Nicholas Gruen, CEO of Lateral Economics, and host Gene Tunny discuss the topics of ESG (Environmental, Social, and Governance) mandates and Liberty. They explore how ESG mandates can create confusion among executives and investors, and delve into Nicholas’ perspective on Liberty, how to take it seriously and the best way to think about it. Nicholas tells a story from the early 1980s about how he tried to change Australia’s laws which allow Parliament to lock people up for contempt of Parliament. The conversation also touches on Nicholas’ concept of citizens’ juries, which is gaining support internationally, including from Martin Wolf at the Financial Times.
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What’s covered in EP199
[00:01:32] Citizens’ juries and economic policy.
[00:02:41] Does divestment from emissions intensive firms reduce emissions?
[00:06:47] Investing in fossil fuel companies to help them transition.[00:11:58] Carbon pricing.
[00:17:54] Australian consumers and carbon pricing.
[00:23:26] A different mode of governance.
[00:26:14] Liberty during the COVID pandemic.
[00:30:46] House of Commons Privileges Committee.
[00:34:32] Safeguards and legitimacy in governance.
[00:40:25] Rushed legislation during a pandemic.
[00:43:33] High level political discussion.
[00:50:06] Managing a crisis.
Links relevant to the conversation
Nicholas’s YouTube channel:
https://www.youtube.com/@NicholasGruen
Videos of conversations featured this episode:
Why ESG is a puppet show and what to do about it
Liberty: Safety from tyranny or doing what you like?
Club Troppo posts:
https://clubtroppo.com.au/2023/07/11/why-esg-is-a-puppet-show-and-what-to-do-about-it/
https://clubtroppo.com.au/2021/08/22/lockdowns-and-liberty/
Regarding the journalists locked up the Australian Parliament in the 1950s:
https://clubtroppo.com.au/2021/08/22/lockdowns-and-liberty/
Freakonomics episode on ESG that Nicholas mentions:
https://freakonomics.com/podcast/are-e-s-g-investors-actually-helping-the-environment/
Transcript:
The ESG puppet show & taking Liberty seriously w/ Nicholas Gruen – EP199
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It has also been looked over by a human, Tim Hughes from Adept Economics, to pick out the bits that otters might miss due to their tiny ears and loud splashing. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:06
Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show.
Hello, thanks for tuning into the show. This episode features some recent conversations on ESG and liberty that I’ve had with my colleague Nicholas Gruen from Lateral Economics. They’re from our occasional joint podcast Policy Provocations, which is available via Nicholas’s YouTube Channel. In the first part of this episode, we talk about how ESG mandates can be a puppet show, and can create confusion among executives and investors. In the second part, we talk about liberty, and what Nicholas means by taking liberty seriously, and what he thinks is the best way to think about liberty. The title of the YouTube video of the conversation is Liberty, safety from tyranny, or doing what you like. Nicholas is one of the best lateral thinkers in economic policy out there for sure. One of the things I enjoyed about this conversation was the discussion of how his big idea of citizen’s juries can be applied in a variety of different applications. This concept of a citizen’s jury, which Nicholas didn’t invent, but which he’s been the biggest advocate of, in recent years, it was picked up by Financial Times columnist Martin Wolf in Martin Wolf’s latest book, The Crisis of Democratic Capitalism, which quotes Nicholas approvingly it’s great that Nicholas’s ideas are getting greater exposure internationally, and I’m very glad to have the occasional podcast chat with him and to feature them here on Economics Explored. Okay, let’s get into the episode. I hope you enjoy my conversation with Nicholas Gruen.
Hello, Nicholas, and hello if you’re watching, good to be doing back doing Policy Provocations. Nicholas, you’ve recently given a talk to some investors haven’t you on ESG. And you had some thoughts on this whole concept of ESG and how it’s applied. Would you be able to take us through that please?
