Liberal Elite – A Song of Despair

The liberal elite were happy in their little worlds, the London metropolitan crowd and the Washington Beltway crowd.

They peered out of their ivory tower from time to time and monitored the headline statistics, everything was fine.

The liberal elite were unaware of the working poor. The Washington Ivy League graduates and the London privately educated just don’t mix with these sort of people.

They want an inclusive society, but don’t really want to include themselves in it, they are the liberal elite; sure of their values and relevance; dismissive of those without their degrees and high-flying jobs.

The working poor don’t even show up in the unemployment statistics. The other statistics show all the rewards going to the 1%, and rising exponentially within the 1%.

Suddenly they ask, “BrExit and Trump, how did that happen?” It was out of the blue.

The liberal elite were unaware of the problems that were developing outside their ivory towers.

While the working poor don’t show up in the statistics, but, surprise, surprise, they do vote.

The Conservatives found the working poor after BrExit, together with a new truly conservative leader, who wants the country to work for everyone.

Trump has appealed to those abandoned by the liberal elite. Surprise, surprise, he now runs the country.

He even fights back against selective reporting in the press that is designed to bring him down. The press say, “Surely he can’t now be punching back – it’s our place to punch him. The rules say that he should only defend himself from our blows!”

The liberal elite now peer out of their ivory tower, and feel the pain of their new irrelevance.

Still unaware of the working poor, they say, “BrExit and Trump, how did that happen?”

The liberal elite are not happy in their little worlds, the London metropolitan crowd and the Washington Beltway crowd.

Adapted from Sound of Suburbs

Media Bias – The Challengers don’t like to be Challenged

Media bias reflects the fact that most of the major media organizations have their own agenda. It starts with unrestrained free trade and ends in the hope that everyone will benefit. Donald Trump has pricked their balloon, and they don’t like it. In fact, they are highly embarrassed that their complicity in the current economic malaise is being exposed by an “outsider.”

Media Bias – A Western Pattern

I listen to PBS, France24 & the Australian ABC. Also I read the (UK) Financial Times, the Australian Fairfax press and the Australian. All except for the later, which has a reasonably 2-sided presentation, treat Donald Trump as a punching bag (especially the government funded national broadcaster, “our ABC”). None of them like it when Donald Trump punches back. I say, it is about time that the media is held accountable for their biased reporting.

Media bias is obvious to any objective observer. As an historian, I know that history is a matter of selection – what will be included – what will be excluded. We know what the media are including. Today I listened to the NewsHour “debate” between Mark Shields and David Brooks. As today’s show demonstrates, the two contributors and the host were keen to highlight anything that puts Donald Trump in a bad light. Here are just a few examples:

  • “Not enough positions with confirmable candidates have been confirmed.” That is not Donald Trump’s fault. It reflects more directly on the action of Democratic Senators, not a failure on Donald Trump’s part. If the Democrats are holding up appointments (for good or spurious reasons), the delay cannot be put solely at Donald Trump’s feet, but that is what the 2 debaters and the host did today.
  • The disgraceful situation where leading figures in the intelligent community are openly passing on confidential information to press was not criticized once in this discussion. These leakers should be prosecuted as Obama tried to do with Snowden, and has done with Manning. Yet this was not mentioned as a caveat to the discussion on the “Russian situation.”
  • The implication that Trump is a boy in a man’s job, which came from Mark Shields, will be shown to be a nonsense. It is just out of the current Media Bias play-book. Rather than Donald Trump not being up to the job, he is willing to address the ridiculous situation when US workers on $7.50 and hour or more have to compete for their jobs with Mexican workers on $15 day, whereas neither the Democrats or the pre-Trump Republicans even thought this was an issue that could be addressed.
  • Trump was willing to bell the cat on the impossible situation in the West Bank, which cannot be solved via a 2-state solution (since that region has been permanently cantonized by settlements for over 20 years), despite official UN approval of this ridiculous approach. Diplomacy has failed the world here and also in Syria, with the attempt to replace a stable government with one that is likely to be led by Saudi-influenced Sunni radicals.

Where is the discussion of the breath of fresh air that Donald Trump has brought to such matters? Nowhere to be seen on PBS, France24, Aust ABC, Aust Fairfax or in the Financial Times. Apart from resistance to his necessary and economically compelling agenda, we just have complaints about Donald Trump pushing back against a constant media onslaught. Certainly the media do not want anything like a level playing field and are not willing to even think about the possibility of Media Bias from their own organizations.

End Media Bias for your own good

My advice to the so-called Main Stream Media, is “Grow up.” Learn from the election result. Donald Trump won the electoral college by a thumping majority. Surprise, surprise: the liberal elites lost the election. Their mutual love-in, led by Barack Obama and for which Hillary Clinton was their default candidate, which has seen ordinary working people lose their jobs while others earn an extraordinary rate of pay, has been dispatched by democratic forces.

In addition, we can say that the expectation of Mark Shields that Trump will lose electoral support is a dream. The US economy has already turned the corner, and that has been just on the anticipation that Trump will put his plans into operation. Just be aware that when the numbers on the economy come in at the end of this year, the media will change their clothes, because if they do not, they will be all out of job and new media will take the place of the current media.

