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Podcast episode

How Ben Bernanke can bring Superforecasting to the Bank of England w/ Nicholas Gruen – EP207

Host Gene Tunny chats with Dr. Nicholas Gruen about economic forecasting and what recommendations former US Fed Chair Ben Bernanke could make in his current review of forecasting at the Bank of England. Nicholas, the CEO of Lateral Economics, discusses the shortcomings of economic forecasting and shares his insights into how it can be improved. The conversation was inspired by Nicholas’s article in the Financial Times titled “How to Improve Economic Forecasting.” The episode is split into two parts, with the second part focusing on the feedback Nicholas received on his article. 

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About this episode’s guest: Nicholas Gruen

Described by the Financial Times’ Chief Economic Writer Martin Wolf as “a brilliant man who deserves to be better known”, and by former Finance Minister Lindsay Tanner as “Australia’s foremost public intellectual”, Dr Nicholas Gruen is a policy economist, entrepreneur and commentator on our economy, society and innovation.

What’s covered in EP207

  • [00:02:13] Ben Bernanke’s review of economic forecasting at the Bank of England.
  • [00:05:23] Hedgehogs and foxes. 
  • [00:09:36] Long-term issues with economic forecasting. 
  • [00:13:18] Improving economic forecasting techniques. 
  • [00:19:29] Forecasting accuracy. 
  • [00:24:30] Open sourcing economic forecasting. 
  • [00:26:29] Developing a forecasting market. 
  • [00:34:21] Tetlockian forecasting tournaments. 
  • [00:48:37] Wind in the Willows author Kenneth Grahame at the Bank of England.

Links relevant to the conversation

Video versions of the conversations featured in this episode on Nicholas’s YouTube channel:

https://youtu.be/uJNU8z9148w?si=lk4jfQMWkVx1__Le

https://youtu.be/KflFvpeC3iI?si=sFOaNruFTMet802j

Information on the Bank of England’s Citizens’ Panels/Forums:

https://www.bankofengland.co.uk/about/get-involved/citizens-panels

https://www.bankofengland.co.uk/about/get-involved/citizens-panels/the-uk-economy-insights-from-the-bank-of-englands-citizens-panels

Mandarin column in which Nicholas declares former Bank of England Chief Economist Andy Haldane was “my favourite public servant in all the world”:

https://www.themandarin.com.au/87423-now-time-complacency-rba-vs-bank-england-edition/

Transcript: How Ben Bernanke can bring Superforecasting to the Bank of England w/ Nicholas Gruen – EP207

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. 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 in to the show. In this episode, I chat with Dr. Nicholas Gruen about economic forecasting. Nicholas is CEO of lateral economics. He’s been described by the Financial Times as Chief Economic writer Martin Wolf as a brilliant man who deserves to be better known, and by former Australian finance minister Lindsay Tanner, as Australia’s foremost public intellectual. This conversation was inspired by an article that Nicholas had published in late August in the Financial Times How to improve economic forecasting. The FTS one line summary of the article was myopia and groupthink mean this science is not as evolved as it could be. This episode is in two parts. The first was recorded prior to Nicholas’s article coming out, and in the second part, we reconvened to go over some of the feedback that he received on the article. The video version of the first part is available on Nicholas’s YouTube channel. I’ll include links in the show notes to the YouTube channel, and to material mentioned in the episode. Okay, let’s get into the conversation. I hope you enjoy my conversation with Nicholas Gruen. Nicolas, good to be catching up with you again on economic forecasting. Likewise, so Nicholas, last month, the Bank of England announced that Ben Bernanke, so the former chair of the Federal Reserve in the US, he is to lead a review into forecasting at the Bank of England. So the the court of the Bank of England’s pleased to announce Dr. Ben Bernanke has agreed to lead a review of the bank’s forecasting and related processes during times of significant uncertainty, or we’ve had plenty of those. And he’ll be supported by the bank’s Independent Evaluation Office. Now, Nicholas, you’ve had some thoughts on what Ben Bernanke could offer to the Bank of England regarding forecasting, haven’t you? So would you be able to give us an overview of what those thoughts are, please?

