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The government's green Renewable Energy Target legislation is economic lunacy
Gerard Jackson
Auzion publicly welcomed the government's Renewable Energy Target legislation. Of course it did. How many people would say no to a massive government handout? There are now two kinds of companies: the first make money by serving consumers while the second lot make money by using the government to milk taxpayers. Enter Auzion. This company prides itself on "providing Australia with sustainable energy management innovation, and economical energy saving solutions". Maloney baloney. Free markets are the road to innovation and so-called sustainability not ignorant politicians and rent-seeking firms.
The sort of policy that Auzion seems to support was implemented in Spain with disastrous consequences. Colossal amounts of taxpayers' money disappeared into green holes. masses of capital were dissipated and thousands of jobs were destroyed. The actual damage this green lunacy did to the Spanish economy is literally incalculable. (Study of the effects on employment of public aid to renewable energy sources).
Not that the Spanish study had any effect on our green fanatics and their fellow travellers. Last month Sharan Burrow, President of the Australian Council of Trade Unions, was appointed to the board of the Green Building Council of Australia. Now this green outfit produced a paper by Davis Langdon stating that "refurbishing a significant quantity of office stock to high environmental standards could create more than 27,000 new jobs across the broader economy". This is dangerous nonsense.
Assuming that Langdon's figures are 100 per cent accurate. So what? Every first year economics undergraduate should know that so longer as there is sufficient land and capital to employ those able and willing to work there can be no persistent widespread unemployment. (The emergence of this phenomenon is due to keeping labour costs above the marginal value of labour's product. See More rubbish about unemployment and the recession and Prime Minister Rudd's misbegotten assault on the market goes unchallenged). Creating jobs is never a problem. This is why there were no dole queues in Nazi Germany, Imperial Japan and the Soviet Union. The real trick, however, is to create an expanding stream of ever-higher paying jobs — and this is something only free market economies are capable of achieving, even the badly hampered ones.
It would appear that Langdon is assuming that any increase in the demand for labour raises real wages and generates growth. He and those who think like him overlook two fundamental facts: Using taxpayers' money to redirect labour cannot increase the real demand for labour. What it does is change the pattern of aggregate spending. Moreover, such spending cannot add to economic growth, though it certainly can retard it. As the Austrians explain, growth means expanding the capital structure, or as a neoclassical economist might say: it is a process of capital accumulation. The classical economists fully understood this and this is why John Stuart Mill could confidently state:
I apprehend that if by demand for labour be meant the demand by which wages are raised, or the number of labourers in employment be increased, demand for commodities does not constitute demand for labour. I conceive that a person who buys commodities and consumes them himself, does no good to the labouring classes; and that it is only by what he abstains form consuming, and expends in direct payments to labourers in exchange for labour, that he benefits the harbouring classes, or adds anything to the amount of their employment. (John Stuart Mill, Principles of Political Economy, University of Toronto Press, Routledge & Kegan Paul, 1965, p. 80).
In other words, it is the accumulation of capital that raises the "intensity of demand" (real wages) for labour. (Mountifort Longfield .Lectures on Political Economy, Richard Milliken and Son, 1834, p.195, and Nassau W. Senior, An Outline of the Science of Political Economy, Augustus M. Kelley, 1965, pp. 69-72, 170-73)*. At the very best, Langdon is arguing for the misdirection of labour to serve a political goal: the "saving of energy". But this is ridiculous because energy is never scarce. What is scarce is the means to convert energy into useful work, which means that capital is the scarce commodity and not energy.
Spain subsidised so-called renewable sources of energy to the tune of nearly 30 billion euros. This brilliant policy created about 50,000 jobs while destroying many more jobs elsewhere by raising the price of electricity, creating electricity shortages and wasting vast amounts of capital, the material means of production. By increasing production costs for industry and reducing its supply of capital this policy may very well have shortened the country's production structure. If this is so, then unemployment can only be eliminated by reducing real wages. Naturally, the socialists and the greens will blame capitalism for the consequences of their own gross stupidity.
It is indisputable that capital goods are required for the conversion of energy into useful work. In this sense energy is never free. Therefore green talk of "free solar energy" is pure balderdash. What is not generally understood by politicians and journalists is that solar energy is extremely dilute. Under optimum conditions — which rarely obtain, at least for long — the amount of solar energy per square metre is just under 1Kw per hour.
The situation is even worse for wind because of the Betz limit and the fact that wind velocity has to be raised to the third power, meaning that small changes in wind velocity result in very large disproportionate changes output. Then there are little things like the wind being extremely variable and the fact that the world does not have continuously sunny days: there is rain, winter weather, overcast skies, etc., and let us not forget the nights. (These facts never faze green fanatics and their political and media allies).
Diluteness requires extremely large collecting areas, resulting in huge diseconomies of scale. This means that not only are these plants vastly more expensive than centralised generating plants to begin with but that their average costs of production will rise as they build more plants or even try to expand existing ones. On the other, centralised power generation enjoys economies of scale, i.e., the average cost of production falls as the plant increases output. Hence building more of these plants will not raise electricity prices.
One could argue — correctly in my opinion — that to all intents and purposes the production of electricity from solar panels and windmills amounts to the use of highly divisible factors. And this is the problem. Economies of scale come from indivisibilities. And indivisibilities is precisely what is missing — apart from a reliable and highly concentrated source of energy — from so-called renewable energy projects.
One can rest assured that those politicians who are hell bent on imposing this green lunacy on us will not be deterred by Spain's dreadful experience with green technologies — and neither will their media mates. Unfortunately our rightwing establishment has been horribly incompetent in the face of green fanaticism. The Centre for Independent Studies has been running an ill-concealed PR campaign for a carbon tax while the response of the Institute of Public Affairs has been extremely limp, adamantly refusing to even take the CIS to task for its dishonesty. One embarrassing effort on its part was a short video featuring Michael Kroger — one of those largely responsible for wrecking the state Liberal Party — attacking the government's proposed emissions scheme tax. He argued that Australia shouldn't implement it because no one else had.
*I use classical economists to inform readers that these pioneers taught a great deal of sound economics. In many ways they are very much superior to the current crop of graduates, particularly those who believe in the power of government to stabilise the economy and maintain full employment.
Why Obama's massive energy bill will wreck the US economy
Why is the Centre for Independent Studies supporting the destructive carbon tax?
The humble light bulb: a victim of political stupidity and green zealotry
Why a carbon tax would hit living standards
Carbon taxes versus living standards
The real costs of the greens' carbon tax
Economic growth is the only way to raise living standards and conserve resources
Gerard Jackson is Brookesnews' economics editor
BrookesNews.Com
Monday 7 September 2009
So according to Kroger's logic a carbon tax is acceptable — no matter how much it savages the living standards of the mass of ordinary Australians, of which he is not one — as long as other countries do likewise. And that was it. He did not raise a single economic or scientific objection to this insanity. Why? Because he is too damn lazy to do his homework and too bloody tight-fisted to even pay someone to do it for him. But what can we expect from this brilliant political tactician whose response to Labor's state election victory was to arrogantly declare that the electorate would come crawling back to the Liberal Party once the Labor Government screwed up the state economy. And that was 10 years ago! Since then, thanks to the hubristic Kroger and his pals, the State Liberal Party is now on its knees and completely bereft of talent while the Labor Party is thriving. No wonder the political landscape is so bloody bleak.
Kroger's arrogant meddling crippled the state Liberal Party. And he is still stuffing it up