"Nationalization" Or Buying Toxic Assets: A False Dichotomy

Furious debate has broken out over the Geithner Plan to use public-private entities to buy toxic assets from troubled banks. Advocates of "nationalization" say the plan is a payoff from taxpayers to the rich, and pose the Swedish plan as superior. But Sweden only nationalized one bank that had totally failed, and then only briefly, with another already state-owned bank getting recapitalization. Otherwise, the government simply guaranteed all deposits in banks. We have effectively already done the Swedish plan, with Indymac and AIG effectively nationalized, and guarantees on deposits increased. This sort of plan just helps the rich using taxpayer funds, just as does the Geithner Plan. These are both ways of using taxpayer money to pay off the rich, who have largely already taken a hit due to the collapse of bank stock prices.

So, the real alternatives would be a true nationalization that would keep ownership and take over management of the banks. This will not happen in the US. The alternative, which is sort of what we did with the S&L crisis, is to liquidate the troubled banks and pay off the depositers. However, the FDIC is not remotely able to do this, even with the $500 billion loan it received in the stimpack. The S&L thing "only" cost the taxpayers $175 billion 20 years ago, and while we think of depositers as "regular folks," the people with the really big deposits tend to be (hack, cough) rich people. Anyway, this is not likely to happen either.

False Scare on “Green Protectionism”

Nothing gets the New York Times into an ideological frenzy like threats to “free trade”. This obsession is worth a study in itself, but we’ll let it pass. For now, let’s just insert a modest correction into the record: there is nothing protectionist about border taxes designed to offset the difference in production costs due to differences in carbon regulation. First of all, the issue is pragmatic: unless such taxes are introduced, no country will unilaterally introduce a carbon cap or any other measure that increases the costs of carbon-intensive goods. And if they did, it is quite possible that the effect could be perverse—with production migrating from more regulated regions to unregulated ones, leading to more emissions overall. So there simply have to be border taxes based on carbon content.

But there is also no friction between practicality and principle. Look at it this way: considering the global emergency posed by climate change, any country that doesn’t begin to restrict its use of fossil fuels is actually subsidizing its producers. And we have the Times to tell us what a monumental threat subsidies pose to the world economy.

Judd Gregg Predicts That Federal Government Will Go Bankrupt

CNN claims that Judd Gregg is “known as one of the keenest fiscal minds on Capitol Hill”. Known by whom? After the following, one has to wonder how anyone can think he is fiscally keen:

The practical implications of this is bankruptcy for the United States,” Gregg said of the Obama’s administration’s recently released budget blueprint. “There’s no other way around it. If we maintain the proposals that are in this budget over the ten-year period that this budget covers, this country will go bankrupt. People will not buy our debt, our dollar will become devalued. It is a very severe situation.

Admittedly, the President’s own budget predicts that the debt held by the public will rise to around 67% of GDP by 2019, which is the same level it was in 1951. Of course, the U.S. Federal government did not go bankrupt back then either as financial markets saw U.S. fiscal policy as committed to eventually reduce Federal debt. As we eventually exit the current economic crisis, this Administration at least makes the claim that there are also committed to long-run fiscal sanity. What would Senator Gregg suggest – a return to fiscal sanity now ala Hebert Hoover economics.

Of course, the past Administration allowed the debt/GDP ratio to rise each year even when we were near full employment. Funny thing – I did not hear such dire predictions from Senator Gregg when U.S. fiscal policy was clearly irresponsible.

The AIG Bailout: Preventing a Resolution of Offsetting Claims?

James Kwak admonishes us to move from the nano-picture of bonuses to the big picture of counterparty bailouts in the AIG mess. I agree. Along those lines, I have a thought: perhaps the credit default swaps we the taxpayers are making good on are part of a larger, interconnected network of transactions, whose aggregate value, if you netted them out, would be a lot less than the sum of their individual values. My understanding is that this is true in a general way for the derivatives tangle; I don’t know if the CDS’s link to this in some way. Part of cleaning up the financial gridlock is resolving these offsetting claims, of course. But an arbitrary guarantee to pay out some subset would interfere with that process and virtually require that all obligations be carried out. It is in the individual interest of AIG’s counterparties to put the clamps on the US government to get every penny they can, but it is not remotely in the public interest to do anything that requires each individual claim to be settled separately.

I admit I don’t know the detail here. If any EconoListeners have a better handle on this, can they tell me if my worries are well placed?

Dean Baker's "Third Round"

by the Sandwichman,

Along with Jamie Galbraith, Dean Baker also believes "the economic crisis, and its solution, are bigger than you think." In a report issued Tuesday, Baker "makes the case for a third stimulus package to in the face of economic indicators signaling that the economy is in a deeper downturn than was expected based on previous projections."