Nicholas Gruen  02:44

Sure. So their thoughts? I’m not terribly hopeful. And that’s an amazing thing to say about Ben Bernanke. I regard Ben Bernanke happens to have a Nobel Prize on his shelf. Ah, you’ll notice that I don’t. And I also think he’s a great guy. You know, he’s a very sensible, practical economist with a lot of understanding of empirical economics and happened to be a one of the world’s experts on the Great Depression at the time when boy, did we need an expert on the Great Depression in the Fed. So that’s all great. I fear that Ben Bernanke, like a really scandalously large proportion of economists are so caught up in their own discipline that they haven’t noticed what has happened in adjacent areas. And this is a little bit like, what’s been going on is something quite like what Daniel Kahneman and Danny and a must for Seversky. If I got that, right, we’re cooking up with behavioural economics. It’s happened a little since then. But a guy that many people will have heard of Philip Tetlock, he got tenure in about 1982 Or three. And he decided that he would now engage in a long term project that he always wanted to engage in, but you can’t if you don’t have tenure, because you get sacked before you could get a publication if there’s so long range thing. And what he wanted to measure was do geo political experts. You can call Tom Friedman. He certainly poses as a geopolitical expert, The New York Times columnist, but also intelligence analysts, academics, international relations academics. If you ask them to forecast events, do they add value? Do they the fact that it’s quite clear they know more than your average bear? Does that translate into actually having actionable better capacity to say what’s going to happen? And the answer was on average and barely. And then he divided that up into experts that did add something. And they didn’t add that much, and experts that actually were worse than ranked, or worse than a naive prediction, and he divided them up into hedgehogs and foxes, hedgehogs no one big thing. And that means that their forecasts are worse than yours or mine, Gene, because we’re just trying to doing our best, whereas the hedgehog will have one big thing, you’ll be anti communist or pro communist, or this or that. And that banks, their forecasts worse than a fox, I think of someone like the economist, John Maynard Keynes, or Paul Krugman, as a fox, someone who knows many things and is trying to balance all those things, and to work out how much this matters and how much that matters, and how much do I know and so on. Now, that’s pretty striking. But it doesn’t tell us exactly what to do. But there is one thing that the study showed us. And it didn’t, we didn’t actually need the study to show us. But it gives us a very concrete illustration of a problem, which is, and this goes on in economics, which is that if you don’t issue your forecasts in a form, that can be back tested, that we can revisit and say did was that a good forecast or a bad forecast? And how did it compare with your peers? You’re basically, you know, it’s a bit like fortune telling. And to do that. What Tetlock did was he forced analysts to say precisely what they were predicting would happen, or in fact, he would specify something like, my Mikhail Gorbachev will continue to be the secretary of the general Committee of the Communist Party, whatever it was called, then, by the end of 1988. What are the chances and then you would have to say, I think the chances are 88% or 23%? Not probably, which means somewhere between 51% and 100%. And not unlikely. And not you can’t rule this out the sort of things you read in a newspaper column. Now we need to do that with economic forecasts.

Gene Tunny  07:31

Yeah, yeah. So just for background, so Philip Tetlock is a Canadian American Political science professor at University of Pennsylvania. And yeah, he wrote that book, super forecasting, or super forecasters. I’m

Nicholas Gruen  07:46

just gonna get on to the talk about that’s the book for the people who can watch not the people who are listening. I’m holding it up to the microphone. Thank you.

