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Tag Archives: economics

A Conspiracy of Convenience

Much has been written here recently about Modern Monetary Theory (MMT), the job guarantee, structural deficits, fiscal statements, fiat currency and the like. But that, it turns out, is just the tip of the iceberg. There is also the neo-liberal ideology that drives our governments, the buffer-stock of unemployed so necessary, it seems, to keep wages growth in check, the fallacy of supply side economics and a host of other measures that most people don’t understand and shy away from for fear of appearing stupid.

Most of this was foreign to me except for the gold standard; I knew about that and well remember the day Richard Nixon made the announcement that the USA would no longer tie its currency to its gold reserves. I remember that the gold price was fixed at $US35.00 per ounce and Nixon abandoned that as well. But that story pretty much got lost or buried as Watergate began to encroach upon ‘Tricky Dick’s’ tenure in the White House.

But last Friday, listening to ABC Radio 774 in Melbourne with Jon Faine, there was a discussion raging over the 457 visa programme and as it progressed I quickly realised its proximity and relevance to the previously mentioned buffer-stock of unemployment. The 457 visa programme, as most people would know, is designed to enable a company to employ people from overseas on short term visas; people who have the necessary skills needed for particular work where the company cannot find an Australian citizen or permanent resident to fill the position.

It was heralded as analogous to plugging a gap in the wall; a short term fix. Interestingly, such a worker with the required skills did not have to be outside the country when the application was made. Importantly, they did need to have the skills required and be sponsored by an approved business for up to four years. Holders of 457 visas could bring their families and even change jobs after they arrived provided a new employer sponsored them. Even more interesting, there was no limit on the number of people a company could sponsor.

On Jon Faine’s programme last Friday, two particular callers alerted me to what might be described as a window to rorting on a grand scale. One caller decried the system because it allowed one applicant to be sponsored and employed as a truck driver. Just how the sponsoring company was able to convince the Department of Immigration and Citizenship that they could not find any citizen in Australia able to drive a truck was beyond both me and Jon Faine, but somehow they did.

The second caller alerted me to something even more sinister. He claimed that he had received calls from a person offering him $10,000 to sign a few application forms that would enable multiple 457 visas to be issued to persons unknown for which he (the caller) had no need.

Clearly, there is something wrong here. Notwithstanding the obvious fact that 457 visas are being issued to foreign workers when local workers could quite easily be found, i.e. truck drivers, it also looks suspiciously like it is being used to maintain a buffer-stock of unemployed in the true tradition of neo-liberal economics.
In February, the Abbott government quietly lifted the cap on business nominations for skilled migrants imposed by the former Labor government and undertook a review of the scheme.
Subsequent changes meant that businesses could increase the number of foreign workers above their initial application.

The Australian Industry Group claimed the change would help those businesses that were struggling to find highly skilled people, but clearly the move has the potential to impact on wages and conditions for Australian workers and leave foreign workers vulnerable to exploitation. Currently there are more than 90,000 foreign workers in Australia with 457 visas.

When we look at what is happening with 457 visas and overlay that upon the neo liberal economic platform one can see it fits quite neatly into its broader ideology and looks a lot more like a programme designed to maintain a buffer stock of unemployed than it is to help meet the sometime dubious requirements of business. It might seem to be only a small part of a much larger conspiracy, but a conspiracy nonetheless; a conspiracy that proponents of MMT could effectively highlight and expose.


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Toyota – Oh, What A Fleeing!

Photo: Famous Logos

Photo: Famous Logos

Economics has a lot of theories most of which are excellent, except in practise. As someone once observed, economists are people who are paid to explain why their forecasts were wrong. Therefore, I don’t intend to spend the next few hundred words debating whether or not we should subsidise the car industry. Or any other industry.

We need to talk about our government.

Now apparently there’s going to be some pain for long term gain according to Tony Abbott. I read that on the weekend.

And tonight I read that according to Tony Abbott:

‘While some businesses close, other businesses open, while some jobs end, other jobs start. The challenge of government at all levels is to ensure there are more jobs starting than ending.
‘Nothing we can say or do can limit the impact and devastation today that some people feel .. . [but] there will be better days in the future.’’