To get money into the economy effectively and quickly, the report proposes a stimulus package consisting, in part, of two tax credits: an employer tax credit that would extend health care coverage and another per worker credit for employers increasing the amount of paid time off.

Excerpt from The Housing Crash Recession and the Case for a Third Stimulus after the jump.

The other obvious mechanism for quickly boosting demand is employer tax credits for giving workers paid time off. The paid time off can take a variety of forms, such as paid family leave, paid sick days, paid vacation days or a shorter workweek. The idea is that the government would give an employer a tax credit of up to $2,500 per worker per year to cover the cost of a reduction in work hours of up to 10 percent of their work time.

This tax credit, like the health care tax credit, could be implemented with very little lead time and little bureaucracy. To qualify, an employer would need to post on a public website the reduction in paid work time that they have put in place. Since workers could see the work-time reduction claimed by their employer, they would be able to verify that the policy has in fact been put into place. The arithmetic on this is straightforward. Suppose that employers of 60 million workers reduce their work time through family leave, sick days, or shorter hours by an average of 5 percent, at an average cost of $2,000 per worker. Since demand will not have changed (workers are getting paid just as much as they had previously), employers will in principle want to hire an additional 3 million workers to make up for the lost labor hours. This would imply 3 million new jobs, or jobs saved (in many cases, it may prevent layoffs that would have taken place otherwise), for an expenditure of $120 billion.

The great virtue of this sort of tax credit is that it is both boosting GDP and also increasing the number of jobs for every level of GDP. If everyone in the economy worked 5 percent fewer hours, and we had the same level of output, then we would have 5 percent more people working. For this reason, it is the most efficient mechanism for bringing the economy back to full employment.

Republicans Tag Cap&Trade a Tax but That’s a Good Thing

Elana Schor presents us with a letter from the Senate Republicans on the environment committee:

Specifically, the President's 2010 Budget proposal asks to collect $646 billion dollars in new "Climate Revenues" from the American people. The government will collect these new revenues through a cap and trade scheme in which " allowances" are sold to the highest bidder. The government won't tax consumers directly, but it will impose new costs on energy producers and users who will in turn pass those higher costs on to consumers, which will result in higher electricity bills, gasoline prices, grocery bills, and anything else made from conventional energy sources. In short, consumers will feel as if they are paying a new tax on energy.

While Elana appears to be critical of how these Republicans have tagged this to be a tax, the Senate Republicans are correct. But as conservative Greg Mankiw has often noted, we should place a Pigovian tax on items such as gasoline.

A Major Statement from Jamie Galbraith

If you haven’t read his sobering analysis in The Washington Monthly yet, read it now, and then come back here. Jamie absolutely nails the limited vision of the Obama economic team, and the lessons he draws from the Great Depression are urgently needed. On the policy front, however, I think there are pieces that need to be shored up.



The most important policy directive is to stop thinking “stimulus” and start thinking about a much larger role for public investment in the long term. The analogy is not stepping off a bus and running to catch up and hop on again, but what to do when the bus breaks down. We are in this for the long haul and have to fashion programs that can employ people who will otherwise have no economic prospects for years to come. Fortunately (in the strange calculus of demand-driven economics) we have crying needs to address, especially in rebuilding our industrial civilization along the lines of sustainability. Galbraith is superb on this.

He also has the measure of our “entitlement” situation: with the collapse of private pension systems (and perhaps even many state and local public pension funds), we need Social Security more than ever. Let’s make it bigger and stronger. Jamie’s take on the housing market is also dead-on.

I would have been in reader heaven if two additional elements had been added:

1. This is a crisis of the global economy. AIG’s counterparty list should remove any doubt, and global imbalances were a critical component of what got us into this mess in the first place. Vast sums were invested in a capital stock whose profitability depended on the ability of consumers in the US to borrow without limit to finance their imports; much of this investment will have to be written off. In other words, the collapse of the US credit bubble is having worldwide ramifications, which will ricochet back, and back again, via the mechanism of global financial integration. If we let this process run its course we are in for a long, tough ride.

2. On the domestic front, there is a shortcut to the decades-long rebuilding of private assets that Jamie envisions: public banking. There is an excellent theoretical case, in my opinion, for a financial system dominated by profit-making public intermediaries, and I’m convinced that the German experience (the Sparkassen especially) confirms it. Moving quickly to establish such a system offers the hope that financial impetus can be revived over a much shorter period, and it rescues us from the odious program of bailouts that now poisons both our economy and our democracy.