Nicholas Gruen 02:40
Sure. So if you listen to one of the most recent episodes of Freakonomics, you will find a an episode which follows the work of two US academics, and they ask the question, Does divestment from emissions-intensive firms reduce emissions? Now, you might think it would. But their analysis leads you to believe that it doesn’t. Now, I think both you and I, Gene would have been pretty quick to say that just passing the parcel so that we don’t fund that thing, but the next capitalist to come along to invest in it will fund it. It doesn’t give us as economists a lot of faith that we’re achieving very much. It looks according to their work that it’s worse than that. Because if you starve in the, to the extent that you’re successful at all, you’re successful by raising the cost of capital to highly emissions-intensive firms and emissions-intensive firms are 282 times as emissions-intensive, as the bottom quintile the most emissions-intensive emit 292 times as much carbon as the top quintile into whom we’re going to invest. And if you ask the question, you know, how are we going to get those emissions down if they’re making aluminium or steel or something like that, then one of the obvious things we need them to do is we need them to invest in new technology in inventing it or in applying it. And if we raise the cost of capital to those firms, they won’t invest in new technology. And so these authors find that that is in fact the case and that raising the cost of capital to these firms actually increases their emissions. Now, I was giving a talk to the Centre for Institutional Investors and these are and it was on the subject of ESG. ESG stands for environment, social, and governance, a kind of an institutionalisation of of an old concept like the triple bottom line that firms should think about their environmental impact, their social impact, and the and the way they are governed. So these people, and this is on behalf of super funds, now what we know is that about half of investors in super funds, say that they do want the super funds to be ethical. Of course, it’s easy, that’s an easy thing to say, in their investments, and another 25%, sort of kind of agree, but they’re a little that they feel a little less strongly. So they feel this as a need. They feel this is something they want to provide their, their members. So they try to ask themselves, Well, how could we invest, to be simpatico with what most people think is a good idea, which is to lower emissions. And many of them end up in these positions where they run what’s called a negative filter. And they say, Well, if you’re emitting a large amount of money, sorry a large amount of emissions, we won’t invest in you. Now, another problem with that is you end up investing in banks and companies and consultants and companies that aren’t necessarily doing great things. They’re just doing them with white collars on. So they’re caught in a dilemma because one of the most plausible things you can say to your members is we’re not investing in high emissions firms. And yet, maybe if we want to lower emissions, that’s what we should be doing. And we should be another strategy, for instance, is the strategy of an organisation called Engine Number One, which invested in Exxon Mobil with a view to raiding basically to turning up their annual general meeting and replacing board members for Exxon Mobil. And they managed to do this and really not because of their own shareholding, but because their own quite measly $15 million shareholding in Exxon Mobil, gave them a stake and then going to talk to BlackRock and some really big institutional investors. And they made a big difference to Exxon Mobil, and Exxon Mobil is now less of a climate denier than it was and more interested in trying to make money out of the climate transition. Now, the ESG managers, the easiest thing for them to do is to just say, we’re not investing in emissions-intensive firms and that in fact, it you know, if you think about the divestment campaigns, for university endowments, and things like investments in university endowments, they’re all based on this kind of logic. So I put to them that they’re caught in a kind of a cascade of, of accountability, if you like, or pretend accountability. They’re trying to persuade their members that they’re doing the right thing. And what I said to these ESG people is, I think you should get a sample of your members and pay them to, so, so you might have 100,000 members, you randomly select 25 of them, you pay them to give you a day a month on the weekend, to get briefed on this stuff to talk among themselves, and to tell you how they would handle these dilemmas. And that means that you escaped from this theatricality, that you escaped from this way in which plausible ideas get embraced, and then we pretend that they then you become part of the propaganda effort to tell people that this is all working out well. And it’s not working out well, you’re actually papering over the problems. So I it’s a long explanation. But that’s, that’s the presentation. That’s what I was saying.
Gene Tunny 09:12
That study you mentioned, that’s fascinating. So it could actually be worse. I mean, I was thinking, well, it might not achieve anything, because there are going to be other people who will invest in these mining companies, the ones that are mining coal or whatever. And, and look, the reality is, if you weren’t invested in energy and commodities in coal, or oil and gas last year, you missed a huge amount of gains. Right. So you did your members a disservice. Right? So if you’re a super fund…
Nicholas Gruen 09:40
That’s right. Yeah. And then your members, I guess, are supposed to say yes, we know it did us a disservice. But that was what we were signing up for when we wanted you to be ethical. And the real kicker is that you weren’t being ethical. You were pretending.
Gene Tunny 09:55
So you’re talking about funds where it’s got an explicit investment mandate that they have to…
Nicholas Gruen 10:03
I’m also Yeah, I’m talking about them. But it turns out I sort of this was a bit new to me. You know, this is a much bigger craze than just the ethical investment folks, it’s pretty much taken over the world. Now, exactly how they apply their those mandates is, is not that they’re not applying the mandates as strongly as a fund that markets itself as in as ethical investment. But, but most mainstream funds, take this ESG business seriously. There are standards for reporting on ESG. And in a way, you know, as I thought more about this, one of the things, one of my friends said a bit of an I told you so moment, we there are many problems in the world for which we don’t have near perfect policy solutions. But greenhouse isn’t one of them. Because greenhouse we have carbon taxes, we have carbon pricing, and carbon pricing solves these problems, because it basically says, If you want to emit, it’s going to cost you more, and then you see the colour of people’s money, then ExxonMobil has you don’t have to, then the normal incentives of minimising cost drive this whole thing. Now what’s happened is that because it is so easy to weaponize carbon pricing politically, again, this is all about how easy it is to bamboozle the public in many ways. Because it’s so easy to run a negative campaign against carbon pricing, partly because it’s makes the costs transparent. The world has now built its entire strategy for reducing carbon emissions on guess what? Nice sounding statements and statements that are made by people holding offices who will not hold those offices when those statements are not, don’t come true. You couldn’t kind of make this up.