Prosperity, Insecurity and Poverty

We live in a time of great prosperity, unparalleled plenty, variety, health and peace. We also live in a period of intense and global competition, where not one job has even a scrap of the security that a job might have had 50 years ago.

Unparalleled Prosperity, with increased Insecurity

We are more prosperous than ever before, but would any ordinary working person willingly accept that getting everything 20% cheaper is really worth the employment insecurity that the current free trade arrangements are causing? I doubt it.

Automation is NOT the problem

For those who argue that it is automation, not unrestrained free trade, that is causing increased employment insecurity, I say, “Balony!” I spent a large amount of my working life implementing automation, and it didn’t lead to widespread unemployment. That is because the governments of the world hadn’t yet handed over power to global corporations, via unrestrained free trade.

Prosperity provides an opportunity to fix poverty

We can use the world’s prosperity to lift nations out of poverty, via trade, but we have to do it differently. It is no good just using our prosperity to lift the incomes of the top 20%.

We have given up the opportunity that prosperity has provided, since the great democracies of the world have surrendered their authority and power to global corporations. Shame, shame and more shame upon them all.

How to fix

There is a fix. It is in the hands of voters. It is also in the hands of the world leaders, via the WTO. It is Donald Trump who has provided the catalyst. Those who condemn him are among the worst offenders in regard to causing the current malaise. So I support Trump’s abrupt and counter-cultural rhetoric! Shock, horror!

We will be the poorer if we don’t pick up the baton that he has placed in the next runner’s hand.

Lower Company Tax Rates will NOT fix Economic Malaise

Company Tax Rates are not the reason that economic growth is sluggish in the current global economy. Lowering Company Tax is not a priority

While cutting company tax rates to attract and keep businesses in the country is currently an attractive idea, it is without proper theoretical justification.

Company tax on Domestic Earnings

If I can earn 2% profit on domestic sales of $1b = $20m, and pay 10% tax, then the net income I can earn is $18m. However, if I can earn 5% profit on sales of $1b = $50m, and pay 25% tax, then the net income I can earn is $37.5m. I am much better off if I can increase my profit margin, rather than seeking lower company tax rates.

If imports are subjected to a 5% tariff, then this situation is more than possible.

Furthermore, if I need a 5% profit in order to profitably invest, then I won’t invest in a high-cost country. This is closer to the real situation in the world, where there is not a problem with corporate tax rates, but there is nothing in which to invest in the West. Competition from the East is driving away all investment opportunities, which is actually also hurting the East, since it markets are drying up.

The current situation is both appalling and lacking in a theoretical justification, despite the dominance of this ideology among the elites. If they don’t wake up, they will lose all influence in the West, as is beginning to happen in the USA, France, and even in Australia.

Global Trade Reform is required

As Donald Trump has demonstrated, the West’s voters are calling for a trade realignment. None of the main-stream parties are really on board (even the Republicans are running on Trump’s coat-tails and are not “true believers”). Indeed, President Trump has created a catalyst for global trade reform. The USA could use this opportunity to implement reform via WTO that will work for both developed and developing nations. Yet it remains to be seen whether Global Trade Reform will happen.

Company Tax on Export Earnings

In regard to exports, why would I set up in any high-cost country to export to the world? The reason must be the quality of the staff that I could employ, and the higher export sales (or lower final costs) I can achieve. Let us follow that scenario.

If I can earn 2% profit on export sales of $1b = $20m, and pay 10% tax, my net income will be $18m. However, if I can earn 2% profit on export sales of $2b = $40m, and pay 25% tax, my income will be $30m. If this were the situation, my decision to move my business to a high-cost country would be entirely rational on the grounds of higher potential net profit after tax, even with a higher rate of tax.

Surely, few can dispute the significant advantages of more skilled staff. If anyone wishes to do so, please explain why tech companies are located in high wages, high taxes, California, rather than in Bangladesh, with low wages, and a tax holiday.

Domestic Demand drives most Business Income

Most businesses primarily service domestic demand. If that fact were given more attention, the current economic malaise would be fixed overnight.

Nevertheless, mainstream leaders like to mix with the (export) winners, not with domestic players. Their obsession with a particular economic ideology will see the world being changed, but not in the direction they are planning. Lowering company tax should NOT be a first priority.

Steven Keen on Democracy and Capitalism

The radical Australian economist, Steven Keen, has somewhat surprisingly “come out” as an opponent of Free Trade, at least as currently practiced.

In an breakthrough interview published in The Epoch Times, Steven Keen explains how Donald Trump could revive American manufacturing. This article is tellingly entitled, “Why Free Trade Doesn’t Work for the Workers.”

Steven Keen argues Ricardo’s (1820) theory is flawed

Keen pointed out that the argument by classical economist David Ricardo (1772–1823) about wine and clothes involved the workers in one industry losing their jobs. Ricardo assumed, as do modern neoclassical economists, that workers in the losing industry can get a job in the winning industry. So it’s assuming full employment, everybody who wants a job gets a job, which is not the real world. And they also assume you can move resources from one industry into another. Certainly, workers can be retrained. While it takes time, it can be done.