Incidentally, there are two routes to public banking. The most direct, which I have advocated in this blog since last September, is to simply set up the system from scratch right now and capitalize it with funds redirected from bailouts. I admit there are loose ends to be dealt with, especially having to do with resolving the international obligations of the existing system, but that’s to be expected with any program. The second route is to hang onto the existing banks after nationalizing them. I have argued against this idea, since it would put the liabilities of these institutions on the public ledger. Perhaps this downside could be reduced by giving the banks’ creditors and counterparties a Paulson-style haircut, but this strikes me as very difficult to pull off, and, at the limit, it simply converges with the “good new (public) bank” proposal I have been pushing.

So: (1) This is a fantastic article by Jamie. I hope it is widely read and discussed. (2) I think we need to be willing to go a little further on the financial front and to take more account of how economically interwoven our world has become.

Kudlow on TALF and Inflation

MediaMatters shows Lawrence Kudlow setting a dollar bill on fire during a CNBC show. Let’s see why he decided to do this:

KUDLOW: The Fed is kicking off its highly anticipated TALF program later today. They're just going to throw more money at the economy. This is a day after announcing it will buy long-term treasuries and mortgage-backed securities. Nobody better to report on this one than our great friend, senior economics reporter Steve Liesman. More on the TALF. Are we going to do this in unison? You get your dollar bill? ... This is the value of our money. This is the value of our money.

Kudlow is suggesting that the Federal Reserve is running a very inflationary monetary policy, but what does the evidence say? While it is true that the monetary base was 89% higher as of February 2009 than it was a year earlier, the money supply (as measured by Kudlow’s cherished MZM measure) rose by only 12%. I would trust that Kudlow is aware that the money multiplier has declined.

But how has this translated into increases in the consumer price index? Well, it seems that the CPI in February 2009 was a mere 0.7% higher than it was in February 2008. The Federal Reserve has been trying to increase the money supply to offset a drop in aggregate demand and a deflationary spiral. And yet Lawrence Kudlow is worried about hyperinflation. Go figure.

[Sidenote and thanks to the reader who caught my error made in the wee hours of the morning when I was also listening to the March madness coverage. The rise in the CPI was for the latest 12 months and I have editted the text to make the reported increases in the monetary base and MZM measure of the money supply for the same period. Note to self - wake-up and don't watch basketball highlights when looking over FRED data for a simple blog post. DUH]

Not Working is Another Subject

by the Sandwichman

Every signifying system, so Zizek claims, contains a kind of super-signifier whose function is just to point to the fact that the system can't be totalized. It is that system's point of internal fracture, marking the point where it doesn't quite gel. -- Terry Eagleton

The point where economics doesn't quite gel is work. Attempts to quantify work fall back inevitably on the mysterious category of hours of labor, an input whose variation is demonstrably not proportional to the resulting output of goods or services.

The point where the human individual doesn't quite gel is the Subject itself. "[W]hat we know as reality is, in Lacan's view, simply the set of fantasies with which we fill in this constitutive hole at the heart of being."

Wrapping the former enigma in the latter riddle, the Subject of economics, homo economicus, 'works' only in the sense of foregoing leisure at some exogenously-determined opportunity cost whose variation studiously disregards the disproportion between productive inputs and outputs.

Clearly this homo economicus cypher is a some sort of bad joke. Political economy, Walter Bagehot argued,

...assumes a sort of human nature such as we see everywhere around us, and again it simplifies that human nature; it looks at one part of it only. Dealing with matters of 'business,' it assumes that man is actuated only by motives of business. It assumes that every man who makes anything, makes it for money, that he always makes that which brings him in most at least cost, and that he will make it in the way that will produce most and spend least; it assumes that every man who buys, buys with his whole heart, and that he who sells, sells with his whole heart, each wanting to gain all possible advantage. Of course we know that this is not so, that men are not like this; but we assume it for simplicity’s sake, as an hypothesis.

The knowledge that "this is not so" has long ago been concealed behind the technical screen of mathematical models. Rather than a "hypothesis," assumed for "simplicity's sake," homo economicus, along with the rest of those fellows -- like Descartes's cogito, Marx's proletariat or the 19th century anthropologists' primitive man -- would be better appreciated as fantasies in the Lacanian sense. They are fantasies because the Real there is unnameable -- it doesn't quite gel -- not merely because the Real is too complex.

Fantasies perform a kind of magic. They authorize a sort of amnesia about matters so fearful and chaotic they would otherwise paralyze us from taking action. But...

The effects of magic must be to weaken intellectual inquisitiveness, to encourage the indulgence in vain procedures for controlling the universe, instead of the profitable application of developing a technique for specific ends; to substitute unreal for real achievement, imagination for action, and to breed an easy fatalism which will prevent the building of fences to keep off crocodiles, or the taking of suitable measures to prevent disease. . . . Magic is indeed a parasitic adjunct to technique which sometimes completely immobilizes it.

