Friday, January 28, 2011

Turtle Bay's Lilliputians

John Bolton is a good man. He did a great job and didn't deserve his fate. My friend, ace journalist Claudia Rosett sums up this latest U.N. saga rather nicely...

"John Bolton's resignation this week as ambassador to the United Nations was hardly the result of his being - as some have charged - ineffective, or a bully, or abrasive. The real problem is the shrunken character of the U.N.

Bolton was a Gulliver dispatched to Lilliput, a truth-teller in a den of diplomats. As a principled man in a dishonest institution, he was a threat to a whole raft of special interests that feed off the U.N. system.

If anything, Bolton was polite in a setting where bullying and abrading hardly count as sins. This is the U.N. where Secretary-General Kofi Annan, when queried last year about the Mercedes on which his son saved a bundle by making false use of U.N. perquisites, chose to bully the reporter - and avoid answering a good question. This is the U.N. whose deputy secretary-general, Mark Malloch Brown, set out this past spring, in violation of the U.N. charter, to meddle in U.S. politics - insulting a number of right-wing media outlets and sneering at their audience in the "heartland." This is the U.N. whose "excellencies" this past September applauded the histrionics of Venezuela's Hugo Chavez and Iran's Mahmoud Ahmadinejad - behavior that in civilized quarters might well be deemed abrasive.

This is the U.N. that in recent years has incubated such scandals as oil-for-food, procurement bribery, and peacekeeper rape. This is the U.N. whose "reforms," in answer to these scandals, have consisted largely of demands for more money, and a revamped so-called Human Rights Council that has devoted itself entirely to condemning Israel. This is the U.N. system that still does not provide coherent accounts of how it spends about $20 billion per year, about one-quarter of that supplied by U.S. taxpayers...."

Goldilocks Rules

Liberal New York Times columnist Paul Krugman took it on the chin today as the November jobs report was stronger than expected and increased by 132,000. The unemployment rate stayed at a historically low 4.5 percent.

The Goldilocks economy is producing large job gains in services—think retailers, healthcare, financial companies, business, professional and other areas.

Housing and manufacturing are still soft after two years of tight money from the Fed, and of course, higher energy prices have dampened things until recently. But the housing and manufacturing sectors are really just about 10 percent of our GDP. That means 90 percent is still hitting on all cylinders.

Even softer homes prices couldn’t hold back a new record gain in family net wealth. This hit another all-time high of over $54 trillion dollars on the strength of the roaring stock market.

Incidentally, that Goldilocks stock market is pointing to a solid growth rate in 2007.

And, let’s not forget, over the past 12 months, workers wages are up 4.1 percent. That development, along with lower gasoline prices and a negative CPI, suggest middle income families will have plenty of spending power this Christmas holiday season.

Oh by the way, did I mention lower tax rates on capital gains and dividends have helped drive stocks and the economy higher?

Mr. Krugman’s model doesn’t include supply-side tax cuts.

President George W. Bush will look with satisfaction at today’s employment numbers. He will realize once again the important connection between lower marginal tax rates and a strong economy.

A Bull v. Bear Debate

Here's an interesting little back-and-forth from last night's show...

KUDLOW: I want to go to my buddy Herb Greenberg. Herb, I would say, except for possibly Dougy Kass, you have been the most pessimistic person to come on our program, and, of course, the market has gone up, up and away. What is your current thought about this market rally, which seems to have legs, it seems to have muscles, it seems to have sinews, and it seems to say that things are going to be just fine in the American economy and American wealth creation?

HERB GREENBERG: Larry, there's an old saying, "Don't argue with a crazy person." I'll add to that, and I'll say don't argue with a crazy market, and this market is still, I believe, and I know Dougy believes, in a speculative blow-off phase and if you look even at Jeff Saut's recent commentary, where he said it's an unnatural market, an unnatural market because he said there just hasn't been any correction in this latest, you know, phase, where it's going straight up.

KUDLOW: Well, Noah, look, what do you hear? I'm listening to these adjectives: speculative, unnatural. This is, you know, a family show, and I'm glad you didn't go deeper than that. Noah, can you set him straight from up there in Canada?

NOAH BLACKSTEIN: You know, I don't understand how Herb gets the moniker realist. I mean, it assumes that all of us who are optimists are deluded, suffering from a mental disorder, and something is wrong with us. I don't see it. You know, a speculative blow-off, you know.

The P/E multiple on the S&P 500 is lower now than when we started this bull market. Profits have risen much quicker than this market has risen. And really, you could argue over the last year and a half the market's been capped by the Federal Reserve really sitting on the throat of liquidity over the last little while. With the Fed pulling back here, there's a lot of room for P/E multiples to expand.

The market is discounting too much inflation and too aggressive a Fed, and so I think there is more upside. I don't see anything that would indicate this is a rampant speculative market like the late 1990s. In fact, valuations are low.

Senator Backbone

Two of the most important qualities necessary for a run to the Oval Office are decisiveness and strength of character. In recent weeks, John McCain has proven that he has more stock in these traits than most any public official today.

As American fortunes in the battle of Iraq have deteriorated, the senator has forcefully elevated the policy debate by fearlessly offering unpopular advice on how to turn the tide toward victory. In fact, McCain is several steps ahead of nearly everyone on the subject of this war. At his recent news conference, President George W. Bush said the U.S. should expand the size of its armed forces, especially the Army and Marine Corps. McCain has been saying this for years. Bush and his high command are now mulling a possible troop-force surge in Iraq; McCain has been advocating this for quite some time.

Of course, each of these positions is out of favor. But that’s not silencing McCain: “I understand the polls show only 18 percent of the American people support my position. But I have to do what’s right, what I believe is right, and what my experience and knowledge and background tells me is the right thing to do in order to save this situation in Iraq . . . In war, my dear friends, there is no such compromise. You either win or you lose.”

In the midst of the latest doubt, pessimism, and quibbling over our direction in Iraq, here is John McCain digging his heels in the sand. He is fighting the defeatist tide, and though it might endanger his presidential bid, he is entirely comfortable with his posture. I believe this is called courage. Principle. Leadership. It’s what has long described this highly decorated former Navy fighter pilot and Vietnam prisoner of war.

More kudos go to McCain for blasting the defeatist recommendations of the Baker-Hamilton Iraq Study Group.

Speaking to the Senate Armed Services Committee, he said “There’s only one thing worse than an overstressed Army and Marine Corps, and that’s a defeated Army and Marine Corps. I believe this is a recipe that will lead to our defeat sooner than later in Iraq.”

McCain specifically ridiculed the Baker-Hamilton suggestion that American combat troops withdraw from Iraq while more advisors and trainers embed with Iraqi forces. He argued that this would “put at risk a large number of American advisors” who would be subject to hostage-taking and the attacks of rogue militias or terrorists.

McCain also mocked the commission’s idea of seeking peace talks with Iran and Syria, saying “I don’t believe that a peace conference with people who are dedicated to your extinction has much short-term gain.”

The recent McCain narrative is especially important. First, in the Oval Office, the Arizonan privately urged the president to add more troops and reject the Baker-Hamilton withdrawal approach. Then, in Baghdad, McCain pleaded the same case to American generals. Along the way, he has held several news conferences, deftly using the public square to influence the outcome of events.

No public figure today could do all this with as much influence and credibility as Sen. John McCain. If in fact President Bush goes forward with a troop surge -- one that is designed to protect the fledgling Iraqi democracy and repel our enemies in the Middle East -- McCain’s steadfastness and bravery will have sealed that outcome.

Interestingly, new defense secretary Robert Gates heard a McCain-like message from the troops when he traveled to Iraq after his swear-in ceremony. “More troops might hold [the enemy] off long enough to where we can get the Iraqi army trained up,” Private Spc. Jason Green of the 101st Military Intelligence Brigade told Gates. “More troops would help us integrate the Iraq army into patrols more,” said Pfc. Cassandra Wallace of the 10th Mountain Division.

Gates at least echoed McCain in saying that a premature withdrawal from Iraq would be “calamitous.” But there it is again -- the McCain narrative. It’s everywhere.

McCain clearly would rather do the right thing in our nation’s interest than the politically correct thing. He is about leadership and character and decisiveness. He seems to have the ability to assess American national-security needs, not just for the next few weeks, but the next few decades. And he is almost single-handedly lifting our war policy towards strength rather than weakness.

McCain is standing tall against the tides of wartime fatigue, the polls, and the conventional Beltway wisdom. Whatever the outcome of the Iraq debate, and even the 2008 presidential election, the senator is behaving in a remarkably brave and steadfast manner at a time when so many of our leaders are shrinking from those crucial public duties.

A rare bird. Senator Backbone. That’s John McCain.

"Goldilocks vs. Gold"

Is there a statute of limitations on predictions of higher inflation?

Jerry Bowyer answers this question in his latest on NRO:

Larry Kudlow has described this as the Goldilocks economy: decent growth, low inflation. But the gold bugs continue to warn that today’s high gold prices inevitably mean higher inflation.

BuzzCharts has written extensively on the ongoing debate among supply-siders on the usefulness of gold alone as an inflation bellwether. We’ve taken the position that the inclusion of other measures, such as interest rates, helps paint a more complete picture of future inflation.

Here’s some more data that should help settle the matter:

On December 15, the Bureau of Labor Statistics released its monthly consumer-price-index data, which showed that inflation was completely flat from October to November following a half-percent drop in each of the two prior months. This falloff in inflation has taken place despite the fact that gold prices have been rising. Measures like interest rates, however, are more predictive of inflation (or, in this case, the lack thereof). The 10-year Treasury note, for example, stands at 4.6 percent, virtually unchanged from a year ago.

Although the most recent producer price index showed a quick pop-up of inflation to 2 percent, readings for the previous months showed roughly 2 percent deflation. In addition, the implicit price deflator and the PCE price deflator — two other major inflation indicators — have shown very low and absolutely flat inflation, respectively.

Is there a statute of limitations on predictions of higher inflation? Or, to paraphrase Ronald Reagan, “shouldn’t they read the score to us once in awhile?”

Jerry Bowyer is an economic advisor to Blue Vase Capital Management and the author of The Bush Boom.

Wednesday Night's Lineup

In light of Gerald Ford's passing, we will spend the first portion of the show looking at his legacy and contributions to our great country.

