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The Labor Government proposes destruction of industry while Liberals act like stunned bunnies
Gerard Jackson
For years I warned Liberal politicians that if they did not change tack with their proposed labour market reforms they would fail. Well, they didn't change tack and labour reform is now a taboo subject. I also warned that if they insisted on ignoring concerns about the state of industry then they would fail on that too. And so they have.
The country is now facing proposals so draconian that if implemented would have a devastating effect on the economy. The response of the Liberal Opposition to this situation has been appalling. It is now indisputably clear that they are without a clue — and Labor's front benchers know it.
Penny Wong — Minister for Climate Change and Water — and Kim 'Ill' Carr1 — Minister for Innovation, Industry, Science and Research — are the government's principle players in this farce. Every time the Liberals try to make a point about the costs of reducing carbon emmisions (which Wong and Carr maliciously claim is a pollutant even though it is a nutrient) Wong and Carr assert:
For pensioners, carers and seniors, allowance benefits will be increased above an automatic indexation. Low income households will be assisted through a tax and payment scheme. Assistance will be provided to middle-income households for family assistance. . . . Additional support will be provided through energy efficient measures and consumer information.
This is pure baloney. There is absolutely no way that any transfer payments could compensate for the reduction of carbon emissions. None whatsoever — regardless of what the Centre for Independent Studies claims2. The terrible thing is that not a single Liberal Party MP or senator has the slightest inkling of what is really wrong here. If it were otherwise they would have been able to immediately finger the economic fallacy at work here. As proof of my contention let us focus for a moment on Senator Mary Fisher. Thinking she was going to score a goal she demanded to know how many firms would be affected by the Carbon Pollution Reduction Scheme: "Will 100, 50, 300 or 500 be affected? Do you have any idea?"
Every firm in the country will be affected, directly and indirectly. This is fact that every Liberal politician should be aware of. Instead we have them running around in the Senate playing wack-a-mole.
The economic fallacy here is that taxes and spending can compensate for the destruction of capital. This like telling people that the destruction of agriculture can be offset by tax cuts. This is the sort of ludicrous statement that could never pass muster with the electorate, every member of which understands that no amount of dollars will stop you from starving if there is no food on which to spend them.
But this is basically what Carr and Wong are arguing. Every country has a capital structure. The more advanced the structure the higher living standards will be, assuming that the structure expands at a faster rate than the population. If this structure were to disappear overnight living standards would literally collapse.
Just as agriculture produces the food that feeds us the capital structure produces the real income that maintains our standard of living. By real income I mean the ability to purchase goods and services. In reality goods and services exchange against each other, and money is the veil that conceals this process. Hence, if the capital structure shrinks so will the flow of goods and services.
It is only the capital structure that makes the continuous flow of goods and services possible. (This is a fact that the classical economists — unlike most of today's economists — fully understood). Neo-classical economics would refer to the ratio of capital to labour. (For our purposes, we can consider the capital labour ratio and the capital structure to be the same thing*). Therefore any policy that reduced the ration must reduce living standards. And this is exactly what the Rudd's carbon reduction scheme would do2.
Coal-fuelled power stations are a case in point. Taxing these out of existence would be a deliberate act of destruction that would obviously have an adverse effect on the capital structure and hence real wages. As I have shown, no amount of transfer payments or tax concessions could offset such a policy.
Car and Wong argue that we need not worry about the loss of capital because investment in alternative energy schemes will save the day. This isn't sound economics or physics: It is nothing less than wishful thinking the nature of which completely eluded the Liberal Opposition.
The reason we have centralized power production is because of economies of scale. And the greater the economies of scale the cheaper electricity will be. But the alternatives that this pair of clowns propose suffers from massive economies of scale that can never be overcome because of their natural limitations. This means that the cost of electricity would rise to horrifying levels. I don't care how many times that dimwit Wong consults with industry. Facts are facts. Unfortunately facts are things that that the Rudd Government refuses to face.
Things can only get worse unless these Liberal MPs and senators wake up to the fact that they really do need to get a handle on this subject before it is too late.
1. He is called Kim "Ill" Carr because of his devotion to the idea of socialism
2. The Centre for Independent Studies makes the same claims about tax concessions as does Wong and Carr:
Why is the Centre for Independent Studies supporting the destructive carbon tax?
Gerard Jackson is Brookesnews' economics editor
BrookesNews.Com
Monday 8 September 2008