Which is to say that sometimes we have to free ourselves from the very same magic that previously may have set us free. So how do we do that if it was the magic of a fantasy that enabled us to overcome the paralyzing void in the first place? The not-so of economic man is hardly a revelation. But one cannot oppose something with nothing, even if that something is somewhat of a nullity. Nemo contra deum nisi deus ipse. No one can stand against a universal Subject unless it is a universal Subject itself.

I stumbled across another Subject a few weeks ago while drafting a short essay for a guest post on another blog. In making "the case for shorter hours," it became obvious to me that the case for shorter hours had been made many, many times before but that it wasn't a single case. The key to understanding the case for shorter working time is to step back from the multitude of objective claims and consider the nature of the Subject implied or constituted by the totality of those claims.

That Subject -- who I will call the historical economic social colllective individual, or Hesci (pronounced he-she, the -sci as in Gramsci) is not the utility-maximizing, extrinsically-motivated rational actor of economic textbook lore. The subject posed by the case is human, acting, as circumstances require and/or permit, either collectively or as a social individual. Hesci is both producer and consumer wrapped into one, not exclusively one or the other. And Hesci simultaneously performs various reproductive roles as citizen, family member, etc.

What I will provisionally call the "working time literature" is an enduring counterstory to political economy and economics. Sometimes it appears within economic analysis but when it does it gets banished because, as a counterstory, it resists and thus cannot be subsumed by the dominant story.

AIG

by the Sandwichman

From The Source and Remedy: "Oh, if I dared venture to anticipate the last paragraph of the historian that generations hence shall trace the character of this age and country, it should run thus.—"

The increase of trade and commerce opened a boundless extent to luxury:—the splendour of luxurious enjoyment in a few excited a worthless, and debasing, and selfish emulation in all:—The attainment of wealth became the ultimate purpose of life:—the selfishness of nature was pampered up by trickery and art:—pride and ambition were made subservient to this vicious purpose:—their appetite was corrupted in their infancy, that it might leave its natural and wholesome nutriment, to feed on the garbage of Change Alley:—instead of the quiet, the enjoyment, the happiness, and the moral energy of the people, they read in their horn-book of nothing but the wealth, the commerce, the manufactures, the revenue, and the pecuniary resources of the country; the extent of its navy and the muster-roll of its hireling army:—in honour of this beastly Belial they made a sacrifice of the high energies of their nature:—they hailed his progress with hosannahs, though on his right hand sat Despotism, and on his left Misery:– they made a welcome sacrifice to him of their virtues and their liberties:—to satisfy his cravings they forewent their natural desires:—honour and truth were offered up on his altars:—and the consummation of their hopes was characterised by misery and ignorance; the dissolution of all social virtue and common sympathy among individuals; and by a disunited, feeble, despotic, and despised government!

Magic

by the Sandwichman

Helicopter Ben finally hauls out the helicopter: "So there are limits to the Fed's magical powers, and they already began showing up in currency markets this afternoon, with the dollar falling sharply against the euro and other foreign currencies. The adventure continues."

The effects of magic must be to weaken intellectual inquisitiveness, to encourage the indulgence in vain procedures for controlling the universe, instead of the profitable application of developing a technique for specific ends; to substitute unreal for real achievement, imagination for action, and to breed an easy fatalism which will prevent the building of fences to keep off crocodiles, or the taking of suitable measures to prevent disease. . . . Magic is indeed a parasitic adjunct to technique which sometimes completely immobilizes it.

The Unique EconoSpeak

What other blog garners simultaneous advertisements from The Monthly Review AND The Independent Institute?

China is Right about Who Should Pay for Carbon Emissions

In the runup to a new round of negotiations on a global climate agreement, China is calling for a “consumer pays” principle: those who import goods from China should pay for their embedded carbon emissions. According to this Reuters Report, Gao Li, the top Chinese official for climate change policy says, “About 15 percent to 25 percent of China's emissions come from the products which we make for the world....this share of emission should be taken by the consumers, not the producers.”

This is not only correct, it is the natural outcome of a rational climate policy regime.



Suppose China requires anyone introducing a carbon fuel into its economy, such as an oil, gas or coal company, to have a permit, and that it caps these permits to curb emissions. Prices of the fuels rise, and these prices are passed along to direct consumers including manufacturers who use these fuels as inputs. This in turn means that prices rise for the manufactured products, paid by the ultimate consumers—in this case, often US and European importers.

If all the permits are auctioned, their combined value will approximately equal the extra revenues derived from consumers. The government could then rebate this money back to its citizens. Since China is a net exporter (even during the current crisis), the money received by its households will exceed the money they pay in higher prices. This means China could, if it wished, rebate somewhat less than the total auction proceeds, use its cut to finance investments in energy efficiency and non-carbon alternatives, and still protect the real income of its population.