Gene Tunny  07:54

Yeah, absolutely. And so he was looking at, you mentioned geopolitical forecasts. But we’re interested in economic forecasts. Now, we know and I guess the general public knows that economic forecasts have been had. there been some notable failures and Amin in Australia that they go way back. I mean, always remember the I mean, I guess I was young at the time was in high school with the Treasury. And was forecasting the soft landing during was it the 9091 recession? Yeah. And it was the worst recession since

Nicholas Gruen  08:30

then, you know, the problems. Yeah. And there are other notable examples. More recently, we’ve been expecting wages to pick up and abroad for about, well over a decade, it just goes on. And, and to their credit, the Treasury and the reserve, published these graphs, I might see if I can put one in the show notes or on screen, or the editor can put one on screen, where you see wage growth gradually trending down with every year, the forecast is to come back to the long term at what was the long term trend average, it’s no longer the long term trend average.

Gene Tunny  09:08

Yeah. And there are some charts like that in the latest intergenerational report that the Treasury has put out, Jim Chalmers launched today, which showed just how bad those long run projections have been. So you know, it’s a it’s a problem, both in the short term and the long term. With economics. Yes. So I suppose yeah, be good to sort of to diagnose I mean, what are the what’s the actual issue and the problem is that the the economy is fundamentally difficult to forecast but

Nicholas Gruen  09:41

no, but I mean, we’re not even trying so to try, we would nail economic forecast down to something that can be properly back tested so I we have a forecast. You may know what the Treasury’s forecast is for wages or growth. Next year, I don’t you just give us a number. Even if you don’t know, the sort of thing you think it should be around what for wages, wages or for growth it all for economic growth,

Gene Tunny  10:12

it’s probably around 2%, or two and a half percent or so and a

Nicholas Gruen  10:16

half, okay, two and a half percent. So first problem is that if the forecast is 2.5%, and it comes in at 2.62%, is that a success? Or is that a failure? So because 2.5%, we call it a point forecast, and the chances that it comes in exactly at that number are infinitesimally small, I just have to add decimal points. And eventually, it won’t won’t be 2.500000. It will be it will fall on one side or the other of 2.5. So we need if, if we’re going to back test, a forecast, we need a forecast that we can declare a success or a failure. And the next thing we need is we need the forecast to tell us how confident they are that it’s got that that event will happen. And that happens to be exactly how weather forecasters forecast. They give us an event it will rain which I’m sure has a media or logical definition of you know more than this amount of precipitation in 24 hours or in in an hour. It will rain and it will rain with this degree of probability. Now what’s beautiful about that is Daniel Kahneman says that there are places where he said this I think he’s a no doubt he’s been more circumspect in other places, but I’ve heard him say, all professions are overconfident? Well, weather forecasters are not overconfident. Because the confidence with which they express themselves becomes part of the metric by which we judge them. And so they make a point of being exactly the right degree of confidence. So I think of weather forecasting as one of the few Socratic areas of domain expertise, because it knows what it knows. And it knows the limits of that knowledge. So that’s what we need to start to try to do with economists. And I think it was you who sent me this thing in the last six months where some of the techniques that Philip Tetlock has perfected has developed, have started to show dividends in economic forecasting. Now, one thing we haven’t explained yet is that that in that book, super forecasting, Philip Tetlock took the ideas with which he demonstrated how little value was added, and how some types of people added more value than others. And he asked himself the question, could we identify the very best to the people who consistently add the most value? Can we understand more about how they do that? Could we get them together and get them to help each other? And the answer is that using these simple and common sensical techniques, you can actually start to get a lot better. Certainly, geopolitical forecasting. And now there’s some evidence that we may be able to get better at economic forecasting.

Gene Tunny  13:32

Right? So with weather forecasting, so in your you’ve been working on a, an article on this, and you’ve identified that weather forecasts are much better than they were 30 years ago. Yeah. Now, that’s because of an infant. My understanding is that’s because of the ingestion of so much new data. And I mean, we’ve seen with that integrated marine observing system, for example, the imass organisation that we’ve done some work for that there’s a whole bunch of data that comes from the ocean, and that helps with weather forecasts. They’ve got huge numerical models and their physical processes involved that they can actually model with economics is a lot, a lot more challenging. So yeah, weather I guess, it is embarrassing. How economic forecasting hasn’t hasn’t improved. And I suppose that does suggest we need to, we need to adopt a different approach is not necessarily going to be we’re not necessarily going to improve our forecast by building more complicated models or bringing in more data. Perhaps we do need to adopt a new approach along the lines of this super forecasting methodology. And you mentioned, yep, there was that evidence about how they’re forecasting the Fed rate decisions much more accurately than others their super forecasting approach. So I guess you are starting to unpack it. What do you see as the main elements of This super forecasting approach, Nicolas.