On board:

*California Congressman David Dreier (R)
*Dr. John Rutledge, chairman of Rutledge Capital and presidential advisor
*Arthur Laffer, CEO of Laffer Associates and presidential advisor to Ronald Reagan

Following the Ford roundtable, we will discuss the state of the economy and outlook for the stock market.

Mr. Laffer and Dr. Rutledge will stick around and will be joined by:

*Russ Koesterich, senior portfolio manager at Barclays Global Investors
*Jim Huguet, president of the Great Companies fund management firm
*Barry Ritlholz, chief market strategist at Ritholtz Research & Analytics

The Ford Legacy

Gerald Ford was a good and gracious man.

He was a dedicated and honest public servant—well liked by all who knew him personally. And I think his controversial pardon of Richard Nixon was a good idea—good in the sense that it got it off the table so the country could move on.

However, President Ford was one of a long line of American executives who presided over the decline of the U.S. in both national security and economic terms. This began under LBJ and stretched out through Richard Nixon, Gerald Ford, and Jimmy Carter.

In national security terms, Mr. Ford was a d├ętentist who accommodated the Soviet Union in a number of ways, including unverifiable arms control deals that Ronald Reagan put an end to when the Gipper assumed the presidency in the 1980’s.

The U.S.’s Vietnam retreat from the rooftop of our embassy in Saigon was one of the low points in the history of American foreign policy—a disgraceful action. Reagan, of course, changed all this in the 1980’s with his many actions to overturn and defeat Soviet communism.

In economic policy, Mr. Ford was a traditional Republican budget balancer who had no pro-growth policies. Arthur Laffer tried to persuade Ford of the merits of supply side economics to reduce marginal tax rates and grow the American economy—but Ford, acting on advice of top economic advisor Alan Greenspan, rejected this.

June Wanniski called this root canal economics and Newt Gingrich described Ford’s futile obsession with the budget deficit as simply the tax collector for the welfare state.

The combination of high inflation interacting with high marginal tax rates led to stagflation and the continued decline of the American economy. And the infamous “whip inflation now” program was nothing more than price controls and state planning.

Again, it took Ronald Reagan to reverse all this by adopting the incentive-minded growth model which slashed tax rates and reignited the U.S. economy in the 1980's - an economy whose fire still burns brightly a quarter of a century later.

At the end of the day, Ford was defeated by Jimmy Carter, who was just as baffled about stagflation and Soviet hegemony as Ford was.

Mr. Ford attempted one last play on the national political stage at the 1980 Republican National Convention in Detroit. Reagan had soundly trounced Papa Bush in the primaries to capture the nomination. But the Papa Bush forces—led by James Baker—attempted a bizarre co-presidency that would have made Ford the vice president and divided up all the executive branch responsibilities.

Reagan himself squashed this, chose Papa Bush instead, crushed Carter in the election, and went on to become one of the greatest presidents in United States history.

Thank God for Ronald Reagan.


Contrary to the customary downbeat drumbeat of economic decline, as once again illustrated by David Wessel’s piece in today’s Wall Street Journal (this guy is the paper’s pessimist-in-chief—when he’s not waging class warfare, he is prayerfully forecasting economic gloom) the most recent numbers actually show a pickup in manufacturing and a bottoming in the housing slump

Simply put, there ain’t gonna be any recession.

Bear Stearns chief U.S. economist, John Ryding, is now predicting 2.75 percent real GDP growth in Q4. I would label that “Goldilocks plus.”

And there ain’t no inflation either, as revealed by the recent consumer price reports which showed declining inflation trends.

Bond rates have increased about 30 basis points this month, but the inflation adjusted bond spreads show that it’s a gain in real interest rates that corroborates the better tone in real GDP. Of course, the absolutely phenomenal Goldilocks stock market has been telling us this all along over the past six months.

As economist Arthur Laffer has noted, prosperity-inducing government policies remain in place: low tax rates, steady money, no re-regulation of business, and free trade.

(Speaking of Art, his appearances on CNBC’s Kudlow & Company in recent weeks have all greatly illuminated the interpretation of political and economic information. Many thanks to Mr. Laffer, as well as our many talented guests—both liberal and conservative—for their wonderful contributions.)

From the bottom of my heart, I am grateful to everyone who has worked on this show, appeared on this show, and to our viewers for giving us terrific ratings this holiday season and throughout 2006.

I’m in that kind of mood this afternoon, as the end of the year approaches. I am ever grateful. This great country of ours provides so many incredible blessings and so many wonderful opportunities.

It is a miracle.

All Best...

We are all truly blessed to live in this great country.

I wish each and every single one of you the very best in the upcoming year.

A great, big thank you for tuning into our show, reading (and contributing to) this blog, etc, etc…

May 2007 bring you and your loved ones much peace and prosperity.

God bless…

Edwards Still Doesn't Get It

So, John Edwards has thrown his hat into the presidential ring.

Unfortunately, he has a losing message.

His ultra-liberal approach will elicit only a small niche of support among the ultra lefties in the Democratic Party.

Democrats know (or at least, I think they know) that their success in the 2006 midterm election was largely a function of their best efforts to imitate Republicans. It was the conservative Blue Dog Democrats who were the tail successfully wagging the entire Democratic dog.

That said, if John Edwards somehow managed to reverse this tide and win his party's nomination, he would lead his party to a crushing defeat in 2008.

For starters, he wants to cut and run from Iraq. Such an ill-conceived policy would leave this budding nation in shambles, with terrorists following us back to the United States. It would extinguish the candle of Iraq's democracy experiment -- an experiment that could still pay enormous dividends if the United States follows through with a bold, new troop surge strategy and a refurbished plan of economic reconstruction. These are the actions that will stabilize Baghdad and their democratically elected government, not cutting and running.

On the domestic side, Edwards fares just as badly. He's recycling an old page from the liberal Democratic playbook, saying that he wants to make fighting poverty the great moral issue of our time. He says he'll accomplish this by taxing the rich in order to help the poor. Oh, really?

Tax capital in order to create new jobs? Huh? Haven't we learned that you can't create new jobs (for the poor or anyone else) without healthy businesses and plentiful new business creation? And that businesses require capital in order to expand? And haven't we learned that punishing success through higher tax rates that make it pay less to work, save and invest will only reduce investment, jobs and prosperity?

Well, Edwards forgets that entrepreneurs, not government, create long-lasting jobs and growth. Rather than government spending, it is economic freedom, through a strong incentive structure inside a market economy, that opens the door to new opportunities so that the non-rich can get rich.

What's more, Edwards has failed to consider that poverty has fallen steadily for decades.

Pro-growth, market-oriented policies launched by Ronald Reagan 25 years ago unleashed record wealth creation and economic growth that continues to this very day. In fact, economist Diana Furchtgott-Roth has shown that total compensation and consumer spending for all five income quintiles have steadily increased over the past three decades.

Furthermore, Alan Reynolds has shown that the percentage of households with income (adjusted for inflation) lower than $35,000 has actually fallen from 52.8 percent to 40.9 percent since 1967. (Wait -- it gets even better.) Households with a real income higher than $50,000 rose from 24.9 percent to a remarkable 44.1 percent.

In other words, the middle class is shrinking because America's families are getting wealthier. And the reason lower-class jobs are vanishing is not due to some Lou Dobbs protectionist conspiracy theory, but because our technologically driven, knowledge-based economic pie keeps expanding.

Edwards doesn't understand that without incentives to reward successful investing, entrepreneurship and risk-taking, everyone gets poorer -- right on down the line. Additional investment taxing is precisely the wrong policy to improve wealth or poverty.

Class warriors on the left are loathe to admit it, but America's poor are also a whole lot less poor when public assistance programs like Social Security, Medicaid, the earned income tax credit and other social benefit plans are included in the poverty data. But Edwards, and others of his misguided ilk, have a nostalgic yearning for the Great Society plans of the mid-1960s. You'll recall that these policies dramatically succeeded by raising poverty and reducing wealth. What a neat idea.

Edwards just launched his campaign in New Orleans with a plea to spend even more taxpayer dollars for that beleaguered city. Well, why not -- we've already thrown $120 billion bucks at it!

Instead of Edwards' hackneyed, 1960s Great Society, anti-poverty approach to New Orleans, the United States and New Orleans would have been much better off had we made the entire city a tax-free zone -- with the tax burden limited only to what people spent or consumed, not what they invested or earned. This supply-side approach would have delivered swift currents of investment. It would have all but guaranteed a swift recovery.

But Edwards appears unable to grasp this. This class warrior fails to recognize that when you slam wealth, you raise poverty. Is that what we really want?

A Remarkably Good Eulogy

(Vice President Cheney delivered an astounding eulogy for President Ford last night - just remarkable. In case you didn't catch it, here it is in its entirety. Amazing little trivia nugget - Cheney was only 34 years old when he served as Ford's Chief of Staff.)

Mrs. Ford, Susan, Mike, Jack, and Steve; distinguished guests; colleagues and friends; and fellow citizens:

Nothing was left unsaid, and at the end of his days, Gerald Ford knew how much he meant to us and to his country. He was given length of years, and many times in his company we paid our tributes and said our thanks. We were proud to call him our leader, grateful to know him as a man. We told him these things, and there is comfort in knowing that. Still, it is an ending. And what is left now is to say goodbye.

He first stood under this dome at the age of 17, on a high school tour in the Hoover years. In his congressional career, he passed through this Rotunda so many times -- never once imagining all the honors that life would bring. He was an unassuming man, our 38th President, and few have ever risen so high with so little guile or calculation. Even in the three decades since he left this city, he was not the sort to ponder his legacy, to brood over his place in history. And so in these days of remembrance, as Gerald R. Ford, goes to his rest, it is for us to take the measure of the man.

It's hard to imagine that this most loyal of men began life as an abandoned child, facing the world alone with his mother. He was devoted to her always, and also to the fine man who came into their lives and gave the little boy a name he would carry into history. Gerald and Dorothy Ford expected good things of their son. As it turned out, there would be great things, too -- in a journey of 93 years that would fill them with loving pride.

Jerry Ford was always a striver -- never working an angle, just working. He was a believer in the saying that in life you make your own luck. That's how the Boy Scout became an Eagle Scout; and the football center, a college all-star; and the sailor in war, a lieutenant commander. That's how the student who waited tables and washed dishes earned a law degree, and how the young lawyer became a member of the United States Congress, class of 1948. The achievements added up all his life, yet he was known to boast only about one. I heard it once or twice myself -- he said he was never luckier than when he stepped out of Grace Episcopal Church in Grand Rapids with a beautiful girl named Betty as his bride.