This process, which meets the conditions laid down by Li, can be set in motion by the Chinese themselves, unilaterally. The only need for international coordination concerns the problem of leakage, i.e. how to prevent Chinese domestic and export markets from being captured by producers in countries that don’t require carbon permits. The first-best solution would a global agreement to require permits everywhere with a single, global cap. Such permits would be universally tradeable, which means that artificial barriers to their efficient allocation would be removed. Since there would be a single global price, the leakage problem would be eliminated too.

A second-best approach would be to institute a system of border taxes calibrated to the differences in production costs stemming from different national carbon regimes. Establishing a common set of procedures for calculating and applying this tax should be a high priority for negotiators.

Developing countries with trade surpluses, and particularly China, should be eager to enter a system of carbon emission controls. The rest of the developing world will need other inducements.

Leftist Econophysics

There is a branch of econophysics that has attracted serious attention from some Marxist and other leftist economists. This is the series of studies of income and wealth distributions. Traditionally income has been thought to reflect lognormal distributions, which can arise endogenously from random processes from an initially equal distribution. In fact, labor income appears to follow such a pattern. However, wealth appears to follow the power law distributions of financial asset returns, unsurprisingly, that have fatter tails than lognormal distributions, that is, greater inquality with more people far off into the upper end of the distribution. Econophysics studies of this began around a decade ago, appearing in places like Physica A and European Physical Journal B by people like Levy and Solomon and also Dragulescu and Yakovenko, although John Angle showed some of the things in the early 1990s in the Journal of Mathematical Sociology.

Then it was figured out by people like Yakovenko and some others that income distribution looks lognormal for most of its lower portion, where it is determined by labor outcomes, but that its upper portion looks more like a more unequal power law, a la wealth and financial market returns. The class nature of this then began attracting the attention of some leftist economists such as Allin Cottrill and Paul Cockshott, who have now coauthored a book, Classical Econophysics, with Gregory John Michaelson, Ian P. Wright, and Victor Yakovenko. More of these studies, some done by economists such as Mauro Gallegati and some of his coauthors, including some physicists, have appeared in the 2005 book, Econophysics of Wealth Distributions, ed. by Chatterjee, Yagarladda, and Chakrabarti, Milan: Springer.

Outside of the Vortex

Parts of Australia are experiencing unprecedented changes in temperature and rainfall patterns. These changes are associated with an unexpected phenomenon emerging in the Indian Ocean and also in the behaviour of the Antarctic Vortex combined with steadily increasing temperatures from rising greenhouse gases and the depletion of the ozone layer. Observed together they suggest the very strong possibility that Australians are now facing abrupt climate change.[1] This is bringing very prolonged drought and extraordinary heat to the most heavily peopled and treed (mostly Eucalypt) regions of the country. As if this prospect is not frightening enough, it can be seen that climate is not the only threshold that is being crossed. The flashpoint for eucalypt vapour is also being breached by high daytime temperatures. This appears to guarantee the setting off of huge fire infernos in these semi-urban ‘forests’ on a scale that many would simply not be able to imagine.

Southeast Australia has been suffering from a drought over the last 15 years that is of an intensity that has not (as far as we are aware) been experienced before. This has left the landscape very dry. Climatologist Caroline Ummenhofer, a research fellow with the University of New South Wales says that “normally drought conditions over eastern Australia are associated with El Nino, La Nina cycles in the Pacific Ocean (temperature changes that affect the rainfall and circulation over the whole Pacific Ocean and the surrounding areas).” [2]

However, “El Nino is not able to explain this latest drought” says Ummenhofer. “Instead what we found is actually that the cause lies in Indian Ocean temperatures.” “The Indian Ocean has a similar phenomenon to the El Nino, La Nina cycle. It's called the Indian Ocean Dipole, and it's a naturally occurring phenomenon and has been known for some time to influence Australian climate and Australian weather. The dipole oscillates between positive and negative phases and has neutral years in between as well, so the negative and the positive are the two extremes. And the normal wet conditions that you experience over south-east Australia are linked to the negative Indian Ocean dipole event which we haven't seen over the last seventeen years…..the last India Ocean Dipole event of the negative phase occurred in 1992. That is unusual. We haven't anywhere in the record over the last 120 years that we've investigated seen a similarly prolonged period without a single negative event”

Ummenhofer observes that most of the world’s oceans are getting warmer, but particularly the Indian Ocean. “There might be indications that this could lead to changes in the characteristics of Indian Ocean dipole events.” [3]

The Antarctic Vortex near the South Pole is, like its equivalent in the Arctic pole region, a persistent, large-scale cyclone in the middle and upper troposphere and the stratosphere. Polar vortexes are most powerful in the hemisphere's winter, when the temperature gradient is steepest, and diminishes or can disappear in the summer. [4]

The Intergovernmental Panel on Climate Change Third Assessment Report incorporated a chapter [5] on ‘radiative forcing’[6] which noted “several … anthropogenic [man-made] causes for global climate change” These factors, that could be interacting with each other, including rising concentrations of greenhouse gases, the effects of man-made particulates in the atmosphere, and ozone depletion in the stratosphere.

