Australia not as deserving of presents as it was at past Christmases

One of the intrinsic parts of Christmas in Australia is cricket.  From backyard games on the day itself, to the Boxing Day Test, it is hard to imagine this time of year without it.

For almost two decades it was easy to be complacent that all was well with the game in this country.  Coincidentally, for most of the same period it was easy to imagine that the Australian economy was in safe hands.

Before last Monday, Australia's most recent loss in a cricket Test at home to New Zealand, was 26 years ago.  Not that it was in any way related to cricket, but a few months after Australia lost that 1985 game, Paul Keating declared that Australia was running a risk of becoming a banana republic.

Fortunately, just as the then Australian cricket captain, Allan Border and coach Bob Simpson rejuvenated Australian cricket, so Treasurer Keating and a few other key politicians of his generation, on both sides of the political divide, not only recognised that Australia had an economic problem, but also knew that it had to be addressed.

So for a quarter century Australia was just about the most deserving recipients of Santa's largesse.  All Australians could sit around each Christmas knowing that not only would the cricket team most likely show its superiority come Boxing Day, but their nation's economy had been reasonably well-managed over the previous twelve months.

The cricket team might not have won every Test, and they might have irritated plenty of people with their boorish behaviour, but you felt that overall the game was doing well.  Likewise, Hawke, Keating, Howard and Costello may have made mistakes, but it is hard to argue that their collective efforts meant that Australia was in significantly better shape in 2007 than it had been in 1982.

As On Line Opinion is suggesting, ''traditionally Santa rewards good kids, and ignores the bad'' -- then, if judged by either its cricket team or its Federal Government, in 2011 it seems Australia will be struggling to secure many presents.

Now this might seem a bit unfair to the ordinary citizens, but in democracies Santa favours those who mange to elect governments, which shows some degree of political courage in pursuit of a positive end.

Twenty years ago this summer, the Australian cricket selectors stuck with a young leg-spinner who took 1/150 in his first Test against India in Sydney.  At the same time, in the early 1990s recession, Keating stuck to his guns and kept his tariff cuts in place despite a chorus of opposition from interest groups.  The big reforms of the twenty-five years to 2007 were all designed to make the Australian economy more competitive.  In that period, we symbolically went from being a nation of striking metal workers to a nation of self-employed tradies.

These reforms also meant that when the Asian meltdown occurred and the dot.com bubble burst, Australia hardly suffered.  Something similar could have happened with the Global Financial Crisis in 2008, but instead Kevin Rudd grossly overreacted.

If you go and blow the family budget on pink bats and unnecessary school halls, you can hardly expect to be able to afford too many big presents under the national Christmas tree.

If you tie up huge swathes of government funding for many budget cycles to come on the NBN, you can hardly complain when there is only loose change to spend on potentially economically beneficial transport infrastructure projects.

Perhaps even more than blowing the budget, what has made Santa consider Australia ''naughty rather than nice'' has been the dismantling of two decades of industrial relations reforms.  The current Government's Fair Work Act rolled back not just the key aspects of Work Choices, but also aspects of the 1997 legislation, which the Howard Government negotiated with the Australian Democrats, and even some of Keating's 1993 reforms.  Suddenly, the unions were back having a far bigger say in the Australian economy.

The decline in political courage is exemplified by the Liberal Party's lack of willingness to argue for industrial relations reform from the Opposition.  The contrast with the 1980s is stark when both sides of politics regularly exhibited a crazy, brave approach to many of the big policy issues.

Of course, this year has also seen legislation aimed at imposing special taxes on carbon and mining profits, which are depressing enough in themselves, but are made more so by claims that they are examples of economic reform.  Economic reform is when you do things that make your economy more competitive, such as floating the dollar or cutting tariffs -- not when you impose extra costs on your economy.

It is almost as if Australians have taken a sudden dose of economic illiteracy tablets.  Take the response to the RBA's decision to cut interest rates earlier this month, which had the tabloid media running a series of truly over-the-top attacks on the big four banks, for having the temerity to wait a couple of days to see if it was responsible to lower rates for borrowers.  Given that the key cause of the GFC was the lax lending policies of overseas financial institutions, it hardly seems unreasonable for the banks to be cautious.

Politics in Australia seems to have become infantilised, as Government seeks more and more ways to deny citizens the right to make decisions about their own lives.  So we get everything from the Bob Brown-inspired media enquiry threatening free speech, to the Andrew Wilkie-inspired attack on the freedom to gamble.

When Australia lost to New Zealand in 1985, there was the consolation that the Kiwis had been bowled to victory by one of the all-time greats in Richard Hadlee, and that with Roger Douglas as Finance Minister, their politicians were even more deserving of presents than we were.  It is harder to identify sources for consolation now.

The one advantage that Australia does have is that because the grown-ups were in charge here for years longer than they were in many other countries of the world, and because we have been blessed with existing gifts such as the mining boom, we are in much better shape than other countries.

And after all, at Christmas time here we get warm sun and cricket;  the basket case economies of Europe get neither.  It is just our own recent naughtiness that causes us to get fewer presents than we otherwise might.

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Left's delusions laid bare

This year sounded the death knell for the euro, government stimulus packages and international action on climate change.  The year should therefore count as highly successful.  Maybe one day, 2011 will rank up there with that other great year of freedom, 1989 -- the year the Berlin Wall came down.

It would be wonderful if the achievements of 2011 could be attributed to the victory of common sense.  Unfortunately that's not the case.

All that's happened is that reality has collided with the grand assumptions, delusions and theories of the global intellectual class.

''Neo-liberalism'' was blamed for the first global financial crisis.  In 2011, neo-liberalism got its revenge.

The website of The Guardian newspaper in Britain now has a ''live'' blog on the ''euro zone crisis''.  It is updated every 20 minutes.  Over the next 10 years, the person who runs that blog is going to be very busy indeed.

Decarbonising the economy, more government spending and the euro were projects of the left and centre-left.

All the projects envisaged a massively expanded role for government and for government regulation.  They also all had one other thing in common.  They were all overwhelmingly supported by the prevailing opinion of academics, experts and the media.

Anyone who doubted the science of climate change was a ''denialist''.

Opponents of the European common currency were ''troglodytes''.  And when he was prime minister, Kevin Rudd claimed free-market critics of his stimulus packages believed in an ideology of ''personal greed dressed up as an economic philosophy''.

The euro zone crisis will be the gift that keeps on giving for economics correspondents.  Meanwhile, times are not good for climate-change journalists.

Sydney has just had its coldest start to summer in half a century.  Canada has pulled out of the Kyoto Protocol.

And at the climate change conference in Durban last week it was agreed that countries would spend the next four years negotiating about how to negotiate a treaty that would start in 2020.

In an era of permanent European crisis, any journalist on the continent wanting to keep their job will have to swap their knowledge of ''COP 17'' (the 17th meeting of the Conferences of the Parties under the United Nations Framework Convention on Climate Change) with an understanding of the ''LIBOR'' (the London interbank offered rate).

The governor of the Bank of England, Mervyn King, famously said in March that he and the world's central bankers bad ''prevented a Great Depression''.  Let's hope he didn't speak too soon.  Central bank governors enthusiastically supported the twin policies of printing money and government stimulus spending.

Tho days ago, unemployment in Britain reached 8.3 per cent, the highest in 17 years.  Youth unemployment is 22 per cent.  It wouldn't be the first time King has been wrong.  In 1981 he was one of the 364 economists who signed a letter to The Times complaining that Margaret Thatcher's economic policies wouldn't succeed and would be a disaster for the country.  The world's central bankers may have prevented a Great Depression.  Instead, they may have given us the Long Recession.

In the face of an unemployment rate of 8.6 per cent in the United States, a few brave souls are still willing to argue government spending can save the economy.  Paul Krugman in The New York Times is fond of writing that the only problem with President Barack Obama's stimulus packages was they weren't large enough.

Not surprisingly, there's been a backlash;  it's not just the Tea Party worried about the size of government.

A survey by Gallup released this week reveals 64 per cent of Americans think the biggest threat to the country is ''big government'', 26 per cent think ''big business'' is the biggest threat, and 8 per cent think ''big labour''.  So much for the ''Occupy Wall Street'' movement.

In 1965, 35 per cent feared big government the most, compared with 29 per cent who feared big labour, and 17 per cent who feared big business.

The less said about the euro the better.  The euro was never going to work.  If there's anything amusing about what's happening to the euro zone it is that the Europeans think they can resolve the problems themselves.  Not since Waterloo have the Europeans sorted out a European crisis on their own.

In 1918, 1945 and 1989 it was the United States that decided the course of European history.  This time the US might not have the money, the time or the inclination to fix Europe.

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New technology and the call for censorship

The first recorded call for press censorship wasn't for reasons of politics, or heresy, or public morality.  It was to police ''quality''.  The gatekeeper mentality is a very old one indeed.

Printing spread rapidly after Gutenberg's first Bible went on sale in 1454.  Following the Bible and legal documents, one market priority for early printers was ancient texts.  The first edition of Pliny the Elder's Natural History produced in Italy was printed in 1469.  It was riddled with errors and was in some parts incomprehensible.  A second edition was printed the next year, by a printer in Rome, whose editor was a Bishop by the name of Giovanni Andrea Bussi.

Bussi's edition also had problems.  Lots of them.  Demand for books at their now much lower prices was enormous, and Pliny was not the only book the editor was working on at the time.  (Bussi blamed ''technical reasons'' for errors in his work -- an excuse no more convincing then than it is today.)

The print industry was already highly competitive, and Bussi's rivals played dirty.  One of those rivals was Niccolò Perotti, an archbishop and author of one of the earliest guides to Latin grammar.