Fifty-eight years ago, almost to the day, the new member from Michigan's fifth district moved into his office in the Cannon Building, and said his first hello to the congressman next door, John F. Kennedy of Massachusetts. They belonged to a generation that came early to great duties, and took up responsibilities readily, and shared a confidence in their country and its purposes in the world.

In that 81st Congress were four future Presidents, and others who wished for that destiny. For his part, Mr. Ford of Michigan aspired only to be Speaker of the House, and by general agreement he would have made a fine one. Good judgment, fair dealing, and the manners of a gentleman go a long way around here, and these were the mark of Jerry Ford for a quarter century in the House. It was a Democrat, the late Martha Griffiths, who said, "I never knew him to make a dishonest statement nor a statement part-true and part-false, and I never heard him utter an unkind word."

Sometimes in our political affairs, kindness and candor are only more prized for their scarcity. And sometimes even the most careful designs of men cannot improve upon history's accident. This was the case in the 62nd year of Gerald Ford's life, a bitter season in the life of our country.

It was a time of false words and ill will. There was great malice, and great hurt, and a taste for more. And it all began to pass away on a Friday in August, when Gerald Ford laid his hand on the Bible and swore to preserve, protect, and defend the Constitution of the United States. He said, "You have not elected me as your President by your ballot, and so I ask you to confirm me as your President with your prayers."

What followed was a presidency lasting 895 days, and filled with testing and trial enough for a much longer stay. Even then, amid troubles not of his own making, President Ford proved as worthy of that office as any who had ever come before. He was modest and manful; there was confidence and courage in his bearing. In judgment, he was sober and serious, unafraid of decisions, calm and steady by nature, always the still point in the turning wheel. He assumed power without assuming airs; he knew how to treat people. He answered courtesy with courtesy; he answered discourtesy with courtesy.

This President's hardest decision was also among his first. And in September of 1974, Gerald Ford was almost alone in understanding that there can be no healing without pardon. The consensus holds that this decision cost him an election. That is very likely so. The criticism was fierce. But President Ford had larger concerns at heart. And it is far from the worst fate that a man should be remembered for his capacity to forgive.

In politics it can take a generation or more for a matter to settle, for tempers to cool. The distance of time has clarified many things about President Gerald Ford. And now death has done its part to reveal this man and the President for what he was.

He was not just a cheerful and pleasant man -- although these virtues are rare enough at the commanding heights. He was not just a nice guy, the next-door neighbor whose luck landed him in the White House. It was this man, Gerald R. Ford, who led our republic safely through a crisis that could have turned to catastrophe. We will never know what further unravelings, what greater malevolence might have come in that time of furies turned loose and hearts turned cold. But we do know this: America was spared the worst. And this was the doing of an American President. For all the grief that never came, for all the wounds that were never inflicted, the people of the United States will forever stand in debt to the good man and faithful servant we mourn tonight.

Thinking on all this, we are only more acutely aware of a time in our lives and of its end. And we can be certain that Gerald Ford would now ask only that we remember his wife. Betty, the President was not a hard man to read, and to his friends nothing was more obvious than the source of his great happiness. It was you. And all the good that you shared, Betty, all the good that you did together, has not gone away. All of that is forever.

There is a time to every purpose under Heaven. In the years of Gerald Rudolph Ford, it was a time to heal. There is also, in life, a time to part, when those who are dear to us must go their way. And so for now, Mr. President -- farewell. We will always be thankful for your good life. In Almighty God, we place our confidence. And to Him we confirm you, with our love and with our prayers.

History shows Obama's effort to reorganize government could be an uphill battle

If you want to know what President Obama is up against with his pledge to reorganize the federal government, consider what happened to the last such endeavor.
After the Sept. 11, 2001, attacks, nearly two dozen agencies were melded into the new Department of Homeland Security, to better coordinate the government's resources for handling terrorism and other national emergencies.
But the members of Congress overseeing those agencies were loath to give up any authority. That is why DHS gets marching orders from more than 100 congressional committees and subcommittees - a number that has grown in the past seven years, despite the 9/11 Commission's recommendation that those tangled lines of authority be consolidated.
And although experts have long called for one agency to handle food safety, that has not happened, in large part because neither the secretary of agriculture nor the secretary of health and human services is willing to cede the job to the other.
Obama is far from the first president to vow to streamline the workings of the vast federal machinery. Or to point out the absurdities of a system that, as he noted in his State of the Union address on Tuesday, has the Interior Department regulating salmon in fresh water and the Commerce Department doing so for those in salt water - and it "gets even more complicated once they're smoked," Obama said.
That line - the inspiration of new White House Chief of Staff William M. Daley, who remembered the situation from his experience as Bill Clinton's commerce secretary - drew the biggest laugh of the night.
But it also may have been an apt metaphor, given the upstream battle that attempts at government reorganization have faced at least since the time of Franklin D. Roosevelt.
The White House has not come up with any details - or settled on who will head the effort.
Jacob J. Lew, director of the Office of Management and Budget, said that Obama is well aware of how difficult the job will be and that the White House intends to proceed cautiously, focusing on changes that could improve national competitiveness.
Although Obama can make some changes by executive order, Lew added, he does not have the authority to move operations from one agency to another without congressional approval.

Thursday, January 27, 2011

Flood levy blues

THOUSANDS of people, including high-income earners whose homes were not flooded, have a ready-made loophole to avoid paying the Federal Government's new flood levy.

And several Queensland projects designed to stop flooding on the Bruce Highway are likely to fall victim to federal spending cuts to help rebuild the state.

The flood levy will not apply to anyone who received the Australian Government Disaster Recovery Payment, which was not means tested. As of last Friday more than 250,000 Queenslanders - one in every eight - had collected the payment of $1000 for adults and $400 for children.

The eligibility criteria was broad and paid out even if residents simply could not access or leave their homes for 24 hours or lost electricity, water or gas for at least 48 hours.

Prime Minister Julia Gillard said the floods posed a massive challenge to build and manage economic capacity. "We're not just going to need money, we're going to need concrete and rubber and steel and more importantly, we're going to need carpenters and bricklayers and road gangs," she said.

However, Opposition Leader Tony Abbott yesterday continued his attack on the levy, calling it unfair, particularly on those who lost their businesses but whose homes remained unaffected. "They obviously face very great reconstruction costs that in many instances won't be covered by insurance and they will still be paying the flood tax under the scheme," he said.

The Government has gone all out to sweeten its levy, restricting its impact to people earning over $50,000 and promising it will not increase and will last just 12 months starting from July 1.

Those earning between $50,000 and $100,000 will pay 0.5 per cent in 2011-12 which rises to 1 per cent on taxable income above $100,000. According to the Government, 60 per cent of taxpayers will pay $1 a week or less and the tax hike only reaches $5 a week when income exceeds $100,000 a year.

But it came under fire for its planned $2.8 billion in spending cuts which hit several projects agreed with the Greens to help Labor form government after the last election.

The federal Independents are also expected to see cutbacks to the $10 billion in regional spending they secured in exchange for supporting Labor.

Queensland Independent Bob Katter has thrown his support behind the levy, saying the precedent was sure to one day benefit North Queensland.

The Greens accused the Government of turning its back on the cause of the disaster climate change. "But it does a disservice to all those tragically affected by these floods . . . to keep insisting that these are one-off events and ignore the role of climate change," Greens Senator Christine Milne said.

Independent Rob Oakeshott said he would examine the package and discuss possible amendments. "On the specific question of flood package impacts on the agreement reached to form Government, I expect that all aspects of the agreement both in writing and in spirit will be upheld," he said.

Agriculture Minister Joe Ludwig the Gillard Government's point man for the recovery told The Courier-Mail the work so far had focused on cleaning up after the floods and the effort would now shift to the bigger rebuilding task. "Queensland needs to be rebuilt and it will be rebuilt," he said.

State Premier Anna Bligh supported the package and thanked Australians for helping Queensland. "I understand that no one wants to pay more but the people of Queensland didn't want this disaster either," she said.


Julia Gillard cops heat from radio host over flood levy

JULIA Gillard has angrily dismissed suggestions her floods response is politically motivated as "complete nonsense".

In a sometimes heated 20-minute radio interview with 3AW host Neil Mitchell, Ms Gillard denied she was sticking to her 2013 return-to-surplus timetable to squirrel money away for the next election. “The motivation for bringing the budget back to surplus is an economic one, not a political one,” the Prime Minister said.

She accused Mitchell of patronising her after the high-rating Melbourne radio host warned the public would not tolerate rorts or wasted money under the floods package. “Neil you don't need to patronise me, thank you very much,” Ms Gillard said. “I understand Neil, thank you, the need for value for money.”

Mitchell hit back: “I am simply looking at history and I think that people are looking at history and saying `This government has a history of waste, please don't waste this new tax'.”

Ms Gillard denied her $1.8 billion levy was just another tax, saying the floods were the most expensive natural disaster Australia had experienced.

She rejected suggestions the levy was massively unpopular in the community. “I believe people are generous, they do want to contribute and people will make their minds up about it,” she said.


School chaplain scheme goes to court

A rare event: Australia's version of the U.S. First Amendment in play

A FATHER won the first round in his historic battle yesterday to have government-funded chaplains thrown out of the nation's public schools.

Ron Williams journeyed from Toowoomba to Sydney yesterday for a directions hearing in his challenge and was thrilled to hear that his case could be heard in the High Court over three days in May. "This is a very important moment," a jubilant Mr Williams said yesterday.

The father of six, who has four children attending Queensland public schools, said his main argument was that the funding for chaplains in schools breached Section 116 of the Australian Constitution, which states that the "Commonwealth not legislate in respect of religion". "This is not about getting chaplains out of schools, it's about the government funding them, which I believe is against the Constitution," he said.

If Mr Williams wins his challenge, government funding for chaplains would be removed.

The National School Chaplaincy Program was introduced in 2006 by former prime minister John Howard. The national program won support from Prime Minister Julia Gillard, an atheist who, just before the election last year, pledged $222 million to extend the program for four years.

More than 430 schools in NSW get up to $20,000 each a year for their chaplain services, totalling almost $12 million, and more than 2500 school across Australia now have chaplains at a cost of more than $151 million.

