleven seconds).

Consumption had declined sharply to around ten litres per person by 1990 (coincidentally, a period when Hawke, as prime minister, famously abstained from drinking) and has bounced around at a basically stable level ever since. Restrictions on alcohol advertising have played a role, as have campaigns against drink-driving and expert advice against drinking more than two or three standard drinks a day.

What this means is that older cohorts have experienced, on average, more positive social attitudes to drinking than younger cohorts. The same phenomenon can be seen in attitudes to issues like marriage equality and climate change: younger cohorts have views shaped entirely by recent experience, whereas older cohorts retain the effects of earlier experiences when the dominant views were very different.

A final factor is the power of names. “Millennials” makes for more appealing headlines than the anodyne “gen Z,” which seems, in the absence of any compelling alternative, to have become the established term for those born between 1996 and (about) 2010.

The same is true in spades, of course, of generation X, born between the end of the baby boom in the early 1960s and the beginning of the millennial cohort in the early 1980s. Xers now hold the great majority of powerful positions in Australia (they include all premiers and chief ministers, and the PM) yet barely appear in generation game articles, except as authors. Indeed, in my darker moments, I wonder whether the whole thing is a gen X plot to discredit both their elders and their juniors, and thereby hold positions of power for as long as possible. •

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While this progress is remarkable, only a minority of institutional investors have so far adopted a comprehensive policy of divestment from companies extracting or using carbon-based fuels. At the moment the spotlight is on UniSuper, the industry superannuation fund covering the university sector, which continues to include unsustainable investments in its standard portfolios.

With most national governments falling far short of the commitments needed to reach the goals set out in the Paris Agreement, the case for divestment has only become more urgent. Investing in such corporations is not a defensible option for institutions, like universities, that expect to endure for centuries.

A core argument for divestment is that extracting and burning known reserves of coal, oil and gas using current technologies would result in catastrophic climate change. This would include, at a minimum, massive species extinction and the destruction or radical transformation of all nature and the planet as we know it.

While that ethical argument should be compelling, the case can also be phrased in a way that appeals to the more immediate concerns of investors. Governments around the world have already agreed to take steps to reduce emissions of carbon dioxide. That means leaving a great deal of carbon in the ground, which will reduce the profitability of extracting coal, oil and gas. Ultimately, the value of fossil fuel resources and the companies that exploit them must fall to zero.

Are there any counterarguments? The most plausible argument put forward by opponents of immediate action is that some form of “clean coal” technology will emerge to obviate any need for costly changes to our current way of doing things. This is the argument zealously promoted by Australia’s resources minister, Matt Canavan.

The term “clean coal” is a misnomer. Despite the impressive-sounding description, these plants achieve only a 30 to 40 per cent reduction in emissions relative to standard coal-fired power plants. They aren’t as clean as gas-fired fossil fuel plants, let alone renewables. Carbon capture and storage and other potential “clean coal” alternatives have also been exposed as unviable.

After decades of work, exactly one operational power plant, the Boundary Dam project in Canada, is using carbon capture and storage, or CCS. With renewables now cheaper than coal, investors are not going to stack up money for expensive, failed methods of coal generation.

The end of coal is inevitable, but divestment will help to accelerate the process. In particular, it’s important to stop the development of new coalmines, such as the potentially disastrous Adani mine in Queensland’s Galilee Basin. Most commercial lenders have already backed away from this project, but any bank that supports it must be included in a divestment policy.

Technological improvements have revolutionised renewables. And the flipside of divesting from fossil fuels is the option to invest in projects and corporations that help stabilise the global climate through renewable energy generation, improved energy efficiency or carbon sequestration in forests and agricultural land.

Such investments obviously require more care than the purchase of shares in large mining corporations. When successful, however, they have often generated high returns, particularly in comparison with the losses that have been incurred by investments in carbon-based fuel.

The failure of our political leaders and the diversion of the political debate into the morass of resentment-driven populism mean that we can’t rely on governments to do the work of stabilising the global environment. We are all responsible for our own choices, as consumers and investors. Divesting from carbon-based fuel investments is more important than ever. •

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The most dangerous component of bushfire smoke are tiny particulates, no more than 2.5 micrometres in diameter, known as PM_2.5. Over the past twenty years, studies have shown that high levels of PM_2.5 have contributed to millions of premature deaths in highly polluted cities like Beijing and Delhi. Sydney, Canberra and other Australian cities have recently joined this list. In 2016 alone, exposure to PM_2.5 contributed to an estimated 4.1 million deaths worldwide from heart disease, stroke, lung cancer, chronic lung disease and respiratory infections.

Even before the current cataclysm, air pollution was a major health hazard. While Sydney’s prevailing average of 6 micrograms per cubic metre (6 μ_g/m³) is within international health standards, it is above the levels observed in most European and American cities. A study led by the Sydney Public Health Observatory’s Richard Broome estimated that particulates and associated forms of pollution already account for between 310 and 540 premature deaths annually.

As far as can be determined, the mortality and health risks of PM_2.5 are a linear function of the level of exposure. Being exposed to 6 μ_g/m³ every day for a year, for example, amounts to 2190 “microgram days.” Broome and his colleagues’ work implies that each microgram day is associated with between 0.14 and 0.25 premature deaths. This figure is consistent with a range of international studies they cite.

The overall mortality effects are also a linear function of the number of people exposed. That’s why a city like Delhi, with thirty million people and an average PM_2.5 of 150 μ_g/m³, suffers tens of thousands of premature deaths every year.

Since the start of the bushfire emergency, particulate levels have been far above the historical average, reaching an extreme of 250 μ_g/m³ in Oakdale, ninety kilometres from central Sydney, on 10 December. According to recording stations in Sydney, the average for November and December was 27 μ_g/m³, more than four times the usual level. That implies somewhere between 160 and 300 additional premature deaths.

But the fires began earlier than November, and Sydney is not the only city they have affected. Many millions of Australians have experienced the impact of the fires, and there is no reason to expect the emergency to end any time soon. It’s quite likely that the total number of premature deaths will be more than a thousand, and possibly more than the 1300 deaths expected on our roads (some of these, tragically, caused by the fires).

Climatic oscillations such as the Indian Ocean Dipole, which have contributed to the severity of the current disaster, are expected to abate over time, so it’s probable that we won’t see a similar disaster next year, and perhaps for a few years to come. But the underlying trend of global heating that made this season so catastrophic isn’t going away. Next time the oscillations are unfavourable, further heating will make things even worse.

Our current approach to dealing with climatic disasters, developed during the twentieth century, doesn’t deal adequately with steadily deteriorating climatic conditions. At a minimum, we need a standing national body, with substantial resources, ready to respond to such disasters as they occur. This would almost certainly wipe out the Morrison government’s treasured surplus, which is why the resistance to any kind of action has been so vigorous.

Even worse than budget fetishism has been the cultural commitment of the government to climate denialism and do-nothingism. The right’s commentariat peddles anti-science nonsense on a par with anti-vaxxerism and flat-earth cosmology, eagerly lapped up by the mostly elderly readership of the conservative press. The government can’t endorse this nonsense officially, so it takes refuge in the idea that Australia accounts for only a small proportion of total emissions (on their dubious accounting, 1 per cent).

But even 1 per cent of the current catastrophe is still a disaster. And just as emissions in other countries contribute to disasters here, our 1 per cent plays its part in fires, floods and other climate-related disasters around the world. No matter how you do your accounting, Australian climate denialism is already costing hundreds of lives, with much worse to come.

We might hope that the scenes we have witnessed would shock our political class out of its torpor. So far, there is little sign of that happening. •

The post Slow burn appeared first on Inside Story.

But first, it’s useful to say what this kind of discussion gets right, and why. The starting point is an analysis of the political attitudes of white Americans by statisticians Yair Ghitza and Andrew Gelman of Columbia University. (There’s an immediate alert here: American attitudes differ far more by race than by generation. For most issues, gender and social class also outweigh generation.)

Ghitza and Gelman focus on party preference and show, unsurprisingly, that people’s attitudes are formed relatively early in life. People who grow up during a period when the Republican Party is popular, for instance, are more likely to vote Republican as adults. This influence is greatest in the years between fourteen and twenty-four, smaller between twenty-five and forty, and quite limited after that.

Ghitza and Gelman give the example of people born in 1941 who came of age during the popular presidency of Dwight Eisenhower. By the time Eisenhower left office in 1961, these people had accumulated a level of pro-Republican sentiment that would last their entire lifetimes. People born a decade later — baby boomers — were obviously too young to be influenced in the same way; their childhoods and formative years under presidents Kennedy and Johnson left them relatively pro-Democratic.

So, birth cohort matters — but nowhere near as much as the popular discussion suggests. By 2015, around 55 per cent of Ghitza and Gelman’s 1941 cohort preferred the Republicans, compared to 49 per cent of those born ten years later.

Importantly, members of a generation don’t all experience their formative eras in the same way. During the 1960s and 1970s, some boomers marched against the Vietnam War and fought for civil rights but others supported the war and helped give Richard Nixon his landslide victory in 1972. To a large extent, these attitudes have persisted. The typical boomer isn’t a radical turned conservative, but someone whose party preferences, radical or conservative, have remained stable.

That said, there has been a broader shift to the right among older voters, and this needs to be explained. For issues where the tide of opinion has run consistently in one direction for a long time, the OK Boomer meme is closer to reality.

Think about climate change. Although scientists have been discussing the relationship between atmospheric carbon dioxide and climate for more than a century, they didn’t reach even tentative agreement until the 1980s. (Before that, there was discussion of, but no agreement on, the possibility of a renewed Ice Age.) It wasn’t until the 1992 Earth Summit that the issue reached the broader public.

By then, boomers were aged between thirty and fifty, old enough that their attitudes on most issues had been formed. For those who had already adopted conservative views and obtained their (mis)information from sources like the Murdoch press, that was the end of the story. Their prior beliefs were reinforced by a constant drumbeat of lies and conspiracy theories.

But even those who accepted mainstream science saw climate change as a concern for subsequent generations, perhaps as early as their grandchildren. Only in the past few years (or, for many Australians, the past few weeks) has the reality of climate change really hit home.

Compare the experience of a person aged sixteen, like Greta Thunberg. Throughout her life, the reality of human-caused climate change has been accepted by all major scientific organisations. Deadly European heatwaves have occurred in 2003, 2006, 2007, 2010, 2018 and 2019. Melting icecaps, retreating glaciers, droughts and wildfires are everyday news items, as is the failure of national governments to take the action needed to solve the problem.

Every year earlier a person was born is another year in which they were, at most, only partially aware of the threat of climate change. The result is a sharp decline in concern about climate change with rising age.

Similar trends can be found on other “cultural” issues, including LGBTQ rights. Anyone over fifty grew up at a time when homosexuality was a criminal offence in much of Australia. Anyone under thirty can’t remember a time when such a law would have seemed other than absurd.

Of course, attitudes don’t break along the sharp generational lines popularised by memes like OK Boomer. People born in 1963, at the end of the baby boom, have had life experiences very similar to the earliest members of generation X, born the following year. Both have had radically different experiences from those born in the immediate aftermath of the second world war or, like the last of generation X, born around 1980. The lack of a sharp break is reflected in the recent polling data on cultural issues like climate change and marriage equality.

The rise of culture war politics on the political right, based on appeals to nostalgia for an idealised past, has made issues of this kind far more salient. As a result, differences in cultural attitudes are now closely linked to political views. Young people in Britain, the United States, Australia and other English-speaking countries are now much more likely than older people to support parties of the left. This gradient is much steeper than at any time in the past.

What are the long-term implications for Australia? If the strong influence of early adult experiences observed by Ghitza and Gelman continues to affect party preferences, the parties of the right are set for a long period in the wilderness, perhaps as long as Labor’s twenty-three years in the mid twentieth century.

But there are countervailing forces. If the left pushes for more radical cultural change while the right accommodates the changes that have already taken place, we might see a continuation of the existing age gradient. So far there is little sign of this; on many issues, the right seems to be digging in. Alternatively, if other issues, such as foreign policy, come to dominate policy debate, allegiances formed on the basis of cultural issues may dissipate. Finally, there is the possibility that the existing party system will be replaced by a new one, as has happened in a number of European countries recently. •

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Before looking at the EU position, it’s worth considering how far removed from reality our political class has become. As bushfires raged through October and November, a bipartisan consensus emerged: any discussion of the relationship between the fire catastrophe and climate change, let alone any suggestion of a policy response, would be divisive and unnecessary. Many media outlets were happy to go along with it.

The same willingness to ignore the deeper issues extends to climate-related policy more broadly. As energy minister, Angus Taylor has repeatedly and egregiously misled the public about key aspects of his portfolio. He has denounced renewable energy, made spurious claims about the benefits of coal-fired power, and promoted the government’s claim to be observing our emissions-reduction commitments while vetoing any policy action that might promote that goal.

For all of this, he has had a free pass from Labor and most of the media. Their attention has been focused on a series of trivial scandals, culminating in the publication of a forged document used to accuse the Sydney City Council of hypocrisy. These transgressions may or may not cost Taylor his job, but their pursuit will do nothing to tackle the climate emergency.

This mindset helps explain why the sudden discovery that the world, including the European Union, is paying attention to our lack of action on climate — and may actually do something about it — has come as such a nasty surprise. France has taken the lead in these demands, but there is no sign that it won’t be supported by any major EU member.

To recap: in line with its refusal to sign trade agreements with countries that have failed to ratify and implement the Paris agreements, the European Union is demanding a stronger commitment to reducing emissions as a precondition for any new trade agreements. In Australia’s case, it has also made more specific demands, including an end to our use of high-sulphur petrol, which is more polluting than would be allowed in India or China and is part of the reason why the government has rejected tighter fuel-efficiency standards.

Australia’s trade minister, Simon Birmingham, has described France’s push to force Australia to adopt climate change targets as “unprecedented.” It’s a claim that suggests he hasn’t been paying enough attention to his job. Far from being a novel demand, this is a standard part of the EU negotiating position, and Australia is unlikely to secure an exemption — particularly now we’ve been specifically identified as being unfit to speak at this week’s UN Climate Summit.

The European Union, again led by France, has made exactly the same demand of Britain in relation to any post-Brexit trade deal, and of the United States as a precondition for any trade agreement. Canada, which signed a trade deal with Europe in 2017, has recently agreed to add a joint commitment to the Paris agreement. The EU deal with Japan, also signed in 2017, includes similar terms.

With the American political system largely paralysed, the European Union has emerged as a source of global standards. We’ve seen one effect of this in our email inboxes, with organisations of all kinds rushing to comply with the EU General Data Protection Regulation by seeking explicit consent for their use of our data.