Perotti wrote a letter to Pope Paul II.  Bussi's corrupt version of Pliny, Perotti complained, was one of many corrupt versions of Roman and Greek books being pushed around Italy.  Editors who ''set themselves up as correctors and masters of antique books ... pervert what is correctly written''.  They do not understand what they are editing.  They interfere and impose their own views on the classical masters.

Perotti's solution was two-fold.  First, there should be a common standard for editors -- a code of practice, we would say.  But no doubt some editors would violate the standard.  So Perotti asked the Pope to set up a bureau to regulate the quality of books.  This bureau would ''prescribe to the printers regulations governing the printing of books'' and ''examine and emend'' each book.  ''Reckless advertisement'' of the editor's views would be limited.  The performance of this task ''calls for intelligence, singular erudition, incredible zeal, and the highest vigilance''.

The Pope did not take up Perotti's proposal.  Censorship in the decades to come focused on banning heretical and Protestant books, and regulating obscenity.

But this early peculiarity in the history of censorship looks conspicuously like a debate we are having five and a half centuries later.

It took a few decades for Church and secular authorities to understand the revolutionary potential of mass printing.  But they got there.  The institutions to censor and restrict bad books were being developed half a century before Martin Luther posted his 95 Theses against Rome.  The medium necessitated censorship more than the message.

Perotti's argument is almost an exact parallel of one made today.  Online media is out of control.  In the print media, editorialising is crowding out description.  The pressure of competition is undermining quality everywhere.  New technology is bringing out the worst in the journalist and reader alike.

Niccolò Perotti welcomed the printing press yet said it was being abused and needed to be regulated.  The head of the Press Council Julian Disney told the Independent Media Inquiry last month that the internet is ''a cacophony'' and that ''serious bloggers and serious websites'' should submit to Press Council regulations.  The council has written that bloggers exist in a ''regulatory void'' and ''print or post material before facts have been adequately checked''.

One academic submission to the Media Inquiry decried ''blog troll chatter''.  Another group of academics suggested that the Media Entertainment and Arts Alliance's union code of ethics was vital for blogs (even though they are not bound by it) because the codes' ''standard is one against which their actions can be judged''.  Ken McKinnon, a former Press Council chair, argued ''news-type'' blogs should be dragged into the council's jurisdiction.

The internet is to these advocates what the printing press was to Perotti -- something that, unless judiciously tamed, will lead to the coarsening of public debate.  According to this mindset, new technology has to be bought under old frameworks.  It is too anarchic to be left by itself.  Online debate is wild and uncontrolled.

''Cacophony'' is an evocative word.  It doesn't mean simply too many loud voices.  It means too many loud, discordant, clashing, harsh voices.  Online debate is not being coordinated by a body like the Press Council.  It is meaningless until it is tamed by regulators.  Julian Disney's complaint seems like an aesthetic one on the surface, but it masks a deeper objection to the nature of democracy.  When everybody can have a say, everybody will have a say.

You would think this is a good thing.

But just as Perotti's vehement attack on Bussi was driven by rivalry, so too is the backlash against online media being driven by those who see it as a threat to the established order.

Perotti eventually took Bussi's job.  He produced his own version of Pliny's Natural History in 1473 -- which was promptly denounced by another scholar for being even more error ridden.

And his proposal was ridiculous -- Perotti obviously did not foresee the explosion of book production in the subsequent decades, let alone centuries.  Obviously the Church had no moral issue with censorship.  But even if the papacy had wanted to enforce quality in the press, how could it do so?

We will remember complaints about the ''cacophony'' of the internet as just as foolish.

Every new media technology is met with earnest concern that it undermines standards or is out of control.

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Household electricity prices to rise, year on year

An agreement to try to reach a deal by 2015 on emissions of carbon dioxide and other greenhouse gases is the bottom line of the past fortnight's climate change jamboree in Durban.  A few days before the conference's inevitable failure to reach any meaningful agreement on emission reductions, Australia's electricity regulator, the Australian Energy Market Commission, issued its estimates of the likely increase in household electricity prices between 2010-11 and 2013-14.

In nominal terms, the average electricity price increase is estimated at more than 37% across all Australian states.  A large share of the cost is due to increased charges from the regulated ''poles and wire'' component.  According to the distribution and transmission businesses, these stem from the need to renew a system falling into disrepair as a result of previous clampdowns on allowable spending.  Energy users claim the allowable cost increases are excessive, especially in NSW, Queensland, Tasmania and Western Australia, where the businesses are less efficient because they are government-owned.

The AEMC puts the direct contribution of the carbon tax on increased household prices at 8%.  However, the indirect effects of other greenhouse gas emission reduction measures need to be added to this to provide an accurate picture.  The most direct of these is the passing on of the carbon tax in retail margins.  This adds about a 1% supplementary impost.

In addition, there are two other effects.

These comprise, first, a higher wholesale cost of electricity.  This is a result of government regulatory risk on carbon, which prevents new power stations using coal from being built.  The coal for those power stations is cheap and abundant and the cost of new power stations is not increasing.  The risk-induced higher wholesale prices from preventing new coal stations from being built add a further 7% to prices.

Second, there is the effect of the various renewable energy programs.  These are divided into requirements to use the output of high-cost, large-scale facilities (mainly wind farms) and even higher cost small-scale facilities (such as rooftop panels).  In addition the costs include high feed-in prices resulting from state-based regulations.  Together these add a further 3% to electricity charges.

So the costs of the greenhouse gas restraining measures means an increase in electricity prices of 19%.  Hence, an average household would see its annual electricity bill rise about $300 to about $1900 a year in 2013-14.

And the increase will continue year after year in line with the policy intent of imposing costs on fossil fuels to bring about an increasing share of supply from low-carbon sources.

These costs are not the full extent of price increases for households.  Consumers also incur the costs of the price increases embedded in the goods and services they buy.  For the average household this would bring a further cost increase of at least $300 a year.

Then there is the cost loaded on to the traded goods Australian firms produce, costs that none of our rivals have to bear and that will bring a loss of competitiveness and, therefore, income levels.

Kevin Rudd proudly ratified the Kyoto Protocol on carbon emission reductions in Bali four years ago.  As the protocol enters its death throes, Australian consumers are reaping its legacy in spiralling costs of electricity, a commodity in which out natural cost advantage is being destroyed.

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A challenge for Shorten, IR insider

Bill Shorten is presented with an excellent opportunity to prove himself to be a minister who is not dictated to by the unions.  The Australian workplace relations system requires substantial reform and he may be the man to do it.

It is sometimes said that a minister with inside experience can bring unexpected and lasting change to a portfolio.  A good ''insider'' minister will use knowledge and credibility to push change beyond expected boundaries.

Shorten is now presented with such an opportunity.  He has been a prominent union official rising in 2001 to the job of national secretary of Australia's oldest union, The Australian Workers Union.  He also developed a reputation of being accessible to business.

It is clear that the Australian workplace relations system is plagued by problems.  Reform in a number of areas is required.  A failure by Shorten to introduce changes will damage Australian workers and the economy.  He should take five key reform steps as a matter of urgency.  All require an ability to stand up to the unions.

First, allow individual flexibility arrangements (IFAs) to operate as intended by removing the capacity of unions to constrain their use.  A common stipulation found in agreements is that the union has a right to be consulted about or even approve an IFA.

IFAs bind individuals;  unions do not have a role.

Second, transfer the regulation of independent contracting from workplace relations laws to commercial law.  Many Australians prefer to work this way because of the freedom it affords them.  The ACTU is running a campaign to load more workplace relations regulation into the oversight of contracting.

Third, withdraw the bill to abolish the Australian Building and Construction Commissioner.  As a former AWU secretary, Shorten will be aware that the main winner from the bill is the militant Construction, Forestry, Mining and Energy Union.

Fourth, restore right of entry for union officials to workplaces to the 2007 election policy position.  The right to enter should be based on members of a union working at a workplace.  At present, entry can be achieved on the pretext of people in the workplace being eligible to join a union.

Fifth, revise bargaining rules to avoid protracted negotiations and industrial action.  Australia's reputation is suffering through a re-emergence of union militancy combined with a complex and inflexible workplace relations system.  Shorten portrays himself as someone who understands business challenges as well as union factions.

He now has a chance to deliver a system suited to a multifaceted economy operating in a competitive world.  A system reflecting union dogma based in the 1970s will not grow jobs and investment.

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Struggling welfare state in EU is a stark warning

The question as to how European nations arrived at their present state of economic dysfunction is perhaps as important as what they should do to revive their sick economies.  The factors which have driven Europe's crisis are deep seated, and cannot be resolved through monetary manipulation by central banks or the substitution of technocrats for popularly elected politicians.

Many economists have rightly cited the maintenance of the euro currency zone as an issue, which places the Greek tourism economy under the same monetary policy umbrella as manufacturing giant Germany.  Allowing Greece and others to exit the eurozone is a sensible option, however, the exile of heavily indebted nations from the currency union will not resolve a crisis of excessive public spending that has spanned many years.

The share of general government expenditures to GDP for the original eurozone countries plus Greece averaged 52% last year, increasing by seven percentage points since 2007 as countries subsequently embraced big spending fiscal stimulus.

The historical data for the eurozone countries, where it is available, shows that the size of government increased dramatically since the late 19th century, when spending as a share of GDP was capped at about 10 to 15%.

This spending growth was caused in large part by a transformational change in the scope of activities that governments took upon themselves, including publicly provided payments for unemployment, pensions, health care, housing and other social purposes.

Notwithstanding the exploits of Bismarck in Germany the welfare state was a largely unimaginable concept in Europe during the 1880s, as welfare state spending remained at below 1% of GDP.