The chaplain program is run in Queensland by that state's branch of the Scripture Union. In NSW the program is run by the National School Chaplaincy Association which is based in Western Australia.

A spokesman for the association said yesterday it was not appropriate to comment.

NSW Greens MP John Kaye said yesterday's decision was good news for those who believed in separation of church and state. "The anger felt by many of us at the use of public money will now at least be tested in the court," he said. "There will now be an opportunity to hear in court why this program so deeply contradicts the integrity of the Australian Constitution."


Australia already has substantial school choice but that is being "reviewed" and is at risk of being scaled back

by Kevin Donnelly

Just ask Mark Latham about the impact of the hit list of so-called privileged schools he championed when he was leader of the ALP. No wonder that Kevin Rudd and Julia Gillard, on taking over as leaders, rejected the politics of envy and argued in favour of school choice.

During the 2010 campaign, Prime Minister Gillard was so concerned about the issue that she promised to keep the existing socioeconomic status (SES) funding model for an additional year, until 2013.

Gillard also promised that Catholic and independent schools would not lose money as a result of the Gonski funding review currently underway – established by Gillard when she was Education Minister and due to report in 2011.

Unlike the Liberal Party, the ALP is a late convert to school choice. Such pragmatism is understandable. Across Australia, approximately 34% of students attend non-government schools and the figure rises to over 40% at years 11 and 12.

Parents, especially in marginal seats, are voting with their feet and over the years 1999-2009 enrolments on Catholic and independent schools grew by 21.3% while the growth figure for government schools flatlined at 1.2 per cent.

Given that non-government schools are increasingly popular and that school choice, especially for those parents committed to faith-based schools, is a fundamental human right, one might expect that all would agree that such schools should be properly funded.

One might also expect that the best response to government schools losing market share is to ask why state schools are no longer attractive to increasing numbers of parents and what can be done to strengthen such schools.

Logic and reason are not the hallmarks of the self-serving groups like the Australian Education Union and it should not surprise that the AEU, instead of addressing underlying causes, has mounted the barricades to argue that non-government schools should be starved of funding and subject to increased government regulation and intervention.

The AEU has mounted a campaign, including petitions, dedicated websites, surveys and fact sheets, arguing that non-government schools are over-funded, that such schools only serve the privileged and that Catholic and independent schools promote social instability and reinforce disadvantage.

The reality suggests otherwise. Instead of being over funded non-government schools receive significantly less funding when compared to government schools (the following figures are taken from the Commonwealth Parliamentary Library Background Note on school funding, dated 17 November 2010).

On average, and excluding capital expenditure, government school students receive $12,639 in funding from state and federal governments, the figure for non-government schools is $6,606. Every student that attends a non-government school saves government, and taxpayers, approximately $6,000.

In terms of total funding non-governments schools raise 43% of their income from private sources with state and federal governments providing the other 57%. Contrary to the impression created by the AEU it is also the case that federal funding is allocated to schools according to a school’s socioeconomic status (SES).

In the words of the Parliamentary Library paper, “Australian Government recurrent per student funding for non-government schools is based on a measure of need”. Wealthier non-government schools only receive 13.7% of the federal funding figure, known as the Average Government School Recurrent Costs (AGSRC), with less privileged schools receiving 70%.

The AEU also argues that non-government schools contribute to social inequality and educational disadvantage. Once again, the evidence suggests otherwise.

Research both here and overseas concludes that Australia has a high degree of social mobility and one of the main reasons is because we have an education system, based on an analysis of the 2007 PISA results, that is high quality/high equity.

In the words of the 2008 OECD report Growing Unequal?: Income Distribution and Poverty in OECD Countries, “Australia is one of the most socially mobile countries in the OECD” and “the educational attainment of parents affects the educational achievements of the child less than in most other countries”.

It’s also the case that while the ALP and the cultural-left condemn low SES students to educational failure, supposedly as disadvantage automatically leads to poor results, the example of non-government school proves otherwise.

Researchers at the Australian Council for Educational Research (ACER) after analysing Year 12 results conclude that non-government schools are more effective, compared to government schools, in getting low SES students to succeed.

In a 2002 ACER report analysing the factors that lead to success at Year 12, the researchers state, “Students who attended non-government schools outperformed students from government schools, even after taking into account socioeconomic background and achievement in literacy and numeracy”.

During the 2010 election campaign Julia Gillard nullified funding as an issue by maintaining the existing SES model until 2013 and promising that “no school will lose a dollar in funding”.

It’s significant that while the ALP’s rhetoric is supportive, the Gillard-led Government refuses to guarantee that funding will be maintained in real terms and that Catholic and independent schools will not suffer, either financially or in terms of their autonomy, as a result of the Gonski review.


On CNBC's Kudlow Report Tonight

On CNBC's Kudlow Report tonight:


- John Rutledge, Fmr. Reagan Economic Advisor; Chief Advisor to Governor of Haidian District in Beijing; Honorary Prof, Chinese Academy of Sciences
- David Dietze, Point View Financial Services; President and Chief Investment Strategist
- Todd Schoenberger, Managing Director LandColt Trading


- CNBC’s Herb Greenberg
- Quentin Hardy, Forbes National Editor
- Roger Kay, Endpoint Technologies Associates President

GLOBAL DEBT THREATS&P downgrades Japanese debt; U.S. deficit outlook darkens; EU sovereign debt remains a threat

- David Goldman, Senior Editor First Things Magazine; Fmr. Wall St. Economist: Bear Stearns & Credit Suisse
- Michael Pento, Euro Pacific Capital Senior Economist; Euro Pacific Capital Vice President Managed Products

- Richard Engel, NBC News - Cairo, Egypt


- Scott Hodge, Tax Foundation President
- Ezra Klein, The Washington Post Writing Fellow

Please join us at 7pm ET on CNBC.

Wednesday, January 26, 2011

One-On-One with Gov. Chris Christie

Maverick New Jersey Governor Chris Christie gently whacks Obama on the budget, warns the GOP that they must deliver on spending, announces an across-the-board tax cut for New Jersey, and talks about the 2012 presidential race.

Let’s get over our dam phobia

Bob Brown is ever the opportunist, even if his timing leaves a very bad taste in everyone’s mouths. His recent pronouncement that our coal industry is to blame for the devastation caused by the floods in Queensland, NSW, Victoria and Tasmania is both absurd and insensitive.

All the experts, whatever their views on climate change, agree that the increased rainfalls are driven by the long-established cycles of La Nina weather events, just as El Nino is associated with drought.

No-one in the Coalition is suggesting that additional dams would have prevented the tragic Queensland floods.

The onset of the floods did, however, prompt a renewed resolve from the Coalition to ignore political correctness and to put dams back on the agenda as part of the national water management debate.

Dams are by no means the answer in every instance, but nor should they be automatically excluded purely because of politics.

If you consider Brisbane’s Wivenhoe Dam, built after the 1974 floods, there is consensus that it reduced the peak flood level of the 2011 disaster by about two metres.

ANU dam expert Jamie Pittock says that a “two metre higher flood level would have been much more damaging in terms of Brisbane directly, but also Ipswich.”

While NSW Dam Safety Committee executive engineer Paul Henreichs says the Brisbane floods would have been much worse than 1974 had the dam not been there.

“Without extra dams we are still going to get bigger floods and therefore I think people will suffer more,” he says.

This is no consolation and means little to the thousands of unfortunate Queenslanders affected by this disaster, but it does highlight the point that strategically placed dams have a vital role to play.

Despite the obvious, dams have not seriously been in the mix for two or three decades, largely due to the opposition and influence of green groups.

This was again highlighted when the Coalition recently announced our intention to develop a dam and water management plan over the next 12 months.

What we saw was a predictable negative, knee-jerk reaction from Bob Brown and Julia Gillard, before our work had even started. The fact the Gillard government is beholden to the Greens is a real problem, with base politics guiding its agenda, not common sense and prudence.

The political correctness which has shaped the water management debate in this country in recent decades was starkly illustrated in Victoria under the Brumby government.

At the peak of the drought, Brumby avoided dams like the plague and instead pursued monumentally expensive and impractical solutions such as the Wonthaggi desalination plant and the North South Pipeline.

Desalination plants also require enormous amounts of power to operate and should be an option of last resort, certainly not first choice.

The floods have reemphasised that Australia doesn’t have a problem with the amount of water we have, but with the management of it.

The Coalition opposed the Traveston Crossing Dam for a variety of reasons which have been well documented, and we absolutely stand by that decision. The Bligh government, to its credit, was at least prepared to seriously canvas the option of a new dam, albeit one of unacceptable design and location.

In the right locations, however, dams are not only effective forms of water storage for general consumption, for food production and for environmental flows, but can also play a part in low-emission power generation and of course flood mitigation.

Other soil conservation measures, including large-scale river levees and more localised landscaping projects also have a proven role in reducing flood flows.

In terms of the Coalition’s work, the consideration of appropriate dams will include looking at all areas of water management, including new technologies and innovations and consulting widely with the scientific and engineering communities, land owners as well land management and environmental groups.

The CSIRO, for example, has done some outstanding work looking at the potential in underground water storage, which could have widespread application.

While naturally occurring underground aquifers can’t hold anywhere near the volume of conventional dams, they are cheaper and can be located closer to the water user.

There is also exciting technology available in the areas of computer-aided river management, irrigation and flood control which we’ll be having a close look at. The Murrumbidgee River project comes to mind.

Utilising this type of technology, in conjunction with dams, enables the more efficient use of water within a system. If you have a stand of red gums that need flooding just once every four years from an environmental perspective, you can do it every four years, preserving water for other purposes.

While Julia Gillard and Bob Brown will no doubt attempt to whip up a scare campaign against our work, we will not be deterred. It is time to put political correctness aside and to overcome our dam phobia.


Earth's climate crisis ain't necessarily so

Christopher Monckton

WHILE the Gillard government's climate-change parliamentary committee plots to wreck Australia's economy with a rigged market to make motoring and electricity unaffordable as soon as the new Greens-infected Senate starts work in July, thoughtful pollies are at last - privately, quietly - beginning to ask the Gershwin question.

What if it ain't necessarily so? Suppose there's no climate crisis?

The Romans used to farm out tax collection to "tax farmers" such as St Matthew. The cap-and-tax boondoggle is a tax-farming scam to impoverish the working man and enrich the new tax farmers: bankers, traders, ministers, officials and media moguls. None of them saints.