Drawing an example from China, Keen noted that China now produces more of everything, and that it is not possible is turning a weaving machine into a steel furnace. And that’s why you have the rust-belt. In the case of China and the United States, the steel plants in the United States won’t become weaving machines; they just turn into rust. So what you have is absolute destruction of physical resources in one country. Or they ship the capital to the place where the low wage workers are, like China or Mexico, and what you get is a class redistribution of income. The workers in the developed country lose, the capitalists in that country gain.

Steven Keen argues that Free Trade gives Capitalists a “Free Kick”

Keen observes that in this scenario, capitalists in the developed country still own the machinery and employ people but in a different country and at lower wages. Then they sell the products back into the American markets at the same prices but at lower costs. So they gain, and the working class has to finance their consumption with increased levels of debt because they don’t have the income anymore. The workers in the developing country also gain, so it’s also a wealth transfer from the developed to the developing country.

Why BrExit “won” & why Trump won

Steven Keen comments that in a democracy you get to the point where the workers have lost so much because of globalization, they get sick and tired of hearing the fairy tale that they won’t suffer and that it’s all for their own good. And they look at their decayed streets and factories and dismal jobs and lower share of income, and they say: “You know what, I’m going to vote against this.” And that’s what we are seeing globally now with Trump and Brexit, this revolt against globalization and financialization. The absolute losers of all of this are the working class of the first world. The winners are the multinational corporations.

Welfare vs Work

In an interesting and perceptive comment on human nature, Steven Keen says that humans get their sense of self-worth by contributing to a community. If you are human and you are being paid for staying alive, you are not particularly happy about it, your sense of self-worth is pretty low. But if you have a job and can contribute to a community, that’s where your sense of self-worth is going to come from. All this welfare is replacing work which is the case in the rust-belt areas makes people angry and resentful. Their self-worth is challenged and they are not going to be happy with the establishment.

He believes that is why Trump has such an appeal, and they don’t care about him being politically incorrect. They like the fact he is like a human hand grenade. They threw the human hand grenade into Washington.

Automation

Getting closer to a nuanced view on automation than most commentators, Steven Keen begins by arguing that part of the motivation for American businesses to move production offshore was cheap labor. But with better and better robots, you can have machines you can retrain for different assembly processes. And you have 3-D printing turning up, which has become mainstream. So it means you can produce onshore without cheap labor. But it also means you can produce without labor at all.

Although he does not define what “a well-functioning human society” would look like, he thinks that in such a society producing without any labor at all would not be a problem. He believes that the problem in a neoclassical capitalist system is that the workers lose out because their only source of income is wages. If there is no need for wages anymore, you don’t have an income anymore.

My Response

Steven Keen’s analysis of the modern economic dilemma is first class, however he does not offer anything substantive in the way of a solution.

A declared opponent of “neoclassical economics,” Steven Keen is quite happy to make comments like, “In a neoclassical capitalist system [in this scenario] the workers lose out because their only source of income is wages.” However, when he goes on to say, “If there is no need for wages anymore, you don’t have an income anymore,” but “in a well-functioning human society, that wouldn’t be a problem.” In this he is contracting his own point that welfare-dependency is a self-defeating solution to current economic problems.

From the full text of this interview, we know that he is still an opponent of tariffs as a way of achieving balance within an economy, and still hankers after the socialist ideal of a world without artificial borders.

In this area, this site is closer to Donald Trump on the need for tariffs supporting national objectives. Nationalism is deeply rooted in human psychology (beginning with a mother’s care for her child). This cannot be claimed for internationalist objectives of Ricardo’s Free Trade ideology or Marxist ideology. While Keen sees the future as being “post capitalist,” I see the future being in capitalism being brought (again) under the control of national parliamentary democracy, thus reflecting the needs and interests of the people.

I am confident that Steven Keen would agree with me in the proposition that an objective of the political system should be to deliver a result that is in the interests of ordinary people (the top 1%ers are quite able to look after themselves). I am not so sure he would agree with me in seeing a nationalist capitalist system as the basis of that model. Time will tell on that point.

I promote Democratic Capitalism because I believe it will serve the majority of people quite well. Indeed, the current trend is in support of the principles of Democratic Capitalism. As evidence for this, I can cite Theresa May in the UK (“Democracy that works for everyone”), and Donald Trump in the USA (“Make America great again”).

Global Trade Reform

President Trump has created a catalyst for global trade reform. The USA could use this opportunity to implement reform via WTO that will work for both developed and developing nations.