Nicholas Gruen  15:02

So one of the things that that I think is quite interesting and useful is that like Daniel Kahneman, who was the last person who really, I won’t say revolutionise because it’s not true, but he really he started a whole new way of thinking about things within economics and managed to get himself a Nobel Prize for his trouble. And he’s a psychologist. And so it was Philip Tetlock and Philip Tetlock is drawing our attention to something that’s incredibly important. But because it lies outside of economics, economists just ignore it. And what he’s saying is that if you want to be a good forecaster, you must forecast in a particular way, I’ll say you must have a certain kind of psychology. Now. In fact, in philosophy, there is a term for this, I don’t much fancy it, but the term is Virtue Epistemology. That is if you want to, if you want to be good at knowing if you want to be a good scientist, if you want to be good at mastering a domain and being useful to other people by not being overconfident. By actually knowing how much you know and making it count. Then you have to exhibit virtues, you have to exhibit actual virtues, you have to have the courage of your convictions, you have to have the humility to know when other people or events might be, make it time for you to revise your opinion. Is this reminding you of lots of economists? You’ve talked to Jim? And perhaps not so so the list that I put in this op ed that I’ve written for the Financial Times and may have been published by the time you people get to listen to this conversation? What qualities does he see in Super forecasters, as well as mastering the mesh necessary formal techniques, which we economists are very strong on. They’re open minded, careful, curious, and so critical. away like Socrates, of how little they know, they’re constantly seeking to learn from unfolding events, and from respected colleagues. So that’s how you forecast I would argue, that is how you do anything that is expert. And there’s a really important thing here. Because even if we can’t improve forecasting much, and one thing I do want to throw in, parenthetically on that question, is that when economists make for when a central bank or a treasury makes forecasts, this is a forecast of how certain economic aggregates are going to move that they plan to try to manipulate on on the way through. So it’s a very, it’s a very different kind of forecast, the, the forecasters of the weather don’t say, well, it’s going to be a 30% chance of rain on Tuesday, and we’re going to be trying to make it a 30% chance of rain on or we’re going to be making trying to make it a 20% chance of rain. So so it’s it’s a lot more complicated. But one of the things that are super forecaster might do person have that kind of temperament might do is they might say, well, our point forecasts much used to us. And the answer is I don’t think they I mean, quite apart from the fact that we can’t back test them. I think the most important thing I want to know as a business person doing planning of for something or as an employee, and I’m thinking should I buy a house or buy an investment property or whatever? Seen, I think the most important metric I want the most important thing I want forecast is what is the chance of a recession in the next six months or 12 months or two years? So I think we should be trying to forecast a lot more along those lines. Now there’s a problem and that is that well, firstly, let’s talk about the problem of forecasting at the moment. Because economists forecasts are not probabilistic because we don’t test an economist according to they don’t issue those forecasts like there is a 40% chance of recession or whatever. Almost all the time, even when a recession is more likely than most other times, it’s still unlikely that there will be a recession. And so now what we’ve got is we’ve got all the forecasters in the same situation as 40 tippers, which is I might want to say that the backmarker What do you call it the last of the non favourite in a horse race or a football am, I might want to say that I think the favourite has got an unusually large chance of losing. But I still think it’s more than 50%. So if people are just saying, How many times did you tip the right answer, then we’re not going hunting for who knows that this is the who’s got some extra information, which is that for some reason or other some some particular players not inform or something rather, that there’s a lower chance of the favourite winning than usual, no one has an incentive to do that if we’re going to give a prize out to the person at the end of the year, who tipped more winners than anyone else. And that’s real. And that’s what happens in economics. So of the last 18 recessions, economists pick, tipped about one or two of them. And if you’re competing with other economists, with how often you got it right or wrong, that’s actually quite a rational strategy. So what we need is, we need to find a way for economists to put their hand up and say, I think the chance of recession have gone from, let’s say, 10% per year or something like that, maybe a bit more, I think to the next year, it’s 35%, or whatever, and then at least you get an effective, you know, a number.