There is every reason to suppose that the same pattern will emerge in relation to climate clauses in trade agreements. One of the knottier features of these agreements is “rules of origin,” designed to prevent one of the signatories from exploiting an agreement by importing goods from a third country, repackaging them and then exporting them to its partner country. As one of the most notorious laggards on climate, Australia is likely to fall foul of these rules in relation to any country that signs or updates an agreement with the EU.

Of course, as long as the Trump administration remains in office, the effects will remain limited, particularly if China persists in its shift back towards coal. But if Trump is defeated, an incoming Democratic administration is unlikely to look kindly on his global allies, including the Morrison government. Moreover, with scepticism about free trade dominant in the Democratic Party, the United States will probably match Europe in refusing deals with countries that are cheating on their Paris commitments.

For Australia’s current leaders, the worst case would arise if Washington offered to rejoin the Trans-Pacific Partnership but demanded that commitments on climate be built in to a revised deal. It’s unlikely but by no means impossible.

The EU demand is a warning to our leaders that a climate policy based on appeasing culture warriors and narrow interest groups amounts to an attempt to cheat the rest of the world by free riding on their efforts. It won’t go unpunished for long. •

The post Yes, the world is paying attention to Australia’s climate inaction appeared first on Inside Story.

Last month the company carried out its threat to bankrupt Adrian Burragubba, the leading Indigenous opponent of the mine, who was unable to meet an order for court costs. At the same time, the company had secretly reached an agreement that the Palaszczuk government, which is running scared after the federal election result in Queensland, would extinguish native title over the mine site.

Remaining approvals, such as the lease on Moray Downs land for the workers’ camp and airport, have been finalised, and a royalty deal will reportedly be concluded soon. But Adani has yet to negotiate access to the Queensland rail network. Its owner, Aurizon (formerly the publicly operated QR), is coming under pressure from the public and large shareholders to limit assistance to what is legally required.

Despite these delays, the recent rhetoric of Adani and its backers suggests the project ought to be well under way by now, with thousands of jobs on offer. In reality, Adani has advertised just twenty-five jobs over the past month (as at 5 September), according to the company’s jobs portal, and no more than one hundred since the election, not even enough to offset cuts made last year.

It’s possible that this is simply a steady and orderly process of development on Adani’s part. If so, the company needs to pick up the pace soon if it is going to start exporting coal by its publicly stated target of 2021.

Alternatively, it may be that pressure to stop new coal projects has left Adani without partners for crucial parts of its work. As I wrote recently in relation to insurance in particular, the number of companies willing to back new and existing coalmines is shrinking, and the costs are bound to increase correspondingly.

More broadly, media reports suggest that GHD, which is carrying out the rail design work, is bearing significant reputational costs. Given the unhappy experience of previous engineering contractors like Worley Parsons and AECOM, it’s surprising a firm with an eye to the future would pick up this poisoned chalice.

That seems to be the view of another big engineering firm, Aurecon, which has just announced a break with Adani. Despite copping abuse from resources minister Matt Canavan, Aurecon presumably judges that it will be around long after Canavan has gone, and that the long-term costs of planetary vandalism is too much to bear.

Then there’s the operation of the railway. Aurizon seems unlikely to take it on, and another big operator, Genesee & Wyoming Australia, has said it won’t touch it. That leaves Pacific National, whose owners include at least one organisation, the Canada Pension Plan Investment Board, that’s coming under pressure to divest from fossil fuels.

A final possibility is that the ultimate owner, Gautam Adani, is still playing for time, hoping to extract yet more government support before committing billions of dollars of his own money to a project that can’t possibly be sustained in commercial terms. As an Institute for Energy Economics and Financial Analysis has shown, the whole plan now depends on a crony-capitalist deal involving Adani, his close friend Indian prime minister Narendra Modi and the government of Bangladesh.

Even so, without more financial support from Australian governments, it’s hard to see the project paying off. And it’s at least possible that part of the deal, now being challenged in Indian courts, will fall over.

While Adani has received an outsize share of attention here, the broader issue is the need for an orderly transition away from coal-fired electricity generation, and ultimately away from all burning of fossil fuels. If such a transition is to be feasible in the couple of decades available to us, no new thermal coal mines, or major expansion of existing mines, can be justified — and that applies to proposals such as Shenhua’s Watermark mine near Gunnedah and the New Hope mine in Acland, near Toowoomba. •

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Over the past decade, two institutions that have endured far longer than did the Soviet Union and are far more central to our way of life have come under challenge: the carbon-based industrial economy and the finance-based system of global capitalism. The two have been intertwined since their near-simultaneous birth at the end of the seventeenth century. The Bank of England was created in 1694, shortly after the first major private banks, Barclays and Coutts; the first steam-powered pump was patented only four years later by Thomas Savery, and then rapidly superseded by Thomas Newcomen’s 1712 design.

For nearly three centuries, they proceeded in tandem, periodically interrupted by crises of one kind or another. Since 1945, though, their paths have diverged.

While the industrial economy boomed after the second world war, the financial sector was kept under tight control by the Bretton Woods system of fixed exchange rates. But the collapse of the Bretton Woods system in 1971, and the oil crisis of 1973 turned the tables. Economic growth slumped across the developed world; and when it eventually returned, it delivered nothing like the broadly shared prosperity of the long mid-century boom. Wages remained stagnant and inequality deepened.

By contrast, the financial sector exploded in the 1970s, freed from the fetters of Bretton Woods. Global financial flows, previously limited to the relatively modest amounts needed to finance trade and investment, exploded into the trillions and were then multiplied into the hundreds of trillions by derivative transactions. Meanwhile, the consumption of carbon-based fuels continued to grow.

But, as the economist Herbert Stein observed, “If something cannot go on forever, it will stop.” Not long before Francis Fukuyama pronounced the end of history, the first alarms about global warming had led to the creation, in 1988, of the Intergovernmental Panel on Climate Change. In a series of reports, the IPCC has documented the evidence that human activity has caused significant climate change and that maintaining business as usual would render the planet virtually uninhabitable.

As debate over climate policy sputtered through the 1990s and the first decade of the 2000s, Stein’s aphorism seemed to have been upended: the world clearly could not go on burning fossil fuels, but there seemed to be no way to stop it. The Stern report, issued in 2006, was the first serious attempt at setting out an agenda to stabilise the global climate. But economist Nicholas Stern suggested a target of 550 parts per million of CO2, well above the level considered safe by most scientists. More importantly, his proposals assumed that we would continue to burn coal and could solve the emissions problem through the (non-existent then and hopelessly uneconomic now) technology of carbon capture and sequestration.

Less than fifteen years later, it is obvious to everyone (except those living in a right-wing alternative reality) that the decarbonisation process is well under way. Dozens of governments have already committed to phasing out coal-fired power, and ultimately to a fully carbon-free electricity supply. Even Germany, long dependent on coal, says it will close all coal-fired power stations by 2038. Going beyond electricity, France and Britain have committed to ending sales of petrol and diesel cars by 2040, and China, the world’s biggest market, seems likely to follow suit.

Whether progress towards decarbonisation will be fast enough to prevent severe climate damage remains to be seen. The obstacles aren’t technological — most of the necessary carbon-free technologies already exist, and good progress is being made in remaining areas like aviation and cement production. Rather, the blockages come from people who are committed to old ways of doing things, and to the social, cultural and economic order they represent.

Back in 2006, the carbon-based economy of physical production was obviously unsustainable, even if it was entrenched. By contrast, the globalised system of financialised capitalism had never looked stronger. Economists spoke confidently of a Great Moderation, in which a combination of sophisticated financial markets and wise management by central banks would make recessions and depressions a thing of the past.

Two years later, the entire system was on the edge of collapse. It was salvaged by massive handouts to banks, ultimately financed by austerity policies that slashed the living standards of ordinary people. Massive government intervention rescued the banking system, and the bankers, at immense cost to ordinary people around the world.

A decade later, no one has forgotten. If anyone needed their memory jogged, the near-continuous exposure of criminal wrongdoing at all levels of the financial system, from big global banks to small-fry mortgage brokers, has served as a continuous reminder.

Equally continuous has been the failure of regulators to do anything about it. The massive rigging of the Libor system, on which all global interest rates were based, led to a single criminal conviction, along with a few generously compensated early retirements. The Hayne royal commission looks set to produce much the same kind of outcome in Australia.

Monetary policy, meanwhile, was moved to an emergency footing, with very low, or even zero, interest rates. A decade after the global financial crisis, this emergency measure is still in place. As the International Monetary Fund has observed, the longer it continues, the greater the risk of another financial crisis. When the next crisis comes, the task will be one of definancialisation: cutting the sector down to the minimum size needed to meet the needs of saving and investment

So what would a definancialised economy look like? For ordinary Australians, the differences would be relatively minor. The set of financial products used day-to-day by the average household — savings accounts, consumer loans and mortgages — hasn’t changed much in decades. The last major addition to the set was the credit card, introduced way back in 1974. Most of the changes have been in the technology used to manage these products — online banking instead of cheques, paywave instead of imprinting machines, and so on.

A variety of more or less disastrous “innovations” have come and gone, the most notable being the 1980s idea of denominating loans in the Swiss franc and other foreign currencies. When the Australian dollar predictably depreciated against the franc, borrowers found their debts doubled.

The biggest change for households would be the retirement income system. Until the late twentieth century, Australia had a two-tier system: salaried white-collar workers received defined benefit superannuation while blue-collar waged workers relied on the age pension and any personal savings they could accumulate. The central and most attractive feature of defined benefit schemes was an annual income, normally based on salary at retirement, payable for life and indexed to inflation.

The Hawke–Keating government expanded superannuation to cover the entire workforce while initiating a transfer of risk from employers to workers. In the name of consumer choice, defined benefit systems were replaced by accumulation funds, which require individuals and families to bear the risk of fluctuating returns. Despite massive tax subsidies, many households have found this system has been far from satisfactory. An important step towards a definancialised economy would be a winding back of this process, ending with a return to defined benefit pensions.

By contrast with its limited impact on households, definancialisation would have a dramatic impact on the world’s financial centres. Rather than treating complex financial structures as presumptively desirable, the object would be to eliminate them, except where they could be shown to yield a public benefit. International agreements designed to protect such complex structures from “double taxation” would focus instead on ensuring that corporations pay tax in every jurisdiction they operate in. This would largely eliminate complex corporate structures and the array of financial instruments and derivatives that support them.

In turn, the galaxy of legal and accounting firms supporting the bloated financial sector would shrink drastically. In the absence of job opportunities in these fields, the brightest of our young people would fall back on careers as doctors, or scientists or engineers, as they did before the finance boom.

After the failures of the past decade, the desirability of cutting the financial sector down to size seems obvious. But how? While thoroughly discredited in the eyes of the public, the sector remains so powerful as to make the idea of any challenge seem quixotic in the extreme.

The process of decarbonisation provides some useful lessons. For economists, the ideal way to decarbonise the economy is by imposing a price on carbon dioxide emissions. This could be done with a carbon tax that increases over time, gradually rendering more and more carbon-emitting processes uneconomic. Alternatively, companies could be required to purchase emissions permits, with the available number declining over time.

The financial sector equivalent to a carbon price is the Tobin tax, a levy on financial transactions set at a rate low enough to have no effect on long-term borrowing and lending but high enough to render speculative trading and complex derivative transactions unprofitable. If the G8 countries introduced such a tax, and imposed a punitive rate on transactions involving noncompliant tax havens, the daily volume of financial transactions (currently around $5 trillion) could be reduced by a factor of one hundred without any impact on real economic activity.

As with a carbon price, a full-scale Tobin tax may prove too difficult to implement. The alternative route to definancialisation is death by a thousand cuts, using tighter regulation, effectual punishment of criminal behaviour and a comprehensive assault on tax avoidance and evasion. Such measures would push banks and financial institutions back into their basic role of channelling savings into loans and investments. Deutsche Bank’s recent retreat from global banking, driven in part by massive fines for money laundering, may be an isolated case, but it could be the beginning of a trend. The crucial requirement is for regulators and courts to put the interests of the public ahead of concerns about keeping banks in business.

Will such proposals ever be implemented? The financialised global economy appears both utterly discredited and completely untouchable. But as the rapid movement towards decarbonisation shows, appearances can be deceptive. Should the economic crisis feared by the IMF materialise, the demand for change may prove irresistible. •

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Despite the company’s upbeat announcements, the project still seems to consist entirely of tree-clearing and road-building. Photos published recently show the same small group of vehicles that has been on the site since January.

To get past this stage, and lacking significant in-house experience of major projects, Adani needs partners, not least engineering design firms and construction contractors. And even if no external funds were needed, the project would need insurance, which is getting harder to come by.

Adani claims it has insurance lined up, but declines to say which firm will provide it. Most of the leading European insurers, and an increasing number in Asia and the United States, already have policies that preclude lending to new coal projects like Adani. QBE, Australia’s leading insurer, has joined this group. New divestment announcements are appearing every week.

Assuming Adani’s claim about insurance is true, the obvious explanation is that the unnamed insurer is worried about the reputational cost of being associated with such a toxic project. Indonesian coalminers are already facing similar problems in obtaining finance and insurance. Taking on a risk like Adani only makes sense for an insurer if premiums are higher than the usual rate for a mining project. Given the shrinking pool of potential insurers, Adani has little choice but to pay top dollar.

Similar is true of the engineering and design work for Adani’s reconfigured project. It’s widely rumoured that Australian-based multinational firm GHD will get the job, but so far it has refused to comment. The firm is already under pressure to repudiate the project.

As well as reputational damage, GHD needs to consider the fact that Adani has burned a string of previous contractors. In 2015, up to forty engineers at WorleyParsons’s Brisbane office were abruptly told their services were no longer required. A $2 billion contract with Downer EDI, announced with great fanfare in in 2015, was cancelled a couple of years later. Adani is still fighting its last partner, AECOM, over a payment of $12 million. AECOM must surely be regretting ever getting into bed with Adani, having wound up losing its money as well as its reputation.

Any firm looking at this history would want a high price and money up front for its services, and would try to keep its involvement as quiet as possible. Which raises the question of how a project that was marginal to begin with will manage to pay above-market prices for everything it needs.

Adani is presumably counting on favourable access to the Indian market, where the firm’s chairman, Gautam Adani, is a prominent friend of India’s prime minister, Narendra Modi. But no government lasts forever, and short-term political connections aren’t a sensible basis for an investment that is supposed to last thirty years.

Outside India, the prospects for Australia’s thermal coal have never been worse. Of our main Asian markets, South Korea has committed to reducing reliance on coal, Japan has cancelled much of the expansion in coal planned after the Fukushima disaster, and China is reducing its reliance on imports — especially (apparently for foreign policy reasons) imports from Australia.