The Problem with Global Trade

Even though the push towards globalization has done much to reduce poverty in those nations able to exploit the changes for the benefits of their own citizens, it has presented three easily identifiable problems;

  1. Zero tariffs do absolutely nothing to remove the first-mover-advantage of Western nations. Without tariff protections, developing nations are severely limited in their ability to develop diverse economies. Each nation should seek a diversified economy, despite the benefits of specialization. Providing a diversified economy is the only way in which a nation can utilize all the skills of all their people.
  2. Western nations are unable to provide sufficient work for ordinary workers in the face of very low wages that are being offered in developing nations. A skilled worker in the USA on $15 an hour cannot compete with a skilled worker in Mexico on $15 a day. It will never work out well for the ordinary workers of the West, who actually represent the majority of voters. (Elites: watch out, your day of reckoning has come!)
  3. Globalization has failed to deliver the real equalization of incomes between developed and developing nations that has been promised by its advocates. The pressure to keep wages down in developing nations is maintained by global corporations. They are only too willing to move operations from one country to another in search of the lowest possible cost of labor. Of course, they are only operating in the way the situation requires. If it is to be changed, it will have to be changed by changing the situation, not by requiring corporations to act in ways that conflict with their own charters.

Implementing Global Trade Reform

Having defined the problem with global trade, reform of its operation becomes self evident. Here is a simple two-part fix, which Donald Trump could initiate and virtually force the whole world to adopt.

  1. The WTO rules to be changed so that any nation can introduce and maintain a high level of tariff in order to offset an identified first-mover-advantage. It is suggested that a tariff of 25% would be a good starting point for a discussion on this aspect.
  2. The WTO rules to be changed so that any nation can implement a country-by-country tariff on goods coming from another country, where the minimum wage (actual or official) is less than 50% of the minimum wage of the importing country.

Only item 2 of this program for global trade reform really applies to the USA, and pending a WTO agreement, Donald Trump could implement that aspect immediately.

In regard to NAFTA, Mexico could be encouraged to raise the minimum wage in all factories exporting to the USA to 50% of the USA minimum wage.

Under these arrangements for global trade reform, the pressure to move work from nation to nation in the search for the lowest possible wage levels would come to an end. It would also end the waste of national resources that comes from starting a factory in one country and moving it to another.

Global trade reform along these lines would see the incentive for nations (like Bangladesh) to be the work-house of the West coming to an end. Indeed, the wages of ordinary workers throughout the world would be increased.

Super-low prices will end

Yes, it is true that the prices of some very low-priced, but valuable goods, like clothing, would increase significantly over time. This would reflect the fact that the workers of the world were not continuing to be impoverished in order to meet the needs of the developed world.

For those who do not like that prospect. Suck it up! It is coming!

Open Markets – not Free Trade

Free Trade is supposed to enhance Open Markets, but the facts shows that Free Trade kills competition. It makes oligopolies and destroys truly open markets.

Open Markets require many players

It is axiomatic in economics that an open market requires many players, and that competition only works for maximum effect when there are open markets.

The experience of the last 30 years has shown a trend towards agglomeration, with smaller firms being swallowed up. This is done in an attempt to achieve a level of market power and cost efficiency resulting in a firm being of sufficient size that it can compete with all comers, and dominate a market.

If economists were not blinded by their own theories, they would realize that this trend is antithetical to their “ideal world” of perfect competition. Instead of combating this trend, they are prepared to explain it away as a limitation to their micro-economic theories.

Open Markets deliver mixed results

The effect of open markets is clearly seen in the agricultural sectors especially in subsistence economies. Here the farmers deliver their products to the market and receive whatever the customers will pay – they are entirely price-takers.

No-one wants to be a price-taker in an open market. We all want to be price-setters. In the agricultural sector this can only be achieved if the producers gather together in a collective, and only deliver to the market those goods that must be sold, because they will perish, or those goods that will receive the best price that the market is likely to pay (in the medium term).

The ideal situation is where the market sets the price, based on supply and demand, but where both buyers and sellers have equal power. Yet this never can be achieved under Free Trade. This is because the lowest-cost producer has virtual monopoly power.

The end result under Free Trade, is that open markets for many goods and services become a virtual fiction, with a few operators holding an unconscionable level of monopoly power, by virtue of operating in an oligolopolistic space.

Restoring Open Markets in the US via a Cash Destination Tax

The US Republican proposal for a Cash Destination Tax has the potential of restoring a more competitive market situation in the United States. This is because US producers will gain a slight advantage over those producing goods and services overseas. This will arise because only the costs incurred in the United States will be deducted from income when assessing income tax payable by corporations.

The slightly higher prices that United States firms will be able to charge for sales within the United States will encourage additional producers to enter the market. As well as improving the Open Market status of the US economy, wage rates for US workers will rise, bankruptcies will reduce, and the neglected cities of the US will revive again.

However, one aspect of the Republican proposal for a Cash Destination Tax is totally unacceptable. This is the proposal not to charge Income Tax on any revenue earned by exporting outside of the United States. Surely, the proponents of this aspect of the tax know that importing countries will be entitled to treat all US firms as if they were dumping their goods. One thing is for certain, the EU will impose countervailing dumping penalties on all imports from the US. It is also the way of such things, for dumping tariffs to include a penalty component.

If the Republicans insist on “no Income Tax on Export revenue”, we can look forward to a full-throated trade war. Good luck with that! It won’t end well.

Too much Competition is Too Much!

Who is too thick not to realize that getting imported goods at a price 20% cheaper is not worth the social dislocation that the current Free Trade ideology is creating?

Apparently, most of the people protesting against the Donald Trump agenda are as thick as bricks.