By 2010 the landscape had changed with average expenditure on cash transfers and social benefits in kind within the original eurozone and Greece standing at 30% of GDP, or over half of total general government spending.  The welfare state in Europe and elsewhere has done much more than displace core public expenditures in areas such as defence, policing and justice.

From an economic perspective numerous studies show that larger welfare states impede private sector production and growth by distorting incentives to work and save.

The eurozone states also impose internationally uncompetitive tax regimes to finance welfare payments, worsening the burdens shouldered by those not reliant upon government handouts.  Combined with population ageing, low fertility rates and large immigrant populations whose work prospects are hampered by slow jobs growth and labour market skill mismatches, the ingredients exist for a welfare state that generates significant fiscal and economic harm.

As much as the Europeans now find themselves trapped in this Catch 22 situation, it would be a mistake to think that Europeans themselves have not been long aware of the challenges of a growing welfare state.

Writing in the aftermath of World War II, German economist Wilhelm Ropke warned of the degeneration in social values, including self reliance, as governments cater for a growing array of perceived social needs throughout the community.

Ropke referred to the irony of the growing welfare state when individuals and families, with their unprecedented wealth levels, can now more effectively help themselves than at any other period in human history.

Similar sentiments were echoed by another German, Walter Hamm, who wrote in the early 1980s that ''equality must be paid for with great sacrifices of prosperity for the general public''.  Hamm raised concerns over what he saw as a ''possible defect in parliamentary democracy,'' whereby politicians tried to secure votes by seducing the public with promises of ever increasing welfare payments.

As European riots poignantly demonstrate this argument can run both ways, since voters who become dependent upon government subsidies tend to strongly object to any plan to reduce their entitlements.  While these and similar criticisms of the welfare state have proven to be prescient, they were not heeded as the ''social market economy'' compact entailed more welfare supplicants feeding off the taxes siphoned from the fiscally besieged productive classes.

A case can be made for the argument that Europe's struggle to contain its welfare state holds some lessons for us here in Australia.

While welfare state expenditure in Australia at 19% of GDP is significantly lower than the eurozone average, significant growth in spending has been nevertheless recorded since the 1970s.

To some extent this has been reflected in the working age share of welfare recipients rising from 13% to almost one third last year.

The integrity of our means-tested welfare state has also been fraying at the edges through the extension of family payments, child-care subsidies and other benefits to middle and upper classes.

The degree to which the Australian welfare state is subject to fiscal churn has been revealed by analysis showing that more than 40% of Australian families receive more in welfare payments than they pay in taxes.  By creating the fiscal illusion that increasing welfare spending is somehow costless, the long-term risk is that we too will inherit a system that fails to assist the genuinely needy at reasonable cost.

As the current European situation attests, this prospect is something that is best avoided.

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Durban deal isolates Gillard

Durban's meek outcome doesn't bode well for international efforts to cut greenhouse gas emissions or the sustainability of Australia's domestic scheme.

After 13 days of negotiations, governments agreed to the Durban Platform.  But they did not agree to a new international treaty to cut emissions.

The key component of the platform includes all countries negotiating ''an agreed outcome with legal force'' by 2015 to start cutting emissions by 2020.

It's a platform to continue debating the details of an agreement where countries disagree on most of the substantive matters.

The negotiations for other countries to sign an agreement to engage in climate-based economic hardship, as Australia has through its carbon tax, are all uphill from here.

Significantly, Kyoto has been taken out of its casket and been put on critical life support.

With Kyoto's emission reduction commitments expiring on December 31 next year, its future will be decided at next year's December meeting guaranteeing a gap.

Kyoto's survival is still in doubt.  Canada is likely to withdraw in the next year.  Japan and Russia aren't likely to sign up to a new Kyoto emissions reduction round.

Keeping Kyoto alive is a strategic move to use it as a 2012 bargaining chip to pressure developing countries to stay in the negotiating tent.

It's their cause celebre because it puts emission cutting obligations on rich countries.

The legal architecture of a $100 billion-a-year Green Climate Fund will also be established to finance climate change adaptation for developing countries.

Ultimately, financing the GCF will become the negotiating chip for rich countries to buy off support from poorer ones.

Where the GCF's money is coming from remains unclear.

If financing is direct, Australia's contribution is expected to be between $2bn and $3bn a year.

The option to finance the GCF from an international shipping and airline tax that disproportionately hits geographically isolated, trade dependent nations (read Australia) remains.

The division and hostility that exists around negotiating a document to progress negotiations doesn't indicate positive outcomes in future talks.

Structurally, negotiations remain difficult because they are required to be progressed on an equity-based approach where developed countries take on more obligations, and developing countries fewer obligations despite being the major source of emissions growth.

The extent of the wrangling about whether the world negotiates a new treaty probably doesn't make much sense from the outside.

But there are good reasons for division.

Any agreement is about cutting global greenhouse emissions levels.  But it will also be about if, and how, the world agrees to radically restructure the global economy.

Cutting emissions means countries have to take on higher costs bases.  All countries will have to rededicate resources from economic development to the high cost of emissions reduction, slowing growth.

Because most of Australia's emissions profile comes from cheap coal-based electricity, the cost gap to alternatives is high.  Europe desperately wants other countries to impose equivalent costs that they've shackled their economy with through the introduction of an emissions trading scheme.

But proportionate to the size of the economy it's less burdensome than for developing countries.

In India, the bulk of their population has never turned on a light switch.  Before agreeing to the deal Environment Minister Jayanthi Natarajan argued India wouldn't ''write a blank cheque and sign away the livelihoods and sustainability of 1.2 billion Indians''.

Any future treaty can make the difference between whether Indians living in electricity-free shanty towns ever enjoy the modern conveniences we take for granted.

The conference isn't a victory for global emissions reduction.  It's a victory of intent.

It still leaves Australia and its carbon tax plan well ahead of global action.

The entire economic case for the scheme was built on the premise that other countries would impose equivalent carbon prices, which would have reduced the acute economic pain inflicted on the Australian economy.

The Durban Platform does not rectify that.

It means Australia's carbon tax, starting on July 1 next year, will be implemented years before we know whether a successful international agreement can be struck and other countries take action.

As a result, the Durban Platform perpetuates the problems with Australia's carbon pricing scheme.

It is politically unsustainable to increase a carbon price without a comprehensive international agreement and a price in other countries.

With no certainty about equivalent action in other countries, the ''certainty'' the government claims will be provided by the Australian price remains elusive.

The Treasury modelling's carbon tax impact scenario is at odds with reality.

That leaves the Durban Platform as a breath of life for the Gillard government and their carbon price.  But it's a long way from the outcome Australians need if they're going to shoulder the world's largest carbon tax.

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Our building regulations need a major overhaul

How many separate approvals are required before an owner can move into a new house in Melbourne's designated urban growth area?  Twenty?  Fifty?

According to Victoria's Growth Area Authority (GAA), 540 different ticks are needed from regulators.

It's no wonder that not enough houses are being built and that completed houses cost so much.

It's miraculous that 35,000 new houses actually get built each year in Victoria.

We have lots of land and an efficient building industry so there should be plenty of new houses available on Melbourne's urban fringe at under $200,000.  This is the case in many major US cities -- even those like Dallas with booming populations.

But few houses are available in outer Melbourne even at $300,000.

Land supply regulations create an artificial shortage.  As a result, once farmland obtains regulatory ticks for home building, its value increases from less than $3000 per housing block to more than $100,000.

Part of this is the uncertain process of navigating regulatory barriers, which brings delays of up to 10 years with all the paperwork and holding costs these entail.

Levelling the land, installing pipes and wires and building local roads costs a further $60,000.  This is often increased by further regulations that require additional costs for open space and Rolls-Royce road structures.

On this developed land many builders offer completed new three-bedroom, two-bathroom houses from $120,000.

So regulations drive up the price of a house that could cost $200,000 to more than $300,000.

Last June, Planning Minister Matthew Guy established an inquiry to advise on how to improve the state's planning system and it attracted more than 500 submissions.  It was Victoria's 10th major review of planning and transport over the past decade.

Previous reviews have actually added to the regulatory thicket.

As a result, even with a sluggish economy over the past year, lot prices increased by 16 per cent.

Senior state planning bureaucrats are exploring ways of expediting regulatory approval processes and the Government has funded a ''flying squad'' of planning specialists to expedite approvals.  But such approaches can only scratch the surface.

What is needed is a drastic pruning of the regulations themselves.

To this end, the Housing Industry Association argues for exempting small lot developments from many requirements.

It is also seeking dilution of the very onerous native vegetation regulations.  These involve preservation of remnant vegetation on the misplaced contention that urban development threatens this with extinction.

The Urban Development Institute of Australia offers a 10-point plan to ease these and other onerous State Government requirements, including preventing councils from adding their own regulatory layers.

Many voices, however, want to deny developments in the outer Melbourne areas.  Some councils advocate increased planning controls.

Melton, for example, wants greater restraints on urban expansion, saying ''greenfield land is not an infinite resource'' -- maybe, but Victoria's urban footprint is only 1 per cent of the state and greenfields will never be scarce.  The council also wants to see homes that are ''environmentally sustainable'' with expensive accessibility features for the disabled.

Meanwhile, regulatory measures add wasteful costs to development and price young people out of home ownership.

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Gillard left out on a limb in Durban talks

The absence of an outcome at the Durban climate change talks has significant implications for the Gillard government and its carbon tax.  The substantive issues that need to be resolved to give new life to a global carbon cutting agreement are unresolved.

A full 2½ days before the end of the conference, UN Secretary-General Ban Ki-Moon said a new treaty was ''beyond our reach'' this time around.  The Kyoto Protocol's emissions reduction agenda after 2012 is also dead.