Further market pressure is arising from supplies diverted from contracting markets elsewhere. Most European countries have committed to a complete phase-out of coal-fired power. Despite the efforts of the Trump administration, coal is projected to provide only 11 per cent of US electricity supply by 2030, leading suppliers in Russia and North America to seek export markets in Asia.

In these circumstances, the only way coalmining can stay profitable is if high-cost producers leave the market. That’s exactly what Australian miner Whitehaven says it is counting on. But if the market is so weak that existing mines must be closed, how can it make sense to begin mining relatively low-quality coal that needs to make a long rail journey to port? Adani has yet to answer that fundamental question. •

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To start with, let’s look at Bitcoin. Here, the central idea is that coins are generated (or “mined”) by performing an extraordinarily difficult but entirely pointless calculation that can be verified publicly. This “proof of work” is recorded in a database called a distributed ledger, using a technique referred to as blockchain. Additions to the blockchain are validated through a consensus among all the nodes in the network of users.

This model has a number of perceived advantages and one gigantic disadvantage. The main advantage is that the ledger requires no central authority and is effectively immutable, thereby providing a currency independent of any central bank or issuing authority. The big disadvantage is that the technique wastes vast amounts of energy, roughly equal to the total value of bitcoins created. At its present price and creation rate, Bitcoin is wasting energy equal to the total consumption of a country like New Zealand.

Bitcoin was designed to be used in place of ordinary currencies for purchases of goods and services. This hasn’t happened, at least for ordinary transactions. Merchant adoption has been negligible and is, if anything, declining. For example, Brisbane Airport claimed in January last year that it would be the world’s first Bitcoin airport, but a year and a half later only three stores in its international terminal are accepting the coins, and only a handful of transactions are processed each month.

Bitcoin’s only significant use in transactions is among users who wish to conceal from the authorities the fact that they are making drug deals or evading exchange controls in countries like Venezuela. Even there, success is mixed, with a number of “dark web” drug markets recently closed down.

The majority of Bitcoin activity is purely speculative. It’s true that the supply is finite, which is good for speculators, but that’s to ignore the ultimately more important fact that the coins are not backed by anything. By contrast, ordinary (or “fiat”) currencies have value because issuing governments accept them in payment of taxes and other obligations.

Facebook’s Libra is the direct opposite of Bitcoin in two critical respects. First, unlike the decentralised Bitcoin, Libra is centralised. Coins will be issued only by Facebook and its trusted partners. This means that there is no need to perform the energy-guzzling “mining” process. On the other hand, it is entirely inconsistent with the idea of cryptocurrencies being outside the control of any one organisation.

Second, whereas Bitcoin is backed only by the willingness of cryptocurrency users to buy it, Libra will be a “stablecoin” backed by a basket of currencies, including the US dollar. This raises the obvious question: why not just pay in your own currency — or, if that is problematic, in US dollars?

Facebook’s answer to this question is that Libra will be aimed, at least initially, at users in poor countries who have access to Facebook but not to banks or other financial institutions. Given the proliferation of smartphones in poor countries and the patchy development of financial networks, the potential market is large.

But so, on the other hand, are the obstacles. Libra will be a financial instrument that allows users in poor countries to trade within a basket of rich country currencies. That’s likely to create plenty of regulatory obstacles at both ends. After all, at some stage Libra funds will need to re-enter national economies via a route that is subject to national regulation.

A few years ago, when cryptocurrencies seemed unstoppable and Silicon Valley had far more political support than Wall Street, these obstacles might have been swept aside. Today, however, a new venture combining one of the least-trusted tech companies with the long-hated credit card companies and gig economy ventures like Uber seems designed to generate hostility across the political spectrum.

Coming back to our second question: if financial instruments as different as Bitcoin and Libra can be called cryptocurrencies, does the word have any meaning at all? Bitcoin advocates would answer that stablecoins like Libra aren’t really cryptocurrencies at all. On the other hand, the fact that Bitcoin is barely used as a medium of exchange raises the question of whether it can be called a currency of any kind.

Ultimately, the crucial part of the name is “crypto.” What Bitcoin and Libra have in common is a desire to avoid the constraints of government regulation of financial markets by burying their operations in layers of technological mystery. These aspirations, brought together in the term “fintech,” reflect the market libertarianism that dominated both the technology and finance worlds in the heady days of the 1990s, and persisted even after the global financial crisis of 2008. It remains to be seen whether such aspirations will flourish in the current, much less favourable environment. •

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It took some time for the role of preferences to be properly understood. In David Williamson’s classic play Don’s Party, set on the night of the 1969 election, the party-goers are excited by Labor’s lead on primary votes, only to realise, as the night wears on, that DLP preferences flowing to the government are likely to produce a narrow defeat.

What made sense of this phenomenon was the idea of the “two-party-preferred vote,” or 2PP, which reflects the fact that minor-party candidates and independents are generally eliminated first when votes in each seat are counted. Their preferences are then distributed between the two major parties, the Liberal–National Coalition (treated as a single party for this purpose) and Labor, giving the 2PP result.

Broadly speaking, the party that receives a majority of the national 2PP vote is likely to win a majority of seats and therefore form government. That isn’t necessarily the case: one party can score narrow wins in a large number of seats while the other piles up large majorities in fewer seats. But effects of that kind are typically small. The biggest 2PP vote recorded by a losing party in recent history was Kim Beazley’s 51 per cent in 1998.

Opinion polls attempt to estimate the 2PP vote either by using historical preference flows or by asking respondents which of the two parties they prefer. Notably, Newspoll recently adopted the assumption that Clive Palmer’s deal with the government would deliver 60 per cent of his preferences, a decision was almost entirely responsible for the “tightening” of the margin that was trumpeted when the first poll using this flow was released.

What no one seems to have noticed is that 2PP calculations are illuminating only if we assume that the final two candidates in any seat are those of the two major parties. But that doesn’t happen if an independent or minor party candidate finishes ahead of one of the major party candidates and is elected on that candidate’s preferences — as Kerryn Phelps was in the recent Wentworth by-election.

Such a result, very rare in the twentieth century, is now becoming much more common. Independent or minor candidates have won seats in every federal election since 2010, and hold seats in every state lower house (counting those held by the WA Nationals, who refuse to form a coalition with the Liberals).

In these circumstances, the notion of a 2PP vote is meaningless. It might show which party would have won in a particular seat if the independent were not running, but that doesn’t help the party in question to form a majority government. Less obviously, the same is true in cases where the independent loses in the final round. Once again, the question of where their preferences might have gone is irrelevant.

Opinion polls don’t provide the seat-by-seat data that’s needed to undertake this exercise before an election. We can make a rough-and-ready adjustment by looking at the difference between the 2PP and two-candidate-preferred, or 2CP, votes at a previous election, then scale this difference to take account of changes in support for independents and third parties. I estimate that, for each of the major parties, the 2CP vote was about 0.5 per cent lower than the 2PP vote. That’s consistent with the outcome in 2016, when the LNP, with 50.4 per cent 2PP, scraped in with the barest possible majority, while Labor, on 49.5 per cent, fell well short.

This time it looks as if support for independents will be stronger, and will be concentrated in seats where there is a good chance of first or second place. On that basis, I’d suggest a reduction of one percentage point from the 2PP result recorded in the polls. These have been consistently close to 51–49 (arguably, too consistently given the random variation we would normally expect). Assuming the polls are correct, this would imply a knife-edge result, with Labor either gaining a bare majority or falling just short.

The seat of Mayo, won by Rebekha Sharkie in 2016 provides an example of how this would work at a seat level. While the 2PP vote went to the Liberals 56–44, the 2CP vote went to Sharkie, 58–43, a difference of 14 per cent. For completeness, it would be desirable to count the 2PP vote for Labor against Sharkie, which would have arisen if the Liberal candidate’s preferences were distributed. On the assumption that they would all have gone to Sharkie, the final vote would have split something like 75–25.

Although I have not undertaken a complete analysis, it seems likely that replacing the 2PP vote with the 2CP vote in every electorate where a major party candidate was eliminated would reduce the “preferred” vote for each of the major parties by one or two percentage points. Using the same reasoning we use in relation to the 2PP vote, we would expect a party to win a majority of seats in an election if, and only if, its 2CP vote was above 50 per cent. If neither party exceeds 50 per cent, we would expect a minority government.

How well does this predict observed outcomes in the period since third-party candidates became a major force? The 2010 election was very close, with Labor winning the 2PP vote 50.1–49.9. Clearly neither party would have had a majority of the 2CP count, so we would expect a minority government, which was the outcome. In 2013, the LNP won 53.5 per cent of the 2PP vote, implying well over 50 per cent of the 2CP vote and a majority government, as observed.

The 2CP model fared less well in 2016. The Coalition, with 50.4 per cent of the 2PP vote, almost certainly fell short of 50 per cent of the two-candidate vote, but won seventy-six seats, the narrowest possible majority. The outcome remained in doubt for over a week.

The current election will provide another test. Discussion of the polls has focused on the 2PP vote, which has, in recent polls, favoured Labor by 51–49.  If this is unchanged on election day, it is likely that neither party will secure an absolute majority, but that Labor will have enough support to form a minority government.

Many political commentators will bewail the prospect of a “hung parliament.” But this is an outdated prejudice. Over the past twenty years, we have seen numerous parliaments with no lower house majority, and many with no upper house majority. Nearly all have run a full term. Few have produced the kind of electoral backlash experienced by majority state governments seen as unaccountable and/or corrupt. Indeed, as I have argued, it would be better to use the term deliberative parliament to contrast hung parliaments with the rubber-stamp lower houses seen as the norm. •

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Tony Abbott famously described the Labor government’s carbon “tax” (a price, in reality) as a “wrecking ball” through the Australian economy. But neither its introduction under Julia Gillard nor its removal by Abbott had any measurable effect on economic growth. Indeed, the economic outlook presented in the budget statements in those years didn’t mention carbon pricing as a factor in our overall performance.

Why did these apocalyptic predictions go so badly wrong? In the case of the ABARE modelling, it was the result of three main factors: exaggerated assumptions about the cost of reducing emissions, inappropriate choices in the modelling process, and misleading presentation of results.

The problems began with a decision to exclude any consideration of technological progress in energy efficiency or renewable electricity generation. This led to an overestimation of the cost of reducing electricity consumption and replacing coal-fired electricity with renewables. Relative to business-as-usual projections, most of the emissions reductions since then have come from these sources, along with a reduction in land clearing.

The second set of problems related to decisions about how the model’s solution is derived. Depending on how this is done, the costs of a policy can either be understated or overstated, and ABARE consistently chose the latter course. An important example is the question of what will be done with the revenue derived from a carbon tax. A common assumption, used by ABARE, is that the money is either kept by government or handed back to households as a lump sum. In reality, the proceeds of the carbon tax were allocated primarily to reducing income tax, which greatly reduced the economic impact predicted by standard models.

Even with these choices, the ABARE model yielded an estimated cost of less than 1 per cent of GDP, equivalent to a few months’ worth of economic growth. That’s clearly a price well worth paying as part of a global agreement to stabilise the climate. To obscure that problem, ABARE took all of the costs estimated to be incurred over twenty to twenty-five years and used a “present value” calculation to present them as a lump sum. The figure was further exaggerated by using a mythical average family of four, disregarding the fact that, because incomes are unequal, most households get a lot less than the (arithmetic) average.

All of these difficulties were pointed out at the time, by leading economic modellers such as Peter Dixon and Warwick McKibbin, and policy economists, of whom I was one. So why bring up this history now? The director of ABARE at the time was Brian Fisher, the man who has just released alarming estimates of the cost of Labor’s climate policy derived from a new model produced by his BAEconomics consultancy. Far from correcting the errors of the 1996 model, his model repeats them all, and adds new ones.

First, the cost of wholesale electricity is estimated to be as high as $135 per megawatt hour. In reality, contracts for solar PV, with battery storage, are currently being signed at costs of US$30/MWh (about A$40/MWh), and this number is sure to fall. By ignoring this, Fisher produces the absurd suggestion of a carbon price as high as $405 per tonne. That’s nearly twenty times the level that produced significant reductions under the last Labor government and has also produced big reductions in the European Union.

Second, instead of assuming that the state of the economy is determined by the decisions of the Reserve Bank, with the economic impacts of climate policy reflected in wages and prices, Fisher assumes that there will be a permanent increase in unemployment. This greatly exaggerates the economic costs of any policy.

Even so, as in 1996, the estimated effects remain small — around 2 per cent of GDP for the policy simulation closest to Labor’s announced policy. So Fisher then repeats the 1996 trick of adding up impacts over ten years. The end result is the scary cost range of $264 billion to $542 billion trumpeted in the media last week.

Once the obvious errors in the BAEconomics model are corrected, it is clear that the impact of Labor’s policy on aggregate GDP will be well below 1 per cent. That is so small as to be lost in the noise generated by exchange rate change, statistical revisions and the like.

While the average Australian family won’t even notice the cost, and some will benefit from the expansion of employment and business opportunities in renewable energy, it is crucial to support a just transition for workers and communities dependent on fossil fuels. The cost of such support, like that of the transition as a whole, will be very small in relation to the economic capacity of Australia as a whole. •

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The answer can be found in this graph released by Ofgem, the British electricity regulator. As it shows, coal (shown in orange) supplied around 40 per cent of British electricity in 2006, yet by 2018 its contribution was negligible. (The graph on Ofgem’s site is interactive, so you can see the actual numbers there.)

British electricity generation by fuel source 2006–18

Source: Ofgem, January 2019

Generation from gas and nuclear plants displaced substantial volumes of coal-fired power during the second half of the twentieth century, but has been virtually constant since 2006.

Coal’s elimination has come from two main sources. First, total electricity use has declined, reflecting increased efficiency. Second, wind (offshore and onshore) has expanded to the point where it is about as big a source as nuclear. Solar photovoltaics have also grown strongly, though they contribute only about 3 per cent of total generation. The few remaining coal-fired generators operate as backup supplies, used only to meet peak demand in winter.

The result of the end of coal-fired power, and the twentieth-century shift away from coal-burning heavy industry, is that Britain has reduced CO2 emissions to the levels of 1888. A complete phase-out of coal-fired electricity generation is anticipated by 2025.

Given Britain’s substantial reliance on gas, further reductions in CO2 emissions from the electricity sector are more problematic. At least Britain, unlike Germany, didn’t hamstring its decarbonisation efforts by mandating the early closure of its nuclear power plants. The contribution from nuclear power may even increase if the Hinkley Point C power plant, now in the early stages of construction, is ultimately completed. But the massive cost of that project has led to the abandonment of most remaining proposals for new plants. Over the next couple of decades, most of the existing nuclear fleet will reach the end of its scheduled operating life and will need to be replaced or refurbished.