Nothing we can do or say can limit the impact and devastation today? Mm, now there’s an interesting of admission of impotence. Surely, some sort of announcement or promise of retraining to release them from the tyranny of the factory floor (to quote someone) may have helped “limit” the devastation…

Dr Dennis Naptime, the Victorian Premier, was a little disappointed at this “surprise decision” from Toyota. Yes, Dennis, nobody saw this coming. Some things just are unpredictable. I had no idea, for example, that Schapelle Corby would be the subject of media attention when she was released. Or that Derryn Hinch will say something about going to jail on principle. Or that Andrew Bolt will argue that Labor is responsible for the closure of Toyota by not encouraging people to work for nothing. Or that Rupert Murdoch will say that Tony Abbott is doing a good job. These are things that only a clairvoyant could predict.

Now, it doesn’t matter whether the neo-cons or the socialists are right here. I don’t much care about the economic debate. The point is quite simple: Does the Federal Government have a plan? Because, if they do, it’s clearly not the one that they’re making public.

Just two months ago, Abbott, according to the media, believed “Toyota will stay put and the Government is working with the company to secure its future”. Now, it is possible that the Government suggested that if Toyota wanted to secure its future, it should pull out of Australia, so maybe Abbott was being honest there.

According to “The Australian” – a rather ironic name for a foreign owned newspaper:

“Tony Abbott said the government was focused on ensuring a strong economy and that the number of new jobs outweighed the number of closing jobs.”

Ah, the new jobs…

So, where are these new jobs?

Well, clearly not in the public service.

They’re coming from the stronger economy. Right, that’s what all this is about, isn’t it? If we just get rid of all the inefficient industries the economy will be stronger. Who cares if other countries are keeping their industries afloat by subsidies – the joke’s on them when they have all these inefficient industries still going and people in jobs, and we only have efficient ones. Such as… Mm? Science? Renewable energy? Nah, we don’t want to sponsor that gravy train!

So where is the economy going to be stronger? Where are all these efficient industries? Tourism of the Great Barrier Reef? Picking fruit in Shepparton?

Ah, I see – from the increase in Royal Commissions. We all need to retrain as lawyers. Or at the very least legal secretaries.

Davos Nothing to Do With David, and We Only Want Stronger Borders Sometimes.


“All models are wrong but some are useful.”

George E. P. Box

Now think of the economy like a household and think of government debt like your credit card. Use that model. Get it firmly in your head. Then judge every action of the government in the same way you’d judge running your household like that.

In this household model, of course, nobody ever explains how tax actually fits in, given that for a government it’s revenue. I suppose that it would be your investments and wages. Mm, so it would seem an obvious way of reducing debt would be to get a second job. Or raise taxes if we’re using this model.

Of course, ignore your mortgage. Or for the purposes of this. If you’ve taken out a mortgage, image that it’s on your credit card. The same if you have a car loan. If any of your kids are considering going to university, consider that HECS debt as being on the credit card too.

Good God! You are in a mess, aren’t you? Better stop spending money. Don’t, whatever you do, call a tradesman to fix something or make improvements to your property. That’s just saddling your kids with more debt. They can have the hot water fixed when they have children of their own.

I suspect there was a lot of this simplistic thinking behind Tony Abbott, when he announced at the World Economic Forum:

“No country has ever taxed or subsidised its way to prosperity. You don’t address debt and deficit with yet more debt and deficit.

“And profit is not a dirty word, because success in business is something to be proud of.”

When he talks about profit, is he suggesting that governments should be making a profit? Remember that a budget surplus means that they take more in revenue than they give back in services. Sometimes this will be necessary for the health of the economy, but should a government always be planning to run surpluses?

We also heard that Labor had messed up by trying to spend its way out the GFC:

“Well, the reason for spending soon passed but the spending didn’t stop, because when it comes to spending, governments can be like addicts in search of a fix.”

There’s an assumption in there that stimulating the economy in a time of crisis is the only reason for spending. Sometimes spending on things will be worthwhile in the long run. For example, we spend far more per capita on education than some of the poorer African countries. Is Mr Abbott suggesting that they wouldn’t eventually improve their economic situation by spending more on education? Or that well-targeted subsidies haven’t helped certain businesses in their early phase?

Well, I look forward to his removal of all the subsidies to the fossil fuel industry.

No, we need that simple model of the household. Keep government out of the way, keep taxes low and business will prosper. And, if particular businesses don’t, well that’s capitalism.