So the negotiations amble on with no mutually agreed desirable outcome.  On the final day of the Durban talks there will be a face-saving declaration.  There always is.

Ministers cannot go home empty handed.  For governments tackling public debt mountains and high unemployment rates it will be a relief.  They won't have to impose costs on industry that will make them less internationally competitive.

But a failure in Durban creates a nightmare for the Gillard government, which has boxed itself into an impossible policy and political position.  In selling the carbon tax package, the government significantly overstated the commitment of other governments taking equivalent action.

As time has gone by it has become clear governments that have already taken action are now seeking to water them down.

New Zealand will do so.  Canada is reportedly set to abandon the Kyoto Protocol.  Momentum for Europe to weaken its emissions trading scheme is building irrespective of the consequences of the region's debt crisis, though it is compounding the problem.

Countries delaying action until a new international agreement is signed off are likely to defer efforts further.  Translated domestically, post-Durban the political spin that other countries will follow Australia's ''leadership'' will be exposed for the hollow rhetoric that it always was and remains.

The only remaining living part of the Kyoto Protocol will be its contribution to international carbon markets, particularly the clean development mechanism (CDM), which allows rich countries to buy emissions reductions in poorer ones.  But without a second Kyoto period for cutting emissions, the number of CDM projects has already collapsed.

It's now likely to go into free fall.  Buying cheap emissions reductions overseas was central to the government meeting its goals without imposing a significant impost on business and households.

If present price trends continue, successful negotiations to internationally link our emissions trading scheme to Europe's and New Zealand's will ensure the carbon price bumbles along at the $15 per tonne of emissions floor.

To give the Greens credit, at least they were intellectually honest in recognising that Australia needs a high carbon price to radically change behaviour.  It's because the main transition needs to occur in our electricity generation.

At present we rely on cheap coal, which means the carbon price gap to gas, the next viable base load technology, is significant.

The carbon price necessary to start Julia Gillard's claim to ''decouple economic growth from carbon pollution growth'' won't be achieved until the price hits at least $40 to $70.

To actually deliver it requires a carbon price closer to between $250 and $500 where, on current prices, less intermittent renewable technologies become viable.

Without a high price, the policy will be ineffective at driving significant emission cuts.

In response, the government can either cut imports of foreign permits or increase its emissions reduction target -- both will force up carbon permit prices.

But such action will be politically and economically unsustainable if other countries aren't also imposing an equivalent high price.

Australia's window of opportunity out of Durban is that there may be a favourable side agreement for reducing emissions through land use, making it easier to achieve our target.  Ironically, with an ineffective carbon price the burden of delivering legitimate emissions cuts will fall on regulatory measures in the government's plan that bear similarity to Tony Abbott's direct action policy.

A failure at Durban also compromises the business certainty that the government claimed its scheme would deliver.  Without the high carbon price needed to underwrite multi-decade investments to cut emissions reinforced by international action, the uncertainty the business community deplored will persist.

Previously, it was the uncertainty of whether there would be an explicit carbon price.  Now the uncertainty comes with its trajectory.

It's a remarkable moment.  There is no longer an operational international agreement to cut greenhouse gas emissions.

What's incredible is that our government has allowed Australia to be boxed into this position.

Signs of the failure to secure a new international agreement have been glaringly obvious since at least the 2007 Bali conference.  Kyoto was the high water mark and it's been downhill from there.

Durban's failure will ensure Australia's carbon tax package struggles to deliver.  Instead, it will be a noose around the political and policy neck of government and the cost neck of businesses.

That's assuming it survives the politics of Canberra.

Corporate welfare looms as major hurdle

The idea the Australian automotive industry can remain competitive on the global stage, while being propped up by trade barriers and subsidies, cannot be sustained.

Until the 1980s, the evolution of the industry effectively was governed by a compact among domestic manufacturers, trade unions and government.  The consumer was excluded.

Manufacturers of vehicles and parts wanted to establish and maintain a production presence in Australia, but a highly regulated labour market meant their production costs were high.

The unions wanted an automotive industry to boost their membership rates, but didn't want to forgo labour regulations that incidentally made local car making uncompetitive against cheaper imports.

Successive federal governments smoothed over the deal for a local industry through an elaborate regimen of trade barriers, including import quotas, tariffs on imported vehicles and explicit local content requirements.

State governments from Thomas Playford onwards played their part in the corporatist deal by providing cheap land and tax incentives.  What emerged was an uncompetitive Australian automotive industry weighed down by high production costs.  Consumers made their preferences felt as the share of sales of imported vehicles steadily increased, despite the deliberate price penalty of a tariff rate on imports that peaked at 54 per cent in the early 1980s.

Ironically, it took a Labor government federally to recognise the car-making compact needed to be shredded.

Import quotas for the industry were abolished by 1988 and tariff rates were reduced by 2.5 percentage points each year from 1990 to 15 per cent in 2000, with further reductions to 5 per cent today.

The economic proposition that the elimination, or thereabouts, of trade barriers would lead to a smaller manufacturing base more responsive to market conditions largely has been borne out by the evidence.  The number of manufacturers narrowed to GM Holden, Toyota and Ford, while employment in vehicle and parts manufacturing fell by 38 per cent from 1990 to 2000, with more cuts in recent years.

What we also have seen is an Australian automotive industry increasingly export-oriented, with substantial markets in the Middle East and elsewhere.

Its remaining labour force has become more productive over time.  Having largely conceded on the tariff debate, manufacturers, unions and the Government now see heavy subsidies as the best way to achieve the political ambition of a country that makes things.

The Productivity Commission says vehicle and parts manufacturers received about $721 million in outlays and tax concessions in 2009-10 -- an implicit transfer from poor taxpayers to rich company owners equivalent to more than $12,000 a job.

The Australian automotive industry has progressed on the road to improved competitiveness, but can realise full potential only once all remaining obstacles of corporate welfare are removed.

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2016 holds hope for Republicans

Looking at the current crop of Republican presidential hopefuls, it's no wonder many conservatives are despondent.

To call the field lacklustre is putting it politely.  But using this to claim the Republican Party is in real trouble, as some have sought to do, or laying blame at the feet of the Tea Party, as others have, is wishful thinking.

There's no question that the 2012 Republican field is the weakest in some time.  The closest in recent memory is 1996, when the party reluctantly agreed to nominate the boring but inoffensive Bob Dole.

Mitt Romney, quite possibly the Dole of 2012, is still the likeliest nominee.  And it's not surprising that Republicans have a hard time accepting him as their standard bearer.  After all, he did pioneer Barack Obama's much-loathed healthcare plan, as Governor of Massachusetts, where he made health insurance compulsory.  He has shifted positions on a number of key issues, including immigration, gun control and a range of social issues.  His populism on trade policy, laced with anti-Chinese rhetoric and craven support for hugely inefficient ethanol subsidies, is shameful.  And his denunciation of Ronald Reagan in his 1994 campaign against then-Senator Ted Kennedy makes his current embrace of the Reagan legacy as entirely confected.  But almost all published opinion polls suggest that he has the best chance of defeating Obama.

His most recent — and serious — challenger, Newt Gingrich, offers little more hope for conservatives.  Sure, his current positioning is to the right of Romney, and his debate performances have conveyed an impressive grasp of issues.  But he is equally if not more guilty of the flip-flopping tendencies that have bedevilled Mitt Romney's candidacy.  Gingrich too supported health insurance mandates, has had a variety of positions on immigration and can't seem to make his mind up about entitlement reform.  Recent revelations have showed that Gingrich took millions from the government-backed mortgage giant Freddie Mac, regarded by Republicans as a key suspect in the housing bubble that precipitated the global financial crisis.  Most famously, he recorded a bizarre ad with former Democratic House Speaker Nancy Pelosi, perhaps the most hated figure amongst Republicans, advocating government-led action on climate change.  And Gingrich fares extremely poorly in head-to-head match-ups with Obama.  But polls now show him leading by substantial margins in important early states like Iowa, South Carolina and Florida.

The rest of the field is characterised by kookiness (Ron Paul), scandal (Herman Cain), and a series of contenders clearly out of their depth (Rick Santorum, Michele Bachmann, Rick Perry) or who haven't been able to register meaningfully in any polls (Gary Johnson, Jon Huntsman, Tim Pawlenty).  So Republicans are entitled to feel downbeat about their 2012 field.

But it is another leap to argue that this reveals some systemic weakness in the Republican Party, or even more fancifully, that it is the fault of the Tea Party.

Presidential candidates, particularly in modern American politics, are almost always drawn from election cycles preceding the current one.  They are either vice-presidents from relatively successful incumbent administrations, or prominent senators or governors who have been in office for long enough to establish a political identity, but not too long to be seen to be ''career politicians'' or ''creatures of Washington''.

The 2006 and 2008 election seasons were devastating for Republicans.  In 2006 they lost control over the house of representatives and the senate.  In 2008 they lost the White House.  In both elections they lost key governorships in major states and a slew of state houses and state senates.  So it's unsurprising that the 2012 field, which would have normally have been drawn from these cycles, is a relatively weak one.

The flipside is that Republicans can look forward to two things:  almost certain control of the Senate after the next election, even if they lose the presidency, and an exceptionally strong 2016 presidential field.

Because US senators serve six-year terms, roughly one third of the US senate is elected every two years.  The class of 2006, up for re-election next year, was a bumper year for Democrats.  Of the 33 open seats, Democrats hold 21, plus two Democrat-leaning independents.  Republicans hold just 10.  It would require an extremely successful year for Democrats to hold all of those seats.  Just a small swing from the 2006 result will see many seats change hands, and Republicans only need to win four seats to retake control of the Senate.  Barring a major surprise, Republicans also look set to retain control of the House of Representatives, which they won in 2010.  This means that Obama's final term is likely to be substantially restrained by total Republican control of congress.