Cap-and-tax in Europe has been a wickedly costly fiasco. The rigged market has collapsed twice. Member states cheated by allowing themselves more rights to emit than their actual emissions, so the price of emission rights plummeted. Then the tax farmers simply invented 90 per cent of their carbon trades.

Result: electricity prices have doubled. In the name of preventing global warming, many Britons are dying because they cannot afford to heat their homes.

Cap and tax is as pointless as it is cruel. Australia accounts for 1.5 per cent of global carbon emissions. So if it cut its emissions, the warming forestalled would be infinitesimal.

It's worth explaining exactly why. Suppose the Australian committee's aim is to cut emissions by 20 per cent by 2050. Anything more ambitious would shut Australia down, especially while the Greens insist on not letting the country use its own zero-carbon-emitting uranium as fuel.

A 20 per cent cut by 2050 is an average 10 per cent cut from now until then. Carbon dioxide concentration by 2050 probably won't exceed 506 parts per million by volume, from which we deduct today's concentration of 390 ppmv. So humankind might add 116 ppmv from now until then.

The CO2 concentration increase forestalled by 40 years of cap-and-tax in Australia would be 10 per cent of 1.5 per cent of that 116 ppmv, or just 0.174 ppmv. So in 2050 CO2 concentration would be - tell it not in Gath and Ashkelon - 505.826 ppmv, not 506.

Thus what we maths wonks call the proportionate change in CO2 concentration if the committee got its way would be 505.826 divided by 506, or 0.9997. The UN says warming or cooling, in Celsius degrees, is 3.7 to 5.7 times the logarithm of the proportionate change.

It expects only 57 per cent of manmade warming to occur by 2100: the rest would happen slowly and harmlessly across 1000-3000 years.

To be charitable to the committee, let us take the UN's high-end estimate. The warming forestalled by cutting Australia's emissions would be very unlikely to exceed 57 per cent of 5.7 times the logarithm of 0.9997: that is - wait for it - a dizzying one-thousandth of a degree by 2050.

I have set out this calculation to show how certainly it is known that all attempts to cut CO2 emissions will expensively fail. Focused adaptation to any adverse consequences of such warming as may occur would be orders of magnitude more cost-effective. But do we need to cut CO2 at all? Some cold facts:

Satellite datasets show last year was not the warmest on record. It was not the least snow-covered year but the most snow-covered: a largely unreported gain in Antarctic sea ice since 1979 almost matches the widely reported loss of Arctic sea ice.

It was not the worst year for hurricanes, but the best year: the accumulated-cyclone-energy index shows less tropical-cyclone activity worldwide than for 30 years.

The forest fires in Russia and southern Australia, and the floods in Pakistan and eastern Australia, were far from the worst ever. Nor can they be attributed to human influence: the UN's climate panel has warned us against that.

They were caused by naturally occurring weather patterns called blocking highs. And global warming can scarcely be blamed after a decade without any.

Nor did 2010 see the second-highest level of natural catastrophes. Yes, 90 per cent of them were weather-related, but in most years that is true, and was true long before we could have influenced climate.

Nor is sea level rising fast. It has risen at the rate of just 0.3m a century since satellites measured it reliably in 1993, under a quarter of the average rate during the past 11,400 years. The Greens don't believe their own whining about sea level: their Hobart office is just metres from the "dangerously" rising ocean.

Nor do most scientists believe man-made global warming will be catastrophic. Most are not climate scientists and take no view, and only a few climatologists have published on the central question how much warming there will be.

Of these, the researchers using measurement and observation rather than modelling have shown that much of the radiation the models say should be warming the surface is escaping to space as before.

The upper air in the tropics that the models predict should warm at thrice the surface rate is warming only at the same rate; model-predicted surface evaporation in response to warming is a third of the observed rate.

The missing heat energy imagined by the models but not present as warming in the past decade is not lurking in the oceans; and the entire warming of the late 20th century can easily be explained without blaming man.

Just one of these fatal discrepancies between prediction and reality - and each points to very little future warming - would normally be enough to dismiss climate catastrophism.

As the Gershwins rightly concluded, "It ain't nessa, ain't nessa, ain't nessa, ain't nessa, ain't necessarily so."


Nuclear option our safest bet

JULIA Gillard's weakened leadership needs a power surge. No one knows this better than her Minister for Energy and Resources, Martin Ferguson.

Ferguson, an outspoken proponent of nuclear energy, is in Washington this week for talks with US Energy Secretary Steven Chu. A Nobel laureate in physics, Chu supports America's expanding nuclear program, saying it "is going to be an important part of our energy mix."

For Chu and many others, nuclear power is critical to a more sustainable energy and environmental future.

If our Prime Minister is to stay true to her promise and make 2011 the year of "delivery and decision", she needs to take the lead and initiate a comprehensive discussion about nuclear power, which happens to be the only carbon-neutral baseload energy source.

Failure to do so ignores the informed views of a long list of technical experts, environmentalists and many of Gillard's Labor colleagues.

So, why is it time for Australia to have the nuclear debate? And why is it, in the words of former prime minister Bob Hawke, "intellectually unsustainable to rule it out as a possibility"?

The answer is threefold. As a leading source of uranium, Australia has a competitive advantage; as a clean form of energy, nuclear power is better for the environment; and as the only advanced economy not embracing it as the answer, it is time we caught up.

The facts are compelling. Australia is home to 38 per cent of the world's known recoverable reserves of uranium, and we export uranium to more than 10 countries.

As I said in my first speech to parliament last year, Australia is in a curious moral, economic and environmental position where we are prepared to export uranium, but not use it.

Today, 31 countries host 440 nuclear reactors, providing two-thirds of the world's people with electricity. More than 55 new reactors are under construction, nearly half of them in China.

The European Union generates more than 30 per cent of its energy from nuclear power. The US figure is 20 per cent and rising. In each of these countries the decision to go nuclear was a practical one, cutting across the partisan divide.

In Britain, it was Labour prime minister Gordon Brown, not a Tory, who described nuclear power as "a fundamental pre-condition of preparing Britain for a new world".

In the US it is Barack Obama, a Democratic President, not his Republican predecessor, who has committed more than $8 billion in federal loan guarantees for the next generation reactors.

Only in Australia does entrenched ideological opposition prevail. Only in Australia is the Prime Minister looking back down the time tunnel.

But, looking to the future, if Australia is going to be serious about meeting its carbon emission reduction targets, we must contemplate the nuclear option.

It is a message the International Energy Agency's executive director Nobuo Tanaka recently carried to Canberra: "If you don't use nuclear, totally renewable energy is very, very expensive, and also it is fragile in terms of its productivity."

It is a message that has for a long time resonated in Tanaka's native Japan.

With a commitment to cut greenhouse gas emissions from 1990 levels by an ambitious 80 per cent by 2050, Japan plans to build 9 new nuclear reactors by 2019 on top of the 55 already in place. For the leadership in Tokyo nuclear power is a proven winner and indispensable to a greener, cleaner future.

While Japan and many of our other regional neighbours including India, Korea, Taiwan, Vietnam and China have already embraced the nuclear concept, Australia can catch up.

The pre-eminent voice in the Australian debate, Ziggy Switkowski, chairman of the Australian Nuclear Science and Technology Organisation, believes Australia can have its first reactor operating by 2020 and 50 in place by 2050, providing 90 per cent of the nation's energy needs.

Such a move would propel us a long way towards meeting our emissions targets by 2050.

Developments in reactor technology are also occurring so fast that the construction phase is likely to shrink from 60 to 30 months in coming years.

New generation reactors will also be considerably smaller, built underground, and with the potential to be gas cooled, so they would not need to be located close to large sources of water.

Incidentally, Australian companies like Worley Parsons are involved in the construction of new reactors as in Egypt, where they are gaining an international reputation for their project management expertise.

Huge strides are also being made to dramatically reduce the amount of nuclear waste. Fourth generation reactors will burn most of the fuel, with the surviving waste having a half life a fraction of that produced by today's reactors.

Today's reactors are also significantly safer than their predecessors. The explosions at Chernobyl and Three Mile Island were decades ago and since then there have been thousands of reactor hours without incident.

A comprehensive and informed debate about a nuclear power industry for Australia is long overdue.

It will require our Prime Minister to overcome the ideological bogies of the past and think of the benefits that will accrue to future generations.

If Gillard started to listen to Hawke and other senior voices on the Labor side, the pathway ahead for Australia would soon become abundantly clear.


Class warriors prepare to ambush private schools

Janet Albrechtsen

SO far it's just shots across the bow in what will be this year's political sleeper issue: the Gonski review into federal funding of schools.

Soon enough we will get a barrage of rapid fire from the teachers unions as they do what they always do when it comes to any talk about funding schools: cast aside inconvenient facts, ignore parental choice and wage a misleading war against private education.

Last Sunday, Fairfax's Sun-Herald joined the side of union leaders, trying to shock parents about fee increases at private schools, giving the last word to the Greens to complain about "ever greater amounts of government money flooding into wealthy private schools".

Flooding is extreme imagery at the moment. And quite deliberate. Submissions to the Gonski review are due by March. After that, the teachers unions' carefully orchestrated campaign of misinformation about the evils of funding private education and the virtues of funding public education will get into full swing.

That's a shame. Funding our schools raises important principles ripe for discussion, recommendation and determination.

As then education minister Julia Gillard said in April last year, when announcing a review of the complicated, hotchpotch approach to funding schools, funding principles "should be based on simplicity, flexibility, stability, equity, value for money, transparency and best practice".

All laudable principles that the review will consider over the course of this year. Alas, Gillard either forgot or deliberately ignored another principle that has long guided funding of schools in Australia. The principle of choice.

To be sure, the threshold issue of choice was settled long ago. Australia has a fine tradition that mixes public and private investment in education. Plenty of parents have followed P.J. O'Rourke's basic observation that when you spend your money on yourself, you spend it much more wisely than when the government spends your money on other people.

The real question, now critical to the Gonski review, is whether we encourage parents to spend their own money on their children's education, whether we merely tolerate it or whether we actively penalise it.

By failing to mention the principle of parental choice to privately educate their children in her discussion paper and draft terms of reference, Gillard seems to fall into the "tolerate choice but don't encourage it" camp.

