Wednesday, May 18, 2011

Amartya Sen and all that

Amartya Sen did a lot of research on the causes of famine and the gist of the conclusions was that lack of food was not a factor at all, and that various market failures were evident (including hoarding, purchases by the British military, price gouging etc.) which explains most of it. This perhaps contradicts Adam Smiths conclusion about bakers, bread and "the hidden hand" that means we can all get fed without benevolent bakers.

I don't disagree with the gist of that, and my belief is that Destitution, not Dearth is what causes famines (there is an Economist article of a few years ago that I could look up but I don't need it to make my point)

India became democratic after about that point, and the Government of India has, ever since, had a program of purchasing and distributing food for the poor, including subsidising food in good times and in bad. I like to call this system a "brute force" way of solving the problem. The "hidden hand" of commerce gets replaced by a very visible hand of the Government. However, is this brute force method foolproof? How expensive is it? Why does Australia not embrace or need something similar?

My assertion is that the policy of the Government of India has got the credit for avoiding famines when in reality, a policy concentrating on social welfare rather than food purchases would have both avoided famine more cheaply, and would have resulted in far higher economic growth meaning it would have been considered "first world" well before the turn of the century.

I completely disagree with the policy conclusion that Governments becoming buyers and sellers in the market is a good way to avoid the market failures that cause famines. Certainly there must be enough storage capacity for store levels to increase when prices are low, and drawn upon when prices are high, if only to buy enough time for suppliers to ramp up/down production/imports (panic buyers are profitable, if supply can be ramped up) . Social welfare to avoid destitution should be done with money or food vouchers rather than the food itself, so that market signals still function at the farm level (small farms will not ramp up production if the Government doesn't offer a higher purchase price). Governments are just as capable as individuals of hoarding, price gouging etc. when it comes to/from other countries, so what may be of benefit for a country in isolation may still be a complete disaster to an inoccent other country which has become destitute.

This is to say there is still a dearth of situations where Governments should involve themselves in consumables. Nor any situations where private interests should own infrastructure. That is not necessarily about whether an outcome is an aim of a policy, but whether the policy is equipped to give the desired result.

Sunday, May 01, 2011

Feed-In Tarriffs are the opposite of the answer

As the following article, Solar Scam Article, PV solar schemes can easily burn through hundreds of millions of dollars before anyone even notices. Not only that, they fail in the most basic of stated aims - that of more quickly getting PV systems (or rather, any renewable) to substantially contribute to our energy needs.

Most people, even experts, think that at worst, it is neutral to our efforts in replacing renewables, but due to the competing interests for a finite number of available renewable energy certificates it is considerably worse than the Government spending nothing on it(*).

An infinite number of REC's implies an infinite budget so cannot be considered - and what is plainly happening is that the REC's are being lapped up by the most generous policy (in this case PV subsidy + feed-in tarrif guarantees), crowding out significantly more efficient and cost effective (even speedily built) large scale projects, that given no tariffs, could have been built by private enterprise for profit.

There are plenty of wind farm projects, large scale PV and solar thermal, as well as Geothermal which are being starved of funds. Private money is chasing the most generous public money rather than profitable energy enterprises.

(*) By which I mean alternative policies that do not favour small, inefficient installations, that are either revenue neutral or have more tax income than expenditure (eg carbon tax)