The IPCC noted that scientific studies on these ‘forcings’ observed that the radiative effects of aerosols circulating in the atmosphere, whilst being largely confined to the Northern Hemisphere, may “propagate into the Southern Hemisphere via atmospheric dynamics”. In addition to this, the polar vortex in both the north and south hemispheres were strengthened and the westerly winds in the mid latitudes were contracting and thus moving closer to the poles. These changes, the report noted, may be arising from the rising greenhouse gas concentrations as well as from ozone depletion in the stratosphere.

The implications behind the fact that the westerly winds are moving closer to Antarctica are quite frightening for Australians. “it appears the vortex is shifting gear, and is spinning faster and faster, and getting tighter. As it does it’s pulling the climate bands further south dragging rain away from the continent out into the southern ocean.” [7]. In short, it means that Australia’s unprecedented and horrific drought may not go away!

Climate (like other complex systems) does not behave in a simple linear fashion. That is, simple linear extrapolation is not always possible. Sudden changes in a regime (such as rainfall) can occur over wide areas. This is what’s happened over Australia, even before the 1992 Indian Ocean dipole shift and the contraction of the southern vortex. Around 1945 Australia’s summer half-year rainfall increased over large areas in the eastern part of the continent. However, in 1967-72 there was a sudden decrease in rainfall in south-west of Western Australia which has not reversed since. [8] “Now the same thing is happening to Melbourne.” In 2003 rainfall there had fallen by nearly 20% in the previous 7 years. [7] This dangerous pattern has continued and, at present, almost every mainland capital city is on increasingly severe water restrictions.

Similar examples of sudden changes in system behaviour often arise from an element of the system reaching a limit or threshold at which instability sets in, and the system moves into a new stable state. When the system is close to a threshold even quite small random events or trends can force the system into a different state. Distance from a threshold of this sort is a measure of system resilience or ability to cope with small variations in conditions (Scheffer et al., 2001). [9]

So, indeed it does look like Australia is going through abrupt and dangerous climate change right now.

One very important question comes immediately to mind. How resilient is Australia’s society and infrastructure now? Are they ready to deal with the biggest challenge in the nation’s history? After the most horrific fires ever recorded? After 15 years of intense heat and drought?

What other thresholds, apart from climate-related ones, are Australians dealing with? One critical and almost entirely overlooked threshold is the flashpoint for eucalyptus oil. “The flash point of a flammable liquid is the lowest temperature at which there can be enough flammable vapour to ignite, when an ignition source is applied.” [10] The ‘flash point’for the vapours that rise from Australia’s ubiquitous native trees is a mere 49 degrees Celsius. On Black Saturday this year [11] the temperatures, in the shade, were around 47 degrees Celsius. In the full sun, however, temperatures are about 5-6 Celsius degrees hotter!

Another threshold associated with industrial tree plantations is the level of fuel loads that are amenable to control by our fire departments. The Canberra fire chief reported, soon after that city’s plantation fires encroached and burnt out hundreds of houses in this urban environment, that the fuel load in tree plantations 3-7 years of age was the limit reached before the fires could be brought under control. [12]

Those individuals living in southern Australia have every reason – whether they know it or not - to feel horrified by their prospects for next summer and for many summers after that. After all, “the past decade has recorded the largest expansion ever in [Eucalypt niten and Radiata pine tree] plantation cover in this country” with an average annual planting of 76,000 hectares per year since 1997. [13],[14]. “The majority…is concentrated along the southern and eastern coasts, Tasmania and Western Australia.” [15].

Up until ‘Black Saturday’ Australians had been lulled into a false sense of security. Many families had no knowledge of the need for fire plans or of local geography as “ the hottest day on record on top of the driest start to a year on record on top of the longest driest drought on record on top of the hottest drought on record” approached. [16] Residents are largely oblivious to the enormous hazards the intense and ubiquitous plantings of Eucalypt and Radiata pine monocultures pose to their safety. Residents of the burnt out Victorian township of Marysville saw “what looked like an atomic bomb”[17] coming over the top of the town but had no idea as to the nature of its genesis.