Gene Tunny  21:24

Right. So is this what Ben Bernanke should be recommending he should be recommending that the Bank of England provides percentage estimates of regarding its forecast, so how confident it is? I mean, to an extent it does that, I think, doesn’t it? It has Fein charts. It has fan

Nicholas Gruen  21:41

charts, it has fan charts. And I think, yeah, once you try to operationalize this in economics, you end up with a lot of fan charts. Now fan charts, we may or may be able to show those on the screen. And in the show notes, fan charts show you the point forecast through time, and then they say this, the 70% confidence interval is this fat. And the 90% confidence interval is this fat. In other words, if you want to know what were the the range within which we’re 90% Sure, that’s the range. Now the problem is that range isn’t helpful doing because the 90% range usually takes you from somewhat one of the most savage recessions you can possibly imagine through to boom conditions. So we do need to think about that. But what really, I think that there’s a few things here. One of the things is that we need to get, this is a good way to get different teams and different forecasters to compete with each other. It’s a good way to compare forecasters, so that you’re constantly getting feedback on who’s good and who’s not. The other thing that I think it does, well, it also enables us to surface you can have a different series, which is not in any central bank or Treasury that I know of, which is the chances of recession, you can have that series and you can have people trying to forecast that. Now there’s a further problem. And the problem is that we get feedback on what growth was every time we forecast it, because we can’t we get a growth number. We don’t get feedback on what the question was there a session will accept that the answer is no. It only varies once a decade or so. That’s a really big problem. Because if you want to ask who’s the best person at forecasting recessions, then you’ve got to wait 20 or 30 years to even start to short sort the sheep from the goats. Yeah. So Philip Tetlock has actually been working on this on a problem. It’s not in economics. It’s in his his the area that he manages to get the most funding from, which is in intelligence organisations and so on. But what he’s trying to ask is, can we leverage the credibility of forecasters of things we do get a lot of feedback from for these other areas where we get less feedback? And I think the answer is yes, we should be able to do that. And we must be able to do that in some areas, and maybe not in others. And then we don’t know about this area, but that’s the sort of thing that we should

Gene Tunny  24:28

be exploring. Okay, so for economics, so just to summarise, are you arguing for open sourcing for coal, that’s

Nicholas Gruen  24:36

a separate thing. That was what I was going to get to, which is that so what I want to see is that this is one area that given that we’ve outsourced all kinds of things in government that we shouldn’t have outsourced. Maybe we could outsource some of the things we should and we this is the sort of thing that we can outsource on I don’t even mean outsource we can’t what we should do the best Bank of England, the Reserve Bank of Australia can get with the programme and the programme is the smartest person is always outside the room. And in some areas, you can, in some sense, bring them in. And in other areas you can’t. But in the area of forecasting, you can and you can hold a Tetlock like forecasting competition, you can say, we’re trying to get forecast for this, and this and this and chances of recession in six months, one year and two years, and then everyone can participate. Now, the world or certainly the markets and the people in the different national countries, they want to know, what’s the reserve, what’s the central bank forecast, so that central bank has its own, I think that central bank should have its own teams, team or teams in these forecasts. But they should separate out the teams from the bank itself, and the bank should observe the forecast should observe the forecasting competition. And from that forecasting competition, say what it thinks is its best forecasts and those become signed with the imprimatur of the central bank. They might be produced by the central bank team, or one of them, they might be produced by somebody completely outside, they might be produced by some kind of hybrid. And all of this is visible to everyone. And so we’re starting to develop a market in which we can start to see who’s really good at this. And some people are going to surprise us on both the upside and the downside, by the way. So that’s what I’m suggesting.