Yes, the Obama years saw the US economy recover, albeit ever-so-slowly, from the sub-prime induced difficulties. However, the EU and the Obama administration were too thick to realize that the Global Financial Crisis merely exposed the soft under-belly of the economies of the Western world. Radical changes are required to fix this situation, and the world can thank God that the US electoral college decided to elect the radical Donald Trump, rather than Hillary Clinton, who would have continued Obama’s failed policies.

There can be no investment where there is nothing in which to invest. For most industries, this is a problem caused by Free Trade. Who will invest in the developed world when  almost everything can be made more cheaply in Asia. Yet the irony is that these cheaper goods have to be exported back to the developed world, with the markets in the developed world drying up because the jobs supporting them have gone.

Undeveloped economies need trade reform

Undeveloped nations should give their utmost efforts to making the farmers more prosperous, with higher prices being achieved for their produce. This will require a modification of their own Open Market theories, such as discussed above, so that their markets work for the good of their own nations, not for the benefit of global capital.

Look after yourselves! Capitalists are required to look after their shareholders, not to look after the nations in which they operate. Oxfam may fulminate, but its pleas will achieve nothing if national governments do not look after their own people.

 

Elite Capitalism – It is NOT the Future

Elite Capitalism has been running the world’s governments for 30 years, but it has failed to deliver for ordinary voters.

Elite Capitalism and Free Trade

The ideology of Free Trade is built on the premise that each nation should concentrate of those things upon which it has comparative advantage. It is a static theory, which has not changed much in over 200 years. Nor have the advocates been willing to learn from the downsides of the theory that have been experienced over the last 200 years.

The ideology of Free Trade began with the theory that, in 1820 and forever afterwards, Portugal should continue to concentrate on wine, and the UK should continue to concentrate on textiles. It is theory that is based on a static world, and actually one in which entrenched poverty should be endured forevermore. And so it has happened.

Free Trade is also built on the premise that getting goods 20% cheaper is worth whatever disruption is caused by open trade borders, even to the extent that it can cause 10% more unemployment than before. Given the loss of social cohesion of such a policy, it should never have been accepted.

Even though it was not the intention of the original theorists, Free Trade has led to intolerable levels of inequality within nations, and between nations. This is because Free Trade puts too much power in the hands of global corporations, since they are able to move operations to the cheapest place in the world, and to wherever government regulations and taxation are the weakest.

Phony arguments of Elite Capitalism – Trade

In Australia, we have a government that was elected on a mix of the ideologies of Democratic Capitalism and Elite Capitalism. In simple terms, the Nationals support the principles of Democratic Capitalism (the economy must serve the interests of the voters), and the Liberal Prime Minister, Malcolm Turnbull believes the nation is best served by following a model of Elite Capitalism.

Turnbull approach has some appeal, since it can lead to a higher overall national GDP. Yet in defending his theory, it is appalling that he has decided to follow the UK example of “Project Fear” (in opposing BrExit). In the last Weekend Australian he made the claim that “Protectionism leads to Poverty.” This is an absurd claim that has no foundation in history or theory.

Of course, there are sufficient examples from history to show “Isolationism leads to Poverty!” If that were Turnbull’s position, there would be no problem in accepting it, but that was not what he claimed. Turnbull is ideologically committed to Free Trade. He proves to everyone that he does not have a rational argument in favour of unrestrained Free Trade, since he resorted to this pathetic argument in its favour. Don’t stand in the way of an ideologue when he (or she) is in full flight!

Rather than being hurt by protectionism, Australia’s egalitarian society was built on protectionism: it cannot be said that it led Australia into poverty. Australia had unemployment running at around 2%  until the Labor government, blinded by ideology, decided to revalue the currency upwards and reduce tariffs over-night. Since then, unemployment has reverted to world’s average of about 5%, and global capitalists have had a freer hand to control Australia’s economic life.

The world-ranking US economy was built on protectionism in the 19th century. If the Free Traders had won the argument in the middle of that century, the US would have remained an economic backwater, mostly growing cotton and other agricultural products, and the UK’s industrial base would have kept on growing and growing. Is that what Free Traders want for the developing nations of the world? Fortunately for China (and to a lesser extent India), it thumbs its noses at the Free Trade rhetoric of the West, while taking advantage of the ideological blindness of its trading partners.

Phony arguments of Elite Capitalism – TPP

The most objectionable part of the TPP is entrenching the power of global corporations via ISDS clauses. These clauses allow global corporations to sue national governments if those national governments pass laws to reduce their ability to make a profit (even at the expense of the interests of ordinary voters). These clauses are the greatest threat to national democracy in the modern world.

Even if the TPP becomes enforceable, it will be a Pyrrhic victory for Elite Capitalism. This attempt to use the rule of law to enhance the interests of corporations over voters will not be tolerated by ordinary voters. In Australia, the first sign of difficulties to come can be seen in the attempt of Philip Morris to use the ISDS clauses of a Free Trade agreement between Australia and Hong Kong to overthrow Australia’s plain-paper cigarette packaging legislation. It was the first sign of problems to come. Success would not have led to the abandonment of the rule of law in international trade, but it would have sown the seeds of that outcome.