We need to remove all borders and allow free trade. Except when it comes to people smugglers, then we need stronger borders. What’s so bad about people smugglers? They’re just profiting from human misery. I thought profit wasn’t a dirty word! That’s only when companies are engaged in legitimate enterprises. Like the AWB in Iraq, or ANz in Cambodia?

Yep, let’s not think too deeply about economics. Otherwise I might be forced to point out that all the companies Mr Abbott praises in Davos have a much higher debt to asset ratio than the Australian Government.

But, just as it’s a mistake to think of the government as a household, it would be a mistake to try and model a government on a coorporation. I remember the quote from George W. Bush.

“When I’m president, I plan to run the government like a CEO runs a country. Ken Lay and Enron are a model of how I’ll do that.”

I leave the reader to decide how closely Bush came to achieving his aim.


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The Education Union is spreading shocking misinformation; ask Christopher Pyne

From Lateline November 25th, 2013

STEVE CANNANE: So what do you believe? Is there an equity problem or not?

CHRISTOPHER PYNE: I don’t believe there is an equity problem in Australia. I think we are very generous to our students in public and non-government schools as a wealthy country like Australia should be.

From The Pyne Online August 21st, 2013:


The Australian Education Union (AEU) has this week been caught out distributing blatantly dishonest claims on school funding in South Australia.

At primary schools in South Australia, the AEU has distributed misleading campaign material entitled ‘A message from local principals and teachers’. This ‘message’ is actually from the AEU and is authorised by its Federal Secretary in Melbourne.

The AEU’s dishonest ‘message’ claims that the Coalition would deliver only one third of total funding agreed to in the South Australian school funding agreement.

This is false.

Tony Abbott and the Coalition have confirmed that they will commit the same amount of federal school funding as the Government over the forward estimates. Every single school in Australia will receive, dollar for dollar, the same federal funding over the next four years whether there is a Liberal or Labor Government after September 7.”

From Yesterday’s (December 1st 2013) The Pyne Online:

“It appears everyone in the Labor Party is willing to admit $1.2 billion was cut from school funding for Western Australia, the Northern Territory and Queensland before the election except for the Leader of the Opposition, Bill Shorten.

“Questioned today on Meet the Press, Shadow Minister for School Education, Kate Ellis confirmed the $1.2 billion was removed from the Budget, leaving three jurisdictions with no additional funding for 2014.

“This was an unforgivable act of sabotage on the part of Mr Shorten and Labor, but why can’t Bill Shorten admit he allowed it to happen?

“Mr Shorten also hid the fact that both Victoria and Tasmania had not signed bilateral agreements with the Commonwealth and systemic Catholic schools had not sign up either, despite Labor’s claims at the time.

“The Coalition has been working hard to fix Labor’s mess, putting in more funding than Labor, with $230 million going to the states that have not signed up guaranteeing funding certainty for 2014.

“We will then be in a position to work with the states and territories over the first half of next year to bring in a new national, fair and equitable funding model for Australia, fixing the Shorten”

That’s where it stops. I haven’t cut anything out.

I presume that his next word would have been “Shambles”, and I’m tempted to ask why – apart from his tabloid-like obsession with alliteration – is the alleged shambles Shorten’s? I mean, even if you accept that Education funding was a shambles, Shorten had only been Education Minister from June. Three months is hardly enough time to create a shambles, but Chrissy Pyne himself is evidence that against that argument.

Ok, everyone out there, for anyone who’d like to make some money: if you send me $10, I will send every single one of you back $20. Of course, by every single one of you I just mean that I’ll send out twice as much money. To someone. Probably most of it to my wife, but some to my friends. But that doesn’t mean that I was trying to mislead you when I said “every single one of you” because that means the total amount of funds, right?

Put like that, the Liberals’ position is more ludicrous than the possibility of Barnaby Joyce being our Deputy Prime Minister, which thankfully is… um. Warren somebody.

The other argument that somehow $1.2 billion is “missing” because it was removed from the Budget is such a ridiculous proposition that it’s almost as blatant as the actual Liberal lie that “every single school” just means the same as total funding.

