EcoRadio

Category: A sustainable economy

  • Tidal wave of retirees could break the bank

     

    KPMG demographer Bernard Salt said it signalled the start of a landmark shift in Australia’s population – one that would deliver a “double whammy” to Federal Government finances.

    “Not only will the baby boomers demand more from the tax base, but they will also be coming out of the workforce and will stop paying tax,” Mr Salt said.

    Apart from a surge in demand for age pensions, leading Australian demographers said ageing baby boomers would increase pressure on already stretched health budgets.

    “They are the most obese generation we’ve ever had, so reducing their obesity is really crucial if they are going to have healthy older years,” said Adelaide University Geography professor Graeme Hugo.

    Professor Martin Bell, from the University of Queensland’s Centre for Population Research, said the retirement of the baby boomers would also exacerbate skilled labour shortages in Australia and create planning issues for growing cities such as Brisbane.

    “This is an intriguing transition,” Prof Bell said.

    “I’d rank it alongside the Industrial Revolution.

    “It’s that kind of transition in the nature of Western society – from a young, rapidly growing population, which is broad at the bottom and thin at the top, to one that is almost the other way round.”

    In response to some of those emerging challenges, the Federal Government last year announced it would push out the pension eligibility age to 67 by 2023.

    But as the Federal Government considers the Henry tax review – expected to deliver the most sweeping reform of Australia’s tax system since the GST was introduced in July 2000 – CommSec chief economist Craig James said the pension qualifying age might have to be revisited.

    “I think we may see further shifts over the next couple of years,” he said.

    “Perhaps even pushing that pension age out further.”

    The high cost of Australia’s rapidly greying population

    “Perhaps it requires more incentives for employers to take on more senior workers,” Mr James said.

    Mr Salt said the problem should be met with a big rise in migration levels, targeting young skilled workers, to boost the tax base.

    “We either lift migration or we can ask Gen Y and Gen X to pay more tax per capita, and I don’t think that’s going to be popular,” he said.

    Latest figures from the Australian Bureau of Statistics indicate around 107,000 Australian women will turn 64 next year.

    By 2047, a quarter of all Australians will be aged over 65 years, almost double the current 13 per cent.
    In the last financial year, the Government supported 2.12million seniors with age pensions, at a cost of $28 billion.

    In the previous year, $24.6 billion was spent providing age pensions for 2.04 million Australians.

     

  • Sticking with GDP could be the best safeguard for nature.

    Sticking with GDP could be the best safeguard for nature

    Tom Levitt

    20th November, 2009

    Although much maligned as a measurement of progress, some believe a Gross Domestic Product (GDP) measurement that includes natural capital could be the way forward

    Economic growth is ‘destroying more than it is creating’, said French President Nicholas Sarkozy in September 2009 as he called for an end to what he described as ‘GDP fetishism’.

    As others – including the New Economics Foundation – have indicated, our current GDP metric offers no indication of whether a country is becoming richer or poorer in terms of its natural resources.

    And as Professor Tim Jackson, author of Prosperity Without Growth, points out, if the current rate of GDP growth continues the global economy will be 80 times the size it was in the 1950s by the end of the century.

    ‘It’s totally at odds with our scientific knowledge of the finite resource base and the fragile ecology on which we depend for survival…and has already been accompanied by the degradation of an estimated 60 per cent of the world’s ecosystems,’ says Jackson.

    Valuing nature

    So what is the best way to halt this degradation?

    The Economics of Ecosystems and Biodiversity report (TEEB), a mammoth three-year project funded by a host of EU countries and published last week, argues that neglect and degradation comes from a failure to value ‘natural capital’ and include that within existing gross domestic product (GDP) calculations.

    ‘It is a psychological flaw in human thinking that does not understand that our existence depends on this place called earth,’ says the report’s lead author Paven Sukhdev, a senior banker at Deutsche Bank.

    ‘If you had a house you wouldn’t start taking it apart, burning your front door for fuel. You don’t destroy your home yet we are destroying our forests and seas.’

    The TEEB report attempted to put a value on ecosystems services like forests, lakes, soils, water quality and fisheries. In the words of Sukhdev, ‘we only value what we can measure’.