If the costs of renewable electricity continue their steep decline, some of the older gas-fired power stations built during the 1990s “dash for gas” may be retired over the next few years. A complete shift away from gas is a long way off, however.

Even with these problems, decarbonising electricity is just the easy bit. Reducing, and ultimately eliminating, emissions from transport and industry will be much more difficult.

Against the general trend of declining emissions, CO2 emissions from Britain’s road transport industry have risen recently, driven by the shift away from diesel engines and from passenger cars to SUVs. The only long-run solution is electrification, which will require further expansion of renewable generation.

The British government has promised to end the sale of petrol and diesel cars by 2040, but the task of conversion will need to begin almost immediately. The same is true in Australia, where Labor has announced that it will seek to make electric vehicles 50 per cent of new car sales by 2030 and to ensure the government fleet reaches that goal by 2025.

Reducing emissions from industry is even more difficult, since each industrial process has its own needs, and most of them are built around carbon-based fuels. One positive recent step has been the announcement that Britain’s largest remaining steelworks, at Scunthorpe, will construct an electric arc furnace for recycling scrap in order to offset recent reductions in raw steel production capacity. This raises the global issue of the need to improve scrap recovery and shift the balance of steel production from crude steel to recycling.

Despite these continuing challenges, the ease with which Britain, the birthplace of the modern industrial economy, has abandoned coal-fired electricity gives the lie to those in Australia who claim that decarbonising the economy will be ruinously expensive.

In nearly all respects, Australia is better placed now than Britain was in 2006 to break with coal-fired electricity. Admittedly, we are starting from a higher coal share, in part because we avoided the false promise of “too cheap to meter” nuclear power back in the 1970s. Against that, we have substantial existing hydro resources, with Snowy 2.0 as a possible expansion, far more sites for onshore wind and, of course, a massively greater potential for solar energy. Even more importantly, we can take advantage of more than a decade’s worth of technological improvement that has driven down the cost of renewable energy and storage by factors of 80 per cent or more. •

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Monopolies are undoubtedly a primary cause of the alarming increase in inequality in most developed countries in recent decades. Gigantic monopolies, or near-monopolies, like Google and Facebook can use their market power to make super profits for a tiny group of senior managers and shareholders. But economists also worry about oligopoly markets, which are dominated by a small number of firms. In Australia, well-known examples include airlines, banks, insurance, energy, supermarkets, telecommunications and toll roads — in fact, the challenge is to find cases of the classical economic ideal: a market in which many small companies compete for customers, with no company large enough to unduly influence prices.

Economists have also returned to the problem of monopsonies and oligopsonies — those markets in which there are only one or a few buyers. In these cases, a business with monopoly or oligopoly power — a large supermarket chain, say — deals with a large number of suppliers that have few, if any, alternative customers. As a result, the sellers are forced to accept the terms they’re offered. Since the mid 1990s, this analysis has been extended to labour markets, where an imbalance of bargaining power exists between employers (as buyers of labour) and workers.

During the twentieth century, the market power of large firms was largely offset by what the economist John Kenneth Galbraith called the countervailing power of trade unions and governments. As unions declined and governments increasingly followed the dictates of financial markets, that power dissipated. Monopolies and monopsonies became ever more influential.

The key insight into what this means for employees was an analysis of minimum wages by David Card and Alan Krueger published in 1993. Card and Krueger examined changes in minimum wage rates in neighbouring American states and found — contrary to conventional wisdom — that a higher minimum wage had no discernible effect on employment in the fast food industry. Their estimates were subject to lots of reanalysis, the majority of which tended to confirm the original findings. More than twenty years later, Card and Krueger’s conclusions are broadly accepted, notably by Australia’s Reserve Bank.

Card and Krueger brought into the debate the imbalance of bargaining power between employers and potential workers, and the resulting importance of monopsony power. The central implication of their analysis is that higher minimum wages will shift the benefits of the wage bargain from employers to workers rather than raise the cost of new hirings to a level that cancels out any broader private and public benefit.

It might seem strange to impute monopsony to an industry like fast food, which is made up of a significant number of different chains. But individual workers can’t simply move from one fast food job to another — except in boom conditions — while employers can almost always replace them. Worse, many workers in the United States, even in low-level jobs like fast food, are subject to “non-compete clauses” that prevent them from going to work for another employer in the same line of business. And even in the absence of such agreements, many employers informally agree not to poach each other’s staff.

These constraints on employees represent a return to conditions that prevailed up to the late nineteenth century. Until then, employees were treated as servants, bound to the service of their masters for lesser or greater periods of time.

The final charge against monopolies is that they have contributed to the slower growth in productivity observed in most developed countries in recent decades. It is sometimes suggested that large firms are inherently less innovative than small ones, but there is little evidence for this claim. Rather, the problem is that most innovation is directed towards maximising monopoly profits rather than improving value for consumers, or for society as a whole.

The extent of the problem is unarguable. As of 2016, according to Business Insider magazine, the six most valuable companies in the world were Apple, Exxon, Alphabet (Google), Microsoft, Amazon and Facebook. All of them depended, to a greater or lesser extent, on monopoly power. The market value of these firms depends more on whether they can maintain that monopoly position than on whether the total return on their investments is greater than the social opportunity cost — the cost of their activities taking into account the other potential uses of their resources.

A central feature of this monopoly power is the idea of “intellectual property.” This is not a wholly new notion: inventors have long received patents that give them, for a limited period, monopoly rights to sell any product that uses their invention. Similarly, authors receive copyright over their work.

If the copyright is valuable, though, it usually ends up as the property of a corporation. Not coincidentally, the scope and duration of these rights was greatly expanded in recent decades. The term of copyright, for example, which was once just seven years, now extends seventy years past the author’s death. Patents have been extended using techniques such as “evergreening,” and now cover such dubious innovations as “business methods.” For several years in the 1990s, it was possible to patent just about anything by adding “on the internet” to the description of some perfectly standard activity.

Analyses of the upsurge in inequality since the 1970s have pointed to monopoly and monopsony power as a major factor. As Brett Christophers observed in his book of the same name, competition has ceased to be the “great leveller.” Or, to quote Nobel laureate Joseph Stiglitz, “as inequality has widened and concerns about it have grown, [the] competitive school, viewing individual returns in terms of marginal product, has become increasingly unable to explain how the economy works.”

The importance of monopoly and oligopoly in generating inequality has also been highlighted by bodies such as the Economic Policy Institute and the Open Markets Institute, as well as by David Autor and other leading economists.

As is usual in economics, most discussion focuses on the United States. What about Australia? Last December, the Grattan Institute released a report seeking to debunk the idea that monopoly power creates serious costs for Australian consumers. Understanding this counterintuitive finding takes some digging, but it turns out that the analysis rests on a simple, but dubious, choice of metric.

One useful measure of monopoly power is the proportion of household expenditure that goes to monopoly or oligopoly businesses. On the income side, economists worry about the extent to which large businesses can act as monopsonists (single buyers) using their market power over their suppliers, franchisees and workers. Taken together, the share of household expenditure and income that involves dealings with monopolists represents a reasonable measure of monopoly power.

Grattan’s analysts do something subtly, but crucially, different. They use the “gross value added,” or GVA, recorded in the national accounts to identify industries dominated by a few private firms. Their striking finding is that only about 20 per cent of the economy falls into this category. These firms account for a substantial share of the average household’s expenditure, but a much smaller share of GVA.

Why is this the case? Arriving at the GVA for any given firm involves subtracting from its sales revenue the inputs purchased from other firms. In Australia, those inputs are mostly services supplied by firms ranging from labour hire and cleaning services at the bottom end of the market to legal and accounting services at the top. In all but a handful of cases, these markets are highly competitive.

On any reasonable accounting, the fact that monopoly businesses deal mostly with competitive suppliers — suppliers that can be replaced if they don’t cooperate — makes the problem worse, not better. By using GVA as its measure, the Grattan analysis reaches the opposite conclusion.

The intertwined problems of monopoly and inequality are severe, and getting worse. So why has the economics profession’s renewed wariness of monopolies and oligopolies not been reflected in public policy?

As with most contemporary economic failures, it’s sensible to start by looking back to the period before the rise of market liberalism (or neoliberalism, or economic rationalism) in the 1970s. The problem of large-scale monopoly emerged in the late nineteenth century and was met with two kinds of responses. The United States undertook “trustbusting,” breaking monopolies like Standard Oil into separate competing companies. This was combined with close regulation of natural monopolies like infrastructure services.

Elsewhere in the developed world the main response was to take monopoly enterprises into public ownership, confronting oligopolists with publicly owned competitors. In Australia, for example, most infrastructure services were nationalised, while public enterprises played a major role in banking, insurance and airlines.

Milton Friedman and his colleagues in the Chicago School of economists sought to discredit both trustbusting and public ownership, claiming that any problems of monopoly could be overcome with light-touch regulation. In Australia, their success is reflected in the regulatory practices of the Australian Competition and Consumer Commission, the Australian Securities and Investments Commission and similar bodies. The failure of their approach, evident for some time, was hammered home by the Hayne royal commission.

A return to trustbusting and public ownership must form part of the solution to monopoly power. But the policies of the nineteenth and twentieth centuries are not going to be appropriate for monopolies built around intellectual property and the control of platforms like Facebook. Part of the remedy has to be strong privacy laws that render the exploitation of these platforms unprofitable.

But what is really needed is support for the non-commercial uses of the internet that have largely been displaced by commercial networks like Facebook and Twitter. These include blogs, wikis and websites oriented to information rather than sales pitches. Similarly, we need ad-free search engines of the kind Google promised to be in the long-lost days when its corporate watchword was “don’t be evil.”

Creating and maintaining such platforms is not a trivial task. The problems that have bedevilled the commercial networks would still arise: abuse and bullying, fake news and objectionable content. Any form of public support for internet media would need to strike a balance between the harm caused by open slather and the risks posed by censorship.

Public broadcasters exist to deal with earlier problems of this kind, and have generally done it successfully. (The howls of bias from the Murdoch press only go to validate this point.) New versions of these solutions will need to be found for the internet age.

The problems of monopoly and inequality may seem so large as to defy any response. But we faced similar problems when capitalism first emerged, and Western countries came up with the responses that created the broad-based prosperity of the mid twentieth century. The internet, in particular, has the potential to enhance freedom and equality rather than facilitate corporate exploitation. The missing ingredient, so far, has been the political will. •

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At worst, chief judge Brian Preston’s decision will be overturned by a higher court on the basis of a legal error. At best, the miners, Gloucester Resources Limited and Yancoal, will appeal and lose. The second-best outcome is if the decision simply stands, setting an example (though not, as I understand it, a binding precedent) for other courts.

There’s one other possibility: that the NSW government will use its powers to override the decision without invalidating the judicial reasoning behind it. That used to be par for the course, but even the NSW Liberals are waking up to the political risks of climate denialism.

If the proposal does go back to court, there’s a strong case for using “opportunity cost,” a key concept in economics, to show why it shouldn’t proceed. Put simply, the opportunity cost of something is what you must give up so that you can have it. If you spend $50 eating out, that’s $50 you will no longer be able to spend on something else.

So how should we think about the opportunity cost of carbon dioxide emissions? The best way is to assess it in terms of carbon budgets.

The Land and Environment Court heard evidence from ANU professor Will Steffen about how much more carbon dioxide and other greenhouse gases the world can afford to emit while keeping the probability of dangerous climate change (more than 2°C warming) reasonably low (less than 33 per cent). The Intergovernmental Panel on Climate Change’s “baseline budget” of greenhouse gases is equivalent to one trillion tonnes of carbon, of which 575 billion tonnes had already been emitted by 2017. Assuming total emissions of other greenhouse gases are equivalent to 210 billion tonnes, that leaves only 215 billion tonnes of carbon, or about twenty years of emissions at current rates.

Within the carbon budget, any additional tonne of carbon dioxide emitted by one source requires a tonne’s reduction somewhere else. It is the cost of this offsetting reduction that determines the opportunity cost of the additional emissions.

In any plausible strategy to stay within our carbon budget, coal-fired electricity generation must be among the first activities to be phased out. Even before the climate effects are taken into account, the health costs of pollution from burning coal are so great as to outweigh any cost advantages over alternative generation technologies such as renewables, gas and even nuclear power.

It follows that any new coalmines must be offsett by a reduction in the emissions budget available to existing mines. That’s the opportunity cost. In simple terms, it means closing more of these mines while they still have substantial coal reserves available to be mined. Economically, this will hardly ever make sense. The construction costs of the existing mines, including the environmental damage caused by their construction, can’t be recovered, and opening new mines would require all that spending to take place again.

Except in the unlikely case of a previously unexploited site with very low extraction costs, exploitable with little or no local environmental impact, it makes no sense to open a new mine at the cost of closing an existing one. As was made clear in Justice Preston’s decision, the Rocky Hill mine is no such case. Over and above its effects on the global climate, this mine would deliver marginal returns while substantially damaging the local community and environment.

Opportunity-cost reasoning is a powerful tool, but it needs to be translated into dollar values if it is to be used in the kind of benefit–cost analysis that informs legal decisions. In this case, the crucial question is this: how much damage will be caused if emissions of carbon dioxide exceed the trillion tonnes remaining in the global carbon budget? It will be at least as great as the value of the carbon-emitting activities that are allowed inside the budget. And that means that the damage will be at least as great, in dollar terms, as a carbon price high enough to keep us inside the budget.

No one can estimate this value with certainty, but we can get a general idea. When I examined the topic some years ago, I concluded that the necessary price was around US$50 per tonne. The US Environmental Protection Agency came up with a slightly lower estimate of US$42 per tonne for 2020. Either cost would be sufficient to ensure that the cost associated with opening a new coalmine would exceed the economic value of the mine, even before other environmental and social costs are added to the tally.

The counter-argument presented by the coalminers is what economists call a free-rider argument. The miners say that NSW courts have no business worrying about the global costs of climate change; they should only be concerned with the damage caused by climate change within the state. Further, any individual mine should only be held responsible for its share of total emissions, which is tiny.

This claim is absurd in any case, but particularly so when it is made by a company like Yancoal, which has operations in many countries, each of them contributing to damaging climate change. On Yancoal’s reasoning, each of its mines around the world should be assessed only for the damage caused by that mine’s share of global emissions, and only for the jurisdiction within which the mine is located. So, Yancoal’s Queensland mines get a free pass for damage caused in New South Wales and vice versa, not to mention the harm done everywhere else in the world.

It remains to be seen whether the higher courts will find this exercise in intellectual and moral gymnastics sufficiently convincing to overturn Justice Preston’s carefully reasoned decision. Sadly, the High Court has shown an appetite for this kind of obscurantism in the recent past. But perhaps it will get this one right.