TPP is designed to entrench the power of Elite Capitalism forever, putting ISDS clauses into law, so they cannot be overthrown by future governments. It is the enemy of Democratic Capitalism. If the current Australian government cannot see that, they are inviting other parties to take up the ground of democracy that they are abandoning. Already the Liberals are losing ground with the electorate, and it is only the complete unacceptability of the ALP opposition that is keeping the Liberals within reach of re-election to government.

Phony Arguments of Elite Capitalism – Angela Merkel

Angela Merkel has said the economic and political problems can best be solved via global solutions. She opposes Donald Trump’s proposition that nation states should solve their own problems. In this, Merkel is wrong: most problems are local, and are best solved with local solutions. Donald Trump is right.

20 years of the Euro has shown that, even in Europe, region-wide solutions don’t work. Portugal, Spain and Greece are still struggling, while Germany is going very well. It is not surprising that Donald Trump correctly says that the EU gives Germany hegemony (at least in economic matters). At least we can agree with Merkel’s response, namely that the EU can look after itself (implying that it doesn’t need Trump’s gratuitous advice). Exactly, the EU problems don’t need a global solution, they need a EU solution. It is a pity that Merkel won’t consider the obvious solution – abandoning the Euro.

Most developing nations have a dominant agricultural sector. One thing is certain from a study of economic history – global trade in agriculture has mostly led to impoverishment of the agricultural sectors of less developed nations. It has led to the over-development of single crop economies (the so-called banana republics, etc.), which has made those nations vulnerable to global price movements. Yet the agricultural sector is something that national governments could enhance, as has been done in Australia for about 100 years, starting with government funded and run storage and pricing schemes. Now, in Australia, these are often run by individual farmers, who store crops on their own farms. Such is the nature of dynamic local solutions, designed to solve local problems.

Elite Capitalism is the problem – not the solution

It is time we recognized that Elite Capitalism is the source of the world’s problem with increasing inequality. It is inevitable it will lose its hegemony. It is also ironic: Donald Trump is the only one willing to call out, “The Emperor has no clothes!”

Pumped-Hydro – The Climate Change Fix

Widespread implementation of pumped-hydro is the only simple fix for global warming. It will radically cut CO2 emissions without putting up the price of electricity.

Updated 24 February 2017

Energy Storage is needed in Australia

Pumped-Hydro provides a means to store “electricity energy” that is not immediately required. It does this by using this energy to pump water uphill. Later, when this energy is actually required by the users on the electricity grid, it can be quickly converted back into electricity by allowing the water to run down the pipes used to pump it uphill, thereby turning the generators at the bottom of the hill (being the same “devices” used to pump the water uphill in the earlier stage). The losses from this “storage process” are minimal, and actually have a very low cost. Most of the costs arising from this process relate to the need to build water storage, pipes and electricity generators (which also serve as the pumps).

In Australia, there is a great need to be able to store this surplus generated electricity, since electricity generation from wind does not match the demand pattern. This is beautifully illustrated by this set of graphs from a study of Wind generation in South Australia.

Here the demand is shown in the top graph, and supply from wind is shown in the bottom three graph, broken up into three regions of South Australia. As can be seen here, the largest generation region actually generates most electricity during the off-peak period from 2200 to 0600. At present, this large imbalance has had a very bad effect – it has led to the Alinta generators at Pt Augusta being shut down, since they could no longer be run 24 hours a day. They couldn’t compete with electricity supplied at a negative cost from these wind farms – a distortion created by a dysfunctional renewable energy certificate scheme. A better fix would be to utilize the storage capability of pumped hydro.

Why Pumped-Hydro?

Electricity is generated from wind energy for 24 hours a day: the quantum dispatched depends upon the wind and not upon electricity demand. Electricity generated during times of low demand is effectively squandered unless it is stored. The primary storage mechanism currently available is hydro-pumped storage, which is the central plank (with wind power) for Portugal achieving over 50% renewable energy. It is also used in Denmark, where existing hydro facilities in Norway and Sweden are used to recycle otherwise wasted wind-power electricity.

In Australia, pumped hydro could be implemented in NSW at the Fitzroy Fall Reservoir. This is a part of the water storage facility on the Shoalhaven River. At present it is mostly used to condition electricity generated by wind farms. Something more is required.

Pumped-hydro - an Australian example
Pumped=hydro at Kangaroo Valley, NSW

It is easily understood that electricity is generated by wind at times when it is not needed, this being an issue especially during the night. On the other hand, wind generators have no capacity to increase output during times of peak demand. Indeed, the extra electricity generated during these off-peak times adds to significant inefficiencies in the total supply system, with other generators having to be shut down to accommodate the additional power being produced from wind. This has happened in South Australia, where the Pt August brown coal generators became uneconomic, simply because they couldn’t be run for 24 hours a day, as they were originally designed to do.

The conventional solution to this “over-supply problem” is to store the electricity generated during the off-peak times using pumped-hydro. For example, Denmark do this with their wind energy, selling it to Norway and Sweden, who store it in their hydro systems, using this system “as a battery,” by pumping water uphill, and then releasing it later. These countries then sell the electricity back into the European grid at a higher cost than they bought it, thus providing themselves with a nice little earner.