To explain this in simple terms: If you were, for example, planning a wedding, and you invite ten guests at $50 a head (I know, cheap wedding!), and it got to the day that the RSVP’s were due and only six people had replied, most people would ring the other four and ask them what their plans were. In terms of Gonski, this more or less what Labor did. Now, if two said they were coming and two said, “Your partner was rude to me last week, so stick your invitation!”, I suspect that you’d feel that it was reasonable to reduce your budget from the $500 to $400 with the idea that if they make up, you’ll put it back later. This is, more or less, what the Labor Government did.

And given the whole thing was going on “the credit card” anyway, the money isn’t missing at all!

No, it’s not really going on the credit card, but some of the Gonski money would have to be borrowed. And borrowing is not really the problem that the Liberals and Paul Sheehan make it out to be. Debt – where it increases one’s future earning capacity = isn’t a problem. Take, for example, a negative gearing or a HECS debt. And for a Federal Government, ensuring that its citizens are better educated and, therefore, capable of more skilful and higher paying jobs is better than sending some to the revenue drain of unemployment.

Some are quick to be concerned about saddling future generations with the repayment of debt, using Greece as the cautionary tale, and, yes, naturally one should take on debt prudently. However, the idea that we can just put off spending on infrastructure and education ignores the fact that we are, in fact, saddling future generations with the necessity of paying more to do the things we should have done ten years ago. While Abbott was making political points about rising electricity prices being because of the Carbon Tax, it was easy to overlook that the bulk of the rises were because of a previous lack of spending on the aging infrastructure.

In a blog a few months ago, I wrote that it was interesting that whenever it’s suggested that maybe some of the richer private schools could get less, we hear screams of “class warfare” and we’re told how some parents on low incomes struggle to send their kids to these schools, but when anyone tries to increase the money to the Government sector, the same people assure us that money doesn’t really improve educational outcomes. (I particularly liked someone who suggested that there’d been 44% increase in Education spending for no demonstrable improvement. Sounds impressive, until you consider that at three quarters of that would be a result of inflation.)

In the end, I don’t know what’s more worrying. Is it that the Liberals are lying to the Australian people when they talk about things like $1.2 billion has “gone missing” from the Education Budget? Or is it that their understanding of economics is so simplistic that they actually believe some of the things that they’re saying?

(For those of you who feel like an interesting read on the economic situation, I recommend “End This Depression Now!” by Paul Klugman.


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The Economy is Like a Giant Blancmange, Except that it’s Not.

Many people see the economy as like a household budget. You need to keep it all neat and orderly and manage it. Others see it as like the weather. There’s nothing you can to do change it, so you just have to adjust as it happens. I could find plenty of analogies for what the economy is like, but I think it’s worth quoting George E. P. Box here: “All models are wrong; some are useful.”

As far as the economy goes, here in Australia, we’ve often been encouraged to see it similar to the “weather” model: Lots of things beyond our control dictate how well it performs and beyond having an umbrella handy, there’s nothing much we can really do about it. We’re a small country and we don’t have the scale or clout to affect things very much.

Of course, this is partially true, which is what makes it compelling, but let’s not forget that all models, all analogies, all comparisons are arbitrary and man-made.

An economy is – well, an economy. And while there are various ways we can look at it, break it down into sub-sections and individual parts such as the local economy or the world economy, in the end these are just to give it meaning and structure. When Margaret Thatcher said that there was no such thing as society, she may as well have added that there is no such thing as “the economy”.

I make this point, not as a sort of first year philosophy discussion, but because a lot of convention wisdom about the economy is just that. It’s an agreed set of beliefs that economists generally agree about (and disagree, within certain parameters). A few years ago, for example, I heard an economist explain that China was doing the wrong thing by not floating their currency. Apparently, the reason China wasn’t doing this is because it was to their advantage. But it was the wrong thing to do.

Australia has been doing the “right thing” for years – opening borders, privatising, floating the dollar, reducing Government spending in certain areas. And it could be argued that this has served Australia well, but that’s a rather large debate and not completely relevant the point I’m making.

The Labor Government copped both praise and criticism for the way it responded to the Global Financial Crisis. The strongest comeback for Labor is that Australia was one of the few countries in the world that didn’t go into recession. To counter this, the argument that the Liberals have been running for years is that the money they spent was too much, and mismanaged. Of course, it’s always easy to argue hypothetically about something past. (I can argue that if Melbourne Football Club had appointed me coach two years ago they’d have been in the finals now, rather than near the bottom of the ladder. Nobody can prove me wrong!)