But the truth is that the Black Saturday fires entailed the convergence of two huge fire balls that erupted in a tree plantation estate at East Kilmore and joined with another fire front that appeared to begin at a timber mill in the Murrindindi complex of heavily logged native forest and extensive industrial tree plantations further east [18] [19]. “A two-kilometre stretch of power line in Kilmore East … snapped during strong winds and record heat about 11am last Saturday [7th February 2009]. Within minutes a nearby pine forest was ablaze. Within six hours the fire had destroyed nearly every building in the towns in its path….”[20] . Around 4pm the Victorian Country Fire Authority (CFA) had advised the public that “the fire [was] gaining strength as it head[ed] towards pine plantations near Wandong” [21]where a large bluegum plantation lay within a kilometer of the town. [22] Within 12 hours an ominous line of closely spaced fire fronts stretched all the way from very large East Kilmore/Murrindindi merged inferno through the Bunyip State Forest down to Druoin and Warragul; to within approximately 40 kilometres of the other very large fire complexes around Churchill. The Churchill fire, in turn, began one kilometre south-east of the town in a pine plantation. The flames, out of control, spread rapidly, threatening communities in Hazelwood South and the Jeeralangs. Traralgon South, Callignee, Woodside, Yarram, Carrjung, Gormandale and many more communities came under threat….”[23].

“We have seen the future” says Clive Hamilton. [24]. Some people ask whether Australians will continue to survive living within our tall Eucalypt forest digs. Perhaps the real forests will survive, though the trees may change; become stunted and sparse. With a few more fires the ugly industrial tree plantations will surely disappear. The surviving human residents will learn from the wombat and go underground.

[1] “…A working definition of 'abrupt climate change' is given in Alley et al. (2002): ‘technically, an abrupt climate change occurs when the climate system is forced to cross some threshold, triggering a transition to a new state at a rate determined by the climate system itself and faster than the cause’.

From: IPCC, AR4, WGI, Chapter 10 Global Climate Projections, Future Abrupt Climate Change, ‘Climate Surprises’, and Irreversible Changes.
As quoted in:
Abrupt Climate Change
http://www.global-greenhouse-warming.com/abrupt-climate-change.html

[2] The El Nino Southern Oscillation (ENSO) is a particular pattern of disruption in the interaction between the ocean and the atmosphere that occurs every two to seven years when strong westward-blowing trade winds over the Pacific ocean subside and warm western Pacific water slowly moves back eastward. The upwelling of the cool, nutrient rich, eastern Pacific water (that supports large fish populations) is interrupted. When this happens fish die and climatic changes kick in that affect many parts of the planet. The possible interrelationship between El Nino and the simultaneous droughts on the Australian and other continents was first realized in 1972-73. See:
El Niño - Southern Oscillation (ENSO). Learning Module.
http://ess.geology.ufl.edu/usra_esse/el_nino.html

[3] Behind the big dry
Air Date: Week of February 13, 2009
http://www.loe.org/shows/segments.htm?programID=09-P13-00007&segmentID=1

[4] Polar vortex
From Wikipedia, accessed on 12th March 2009
http://en.wikipedia.org/wiki/Polar_vortex

[5] Houghton et al., 2001, Chapter 6. IPCC Third Assessment Report.

[6] “In climate science, radiative forcing is (loosely) defined as the change in net irradiance at the tropopause. "Net irradiance" is the difference between the incoming radiation energy and the outgoing radiation energy in a given climate system and is thus measured in Watts per square meter. The change is computed based on "unperturbed" values, as defined by the Intergovernmental Panel on Climate Change (IPCC) as the measured difference relative to the year 1750, the defined starting point of the industrial era. A positive forcing (more incoming energy) tends to warm the system, while a negative forcing (more outgoing energy) tends to cool it. Possible sources of radiative forcing are changes in insolation (incident solar radiation), or the effects of variations in the amount of radiatively active gases and aerosols present. Because the IPCC regularly assesses the radiative forcing, it also has a more specific technical definition - see "IPCC usage" section….”
Radiative forcing
From Wikipedia. Accessed on 18th March 2009
http://en.wikipedia.org/wiki/Radiative_forcing

[7] Drought Vortex
18th September 2003
* Reporter: Karina Kelly * Producer: Andrew Holland * Researcher: Mark Horstman
http://www.abc.net.au/catalyst/stories/s948858.htm

[7] Drought Vortex
18th September 2003
* Reporter: Karina Kelly * Producer: Andrew Holland * Researcher: Mark Horstman
http://www.abc.net.au/catalyst/stories/s948858.htm

[8] (e.g., Deacon, 1953; Kraus, 1954; Gentilli, 1971; Pittock, 1975; Allan and Haylock, 1993). As quoted in ‘Climate Change: An Australian Guide to the Science and Potential Impacts’ Edited by Barrie Pittock. 2003. http://www.climatechange.gov.au/science/guide/pubs/science-guide.pdf

[9] ‘Climate Change: An Australian Guide to the Science and Potential Impacts’ Edited by Barrie Pittock. 2003. http://www.climatechange.gov.au/science/guide/pubs/science-guide.pdf

[10] What is the difference between <>& <> of a material ?
http://answers.yahoo.com/question/index?qid=20070508041915AAXk4XT

[11] Black Saturday: the day the worst bushfires in Australian recorded history broke out was on 7th February 2009.

