Abbott re-writes the laws of economics.

Last week on Twitter, economist Josh Gans linked to John Nash’s (he of A Beautiful Mind) PhD Thesis. The thesis on non-co-operative games has two items in the bibliography, and one of them is a paper by Nash himself. Now that is ground breaking.

But I’m sorry to say, when it comes to economic theory, Nash is left in the shade by Tony Abbott and his steady right hand man, Andrew Robb. Bugger trying to work out the equilibrium of cooperative gaming, Abbott and Robb have done nothing less than re-invent free-market theory! (And they haven’t needed to cite any lame economists to support it).

It all started on Sunday morning, where Andrew Robb was struggling through an interview with Barrie Cassidy on Insiders, when the topic got on to the Lib’s proposed “direct action” plan to reduce greenhouse emissions:

BARRIE CASSIDY: Wayne Swan quoted your position this morning on television. You said that the most efficient and effective way of managing emissions reduction is through a market mechanism. Is that still your position?

ANDREW ROBB: Well our direct action plan is a market mechanism.

BARRIE CASSIDY: In what way is it?

ANDREW ROBB: In the sense that we will say to different sectors: if you bid - we'll ask farmers to bid, we'll ask those within the large construction industry to bid for assistance if they can reduce the price, if they can reduce certain tonnages of carbon in their sector.

So in other words the lowest, if someone comes in and says, I can reduce 1,000 tonnes of carbon at $7 a tonne, the next one $8 a tonne, we put up a tender if you like and the one that can reduce the carbon at least cost, market based systems, tender system, they will get the assistance.

Now that is a system that has worked very effectively in New South Wales and around the world in different parts of the world on different commodities. It is market based. So there's not just one market based system.

Now I was going to give Robb all the credit for single-handily redefining what is meant by a “market mechanism”, but today Tony Abbott was over in Adelaide and on ABC local radio. He came out with this pearler:

TONY ABBOTT:  Well, what we’re going to ask the market to do is provide us with proposals and we’ll look at them and pick those that we think are most cost effective.

IAN HENSCHKE: How will you pick them? Will you go to Tim Flannery, for example, because he’s got his climate change commission and say, or would you get rid of that if you were in office?

TONY ABBOTT: Well, it’s a bit like Government buys anything. You buy motor cars, you buy pharmaceutical drugs etcetera, you go to the various people who have an interest in providing them and you say give us your best price and your best product and you pick the one that you think is the most cost effective. I mean, that’s what the Government does with the PBS all the time. When I was the health minister we were always going to the market and saying, ‘what’s the best price for particular drugs,’ and it all works reasonably well and I don’t think anyone should think that this is something novel or shocking or anti-market. It’s the kind of thing that Government does all the time and it makes very effective use of the market.

That a a guy who wants to be Finance Minister, and another who wants to be Prime Minister of Australia, (and who holds an Economics Degree) could think that a Government going to tender is the market at work almost defies belief.

If Abbott seriously believes this then he must also think the Government should tender for DVD players and then sell those players to the public all at the same price because that is an effective market solution.

I must re-read my copy of Milton Friedman’s Free to Choose, because I seem to have skipped the chapter where he writes the free market is the Government picking the winner.

A market solution is letting the market work – demand and supply, the invisible hand. It is not the Government engaging in a tender process (and if it is, then all those years in Eastern Europe post-WWII were idyllic periods of capitalism at its finest) 

Here’s the thing; for all the bullshit being sprouted about only 1 person in the House of Reps (Adam Bandt) being in favour of a carbon tax, what 149 are in favour of (not sure about Bob Katter) is that by 2020 emissions will be 5 per cent below 1990 levels. That’s because that is the stated aim of BOTH the ALP and the Liberal Party to achieve this cut.

So we get down to how to do it. You can either side with the government putting a price on carbon and then essentially letting the producers use market forces and the profit motive to achieve the reduction; or you can believe it can be best done by paying the polluters to pollute less.

Here’s Abbott explaining how his Direct Action will work:

TONY ABBOTT: Well, you go to the market and you say look, we are looking to buy cost effective emissions reductions. What market can you offer us? And I think what they’ll offer us is tree planting, which is a good thing. They’ll offer us soil carbon which will actually produce better soils as well as reduce our emissions and they’ll offer us smart technology like for instance, the technology which is started to be employed at some power stations where they use carbon dioxide emissions from the power stations to grow algae and the algae of course is very useful for bio diesel, for fertiliser and so on. So more trees, better soil and smarter technology I think, is the best way to go here.