Labor did what it did, borrowed what it borrowed and spent the money on identifiable things. But let’s not take up the politics of this, or the conventual economic view that Labor were wise to get into as little debt as possible, let’s take a totally “irresponsible” view. What if Labor had borrowed twice* as much, and awash with funds set up a state of the art, world class research facility which would have attracted the best scientific minds in the world. Or something long-term to help our competitiveness in the future. Like improving the availability and speed of the internet. Oh, yes, I forgot. When’s that stopping again?

The thing is Labor were in Government. They had control. They could have spent more, or less. They could have lowered taxes, or raised them. They had lots of ways in which they could affect the economy. The debt itself wasn’t the issue. …

The debt was political. The Liberals would have squawked about things getting out of control under Labor. Whereas now, a 66% increase in the debt ceiling is ok. Except that we’re not meant to be hitting it for ANOTHER THREE YEARS. That’s three years of “responsible” economic management.

Responsible economic management that may include the sale of Medibank Private, which was mentioned before the election, and the sale of the HECS debt, Australia Post and a range of things that weren’t. Imagine if Labor had tried even selling one of these to pay off debt or to bring in the NDIS.

Of course, the real reason that Hockey is increasing the debt ceiling by so much, I suspect, is so much that he expects to hit it, but that he doesn’t want to have raise it again before the next election, and that not hitting it will be used as “sign of good, responsible management” as in Labor raised the debt ceiling more that once, but we just did it the once and look we haven’t hit it, aren’t we good?

I think that’s about the size of it, economically speaking. As the economy is like the weather, I’ll end with this analogy:

Labor was blamed for the rain. They then bought too many sand-bags to use in the levy bank to protect us from the flood. We didn’t need that many sand-bags because no water got over the levy bank, so we put the Liberals in charge. It’s stopped raining. We put in an order for nearly twice as many sand-bags. When the next lot of rain comes, the Liberals will claim credit for the fact that they didn’t use all the sand-bags.

So Labor went $285 billion into debt to save us from the GFC, what’ll be the Coalition’s excuse?

*Someone I’m sure will point out that funds were not easy to obtain in the GFC, even for Governments. I’m conveniently overlooking that because it’s not relevant to the points I’m going to make later on, and as this is hypothetical, I can – like Tony Abbott – completely ignore reality when it doesn’t suit me.



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It’s the environment, stupid

In the aftermath of the 2013 Australian election, I spoke to a variety of my friends and colleagues about the core issues that motivated my voting intention. Chief amongst these was the issue of climate change, and the various parties’ approach to Labor’s ETS or another alternative. I voted below the line and took into account several important areas of policy, to the extent it was known, but the primary consideration for me was climate change.

In many cases during my discussions, I was disheartened to hear that climate change just wasn’t top of mind for these people I valued. For them, other issues took priority: Australia’s budget, its productivity, its two-tiered economy. There were others for whom provision of healthcare, education, housing and social benefits were of higher import. And there were some for whom the key issue was the two parties’ policies on refugees and boat arrivals.

What people perhaps fail to fully understand is that climate change will fundamentally alter every aspect of life and governance in this country and around the world. It is already having adverse effects on health, on productivity, on national economies and on food production. And all the scientists tell us that we are on the cusp of a downward slope, that things will get far worse from here.

Already we can see some of the effects of climate change on the front pages of our daily news. In early 2013, a report was published indicating that the 2012-2013 Sydney summer was the hottest on record. That was before the current summer of bushfires began. When every summer becomes the “hottest ever”, we have to start wondering about where the trend will lead. 2013 has seen climatic extremes across the globe: from floods to blizzards, from droughts to heat waves, from tornadoes to wildfires, all of the linked events are record breaking or without precedent. But climate disasters, even when they directly affect people, are remote in comparison to daily pressures of life. They’re too big to easily comprehend as an immediate and pressing concern.

What seems needed is a connection between the oncoming threat of climate change and the pressing policy areas that do concern people. When the protest is made that money spent on carbon abatement could be better spent on hospitals, real information on the healthcare impacts of climate change is needed. When western Sydney voters are concerned about the tide of boat-borne refugees, a cold-eyed view of the millions of people who will be displaced from our asian neighbours (due more to loss of habitable land and food yields than to rising sea levels, although both are important) might help put the numbers in perspective.