[12] Interview ABC TV: ‘7:30 Report. Kerry O’Brien and Phil Koperberg, NSW Fire Chief. After the Canberra Megafire and its later inquiry, it was reported that to have any hope of ‘managing’ such a fire, fuel build up would need to be as low as 4-5 tonnes per hectare or less. This degree of fuel loading is apparently reached in plantations by 3-7 years.


[13] “The major funding channel funding the elevated planting program is via managed investment schemes” (MIS) which is a widely unpopular financial lurk comprised of billions of dollars of taxpayer subsidies, exemption from land planning and environmental laws. Exemption from landtax, lower local rates payments and extraordinary grants, taxpayer funded infrastructure and other extraordinary subsidies. All for a handful of chosen private corporations. See, for instance:
(i) The MIS anomaly is in land tax law’ by John Lawrence. Tas Country. Page 12. 16th January 2009. [John Lawrence is an economist working as an accountant in public practice.]
(ii) “The Weekly Times asked the tax office in the past why it allowed MIS companies to charge more than $9000 a hectare to establish blue gum plantations, when it cost the non-MIS sector $3000/ha...”

End MIS Excesses of the Past
January 7, 2009
http://www.weeklytimesnow.com.au/article/2009/01/07/39675_opinion-news.html
(iii) MIS raises hackles by Matilda Abey. January 9, 2009
http://www.weeklytimesnow.com.au/article/2009/01/09/39711_latest-news.html

(iv) for a more complete list see the archives of the Tasmanian Times: www.tasmaniantimes.com

[14] “The schemes raised more than $1.01 billion in 2004-5 [alone] despite wide spread drought conditions.”
Growing the Forestry Enterprise in Australia
Gary Bacon, Centre for Forestry and Horticultural Research, Griffith University. 18th April 2007
http://www.forestry.org.au/pdf/pdf-public/conference2007/papers/Bacon%20paper%20april%2018.pdf

[15] Australian forest plantations – a review of ‘Plantations for Australia: the 2020 vision’. Rural and Regional Affairs and Transport Reference Committee. Senate Committee Report. Page 5. September 2004.

[16] http://bravenewclimate.com/2009/02/10/heatwave-update-and-open-letter-to-the-pm/
the heatwave in Australia on 7th February 2009:
http://bravenewclimate.files.wordpress.com/2009/02/heatwavemap.jpg

[17] ‘Blithe Oblivion’ by Kate Legge. The Weekend Australian Magazine. 7-8th March 2009. Page 20.

[18] Kilmore East Murrindindi Complex fire map. 3rd March 2009

http://www.myenvironment.net.au/index.php/me/content/download/1316/7713/file/media_map_kilmoreEast_murrindindi_20090303_0421_a4.pdf

[19] Fire/land tenure map of the Murrindindi fire that burnt through Marysville overlaid onto the latest NASA satellite Infrared Image.25/02/2009 8:46 am
http://www.myenvironment.net.au/index.php/me/resources/bush_fire/research/fire_land_tenure_map_of_the_murrindindi_fire_that_burnt_through_marysville_overlaid_onto_the_latest_nasa_satellite_infrared_image

[20] Huge fire class action launched
* Cameron Houston and Michael Bachelard
· February 15, 2009
| http://www.theage.com.au/national/huge-fire-class-action-launched-20090214-87pg.html?page=-1

[21] Townships under ember attack as fires rage
ABC - February 7, 2009, 4:18 pm
http://au.news.yahoo.com/a/-/mp/5306005/townships-ember-attack-fires-rage/

[22] Bluegums within a 1 km of Wandong.
Google Earth Image Circa April 2005 of Midway Wandong Plantations. Sunday Creek, Pine Creek and Dry Creek catchments.
http://www.baddevelopers.green.net.au/Docs/Midway3Wandong.htm

[23] Churchill and District News. February 2007
http://www.cdnews.com.au/

[24] Bushfires: Don’t mention the c word. Clive Hamilton
http://www.crikey.com.au/Politics/20090209-Dont-talk-about-the-warming-.html