The list of potential 2016 presidential contenders for the Republican Party is a long and enticing one.  Reformist governors like Chris Christie in New Jersey, Scott Walker of Wisconsin, Bobby Jindal of Louisiana and Nikki Haley of South Carolina could all feature prominently.  Entitlement-reform guru Congressman Paul Ryan is considered likely to run.  And the first-term Senator from Florida, Marco Rubio, is electrifying conservative activists.  In different ways, each has the capacity to appeal to Americans well beyond their own political base.  Rubio, the son of Cuban immigrants, appeals to the US's fastest-growing community:  Hispanic voters.  Both Haley and Jindal are children of migrants from India.  And Christie has shown an enviable ability to appeal to Democrats and win in the North-East — an area thought by many to be off-limits for Republicans.

And almost all owe their election to the backlash against growing government that gathered pace after the global financial crisis.  Far from being held back by the Tea Party, the movement has delivered the Republican Party their best hopes of regaining the Oval Office.  And if Obama is unable or unwilling to tackle the United States' growing fiscal crisis, it will fall to one of these candidates to confront it.

So while Republicans may be depressed about their prospects next year, they can look forward to 2016 with hope.

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Selling the ABC and other tricky media issues

The media talking about itself can be very self-indulgent not to mention annoying to outsiders.  Yet the politics of media have exploded in the last while and so it has been necessary for the media to take a good hard look at itself.

The government's current inquiry into media regulation isn't about poor behaviour per se, but rather political payback.  Similarly the botched tender process for the Australia Network was an absolute disgrace.  Here the tender process has been perverted by claims of payback against News Limited, about disputes between Julia Gillard and Kevin Rudd, cabinet leaks, and what not.  Sky News should be compensated for their time and effort.  But the real question to be asked is who should own and/or run the Australia Network?

The feral state of media politics is masking some important economic issues and considerations that relate to the media.  The issues, as I see them, relate to the role of government in regulating and owning media outlets.

Economists have well-developed theories of regulation.  The standard argument, following the English economist Arthur Cecil Pigou, is that government regulates in the public interest.  The view being that governments can intervene in the economy to improve market outcomes.

This sort of argument, for example, justifies the existence of the ABC.

This isn't a particularly good argument, but is the best argument that can be mounted for public media ownership.

Then we have the private interest argument developed by the American economist George Stigler.  This theory suggests that regulated industries capture the regulator and create barriers to entry and fix prices.

Regulation works for the benefit of the regulated and not the general public.

Unfortunately these two theories are somewhat static and can't explain a number of real-world features.  To overcome that problem Harvard University's Andrei Shleifer (and various co-authors) has developed an institutional theory of regulation that examines the trade-off between the costs of ''disorder'' that arise when there is no regulation and the costs of ''dictatorship'' that arises when there is too much regulation.

This trade-off a nowhere better illustrated than in media regulation.

There are no elegant solutions to media regulation, only messy trade-offs and value judgements.  We are all appalled when a dead girl's mobile phone records are hacked, but bemoan the decline in investigative journalism.  Different segments of the population welcome Wikileaks revelations or ClimateGate emails but deplore the other.

It seems that the profit motive imposes high costs of disorder.  But what people overlook is that disorder is tempered by defamation laws, and existing laws that protect privacy.  Those who would argue that the media requires more regulation need to explain why the existing legal framework is failing.  It's all very well to point to the more egregious media behaviour observed in the UK, yet few can point to that kind of poor behaviour in Australia.  So arguments for more media regulation in Australia must be pretty poor.

But what of government ownership?  As it turns out the Australian government owns a significant portion of the Australian media industry.

Australia is hardly alone in having significant government media ownership.  In a study of 97 countries, Andrei Shleifer and his co-authors found that government ownership in broadcast media is quite common.

There are good arguments for government ownership in some industries.

Prison services, for example, are a classic case where public ownership is a better option than private ownership.  The question is whether media is such an industry.

Shleifer and his co-authors investigated whether a public interest argument could be sustained in justifying extensive government ownership in the media.  Alternatively a public choice argument whereby government regulates and owns media in order serve its own interests.  After extensive analysis they find that government ownership of media is not in the public interest, but rather suits the private interests of political elites.  In other words, we should be suspicious of significant government ownership in the media as it generally undermines political and economic freedoms.

It would seem that Australia is something of an outlier in that analysis — our political and economic freedoms are high by world standards.  Our level of government ownership is low by world standards and government market share is low by world standards too.  On that basis it is unlikely that the government abuses its media ownership — ABC audiences are too small.  Government media, in Australia, faces competition from private providers.  There is no basis, however, for complacency.  Private competitors to government owned media can be regulated by the government.

It isn't clear why Australia needs to have a soft propaganda message broadcast to the region.  But I'm happy to concede that reasonable people might disagree on that point.  Why would the government put that program out to tender when it already has an agency to do the work?  To my mind the ABC should be performing that function.  That isn't to say that the government shouldn't put the whole of the ABC out to tender — but that is a far more controversial proposition.

To sum up;  there is no good reason to increase media regulation in Australia.  There is no good reason for government to own media in Australia.  To the extent government does own the media, that media should be used to provide soft propaganda services to the region.  There is no good reason why the whole of the ABC couldn't be put out to tender rather than bits and pieces.

The ''Right'' morally culpable for Breivik's actions, really?

Serial killers and terrorists often claim to be making political statements through violence.  But we don't immediately have to take their word for it.

Last week Norwegian psychiatrists declared that Anders Behring Breivik, who killed 77 people in Oslo and the island of Utøya in July, is insane.

Breivik disagrees.  Through lawyers he told a Norwegian newspaper that the psychiatrists ''do not have enough knowledge of political ideologies''.

The psychiatrist's 243 page report will be reviewed by the Norwegian Board of Forensic Medicine — the assessment may then be changed — and then presented to the court — which may not accept it anyway.

Perhaps Breivik is clinically insane, perhaps he is not.

But a surprising amount seems to rest on the diagnosis.

On Utøya:  Anders Breivik, Right Terror, Racism And Europe was launched by Lee Rhiannon in October.  Edited by Elizabeth Humphrys, Guy Rundle and Tad Tietze, the book is an unapologetic attempt to make ''the Right'' morally culpable for Anders Breivik's actions.

They argue ''the significance of Utøya has been demoted, obscured and ignored'' by ''hard right commentators''.  Calling Breivik insane is a furphy used to downplay his political significance (Tietze also argued this on The Drum last week).  Breivik executed terror ''in the name of the West, against those too 'tolerant' of Islam''.  The Utøya massacre was ''an unambiguous attack on the Left'' and now ''[t]he task for the Left is ... to ruthlessly expose the true nature of the Right and its authoritarian project''.

If the shape of this argument seems familiar, no wonder:  it is an almost exact inversion of that made by some conservatives in response to terror attacks carried out by Muslims.

The conservative thesis is that terror conducted by Muslims reflects something intrinsically violent in Islam itself.  The thesis of Humphrys, Rundle, Tietze, and their contributors is terror conducted by someone who cites John Howard and claims to be of ''the Right'' reflects the dark heart of mainstream conservatism.

It is no more convincing when the protagonists have been reversed.

Mainstream Muslims exist in the same ''general ideological framework'' as Osama bin Laden, insofar as they share a religion.  Yet Muslims who condemn violence are in no way responsible for violence perpetrated by others.  It is obscene to suggest otherwise.  So surely neither are conservatives, who loudly condemned Breivik in any way, responsible for his actions.

One could draw other parallels which would be equally damning and equally hollow.  All supporters of the carbon price have some moral relationship to eco-terrorism.  Stalin's Great Terror means mainstream social democrats need to have a good hard think about themselves.  Scientists are at all times one step away from fascist eugenicists.  This makes good polemic, and it's idiotic.

There is an enormous moral leap between believing multiculturalism is a bad policy and systematically slaughtering 77 members of the Norwegian Labour Party, some as young as 14 years old.  To suggest they are on the same continuum is to obscure how anybody could make that leap.

And to suggest so in order to make a domestic political point (Andrew Bolt is not mentioned once in Breivik's manifesto, but is mentioned 21 times in On Utøya) is opportunistic and petty.

The authors argue Anders Breivik is a leading indicator of the rise of a violent far right in Europe:  the massacre ''marked the transition of a section of the current European far Right to lethal violence against political enemies, characteristic of the fascist era.''

If that's true, so then Breivik's actions would take on a greater significance, putting aside On Utøya's cheap political digs.

But the data on politically motivated violence does not bear this claim out.

The latest report of the European Police Office on domestic terror within EU member states documents 249 separate terror attacks in 2010.  Of those, 3 attacks were conducted by Islamist organisations.  The vast bulk were separatist (160 attacks).  There were no ''right-wing'' terrorist attacks.  But there were 45 ''left-wing and anarchist'' attacks.  The Europol report cites the ''increased violence'', and ''increased transnational coordination between terrorist and extremist left-wing and anarchist groups''.

If we are simply looking for trends, the data suggests we should watch our left, not our right.

In fact, Europol concluded right-wing terrorism was ''on the wane''.

Obviously, that assessment was tragically inaccurate.  Europol's analysis may well be very different next year — that is, if they determine the Norway massacre was not an isolated incident.

But, while we wait, the authors of On Utøya do not offer much evidence Breivik is part of a newly violent movement, rather than a shocking outlier.  Right-wing terrorism deserves study, certainly.  Guy Rundle's contribution on the history of right-wing terror confidentially reaches back to Julius Caesar's Gallic campaigns, but stops in Italy in 1980.