Regardless of the outcome of this case, the logic of the Rocky Hill decision will ultimately prevail. Not only will the legal obstacles for coalmines become increasingly steep, but miners will sooner or later face demands for compensation for the damage caused by climate change.

The strongest case will be against mines that have commenced operation after the need to leave remaining reserves in the ground was already clear. Anyone considering investing in, lending to or insuring such mines should be prepared for more decisions like Rocky Hill. •

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For their part, Labor governments would clearly like Adani to pull up stumps and leave, but they don’t want to be blamed for the loss of (largely imaginary) jobs or to be sued under the ISDS. Given that no financial institution in the world seems willing to finance this appalling project, that result has seemed like a safe bet.

Adani’s announcement in November that the project would be financed with $2 billion of its own resources was a clever move to undercut this hope. But Adani doesn’t want to spend such a massive sum, of course, any more than it spent the $400 million supposedly released for preconstruction works in 2017. So, having announced a start on construction “before Christmas,” the company did nothing.

Its jobs portal, set up with great fanfare in 2017, has so far listed only four or five Adani jobs (though other employers use it quite a bit). This is presumably what the company was referring to when it claimed recently that “our advertisements in Brisbane and regional Queensland highlight that we are ready to deliver the jobs and business opportunities that we have promised for Queensland.”

The self-funding announcement stirred the pot for a while, but something more was needed. So Adani announced that it was moving heavy earth-breaking equipment to the site in readiness for an immediate start. It released a couple of pictures (see below) and stated: “We have since moved the first earthmoving equipment to the site to be ready to commence work once the outstanding management plans are finalised. Early works to prepare the rail project for construction can now begin under current project approvals but work on the mine will not commence until the management plans are finalised as we noted when announcing financing for the project.”

You don’t need to be an expert to see that only one, or maybe two, of the vehicles in these pictures could be described as “heavy earthmoving equipment.” They look more suited to clearing scrub around the mining camp than digging a massive coalmine, or even carrying out “early works to prepare the rail project for construction,” which the company claims is happening now. And while the camp (which was apparently constructed in 2016) can accommodate 300 workers (rather fewer than the 10,000 we were once promised), the collection of vehicles parked out the front suggests that actual occupancy is more like twenty.

Just like Prince Potemkin’s famous (if possibly apocryphal) villages, moved from place to place along the Dnieper to give Catherine the Great an impression of bustling activity, there’s every chance that this arrangement is just for show.

The Queensland Labor government has responded in kind. Whereas Adani suggested that its radically revised proposal was still covered by previous approvals, the government is sending it back to the drawing board on a range of issues. That provides Adani with more excuses to do nothing while continuing to blame government obstruction.

If federal Labor wins government in May (as seems highly likely), it will need to face up to the issue later this year. First of all, it will need to develop a coherent policy on phasing out coal exports — ideally involving a ban on new coalmines, though this is almost certainly too much for Labor to contemplate. That proposal also faces the counterargument, put forward by both mining companies and unions, that reduced Australian exports would be replaced by lower-quality coal from other countries.

The argument has some force, but there’s a way of taking it into account. Australia’s benchmark export is Newcastle coal, with an energy content of 6000 kilocalories per kilogram and a correspondingly low ash content. The premium for this higher-quality coal has risen greatly, though it has declined somewhat in recent years. Galilee Basin coal’s heat content, by contrast, is estimated at less than 5000 kcal/kg, and its ash content is 26 per cent, worse than coal from many competing countries. A policy that stops short of a blanket ban but requires new mines to supply coal of, say, 5500 kcal/kg or more would put an end to any idea of developing Galilee, while allowing for some smaller, higher-quality projects to proceed.

But that might not protect Australia from action by Adani under the ISDS. For this and other reasons, a Labor government should urgently negotiate the removal of all ISDS clauses from existing trade agreements, and exclude such clauses from any future agreements. This process should be backed up, if necessary, with the threat of repudiation.

All of that is in the future. For the moment, Adani continues to issue media releases and display banners claiming that it is ready to start mining at any moment, while carefully avoiding spending any more of its own money. Governments continue to temporise, hoping that the economic irrationality of the project will cause it to fall over without the need for any action on their part.

Sooner or later, the issue must be resolved. In the meantime, my guess is that we will see a fair bit more shadow-boxing. •

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The fact that Adani has been unable to find external funding is well known, as is the fact that a starting date has been announced several times in the last eighteen months. But the pattern stretches back years, and goes far beyond problems with finance.

For at least five years, Adani has been announcing the imminent, or actual, start of the project. Over this period, business partnerships have been announced, only to then break down. In Adani’s telling, these serial divorces were due to the fact that the other party was no longer needed.

Preliminary design and construction work was under way in 2013 with a consortium that included Parsons Brinckerhoff as project manager and a fifty-strong engineering team from Worley Parsons. The project was suspended in 2015, however, and virtually all of the workforce was sacked. Two years later, the American engineering firm AECOM replaced Worley Parsons, only to pull out in May 2018.

In July 2014, Adani signed a “binding agreement” with South Korean company POSCO to build a standard gauge rail line, with construction expected to start in 2015. That deal also came to nothing, as did proposals for POSCO to invest in the project and buy around five million tonnes of coal. Another Korean customer, LG, signed letters of intent to buy four million tonnes of coal, but pulled out in 2015.

In January 2015, the company announced the awarding of a $2 billion contract to Downer EDI, stating that construction was expected to begin later in the year. That deal was cancelled in December 2017. In May that year, with POSCO out of the picture, Adani had announced it would be buying $74 million worth of steel from Arrium, owner of the troubled Whyalla steelworks. It’s unclear whether that deal is dead, but obviously the cut-down project now being proposed won’t need nearly as much steel.

Adani hasn’t treated its own staff any differently. When its Townsville regional headquarters was opened in 2017, 500 jobs were promised. In reality, there were never more than 150, many of them transferred from the Brisbane office. In June the number was reduced to one hundred and more staff were told their contracts would not be renewed.

All of this raises big questions about the claim that construction will begin before Christmas (or, in some versions, just after the new year). As far as can be determined, Adani’s Carmichael operation has no construction contractors, no professional engineering team and a staff level that would see it officially classified as a medium enterprise in Australia (from fifteen to 200 employees, according to the Australian Bureau of Statistics) and a small business in many other countries.

There’s no sign that this is changing. In June 2017, Adani set up a jobs portal for its Regional Content Strategy. The portal was open to other employers, which was perhaps fortunate. Adani advertised a handful of jobs initially, but soon stopped. Despite yesterday’s announcement, a search of the site for Adani jobs produces nothing, just as it has done for months.

Yet Adani claims to be able to jump-start a $2 billion project with over 1500 workers in a matter of weeks. Casting further doubt on the announcement is the fact that the proposed project has been radically redesigned in the past few months, with a completely different route for the rail line and a new access arrangement with Aurizon, which operates the Goonyella-to-Abbot-Point line on which the coal will now travel.

The absurdity of the project is reinforced by the fall in the price of the low-quality coal to be produced from the Galilee Basin. Coal quality is measured in kilocalories per kilogram (kcal/kg), with higher values indicating more heat content and less ash. The standard is 6000 kcal/kg Newcastle coal, the price of which rose between 2016 and the recent closure of the Chinese import market for December. But the strong demand for high-quality coal has massively increased the discount for coal graded 5500 or below. The Australian Financial Review recently estimated that Adani would be lucky to get US$55/tonne for its coal, compared to a Newcastle price of US$100/tonne.

At that price, it’s unlikely that Adani could cover the costs of mining, railing and shipping coal, let alone earn a return on a $2 billion investment.

It’s highly likely, therefore, that this is yet another mirage designed to keep the project alive without committing any real funds. Perhaps Gautam Adani doesn’t want to write off the billions he has already wasted, or perhaps he just doesn’t like admitting defeat. Or perhaps he is hoping to establish enough “facts on the ground” to extract compensation from the Queensland and Australian governments if the project fails to get the new approvals that it needs.

Suppose, however, that Adani goes ahead with the project seriously, raising the disastrous prospect that the entire Galilee Basin will be opened to mining. Such a huge expansion in the global production of coal would virtually eliminate any prospect of holding global warming to 2°C, let alone the 1.5°C needed to minimise the harm from climate change.

At that point, the Labor Party will have to take a stand on the issue, something it has successfully avoided so far. Achieving the Paris goals will require a rapid move away from coal, implying the need for a moratorium on new coalmines as well as the orderly closure of existing mines.

It would be a brave step for Labor to lead the world in announcing such a moratorium. But the current opposition has shown surprising bravery on a number of issues, most notably tax policy, and has suffered no apparent electoral costs — rather the reverse. The majority of Australians want action on climate change and understand that the economic benefits Adani has long promised are illusory. Let’s hope that this economic and ecological disaster can still be stopped. •

The post Another Adani alarm appeared first on Inside Story.

Seeming contradictions like these are not new. Technological change has always been uneven, making manufactured products cheaper, for instance, yet leaving many service activities largely unaffected. Increased productivity in the economy as a whole has pushed wages up, making labour-intensive services more expensive.

This divergence is much more marked with AI. Compared to earlier rounds of technological change, we are seeing a combination of incredibly rapid change and near stagnation. The acceleration of computing power has been so fast that a Series 1 Apple watch (itself a museum piece three years after its introduction) can perform calculations as fast as the Cray X-MP, the most powerful supercomputer in the world back in 1982. The amount of digital information generated every hour of every day exceeds all the digital data that was created up to and including the year 2000.

By contrast, many areas of daily life have changed little over the course of a generation. The most technologically advanced item in the average kitchen is the microwave oven, first marketed to households in the 1970s. Air travel reached its peak of speed with the introduction of the Concorde in 1973; it was withdrawn from service in 2003.

Every now and then, some new advance revolutionises a previously stagnant activity. The typical passenger car today is only marginally different from the models of twenty or even fifty years ago. It has smarter electronics and improved safety systems, but the experience of driving and the basic technology of the internal combustion engine are the same. Over the past decade, though, we have seen the arrival of electric cars and then of autonomous vehicles. While the future remains unclear, it seems certain that road transport will change radically over the next twenty years, and even more so over the next fifty.

Not all the new arrivals are beneficent. In 2062: The World that AI Made, Toby Walsh points to the alarming possibilities raised by autonomous weapons, of which armed drones like the Predator represent the first wave. The drone itself contains nothing fundamentally new — it’s a pilotless aircraft, equipped with cameras and missiles, that can fly for hours. The big developments are in the telecommunications systems that allow controllers on the other side of the planet to view the camera output in real time and order the firing of the missiles at any target that they choose.

At present these controllers are human, error-prone but capable of making moral choices in real time. But the development of pattern-recognition technology is such that it is already feasible to replace the human controllers with an automated control system programmed to fire when preset criteria are identified. The point at which moral choices are made, explicitly or otherwise, is in the setting of the criteria and the programming of the control system.

Further off, but by no means inconceivable, are systems whose criteria for targeting (for example, “fire on vehicles containing armed men”) are replaced by higher-level objectives. Such an objective might be “fire when the result will be a net saving of lives” or, more probably, “fire when the result will be a net saving of lives on our side.” In this case, in effect, the machines are being give moral principles and ordered to follow them.

These possibilities are alarming enough that Walsh, a professor of artificial intelligence at the University of New South Wales, and some of his colleagues organised an open letter calling on the United Nations to ban offensive autonomous weapons. The letter rapidly attracted 2000 signatures and started a process that may ultimately lead to a new international convention. As the history of disarmament proposals has shown, though, the resistance to any restriction on lethal technology is always formidable and usually successful.

The theme of human choice is developed further in Ellen Broad’s Made by Humans, an excellent analysis of the way the magical character of AI hides built-in human biases. Among Broad’s central observations is the fact that the word “algorithm” is being used in a different way, something I hadn’t noticed until she pointed it out.

For the last thousand years or so, an algorithm (derived from the name of an Arab mathematician, al-Khwarizmi) has had a pretty clear meaning — namely, it is a well-defined formal procedure for deriving a verifiable solution to a mathematical problem. The standard example, Euclid’s algorithm for finding the greatest common divisor of two numbers, goes back to 300 BCE. There are algorithms for sorting lists, for maximising the value of a function, and so on.

As their long history indicates, algorithms can be applied by humans. But humans can only handle algorithmic processes up to a certain scale. The invention of computers made human limits irrelevant; indeed, the mechanical nature of the task made solving algorithms an ideal task for computers. On the other hand, the hope of many early AI researchers that computers would be able to develop and improve their own algorithms has so far proved almost entirely illusory.

Why, then, are we suddenly hearing so much about “AI algorithms”? The answer is that the meaning of the term “algorithm” has changed. A typical example, says Broad, is the use of an “algorithm” to predict the chance that someone convicted of a crime will reoffend, drawing on data about their characteristics and those of the previous crime. The “algorithm” turns out to over-predict reoffending by blacks relative to whites.

Social scientists have been working on problems like these for decades, with varying degrees of success. Until very recently, though, predictive systems of this kind would have been called “models.” The archetypal examples — the first econometric models used in Keynesian macroeconomics in the 1960s, and “global systems” models like that of the Club of Rome in the 1970s — illustrate many of the pitfalls.

A vast body of statistical work has developed around models like these, probing the validity or otherwise of the predictions they yield, and a great many sources of error have been found. Model estimation can go wrong because causal relationships are misspecified (as every budding statistician learns, correlation does not imply causation), because crucial variables are omitted, or because models are “over-fitted” to a limited set of data.

Broad’s book suggests that the developers of AI “algorithms” have made all of these errors anew. Asthmatic patients are classified as being at low risk for pneumonia when in fact their good outcomes on that measure are due to more intensive treatment. Models that are supposed to predict sexual orientation from a photograph work by finding non-causative correlations, such as the angle from which the shot is taken. Designers fail to consider elementary distinctions, such as those between “false positives” and “false negatives.” As with autonomous weapons, moral choices are made in the design and use of computer models. The more these choices are hidden behind a veneer of objectivity, the more likely they are to reinforce existing social structures and inequalities.

The superstitious reverence with which computer “models” were regarded when they first appeared has been replaced by (sometimes excessive) scepticism. Practitioners now understand that models provide a useful way of clarifying our assumptions and deriving their implications, but not a guaranteed path to truth. These lessons will need to be relearned as we deal with AI.

Broad makes a compelling case that AI techniques can obscure human agency but not replace it. Decisions nominally made by AI algorithms inevitably reflect the choices made by their designers. Whether those choices are the result of careful reflection, or of unthinking prejudice, is up to us.