Gene Tunny 12:18
Yeah, who are you talking about specifically there because you’re talking? Are you talking about people in corporations or in super funds or are we talking about politicians, because one of them,
Nicholas Gruen 12:28
All of them. And they all have a different, they all have a different set of behavioural characteristics. But none of them are perfect. The relationship between what people say and what they do? Well, gee, that’s a bit of a problem for human beings all around. That’s one of the arguments for saying, let’s price things because you know that the people who save on emissions will also save money and people will admire them for it, and they will want to do more of it. And the whole thing is, as economists say, incentive compatible, but to take you, so firstly you’ve got the politicians. Now politicians say one thing and do the opposite. Within weeks, if they want to make it more respectable within a few years. Paul Keating tells us that the GST and I’m not being moralistic about this, Paul Keating tells us that the GST is necessary if we’re to escape being a banana republic. And then he describes it as a giant new tax that will come and monster everyone in Australia. Tony Abbott tells us that if he was getting if he was trying to reduce carbon emissions, he wouldn’t be pussyfooting around with silly regulation and, and renewable subsidies. He’d be introducing carbon pricing until he’s opposing carbon pricing, and so on it goes and Donald Trump will say different things in the morning in the afternoon. So that’s the politicians, the managers will, managers are a kind of politician or they’re, you know, they’re in a bureaucracy. There are lots you’ve worked in a public bureaucracy and managers are, you know, private or a public bureaucracy and they put a large amount of store in reassuring people having the fear you know, giving people are feeling that the adults are in the room, everything’s under control. Nothing could be further from the truth, the the transition to zero carbon, even the transition to about less than 40% of what we’re emitting now has got lots of gets more and more magic asterisks. As you go on magic bits of technology. We’re going to invest we’re going to invent. Well, I’m not I’m not being critical of anyone because that’s the best we can do. Given that we’ve have ditched carbon pricing, although that will come back. Then at the bottom of all this you’ve got people who are voters, and they won’t accept that it’s their responsibility who they vote for. They love the idea that they’re getting ripped off by these politicians who lie to them. But they don’t ask themselves. Why did the politicians lie to them? Because if they don’t lie to them, they won’t vote for them. If the politicians come out and say, well, actually, we all know that carbon pricing is the way to reduce emissions, then they won’t vote for those people. They’ll vote for the people who say, Oh, no, I’ll do it all without carbon pricing. So it’s a big house of cards. It’s not, it’s the wrong metaphor, because it won’t totally collapse. But there is something about it that lacks integrity, and will end in tears to a substantial extent.
Gene Tunny 15:53
Yeah, look, okay, I think I understand what your argument is with ESG. And you want to get more input from the members to really understand their you know, where they’re coming from what they’d like to see their understanding of the trade offs. Just on carbon pricing. I think we might have to have that discussion another time or because there’s, there’s a whole debate about carbon pricing. I agree if we are going to do something about climate change, then definitely carbon pricing is the best way to do it.
Nicholas Gruen 16:25
Yeah it’s a major part of the solution, its not the whole solution. But if that’s what we’re trying to do, it’s a major part of the solution.
Gene Tunny 16:33
The one reservation I’d have in, for Australia, like if you think about Australia, is it optimal for us to adopt it, if other countries don’t adopt it?
Nicholas Gruen 16:45
Yeah, sure, sure that’s right. But we can then adopt a domestic carbon price. So that’s a design, I look at that as a design feature. So Australian consumers should pay a carbon price, whether the exporters of Australian energy should plan to pay a carbon price is something we can we can defer to the design stage. If you like, I agree that that’s an issue. Yeah. But you would agree, wouldn’t you that Australian consumers should pay a carbon price?
Gene Tunny 17:02
If we cut taxes elsewhere?
Nicholas Gruen 17:05
But that’s you’re imposing a, an ideological or, yeah, an ideological preference. I mean, I’m just trying to impress carbon prices, yes I suppose I am. So I, you know, I’ve got my preferences. I’d like to use the money to do X, Y, and Zed, but I’m not going to say, Oh, well, I don’t want to do it. If you can’t, I can’t use the money in the way that I want.
Gene Tunny 17:40
Yeah, but conceptually, I agree that the the best way to tackle climate change is via a carbon price, I wouldn’t want to impose it and and make our industries worse off, and you’re arguing that? Yeah, the the way to stop that or that leakage, whatever they call it, when the industries go to other countries is by having an exemption of some kind. So there’s some design issues, they
Nicholas Gruen 18:06
just don’t want to that is a genuine issue that needs to be sorted out by the international community, if you can make a pretty reasonable attempt to do so at the at the unilateral level, if you have to, it’s not as good as a multilateral solution. But that’s a separate issue.