Commentators are sickly eager to pin extremist violence on their ideological opponents.

The attempts to characterise Jared Loughner (the definitely mad person who tried to kill a Democratic congresswoman earlier this year) as a child of the Tea Party is just the most farcical illustration.  There was, and still is, no reason to believe Loughner had strong political views.

But the problem with On Utøya is deeper than that.

One of the fundamental mistakes in American strategy in the War on Terror has been feeding the egos of the terrorists.  Trials by military commission of terrorists confirm their self-image as soldiers of God, where trials in civilian courts would classify them more accurately and mundanely as criminals.

On Utøya does something similar, but does it deliberately.  Breivik fantasised his actions and spoke on behalf of critics of multiculturalism.  Those critics have uniformly rejected him.  Yet On Utøya seeks, bizarrely, to legitimise Breivik — and to claim violence is a logical extension of political debate (There is a striking parallel with Marxist philosopher Slavoj Žižek's argument that terror is a justifiable weapon to fight liberal democracy).

The contributors to On Utøya say Anders Breivik's actions have been depoliticised.  They seek to ''repoliticise'' them.

But by opportunistically trying to get conservatives to own the Norwegian massacre, they break down the moral barriers between democratic debate and evil.

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Newt: the last best hope for conservatives

If you want a crash course on the Republican presidential primary process, recognise that the 2012 contest has been marked by a search for a conservative alternative to Mitt Romney.

At various stages this year, that candidate has been Minnesota congresswoman Michele Bachmann, Texas governor Rick Perry and businessman Herman Cain — all of whom have crashed and burned.

Enter Newt Gingrich.

Even before Cain pulled out of the race, the 68-year-old former House Speaker was enjoying a surge in the polls.  A Rasmussen poll put him 20 points ahead of Romney nationally.  Simply put, Newt is the last best hope for conservatives.  Which means the race for the right to represent the Republican party against Democrat President Obama next year comes down to this:  Romney, the establishment candidate, versus Gingrich, the rank-and-file candidate.

The conventional wisdom continues to write off Gingrich.  He's arrogant, he's polarising, he's not likable, he has character flaws, including infidelity, extravagant shopping habits, not to mention a controversial stint as a corporate lobbyist — all these vulnerabilities have been highlighted in recent weeks.  Even George Will, a veteran conservative columnist, warns that Gingrich ''embodies the vanity and rapacity that makes modern Washington repulsive''.  Take a close scan at his baggage and you see why so many pundits think Gingrich would be a far less formidable challenger to President Obama than Romney:

• His brinkmanship in budget negotiations with the Democrats led to the infamous government shutdown in the winter of 1995 that set the scene for Bill Clinton's remarkable re-election.

• He resigned as speaker of the House of Representatives in the wake of ethics violations, a botched leadership coup and Republican congressional losses in the 1998 midterm elections.

• He made more than $1.5 million in consulting fees from Freddie Mac, a government-backed company whose lending practises helped create the conditions for the subprime mortgage crisis in 2007-08.

• He once spent an obscene amount of money — something like half a million dollars — at the jeweller Tiffany's, a controversy which brought huge delight to late-night comedians and helped nearly destroy his campaign last (northern) summer.

• He had an affair with a government staffer (now his third wife) while he was trying to impeach president Clinton for lying about an affair with a government staffer.

All true.  But these foibles are well known to voters, especially Republican preselectors.  Unlike in Herman Cain's case, Newt's dirty linen has been washed in public for some time.

The Gingrich sceptics say that even if he wins the GOP nomination in mid-2012, the right-wing firebrand's arrogance will alienate crucial independents, especially in swing electorates in swing states such as Pennsylvania, Ohio, Florida and Virginia where national elections are decided.

Perhaps.

But don't underestimate Newt.  Outgoing veteran liberal Democratic congressman Barney Frank speaks for many on the Left and even Right when he says that Gingrich is so weak that his nomination as the Republican challenger to President Obama would be ''the best thing to happen to Democrats since Barry Goldwater'', whom Lyndon B. Johnson smashed in an electoral landslide in 1964.  In fact, Gingrich has a decent chance of unseating a first-term president for only the third time since the Depression (the others being Jimmy Carter in 1980 and George HW Bush in 1992).  Here are four reasons:

First, Gingrich is highly intelligent and an excellent debater, with a wealth of public-service and private-sector experience.  He led a national campaign and historic conservative triumph in 1994 when the GOP took over both houses of congress for the first time in four decades.

Unlike Bachmann, Perry, Cain and Sarah Palin, this prolific book writer can't be dismissed as a dunce or an embarrassment.  Gingrich's PhD thesis was — wait for it! — on Belgian education policy in the Congo from 1945 to 1960 and he taught political history at university before entering politics in 1978.  His old nemesis Bill Clinton even says nice things about Newt, telling the PBS News Hour a few days ago that ''I always liked working with him'' and ''he's good on foreign policy''.  By all accounts, Newt could go 10 rounds with Obama in prime time.

Second, Gingrich is not Romney.  This is a crucial point in the Republican primary heartland, where the political landscape has moved further right in recent years.  The conservative base neither trusts nor particularly likes the former Massachusetts governor.  Why?  Because Romney — like his father George who ran (unsuccessfully) for the GOP nomination more than 40 years ago — is seen as a closet liberal or a dreadful flip-flopper.

Indeed, on virtually all red-hot button issues — stimulus, health care, climate change, gun control, abortion, Afghanistan, even Ronald Reagan — Romney has been all over the place.  This advertisement (put out by Democrats a week ago) was damaging enough.  But this interview on Fox News a few days later — in which Romney looked awkward and nervously defensive when asked to explain his many ideological contradictions — could be the nail in his political coffin.

It's a rule of thumb that a candidate must win over their party's base in order to win the party's nomination.  As Richard Nixon once told Bob Dole:  ''Run like hell to the right in the primaries, then run like hell to the centre''.  (The same logic more or less applies to Democratic primaries where candidates run to the Left before moving to the centre in a general election.)  In the past week, Gingrich has received two important endorsements from the Right.  Popular radio personality Rush Limbaugh says Newt is the ''only grown up'' in the room.  And the Union Leader, the most popular (conservative) newspaper in New Hampshire where the first conventional primary is held next month, endorsed him last week.  Both views resonate with the party faithful who are hungry for ideological red meat.

Third, Americans are in a foul mood.  Unemployment remains stubbornly high at 8.6 per cent (though last month's jobs figures showed modest signs of improvement).  Debt and deficits are skyrocketing.  Opposition to the Afghanistan war is mounting.  More than 70 per cent think the country is in either serious decline or heading in the wrong direction.

In this environment, it's a fair bet that, should Gingrich win the GOP nomination, voters may be prepared to overlook his well-known flaws and vote out the incompetent incumbent whose job approval is only just above 40 per cent.  As former Reagan speechwriter Peggy Noonan puts it:  ''People feel America's problems are so huge, so scarifying and urgent, that personal judgements feel like an indulgence''.

Fourth, beware of writing off comeback kids with momentum behind them.  The Gingrich sceptics insist that the former House speaker is a washed up, discredited figure who's spent more than a decade in political exile.  Well, the same thing was once said of Charles de Gaulle, Winston Churchill, Richard Nixon, Robert Menzies and John Howard.  When they returned to the arena years after losing leadership positions, the critics gave them the kiss of death.  But it merely amounted to mouth-to-mouth resuscitation:  they revived and rebounded with tremendous force.  As it happens, Gingrich himself subscribes to the historian Arnold Toynbee theory of ''departure and return'', the notion that some legendary leaders endure a long period in the political wilderness before returning to high office.

Now, I should add the aforementioned analysis does not amount to an endorsement.  (For what it's worth, I think the Republicans would have been better served by the likes of Mitch Daniels and Haley Barbour — popular and sound governors from Indiana and Mississippi, respectively — but they have decided not to run.)

The point here is that notwithstanding his many liabilities and weaknesses, Gingrich is more likely than Romney to appeal to the Republican conservative base during the upcoming primaries.  And if the US economy fails to improve and the American people remain angry during the next six to 12 months, Gingrich stands a good chance of beating Barack Obama next November.

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Phoney food fears ignore nimble market solutions

Nothing brings out the hyperbole like ''food security''.  Paul R. Ehrlich — of The Population Bomb fame — appeared on ABC radio in October to declare that ''civilisation is going to collapse'' because we are farming land our ancestors were unable to, and we are no longer drinking our water ''right out of the rivers''.

The fear of the moment is that population growth might outstrip food supply.  The United Nations says the planet met its 7 billionth inhabitant in November.  And the past few years have seen a surprising uptick in food prices.  The 20th century saw a decline in the price of food basics, but we've had price spikes in 2008 and 2011.

This new food crisis has something for everyone.  Tim Flannery's Climate Change Commission blames climate change.  Population panickers blame too many people.  Oxfam's latest campaign attributes higher food prices to ''speculation'', following the ''when in doubt, blame Gordon Gekko'' rule.

Two hundred years ago, Thomas Malthus argued population grows at a faster rate than food production.  Malthus was wrong then.  And his followers are wrong now.

Certainly, high food prices are bad, particularly for those on subsistence income.  But our data here is extremely patchy.

Those headline figures trotted out by activists about the millions of people going to bed hungry are so ad hoc as to be quite meaningless.

There is no reason to believe we're about to enter an era of global hunger.  Markets balance themselves.  High prices attract new producers into the market, seeking the profits on offer.  Those prices also make marginal land more viable.  The result?  Production goes up, prices go down.