Funding Pumped-Hydro

Using pumped-hydro power in this way can be easily accommodated as part of a wider hydro-electric scheme, such as in Norway, Sweden, and in the Australian Snowy Mountains and at Fitzroy Falls. The question remains whether a pumped-hydro electric scheme can be developed that has its sole justification in this kind of storage and release arrangement.

The economics of such a proposal is quite simple:

  • Electricity is purchased at $A25 MWh at off-peak times. Even with a 25% efficiency loss, this would only equate to $A31 MWh.
  • Electricity could be sold at $A275 MWh at peak times.
  • The electricity dispatch could be run for 6 hours every weekday, for 52 weeks a year.
  • Since the pumping operation could be run for 9 hours every day, also for 52 weeks a year this means that the system could also supply Shoulder tariff electricity (at $A160 MWh)
  • Cash flow from direct operating costs would be $A244 per MWh for peak electricity sold, and $A129 MWh for Shoulder tariff electricity sold.
  • If it were to run for one year, 6 hours per day, 52 weeks a year, 5 days a week, 90% of the time, it would return a cash flow of up to $A340,000 per year per MW installed, just for peak-load supply.
  • If it were to run for one year, 12 hours a week, supply Shoulder tariff electricity, it would return an extra cash flow of $A80,000 per year per MW installed.
  • Total direct cash flow would be $A420,000 per MW installed.
  • Installed costs for Hydro have been costed at between $US1m MW to $US7m MW (= $A1.4m and $A10m)
  • Operating costs could be managed to be around 2.5% of installed cost.
  • Allowing for operating costs of 2.5%, and a 10 year payback period, it will be economic to install such a facility, provided the cost of such an installation worked out to be up to $A3.5m per MW.

Thus, with proper planning is should be possible to deliver a profitable operation, without actually increasing the cost of electricity as delivered. One should also be able to see the potential to actually reduce the cost of delivered electricity, once sufficient pumped-hydro facilities have been build and commissioned, especially if they began their life as government funded facilities.

Pumped-hydro is a viable option in Australia

For those interested in following up this issue, I draw your attention to a December 2016 Engineers Australia article (p.46-53) which reported that Professor Andrew Blakers, ANU, observed that pumped-hydro has a cost impact that is a fraction of battery backups.

Blakers is reported to say that, in order to be cost competitive, the system should have modern high-quality turbines, 10 MW or greater, with the “top dam” being 400-900m above the “bottom dam”. They should also be “off-river.” He also commented that such facilities would not be difficult to site.

While Australian government funded ARENA seem to be happy to fund projects, such as the Kidson solar + pumped-hydro, there seems to be some problem with wind + pumped-hydro. This points to a fundamental problem with ARENA and other government funding and private advocacy organizations. For them, it seems that it must be solar, nuclear, or nothing. To hell with cost. Surely this cannot continue. Contact your MP and demand that action be taken that will reduce the cost of electricity, not just funding “lovely to have” projects, as seems to be the case at the moment.

Actually, the best option for increased pumped hydro is via the Snowy Mountain scheme, where it is likely that Tumut 3 power station could be upgraded to handle all the surplus electricity generated from wind farms throughout the National Electricity Market.

Useless arguments

Those who think that they know something about this subject are obsessed with establishing a carbon price, via some mechanism. My question for them is, “What will that do to resolve the problems caused by the over-supply of wind-powered electricity in South Australia?” The answer is obvious. “It will do nothing!”

The other “useless argument” is put forward by nuclear energy advocates. They don’t want anything to dampen their advocacy for that lost cause. Unable to really respond constructively to the risks indicated by the failures at Chernobyl and Fukushima, they attack pumped hydro as an improbable solution to the problem of a lack of consistent supply of electricity with non-arguments. We can forget about them until they can properly address voters’ legitimate concern about uranium nuclear.

More serious is the fact that the installation of a new 500 MW pumped hydro system in Germany because there is insufficient “surplus electricity” in that country. So it is the case, although they were prepared to go ahead with their plans when the ratio between average peak demand and average demand was 1.2 to 1.0. They delayed their plans when the ratio dropped to 1.1 to 1.0, which has been attributed to solar PV, which has taken the edge off peak demand, even though it remains a relatively minor contributor to total electricity supply. However, in South Australia the ratio between average peak demand and average demand is 1.4 to 1.0. If Australia were Germany, the extra capacity would be installed immediately.

It is time we left behind the dead arguments of 2007, and examined propositions more appropriate for 2017 and beyond.

Anyone who is concerned about global warming and climate change could surely not vote for a party that advocates an out-of-date, and ineffective, solution to the problem of too much CO2 in the atmosphere. Here the most vigorous advocates of action on this subject need to look carefully at their own motivation, for surely others will do the same.

 

 

Stable Electricity Supply & RECs

The oversupply of wind-power has seen the question of “stable electricity supply” enter into public debate in Australia. It is now very urgent that Renewable Energy Certificates (REC) scheme be modified to make it work for the nation, rather than just for “Green Advocates.”