Gene Tunny 18:23
Okay. I didn’t mean to distract us from the discussion of ESG. Because I’m interested in what this mechanism is, you’re talking about? What is it a group or a sample or a
Nicholas Gruen 18:37
think of it, think of a jury, and you sample from your membership in such a way that it is representative of the membership. So you look at the age profiles, some demographics, and then you try and produce some replication of that in this otherwise random sample. Now, I think that the what that group can do is it can become aware on behalf of the members of these dilemmas, and they’re very deep dilemmas because you really get a governance problem. Any mug can say, Oh, we’re investing in all these high emissions companies in which every time we turn up to the AGM, and we say they should lower their emissions. But that’s not serious. So, if you want to go in this more bonafide direction, you, it raises important governance questions, it raises questions about communicating to your members that you really are doing your best. So that’s one way to involve the members. I also think that at the moment, what we have is we have a thing called the sole purpose test, which it makes a lot of sense, which is to say, you get various concessions to invest in Super and even if you don’t we force you to invest in these pension funds or superannuation funds so we don’t want you to invest in a holiday home, where you will get some benefit from this in your investment fund, it has to be for the sole purpose of your retirement. But a lot of people don’t mind the idea of, they like, in fact, I’ll go further, they like the idea that they will be investing in their community, they’ll be investing in things that will be good for their kids, and so on. So one thing that a fund might do in this model, according to me, and it would actually require some change in the legislation. But one thing that a fund might do is you might the ESG folks might take to this council, they might the ESG. Governance, the people running the ESG might say, Look, this is really very hard. And we’re not sure if this is achieving much. But we do think that there are a whole lot of ways we can spend money. And it may not be it may not get us commercial returns. But we’re prepared to put 1% of your portfolio into some funds that will improve the community for your children and your grandchildren. Our calculations are this won’t reduce your returns by more than this amount. But it needs to be something that you want to do. I think that’d be very healthy. And it would introduce a different kind of collective institution and collective decision making into our world and, and our use of capital.
Gene Tunny 21:38
Yeah, I think that’s, that sounds like a reasonable idea. And what was the reception like at that conference?
Nicholas Gruen 21:44
I’ve been invited to I mean, I didn’t go to that last point. But I’ve been been invited back to talk to CEOs about it, these were just so there was a lot of enthusiasm, because a lot of these in fact, I don’t think there were any, there’s virtually no managers of ESG who aren’t sitting around, really quite perturbed by the fact that they’re sort of putting on a show for the public. And when they, when they read the literature, and they think about what they’re doing. They’re not at all sure that this is a great idea. And it’s growing bureaucracy in all directions. There are standard international standards of what you report. It’s hard graft to connect up profit-seeking with community development. It’s a worthwhile objective, and we don’t understand it very well conceptually, but what’s happening is it’s being driven politically. And that’s kind of just turning into a for at least from my observation into into a pretty unhelpful set of bureaucratic instincts set up by standards, bodies, accounting bodies, everyone’s producing these reports. And I think the agenda is I’m not pooh poohing it, it’d be easy to take the fairly standard sort of public choice, critique of this and say, it’s all rubbish. I think it’s clear that there are good things about it. But then we have to take it seriously. And it should at least take the public choice, criticism of it seriously enough to do the best job of this, that it can.
Gene Tunny 23:25
Okay, and it’s about introducing some economic logic into the ESG discussion?
Nicholas Gruen 23:29
No, not necessarily. No. Well, I would say it’s about a different mode of governance instead of a mode of governance which has a bunch of consumers, and then a bunch of people who are managing a system and marketing to the consumers. You actually say to the consumers, these are difficult questions. We want to invest in a random sample of you guys to help us run this agenda. Because that’s A, going to be useful. B, it’s going to give what we do real legitimacy. We won’t be putting on a show for you. We will be trying to do what it is that you want us to do. And all of our systems default back to what I call the puppet show, and I showed them I don’t know whether you’ve seen many people have seen the film, The Sound of Music in which Julie Andrews and the kids put on a puppet show for Captain von Trapp and his girlfriend at the time. And I say the public out here Captain von Trapp and the and your members are out here. ESG is the puppet show and you’re up here, Julie Andrews and the kids putting on a show and you actually know that there’s a fair bit of unreality to this show. Get the get the audience behind, show them what you’re doing and ask them what they want.
