JIM COOMBS. The neo-liberal failure on energy

JIM COOMBS: The source of our current “economic imperatives” and crises, especially in the fields of energy, is that we can’t see beyond the “neoliberal” (does it have a meaning?) insistence that only a “market solution” answers economic problems. Surely, “economics” is better than that.

Can we get back to basics, because they don’t. The “Economic Question” remains: What is the optimum allocation of resources, given that these are by definition limited, to competing ends, the desired results. To assume, just because, in a market situation, supply always equals demand, i.e. Says Law (a trivial truth), that that is the only way for the allocation of resources, or even the best, is an act of blind faith, and no more. It is obvious, except to the ideologically purblind, that there are other criteria which can determine the optimum allocation of resources. The case of Public Goods, about which I have written regularly before, is a case in point: where “market” considerations are irrelevant and questions of equal access and removal of absurd and unnecessary wasteful “competitive activity” are clearly closer to the optimum.

Now look at the present “crisis” over energy supply. Everyone who knows says that we have abundant sources of energy, coal (which is dirty and bad for our environment, and for global warming, the survival of humanity’s planet), gas (still carbon emitting) and renewable: nuclear, based upon an unsustainable fuel cycle, expensive and slow to construct, hydro, dependant on other power to pump water uphill, wind, solar and thermal, the last three, needing some back-up, though the man from Tesla says he can do it with battery storage. The adoption of PV roof-top solar has far exceeded government expectations by a considerable margin, and is getting cheaper virtually by the minute. So there’s plenty of energy out there for the taking.

So where’s the crisis ? We should reject any further coal-fired power generation as firstly bad for our environment, and for climate change, not to mention costly and long-winded to install (even the generators say it won’t happen). Gas still produces carbon, so it should only be for back-up. Hello ! Renewables, solar, wind and thermal, all constant resources, step forward. Will a “market” provide the best allocation of resources to provide energy from these sources ? There is presently a “market” offering these solutions. In terms of a distribution system, it is silly to duplicate the mechanism, which is what the “market” has given us in energy, but also telecommunications, merely to protect the profits of the duplicated providers – so much for competition !. As to power generators into that distribution system, there may be some competitive pressure, although the “markets” for telecommunications, petroleum and groceries should be a warning. The big generators are already looking at solar farms, wind energy, and underground thermal heat power. They can see where the future (and their profits) lies.

So, back to basics: in a modern (post industrial) society, a reliable energy supply seems to be needed. Short of giving in to “the market” to benefit the rich and the powerful, power should be a Public Good, available to all. Unless a genuine benefit from multiple providers is shown, a government (controlled) monopoly makes sense.

All this can be done by government if it has the will (as used to be the case a century ago).

So isn’t all this talk about energy “markets” nonsense ? And the “crisis“,non-existent ?

JIM COOMBS is a retired magistrate and sometime economist


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5 Responses to JIM COOMBS. The neo-liberal failure on energy

  1. Don Macrae says:

    Well, Jim, whether refer to it as a crisis or not there is definitely a problem, inasmuch as forecasts indicate a risk that supply will fall short of demand. Incidentally, I think Say’s Law says that ‘supply creates its own demand’, not that they’re always equal. As to whether the best solution to the problem involves markets or not, that’s a very good question. When I read about large private investments in new technology generation I think that’s excellent, that’s what we want. When I read about established generators gaming the government created price auction model I want to kick the table over. And of course the current retail model is unhinged. But the reason the problem exists and continues to grow is an absence of serious good will on the part of our Federal Government. So the problem right before us is political, in Spades.

  2. Dog's breakfast says:

    Indeed Jim, real sense, and an underlying philosophy going back to the basic question, “what is the optimal way to allocate resources” will see us approach the problem according to the situation.

    Energy, telecommunications, education and health (including pharmaceuticals) are basic rights in our democracy, and given the very unique geography of our country, certainly the first two are best served by a government owned monopoly, run as a business, where delivery of service at cheapest price is the goal.

    The duplication of services, the outsized profits, all lead to vastly inferior outcomes on a social level, and given that these are input costs to so many other products and services leads to a situation where we pay so much more for all other commodities.

    Look at the gas market. We should be the Saudi Arabia of gas. Does Saudi Arabia have any problems filling local needs and paying top dollar for it?

    Exports should only be allowed for what is not required for the domestic market, prices should be set either by regulation, or by whatever the lowest contract and spot price is on the world stage. That we pay among the highest world prices for gas that we produce (well, sort of) is bizarre, a world so far removed from reality that we can only ask ‘how the hell did we get here’?

    Keep plugging away Jim, common sense just ain’t so common.

  3. paul frijters says:


    totally agreed. The problem is a lack of political loyalty towards the public good. The political culture needs to change, across the board. Easily said, but not easily done. Renewal of that political culture will be bitterly resisted.

  4. michael lacey says:

    Privatisation the great neoliberal con on the Australian public!
    Another neoliberal disaster!

    The purpose of government funded public infrastructure is not to make profits but to lower the cost of doing business, sometimes called the socialisation of the means of production. Countries that are able to fund public education, roads, energy grids, water and sewerage and communications will outperform those that do not because businesses operating in such an environment will have lower costs.

    Operating this and other major infrastructures for profit (with high-interest credit) will vastly increase the cost of the economy, without increasing wages or the ability to pay for these privatized services. This will squeeze the living standards while sucking up more and more money to the top of the economic pyramid.

    Look at an important economist in the United States who discussed it. Simon Patten. He was the first economics professor at the first business school in the United States, the Wharton School at the University of Pennsylvania.

    Patten said that there are four factors of production. Classical economics talks about three factors of income — land, labor and capital. But there’s a fourth factor of production, and that’s public infrastructure. However, its function, Patten said – and this is a pro-capitalist saying it, this is the business school – the function of public infrastructure, roads and schools is not to make a profit, like a private investor would do. The public aim is to lower the cost of living and doing business, so as to make the economy more competitive.

    We have been given the snake oil !

  5. Peter Lynch says:

    Australia is not alone in having gone down the path pf privatising the provision of electricity. Lots of US states, Canada and many other developed nations have gone down the same path and are all now going through major contortions to try and make it work. When I look at the their attempts to manipulate their artificial energy markets, I have a vision of a petulant child trying to bash a square peg into a round hole with a hammer. But having reached this stage, we must admit that we can’t get the market out of energy provision in the short term. This will come in the longer term future. So, how to proceed now? I cringe with embarrassment at Malcolm Turnbull demanding that private companies keep uneconomic coal-fired power stations open and forcing others to sell their product to some buyers rather than others. We already have the situation where in times of peak demand, suppliers can charge huge prices over short periods. If we follow overseas experience, the next thing we will see is a second capacity market to go with our current energy only market. This is a market where suppliers of inefficient and polluting supply will be paid to provide capacity whether it turns out to be needed or not. But I worry more about Turnbull’s constantly repeated boast to be agnostic with regard to source of supply at a time when we are failing to meet our pathetic Paris commitments, while also failing in the areas of reliability and security of supply, and facing the death spiral for the grid owners. What we need now is for government to provide incentives to widen the grid and make it smarter. Turnbull needs to provide grid connections (DC if necessary) to remote locations in the north and west where renewable supply is most efficient taking into account solar resources and time zones. He needs to encourage (genuine) firming by incentives for renewable suppliers to attach storage facilities to their wind and solar farms; and to facilitate and encourage smart microgrids. Over time, as the owners of the existing private grid find their businesses becoming unviable, due to consumers reducing reliance on it, the government must bite the bullet and buy it back. Finally, he needs to junk the stupid Snowy 2 Pumped Hydro project.

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