QED

Crisis or confusion?


Economic, Climate & Religious Challenges – How Serious?


Address (edited for internet publication) given by Des Moore at the Australian Club, Melbourne, 22 November, 2011

Crisis, crisis, crisis – almost everywhere we turn there is said to be a crisis. But does this mean we are seriously threatened by some event that we cannot avoid and, if so, what is the extent of damage that might occur to our lives?

Today the supposed serious threats to our economic well-being, and even our very existence, range from a major slow-down in economic growth or even a 1930s- type recession to a warming in temperatures that if not stopped quickly could eventually eliminate mankind and to a group which seeks to either convert us to its religion or to eliminate those unwilling to accept that.

Mankind has faced such threats before and should now be better able to respond to them. Many periods of recession or depression have been experienced with some involving panics and a complete absence of rational thinking: yet living standards have continued to increase and have never been higher. And despite a long history of predictions of doom from floods and droughts, we have successfully emerged from the last so-called little ice age and are generally experiencing favourable natural conditions. On the religious side, there is also a long history of human battles centred around rival religious beliefs and these continue particularly in the Middle East. But historic differences within the western world have largely dissipated.

Has capitalism failed?

I want first to comment on the global financial crisis and the associated on-going problems. Most will be aware that the GFC led to so-called advanced countries experiencing a large fall in GDP in 2009 (3.5 per cent) and indeed there was also a small fall in world GDP, the first since the 1930s.

Only Australia and a couple of other countries managed to avoid reductions in GDP in 2009 and our government claims the main saviour was its very large increase in spending. But the continued strong growth in our exports, particularly to China, was probably the major contributor to achieving the small positive growth in GDP in 2008-09 (1.4 per cent) and in 2009 -10 (2.3 per cent). Forecasts for this year and next are for higher growth, again mainly due to overseas demand and associated increased investment. But with the increased uncertainty about the outlook in the US and Europe, as well as domestically, these forecasts are rapidly being revised downwards.

What about the causes of the GFC itself? In February 2009 Australia’s then Prime Minister, Kevin Rudd, made the following observation in an article on the crisis:

From time to time in human history, there occur events of a truly seismic significance, events that mark a turning point between one epoch and the next, when one orthodoxy is overthrown and another takes its place. The international challenge for social democrats is to save capitalism from itself.”

Such naive comments reflect a thesis that capitalism and free markets are the problem and that governments are the rescuers. Putting it another way, governments are not to blame but bankers and greedy chief executives have exploited the system for their own benefit. This idea is reflected in the Occupy Wall St group of protesters that has spread to other countries. These 99 percenters want to cut the incomes of the top 1 percent. If we tried that, the 99 per centers would certainly get a small addition to their incomes first up but that would dwindle over time as the top 1 per centers would stop trying to earn above their cut off point. Some top golfers, footballers, tennis players and cricketers, not to mention top singers and actors, might stop playing or acting, or even move overseas!

In the US President Obama and senior fellow Democrats have spoken sympathetically about the Occupy Wall St group and few if any political or religious leaders in other countries have suggested publicly that they are on the wrong track. Our Lord Mayor is probably the stand out!

Obama himself has chalked up quite a long record of public criticism of major participants in the free market system. And that criticism is undoubtedly contributing to the low level of business and consumer confidence in the US. Some Australian government policies and comments on them by ministers are also contributing to the relatively low levels of business and consumer confidence being experienced here. The government’s handling of the union attacks on Qantas and the almost unbelievable industrial relations arrangements are but one example of our poor governance.

 It is pertinent to recall that the G20 governments announced in April 2009 “an unprecedented and concerted fiscal expansion that will by the end of next year amount to $5 trillion, raise output by 4 per cent, and accelerate the transition to a green economy”. What was the result? Growth in GDP in advanced countries was positive in 2010 (about 3 per cent) but official forecasts for this and next year now suggest significantly less than 1 per cent growth in these countries and growing unemployment. Indeed, there remains a real risk of another fall in GDP.

The reality is the G20 fiscal expansion in 2009 added to the excessive level of public debt already accumulated by the US and its European members, nearly all of whom have exceeded the stipulated limit of 60 per cent of GDP. Except perhaps in the US little recognition has been given to what appears from bank failures to have also been the development of an excessive level of private debt. Most importantly, no serious consideration has been given to whether high private sector debt levels can simply be attributed to irresponsible lending by banks and other financial institutions or whether it reflects a failure of the central banking system or indeed of governments themselves. Central banks, which are government agencies and mostly subject to government influence, are supposed to exercise control over both inflation and the extent of borrowing. But in my view they failed badly in the lead up to the GFC in not applying sufficient constraints on the growth of private sector debt and they share much of the blame for the global financial crisis.  