    Coral reefs, for example, are calculated to provide annual services to humans worth $1.2 million per hectare. In Venezuela, investment in the ‘national protected area’ system is preventing sedimentation that otherwise could reduce agricultural earnings by around $3.5 million a year.

    The report also showed how this value could be shown in a balance sheet. Planting and protecting nearly 12,000 hectares of mangroves in Vietnam costs just over $1 million but saved annual expenditures on dyke maintenance of well over $7 million.

    Retaining GDP

    Sukhdev says that although patently inaccurate, retaining GDP but including within it additional natural capital flows was still the best way to protect the environment.

    ‘GDP is understood by both policy-makers and the general public – it is a single number that is simple to grasp and apply,’ he argues.

    There are already measurements in existence that attempt to adjust for the shortcomings of GDP. The UN’s Human Development Index (HDI) is one; WWF’s Ecological Footprint, produced as part of its Living Planet report, is another.

    These were both designed as alternative measures of progress.

    Making politicians listen

    However, Sukhdev argues that only by ‘monetising’ nature will policy-makers, governments and economists start properly valuing it.

    ‘Policy-making is about trade-offs. Often these trade-offs compare apples with oranges. By assigning monetary values to creation/depletion of natural capital, we can size and assess their unstated impacts on the economy, allowing for far more informed decision making and public debate.

    ‘GDP is just a flow of stocks and capital. If we include the flow of nutrients from forests – i.e. if we take timber, we will lose flood protection, air quality etc – then the net effect will be reflected on the balance sheet,’ says Sukhdev.

    The Sarkozy-commissioned report on GDP led by U.S. economist Joseph Stiglitz explains this argument further:

    ‘If I have disinvested this year [in my natural capital] to finance my consumption, this implies that I am poorer at the end of the year. Eventually, I will have the possibility to do the same next year to maintain this level of consumption. But I know that I will not be able to do so indefinitely: one day or later, I will have to adjust my consumption demands.’

    Treasury delay

    So what’s the delay? The UK Treasury, seen by former government sustainability adviser Jonathon Porritt as a ‘barrier’ standing in the way of new approaches to economic measurement, says GDP is ‘crucial to all kinds of economic surveillance’, and that it wouldn’t act alone in changing the measurement.

    The Office of National Statistics (ONS), which collects the data used in GDP measurements, accepted the criticisms that ‘impacts of logging, reduction of forests or mining of natural resources are currently viewed as additions to economic acticity within GDP’.

    However, like the Treasury it said GDP as a measurement was defined and coordinated by the UN and that in the most recent update, due to be introduced in the next few years, there were ‘no significant changes to the framework related to the treatment of natural capital.’

    ‘There has been considerable research in developing alternative measures of GDP. These include environmental adjusted or ‘green’ GDP. But there is no agreed definition for these adjusted versions of GDP and these tend to be undertaken by research institutions rather than national statistical institutions,’ said a ONS spokesman.

    There is however an environmental index being developed by the EU Commission as a result of its report, ‘Beyond GDP’, published earlier this year. The Commission plans to run a pilot of the index in 2010 and publish the results alongside standard GDP figures.

    No more GDP

    However, for some critics neither this parallel measurement nor Sukdev’s natural-capital adjusted GDP would be a satisfactory measure of progress.

    ‘You can improve GDP, make it more meaningful by including natural resources and that would send a signal to decision-makers about how they are managing their natural resources,’ admits Aniol Esteban, head of environmental economics at the New Economics Foundation.

    ‘However, this does not make it acceptable as the sole guiding measure of progress. Even with this natural resource flow it doesn’t tell you whether society is benefiting, whether peoples’ well-being is improving. It’s a step forward but still far away from the situation where national policy is guided by something other than just economic growth.’