In between their June and November food market report this year, the UN Food and Agricultural Organisation revised its production forecasts significantly up.  Wheat prices have plummeted.  Analysts now talk of a wheat glut.  We can thank Oxfam's hated ''speculators'' for that.  Of course, in 2004, before the price spikes, the UN was fretting food prices were too low and farmers weren't making money.

On climate change, too, the future is far more complex than the doomsayers would have us believe.  The Intergovernmental Panel on Climate Change itself says increasing carbon dioxide levels can have a positive effect on agricultural productivity.  The 2007 report concluded up to 3 degrees of warming will increase crop yields.

Certainly, higher than 3 degrees and yields could decline.  But if we factor in inevitable but unpredictable advances in agricultural technologies, then the outlook for food from climate change is good.

If temperatures and carbon dioxide have been rising throughout the 20th century, as the IPCC's report emphatically stated, then so too have agricultural efficiency and crop yields.  And quietly, away from the terrible prophecies we read in the press, agricultural innovation is happening.

The Borlaug Global Rust Initiative announced in June that scientists were close to developing ''super varieties'' of wheat which would boost crop yields by 15 per cent.

A landmark study by the American National Research Council found last year farmers who adopted genetically modified crops increased their productivity.  We've been manipulating plants since the dawn of agriculture.  Genetic modification is just the most recent.

The real threat to the future of food isn't population or climate change or stock traders.  It's ideology.  Greenpeace claims to be worried about food production.  But they are unrelentingly hostile to GM crops.  Greenpeace activists destroyed a CSIRO crop of experimental GM wheat this year.

No wonder Greenpeace thinks food is going to be a problem in the future.  They're trying to stop the technological solutions designed to fix it.  We'll need scientific progress to feed 7 billion people.

Resistance to that progress is the biggest menace to future food security.  And what about once-fashionable green policies about things such as biofuels, which convert food such as corn or sugar cane into fuel to replace petrol?  Al Gore admits biofuels are a catastrophe.  Americans are now burning one-sixth of the world's food in their cars.

Yet short-term price instability and spikes are only a problem if you are poor.  In the Third World, food insecurity is a symptom of economic underdevelopment.  In the First World, the food problem is not scarcity but abundance.

It's perhaps understandable ideologues are using the recent food price spikes to push their agendas — against globalisation, against population growth, against consumer capitalism.  Yet it's truly amazing that 177 years after Malthus died, we're still falling for the old food scarcity myth.

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Farms left high and dry by water grab

The release of the Murray-Darling plan adds another chapter of woe to those reliant on the river system's irrigation water.

At present, 11,000 gigalitres of water -- about 40 per cent of the system's flow -- goes to irrigation.

This has been an indispensable component of the basin, providing 40 per cent of Australia's agricultural output and contributing to the livelihood of tens of thousands of farms and many communities.

Based on green agitation, there have been calls to reduce this level.

The latest report from the Murray-Darling Commission says it wants to take 2800 gigalitres from the farmers.  That this is down from the previously planned 4000 gigalitres is small comfort for the enterprises that rely on the water.

The fact is that the Murray is a working river.  It is not the pre-European settlement river that alternatively flooded vast tracts of Victoria and then dried to a series of puddles.

The dams along the river bring an assured flow and allow it to be used for farming and recreation.

And though the drought left many of the native trees stressed, there is nothing abnormal in this.

Those seeking to justify the greens' demands that more of the river's flow should be reserved for the environment should be aware that the aim of these activists is to take all of the flow and to retreat from modern agriculture.

In their pressure to reduce irrigation flows, the activists are supported by farmers at the mouth of the Murray who want a larger share.

The aim is to ensure the river's estuary is fresh water.

The irony is that the estuary's natural state, before barriers were built to keep out the sea, is salt or brackish water.

Victorian Agriculture Minister Peter Walsh has warned that the measures proposed by the Murray-Darling Basin Authority would result in the closure of a dairy.

A Commonwealth Government study has said cutting irrigators' allocations would mean a reduction in agricultural production of only a few percentage points.

But such statements are beside the point.  Australian agricultural productivity has stagnated for decades because green pressures have denied us new technology such as genetically modified crops and have restrained the use of land through native vegetation plans, clearing restrictions and the like.

The drought has led to a 15 per cent saving through better uses of water and doubtless further gains are possible.  But if we sacrifice whatever gains we make by providing more resources to some mystical environmental cause, we will have little benefit.

Moreover, for the first time in a century we are likely to see burgeoning demand.  The booming economies of India and China will mean an expanded requirement for protein and dairy.

The Coalition is talking about freeing the use of the rivers in northern Australia to allow increased agricultural production.  We must also do the same with the Murray-Darling.

Crippled by its crutches

According to Ralph Norris, overseas investors are worried about the Gillard government.  No matter how worried overseas investors are, they should be reassured by one thing.  They're not the only ones worried.  So are quite a few Australians.

Norris finished up yesterday as the boss of the Commonwealth Bank of Australia.  His comment is important, but it would have been more important had he made it while still in the job.

The trouble is that if Norris or any other chief executive of a large public company were to speak their mind, they wouldn't be thanked by their shareholders.

Bank chiefs are especially vulnerable.  For as long as banks rely on funding guarantees from government and confront an ever-growing array of regulation, it's not wise for a bank boss to give an honest opinion in public.

And it's especially unwise for bank bosses on multimillion-dollar salaries to give honest opinions.

Just a month ago, fresh from his wins on the mining tax, the carbon tax, and banning the live cattle trade to Indonesia, the leader of the Greens, Bob Brown, was on the ABC resurrecting his campaign for a super profits tax for banks.

''You've only got to look at the way the big banks give their CEOs -- Kevin Rudd described them 'obscene' salary packages between $8 million and $16 million a year -- to see that they're not short of a shekel'' (Why Brown used ''shekel'' instead of a word like ''dollar'' or ''quid'' can only be speculated.)

If foreign investors are looking for reasons to be worried, they can contemplate what happened in federal Parliament last week.

The speaker of the House of Representatives who was widely regarded as doing a good job, was replaced by someone who at best can be classed as unpredictable.  What foreign investors would make of what's happened is anyone's guess.

Julia Gillard and Wayne Swan like to compare Australia's economic performance with the rest of the world.  It's true that Australia has done relatively well -- but comparing us to Europe or the United States is not much of a consolation.  At least our Prime Minister has been elected -- which can't be said of Italy or Greece.

In the UK this week, 2 million people went on strike to complain about budget cuts.  The budget cuts that Wayne Swan boasts of to deliver his surplus are so tiny they won't even be noticed.

And of course, the Treasurer's cuts are not ''cuts'' in the sense that spending is reduced in absolute terms.  The ''cuts'' simply mean that spending won't increase by as much as the government had initially wanted.

A quick review of how much the federal government has spent annually over the past few years as set out in the government's Mid-Year Economic and Fiscal Outlook released this week reveals that any discussion of ''cuts'' is ridiculous.

In the year following the election of the Labor government, spending increased by 12.7 per cent in real terms.

Spending in this financial year is projected to increase by 3.7 per cent, then expected to fall by 3.0 per cent before rising by 3.3 per cent.

With cuts and increases swinging around so much it is hardly a picture of an administration in suffering.

According to Norris, what overseas investors fear is Australia's problem is a minority federal government.  On this, he's half right.  Minority government itself is not the problem.  There have been lots of minority governments at the state level and some of those administrations have proved competent.

New Zealand had a minority government before last weekend's national election and they're going to have one again.  They don't seem to have had anything like the troubles that the Gillard government has invented for itself.

In Australia at the moment, Julia Gillard is depending on a motley ragbag of Green and independent MPs.  What unites that motley ragbag is their temperament, which is anti-corporate, and their willingness to see more regulation as the solution to any problem.

Other than the mining tax, which Kevin Rudd made up all by himself, it's difficult to think of a single policy initiative pursued by Julia Gillard since she became Prime Minister that has not been the result of demands from either the Greens or the independent MPs.

The issue is not minority government.  The issue is who a minority government has to rely on to stay in power, then what a minority government has to do to keep happy those MPs who support it.

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Cut, cut, cut: Wayne Swan has more work to do

The tabloids have nailed Wayne Swan's budget cuts -- taking money away from mums, but keeping the gold pass travel for retired politicians.

It doesn't matter that the gold pass doesn't actually cost that much, or is under review, or whatever, it isn't a good look.  Ditto for increasing HECS for maths and science -- the education revolution is on hold.

Wayne Swan faced some tough questioning at his press conference and the Mid-Year Economic and Fiscal Outlook (MYEFO) has not been well received.

The fact that the MYEFO is being received at all is a dramatic change.  It is usually a dry document examined only by true-believing policy wonks;  this year it has dominated the news cycle.

This highlights the community's growing interest in public finance.  That in itself, however, reflects a growing concern about the state of our public finances.  To be fair, we are in a much better position than most other, if not all, comparable economies.  On the other hand, we are not where we'd like to be or should be.

The MYEFO contains various fiddles and fudges that characterise public finance accounting, increased taxes and charges, and some spending cuts.  All up the figures generate a $1.5 billion surplus next financial year.  So far, so good.

Yet nobody really believes the numbers and the expectation is that more savings (read deeper spending cuts) will have to be found between now and the May budget.  Treasurer Swan is well within his rights to withhold announcing those cuts until the budget, but the pressure to perform will intensify over the next six months.

In addition to substantial spending cuts, some symbolic cuts need to be included in any package.  Gold class travel has to be wound back.  The living away from home allowance for politicians should be reformed along with reforms of the private sector allowance.