However the idea that capitalism is to blame not only conveniently overlooks the role of government and its agencies. It also overlooks the fact that many financial crises, and recoveries there-from, occurred before capitalism became widespread. There seems to be a natural tendency for human attitudes to fluctuate and the attempts made to establish smoothing policies seem to have only limited moderating effects and sometimes they even accentuate the fluctuations. The attempts by policy makers to blame the participants are certainly unhelpful to maintaining the all-important confidence levels of businesses and consumers.   

In summary, the current world economic outlook is not favourable and our political leaders, particularly the US President, are letting the capitalist system down. But even if we experience another recession this is most unlikely to undermine that system. Under capitalism there will continue to be pauses in the upward trend in living standards. But history shows that capitalist countries adversely affected by economic crises have recovered and prospered. Indeed the strongest economic recoveries have occurred when the structure of economies was based on private enterprise and when governments did not actively intervene. Perhaps we should take heart from the return to capitalism in Cuba where Raul Castro has announced that instead of using the black market Cubans are now officially allowed to buy and sell property!   

Is climate change a serious threat?

Let me turn now to consider the challenge humans are alleged to face from climate change. The basic thesis here is that emissions of greenhouse gases arising from human activity are accumulating in the atmosphere and, if this is not stopped quickly, these concentrations will cause an increase in temperatures that will damage our productive capacity and eventually endanger human existence. Governments around the world have accepted advice provided by the Intergovernmental Panel on Climate Change and, in Australia’s case by economist Ross Garnaut, that emission-stopping action is necessary as a matter of urgency.

Although not a scientist, I have examined the data used to justify the claimed threats, as well as some of the analyses by the many scientists who reject the claims .

First, there is general scientific acceptance that increases in CO2 will reduce the rate of increase of infra-red radiation back to earth and, as a result, the temperature increase at earth’s surface will be reduced. This means that, even if C02 concentrations in the atmosphere doubled, temperatures at earth’ surface would only increase about 1 degree from this source. 

However, there is far from general acceptance amongst scientists about the subsequent feedback effects from clouds and water vapour. The modelling done by the IPCC (and some others) is based on the assumption that the feedbacks will increase temperatures by a factor of 2 to 4 whereas analyses by sceptical scientists (and others) show that the feedback is unlikely to increase temperatures and might even lower them. 

Thus, the sceptical view is that the analyses by warmist scientists of the main influences on temperatures indicate there are large uncertainties about the thesis that warming, derived from usage of fossil fuels, is dangerous to humans. In short, scientific analyses by sceptics reject claims of a consensus for taking urgent action to reduce emissions of CO2.  

Second, while average global temperatures have risen about 0.7 of a degree over the last century, we humans could readily adapt even if they continued to rise at this rate for another century. What could happen economically if our government took no action to reduce emissions? According to Garnaut’s 2008 report, a do nothing policy would only slightly reduce economic growth and would still leave us with a real GDP 700 per cent higher in 2100. 

Why would we then be unable ever to escape from ever increasing destructive temperatures? There are many scientific questions regarding the validity of this alarmist view. And almost complete neglect of the far greater resources and technology available in 2100 to combat higher temperatures. Think of the enormous technological advances over the last 100 years.   

Third, how do the alarmist scientists explain the fact that there have been two periods since 1910 when CO2 concentration levels rose but temperatures actually fell or did not increase? Indeed, this has been the case for close to half the last 100 years – from about 1940 to the mid 1970s and again since 1998. We also have grounds for confidence that claims that recent temperatures are the hottest ever are false: temperatures over periods in the distant past were almost certainly higher despite no fossil fuel use then.

Fourth, nor is there any convincing evidence that meltings of glaciers and reductions in ice in the Arctic and Antarctic that could cause damaging increases in sea levels. Of course, glaciers do melt and IPCC Pachauri had to apologise for wrongly having the last report say that they constitute a serious threat. True, global sea levels have been increasing, but at a rate that if continued would be only 22 cms higher in 2100, which is at the lower end of the last IPCC report’s projected increase of 18-59 cm and readily adaptable to.

As to the Arctic, true also that the extent of ice has been slowly diminishing. But at a rate that would take about 370 years for it to be free all year round and would in any event have virtually no effect on sea levels because almost all of the ice is already in the sea. The extent of the sea ice area in the Southern Hemisphere appears to be relatively stable. 

There is also concern that higher temperatures would cause serious bleaching of the Great Barrier Reef. But the recovery of most of the reef from the bleachings of 1998 and 2002 suggest the coral there may be stronger than some think. 

Fifth, from the Australian perspective, an important concern is the potential for periods of low rainfall. But higher temperatures tend to be accompanied by higher rainfall and in any event similar droughts to the recent one have occurred in the past when emissions were much lower. An examination of variations in Murray-Darling basin annual rainfall shows no connection with levels or variations in average temperatures. 

As to possible future extreme weather events such as floods, droughts and cyclones, the just out IPCC “special” report suggests it has heavily qualified the previously supposed threat from higher temperatures. This report acknowledges the uncertainties about predicting such events and the scope for adapting to them. 