    Useful links
    New Economics Foundation
    EU Commission report, ‘Beyond GDP’
    Prosperity Without Growth
    The Economics of Ecosystems and Biodiversity report (TEEB)
    The Happy Planet Index

  • Can we handle the truth

     

    If oil traders knew the truth about declining energy availability, the per-barrel price of oil would be $300 within a week. If stock traders knew the truth, we’d see capitulation of the markets shortly thereafter. If Americans knew the truth, they just might come to grips with reality, rally together, put their collective shoulders to the wheel, and start building a better world than the ominicidal culture of make believe to which we’ve all become accustomed.

    But we’ll never know, because the cabal of morally bankrupt bankers and politicians running this country — and also the industrialized world — will keep playing the shell game as long as they are allowed by the impotent media. Or, more likely, until the reality of oil priced in excess of $200 per barrel interferes with their imperial ambitions.

    The consequences of the shell game extend well beyond economic disaster and the likely extinction of our species. In the short term, they include hijacking the world’s marketplace, complete with child labor, hunger, and pollution (especially abroad), continued decline of intellectual “capital” in our universities, ratcheting up the war machine by attacking yet more countries (perhaps bringing a rapid demise to American Empire), further extending imperial overreach, continued shrinking of our credit-based economy, continued enrichment of the financially wealthy (including $100 billion for eight of Warren Buffett’s companies), continued profiteering by the insurance industry, and continued land grabs in poor countries by wealthy countries. All with a U.S. military on the verge of complete collapse and despite widespread acknowledgment that American-style capitalism is not working.

    To reiterate the choices facing us: (1) The economically dire truth and potential for chaos, now, or (2) Certain chaos and probable extinction, later. The moral certainty of the former choice is absolute. Perhaps that alone explains why we’re choosing door number two.

    Will reality intervene in time to save the living planet, including our own species? Is 2012 soon enough? Stay tuned.

    In the meantime, think about what you’d do. Let’s play King For A Day. Would you trust industrial humans with the truth? Or would you commit us to chaos and probable extinction in the name of politics? In your response, please wear two hats: first your own, then, to make the game realistic, the hat of your favorite billionaire.

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    Original article available here
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  • We cannot change the world by changing our buying habits

     

    A green energy expert once tried to convince me that even though rooftop micro wind turbines are useless or worse than useless in most situations, they’re still worth promoting because they encourage people to think about their emissions. It’s a bit like the argument used by anti-drugs campaigners: the soft stuff leads to the hard stuff.

    I’ve never been convinced by this argument. In my experience, people use the soft stuff to justify their failure to engage with the hard stuff. Challenge someone about taking holiday flights six times a year and there’s a pretty good chance that they’ll say something along these lines:

    I recycle everything and I re-use my plastic bags, so I’m really quite green.

    A couple of years ago a friend showed me a cutting from a local newspaper: it reported that a couple had earned so many vouchers from recycling at Tesco that they were able to fly to the Caribbean for a holiday.

    The greenhouse gases caused by these flights outweigh any likely savings from recycling hundreds or thousands of times over, but the small actions allow people to overlook the big ones and still believe that they are environmentally responsible.

    Being a cynical old git, I have always been deeply suspicious of the grand claims made for consumer democracy: that we can change the world by changing our buying habits. There are several problems with this approach:

    • In a consumer democracy, some people have more votes than others, and those with the most votes are the least inclined to change a system that has served them so well.

    • A change in consumption habits is seldom effective unless it is backed up by government action. You can give up your car for a bicycle – and fair play to you – but unless the government is simultaneously reducing the available road space, the place you’ve vacated will just be taken by someone who drives a less efficient car than you would have driven (traffic expands to fill the available road-space). Our power comes from acting as citizens – demanding political change – not acting as consumers.

    • We are very good at deceiving ourselves about our impacts. We remember the good things we do and forget the bad ones.

    I’m not saying that you shouldn’t always try to purchase the product with the smallest impact: you should. Nor am I suggesting that all ethical consumption is useless. Fairtrade products make a real difference to the lives of the producers who sell them; properly verified goods – like wood certified by the Forest Stewardship Council or fish approved by the Marine Stewardship Council – are likely to cause much less damage than the alternatives. But these small decisions allow us to believe that our overall performance is better than it really is.