There is one existing symbolic cut that should be reconsidered.  The so-called efficiency bonus is lazy policy.  Government agencies will have to find a 4 per cent cut in expenditure (up from 1.5 per cent).  These sorts of savings are very popular in many organisations where senior management want to avoid tough decisions.  Spreading the pain equally avoids asking some profound questions.

If something is worth doing, it's worth doing well.  That means proper resourcing.  Efficiency dividends often strip out resourcing but don't strip away responsibility.  That means more gets done badly.  Even those with a preference for smaller government need to recognise that good government doesn't mean cheap government.  So rather than strip 4 per cent from everyone, the Government should be examining all activities it undertakes and considering whether to continue them.  In fact there could even be an argument for increased spending in some areas.

If asked to nominate those areas where substantial reductions could occur I would point first to foreign aid.  Right now it's not a lot of money, but remains a good starting point.  The Department of Climate Change could be dramatically reduced and folded back into Treasury and many of the smaller agencies currently exempt from the efficiency dividend could be placed on the chopping block.  The ComCar scheme could be axed -- politicians should pay for their own public transport the same as everyone else.

Of course my choice of cuts is likely to be controversial -- but that is the whole point.  If Government needs to save money it needs to cut programs and shrink in size, not just provide poor quality service.  Making those choices is difficult and tough.

If Wayne Swan wants to actually deliver a surplus next year he needs to a stop talking about being tough and become tough.

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Culture of entitlement a road to nowhere

Australians love government.  Many will try to claim otherwise, but evidence suggests that they are happiest when receiving a gentle drip-feed of government money and services.

As a nation, Australia's cultural identity is built upon the myth that its citizens are rebellious pioneers, stockade-erecting individualists who would prefer the Government to grant us our basic rights and leave us alone, thank you very much.

Unfortunately, like so many cultural traditions, this supposed deep-seated suspicion of Government proves false upon closer inspection.

The term ''middle-class welfare'' has achieved a sort of sickening ubiquity in public discourse, yet that is precisely what the electorate has come to expect:  handouts and subsidies simply for showing up and going about the business of ordinary life.  ''Need'' is confused with ''feels entitled to'', and Australia's standard of policy deliberation is becoming poorer for it.

The truth of this observation is given by this week's MYEFO-spurred outrage over cuts to the baby bonus.  Wayne Swan's announcement that the bonus would be cut by $437 to $5,000 has provoked howls of outrage.  The Daily Telegraph declared the cuts to be ''Wayne pain for families'';  Mia Freedman asked on Twitter, ''Of all the things the govt had to slash in the budget, the Baby Bonus?  Really??'';  and Tony Abbott has labelled the cuts as ''a rip-off of the forgotten families of Australia''.

Forgotten families?  Hardly.  Under the Howard government, of which Abbott was an integral member, so-called middle-class welfare payments became enshrined as a vital pillar of government policy, more so than traditional Liberal concerns such as commitment to small government or the primacy of the rights of individuals.  Far from being forgotten, middle-income, two-parent traditional families with children became prime targets of government assistance.

And the culture of entitlement perpetuated by Howard and his government has shown no sign of abating under recent Labor governments.  Both Rudd and Gillard have been content to continue using government handouts to the relatively well-off as a carrot to encourage voter acceptance of politically difficult public policy.

The Gillard Government has been at pains to justify the carbon tax through the accompanying subsidies to ''nine out of ten households''.  Upon its passage through the Senate, the prime minister insisted that as a result of the tax ''families will see increases in family payments''.  It appears to have become impossible to advocate policy on its supposed merits -- to sweeten the deal, handouts to the majority of Australians must be attached.

This sort of quid pro quo in legislation leads to populism in government and the death of courageous policy decisions.  Tax reform is especially difficult to implement in Australia:  after all, it took 25 years from the Asprey Report to the GST taking effect to institute a broad-based consumption tax.  Policymakers are too content to take easier routes to reform, delivering compensation by way of subsidy instead of undertaking the much more difficult task of explaining to the electorate why reform is necessary and of long-run benefit.

But the increasing use of subsidies to smooth the passage of difficult legislation has even more problematic ramifications.

By allowing government to subsidise our procreation choices, our electricity bills, or anything else, we implicitly admit to legislators that we are not capable of making our own consumption and investment decisions.  It is a tacit acknowledgement between voter and government that government knows best, and that we the voters cannot survive without its warm benevolence.

Once we concede to the Government that we can't buy a house or have a child without government assistance, we open the door to further concessions, such as the need for government to manage our diets or alcohol intake.  Government ceases to engage in ''big-picture'' policies that promote economic productivity and growth, and it instead devotes its resources to telling us how to live.

The culture of entitlement that exists in Australian society is, in the long term, highly detrimental.  It is impossible to engage in debates about future prosperity and the best means of achieving it when voters have become accustomed to allowing government to make their decisions for them.

In order to have intelligent conversations about future policy directions and outcomes in Australia, it is necessary for politicians to cease relying on a handout to sweeten reform.  A society that is suffocating on its own sense of entitlement is unlikely to remain productive.

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The world will be no safer under Basel III

The Basel Committee on Banking Supervision is about to introduce its Basel III accords, global regulatory standards which govern how much capital banks are required to hold.

But it's not typically a great idea to introduce huge regulatory increases when the world is on the brink of economic collapse.

And the Institute of International Finance (IIF) suggests Basel III implementation could slice 3.2 per cent of GDP in Europe, North America, Japan and the United Kingdom in the next five years alone, and leave the global economy with 7.5 million fewer jobs.

Sure, the IIF represents more than 400 banks, so they would say that.  Governments admit it will slow the economy, but by much less.  (They would say that too.)

Basel III was developed in haste after the financial crisis.  Like its predecessor, Basel II, its purpose is to ensure banks have an adequate buffer of capital if there is a bank run.

Regulators say capital requirements are necessary because governments insure bank deposits.  The idea of deposit insurance is to guarantee depositors won't lose their money if the bank goes under.  But the insurance also means banks and their customers don't wear the cost of wild speculation and risky banking practices.  So regulators believe banks need to be compelled to be prudent.

In other words, a new regulation introduced to patch up the unintended consequences of older regulations.

The existence of Basel II in the lead-up to the financial crisis has always been a gaping hole in the theory that we should blame a lack of regulation.

But it's worse.  The Basel II Accords -- designed to keep the banks secure, designed to protect the depositors against excessive risk-taking, designed by some of the world's most intelligent people -- were the primary cause of the crisis in the first place.

That is the conclusion of Engineering the Financial Crisis:  Systemic Risk and the Failure of Regulation by the political scientist Jeffrey Friedman and the economist Wladimir Kraus.  The book was released in October.

Friedman and Kraus's argument complicates both left and right crisis narratives.  The causes of the housing bubble are well known:  policies to boost home ownership, low interest rates, and Freddie Mac and Fannie Mae's 71 per cent stake of the non-traditional mortgage market.

But explaining the housing bubble is just the half of it.  You have to explain how that bubble turned into a banking crisis.

Basel II actively encouraged banks to hoard mortgages.  Its capital buffer rules weighted mortgages far higher than business or consumer loans.  When the bubble burst, the banks were holding a disproportionate number of dodgy mortgages because they'd been urged to do so.

This is not a completely new story.  Friedman and Kraus give it empirical support.  They show that American bankers weren't actually that reckless.  They favoured what they imagined to be safer, more expensive assets over cheaper, riskier ones.  And the banks were nowhere near as leveraged as they had a legal right to be under Basel II.

Furthermore, it wasn't ''irrationality'' that caused the crisis.  That widespread theory assumes bankers and regulators had enough information to know what they were doing was bad, but they all went crazy and did it regardless.  The irrationality thesis has no explanatory power.

It was just that everybody -- regulators, bankers, politicians, investors -- thought highly-rated mortgages were a lot safer than they were.

So how did the banking crisis become an economic crisis?  Basel II, after all, was supposed to halt a contagion at Wall Street's edge.

Friedman and Kraus argue that Basel rules are inherently contradictory.  The capital buffers which Basel requires aren't buffers at all.  The idea behind capital buffers is, again, that if there is a run on a bank, the bank will be able to dip into reserves to survive.  But if it uses those reserves, even in a crisis, it will suddenly be under Basel's required capital threshold, and will be legally penalised.

As one economist pointed out, there has been little ''consideration of the paradox that the buffer function of regulatory capital is limited because this capital is needed to satisfy the regulator''.  When the banks hit Basel's capital minimums in the last months of 2008, credit froze, and the ''real'' economy started to hurt.

So it is sickly perverse that Basel III's main purpose is to raise capital minimums even higher.  And analysts from the Cato Institute have argued that it ''retains many of the weaknesses of its predecessors'' -- particularly ''a highly gameable weighting system'' that led to the hoarding of mortgages in the first place.

Basel III shows that governments are trying to fix the finance sector's problem before they've figured out what the problem actually is.  The first and most important question has to be why the crisis occurred.  Answering that takes reflection.

But legislators work faster than academic economists.  Already by 2009 politicians were running down new regulatory paths.  In February that year Kevin Rudd had concluded that Basel II was ''inadequate'' and that it needed a successor.  This is meaningless.  All regulations were inadequate at stopping the crisis.

Anybody who says they've got a handle on the causes of a crisis that big and that complicated in its immediate aftermath is wrong.  And they're being deceitful if they say they know how to fix it.

The United States Congress passed the Dodd-Frank financial reform act six months before its own Financial Crisis Inquiry Commission released its report into the causes of the crisis.

Such is the false confidence of regulators and politicians.

Basel III standards are about to be disseminated around the world.  There is no reason to believe that the economic system will be any safer or more stable.  And it could be a lot poorer.

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