Gene Tunny 24:56
Yeah, yeah, I love it. Very good. The Baroness was his girlfriend at the time if I remember or was it…
Nicholas Gruen 25:05
the Baroness gets gets shafted. It wouldn’t be a nice role to have as the Baroness because the Baroness has to be kind of creepy, gold-digging, vacuous, easily dispatched by the the sweet, innocent Julie Andrews. Maria von Trapp, who the real Maria von Trapp looks extraordinarily like my aunt, I can tell you who was Viennese as well. So that is a remarkable fact for you.
Gene Tunny 25:36
Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 26:11
Now back to the show.
Nicholas, you wrote a post during the pandemic, didn’t you on your thoughts on liberty? And there was a whole debate about lockdowns and masks and you had a rather interesting perspective on it. So would you be able to just take us through that, please? Then we might talk about what it all means for policy.
Nicholas Gruen 26:35
Yeah, so during the COVID period, everybody got themselves very worked up about compulsions of impositions by government, and they were lockdowns, vaccine mandates, mask mandates. And it’s entirely appropriate that people talk about those things and debate those things and have different views about those things, and also have passionately different views about those things. That’s, that’s just fine and dandy. But imagine that we were in London during the Blitz, and we had those debates about whether the government should impose a blackout so that the Luftwaffe couldn’t bomb us, we would all understand that it was consistent with our liberty to impose those constraints. And likewise, if there is absolute chaos, that it is consistent with restoring liberty and actually to getting some liberty to impose martial law, for instance. So everything is a matter of context. Now, is that me not caring about people’s liberties under these particular measures? Well, as I wrote in the blog post, I’m the only person I know who’s got a record going back 40 years of actually taking this subject seriously. But I took it seriously in a rather different way. I didn’t say oh I’m on the side of I’m always going to be sort of leaning towards Liberty rather than coercion. What I said was, what are the things about our constitution that are most would be most would be the first things that an authoritarian trying to take control of government, or deny basic democratic values? What are the first things? Where were they hid? What are the weaknesses in our Constitution, that would help them out. And so when John Button who I worked for Senator John Button in 1981, he was in opposition. And I wrote out with the help of the Clerk of the Senate, Harry Evans, I wrote out a bill, a private member’s bill on the subject of parliamentary privilege, because at the time then, and it is still the case now, the members of either house, either our house of representatives or our Senate, can meet as a Privileges Committee, and they can decide according to whatever procedures they wish to adopt, to put someone in jail for contempt of Parliament, including one of their own members, as two journalists were put in jail in Australia in the 1950s. And so this private member’s bill actually picked up some old work of, from memory, Owen Dixon who was, who became the chief justice, but I think this was when he was attorney general. If he was attorney general, I think he was and it started with a private member’s bill he wrote, and we went over it and and made it to our own satisfaction. And so all that Parliament could do was to hold initial hearings and then to present the case to a magistrate to an independent magistrate saying, This person is guilty of contempt of Parliament. And over to you. Now, that is a much safer way to deal with this matter and a way that is consistent with our liberties taken seriously. And it’s quite a topical thing because as you may recall, the House of Commons Privileges Committee has just met and considered the routinely egregious behaviour of its former prime minister, Boris Johnson and decided that he would be suspended for 90 days. Now, I think suspending Boris Johnson from the House of Commons for 90 days, I happen to think that’s a great idea, I might make it longer. But it’s not it’s a disastrous idea that it should be their decision, because they’re politicians. And it’s very easy to imagine a situation where that, in fact, it’s hard to imagine an institution more ripe, to be abused, when people without any respect for the traditions, and the conventions within which those systems operate whenever they come along. So So that’s an introduction to this idea of liberty as being fundamentally about the legitimacy of government. And then secondarily about these particular decisions that get made.
Gene Tunny 31:36
Right, just before we go on Nicholas, which jurisdiction were those? Did you say two journalists were jailed by…
Nicholas Gruen 31:44
Commonwealth, Commonwealth, Commonwealth 1956, thereabouts, maybe 1954, the House of Representatives took umbrage at these journalists, you can look it up, I can’t remember the exact details. But the journalist reported a private discussion or something, it was just the sort of thing that’s pretty pretty standard practice now, off they went cooled their heels in Goulburn jail for a week or so. And they could be detained indefinitely. There’s nothing in our constitution or in the rules of the House of Representatives that prevents the House of Representatives from locking up anyone for any length of time in jail, now, we now have a more activist High Court that would probably get itself involved and say, This is not consistent with the spirit of the Australian Constitution, but that’s what happened. And nobody, yeah, and then, and then what happened is, Button released this thing to the public hadn’t, was a bit of a disaster, because he hadn’t read it very carefully. And I’ve tried to take him through it, but he was kind of busy or tired or something. And Michelle Grattan started asking him quite detailed questions about the bill. And he didn’t know what was in it, which was a little embarrassing. Then his party turned on him and people walked past him in the corridors saying, what has got into you? Why would you want to do this? And he wasn’t too sure himself. It was really all my idea. And it, you know, another idea of mine, and no-one knows who had it, you know?