    So I wasn’t surprised to see a report in Nature this week suggesting that buying green products can make you behave more selfishly than you would otherwise have done. Psychologists at the University of Toronto subjected students to a series of cunning experiments (pdf). First they were asked to buy a basket of products; selecting either green or conventional ones. Then they played a game in which they were asked to allocate money between themselves and someone else. The students who had bought green products shared less money than those who had bought only conventional goods.

    The researchers call this the “licensing effect”. Buying green can establish the moral credentials that license subsequent bad behaviour: the rosier your view of yourself, the more likely you are to hoard your money and do down other people.

    Then they took another bunch of students, gave them the same purchasing choices, then introduced them to a game in which they made money by describing a pattern of dots on a computer screen. If there were more dots on the right than the left they made more money. Afterwards they were asked to count the money they had earned out of an envelope.

    The researchers found that buying green had such a strong licensing effect that people were likely to lie, cheat and steal: they had established such strong moral credentials in their own minds that these appeared to exonerate them from what they did next. Nature uses the term “moral offset”, which I think is a useful one.

    So perhaps guilt is good after all. Campaigners are constantly told that guilt-tripping people is counterproductive: we have to make people feel better about themselves instead. These results suggest that this isn’t very likely to be true. They also offer some fascinating insights into the human condition. Maybe the cruel old Christian notion of original sin wasn’t such a bad idea after all.

    www.monbiot.com

  • Our swagger is big, but others are unconvinced

     

    But when it comes to self-belief, Australia is without peer; Australians are more positive about themselves than any other of the 33 nations that took part in the institute’s wider survey.

    Japan and South Africa registered the lowest self-image, and China, Russia and India recorded the greatest gap between how they perceived themselves and how others saw them. Oliver Freedman, the general manager of AMR Interactive, which conducted the research, said: ”When it comes to the physical beauty and overall lifestyle we are doing a very good job of communicating with the rest of the world, but there’s been a lack of communication about other areas such as our inventiveness and innovation.”

    Despite creating a good impression overall, coming behind the leaders Switzerland and Canada, Australia failed to make it into the top five in key areas such as innovation, technological advancement, culture and social welfare, the survey of 22,000 people found. That did not stop citizens of Group of Eight countries – Canada, France, Germany, Italy, Japan, Russia, Britain and the US – from ranking Australia as the fourth most likely place to invest in.

    Mr Freedman said: ”My guess is that Australia has weathered the financial crisis very well; we are last in and first out. We have a very strong resources sector so from a general [shares] investor point of view Australia does make sense.”

    In August the Trade Minister, Simon Crean, sought to address this issue with a $20 million project to develop a new brand for Australia to encourage investment. Responding to the survey’s results, a spokeswoman for Austrade said Australia needed to ”leverage this confidence we have in ourselves” for the new brand

  • It’s the boom stupid

    It’s the boom, stupid.

     

    Michael Stutchbury, Economics editor | October 20, 2009

    Article from:  The Australian

    DURING Australia’s previous resources boom, the Fraser government paraded regular estimates of an emerging wave of mining and energy projects. At one stage, planned investment reached a staggering $29 billion – about $200bn when scaled up to the size of today’s economy.

    You wouldn’t know it from the Rudd government, but Australia’s renewed resources boom is quickly becoming bigger than its ill-fated predecessor, which collapsed along with the Organisation for Petroleum Exporting Countries’ unstable oil price cartel. It will likely also overshadow the late 1960s and early 70s boom that opened up the Pilbara on the back of industrialising Japan’s demand for iron ore.

    The assessment comes from the Reserve Bank of Australia’s assistant governor for the economy, Philip Lowe. In a speech yesterday, Lowe estimated that annual mining investment had surged to nearly 5 per cent of gross domestic product. This actual – rather than planned – investment in new mining capacity amounted to a “record by a large margin”.

    “While we had booms in the mining sector in the late 1960s and the early 1980s, these look relatively small compared with the current one,” he said. The new mine and port capacity already had delivered a one third increase in iron ore export volumes in the past two years.

    Rather than highlighting this, the Rudd government is playing it down in favour of the politics of its budget stimulus. Wayne Swan last week said it was “not true” we had avoided recession because of China’s rebound from the global crisis. Instead, consumer spending stimulated by his budget stimulus had saved the day.