Excuses are not enough

Update 10 February 2017. Now we discover that the REC scheme is even causing gas fired generators to be turned off. This situation is ridiculous.

RECs undermining a stable electricity supply

Who would seriously contemplate implementing a scheme that encouraged wind-farm operators to produce electricity in the middle of the night, when it is not needed? The Australian government did, via the REC scheme, in 2000. Surely it is the responsibility of governments to implement policies that result in a stable electricity supply, not an unstable one!

Under the current REC scheme, wind-farms can even deliver electricity to the grid at a negative price, since this apparent loss can be offset by approximately $25 per MWh. This is currently the approximate rated proceeds for each certificate produced, whether the electricity generated is really needed for successful grid operation or not. The electricity retailers buy this undifferentiated certificate, since this helps them to meet their “renewable obligations,” and they have no need or way to differentiate such certificates for themselves.

The downside of this is approach is that coal-fired generators (and nuclear for that matter), cannot be affordably run if they have to be shut down every day because there is insufficient demand from the grid for the electricity they would generate during the night. Unlike a wind-farm, coal-fired generated cannot be just “run on idle,” since they need the back-force of generating the electricity to offset the fierce power of their steam-driven turbines. Yet Alinta’s Port Augusta coal fired generators were turned off at night, causing Alinta’s operation to be unprofitable, and therefore to be shut down forever.

Who would support a scheme that caused the former back-bone of the South Australian electricity supply market to be shut down prematurely, causing unemployment in Port Augusta, and for South Australian businesses to consider moving interstate? The South Australian Labor government did and still does.

It is ideological madness to continue with this short-sighted approach, involving undifferentiated “Certificates” that do not distinguish between the “no need” electricity pushed into the grid by wind-power during the night, and the truly “useful” electricity generated by wind-power during the day.

Did the South Australian government know that too much wind-power was already causing disruption to the electricity supply in 2011? Yes. That was when an academic study showed the problems in the supply situation and called for an upgrade to the high voltage inter-connector to Victorian brown-coal backup power, as a way to address the difficulties. (My 2012 comments on this report can be found here.) So the inter-connector was upgraded, which led to even more wind-farms being installed in South Australia. Folly, built upon folly.

Wind-power – a viable Renewable option

The risk to the wind-power project is palpable. Yet wind-farms (and nuclear – but who wants that after Chernobyl & Fukushima?) are the only current viable solution to the need for long-term renewable electricity supply.

Despite the support of the Greens & government funded ARENA, current generation solar is a mickey-mouse solution, only able to supply electricity economically at the household level, not at the grid level, with or without batteries, except during peak periods.

Of the ARENA funded solar projects, only the Genex proposal to use grid-supplied electricity to create pumped-hydro electricity makes sense. This is a Queensland project, a state where there is almost no wind-power, despite the Queensland government dreamland proposal for a rapid uptake of renewable energy.

Grid-supplied electricity, generated overnight and purchased from the grid for about $25 MWh, and sold back to the grid at $275 MWh can make good logical sense, provided the capital cost is not too high. Pumped-hydro will deliver a stable electricity supply. This particularly applies to wind-power, because most wind-power is generated at night, when the wind blows more strongly, but also when it is not needed. By utilizing pumped hydro, “unneeded” electricity can be stored over the whole night and then released during the day. Yet it is not happening. Obviously there needs to be a push to force governments and the wind-farm industry to utilize pumped hydro. This can be achieved just by encouraging the Australian government to tweak the REC scheme.

RECs & a stable electricity supply

(Updated 10 February 2017)

My proposal is that RECs should NOT be counted if the electricity is generated in off-peak periods (10 pm to 7 am). This will allow the market-distorting effect of undifferentiated RECs to be eliminated.

Excluding electricity generated during off-peak periods means that wind-power will not soak up all the available demand during the night. Therefore there will be sufficient demand for base-load generators to keep working all night, and that unnecessary, costly, inefficient, and high carbon-emitting shut-downs and start-ups will be avoided. While it may be too late for Alinta’s Pt Augusta plants to be re-instated, it could allow the remaining Victorian Latrobe Valley generators to keep working until there is sufficient wind + pumped hydro capacity to permit them to be finally and rationally phased out. It could also mean that Engie’s Pelikan Point facility could be kept running.

While the concept outlined here may be a challenge for Greens voters and politicians, they should get on board. It is the only currently viable approach to achieving the higher level of renewable energy generation that they would prefer. At least, if the current REC scheme is continued, they are likely to see the de-industrialization of South Australia, so perhaps they will rejoice over that!

Changes to the REC Targets

(Added 10 February, 2017)

In the Australian system, given the highly politicized nature of the debate on this subject, changes to the REC target are likely to be too difficult to implement. This applies even though such changes would be needed to effectively keep the current arrangements in place. Therefore, it is proposed that no change be made to the REC Targets, but rather that, after this scheme is implemented, renewable energy providers be allow to issue a REC for each 0.625 MWh generated (rather the current arrangement of 1 REC per 1 MWh).