That, too, is a shame. Logic would suggest that once the state has used taxpayers' money to provide acceptable minimum standards of education to every child, it should then actively encourage parents to lavish as much of their own money on their child's education as they can. But this most basic logic eludes the cheerleaders of public education entirely, most particularly the teachers unions. Many of them actually want to punish parents who spend their own money (over and above their taxes) on their child's education.

That's because unions don't really approve of allowing private choice when it comes to parents spending their money on their child's education. For the time being, their class warfare means they want a funding model that penalises parents who choose to educate their children privately.

And misinformation is at the heart of this campaign. Consider the Australian Education Union's submission to the Gonski review about its terms of reference, in which it demands a "comprehensive, evidence-based analysis of both the state and federal funding mechanisms for non-government schools". On its face, that seems appropriate. The entire funding pie for each sector is relevant to any meaningful review of funding. Except that when unions compare public schools with private schools, they invariably look only at federal funding. And the reason is simple. Although education is a state responsibility and the states and territories provide the largest slice of funding to public schools, the unions don't want you to recall this inconvenient fact.

Instead, critics of private education use misleading figures to suggest government-condoned inequity - the rich taking from the poor in our schools. Take Trevor Cobbold, convener of Save Our Schools, who likes to highlight average total expenditure. In government schools in 2007-08 it was $10,723 a student, compared with $15,147 in independent schools and $10,399 in Catholic schools. It's true that total expenditure in government schools is about $10,500 per student. But now add the relevant facts. State and territory governments provide about 88 per cent of funding to public schools, the federal government provides about 8 per cent and parents the remaining 4 per cent. Almost the reverse funding pie applies to independent schools. State and territory governments provide just 12 per cent of the funding per student, the federal government picks up the tab for 31 per cent and parents, and the school community provides 58 per cent of the funding per student.

In dollar amounts, if you compare state and federal funding to government and non-government schools, as any meaningful review of funding must, students at government schools receive about twice the government funding received by students at non-government schools.

Fair enough. Parents who choose to educate their children privately accept that the bulk of the funding is private: they choose to foot the largest part of the bill to educate their children, with estimated savings to governments of $3.1 billion each year.

Still, teachers unions are committed to first reducing, then obliterating, any public funding to private schools. Their message to parents: if you can pay anything at all towards a private education, you should pay for the lot.

Union leaders may talk about equality of opportunity but their aim is equality of outcome: each Australian student attending the same kind of school, receiving precisely the same kind of cookie-cutter education. Diversity, usually such a fashionable word in the teachers union world, is taboo when it comes to schools and choice. Being an advocate of public education is a fine vocation indeed, except when it means becoming a specialist in dishonest and illogical arguments aimed at bludgeoning the federal government into giving less and less to private schools. No strategem goes unused in their attempt to strangle private education.

Imagine how refreshing it might be to hear an advocate of public education talk about the importance, too, of private schools within our education system. Imagine if this public education advocate recognised the need to encourage - not just tolerate, and certainly not penalise - parents who can afford to privately educate their children, to do just that. Imagine if the Gonski review said just that. And just imagine if the Gillard government agreed.

After all, telling hardworking parents who sacrifice in order to fund their children's education that the more they invest, the more they will be punished by a withdrawal of federal funding is no way to build an education revolution.


Christie: Showing Washington How to Get It Done

New Jersey Gov. Chris Christie expressed disappointment in President Obama’s failure to commit to aggressive budget cuts and entitlement reform in last night’s State of the Union speech. In a CNBC interview that will run tonight on my show, the governor contrasted his New Jersey efforts to slash spending and reform government-union pensions and health benefits with the president’s weak approach.

While Mr. Christie would not reveal any specifics, he said he will unveil across-the-board tax cuts for New Jersey in his budget to be released in a few weeks. That’s a surprise.

Right now, Christie is in a slugfest with Gov. Pat Quinn of Illinois about businesses migrating to the Garden State and leaving the Land of Lincoln. While Christie acknowledged that his state ranks near the bottom of a business tax-climate index published by the Tax Foundation, he told me that the difference between New Jersey and Illinois is that Illinois is on a path of higher taxes and New Jersey is on a path of lower taxes.

The governor also continued his mantra that he is not ready to be president. I asked him if he might be ready for a draft in 12 months. He said it’s not in his heart, and added that he made a pledge to the voters of New Jersey to stay and get the job done. I mentioned that he was using the state as a laboratory of conservative reform on taxes, deficits, and entitlements -- areas that exactly mirror the federal problem. And he agreed, telling me that he’s showing them how to get it done.

The governor recently had dinner with Mitt Romney, but he cautioned that the meeting should in no way be seen as a presidential commitment. He also cited recent visits with Haley Barbour, Tim Pawlenty, and Mitch Daniels, saying they are all good governors.

On CNBC's Kudlow Report Tonight

On CNBC's Kudlow Report tonight:


- Dan Genter, RNC Genter Capital Mgmt. CEO
- Stephanie Link,, Director of Research
- Brett Arends, The Wall Street Journal Columnist


- Keith Boykin, Former Clinton White House Aide; Editor of The Daily Voice online news site; CNBC contributor
- Andy Busch, BMO Capital Markets Global Currency and Public Policy Strategist


- Eric Fisher, Weather Channel


- Jim Rogers, Rogers Holdings Chairman

Please join us at 7pm ET on CNBC.

Tuesday, January 25, 2011

Australia Day today

It commemorates the arrival of the first white settlers in Australia in 1788 and has become an increasingly popular celebration. As the Left-run schools have robbed Australians of their history, the few shreds that remain in people's consciousness are seized on eagerly. The same goes for Anzac Day, which goes from strength. My family on my mother's side have for many years celebrated the day in a good Aussie way -- with a family get-together over a BBQ lunch. I will be off to that as soon as I post this. I expect to see lots of cars with Australian flags on them -- something that is a phenomenon of recent years only

A pesky one for the Warmists

In their usual form, Warmists have been out in force blaming the recent Brisbane flood on global warming (e.g. here), quite ignoring the fact that Brisbane flooding has been happening since Brisbane was founded nearly 200 years ago.

They also allege that the world has warmed significantly in recent decades. That should mean that the recent flood was greater than previous floods. Since the previous flood, however, a conservative government built the huge "Wivenhoe" flood mitigation dam. So flood levels don't necessarily tell us much.

What DOES tell us something is the amount of rainfall. If global warming were the dark person in the woodpile, recent rains should have been a record high. They were not. The recent Brisbane rainfall was dwarfed by the amount of rain that fell during the previous flood 36 years ago

BRISBANE had more rainfall in the 1974 floods than it did in the latest episode, preliminary figures show. And rainfall during the 1893 floods may have dwarfed both the 1974 and 2011 events.

The weather bureau on Tuesday unveiled rainfall comparisons suggesting the city falls were relatively light compared with '74. But the inland falls that caused the flooding of the Brisbane River were extremely heavy. The bureau stressed all data was not yet complete.

But weather experts suggested "peak rainfalls from the 1974 event were substantially heavier than those in 2011". Brisbane's three-days and one-day totals were 600mm and 314mm in 1974, compared with 166mm and 110mm in 2011. "However, in 1974 the heaviest rains were closer to the coast whereas in 2011 heavy rains spread further inland," the bureau said.

Insufficient data exists for a comprehensive assessment of the 1893 floods. But what data the bureau has suggests 1893's rainfall was extreme. Crohamhurst in the Glass House Mountains, inland from the Sunshine Coast, received 907mm on February 3, 1893. That remains an Australian daily record.


Flood levy will hit already 'struggling' Australians as food prices rise, says Joe Hockey

A $5-a-week levy to pay for flood reconstruction is a "dumb idea" when Australians are already struggling with flood-related price rises, the Coalition says. Opposition treasury spokesman Joe Hockey said it was “absurd” for Julia Gillard to ask Australians to donate to Queensland Premier Anna Bligh's flood relief fund and then impose a $3.5 billion new tax. “What's even worse is that flood victims will have to pay this levy, they have been affected by the floods and then they are now going to have to pay the levy.”

The Prime Minister is expected to announce a 0.5 per cent increase in the 1.5 per cent Medicare levy at the National Press Club tomorrow. The move would cost average earners an estimated $5 a week, raising about $3.5 billion in 12 months to rebuild damaged infrastructure such as roads, bridges, rail lines and community amenities.

News Limited newspapers reported today that Ms Gillard met with Treasurer Wayne Swan, Finance Minister Penny Wong and Infrastructure Minster Anthony Albanese yesterday to sign off on the levy.

Mr Hockey promised the opposition would oppose the imposition of a new tax in parliament. “This is a dumb idea on the back of increases in fruit and vegetable prices, rising interest rates, a carbon tax and a mining tax, it will indirectly affect everyone because there will be less money and less spending in the community, whether people have to pay it or not,” he said. “This is going to hit people who are struggling.”

Mr Hockey said a Coalition government would not impose a reconstruction levy if it found itself in government soon. “We absolutely rule out a levy, from our perspective the rebuild can be paid for out of existing government budget,” he said. "They are sitting on billions of dollars in various funds that they are afraid to touch because they are slush funds for re-election.”

The Howard government imposed a series of levies when it was in office, including the $500 million gun buyback levy and the $286 million Ansett levy, imposed on airline tickets, to pay workers entitlements after the airline's collapse. It abandoned a plan to impose a levy to pay for the military engagement in East Timor after community resistance.


Another useless government hospital kills a kid

Parents watched son die before their eyes

No doctor, a student nurse, faulty equipment and a stricken father forced to start CPR on his dying son when medical staff failed to notice the boy's heart had stopped. This was the nightmare unfolding at Nambour Hospital's emergency department on August 25 after an ambulance arrived with critically ill Sunshine Coast four-year-old Tom Olive, who later died.

His Mooloolah parents Andrew and Trudy Olive have called for an investigation into their son's treatment and a review of procedures so that other families don't endure the same trauma.

The Courier-Mail in November revealed the tragic loss of Tom and fears his three-year-old sister Laura could be at risk from the mystery disease that caused a devastating breakdown of his muscle tissue. His parents said their initial goal had been to protect Laura and now they were confident about her future, they wanted answers about their emergency department ordeal.

They have sent two letters to Deputy Premier and Minister for Health Paul Lucas through their lawyer Peter Boyce. A reply said the circumstances surrounding their son's death would be addressed by the State Coroner.

"This could take years. There is only a small window of time to save a child when they get this critical," Mr Olive said. "The children of the Sunshine Coast deserve better. I will not sit back and wait any longer. Changes must be put in place now as more lives could be lost.

