Spectrum of capitalism - something between pure market to pure state

comments on "Davos elite confront capitalism crisis", 26/01/2012, see http://www.businessspectator.com.au/bs.nsf/Article/Davos-elite-confronts-capitalism-crisis-QUL3N?OpenDocument&src=hp9

The debate really is no brain. It is like the kind of debate between new-classical economists and new Keynesian economists, the truth is always some where in between.

Keynesian realise that market can have problems from time to time in getting full employment not soon enough and that is true, so government has to do something to aim at achieving full employment.

Even that theory works, then there is politics that endangers the theoretical fiscal policies that will be needed to ensure full employment.

Then, there are further problems with markets, it is not just aggregate demand or supply that are the only issues, there are structural and inter-temporary issues that are not too dissimilar to the aggregate issues. Those kind of structural and inter-temporary issues also need policies to manage and government is needed to play that role to address those issues.

Then of course income allocation has been recognised as an issue so government constantly work on taxation and welfare policies.

All those issues added together, you have a much bigger role for government to play in the economy: that is essentially some kind of capitalism and state work together, or some kind of state capitalism.

Of course, countries may differ in the kind of issues and their severity that requires different kind of combination of market and state, akin to the kind of Samuelson’s synthesis of classical and Keynesian economics.

Don't expect too much from businesses

Comments on Peter Shergold “Business must engage in battle for hearts and minds”, 18/10/2011, http://www.theaustralian.com.au/news/opinion/business-must-engage-in-battle-for-hearts-and-minds/story-e6frg6zo-1226169108879

It seems Professor Shergold is creating a new capitalist economics for business.

It is, however, unclear whether it is realistic or feasible to ask business of so many firms to do so.

It ignores the difference in the role the government should play and the role businesses should play.

Certainly there would be free riders, and perhaps many will be such free riders under what the professor is proposing!

A fundamental economic principle from Adam Smith is that social value is created at the same while every unit is pursuing it own interests!

That has been the social basis for capitalist businesses.

Now the professor is challenging that very principle!

I am not sure his proposal is sound from business point of view.

I think a possibly feasible proposal is to appropriately regulate businesses by government, so the Smith principle can always hold even when market is imperfect!

That role is for government, not for businesses, I would imagine.

Consistency in argument and market efficiency

Comments on John Daley and Tristan Edis “Market best to reduce carbon”, 16/12/2010, http://www.theaustralian.com.au/news/opinion/market-best-to-reduce-carbon/story-e6frg6zo-1225971753541

While the argument of using a market approach is correct, some of the arguments are problematic.

Firstly, there are market failures and the emissions issue in terms of climate change is such a typical example.

Secondly, it seems the second point in the suggested policy design may have been based on a linear assumption or projection of the effects of emissions, that is, any emissions of greenhouse gases are universally bad, and the best is no emissions at all. That is likely to be speculation and lacks scientific evidence.

Further, the advocate of a price floor is highly questionable. If the objective of dealing with climate change is achieved, then why is there a need for a floor price for emissions to raise unnecessarily the costs of processes that involve emissions? That is exactly the very issue the authors argued against, that is, government interventions can often be inefficient and in this instance it would be attempting to overdo it in emissions reduction to deviate from optimality.

We'd do a better job by being consistent ourselves in our argument and approaches. Otherwise we may be self defeating.

PS: The following is my comments on their article on ClimateSpectator on the same day - http://www.climatespectator.com.au/commentary/let-markets-lead-way Their article there has some nice graphs, though.


I have commented on their article on The Australian entitled "Market best to reduce carbon".

The very problem we are having with emissions and climate change has been the failure of the market in accounting the real costs of emissions.

That fundamental fact cannot and should not be ignored.

So, both the market and government policy are needed to reduce emissions.

In that broad context, the best option for government policy in terms of efficiency and innovative incentives for businesses is to have a carbon tax.

Further, the global nature of emissions and climate change requires a global approach and common actions by many countries especially the major economies with largest emissions.

Respect consumers' preferences

Comments on Peter A. Petri “Let growth engines drive the recovery”, 12/10/2009, http://www.eastasiaforum.org/2009/10/12/let-growth-engines-drive-the-recovery/

While the new engines of growth sound nice, there might be some significant risks in government policy generated products that so not match consumers' preferences and demand.

If the two go out of steps, there will be potential for huge waste.

Economists, businesses and governments need to study consumer preferences. Unless there are market failures, governments should refrain from intervention.

For example, in terms of savings and consumptions, as long as intertemporal budget constraints are satisfied, consumers’ preferences should be respected.

That is just one point in the current debate of international imbalances many people have got it wrong, or attributed to the wrong causes. Many arguments are simply red herring.

Renewable energy has a bright future in Australia

Comments on Paul Kelly, Editor-at-large for The Australian “Renewable energy target initiative is mad, bad tokenism”, 19 /08/2009, http://www.theaustralian.news.com.au/story/0,25197,25949700-12250,00.html

Paul Kelly is a well respected commentator in Australia and is mostly balanced in his comments. What he says should be listened to very carefully. However, although I hate to say this, I may have to disagree with him on this issue.

I think some comments make sense that the energy consumption worldwide is unsustainable and the market has been unable to price the true costs of energy consumption. It is a market failure in the global scale. Energy consumption is underpriced for two main reasons, one is that fossil fuels, like oil, gas and coal are limited resources and not renewable, current level of consumption means sooner or later they will be gone, but the market does not take that into account.

The other major failure is the carbon emissions into the atmosphere to form greenhouse gases. This means there is a very big negative externality of fossil fuel consumption.

In this context, to develop and use more renewable energies is a correction of the significant and known market failures. Yes, it is difficult to price fossil fuel from long term sustainability point of view, although the price for limiting carbon emissions may be easier to determine. Nevertheless, renewable energies are likely to be competitive if all the costs of fossil fuels are considered.

Australia has a huge advantage over most other countries in developing renewable energies. It has one of the lowest population per land unit. Most of its vast land enjoys excellent sunshine all year round. It is surrounded by sea from all sides. So there are the most enviable natural conditions in Australia to develop renewable energies.

Further, Australia has also been in the forefront of solar energy technologies. It was reported that California will use an Australian firm’s solar technology to construct a large scale solar energy base. So why don’t we put that technology into good use and improve Australia’s energy consumption and contribute to the global effort to combat global warming?

The Australian Industry Group submission, the Business Council of Australia, the Productivity Commission submission and the Ross Garnaut argument, well all respectable, seem all miss the point of market failures, or at least have not take the full account of them. Besides, the AI and BCA are business focused and there is self interest involved.