Thoughts on economics and liberty

Government failure #2

Virtually never does a day pass when government failure is not reported in newspapers, including in the West. India's hopes that its government agencies will deliver any sensible results are at loggerheads with the basic truth that even in Australia, which has arguably the best public service in the world, some truly ghastly decision making and service delivery has been regularly reported. I'm not talking of corruption, which is virtually unheard of in Australia. I'm talking about incompetence which is quite common.

Under these circumstances – which are confirmed by the public choice literature – what hope does India have of even a modicum of good governance with its current tenured system of executive services? Corruption and incompetence are the NECESSARY outcomes of India's governance arrangements. The reforms outlined in BFN are a basic requirement for things to start working in India. (The reforms I outline in BFN are in many ways superior to the systems currently found in Australia.) 

Note that government failure includes the failure to conduct a cost-benefit analysis that compares and equalises benefit-cost ratios across all policy areas. It is crucial that all marginal dollars (or rupees) spent by government provide equal value to the society. 

Consider this government failure as reported in The Australian today.

Home solar costs 25 times more than ETS to cut gas

the National Generators Forum has told the NSW government that its scheme is costing between $520 and $640 to reduce each tonne of carbon dioxide – compared with the $23 per tonne proposed in the emissions trading scheme

although the scheme will create green jobs, each job created will cost between $130,000 and $700,000. "The cost of the scheme is borne by all energy customers but hidden," the submission states. "There is a widespread community view that solar generation is good for the environment. However, there is little public understanding of the cost of delivering those perceived benefits."

the solar schemes lead to higher prices because households with solar panels or wind turbines are paid vastly more than power stations on the electricity grid; in NSW for instance, people are paid $600 per megawatt hour for producing power using solar panels, which compares with prices on the wholesale energy market of about $52 per megawatt hour.

The Australian Council of Social Service's senior policy officer of energy and climate change, Tony Westmore, feared "a serious increase" in power bills and said "those people who have the cash to be able to put the panels on their roof will be subsidised by people who can't afford their current bills".

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