Australian Lefty on Politics, Governance, Science and Info Management

Funding repairs for floods versus financial meltdowns

Posted by Dave Bath on 2011-01-27

Compare and contrast the impact and policy responses of the floods and the latest Global Financial Crisis:

  • How do governments fund the necessary spending?
  • What does the funding mechanism say about the genesis of the crises as an actuary would view them?

Personally, I think whether funding comes from a one-off tax levy, or out of general coffers, the funding mechanism in response to significant crises should be the same, if both are as regular (or not) as each other.

Consider the following principle: one-off levies are appropriate for one-off events, while treatment from general revenue is appropriate for events that are considered likely to occur on a regular basis.

So, the policy response seems to indicate the government thinks that massive financial crises aren’t really that big a deal, or have a reasonably predictable frequency.

That says a lot about the implicit (and very unspoken) opinion about modern universal capitalism.  If the impact of the financial meltdown wasn’t significant, it wouldn’t have been blamed as the cause of every bad economic indicator.  Therefore, the modern financial system is a constant threat.

On the other hand, the one-off levy for a geographic event (be it an earthquake, floods, or whatever), implies the government thinks these are "black swan events", do not need to be factored into planning.

This means that the government is still in climate-change denial – despite the warnings of meteorologists that events like this would become more frequent.

The policy response implies governments are dishonest:

  • Modern financial systems are naturally unstable, inherently prone to situations needing massive bailouts, but won’t say anything to shake voters’ irrational faith in that system.
  • Climate-change caused disasters aren’t going to happen for another century, so why are they even bothering to make noises about protecting the environment, why both even attending things like the Copenhagen Summit?

To my mind, to be consistent with the accepted Panglossian view about global financial systems, the notion that the GFC was a "black swan", the appropriate response would have been a levy, taken from that class of people, the richest, who had benefitted from the system, and still remain asset-rich.

To be consistent with the near-universal view of scientists in relevant fields, climate-related disasters should be funded out of general revenue to avoid the hassles of introducing a one-off levy every few years – in other words, we should have higher taxes to prepare for things like funds and droughts.

Whichever way I look at it, when you look at the two crises and government responses, Canberra is stupid, dishonest or both.

Personally, I think taxes need to be permanently increased to deal with the obvious – that the financial and weather systems are now inherently unstable, and will ever-more frequently cause ever-more significant misery.

See Also:


One Response to “Funding repairs for floods versus financial meltdowns”

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