One thing I have noticed while researching Port Hedland is how much BHP Billiton, the world's largest miner, depended on Government support to get where it is today. This is from Helen Hughes's The Australian Iron and Steel Industry 1848-1902 (1964, p.192):

The Broken Hill Proprietary’s monopoly position has inevitably influenced its decision making, not in the direction of unduly high prices or profits as the proponents of [sic] nationalization feared, but rather in its failure to promote an adequate rate of growth, its failure to take risks and to show enterprise. Yet in this respect the company has been far from unique in the Australian setting; rather it has shown a reliance on government support and a reluctance to leave the safe havens of the domestic market which is a heritage of a hundred years of government assistance and tariff protection.

Even as the Commonwealth Government put an embargo on iron ore exports from 1938 BHP showed no concern, given that their position was safe: they had ample reserves thanks to monopoly licencing from the State Government, their existing export contracts for iron ore and pig iron were not affected and – most importantly – all potential export competitors had been eliminated overnight. The BHP case is just another in the long list of reasons why business should never be relied upon to defend free markets. They will always look for an opportunity to jump into bed with Government if the institutional structure allows it no matter how badly it hurts everyone else; they will only defend competition and the market place when it suits their interests.

The desire for further government protection of any private enterprise – or lack of protest when it is proposed – is especially true when the corporation in question is already dependent on the State for preserving its position by artificially restricting competition, such as BHP was. For this is the only way a monopolist can maintain their market position over time without being so efficient as to deter competition; as Baumol (1982, p.14) demonstrated, even for natural monopolies once you factor time into the equation, "the heroes are the (unidentified) potential entrants who exercise discipline over the incumbent, and who do so most effectively when entry is free".

The policy implications of this are clear: "when entry and exit are completely free, efficient incumbent monopolists and oligopolists may in fact be able to prevent entry. But they can do so only by behaving virtuously, that is, by offering to consumers the benefits which competition would otherwise bring. For every deviation from good behaviour instantly makes them vulnerable to hit-and-run entry".

Whenever the Government goes around proclaiming that they have the support of "business", it would be wise to first look at why "business" is supportive before blindly assuming it is good for the economy as too many pundits do.

Everyone can find a problem with our roads if they look hard enough, from pot-holes to construction during rush hour down to congestion due to overcrowding. Then there is the cost of fuel, not to mention road taxes and licencing fees that are all unavoidable costs we must pay if we want to enjoy the privilege of operating a private vehicle. But does it have to be like that? Why are roads funded in such a convoluted way? Why is it we are happy to pay for how much we use of other products (roads are, after all, an economic good) but not for roads?

Roads are largely paid for with the fuel excise tax, where petrol is taxed in the form of an excise from the Federal government which is then redistributed to the States according to the decision made at the Premiers' Conference using various relativities agreed by the Conference such as population and kilometres of road. Then there is 'special funding' for major projects such as highways, where the States have to make their case. Local roads are largely funded by private developers as a condition of approval and then ceded to the local authority for maintenance and management.

As of 2010/11, the fuel excise tax (plus GST) was 38% of the total cost or roughly 50c per litre of petrol at the pump. This is going to increase in the next few years thanks to the carbon tax, to be somewhere in the region of 60c per litre by 2015.

But how much of that is actually hypothecated to roads? A study by Access Economics in the NRMA submission to the 2009/10 Federal budget found that only 25.7% of the fuel excise tax is actually allocated to road funding and maintenance. 25.7%. For a tax that was imposed to "fund road infrastructure", it sure looks like politicians have failed on that front.

The increased reliance on federal funding for roads has created an increasing disconnect between those who use the roads and those who pay for the roads. Federal financing of road infrastructure creates little incentive for recipients of it to innovate, correct mistakes, or respond to changing conditions in how consumers use infrastructure. A better system of road funding would be some form of variable pricing system similar to the one used by utility companies around the world.

Excise taxation veils the true costs of road use to consumers, redirects decision making away from locals towards bureaucrats in Canberra and causes a lot of the problems that politicians love promising to solve with more intervention.

Today I caught the end of a press conference where Julia Gillard claimed that the opposition's "fear campaign" (read: "politics as usual") is wrong because the ACCC has only received 600-odd complaints about price increases relating to the carbon tax. She claims that if the opposition was correct, Australians would be calling the ACCC in the millions.

But her argument (and the opposition's chicken little argument) misses the point entirely. In economics, the margin matters. Just because there are only small price increases (so far) that do not hurt the vast majority of businesses or consumers, at the margin the carbon tax by definition must be having an impact. People make decisions by comparing aternatives and various trade-offs at the margin and that is where this tax will be felt. The question should not be how many complaints the ACCC receives over price increases but:

• How much investment is never undertaken because of the tax?
• How many employees (or potential entrants) will now face unemployment because their marginal productivity is now below the minimum wage an employer can offer them?
• How many goods and services are now not produced/purchased resulting in everyone being less well off because of the prices increases? Or do people simply increase consumption as a percent of income at the expense of savings resulting in higher capital costs and less investment?

All of these questions are virtually impossible to empirically quantify but basic economics tells us that they must be occuring. These are the unseen costs that the tax is causing. The fact that the majority of existing firms are fine is beside the point; the sky was never going to fall in because of this tax. But to me the worst thing about the tax is that we could be losing billions of dollars of investment that will never see the light of day because of it. And all of this ignores the fact that the tax will likely do nothing for the environment while no markets exist in energy-generation in this country.

So no, the sky is not falling. But all Australians just got a little bit poorer for a tax that despite its noble intentions fails in its economics.