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Dodo, many interesting points, and a valid approach, but I find myself disagreeing with a number of your conclusions. Let me point out a few things which will hopefully get the discussion going:

  • on the German feed-in law. I agree that it has been a great way to kick start the industry, but we are getting now to the point where it is becoming slightly counter-productive as it creates rents for some green producers and encourages the exploitation of sub-optimal wind sites. I would recommend the Spanish regulatory framework, which has proven to be just as effective (including to help build a domestic manufacturign capacity) and which has fewer negative side effects. It is based on a twin mechanism - one for small windfarms, which get also a fixed tariff (linked to a percentage (80-90%) of the regulated retail electricity price, thus ensuring that it creates no unfair burden for power distributors), and one for larger manufacturers, which get the market price for electricity plus a green premium, which can be either (and the producers get to choose each year) a fraction of the regulated price (but adjustable every 4 years by the government) or a full market price supported by the obligation for traditional power producers to buy such green certificates pro rata to what they pollute. With a government fully committed to renewable energy, as in Spain, this means that the regulated tariff never remains too high too long, i.e. the government can set it at the level which allows for the best projects to be economic but not the borderline ones, AND it encourages polluting producers to switch to better forms of power production.  Such market-based mechanisms work and should be more palatable to the business world, and the business media, which matters;

  • on productivity, I am not sure that it is right ot fight that concept. As I wrote briefly above, we should focus productivity towards increasing efficiency instead of towards increasing output. Maybe we agree in the sense that we should not focus only on increasing the productivity of labor, but rather on increasing the productivity of capital, and even more the productivity of "rent", i.e. of natural resources or other such "free" value provided by our environment (one of Stirling Newberry's better economic diaries over on dKos a couple of months' back was about the economics of rent - it would definitely be worth linking to here but I cannot do that for now).

I fully agree on the need for a redefinition of some of the most basic numbers we use to measure "progress". GDP is one of those. Consider simply that when you switch off a light, you reduce GDP (because the power company sells you less and loses turnover), whereas you are saving resources. When you have a car accident, it generates activity GDP (the tow truck, the repairs, the road patrol, possibly the hospital and associated expenses) but everybody can feel properly that such activity could have been used more productively, precisely...
So we do need to focus on value added, and we should probably adopt some of the more sensible rules of corporate accounting for public accounts and "wealth"-like statistics like GDP, such as:

  • depreciation of public assets: that would reflect the fact that a lot of GDP is used up in that same year and creates no lasting wealth - and that should apply to assets as well. That would of course require that some "public" balance sheet is built up, and that's where a number of externalities could be valued. It would be reasonably easy to give a value to buildings, infrastructure and other physical assets (which could already provide some nasty surprises if you depreciate them in a realistic way); the next thing to put on the balance sheet would be all natural resources. That way, they would already be part of our wealth, and their exploitation would only create value if they are smartly used, not just from extracting them. The next step would to value collective goods (museums, hospitals, parks, clean air, clean water) - and that would be an interesting fight. But if we have already managed to bring the fight to "how much to value them" instead of "this will hamper economic growth).

  • accounting of off-balance sheet liabilities, i.e. things done today that will, or may, incur costs later. That would make more visible all the shenanigans that we do now and that pass costs on to future generations (open ended commitments, polluting air and water and ecosystems, draining finite resources);

  • counting some activities as costs and not as value creation. Using resources is an obvious one (and easy to make it appear as a cost if the resources already "belongs" to the public in our collective accounts), and this should extend as much as possible to all externalities. If an increase in CO2 in the atmosphere translates into negative GDP-equivalent, then we will care about it.

This certainly fits in also with Deanander's links about "true cost economics", which I have not been able to access.

The other thing that we need to focus on is REGULATION, i.e. enforcement by the government of rules that apply to public goods and externalities. The above accounting can only happen if it is done by a "neutral" public entity representing the collective interest (i.e. the State or equivalent), and it can work only if all private interactions with such public goods are accounted for, i.e. are known, made public, and properly valued. Thus the State must police the use of public goods, must measure their use or abuse, and must enforce the rules that apply (i.e. make people or corporates follow the rules and pay the requisite fee/fine for use/abuse of public good) RUTHLESSLY. This means that regulatory agencies (and/or relevant government departments) must be funded well enough to do their job (defining the rules smartly and enforcing the law).

Linked to that is the regulation of the labor market, which should benefit from the same kind of treatment - i.e. ruthless enforcement of existing rules.
While we're at it, I am personally favorable to an elimination of corporate taxes, and a simplification of personal taxes via a flat tax with a high deductible. while this may not sound lefty as a proposal, I'd like to argue that it is. When you don't work in that world, you cannot imagine the effort, imagination and ingenuity that is put to lower tax burdens on companies. With the current complexity of tax systems, there are always loopholes, advantages, breaks, tax give employment to armies of accountants, lawyers and bankers, to no obvious value added (there is value to the company, as it pays less taxes, but no obvious value to society to spend so much talent avoiding tax). All corporate taxes are passed on to consumers eventually. Taxes on consumption and revenue (to include capital revenues) make a lot more sense, and the VAT, with its self-enforcement mechanism, is very easy to police and costs little (relatively speaking) to collect. I also have the nagging suspicion that a very simple flat tax, with no breaks whatsoever, would make the rich actually pay more. If you put a decent exemption for the first mayer of revenues, you'd have a nicely progressive tax as well.

Of course, a number of these ideas run against the fact that they are useless if only applied in one country (you just handicap yourself while your competitors keep their old behavior without paying for their use of externalities), so there needs to be at least a continent-wide application of them, combined with some form or external tariff linked to these externalities (to be discussed in a later episode...)

I am thinking out loud here, so all comments, and critique, welcome...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jul 24th, 2005 at 10:50:11 AM EST
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