Green tariffs: unrealistic and unachievable

So who would we be levying tariffs against? It is hard to say. Maybe the European Union? Or perhaps the United States? Those are entities that we don't import a lot of goods from but are failing to meet their greenhouse commitments.

Economic handbrakes on a small economy

What is not hard to say is that green tariffs will be another nail in the coffin of Australian prosperity. Like any tariff, they lower productivity in the economy that applies them.

It works like this, particularly for small economies like Australia.

Your standard of living is dependent on having a command of a large number of outputs. That in turn depends on the inputs being inexpensive.

It turns out-surprise, surprise-that entities that specialise in producing certain goods produce them more cheaply, and for better value, than entities that don't.

In a small economy, it is only possible to sustain a small number of companies that are at the top of the world's efficiency distribution.

Specialisation is one thing, but there are also economies of scale where fixed costs are spread over larger outputs resulting in higher profits, and profits are a proxy for productivity.

Small countries are only large enough to provide those economies to a small number of companies.

There must be a market sweet spot in terms of population size because most processes don't scale infinitely, but no one has been able to come up with a predictive formula.

What is certain is that a market that includes the whole world will be as efficient as possible. And it is possible that a market that is less than that, say 25 percent (which is the United States), can actually produce all its requirements domestically as efficiently as possible.

Australia is a long way short of this, so trying to confine manufacturing to its shores is likely to be expensive, which means impoverishing, to the average Aussie.

Is Labor ready for the political consequences?

Mr. Bowen may not realise this at the moment but there is a growing number of Australians prepared to talk truth to power.