Sixthly, there is no justification for Australia to “lead the way” in reducing emissions. The countries most responsible for emissions are highly unlikely to adopt meaningful emissions reduction policies because they are developing countries which need to continue extensive use of fossil fuels. Those countries are now responsible for over 60 per cent of world emissions and by 2020 they could well be responsible for about 75 per cent. Does anyone seriously think they will enter a binding agreement to throw in the development towel?   

More generally, this global warming scare is not a scientific one off. There is a long history of wrong doom and gloom predictions by scientists including incorrect (and costly) advice to governments. The global warming scare has neither the scientific analytical backing nor the temperature trends to provide justification for urgent government action to reduce emissions. If temperatures resume their increase after being quiescent for the last dozen years, let us monitor them closely and, as necessary, apply measures to adapt to them.   

The religious challenge is a serious one

My third challenge is literally a deadly serious one from extremist Islamic groups not only to those living in Western countries but also to the majority of moderate Muslims living in mainly Muslim countries. Religious differences within Muslim communities are evident from the internal fighting and terrorism within, amongst others, Pakistan, the Middle East and North African countries. Moreover, although the so-called Arab spring has been widely welcomed there are worrying signs that once the new governments there are formed there will not be a clear separation of church and state. But unless that happens, the human rights normally valued in democracies will be limited and there will be potential for terrorist groups to develop further.  

While I have written in more detail in Quadrant about the extremist threat, public comment has to be limited because of our disgraceful Racial Discrimination Act. Account has also to be taken of the difficulty of determining an Islamic view given that the interpretation of the Koran is left to the teachings of imans, which vary from moderate to advocacy of jihadism or terrorist activity of various kinds.

The implications for Australia are reflected to some extent in the ASIO report for 2010-11 published last month. That points out that, while surveys conducted in the US and Australia show that terrorism is no longer seen as a significant issue by the majority of the population, “the threat of a terrorist attack in Australia or against Australian interests in a number of countries overseas is real and will remain so into the future.” In tabling the report Attorney General Robert McClelland said “the simple fact [is] that we face real and serious threats to our national security”. 

In fact, the ASIO report says that its operational tempo did not abate last year and that “Australia is, and will remain, a terrorist target for the foreseeable future”. The report also indicates that, in addition to established groups such as al-Qa’ida and its affiliates, stand alone jihadists “continue to emerge with increasing frequency”, and that “jihadist terrorism remains the most immediate threat”. The report refers to “four mass casualty attacks within Australia over the last ten years” and says they were only prevented by intelligence and law enforcement agencies. Worryingly, the people involved were largely Australians drawing on an ideology imported from overseas. If only 10 per cent of Australian Muslims approve of violent action that would imply some 40,000 who are activists of one kind or another.

ASIO does not define a “mass casualty attack” but this can be deduced by examining a 77 page judgment in February 2010 in the NSW Supreme Court involving the sentencing of five men to maximum prison terms of between 17 and 28 years. The offence was for conspiring to prepare for a terrorist attack with a weapon stock equivalent to that used in November 2008 by the Mumbai terrorists when they killed 173 and wounded over 300. Justice Whealy said that those convicted showed no remorse, would wear their prison terms as a badge of honour and there was no indication that the leader would ever renounce his extremist views. Three of these terrorists are now out of jail and free to pursue their former activity.

The potential implications of the threat were brought out at a defence conference held by the Australian Strategic Policy Institute in Canberra in 2007. There a US expert on nuclear proliferation, Robert L.Gallucci, pointed out that there is an increasing risk of a terrorist group obtaining and using a nuclear weapon without being detected. He was referring not only to one with the destructive power of the Hiroshima bomb but also to a more limited nuke sufficient to kill “only” 250,000 people. A recent report by an Australian and two foreign think tanks called for enhanced counter-terrorism cooperation between the US, India and Australia and says that the danger of nuclear and radiological terrorism has increased sharply in the past decade.

What might be done about this threat? Some will say that we must work to persuade Muslim communities and leaders to abandon jihadist activity and live in peace. My fear is that there is little prospect of that happening in the foreseeable future. My concern is that the most likely development is the acquisition of more destructive weaponry by terrorist groups.  Australia governments need to increase counter-terrorist resources, to increase the scrutiny of immigrants and refugees from Muslim countries, and to make more public statements about the threat from extremist groups.  

Conclusion

I conclude my three challenges as follows.

Firstly, the serious problem with the current world economic situation arises from poor policies adopted by governments, not the capitalist, private enterprise system.

Second, that governments and their advisers are also adopting defective policies as a result of accepting, without proper investigation, the dangerous warming thesis that is propounded by only one section of the scientific community.

Thirdly (and by contrast with the first two), that governments need in fact to play a more vigorous role in both promoting the virtues of western civilisation and in combating the very serious threats posed by extremist Islamic groups. 

NOTE: A footnoted version of this text can be found at www.ipe.net.au

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