Beyond specific applications of AI, the technological progress it generates will have effects throughout the economy. Unfortunately — as happened during earlier rounds of concern about technology — the discussion has for the most part been reduced to the question, “Will a robot take my job?” Walsh and Broad both point to the simplistic nature of this reasoning.

A more comprehensive assessment of the economic and political implications of AI comes in Tim Dunlop’s The Future of Everything. (Disclosure: I’ve long admired Dunlop’s work, and I wrote an endorsement of this book.) Rather than focusing on AI, Dunlop is reacting to the intertwined effects of technological change and the dominant economic policies of the past few decades, commonly referred to as neoliberalism or, in Australia, economic rationalism.

The key problem is not that jobs will be automated out of existence. In a system dominated by the interests of capital, the real risk is that technological change will further concentrate wealth and power in the hands of the dominant elite often referred to as the 1 per cent. As Dunlop says, radical responses are needed.

The most obvious is a reduction in working hours. This has been one of the central demands of the working class since the nineteenth-century campaign for an eight-hour working day. After a century of steady progress, the trend towards shorter working hours halted, and even to some extent reversed, in the 1970s. The four decades of technological progress since then have produced no significant movement.

This is a striking illustration of the fallacy of technological determinism. Under different political and economic conditions, information and communications technology could already be providing us with the leisured life envisioned by futurists of the 1950s and 1960s. Instead, it has become a tool for keeping us tethered to the office on a 24/7/365 basis.

Closely related is the question of flexible working hours. As Dunlop observes, “flexibility” is an ambiguous term. Advocates of workplace reform praise flexibility, but what they mean is top-down flexibility, the ability of managers to control the lives of workers with as few constraints as possible. Bottom-up flexibility, the ability of workers to control their own lives, is directly opposed to this. To put it in the language of game theory, flexibility is (most of the time) a zero-sum commodity.

More radical ideas include treating data as labour and moving to collective ownership of technology. Some of the most valuable companies in the world today, including Facebook and Alphabet (owner of Google), rely almost entirely on data generated by users of the internet. “We are all working for these tech companies for free by providing our data to them in a way that allows them to hide our contribution while benefiting immensely from it,” writes Dunlop. “It is way past time that we were paid for this hidden labour, potentially using that income to offset reductions in our formal working hours.”

Dunlop suggests that taxes on the profits of tech companies could be used to finance a universal basic income, which would provide everyone with an income sufficient to live on, whether or not they were engaged in paid work.

The collective ownership of technology sounds radical, but it is, in many respects, an extension of that same argument. Increasingly, technology is embodied not in large pieces of equipment, like blast furnaces or car factories, but in information: computer code, data sets and the protocols that integrate the two. As Stewart Brand observed back in 1984, information wants to be free. In the absence of legal restrictions or secrecy, that is, a piece of information can be replicated indefinitely, without interfering with the access of those who already have it. As the cost of communications and storage drops, so does the cost of replicating and transmitting information.

Of course, there are many reasons, such as privacy, why we might want to restrict access to information. But concerns about privacy have been largely disregarded under neoliberal policies. On the other hand, strenuous efforts have been made to protect and extend “intellectual property,” the right to own information and prevent others from using it without permission. These rights, supposedly given as a reward to inventors and creators, almost invariably end up in the hands of corporations.

From this perspective, longstanding demands for workplace democracy and worker control are merging with the critique of intellectual property largely driven by technical professionals. For these workers, the realities of the information age are incompatible with the thinking behind intellectual property. As Dunlop says, worker ownership is “another way of changing how we think about technology… not just a means to a fairer society, but a demand that fundamentally changes how we understand the creation and distribution of work and wealth.”

There’s a lot more in these books, and particularly Dunlop’s, than can be covered in a brief review. Each provides useful correctives to the lazy thinking about job-stealing robots and infallible algorithms that dominates much of our public discussion. And all centre on the same basic point: while technology has its own logic, the way technology is used is a matter of choice.

The key question is: who gets to make those choices? Under current conditions, they will be made by and for a wealthy few. The only way to democratise choice about technology is to make society as a whole more democratic and equal. •

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It was in that dismal year that Arthur Hugh Clough wrote his famous poem “Say Not the Struggle Naught Availeth,” which ends with these lines:

In front the sun climbs slow, how slowly,
But westward, look, the land is bright.

The struggle to which the poem refers is never spelt out, but the historical context and Clough’s own sympathies make it clear. Clough had spent 1848 in Italy, and was widely regarded as the literary representative of Chartism.

With more grim news from the US Supreme Court this week, it’s worth keeping Clough’s poem in mind. We have been in this situation many times before, and the temptation of despair is ever-present. Looking back, Clough’s resolute optimism was validated. It might have taken seventy years, but Britain achieved universal manhood suffrage in 1918. After decades of struggle by suffragists, women achieved equal voting rights ten years later. The other Chartist demands, with the exception of annual parliaments, were eventually achieved and are now taken for granted.

Australia felt the influence of Chartism almost immediately, and moved much more quickly. The Chartist program, including women’s suffrage, was in place by 1908 for everyone but Indigenous Australians, who had to wait another sixty years to achieve full citizenship.

Democracy has ebbed and flowed in Europe as a whole since Clough laid down his pen. It’s ebbing at the moment, but it’s important not to forget that dictatorships of the right and left ruled most European countries as recently as the 1970s. Authoritarians like Vladimir Putin and Viktor Orbán have certainly reversed recent progress towards democracy, but they remain constrained to some extent by its norms.

Across the Atlantic, the thought of unrestricted Republican control of the Supreme Court has led many to despair. Yet, while there are strong arguments to support a pessimistic view, a dispassionate view of the situation supports Clough’s exhortation that “westward, look, the land is bright.”

Even though the Republican Party has its hands on all the levers of power, it is still losing ground on most issues, both in terms of public support and in terms of actual outcomes. Among the most important issues for the political right are tax policy, Obamacare, equal marriage, gun control, immigration and reproductive rights. On all of these issues, the Republicans have lost ground since Trump’s election.

The Republican tax cuts are less popular than ever. Obamacare has survived, and there’s rising support for a single-payer system. Equal marriage is firmly established, and talk of a constitutional change to stop it has disappeared. Gun control, one of the few issues on which the right had gained popular support in the culture wars, is now back on the agenda. And despite Trump’s court victory yesterday, he has just suffered a humiliating defeat for his policy of “zero tolerance” and family separation for informal immigrants.

Meanwhile, public support for legal abortion remains as high as it has been in two decades of polling. Currently, 57 per cent say abortion should be legal in all or most cases, with 40 per cent taking the view it should be illegal in all or most cases. The issue has been effectively sidelined for decades by the 1973 Roe v Wade ruling, which will presumably be overturned by the new Supreme Court majority. But, looking at the history of the culture wars in the United States, there’s no reason to think that this will produce a victory for opponents of legal abortion in the long run. Rather, pro-choice sentiment will be translated into legislative action.

The examples, both economic and cultural, go on. More US states are adopting and lifting minimum wages. Confederate monuments are gradually being removed. For-profit education is in decline.

All this is not to say that progressives are necessarily on the winning side of history. It’s easy to imagine a scenario where the Republicans offset steadily declining support with steadily increasing voter suppression, for example. And the appeal of racist/xenophobic claims to a formerly dominant group that’s on the way to becoming a minority can never be underestimated.

On the other hand, if the existing support of the majority of the public translates into a congressional (or at least House) majority in November and a progressive Democratic president and Senate in 2020, a right-wing majority on the Supreme Court won’t be able to do very much.

At most, the court constitutes a veto point, able to block legislation that can be represented as violating constitutional protections. But most of the progressive agenda is clearly within the power of the legislature and executive. In the end, as the fictional Irish-American bartender Mr Dooley observed more than a century ago, “The Soopreme Court follows the illiction returns.” If the Democrats win the next few elections, the Roberts Court will be as much of a disappointment to its creators as the Warren Court in the 1960s. •

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When a series of disturbing failures in the South Australian TAFE system came to light recently, education minister Simon Birmingham saw an opportunity to embarrass a Labor government in the leadup to a state election. He referred the mess — which had prompted the Australian Skills Quality Authority to suspend qualifications registrations by ten TAFE courses — to a Senate committee.

As a political stunt, Birmingham’s move turned out to be a lamentable failure. The committee, with a Labor–Green majority, had no difficulty in shifting the focus from local failures to the nationwide problems of the vocational education system. It was aided by the fact that nearly all the submissions (including mine, on which this article is based) pointed to systemic failures caused not by individual wrongdoing but by underfunding and a blind faith in market forces.

Vocational education in Australia is in crisis. Traditional on-the-job training, through apprenticeships and traineeships, is in decline. Technical and further education funding has been slashed, leading to the closure of many TAFE colleges and large-scale loss of teaching staff. Billions of dollars have been wasted on ideologically driven experiments in market competition and commercial provision, most notoriously through the rorting of the FEE-HELP system.

The most obvious problems have arisen in the commercial sector itself, where most of the leading large-scale providers have been exposed as essentially fraudulent, exploiting government subsidies and leaving students with worthless qualifications. But the pressure to respond to market competition has also had damaging effects among TAFE colleges. The problems reported in South Australia are consistent with this analysis.

As this chart from the Mitchell Institute shows, funding for vocational education and training has fallen drastically since 2011–12 and is now, in real terms, barely above the 2005–06 level. This is despite an increase in the size of the population, including the eighteen-to-twenty-four age group. And, because education is a labour-intensive activity, real costs have been rising and resources per student declining. Caught in a pincer movement between funding cuts and competition from dubious profit-oriented providers, the sector has experienced a disastrous decline.

Expenditure on education by sector 2005–06 to 2015–16
Base year 2005–06 = 100

Source: Mitchell Institute analysis of Australian Bureau of Statistics data

For-profit educational providers have almost invariably failed to deliver good educational outcomes, particular when they have access to public funding. It is far easier to game funding systems than to offer good-quality education. The failures cover all forms of education, from childcare (where the big commercial provider, ABC Learning, collapsed spectacularly, as, more recently, did G8 Education) through to tertiary institutions, most notably in the FEE-HELP fiasco.

The problems were known as early as 2011. In a report published by the National Council on Vocational Educational Research in 2013, I drew on evidence from the Victorian sector to point to the likely failure of FEE-HELP. Many of the initiatives had already been abandoned and others were characterised by chronic problems of fraud and exploitation of regulatory loopholes.

It is now generally admitted that the policy was a disastrous failure. Even the Productivity Commission, in a report advocating more competition in human services, singled it out as an example of what not to do. “Reforms to the vocational education and training sector,” said the commission, “illustrate the potential for damaging effects on service users, government budgets and the reputation of an entire sector if governments introduce policy changes without adequate safeguards.”

Yet the commission’s report gave no indication of how governments might recognise, and mitigate, the potential for such damaging effects, and its own track record of monitoring vocational education and training gives no grounds for confidence.

While it acknowledges the failure of existing policies, the federal government has done little to resolve the crucial problem of funding. Its latest proposal, the grandly named Skilling Australians Fund, proposes that national funding for vocational education should be derived from a levy on temporary work visas and employer-sponsored migrants. Leaving aside the divisive effects of such a policy, the revenue would be manifestly inadequate to address the massive decline in TAFE funding.

Vocational education and training FEE-HELP payments 2010–16

Source: Mitchell Institute, using VET FEE-HELP Statistical Reports

Universities have been subject to many of the same pressures but have resisted more successfully. The performance of for-profit universities has been very poor, just like their counterparts overseas, and drop-out rates are high. Attempts to convert existing universities to a commercial model — Melbourne University Private and Universitas 21 are the best-known examples — have been significant loss-makers.

Yet the current government has persisted in its attempts to cut funding and promote a variety of initiatives under the label of “deregulation.” These policies threaten to have the same disastrous impact on university education as we have seen in vocational education and training.

Is there a better way? To begin with, we need to recognise that school education alone is not a sufficient basis for participating in the modern workforce or in increasingly technologically sophisticated study. The class division between “vocational education and training” for the working class and “higher education” for the middle and upper classes is inappropriate and unworkable. Commercial education and training should have at most a marginal role and should not be subsidised through student funding schemes such as FEE-HELP and VET Student Loans. Non-profit and community providers should receive adequate funding, as should TAFE.

All young Australians should be encouraged to undertake some form of post-school education and training. And the two sectors — vocational education and training, and higher education — should be combined into a single national system, funded by the Commonwealth.

Those are long-term objectives. The crucial short-term need is for a reversal of the massive cuts in funding to TAFE, and the end of subsidies to commercial providers. If those providers are to remain in the system, they should either stand on their own feet or provide courses under contract through the TAFE system.

The experience of the past decade shows that the problems in the South Australian TAFE system are merely symptoms of failed policies designed by state and federal governments. They should be reversed urgently. ●

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I’m on record as having said, back in 2013, that bitcoin “will eventually attain its true value of zero, though no one can say when.” By contrast, its most optimistic backers foresee the value of each bitcoin reaching millions of dollars. Both estimates should concern financial regulators.

If the value of bitcoin and other cryptocurrencies falls to zero, lots of individual speculators will lose lots of money, adding up to billions of dollars. For regulators, that’s not too much of a concern: speculators should have known they were taking a risk that could turn out badly. More concerning is the prospect that a big crash will take down not just speculators but also the financial institutions that backed them. The longer the bubble continues to grow, the more serious this risk becomes. So, if bitcoin is truly worth zero, the best outcome for regulators is that it should reach this price as soon as possible.

If bitcoin increases in value a hundredfold, on the other hand, as it did between 2013 and 2017, it will become critical to the global financial system. Even modest fluctuations will mean the difference between prosperity and ruin for vast numbers of people.

Bitcoin’s original value proposition was that it would be superior, as a medium of exchange, to cash, credit cards and bank transfers. On that basis, people would prefer holding bitcoins, or financial assets denominated in bitcoins, in place of existing currencies, especially the US dollar. If this were to happen, the value of the total stock of bitcoins would be equal to the value of US currency now in circulation, a bit over US$1 trillion. Since the stock of Bitcoins is limited to twenty-one million, each coin would be worth around $50,000. At a current price of $10,000, this would be a bet worth taking at odds of five to one.

Unfortunately for bitcoin fans, the chances of this happening are a lot less than that. In the time since bitcoin was launched in 2009, it has become evident that design flaws make it useless as a medium of exchange. A design feature called the block size limit means that bitcoin can only handle around seven transactions per second. Under current rules, those who want their transactions handled rapidly (mostly speculative traders) must pay a premium to have this happen.

As a result, anyone wanting to use bitcoin for buying and selling faces lengthy delays and, currently, a cost of around US$20 per transaction. Obviously, no one will pay such a charge for day-to-day transactions. The handful of merchants who announced a willingness to accept bitcoin in the early days have since dropped it. Even a bitcoin conference was recently forced to announce that it would not accept bitcoin for registration fees.

