This is a guest post by my old friend, Geoff Edwards. I
refer to him as my old friend not because of his age (he is not much older than
me) but because I have known him for a long time. Geoff was my supervisor when
I began working in the Bureau of Agricultural Economics in Canberra in 1967,
and found a way to give me some interesting research projects to work on. Several
years later, Geoff left the Australian public service to pursue an economics
career in academia.
The post has its origins in an email message that Geoff
sent me a few days ago suggesting that the “east coast gas reservation” plan, recently
announced by Peter Dutton, the Leader of the Opposition in the federal
parliament, was bad policy. The plan seeks to reduce the domestic price of gas by
delivering to the domestic market “an additional 10 to 20 per cent of the east
coast’s demand – gas which would otherwise be exported for use in other markets
for consumers in those countries.”
Since this proposal was announced at the beginning of the
current Australian election campaign, I should make clear that while I agree
with Geoff that Dutton’s gas plan is bad policy, I don’t consider Dutton’s Liberal
Party to be a greater source of bad policies than any of the other political
parties contesting this election. That explains why I have chosen the quote from
The Wisdom of
Henry Hazlitt to put at the top of this post.
Here is the guest post by Geoff Edwards:
Peter Dutton says his government would separate the domestic
price of gas in eastern Australia from the export price.
For efficient resource use for tradeables, whether meat,
steel or gas, prices within Australia need to be driven by prices in world
markets.
That is fundamental to the liberal trading order long
supported by Australia.
Seeking to make the price of gas used in Australia
independent of the price in international trade is a policy of distorting the
gas market and the broader economy.
Not efficient. Not liberal. Not smart.
High gas prices perform the valuable, albeit sometimes
painful, role of discouraging use of environmentally-negative gas in
electricity generation and directly.
And imagine the ammunition the domestic subsidy policy would
provide to Australia's powerful friend in the US to expand trade restrictions.
In order to relieve pressures on households and small
businesses without introducing damaging, incentive-destroying market
distortions, cash payments targeted to those judged most in need would be a
better way to go.
Geoff Edwards
Kew, Vic, 3101
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