Gene Tunny  26:46

Yeah, I mean, what, what I’d like to understand is, to what extent will it be teams, interdisciplinary teams of economists, and then some other non economists, may be busy people who are expert in business or maybe not even expert in business people who are just good forecasters. And when I was chatting with Warren hatch from good judgement, this is a organisation he set up with Philip Tetlock, he was telling me that it’s people with good pattern recognition skills, and then be in any discipline and people who are cognitively flexible, or they’re there. As you were saying before they actually they’re not caught up with their particular theory. They’re actually yeah, they’re evaluating everything. Yeah, that’s right. That’s

Nicholas Gruen  27:33

right. So the answer is, we don’t have to know the answer to that. But we Yes, you would expect that the teams that are going to perform best will be hybrid teams will have economists Well, technically excellent economists in them. They’ll have people who look at other kinds of things. And there will certainly be some surprises. And some people who’ve always had a fascination with, you know, certain kinds of things which turn out to be relevant to how you forecast. So that’s where I would expect it to, to end up. But maybe it’ll just be economic experts. If they win the if they win the competitions. All this Tetlock stuff will have proven itself to be relevant for economics, but both common sense and the evidence suggests that that that’s not the way it will turn out. And there aren’t that many areas where at the centre of government, you can improve performance and improve. And through that improve economic performance someone. This is this is one of those billion dollar bills on the pavement that we find ourselves talking about from time to time, Gene,

Gene Tunny  28:46

absolutely. Yeah. And I misremembered. What Treasury’s forecast is 2023 24 GDP forecasts for Australia at one and a half percent. So not Oh, is there any

Nicholas Gruen  29:01

memorable number or perhaps it is memorable, but not in a good

Gene Tunny  29:04

way? Just so many numbers out there? Harada? Yeah, exactly. Exactly. I feel sorry for these politicians, they get put on the spot about these different numbers from toe to toe? Oh, absolutely. Yeah, absolutely. fully on board with that suggestion. At the very least it’d be a good trial, a good pilot. Exactly that out, see how it will works?

Nicholas Gruen  29:23

Well, I’ll just say one other thing, which is that this is again, what we’re talking about here is convening power, not executive power. So anyone can run this. The Business Council could run this. It’s not it won’t be cheap, but it’s not very expensive. Having worked at the Business Council, I can tell you, their budget easily would easily accommodate this. You could do it for a few $100,000. Anyone can do this. So it’s it’s kind of extraordinary and pretty outrageous that we’ve really known this, that there are benefits here. We can do this better. And it just gets ignored again. And again, it got ignored in the review of the RBA that we had here. It’s pretty terrible that we’re not looking around and trying to grab hold of things that are in the ether, that it’s starting to work, and that we can benefit from.

Gene Tunny  30:21

Yeah, I suppose there’s a public benefit to it. It’s not necessarily in the interest of the people in the Treasury or the Reserve Bank or the Bank of England or their ministers. I think that’s one of the the issues.

Nicholas Gruen  30:32

Yes, but economists are pretty impatient with policy makers who don’t do the right thing, but that the economists have to figure this out themselves. And I would, I would have thought that it’s Well, time for this to be standard economic advice, and it’s very, very left field and economic advice at this stage.

Gene Tunny  30:55

Okay, we’ll see how your Financial Times I bet is received?

31:00

Well, let’s see. Let’s see what Ben says. Very good, he might be giving you a call. Let’s hope.

Gene Tunny  31:09

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  31:15

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Gene Tunny  31:44

Now back to the show. So Nicholas, it’s been a few weeks now since your article was published in the Financial Times. So your article, how do we improve economic forecasting? And we chatted about that, in the previous conversation, the in the lead up to that coming out. So your ideas about how the Bank of England and other central banks or treasuries or finance ministers can improve economic forecasting? So it’s been a few weeks and says come out, you’ve had a bit of feedback. Yeah. How would you describe the reaction to your article?