Gene Tunny 33:20
Yeah. So I just want to understand what you’re, you’re arguing, you’re arguing that well, okay, so liberty, yeah you’re taking this seriously, you’re interested in the constitutional framework, or the all the all the rules we have in place that can affect Liberty before we get into one of these situations, like the pandemic, and I’m just trying to understand what you what you’re arguing, you want to make sure that we’ve got the right mechanisms or the right infrastructure in place so that we make the right decisions, or what are you? What are you arguing exactly?
Nicholas Gruen 33:54
Well, I’m arguing that if you’re serious about liberty, that you accept a few things, you accept that governments need in the final analysis to have quite Draconian powers if we’re at war, and so on. So that puts the focus on safeguards. And it also puts the focus on the importance of legitimacy in the in the post that I did during COVID. I said, I would have thought that it would be a good idea during COVID, if you want to introduce these emergency measures have us, and we talk about this a lot. Now, it’s one of my, one of the things I go on about which is you could have a jury body of randomly selected citizens who are there who are paid to turn up every week and to look at what’s going on and the government can’t do things that it objects to. I think that would have protected a lot of governments and would have protected us from a lot of the culture war that we saw, because these kinds of things need to reflect a sense of legitimacy. And they need to reflect the confidence of people that they’re doing what they think is the right things, and for the right reasons. And there was a great, you know, the the activism against mask mandates, for instance, was, because I regard mask mandates as the least intrusive kind of intervention you could have. And I would be perfectly I think it would be good if we had mask mandates on public transport, properly enforced even now. And again, that’s a, you know, a virus is a public is a public good is an externality, these are, these are difficult questions. And so you want to find a way to navigate them with proper community involvement. If we simply have governments and the usual sort of activism against those governments, it becomes very easy to turn it into a kind of standard issue culture war, which is what we saw more in the United States than here, but certainly it’s become that way here to a substantial extent.
Gene Tunny 36:11
Yeah, okay. So there are a few things I want to comment on there. So you’re right about government. I mean, it needs the the ability to, to at times do things that do constrain liberties, there’s no doubt about that government has a monopoly on violence, as they say, I agree with you there. Now, this point about getting the citizens involved, the citizens jury, it would have been good to have done it before we got into the pandemic, because the problem is because of all of the fear, then the citizens jury might end up just supporting a lot of these the policies? Well, I mean, I mean, the concern I would have is that a lot of these policies were driven by fear. And, you know, and which, to us, to an extent, I mean, to some extent, was rational. And some people for sure, I mean, it was certainly a serious virus. But the governments they would argue that they were polling people like they were like Dan Andrews and Anastacia Palaszczuk, they were relying on opinion polling, and that was driving a lot of their policymaking. So they would argue they had that legit legitimacy. I…
Nicholas Gruen 37:21
Well, I make a distinction, as I think you might know, between the opinion of the people for which I don’t have a high regard and the considered opinion, which for which I do have a high regard. So and certainly the considered opinion of the people, I think the considered opinion of the people would have looked very like the opinion of the people early on. But if it was really fairly clear that a lot of this was the product of project fear, then there would be people in a citizen jury, that would, you know, the citizen jury would have powers to ask questions, to call witnesses, all that kind of stuff. And that’s, we spoke about this in the previous podcast we did on a different subject. The structure we have is a government that is constantly performing for the satisfaction of its consumers, ie the voters, this is what corporations do. And what we need to do is to find mechanisms for bringing ordinary people, these people who we accept are the legitimate source of democratic government, to bring them into the process and to inform them as best we can, and then ask them to deliberate and then give the considered opinion of the people an important role in this. And it isn’t just that I think it would lead to better decisions, it would lead to a grea…, it does lead when you see it being done, to a tremendously less hostile, fearful environment. The situation we’re in, we had to make decisions. I don’t even want to defend lockdowns. I don’t want to attack them either. They were difficult decisions, you could see that the pie could see and one might, you know, you might have seen something different and we’ll never know who’s right. But I think I could see politicians doing their best. That’s an, a very important thing to cultivate during a crisis and this sort of mechanism does that.