"What we encountered was madness. There was no doctor waiting for us. A uni student nurse was trying to take Tom's temperature with equipment she said had been 'playing up all morning'. "The paramedic also had to point out that the blood pressure reading would be inaccurate because of its placement and Tom had moved.

"Later, when we were moved to a resuscitation room, there were up to eight staff present and no one except us was watching Tom. I was the first to notice his heart had stopped and started CPR. "All hell broke loose. The only resuscitation mask was an adult one that didn't fit and people were running everywhere looking for a kid's one. It was only at this stage that a doctor became involved."

Mr Olive said despite the ambulance stopping to pick up an intensive care paramedic and the hospital being called before their arrival, there was no doctor on hand. "How serious does a little boy have to be before he gets to see a proper doctor? It's too late when he's dead," Mr Olive said. "I don't blame the student nurse in any way, she should not have been put it in this situation."

Sunshine Coast Health Service District chief executive Kevin Hegarty said the matter was subject to an ongoing coronial investigation. "I appreciate the grief and anxiety this young family must be experiencing," he said. "I assure them that we are doing everything possible to assist the coronial investigations."


More legal stupidity

Man fined for trying to paint over offensive graffito on road. He should have been thanked, not fined

A Brisbane bayside man who tried to cover "offensive graffiti" of a penis left by others by painting over it was fined $300 and ordered to pay for its partial clean-up.

Simon Corbett pleaded guilty in the Redcliffe Magistrates Court to one count of wilful damage at Scarborough, north of Brisbane, on October 29 last year.

Prosecutor Jodie Brennan said police interviewed Mr Corbett after neighbours saw him painting on a section of road that was later found to have graffiti featuring "indecent representations" of a phallus - an erect penis.

Senior Constable Brennan said Mr Corbett was originally charged with an added aggravating feature of the offence - meaning they believed he was responsible for the original offensive road artwork. However, Mr Corbett, who was self-represented, said he had simply tried to cover the offensive "phallus" by painting over it.

It was expected Mr Corbett would defend the charge during a summary trial, but entered a plea of guilty when police revealed they would not pursue the allegation he was responsible for the offensive graffiti. Constable Brennan said the prosecution accepted Mr Corbett had only tried to cover graffiti allegedly left by one or more other people. "He was trying to cover up (offensive) representations on the road," she said.

The court was told the clean-up bill to remove the graffiti was $770. Mr Corbett said he did not think it would be fair to lumber him with the whole cleaning bill. Magistrate Alec Chilcott agreed and ordered Mr Corbett pay only $100 restitution.

Mr Chilcott said under the circumstances it was appropriate to not record a conviction against Mr Corbett, but did impose a fine of $300.


Mr. ‘Investment’

In his State of the Union message tonight, President Obama is likely to call for some kind of corporate tax reform. But don’t look for him to be a budget-cutter.

As we know, in the name of “investment,” Mr. Obama is proposing spending increases for education, energy, and so-called infrastructure. By the way, in the last three years, education spending has gone up 209 percent, energy spending 150 percent, EPA spending 126 percent, transportation spending 71 percent, and science spending 47 percent. (Hat tip to Steve Moore of the WSJ.) Do we need more?

Centrist Democrats are not likely to agree with Obama’s new spending plans. Democratic Sen. Tom Carper of Delaware talked to me about the need for “a culture of thrift” in a recent CNBC interview. And Democratic Sen. Mark Warner of Virginia told me that he and Republican Sen. Saxby Chambliss of Georgia, along with more than 20 others, are going to co-sponsor the full spending and tax-reform plan presented by the president’s deficit commission headed by Erskine Bowles and Alan Simpson.

The best thing the president can do for competitiveness is to agree to Republican demands for much lower spending and a significant reduction in the corporate tax rate. And it will be interesting to see tonight if Obama continues to bash companies for their overseas revenues and profits — his usual mantra — or whether he accedes to territorial taxation and a repatriation tax holiday to bring foreign earnings back home where they can be invested and create jobs.

Tonight’s Republican response to Obama’s claims about the economy also will be interesting. Stocks have been surging and growth has been quickening. Fourth-quarter GDP to be reported Friday could come in around 4 percent. I would attribute this to a combination of strong private-sector corporate profits and ultra-easy Fed policy, although Obama surely will try to crow about the effectiveness of his spending-stimulus package.

Of course, the administration’s Achilles’ heel remains a sluggish employment recovery. Two years ago, when the $800 billion stimulus package was unveiled, the Obama economists predicted the unemployment rate would be 7 percent today. It’s actually 9.4 percent, even though there’s no question that the financial and economic crisis is long past.

In Rep. Paul Ryan’s Republican response tonight, and in other post-speech GOP congressional statements, it will be interesting to see the contrast between the economic plans of the two parties.

State of the Union...A Special Edition of The Kudlow Report Live from Capitol Hill

On CNBC's Kudlow Report tonight:


- Michael Farr, Farr, Miller & Washington/CNBC Contributor
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Keith McCullough, Founder & CEO of Hedgeye Risk Management


- Gov. John Engler, Business Roundtable President


- Rep. Jeb Hensarling, (R) Texas; House Republican Conference Chair
- Rep. John Larson, (D) Connecticut; House Democratic Conference Chair


- CNBC chief Washington correspondent John Harwood reports from Washington.


Sen. Rand Paul, (R) Kentucky


- Michael Farr, Farr, Miller & Washington/CNBC Contributor
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Keith McCullough, Founder & CEO of Hedgeye Risk Management


Sen. John Thune (R) South Dakota

Please join us at 7pm ET on CNBC.

Monday, January 24, 2011

On CNBC's Kudlow Report Tonight

On CNBC's Kudlow Report tonight:

MARKETS: WHAT'S NEXT - DOW 11,000 OR DOW 13,000?

- Barry Ritholtz, Fusion IQ; CEO, Director of Equity Research
- Mike Holland, Chairman of Holland & Company
- Harry Rady, CEO Rady Asset Management


- Peter Schiff, President, Euro Pacific Capital
- Dan Greenhaus, Miller Tabak & Co Chief Economic Strategist

- CNBC’s Eamon Javers reports.


- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy & America's Future" author; CNBC Contributor; Univ. of CA., Berkeley, Prof.
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author


- Frank Gaffney, Center for Security Policy President; Former Asst Secy of Defense for International Security Policy Under Reagan
- Larry Korb, Ctr for American Progress Sr Fellow; Fmr. Asst. Defense Secy during Reagan Admin; Council on Foreign Relations member

Please join us at 7pm ET on CNBC.
A failed attempt to impose guilt on ordinary Australians

The intelligentsia claim to feel guilt about events in Australia's past and present as a way of making ordinary Australians feel guilty too. It has been an epic fail. It just makes the intelligentsia look as out-of-touch as they are. So the hatred for ordinary people behind the guilt crusade remains unsatisfied, rather pleasingly

At the Australia Day lunch in Sydney last Friday, Germaine Greer delivered a brief and dignified address. She spoke on behalf of the four prominent women honoured as recipients of Australia Post's Australian Legends awards - Greer, Eva Cox, Elizabeth Evatt and Anne Summers - and whose images appear on the 50¢ stamp.

Ever the thespian, Greer gave a polished performance. However, she felt compelled to make one broadly political comment when referring to "the guilt that hangs over this country".

The reference was clearly to the events of 1788 and after - when those sent from Britain (then one of the most developed societies on Earth) began to interact with indigenous Australians (then among the most traditional of cultures).

The concept of guilt is a phenomenon felt by many members of the Australian intelligentsia. But there is unlikely to be much evidence of guilt when the increasingly popular Australia Day celebrations take place tomorrow. Guilt for the deeds, or rather misdeeds, of others is essentially a condition embraced by intellectuals.

The novelist Tom Keneally has taken a stance between guilt and celebration. On The Late Show on SBS TV last week, he saw reason for Australians to commemorate the existence of a highly successful contemporary society while not forgetting that errors were made in the past.

It's just over five years since the Cronulla riots of late December 2005. The attacks by an intoxicated group of Australians of Anglo-Celtic background on Australians of Muslim Lebanese background were an unpleasant manifestation of tensions which exist within all democracies.

But, as the scholar James Jupp pointed out at the time, they were not the worst racially motivated incident since the Lambing Flat attack on the Chinese in 1860. He commented that "the Kalgoorlie riots of 1934, directed against southern Europeans, and the Battle of Brisbane during World War II, directed against US servicemen, were worse and lives were lost". There were no fatalities during or following the Cronulla riots.

December 2005 was a time for high theory from guilt-obsessed intellectuals. From London, Greer predicted riots and counter-riots from the Gold Coast to Perth. This "looks like being a bloody summer in Australia", she prophesied. It wasn't. From La Trobe University, Professor Marilyn Lake saw the events as evidence of Australian support for "racial exclusion in the name of the nation". In fact, nothing occurred at Cronulla in Australia's name during 2005.

Soon after, journalist academic Peter Manning depicted the occasion as a "seminal event" in Australian history which demonstrated "the true face of Australian fascism". Yet more hyperbole. The years after the Cronulla incident saw one of the largest, and most diverse, inflows of immigration in Australian history. This took place during the final period of John Howard's Coalition government and the early years of Kevin Rudd's Labor administration. What has been remarkable about Australia during the time of the global financial crisis has been the lack of ethnic tension.

Meanwhile, rates of inter-marriage between ethnic groups remain very high. In other words, the intelligentsia misread the times.

It was much the same with the dismissal by the governor-general Sir John Kerr of Gough Whitlam's Labor government, 35 years ago last year.

Monash University academic Max Teichmann put out a pamphlet in which he presented Australia in November 1975 as being in much the same pre-fascist condition as existed in Germany just before the Nazis came to power. Teichmann even predicted that the election of Malcolm Fraser's Coalition would lead to a dictatorship, since it was most unlikely that he "would merely surrender office" after losing an election. Fraser surrendered office in March 1983.

There were a few who rejected Teichmann's hyperbole at the time. Professors Hugo Wolfsohn and Rufus Davis, both of Jewish European background, wrote to The Age that "Australian democracy is not in crisis nor has it come to an end". They queried the "alarming statements" of many fellow academics and described the constitutional crisis of 1975 as a "temporary technical difficulty in the working of our parliamentary system". And so it turned out to be - Wolfsohn and Davis understood what real fascism was like.