Yeah Tony, and paying tobacco companies to make less cigarettes would have been the best way to reduce smoking.

Look, I don’t care if you think we shouldn't even bother cutting emissions because it’ll do nothing to global emissions, that’s fine; I don’t mind if you say we shouldn’t cut emissions until every other nation cuts emissions, that’s great. But if you agree – as do BOTH the ALP and the Liberal Party – that we should cut emissions, then all we are left with is the most effective way to do that. And if you agree with Tony Abbott and Andrew Robb’s way then just know you are flying in the face of economic theory and political history.

***

So Tony Abbott was in Adelaide today. He attended a meeting that got great coverage on the ABC website:

Wow a sympathetic audience. He must really be cutting through with his message.

Who was he speaking to?

The forum showed what a hot-button issue asylum seekers are - at least among the demographic that turned up to the Highway Hotel - mostly retirees who appeared to be strong Coalition supporters.

And Mr Abbott gave them what they wanted to hear.

A forum? Wow, a community forum – and it was full of Coalition supporters – wow the Libs must be just dominating things over in SA.

Err no. What wasn’t stated in the ABC story but was in the one on the Adelaide Now website, was that:

the attendees had been invited by the office of Liberal Senator Simon Birmingham.

Wow. What a stunning achievement for Abbott to find a sympathetic audience among a group of people invited by a Liberal Senator.  Great work ABC….

***

There is a Newspoll out tomorrow. It’ll be bad for the ALP – my guess is at best 47 per cent on 2PP. That is pretty obvious given today’s Essential Media Poll which has them at that rate.

If there are ALP MPs and advisors who are not expecting to take a hit, then they should take a hike. This is very early days in the Carbon Price match. We’ve just seen the opening gambits, there’s a long way to go. The ALP should take comfort in for once they are taking a hit for some decent policy, and not because of either a gaffe, or not doing something.

The good thing about taking a hit after announcing something that is viewed as a tax is that as time passes and people see the world has not collapsed, and also once the discussion gets into the nitty gritty of the policy then the heat to an extent goes out of it all – and the usual matters like the economy, program delivery etc again take precedence in people’s minds. The problem for the ALP when they dumped the CPRS was there was nothing to get used to except the fact that the ALP had dumped it, and getting used to that fact was never going to help the ALP.

At least no media commentator can now say this ALP Government hasn’t taken a courageous decision. The key is if they can now see it through to the end.

***

UPDATE

So the Newspoll comes out at 46-54. Disastrous? Well yeah, if the election was in three weeks, but the only election in three weeks is the NSW one (and remember the anti-ALP state feeling in NSW will still be washing over a bit into this)

The ALP’s Primary vote has collapsed to 30% – which is shockingly low, but not that shocking given all the polls since the announcement of the carbon price deal. They lost 6 points – 4 went to the LNP, and 2 went to the Greens. Anyone changing their vote to the Greens after the ALP announce they’re putting a price on carbon is not going to preference the Libs so in effect it’s a 4 point loss. Big yes, and not where you’d want to be, but hey, you take tough decisions you get hit – so make sure you make the decisions for the right policy reasons. I believe they have. They now need to persuade the public as well.

Julia Gillard’s personal rating has taken a huge hit – her satisfaction is down from 50% to 39% and her dissatisfaction rating went up from 39% to 51%; but here’s the thing: after all that slapping, Abbott’s personal rating didn’t go up either. His satisfaction rating went up 1% to 39% , but his dissatisfaction rating went up to 2% to 51%, which means, yep, after the biggest hidings of her time as PM Abbott is now only equal with Gillard – which says something about where he rates… (a few Libs may be thinking, if only there was someone else… – remember leadership changes in opposition occur when the party is in the lead, but the leader is not…)

They also did a who do you prefer Rudd or Gillard question and Rudd won 44 to 37. That is nice for the papers, but in reality is pointless. The parliamentary party will never go back to Rudd, and as has been mentioned before, dumping Gillard means an immediate election, because the independents did a deal with Gillard, not with the ALP. Won’t happen.

Oh and by the way, the election is about 2 1/2 years away….