It's not the economy?

A useful video looking at what the likely election issues will be this year.

Peter Martin from Fairfax News makes the point here 'If you were a rational person in government you would be borrowing now to fund infrastructure.' Imply from this that is it not sensible to pursue a Budget surplus as some sort of holy grail.

He makes other very useful points on the economy in 2013 as well, such as the dependence of the Australian economy on mineral exports, the likely rate of growth and level of unemployment.

The video is here

The year ahead

In the slow news weeks of Christmas and New Year newspapers look back and look forward to fill the space. It provides some useful insights, although rarely are there any predictions which stand the test of time.

The attached article looks at the prospects for the economy for 2013. The analysis is the interesting part - what are the forces at work and how are they expected to affect the performance of the Australian economy and so the standard of living?

Edited highlights:
Growth will continue, but will be slow.
Growth won't be high enough to deliver a Budget surplus.
Monetary policy will react to changes in the real economy, but budgetary policy probably won't.
The Terms of Trade, exchange rate, business and consumer confidence are key factors in determining performance.
World economic activity is key to driving exports, surprisingly only the US and China are mentioned in the article.

Inflation is well under control. A blow to the idiot Abbot who continues to forecast a melt down on this front.

Read carefully, its a great primer for Year 11 or 12, as it summarizes the issues nicely.

The Age article is here 

Misunderstanding carbon trading

Australians have little grasp of the concept or problems of Carbon emissions and the need to correct this market failure. In the EU the need to reduce CO2 emissions is accepted and is being tackled.

The Age has got hold of the story that the carbon price in the EU emissions trading scheme has fallen and have interpreted this as a sign that the scheme is somehow failing. It represents the deep misunderstanding of how these schemes work which is prevelant in Australia.

The report that prices have fallen while volumes traded are up 26% in 2012 shows the success of the scheme! It means that firms are reducing carbon emissions and therefore can sell their surplus permits. That is a key incentive provided by carbon trading, those who can reduce CO2 emissions are rewarded by the revenue of the permit sales.

What is required is for the EU to now withdraw, or buy up, surplus permits so that the trading price rises again. The ETS market will then provide a further incentive for firms to cut emissions even more. Here the EU is too slow to act, but this is because it tends to work in 'phases'. It would be better if the EU intervened more actively in the market to stabalize the price of permits both to maintain incentives and provide certainty for firms who need to buy or sell them.

The Age report is here