It was much the same with the dismissal of the Lang Labor government in NSW in 1932 by governor Sir Philip Game. Despite the view of some historians, Australian democracy was not threatened at the time.

All too many members of the intelligentsia want to project their disillusionment - or sense of guilt - on to the society at large. But the success of Australia's continuing democracy suggests that this is an empirical society in which there is little room for high theory and scant feelings of collective guilt.


Australian cities to more than double in size under current immigration levels

AUSTRALIA'S capital cities will more than double in size within 50 years under current immigration rates, dramatically affecting quality of life and cutting food production.

Research for the Department of Immigration and Citizenship has found more than 430,000 hectares of land will have to be found for housing in both Sydney and Melbourne if net overall immigration remains above 260,000 a year. Even with zero migration, the capitals will grow in size by roughly 50 per cent, costing residents an extra $1000 a year due to added congestion within the next two decades.

Under current migration rates, each capital would become an estimated one and a half times bigger, with massive gridlock-induced costs.

Posted on the department's website before Christmas, the National Institute of Labour Studies research reveals the extent of the policy problems facing the Gillard government as it plans for a “sustainable Australia”.

“The magnitude of the impacts at all net overall migration levels suggests that unless substantial and timely actions are taken to address these impacts, some impacts have the potential to disrupt Australia's economy and society,” the paper warns.

Lead researcher Dr Jonathan Sobels, from Flinders University, said farms and public land would be consumed as bulging cities expanded. He said Sydney would lose about half of its productive land used for fresh fruit and vegetable production.

“Sydney and Melbourne will rise to something of the order of seven million people. We've got something in the order of half of that now,” he said. “Where are they all going to go? They're not going to all go into 50-storey apartment blocks. “Physically, the demand on land is going to be immense.”

Affluence is forecast to rise faster under higher immigration scenarios, driving up the use of space and resources. Per capita wealth would rise by about 2.3 times by mid-century with migration at the level of 260,000 a year. Without migration, per capita wealth would double over the same timeframe.

Consumption is forecast to rise with affluence, contributing to growing levels of waste, congestion and use of environmental resources.

Sydney would need an extra 2.5 landfills for every one required today under higher migration scenarios, with much of the extra waste resulting from demolition of old buildings.

The report suggests agricultural production would increase toward 2030, and then decline.

Former prime minister Kevin Rudd was a supporter of a “Big Australia”, arguing for a population of 36 million-plus by 2050.

Julia Gillard modified the approach amid a growing suburban backlash, calling instead for a sustainable Australia.

Net overseas migration was running at almost 300,000 but is expected to fall when the latest figures become available in about six months, after changes to cut the number of overseas students staying in Australia following their studies.



Three current articles below

Another huge "Green" hit on the pocket of the taxpayer

SHORTLY before Christmas, federal Resources and Energy Minister Martin Ferguson announced seven proposals were being assessed for two spots in the first round of subsidies for large-scale solar power.

Though dwarfed by the waste demonstrated in the $42 billion Building the Education Revolution, the government's Solar Flagship program aims to provide $1.5bn to assist in the creation of intrinsically uneconomic large-scale solar electricity generation.

Infigen, created out of the carcass of Babcock & Brown, has received preliminary approval from the NSW government for a 100 megawatt capacity solar farm at Nyngan in the northwest of NSW, the cost of which is $300 million.

The simple arithmetic on the investment costs, assuming an 11 per cent return on capital, suggests the project would require its output to be sold at a price of more than $240 per megawatt hour if it were to be viable. But $240 per MWh is more than eightfold the average spot market price in the 2010-11 year to date. So how can the proposal be contemplated?

Well, first, it will receive a subsidy of about $80m from the financially beleaguered NSW government. In a triumph of hope over experience, the Keneally government hopes the project will "contribute to the development of the utility scale renewable energy industry in NSW". An ambitious Victorian solar scheme sponsored by the previous Labor government was to create a new industry and 10,000 jobs, but was mugged by reality and abandoned, with considerable loss to its commercial sponsor.

Second, the Nyngan proposal aims to get another $100m courtesy of the taxpayer from the commonwealth government. To earn an adequate return on the $120m of private capital invested would still require a wholesale market price for electricity of $100 per MWh, compared with the prevailing $30 to $40 price. To bridge the gap, there are further subsidies paid by the consumer as a result of government regulations.

The first of these is the renewable energy requirement, which compels energy retailers to incorporate a rising proportion of uneconomic renewable energy into our electricity supply. Under present legislation this proportion will be 20 per cent by 2020. To meet the commitment, the retailer has to buy Renewable Energy Certificates, which represent electricity supply that is not derived from any commercial supply source such as large-scale hydro. The REC price is presently low due to the overfulfilment of rooftop solar systems (another subsidised renewable scam), but if the REC price rises to $55 per MWh, large-scale solar power systems would start to look profitable if they could sell their electricity at $45 per MWh.

This is feasible since, as a result of the government-created risk of a carbon tax, there is precious little investment in new electricity generation from commercial sources. The upshot is that prices must inevitably rise for electricity as a whole. If they rise from the present (somewhat depressed) level of $30 per MWh to $60 per MWh, this would provide a cushion and allow a large-scale solar plant to turn a profit. Hence, to convert a $300m sow's ear that would produce electricity for a cost that is eightfold its value into a silk purse requires four waves of the governmental magic wand:

* A NSW government grant of $80m.

* A commonwealth Solar Flagship grant of $100m.

* The subsidy from the "20 per cent by 2020 renewable energy" requirement, which doubles the venture's returns.

* And, bringing home the proposal's bacon, the government-created risk of a carbon tax, which prevents new commercial supplies being built and is likely to increase the ex-generator national electricity price by about 50 per cent ($20 to $30 per MWh).

Government regulations and subsidies therefore leverage an investment with a market value of $30m to one that can be profitable at a cost of $300m. The Solar Flagships scheme may not be the most extravagant piece of government expenditure, but the "mere" $1.5bn it is budgeted to squander in taxpayer resources serves to illustrate just how inured we have all become to misused government spending. Moreover, combined with other government distortions of the marketplace, the Solar Flagships scheme is destabilising the commerciality of the electricity supply industry.

As such, it is undermining what was arguably the world's most efficient electricity supply industry, bringing adverse consequences directly to the consumer and to industry competitiveness.


An embarrassing $150 million "clean coal" flop

Two Bligh Government bureaucrats went on a $30,000 round-the-world trip to tell the world Queensland's $150 million clean coal dream was in tatters. In a final "sayonara" for the Japanese-backed ZeroGen project, Department of Economic Development associate director-general Dan Hunt and Queensland Treasury official Lloyd Taylor embarked on the 10-day business-class jaunt in late-October across Japan and the United States.

The move came only weeks before The Sunday Mail revealed in December the government would give ZeroGen to the coal industry and can its proposed $4.3 billion clean coal power plant in central Queensland after taxpayers pumped $150 million into the initiative.

However, there are conflicting claims for the purpose of the trip to Tokyo, New York and Washington DC. Mr Hunt yesterday said the $30,285 trip satisfied government guidelines and was designed to brief technology vendors, including representatives from ZeroGen backer Mitsubishi, personnel of other investors and government officials.

"(The briefings were about the) Government's future investment strategy in low-emission coal technologies and its implication for the ZeroGen and Wandoan Power projects," he said.

However, former premier Peter Beattie wrote in a newspaper column on October 23 the trip was held to try to sell ZeroGen. "The Queensland Government is now selling this project," Mr Beattie wrote. "Dan Hunt and a key Treasury officer have been dispatched this past week to Japan and US to begin negotiations for ZeroGen's sale."

However, this is contradicted by a departmental annual report released at the time which shows the government had already written off its portion of the $150 million investment as a loss.

ZeroGen sources have told The Sunday Mail the Tokyo leg of the trip was essentially to say sorry after it was thought damage had been done to the relationship with the state's key trading partner. "They went there to apologise to the Japanese," a source said. "The government was so rude to them by stuffing them around over the past year before finally abandoning the project."


Green scheme in the red

TAXPAYERS are spending millions of dollars to subsidise the electricity bills of Cate Blanchett's Sydney Theatre Company and replace in-room fridges with "green" Eskies on Heron Island.

Designed to demonstrate solar power and save water, the Gillard Government has spent $15 million on the Green Precinct program at just a dozen "high profile" demonstration projects.

They include a grant of $1.2 million towards the Sydney Theatre Company's Greening The Wharf project that will reduce energy costs by just $100,000 a year. The total program cost is $5 million.

The cost of reducing greenhouse gas emissions is sky high under the scheme compared to the Government's failed bid to introduce an emissions trading scheme with a carbon price of around $30 a tonne. Based on the projected savings under the scheme, the Opposition estimates the Green Precincts Fund comes with an estimated price tag of $2022 per tonne of carbon dioxide saved.

Coalition spokesman on Scrutiny of Government, Jamie Briggs said: "If there is a more expensive way of delivering a government program this Labor Government will find it." "While Australians are wrestling with increased power bills, Labor is finding new ways to burn money."

First announced in the 2008 Federal Budget, the projects are designed to save 142 megalitres of water and 9 million kilowatt hours of energy.

The scheme has proven a winner for lucky recipients including the Sydney Theatre Company, whose general manager Patrick McIntyre confirmed he hoped to slash the company's $140,000-a-year electricity bill by 70 per cent.

The Department of Sustainability disputed the Coalition's calculations on the cost of the scheme in terms of the cost of carbon abatement per tonne, but was unable to provide its own estimate. A spokeswoman said, for example, if the Sydney Theatre Company saved 555 tonnes per year over 20 years, the cost per tonne would be $108 per tonne, not $2162.


* Sydney Theatre Company: For solar power and rainwater harvesting: $1.2 million (Expected to save $98,000 a year on power bills during next decade . total investment of $5 million)

* Wide Bay Water Corporation of Heron Island: To generate solar power and 'replace in-room refrigeration with coolers' at the Heron Island resort: $1.29 million

* Blue Mountains Sustainable Precinct: For rainwater harvesting and rooftop rain gardens: $1.5 million

* Perth's Shire of Peppermint Grove's Library Project: Rainwater harvesting, climate-sensitive building design, including thermal maze and double glazing: $1.5 million

* Essendon Football Club: $1.5 million

* Australian National University: $1 million