For a while, bitcoin was favoured by users who wanted to transact anonymously, sometimes for legitimate reasons and sometimes illegally. But while bitcoin transactions are anonymous in the short run, they are anything but untraceable. The whole point of the bitcoin blockchain is that it is a complete ledger of all transactions. So, if someone else gains access to your bitcoins (for example, if a law enforcement agency compels you to hand over the keys), they have access to your entire transaction history.

Various means have been proposed for making cryptocurrencies untraceable. But all of them run up against the fact that the blockchain operates on the basis of contributions from a set of servers. If someone can get control of a majority of the servers, he or she controls the blockchain. Because the great majority of these servers are in China, the Chinese government is in a position to do this at any time it chooses. In fact, because mining is organised into relatively small “pools,” it would be sufficient to take control of four of them, something that could be done overnight.

Similarly, although various suggestions have been made for improving efficiency, there’s little to suggest that a decentralised blockchain can outperform a central intermediary like a bank or credit card company.

Even if blockchain technology turns out to be the basis of a new digital currency, it’s clear that bitcoin will not be that currency. What about the thousand or so other cryptocurrencies out there? The ease with which cryptocurrencies have proliferated supplies the answer.

Suppose that some government and its central bank decided to replace their existing currency with a digital system based on a blockchain. Adopting one of the existing currencies would involve a massive transfer of wealth to the owners of that currency. The obvious choice would be to start a new one and capture the value of issuing it (known as seigniorage).

Most people now understand that bitcoin is never going to work as a medium of exchange. Supporters now claim that it should be seen as a store of value, desirable because of its scarcity. It is this use that raises the question of its inherent value.

The bitcoin mining technology operates on what is called “proof of work.” To gain access to a bitcoin, miners must use specialised computers to solve a problem that has two characteristics. First, it must be hard to solve, and capable of being made harder as the competition to secure bitcoins intensifies. Second, the solution, once obtained, must be easily verifiable.

The crucial characteristic of most computation — the characteristic missing in bitcoin — is that it should serve some inherent purpose. Unlike a word-processing program or even the uploading of a cat video, the calculations used to mine a bitcoin are of no interest to anybody. (An initiative called Gridcoin works on complex calculations that are of use to scientists but, sadly, it has gone nowhere.)

Bitcoin fans argue that bitcoin is not unique in this respect. As they point out, most of the world’s stock of gold is held by central banks or investors simply as a store of value. That’s true. But the use of gold in this way is not an arbitrary convention. Gold has physical properties (attractive colour, malleability and ductility) that have always made it desirable for use in jewellery. More recently, these same properties have given gold industrial uses, for example in electronic circuitry. Using gold as a store of value certainly amplifies the demand and increases the price, but it rests, in the end, on a solid reality.

“Fiat money” (such as Australian dollars), which isn’t convertible into gold, might seem to be an example of an arbitrary convention. But fiat currencies are valuable because the governments that issue them have the power to levy taxes in those currencies. Anyone who has to pay tax to the Australian government needs Australian dollars — as actual currency, or as an asset convertible into currency on demand, such as money in a bank account.

Governments have long understood this. When Britain established colonial governments in Africa in the nineteenth century, its first act was to levy a “hut tax,” payable in cash. While the revenue from the tax helped to offset the cost of running the colony, the primary purpose was to force Africans out of the subsistence economy, in which they provided for themselves, and into the cash economy, where they had to produce goods for sale on the market or work for wages in the colonial plantation economy.

In any case, the argument for bitcoin based on scarcity is a form of bait and switch. The claimed uniqueness of bitcoin arises from the blockchain process, not from the fact that the supply is limited. Generating an item guaranteed to be in finite supply is far less difficult than creating a blockchain: all it requires is a reliable datestamp to ensure that no more of the item can be made.

Finite supply is a necessary condition for any kind of collectible to be valuable, but it is not sufficient. Items with William Shakespeare’s signature are worth millions, while equally rare items signed by his forgotten contemporaries can be had for a few dollars. To be a store of value, an item must be valued by somebody (and not necessarily the holder).

Since bitcoins are not useful as a medium of exchange, or desirable in themselves, their true value is zero. The highest price at which bitcoins have traded is around $20,000. At the time of writing, the market price is halfway between that level and zero. Pay your money (or not) and take your chances. ●

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But a closer look reveals a lot more good news than bad, with two major developments standing out. The first is an emerging global consensus, encompassing national governments, financial institutions and civil society, that the era of coal-fired electricity generation must end, and soon.

Typifying this trend is the new Powering Past Coal Alliance, made up of national and provincial governments pledged to phase out coal-fired electricity generation by 2030. Launched with twenty members in November 2017, the Alliance expanded rapidly to include major businesses, and now has nearly sixty members. Its government members include Britain, Canada, New Zealand and a number of other developed countries, middle-income countries such as Mexico and Costa Rica, and developing countries such as Angola and Ethiopia. Not surprisingly, Pacific Island nations, endangered by sea-level rise, are well represented.

This consensus is not yet universal. Along with the United States and Australia, a number of national governments (notably Japan, Turkey and Poland) are still trying to keep coal-fired power alive. Strikingly, most of the recalcitrant governments are led by right-wing demagogues (Australia is the obvious exception, but our policy is arguably being driven by Tony Abbott and the Liberal right rather than our notional PM), and it’s reasonable to hope that their departure will see a reversal of their countries’ positions.

The financial sector has seen the writing on the wall. After a decade-long campaign by environmental organisations to end financial support for fossil fuel investments, the tide seems to have turned in 2017. The National Australia Bank’s recent announcement that it will no longer finance new thermal coal-mining projects is part of a broader global trend. It follows the adoption of similar policies by global banks including Citi, Deutsche Bank and BNP Paribas. Until very recently, many of these banks were big lenders to the fossil fuel sector.

More broadly, most of the leading European insurance companies have broken their links with coal or are about to do so. Pension funds are following suit. Government export financing corporations have mostly abandoned coal, with Australia’s Export Finance and Insurance Corporation a notable exception.

The second factor, technological progress, has been crucial here. Not only has the cost of solar photovoltaic and wind generation continued its steady decline, but battery storage has become a realistic option, both for large-scale grid management and for individual consumers. Tesla’s 100MW/129MWh battery in South Australia, installed in a matter of months, is already playing a vital role in the Australian grid.

The combination of technological change and political consensus means that a feasible path is now open to a rapid phase-out of coal-fired power and a fully decarbonised electricity supply system over the next couple of decades.

Developments in road transport have been equally significant, and perhaps even more surprising. Only a few years ago, electric and hybrid vehicles seemed likely to remain as a niche option for many years to come. During the course of 2017, Britain, France and India all announced plans to end the sale of petrol and diesel vehicles and replace them with electric cars. China has not yet made a formal commitment of this kind, but it has made clear its intention to dominate the market for electric cars, and has offered substantial tax rebates to promote this goal. Established car-makers in the United States, Europe and Japan have responded to the challenge, shifting investment away from internal combustion models and producing a full range of electric vehicles.

Once again, the process involves an interaction between technological and social change. On the technological front, substantial progress has been made in allaying the main concerns about electric vehicles: limited range and high cost. Not only can new models travel up to 500 kilometres on a single charge, but the network of charging stations in the United States and Europe is also comprehensive enough that the risk of being stranded on a long journey has effectively disappeared.

As has often been pointed out, electrification of motor transport is useful only if electricity is generated from a renewable source. What has attracted less notice is that electric vehicles constitute a vast potential for energy storage. If vehicles are charged during the early afternoon, when solar PV generation is at its peak and relatively few cars are on the road, the economic viability of solar-plus-storage systems large enough to meet the demand peak in the late afternoon and early evening can be greatly improved.

Most of the world’s leading industrial countries are now on a path to decarbonising electricity supply and electrifying transport. China and India have signalled their intention to follow the same path, although it will take them longer to change direction and they will still be using energy at a rapidly growing rate. At this point, the only question is whether the world will change course fast enough.

Few if any of these developments have been covered by Australia’s mainstream media, which is primarily focused on the Turnbull government’s internal struggles — struggles primarily driven, in turn, by the politics of the culture wars rather than by any rational position. The euphoria with which the eight-page sketch of a National Energy Guarantee was greeted by much of the press reflected the desire for a political solution to these struggles rather than any assessment of whether the policy was internally coherent, let alone consistent with the need for a decarbonised economy.

Regardless of media coverage or the lack of it, technological and political realities have begun to bite. After cynically exploiting the blackouts caused by storms in South Australia last year, the Turnbull government has been faced with the embarrassing reality that Australia’s ageing coal-fired power stations are not the reliable source of energy presented in the mythology of the coal lobby. Rather, the South Australian Tesla battery they derided has come to the rescue when coal-fired plants have failed (ironically, they are particularly prone to do this during heatwaves), attracting international attention in the process.

Meanwhile, the central political objective of the National Energy Guarantee — forestalling the closure of coal-fired power plants — has been a failure. Despite immense pressure from the Turnbull government, AGL has announced that it will proceed with the retirement of the Liddell power plant and its replacement by a large investment in renewables, backed up by peaking gas plants.

Even more striking has been the apparent demise of proposals to develop the massive, though low-grade, coal resources of the Galilee Basin in Queensland. The leading candidate, on which the others depend, has been the Adani Group proposal for a mine at the Carmichael site and a rail line linking the mine to the Adani-owned port at Abbot Point. The project would require billions in loan finance in addition to the $3 billion or so Adani has already sunk into the acquisition of the site and the development of the port.

Over the course of 2017, it became apparent that this finance was not going to be available. Following the lead of most of the main global banks, the big four Australian banks announced they would not fund the project. The coup de grâce was the announcement that major Chinese banks, now the leaders among the few remaining international lenders to coal projects, would not support the project. It is unclear if this outcome reflects a broader shift away from coal, the poor financial prospects of the Adani project, or some combination of the two.

The company’s last remaining hope was that the Australian government would finance the construction of the rail line through its Northern Australia Infrastructure Facility, or NAIF. Despite the longstanding popular appeal of developmentalism, it became evident in the first days of the Queensland election campaign that public opinion was strongly opposed to public financing of the project. Labor reversed its previous supportive stance and announced that, if re-elected, it would veto the NAIF loan.

It was expected that such a shift, while protecting Labor’s position in the urban southeast, would cost the party votes in regional areas — particularly in Townsville and Rockhampton, where Adani had promised to base its fly-in, fly-out workforce. The first part of this expectation proved correct but the second did not. Despite a modest swing, Labor held on to Rockhampton and Townsville, and it gained enough seats in the southeast to secure an absolute majority.

Shortly after the implementation of Labor’s commitment to veto the NAIF funding, the project’s demise came a step closer with the announcement that Adani had parted ways with Downer EDI, with which it had a $2 billion agreement to operate the mine.

Despite the efforts of Trump, Turnbull and others, it all adds up to a good year for the global climate. Until recently, the idea that we could eliminate energy-related greenhouse gases seemed hopelessly utopian. Now the world has a clear path to this goal, at least in the core areas of electricity and transport, while still maintaining and improving living standards. Let’s hope that 2018 will see further progress. ●

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More positively, Shifting the Dial focuses on improving “human capital,” the workforce skills and capabilities generated by better education and better health. And, as I’ll discuss later, the commission seems to have walked away from the profit-driven market approach that characterised its recent report on human services.

The central issue, however, is productivity. The commission’s claim, embodied in the report’s title, is that Australia can, and should, increase its long-term rate of productivity growth by 0.5 percentage points, and that this goal can be achieved by microeconomic reforms of the kind the commission has long advocated. “If long-run productivity growth lifts sustainably by 0.5 per cent a year,” says the commission, then the generation of people born this year will see production per person increase to “about six times its current size, or about 50 per cent bigger than if productivity remains about average” over their lifetimes.

Claims of this kind have long been the conventional wisdom in Australian economic policy circles. Their proponents recall a golden age in which the microeconomic reforms that began with the floating of the dollar in the 1980s gave rise to a miraculous “productivity surge” in the mid 1990s. The surge was characterised by a strong increase in the estimated growth rate of multi-factor productivity, or MFP, the technical term for that part of the growth in our economy’s output that can’t be explained by increased inputs of labour and capital.

The surge was celebrated at the time as evidence that Australians were finally reaping the benefits of painful microeconomic reform. Sadly, it only lasted for five years. As measured by the Australian Bureau of Statistics, MFP fell back after 1998 and has been near zero since 2003. Much of this decline, though, reflects measurement errors associated with droughts, the mining boom and other factors.

While reform advocates have talked a lot about that shortcoming of the figures, they ignore the fact that a different kind of measurement error was the main source of estimated MFP growth in the mid 1990s. Much of the increased productivity was due to the fact that, in the wake of the early 1990s recession, workers were forced to work much harder to keep their jobs. Everyone at the time, with the exception of economists, knew this; John Howard famously described it as a “barbecue stopper.” Twenty years later, the Productivity Commission is still in denial.

Other members of the “official family” are beginning to voice their doubts. A recent Treasury paper by Simon Campbell and Harry Withers, for instance, criticises the whole idea of MFP. As the pair note, MFP is a residual: the extra growth after changes in labour and capital are taken into account. This is sometimes called the Solow residual, after Robert Solow, who discovered it when he tried to estimate models of economic growth in the 1950s. It’s normally explained as technological change, and more precisely (this is important) as “disembodied” technological change. That is, the residual consists of technological change that isn’t embodied in new, more powerful equipment, which should be captured in the measure of capital input.

Campbell and Withers point out that labour productivity has risen steadily, largely as a result of “capital deepening” (more capital per worker), and that this was able to happen because of a steady decline in the relative price of capital goods. But they don’t spell out the reasons for the falling price of capital goods. The crucial point is that nearly all technological progress in the last couple of decades has taken the form of cheaper, faster and more powerful information and communications technology, or ICT. This appears — at least from the viewpoint of an ICT-importing country like Australia — as a kind of embodied technological change. In other words, the capital contribution to increased productivity appears as capital deepening, not as increased capital productivity.

But wait, there’s more. The standard measure of labour productivity is output per hour worked. This doesn’t take account of the quality of labour input, which is determined largely by education (and also by experience, though the average experience of the workforce doesn’t change much over time). If you accept that all productivity growth is explained either by better education or better (embodied) technology, then the Solow residual (that is, the rate of MFP growth) should be zero.

As it turns out, this is pretty much what has happened in Australia. In addition to the MFP statistics quoted by the Productivity Commission in its report, the ABS produces estimates of MFP that take account of changes in labour quality (education and experience). The series begins two decades ago, in 1997–98. On average, labour quality accounts for about 0.3 percentage points of annual productivity growth since then. And, you guessed it, once this improvement is taken into account, the rate of MFP growth over the two decades comes out exactly equal to zero.

