Mangled Thoughts

As stated, this part is strictly point by point responses. There will be a follow up summary item. Eltham’s statements in quotes head each section. Sections are by topic points made in Mr. Eltham’s response.

A. “Capital Theory” - you won’t be surprised I’m no fan of neo-classical capital theory”, for much the same reasons advanced by John Maynard Keynes”.

Capital theory is a great hole in neo-classical economics.What is not there cannot be attacked. When it comes to the Right and their “think tanks”, IPA, CIS, Quadrant, HR Nicholls Society, it is no mere hole. They are completely hopeless. Consider:

- How is it possible to discuss labour markets accurately without capital theory? Ray Evans, Des Moore and Hugh Morgan didn’t even rise to this low level and consequently made a complete mockery of a thoroughly sound and, therefore, moral case.

- Without capital theory, it is impossible to discuss and debate sensibly the impact of carbon taxes, which is what an ETS is. Des Moore, Ray Evans, Professor Sinclair  Davidson, are insensible on carbon taxes, but that’s them. It is very understandable why there is a general public misunderstanding.

The CIS is lobbying for carbon taxes on behalf of interests hoping to make fortunes out of ruining Australians, and Greg Lindsay still refuses to come clean to the Liberal Party and the public on this. It took real pressure, ignited by carbon tax articles on Brookesnews, and items on this site examining evidence of impact and oddities at the CIS, for Greg Lindsay to admit only recently only a tiny fraction of the truth, ETS is a carbon tax. The cynical would freely say, intellectual fraud.

Compounding the problem is the IPA and Quadrant magazine and their water pistols, Alan Moran, Des Moore, Ray Evans, Professor Sinclair Davidson. Pulp, unmitigated pulp is the sum of their efforts on ETS. Moreover, Professor Sinclair Davidson has recently changed his position, even though what he says is still mush. He was arguing for a carbon tax, as his weapon to set up a ‘flat tax’. A right real flattener it is too.

I note on GST, Eltham, you recognise there is a problem with current taxes as it is. Well, a carbon tax will eradicate this problem and, bonus, the plight of pensioners.

B. “What I did point out was that in return, Australian companies get to operate in one of the least corrupt and most sound macro-economic environments in the world.”

So what. What’s you’re point?

As an aside, to say that in some way Australia is not as corrupt as other countries begs the question of what does it mean anyway. The Nazi administration was impeccably scrupulous. Even the Gestapo was scrupulous. Look at what they did!

Consider what the Right in Victoria did with the STO-OPA, and continued by the Left. The IPA and CIS were the advisers to the Kennett-Stockdale Cabinets. I have more I am preparing on this. It is an appalling instance of legalistic purity ‘regulating’ what can only be concluded is a major criminal operation against many Victorians by the State Government, and the Treasurer has direct oversight.

Whatever this “least corrupt”way of Australian Federal and States’ governments might be, it could convince many that more “corruptness” and less legalistic rectitude is needed.

It leads away from fundamental questions on the relationships between economic freedom and law, and the proper place of the administrative apparatus of Cabinet, Parliament and their administrative order the public service to which regulation should strictly apply. The Right have done a splendid job in making a mess of this too, in their facile ‘analyses’ and ‘commentaries’ and “policies”.

C “I never claimed that Australian firms enjoy relatively lower taxes than in foreign jurisdictions”

I’ll concede this, though there is sufficient that lead me to the inference. I apologise for the misrepresentation.

However, to repeat, whether taxes are rated high or low against other countries is meaningless. It doesn’t disclose the real burden of the taxes in a country. Consider:

Firms and employees in country A pay less tax than those in country B.

Who is better off?

No, cannot tell. A’s taxes could actually be a very heavy burden. It could be wrecking firms and dragging many into destitution, and put a halt to investment there. B’s tax burden could actually be opposite in its impact.

Another example: A’s pays 70 cents tax, B’s pays 80 cents tax.

Is A better off than B?

No. A will only be better off if the tax rate is cut and 10 cents makes them greatly better off.

In the 1980’s Hoechst and ICI warned Bob Hawke and Paul Keating that unless company taxes are cut they would shut down their factories in Australia. In 1980’s money, petro-chemical production was about $5 billion per annum. This does not include a myriad of firms producing capital goods, raw materials and many other goods required by petro-chemical firms. I read an updated analysis one year before they shutdown their factories demonstrating the danger had turned hot red critical.

Hawke and Keating said no. The capital was written off. The consequences for many engaged in some way with the firms were terrible, truly horrible. Since then, more firms have shut down because of company taxes.

In the mid 1990’s, because of the burden, oil companies raised and began studying whether to shut down production and simply import fractured products. They are running on the verge of shutdown.

These cases might be considered anecdotal, but they are very important cases. It is revealing that despite it is central to their remit, neither the IPA and CIS fought on these grounds and as for their research into the impact of company taxes, it doesn’t exist.

Regulation and its increase and intensification has since compounded the problem, destroying many more firms from small to large scale. Again, the IPA and CIS are hopeless failures.

An overvalued currency can tax firms out of existence in Australia. How much damage has been caused on this count is not yet clear.