Gene Tunny 39:24
Yeah look I’m not going to criticise them for a minute. I think they did. They took it seriously. I think they were trying to do their best. I agree there. I just think there’s a good case to be made that there was an overreaction, and it was because of the the amount of fear and they were making policy based on the fear at the time. Now, pre pandemic hadn’t didn’t we have all of these plans for what we would do during a pandemic and it didn’t involve half of the things that that we ended up doing? So when we were looking at it rationally and we had a different idea of what we were could do, but then because of the, maybe there aren’t enough checks and balances or constraints, there’s not enough, there wasn’t enough time to to actually properly consider these, these policies like what we had in Queensland here, we had the government, it had a Public Health Act, and it introduced in 2005. And you know, it was, it was thinking oh we may need something like this in case there is an emergency, a pandemic. But then when we get to the actual pandemic, they they’re starting to worry about it all. And they’re thinking, Oh, my God, we actually may not have all the powers we need to deal with this. And, and so they rushed through this bill to give Jeannette Young, the Chief Health Officer at the time, all of these extra powers so she can direct individual citizens to isolate and impose lockdowns, etc. And I mean, one of the problems we’ve got here in Queensland and this is in, this is why I’m attracted to your idea of looking at the the institutions, the whatever you want to call it, the policy architecture. I like that as a concept, because one of the problems we’ve got here in Queensland is we don’t have an an Upper House, which would provide some friction. Maybe it’s not enough, because other states have Upper Houses and that didn’t stop…
Nicholas Gruen 40:11
It wouldn’t do a lot.
Gene Tunny 40:13
Policies. Yeah. But yeah, and one thing I found is that their mechanisms weren’t working, there wasn’t enough scrutiny. I mean, I spoke at a parliamentary committee here in Queensland in early 2021. And I was trying to make the case that I thought that some of the restrictions are excessive, and we should look at this as in a cost benefit framework. But the only politician who actually was sympathetic was the One Nation MP, that both Labour and the Coalition or the LNP up here. Well, they were sort of, you know, not not wanting to question anything, there was sort of a consensus view. And I mean, I don’t mind if they come to that, legitimately, but I just thought there should have been more questioning in the in the parliament, but everyone just sort of said, Oh, we’re just going to, yeah, the normal mechanisms, or what we would hope would occur in a democracy, just didn’t work. There wasn’t enough contestability, or there wasn’t enough considered development of policy.
Nicholas Gruen 42:14
Well, I completely agree with you. But I think, I don’t think it’s particularly easy to bring that about now. Because if you look at the life of a politician, certainly a politician in a major party, the major parties are kind of like battleships, manoeuvring around getting a position on a thing, circulating their talking points, and then enforcing rigid party discipline. And when an important issue comes along, that people are very emotional about, the press is doing the same thing. The press is trying to maximise clicks, report excitement, if you get up in the House and you make you make a speech, which isn’t entirely in support of your own party and call for, you know, when you discuss the issues, well, you’re not going to get any benefits in your own party for that. The press will go through it and pick out bits of your what you’ve just said, to amp them up, and then they’ll stick a microphone in front of the party leaders face and say, Well, do you agree with what your backbencher said about what’s going on in Logan? This is just a disastrous environment in which to get high level discussion. And that’s again why, I’m arguing that actually people still like discussion, not on our airwaves, but in the right forums. You bring them together, and they speak to each other civilly. And they try to see each other’s point of view. And they tried to compromise and, and explore their way to a common view. Now, that’s almost totally absent from our politics. I think it’s terrific that the TEALS have done as well as they have in federal parliament because it has set the clock back a bit. I know we’re supposed to think of setting the clock back as a bad thing. But the way the TEALS do electoral politics is a bit more like the way, but I was saying this to a team the other day, one of the members of parliament that’s a bit more like backbenchers were 35 years ago, you know, they can talk about their own situation, their own concerns, they’re not completely preoccupied with the talking points of their party and so on. But if we want really proper deliberation, we, we better try and think about how we, I was gonna say route around parliament. Well, Parliament has the power but it’s not going to, the way we, the way our society runs at the moment, there’s nothing much you can do to make that discussion a search for the truth. It’s a search for advantage. And so we have to try to think, how do we build institutions that cover for that, that allow discussion to take place, allows these processes to take place without imagining that that’s going to happen in Parliament?
Gene Tunny 45:20
I was just going to ask, I mean, like you mentioned the TEALS and, yeah, I mean, they’ve really shaken things up, that’s for sure. Do we need more, you know, more representation from different groups? Could proportional representation help with that? Something like…
Nicholas Gruen 45:35
Yeah it might be able to help with that, I think it may have helped in something a bit like proportional representation in New Zealand. I think the, I mean the worst, the most toxic politics I know of, is in our two historical great and powerful friends, Great Britain and the United States. Both have first past the post voting, I was gonna say both have two major parties. Well, that is true in the United Kingdom, but they also have an outrider, the Liberal Democrats, but those have provided very toxic political environments. And the extent to which we’ve injected other elements, I think, has been good. And in fact, you may recall, you will recall what I call the randos in the Senate, people like Ricky Muir, who got into the Senate. And you could imagine it almost like a randomising process, you just throw in four or five random people who happen to get the benefit of tiny little preference margins. Well, I thought that was actually a very good illustration of it. Like it didn’t make much sense on paper. But the people who ended up in the Senate, listened to the debate and tried to come up with the right answer. Now, that would never do inside a political party, you’re not in Parliament to try and work out who’s winning the debate and where the answers are, you’re there to add one, one vote to your party. And that’s all decided by the party structures, completely disastrous.