There is one specific objection to prioritising climate change mitigation efforts and carbon abatement policy, and it’s a doozy. Under both Labor and the incoming Coalition government, Australia’s prosperity relies upon a continued efficiency in extracting mineral and fossil fuel wealth from our abundant reserves and selling them overseas. Under the newly elected Coalition, it is likely that this reliance on resource mining will increase, rather than decrease, as the government dismantles Labor’s perfunctory efforts at wealth transfer from the resources sector to high-tech industries and manufacturing. The Coalition’s rabid determination to vilify and destroy the “carbon tax” (more accurately described as an emissions trading scheme) is underpinned by this unspoken need to prop up Australia’s cash cow. Nothing can be allowed to interrupt the gravy train of that lovely, lovely brown coal. If they were to give an inch, to allow the ETS to continue, it wouldn’t be long until greenies were making cogent arguments about Australia’s net carbon export via its sale of coal to China and India. Failing a rational answer to such arguments, and unwilling to be the government under which Australia’s GNP collapsed, the best solution for the Coalition is to keep the fight focused on domestic use of energy.

On the wrong side of history

But the Coalition, as well as Labor and the whole of the nation, are caught up in the march of history. Cutting back on climate change priorities is a false economy. It will hurt us in the long run – not just environmentally, but financially.

Wind-generated power is currently cheaper than coal, and solar is not far behind. A little extra investment and solar power could take care of all Australia’s energy needs. Australia has, or had, some world-leading researchers and companies in the field of renewable energy, and it has wide-open spaces with very few people and plenty of sun and wind. Australia is a prime potential for development of economically viable renewable energy, removing our own need for fossil fuels, but also giving us high-tech energy generation to sell to other countries. Doing so would be costly. But the cost would be borne almost entirely by those energy companies already heavily invested in fossil fuels. Make no mistake: the average Australian would not suffer greatly from an immediate moratorium on coal mining. It is big companies, who hold long-term leases on prime coal-bearing land and whose net company worth is supported almost entirely on the coal still in the ground, which would be most affected. See Global Warming’s Terrifying New Math – I’ve linked to this article before but it deserves it.

Just because Australia has access to all this lovely, lovely coal doesn’t mean the rest of the world is standing still. As other nations implement carbon trading schemes, as new energy generation methods become available and economical, and as shale gas and other fossil fuels become increasingly exploited, the demand for coal and oil will decrease. Australia faces a growing risk of becoming the kid in the corner hawking his trading cards when the rest of the school has moved on to He-Man figures.

The long-term argument against coal goes along the following lines: the rapid emergence of shale gas, falling renewable energy costs, air pollution regulations, governance issues, action on climate change, changing social norms and worsening water constraints are putting pressure on coal’s competitiveness. – King Coal running out of luck

This may be partly why the Coalition is desperate to clear regulatory blockages to large-scale shale gas (fracking) projects in this country. The writing is on the wall for coal, and Australia will quickly lose its competitive advantage. Then we really will be the poor white trash of Asia.

What would it take?

For every objection to the prioritisation of climate policy (beyond the frankly unworthy “it’s not happening, not listening, nyah nyah nyah”), it is possible to make a case that climate change will have a dramatic deleterious impact.

Regardless, there remain those for whom climate change is not an immediate priority. The question must be asked, what would make it an immediate priority? Will it require the displacement of millions and a logarithmic increase in climate refugees reaching Australia? At what point does the loss of much of Australia’s food production capacity trigger our concern? We’re already facing annual floods/fires/heatwaves/climate events – how far does it have to go before we see the signs? Will the recognition of a “new normal” of climate events and weather spur us to action, or will it simply move us past action to despair? When the tides are swamping our cities and sucking at our toes, will we perhaps think that climate change may be worth our investment?

By the time these things come about, it will be far too late to change them. It may already be too late. Immediate, desperate, strong action may yet provide us a chance to partially mitigate the damage. But we need to make climate change a priority.

Unfortunately those who don’t want to spend money and opportunity now to combat a remote threat from the future are the same kinds of people who don’t want to invest now to build capacity for the future. They’re the economic rationalists, and they’re in charge of the funhouse.

Co-published on Random Pariah


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