They are anecdotal cases, but they are very important cases. The IPA and CIS have never fought on these grounds and as for their research into the impact of company taxes, it doesn’t exist.

This is what is crucial, the impact of taxes, what the burden really is. Unfortunately, Professor Sinclair Davidson, Des Moore, Ray Evans, Chris Berg, IPA, CIS, Quadrant, HR Nicholls Society, show they haven’t the foggiest as to what they are supposed to be explaining, but this didn’t prevent them naturally wrecking and sabotaging discussion, debate, and advice.

D. “It’s simply wrong to argue that Labor’s ETS is a tax on capital; for instance, the coal power that you argue correctly is very efficient is produced mainly by older power plants whose costs are well and truly sunk - which is why Garnaut argued they should not be compensated.”

A tax is a tax and ETS is a carbon tax. It is aimed at only one type of source of carbon emission, capital. Sheep, cattle, etc are capital too.

The second statement does not demonstrate the claim that it isn’t a tax. It is an entirely different consideration on which Professor Garnaut is absolutely wrong.

a) Firms, irrespective of what they produce, allocate capital maintenance. Next, they make decisions to increase or replace capital. What they don’t do is bulldoze capital. Any executive who even hinted it would be slung out the door quick smart and never work again, except for digging diteches. Saying ‘of very old’ is meaningless. To be frank, it is asinine piffle. It’s not economic reasoning at all. Garnaut does have to sneer at what he would destroy.

To follow Garnaut, all other firms that will collapse as a consequence must be only old junk too. This is how brilliant this charlatan is, for to put this mendacious drivel to the public as The Case is intellectual deception and fraud.

The capital employed is efficiently employed. Period.

b) All capital investments are sunk costs. Once funds for capital is applied to a specific capital combination the capital is irretrievably committed, sunk. The decision to allocate capital is not based on the sunk cost. It is based on the expected future earnings of production from a specific combination. (2)

If the investment fails, that’s it. It is written off. But this is due to market processes, the judgment of entrepreneurs, and re-evaluations by purchasers of goods and investors. They can’t help it if politicians kill investments by blowing them off the face of the earth with taxes and regulations. Garnaut omitted this crucial detail.

The politicians should be made directly liable for the damages. The notion that victims of this “policy” should not be compensated is to assert politicians and bureaucrats can engage in lawless actions. Anyone else who did this would be convicted, compelled to pay compensation, and thrown in jail forever. There are two problems:

- The numbers involved would be tremendous, rendering compensation at best a mere gesture.

- Compensation can’t be paid because destruction of power plants means destruction of all other types of firms. No earnings = no taxes = no just compensation. Well, Garnaut unwittingly did put a truth after all.⁽³⁾

A word of advice, Mr. Eltham, gently and well meant: If you value your reputation, ignore Professor Garnaut, and this goes for Ross Gittens and Kenneth Davidson too.

E. “ETS is a market reform, since it introduces a price for carbon pollution marginal cost”

(1) Carbon  is not a pollutant. What carbon is and the work it does and its reticulation has obviously been eradicated from primary and high schools. It’s now worse than this, as will be covered in another, very brief item.

(2) The myth of ‘externalities’ has been killed stone dead. But, to muse, if there are any externalities, they are all positive. So why not pay firms to multiply Co2 emissions by a tremendous factor?

 Three free market economists have nailed the fallacy, the 3rd being the author of the article quoted from:

“According to them… this cost is not built into their price (therefore) they must be phased out in favour of an alternative that produces very little in the way of externalities. Two free market economists nailed this argument when they pointed out:

“Taxes do not result from a market process, nor do they reflect allocation decisions of resource owners… In other words, taxation is a method of intervening, not an alternative to intervention or nonmarket allocation. (O’Driscoll and Rizzo, cited in Efficiency and Externalities in an Open-Ended Universe, Ludwig von Mises Institute, 2007, p. 13).”

(3)What are these “marginal costs”? Name them.

F. “Production will adjust to less polluting activities”

What are these ‘activities’. It would be nice not to have to go to the loo but, sadly, this entails death. Mind, the “Office of Greenhous Farts Gases” has been usefully wasting taxpayers money in their attempt to stop cattle and sheep shitting and farting.

Evelyn Waugh either cracked a corking good joke or inserted into his Sword of Honour trilogy a documentary by “deep throat”, code-named Guy Crouchback, on HOO, the top secret unit of witch doctors and experts in other mumbo jumbo.

How on earth are firms supposed to adjust to “less polluting activities”, even if there were less carbon emitting ‘activities’. What do those activities have to do with production? We are talking about capital and specific capital combinations for production and not toys made out of mechano and lego sets to be played with - make ‘em, wind ‘em up and watch ‘em go.

The misconception is entirely due to the Right, their CIS, IPA, and HR Nicholls Society, and Quadrant. This is what their little grasp of capital amounts to.

I’m not attacking Mr. Eltham at all for expressing that nonsense. The Right have caused tremendous damage by instilling publicly this asinine piffle as the account of capital. What else do laymen have to work from when it is not challenged and debated in public? Thin air?  I certainly do appreciate Mr. Eltham’s willingness to engage.