By subtracting the trend rate of quality improvement from earlier estimates of MFP growth, beginning in 1980–81, we can estimate that from 1980–81 to 1997–98, before ICT became the central source of productivity growth, quality-adjusted MFP growth averaged 0.4 per cent per year. For the entire period since 1980–81 the average rate has been 0.2 per cent, which is within the range of measurement error.

As this evidence suggests, the modest-sounding goal of adding 0.5 percentage points to growth by lifting MFP is highly optimistic. To do so over a lifetime of seventy-plus years, as the commission’s report suggests we could, is nothing short of utopian.

As the experience of the mid 1990s shows, measured productivity growth can be pushed up for a little while by increasing work intensity (the archetypal example being the Soviet Union’s five-year plans in the 1930s). But gains achieved in this way can’t be sustained for very long without ever-increasing pressure, let alone for decades.

So, if Australia had relied on MFP growth for improvements in productivity, our living standards would have been stagnant for decades. Productivity growth arises almost entirely from the combination of better-educated workers and better and cheaper technology.

To be fair, the commission does have some ideas about improving the first of these, educational outcomes, and they are at least an improvement on the market-competitive dogma that has characterised its previous forays into this area.

There’s even a hint of recognition of past failures in the supporting paper on Upskilling and Retraining, in which the commission observes that “the recent problems in the VET sector have shown that poor-quality, high-cost supply can survive even in a supervised market.” “Recent problems” may be an understated way of describing the policy disaster of for-profit vocational training, which has wasted billions of public dollars and sucked tens of thousands of students into worthless courses, but it’s better than no acknowledgement at all.

In place of market dogma, the commission canvasses a range of ideas including lifelong learning programs, tax incentives for employers to provide training, and the application of consumer protection laws to universities. These ideas are worth looking at, but most aren’t new: we had a Training Guarantee Levy under the Hawke–Keating government in the 1990s, for example. It’s hard to see any of them producing fundamental changes in a sector that is subject to a more-or-less continuous round of inquiries and reviews.

While attention to investment in education is welcome, the report almost entirely misses the big economic news of the twenty-first century, namely, growing inequality and the threat it poses to future growth in productivity and living standards. The commission’s treatment of the issue is dismissive, to put it mildly. It notes that:

The motivation for limiting inequality extends beyond its intrinsic value to the desirability of avoiding too great a dispersion in incomes, given evidence that this can, in its own right, adversely affect productivity growth.

Yet it passes over the problem with the claim that, “Indeed, popular impressions aside, household income inequality does not appear to have risen in Australia this century.”

No source is given for this claim, which has been the subject of vigorous dispute in recent years. And that’s all the commission has to say on this vital subject. Except where it appears in quotations from other sources, the word “inequality” is nowhere to be found.

This omission undermines the report’s focus on education. In a society with high and entrenched inequality, education ceases to be an engine of equal opportunity. Rather, with access to the best schools and universities dominated by the children of the well-off, it reinforces existing patterns of class stratification.

The themes of microeconomic reform and productivity have dominated Australian economic policy since the 1980s, but they have run out of steam. If we are to improve living standards, we need innovative ideas to replace the leftovers of a twentieth-century reform agenda. ●

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This is the paradox at the heart of the otherwise inexplicable durability of claims that people’s characteristics can be explained by their membership of a “generation” (baby boomers, generation X, and so on). The general flavour of this analysis can be seen in the positive and negative traits attributed to the generation getting the most attention today, the millennials, who were born after 1982 and reached adulthood in the twenty-first century.

Millennials, we are told, “reject traditional career paths” and care less about money than about fulfilment. Yet they’re also entitled, lazy and narcissistic. This might sound convincing enough on the basis of casual acquaintance with today’s young adults. But anyone who’s been watching generational analyses long enough will recognise that they are exactly the same traits imputed to the “slackers” of generation X when they were the same age, and before that to the baby boomers in the 1960s.

The most perfect illustration of this phenomenon comes in an article published by Forbes, the American business magazine, in which millennials are said to be “looking for adventure (and whatever comes their way).” Readers of a certain age will recognise this as a line from the Steppenwolf song “Born to Be Wild,” the biggest hit from the soundtrack of Easy Rider. Released in 1969, the film was an archetypal representation of the rebellion of youthful baby boomers against the constraints of middle-aged society.

Like that revealing example, most of what passes for a discussion of the merits or otherwise of particular generations is little more than a repetition of unchanging formulas: the laziness and immorality of the young, the rigidity and hypocrisy of the old, and the general boringness of the middle-aged.

As well as being treated as a homogeneous group, millennials are assumed to be uniformly progressive in their political views, particularly in the United States. It’s certainly true that, all other things being equal, US millennials are even more hostile to Trump than Americans in general, as the Washington Post recently reported. But other things aren’t equal. As with the population at large, young African Americans favour Trump least, and whites most, though no group favours him on balance. Attitudes are determined much more by race than by age, and the proportion of whites among millennials is lower than among older Americans.

To push the point a little further, it’s important to note that the study reported by the Washington Post only disaggregates millennials by race. On average, they also have more education, lower incomes and less attachment to religion than older Americans, all of which are factors associated with more left-wing views in general and more critical views of Trump in particular. If these were taken into account, it’s likely that millennials would be found to be statistically indistinguishable from older Americans with similar characteristics.

What’s also striking about the Washington Post article is that it treats the finding of diversity as counterintuitive. I can’t blame the author of this piece for taking this as the starting point; it’s taken as axiomatic in the vast output of generationalist clichés against which I’ve been waging a losing battle since the first millennials came of age in the year 2000.

It might be argued that all this is just a harmless way of keeping marketers and feature writers employed, churning out the same analyses of different generations from one decade to the next. But the focus on intergenerational differences has pernicious political consequences: it encourages us to ignore the much more important differences within generations arising from gender, ethnicity and, critically in the current context, class. Over the past few decades, the share of income going to households in the top 1 per cent of the income distribution — and within that group, to the top 1 per cent (and so on) — has risen steadily throughout the English-speaking world.

In Australia, at least until recently, the increase in inequality has been gradual enough that most households have continued to experience growing incomes, though those at the top have gained more. In the United States, by contrast, household incomes have stagnated for decades. Only those in the top 5 per cent of income earners have experienced more rapid income growth than in the postwar decades of broadly shared prosperity.

In other words, a focus on differences between generations obscures the crucial role of inequality within generations. The New York Times’s Steven Rattner provides an example in an article showing that US millennials (those born after 1980) are doing much worse, on average, than previous generations at the same age, despite higher levels of education. Rattner notes the role of the recession, now nearly a decade old, but then jumps to the conclusion that it is the baby boomers, as a group, who are to blame. His only evidence is the long-discredited claim of a looming crisis in social security spending.

Rattner’s piece leaves the impression that doing worse than older cohorts is a uniquely millennial experience, but never gets around to mustering any data. So I thought I’d do his work for him, and dug out this graph prepared by Doug Short.

As can be seen, the group suffering the biggest loss, relative to older cohorts at the same age, are those households with heads aged forty-five to fifty-four in 2013, a mix of late boomers (for aficionados, this group is called generation Jones) and early X-ers. But median household income is falling for all groups except the sixty-five-plus cohort — mostly called “silents” in the generation game — partly because households were declining in size up until recently, when forming a new household became less affordable.

Rattner doesn’t mention, even once, the obvious and well-known explanation for the fact that median income is falling while mean income rises. This can only occur if the distribution of income is becoming more skewed, with the top tail (the 1 per cent) benefiting at the expense of everyone else.

If boomers as a group have done no better than anyone else, can it at least be claimed that it was boomer mismanagement that brought the economy to its present pass? Not really. On Time magazine’s list of the twenty-five people who made big contributions to bringing about the global financial crisis, the top three (financier Angelo Mozilo, central banker Alan Greenspan and congressman-turned-lobbyist Phil Gramm) are all silents, as is the emblematic Ponzi figure Bernie Madoff and (strikingly missing from the list) Bill Clinton’s treasury secretary Robert Rubin. And that’s without even considering the financial deregulation of the 1970s, which set the whole process in motion.

Inevitably, given that they constitute a large share of the adult population, plenty of boomers appear among the bit players on Time’s list. Equally, given the preference of Wall Street firms for young hotshots, much of the actual work of designing and selling bogus securities was done by X-ers in their twenties and thirties.

The point here is not that one generation is more or less to blame than another. The people who caused the crisis were mostly born before 1945 because they were of the right age to hold powerful positions in the financial sector in the 1990s. It was their membership of the 1 per cent that matters here.

In the Australian context, the central focus of generational debate has been housing. Typical arguments pit a selfish home-owning older generation against gen Y, described in one headline as being “locked out of the housing market.” The statistic underlying this story is that “fewer than half of Australia’s 24 to 35-year-olds are homeowners, with the rate of home ownership crashing from 61 per cent in 1981 to 47 per cent in 2011.”

A shift of fourteen percentage points over thirty years is significant, of course, but wouldn’t normally be described as a crash. More significantly, the statistics show that nearly 40 per cent of that age group was already locked out of the housing market in 1981, and that nearly 50 per cent have acquired a home (not to mention a mortgage) today. Whether you are in the top or bottom half of the income distribution matters much more to your chances of home ownership than whether you were born in the 1950s or the 1980s.

Tax policies such as negative gearing and the concessional treatment of capital gains don’t benefit one generation at the expense of another. Rather, they benefit those paying the top marginal tax rate at the expense of everybody else. It’s true that this tends to favour the currently old over the currently young, but the durability of these policies, along with limited social mobility, means that millennials from wealthy backgrounds will soon be enjoying the same benefits as their parents.

When I started criticising generational clichés around 2000 (a generation ago, according to the standard measure), I had some hope that points like these would convince people to abandon this nonsense. I’ve now concluded that generational clichés are the ultimate zombie idea, easy to refute but impossible to kill.

Taking the view that “if you can’t beat them, join them,” I therefore propose to name the latest birth cohort generation Trump, pointing out their many similarities to the elected leader of the world’s largest democracy. Generation Trump consists of those born after Trump announced his candidacy for the US presidency in 2015.

The crucial thing about this generation is that their character is formed entirely in Trump’s image. They are hedonistic and totally self-centred, have a short attention span, are prone to mood swings, and are almost entirely ignorant of the world beyond their own immediate concerns. On the other hand, they can be loving and affectionate, and many are totally family-oriented.

Astute readers will observe that, in a slightly toned down form, this is very similar to what is being said in contemporary depictions of millennials, and was said about generation X when they were in their late teens and early twenties. That’s great for me, since it means I should be able to pump out marginal variants of the same clichés about generation Trump until they turn into boring middle-aged adults. •

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The history of the Summer project exemplifies the pattern. Its two Westinghouse AP1000 reactors were expected to cost US$9.8 billion and go online in 2017 and 2018. A series of delays and contractual disputes saw the price blow out to more than US$14 billion and the estimated completion date deferred to the 2020s.

The final blow came when Westinghouse, the firm responsible for design and construction, was forced into bankruptcy by its owner Toshiba, which is itself threatened with bankruptcy because of Westinghouse’s losses. To get out of the Summer project, Toshiba offered the owners, SCANA and Santee Cooper, an unconditional payment of US$2.2 billion. Rather than use the funds to finish the project, SCANA and Santee Cooper have decided to cut their losses and move on.

The Westinghouse bankruptcy has also threatened the only other nuclear reactors currently under construction in the United States, at the Vogtle plant in Georgia. The owner, Southern Nuclear, has taken over the project from Westinghouse and is pushing on, at least for the moment.

Whether or not Vogtle is ultimately completed, the US nuclear renaissance is clearly over. The dozens of proposals put forward in the early 2000s have been either abandoned or put on hold indefinitely. Almost certainly, there will never be another conventional nuclear power plant built in the United States.

None of the usual excuses for the failure of nuclear power apply here. The Summer project had the benefit of tax subsidies and a favourable regulatory environment. Environmentalists may have been unenthusiastic, but with their attention focused on coal they didn’t campaign against new reactors with any vigour. The only significant protests against the Summer plant came from electricity consumers angry at having to pay for a project they correctly believed was not needed and might never be built.

The big enemy was simple economics. While the cost of gas has fallen, and that of solar photovoltaics has plummeted, nuclear power plants have become increasingly expensive. Crucially, concerns about the variability of renewable electricity supplies have abated. A combination of larger and more sophisticated electricity grids, innovative pricing and advances in storage has made variations in output much easier to manage, putting an end to the perceived need for the “baseload” supply provided by coal or nuclear plants.

The one remaining hope for nuclear power is the idea of small nuclear reactors, which would be manufactured in large numbers in factories, shipped to sites, and assembled to create a power plant. The leading proposal is the NuScale Small Modular Reactor, or SMR, currently under review by the Nuclear Regulatory Commission.

The SMR has plenty of promise. But it is still in the early prototype stage, with no guarantee that costs will fall to a level that will make it competitive with renewables. Even if everything goes to plan, the SMR won’t be deployed at the scale needed to make a difference until the 2030s, at the earliest.

Every country’s electricity supply is different, but all are subject to common trends. Some countries, like Germany, have hastened the end of nuclear power by shutting down plants that still have years of life left. Others, like Britain, have done their best to keep the nuclear dream alive. Almost everywhere, however, the vision of safe, cheap nuclear power has proved unattainable.

The one historical success story, still told and retold by nuclear power advocates, is that of France in the 1970s. From a standing start, the country built fifty-eight nuclear reactors and secured its energy independence for decades. Sadly, the success has not continued. The only reactor currently under construction in France, at Flamanville, is far behind schedule and way over budget, just like its US counterparts.

The reasons for the rise and fall of French nuclear power are still being debated. Almost certainly, a strong centralised state, with a clear commitment to a nuclear strategy and a willingness to provide low-cost finance for high-risk projects, played a critical role. As these conditions changed, construction costs rose steadily.

The only place where anything like these conditions exists today is China. With twenty-one plants under construction and more planned, China is the last remaining hope for a nuclear renaissance. Even there, though, the prospects are limited. While nuclear plans have been scaled back over time, investment in solar photovoltaics has soared. And given the variability of Chinese construction standards, it’s hard to ignore the risk that a nuclear accident will derail the program once and for all.

But the dream dies hard. Despite decades of evidence to the contrary, the idea that nuclear fission offers a cheap, safe and reliable source of electricity, obstructed only by the irrational fears of environmentalists, remains strong. What the shareholders of Toshiba, Westinghouse and SCANA, and the electricity consumers of South Carolina have learned, like others before them, is that this is a costly illusion. •

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