    Yet Lowe noted that Australia’s ratio of export prices to import prices – the terms of trade – had held up at a “very high” 50 per cent above the average of the 80s and 90s. Few would have predicted this in the midst of the most severe global recession since the 30s, he said. And it was mainly due to China.

    For similar reasons, Australia’s stock of productive capital had kept growing through the severe global downturn at “around its fastest rate in several decades”. And immigration had produced Australia’s fastest population growth – 2.1 per cent – since the mid-60s. This was four times more than the average of the advanced economies, all of which, bar Australia, had shrunk in the wake of the crisis.

    Moreover, Lowe said planned liquefied natural gas projects – such as the huge $43bn Gorgon development – meant “very high levels” of resource investment would “continue for some years yet”. And there was a “high probability” that Asia’s rapid China-led growth could continue even while developed economies remained subdued. The US economy had been based on domestic, rather than export, demand for decades. With the right policies, Asia could do the same.

    It is one thing for the world’s most populous nation to grow 10 per cent or so a year off a very low per capita base. It’s another to keep doing that after two decades. The compound result is that China’s economy has expanded six-fold since 1990. It produces nearly half the world’s steel, up from 15 per cent a decade ago. It has become our biggest merchandise export market. China, Japan, India and South Korea are now Australia’s four biggest customers, taking 55 per cent of our merchandise exports.

    China’s rapid rebound only serves to increase confidence in its durability. But this also means that the sort of capacity constraints that emerged just before the crisis hit will reappear as domestic demand picks up again.

    Interest rates will rise because Asia’s demand for our resources translates into a higher return from investing in Australia. As Reserve Bank governor Glenn Stevens suggests, the increased capital inflow could push the Australian dollar to parity with the US dollar for the first time since the Fraser-era boom.

    This increased capital inflow will translate into a wider current account deficit on the balance of payments. This magnifies the need to boost national savings, particularly government saving.

    Australia’s economy is much better placed to deal with this resources boom than when Malcolm Fraser finally decided that life could in fact be easy. Back then, an inflation-prone and inflexible economy protected an inefficient manufacturing sector, ran a managed exchange rate and was burdened by centralised wage fixing.

    These combined to produce a trade union wage blowout that kneecapped the economy just as the collapse of the OPEC cartel brought the resources boom down with it. Encouraged by Fraser’s late-term boosterism, the unions grabbed the resource boom bounty before it had ripened, deepening the ensuing recession.

    Three decades on, it has been the government’s budget that has prematurely dined out most on the resource boom bounty. The Howard-Costello government spent too much of the revenue from the pre-crisis spike in commodity export prices. Then the Rudd government delivered one of the biggest budget stimulus responses of any developed economy to the global crisis.

    This $88bn budget stimulus may have been fair enough at the time. But the economy is now performing much better than forecast, the Treasury reckons Australia’s recession would have been modest even with no budget stimulus, we’ve become the first Group of 20 economy to raise official interest rates and the dollar is headed towards greenback parity.

    In parliament yesterday, Swan did not properly deal with calls from Bob Hawke’s former economic adviser Ross Garnaut to wind back the budget stimulus ahead of schedule. Last night, Garnaut told a Lowy Institute function that “we will need a level of fiscal discipline … that we have very rarely seen in Australia, sustained over a longer period than we have ever had in Australia”.

    Former Reserve Bank governor Ian Macfarlane told the same function that Australia’s new found international pin-up status “makes me worry” because “the hardest thing to cope with is success”. We were becoming a target of foreign capital inflow, in part reflecting the massive new gas projects. Our mild downturn meant the economy had modest levels of spare capacity, underlying inflation had not fallen as low as expected, the dollar was rising “very sharply” and the prospect of a private investment surge posed a “big challenge”. “The government will have to make some room for that,” Macfarlane warned.

    The elders of Australia’s modern economic success are warning that the Rudd government is in danger of fighting a global financial crisis that is fast receding rather than dealing with the China boom challenges ahead.