G. “ETS is a market reform”

Are you asserting the fiction of market failure?

If so, from what assumptions?

Footnotes

(1) The humble light bulb: a victim of political stupidity and green zealotry

(2) & (3) Re: Sunk Costs, capital combinations and compensation

I have made a mistake. For the sake of compression, I have oversimplified and this is an error, because it can mislead readers. In this, I over-generalised.

In some cases, factors are specific. This means they have no alternative use. Power stations is a such a case.

Remaining factors of production have various degrees of specificity and, therefore, have various degrees of alternative uses.

The crux is, the decision has been made that has sunk the capital, the investment has been made.

Power stations have no value at all if demand drops to zero. Is Garnaut seriously suggesting this, and thus the imposed cost of carbon taxes will be factored backwards?

Power stations wouldn’t operate at all. They would not have been built in the first place if demand is zero.

Compensation: To repeat, it is not sunk costs but the expected future earnings that decides the investment decision over alternatives. Zero demand means zero earnings. So, unless insane, who would sink their precious savings into a proposition like that?

Compensation is not for sunk costs. Earnings is the compensation of allocating factors of production to that investment. It is future earnings a carbon tax will wipe out because power station production will be wiped out by carbon taxes. So, the notion investors should not be compensated for the loss of the sum of expected future earnings from an investment (not only power stations) is not only wrong and immoral.

It is criminally wrong, because it will be a deliberate act to destroy earnings by wiping out the only way they can be generated, production. This is what Garnaut asserts, it is OK for him, politicians and bureaucrats to commit this crime. No-one else can, but they can?

Consider compensation cases for loss of future earnings, when the reason for loss was not criminal intent. Insurance companies supply policies for loss of future wage earnings because of injury. No one sensible with a compensation case would hire Garnaut as their barrister.

If earnings are destroyed, because carbon taxes render the value of capital, which is the sum of its expected future earnings, zero, how are employees to be compensated for the loss of their compensation which is wages, their earnings?

Wage rates equals the marginal value of the productivity of the labour they supply.

So, forget a genuine shared concern, Mr. Eltham, employees, pensioners and the unemployed. 0-0=0.

I can tell you this: sunk costs have nothing to do with lost earnings. If they did, there would be no earnings and so capital would not be sunk. Garnaut is an idiot of the worst kind.

(4) Look Mr. Eltham, let’s make it abundantly clear, I’m not an economist. I’ve read the undergraduate textbooks. This does not make me an economist. I’m still very much the layman though, I am happy to say, the IPA, CIS and HR Nicholls Society are not in my league, neither is their inmate and uber economist Peter Costello. Bouncing them freely is a pretty good indication.

Consider capital theory: that lot haven’t even begun to read capital theory at the lay level. The problem is, you can’t fully immerse yourself in it as a fresh layman. It takes years, try a decade plus more. I know this from reasoning through problems, within my limits, and reading Brookesnews and then going to seminal works in capital theory.

Those seminal works are not for the layman. The grounding required to enter is, frankly, monumental and because of this I’ll stick with matter a layman can engage in. This shows how really shabby the IPA, CIS, Quadrant Magazine and HR Nicholls Society really are. They haven’t even made beginner’s grade. You can’t attack something when it is a great big hole in the head (I didn’t say they have brains, they don’t have any).

Thank god there are two genuine free market economists in Australia. They happen to write for the public, Mr. Gerard Jackson and Dr. Frank Shostak on Brookesnews.

These two gentlemen provide the university reading for laymen. Indeed, one pressed on with labour market economics through and from Jackson’s articles on this grave matter and his book on labour markets, which is linked permanently on this site. I recommend, Mr. Eltham, that you read it. Reading other fine economists on labour market economics, and I do mean erudite material, was a redundancy!

How good did it get on this? I could pierce through Godfrey and Belchamber and the ACTU. As for the HR Nicholls Society and the rest and the media commentariat, it is like shooting fish in a barrel. Yet, there are still great restrictions as a layman in this and I won’t pretend to be clever by crossing the restrictions - it simply wouldn’t occur to me to do this:

This also shows how really bad HR Nicholls Society, Quadrant, CIS, IPA, Professor Sinclair Davidson, Chris Berg, Des Moore, Ray Evans, Alan Moran, Ken Phillips and Hugh Morgan are: they cross their indectable low limits, pretend they are great economists and it never occurs to them not to do this and, having done it, cease and desist.

What, Mr. Eltham, your articles told me is that you have not begun to work as a layman can, in immersing themself in economics to the depth sufficient for a layman. If you had, you would not have written what you did, even allowing for the singular fact, because a layman, errors that detract are to be guarded against and it is not simple to do this, and clumsiness in expression can be committed. This is one thing, to commentate on economic matters that are very grave in impact while completely illiterate in economics is a bloody disaster, invites disaster, and you fell for right bloody disasters:

Professor Sinclair Davidson, Ray Evans, Des Moore, Ross Gittins and Professor Garnaut.