Gene Tunny 47:08
Yeah I think the Senate does it’s structure in the way that yeah, because it’s got it’s not just, you know, it’s dominated by one party, that leads to arguably better outcomes and I think that Housing Australia Future Fund, I think that getting held up, I think that was a good idea, because that didn’t doesn’t seem to make much sense as a policy, I know the Greens are getting bashed over the head over that but I think their stance was perfectly acceptable.
Nicholas Gruen 47:34
I don’t think you’d be as keen on their proposal for rent control
Gene Tunny 47:37
No not keen on their proposal, but I think them actually teaming up in the so called Axis of Evil with the Coalition was very good. So the reasons they opposed it was sensible, I don’t agree with what they’re proposing instead. But I was just saying, that’s a good illustration of the Senate federally working.
Nicholas Gruen 47:54
Yes I agree
Gene Tunny 47:56
I like your, how the way you’re thinking about this, we’ve got to get the right frameworks in place, so when we get into the, the crisis, we’re not just, yeah, we’ve got a proper way to deal with it. What I was wondering is whether we decide before a crisis. So outside of a pandemic, these are the thresholds if we exceed this threshold of this virus looks like it’s of this seriousness, we’re willing to accept these restrictions, like we decide all of that prior to the pandemic, so when we get into it, we’re not panicking. And we’re not imposing restrictions that arguably aren’t justifiable. So I’m wondering if we should work all of that out, and then sort of have the debate there and you could have your citizens jury, you could have a more considered process rather than it just being decided all in a panic.
Nicholas Gruen 48:48
You know, there’s, there’s a case for trying to show what foresight you can but remember, all of our plans were predicated, I mean, this was an extraordinary thing, that all of our plans were predicated on the idea that this pandemic would be a flu, and it wasn’t a flu. And yet, all of our our entire official medical establishment, that is the people like Brendan Murphy, Paul Kelly, these are the official, Commonwealth medical officers and state medical officers. They didn’t bat an eyelid. They didn’t say, right, we need to rethink this. That happened actually, the first, because I believe the first medical establishment, and by medical establishment, I don’t mean doctors, I mean general, in general, I mean the offices of the government that are there to provide the government with medical advice. The first country that did this was the New Zealand medical establishment and they did a pretty good job, for after a couple of months they said hang on, this is not a flu, we need to rethink this and that’s what they did. That we, we were incredibly inflexible, not adaptive, not, and a lot of these guys were thinking of their role as making rules for the community rather than helping the community think through the problems. So I would put more effort into that. But we’re still drifting into this question of how do you manage a crisis. And what I’m saying is that crises will be well or badly managed, and that it’s an important thing to think about. But every time I suppose you are doing something, which I’m kind of arguing we should do, which is that every time this sort of thing happens, we should be asking ourselves questions on two levels. What do we do now? And what sorts of institutions should we have to do this thing well? And there we probably should wrap up because we’ve gone on for a fair while but one of the things that just gobsmacks me is in the United States, 51 people, all the governors and the President have a pardon power. Now, maybe some of the States have done to the pardon power, what I wanted to do to parliamentary privilege and to contempt of Parliament. But by and large, the President simply decides, as Boris Johnson decided regarding various knighthoods and so on, that it’s simply an exercise of executive power to give someone a pardon. And so much so that there is serious discussion about whether Donald Trump can pardon himself in jail, because there’s certainly a precedent for him campaigning in jail that was done in World War One when Mr. Dobbs was in jail and picked up something like 3% of the vote from jail, he was in jail for breach of the Espionage Act, the same act that Julian Assange is arraigned under or being pursued under. Now. I don’t know. I am unaware of a single Democratic politician who says By the way, we’ve got to get rid of the presidential pardon power, or if you don’t want to get rid of it, we have to subject it to proper due process. We are no longer in the 18th century. But nobody does this. And I find that completely extraordinary. So there you are. I won’t say another word about it in protest.
Gene Tunny 52:33
Okay, okay. Well, Nicholas, thanks again, for a fantastic Policy Provocation. That one was particularly provoking. So, yes, gave me a lot to think about and yeah reflecting on that period we’ve, we’ve been through and yes, lots to think about for policy. So thanks again. Really enjoyed that one.
Nicholas Gruen 52:52
Thanks Gene.
Gene Tunny 52:55
Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com, or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
53:44
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Credits
Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.