Nicholas Gruen  32:22

I think it’s been the best reaction. I’ve published three pieces in the Financial Times of this kind, which is a sort of, hey, why don’t we do this? It’s reasonably out there kind of proposal and my judgement of the comments, and you’ve looked at them slightly more carefully than me that I looked at them, you know, in the first 24 or 48 hours, I thought they were more positive, and more constructive than most than is mostly the case in comment sections. It’s a pretty sad state of affairs. And nevertheless, the case that even in a really high quality newspaper, like the Financial Times, a lot of the people they’re not super ignorant, and, and just just totally dumb, but what they do is they sort of come on and they make a point. And the point is a perfectly okay, point, one of the points for instances, well, weather forecasting, which was full of praise for is different to economic forecasting, because the weather doesn’t decide to change its mind when it sees a forecast. And human beings do. It’s a very good point. It doesn’t completely obliterate all the points I was making. So if someone wants to come on and say that, that’s fine, I know that, but they’re not really participating in the spirit of things. Another person who wrote a letter to the Financial Times I think his name’s Tim Connington, or Contin, you might know his name. He said that really what mattered was having models that have proper allowance for monetary policy in them well, I’m not against having models that have the proper allowance for monetary policy in them, but it doesn’t really address the point. And then, and then there was some really quite good criticisms. The other thing was really good was that I was approached by a number of people, some of them well, one was a large corporate, which is doing Tetlock in forecasting tournaments internally. That was an interesting exercise. And I’ve been engaged with them. I’ve been they haven’t been paying me or anything, but I’ve been suggesting that they look further afield to the services of people like Warren hatch who you interviewed. On your podcast, he runs a thing called Well, it’s called good judgement. I don’t know whether it’s good judgement Inc. Or, anyway, it’s not the Philip Tetlock project which is run with inside University But it’s an offshoot of it, which is a commercial project. That was interesting. There was another economist, who was really quite pissed off, if I might say this, about the fact that forecasting prowess is not a very strong criterion of promotion inside government agencies that deal with economics include, including government agencies, in which forecasting is a very important matter. And he’s right. And I talked to him about Kaggle. And how Kaggle, the data science forecasting platform that I was involved in, when it started up, has changed the market to a substantial extent because people want data scientists who actually perform well. And you can see whether they performed well or not on Kaggle. And then another person who contacted me was actually from the Bank of England. Now, I’ve not had that experience in Australia, where someone from inside government you publish something. I mean, it wasn’t directly critical of the bank, I suppose you could say it was in a way. Anyway, he engaged me. And he said, Well, actually, we do, too, a little bit of what you’re suggesting. And it’s true, that the Bank of England, which is about my favourite Central Bank, I think they’ve done better than any other central bank in terms of their thinking. Not it turns out in terms of all the judgments about the about inflation, and so on, because we do we require a degree of clairvoyance for that. And they’ve had a recent spate of arguably bad luck in terms of working out the future. But he pointed out that the Bank of England does have a very, very simple in the form of seeking feedback from the community. It asks people for their own forecasts. Well, that’s a good beginning. And it’s better than any other bank that I know. I thought it was a terrific reaction.

Gene Tunny  37:06

Oh, that’s good. Yeah. Citizens panels, I think they call them so I’ll put a link in the show notes. I thought that was really good. And, and it really is heartening to see how open they are. And you’re right. I mean, I can’t remember anyone from a Australian government agency getting in touch or if they did get in touch, it would be all this has to be confidential, and it wouldn’t be an official email. So I think that’s good about the Bank of England. So that was great to see that. Now, just on some of those points, you raise you mentioned about modelling and that was it one comment that said I Okay, the issue was just the specification of the model. And I think you the way you reacted to that was, was was right. And one of the some of the comments I took out of the ft. Like there was some positive really positive comments in the comment section of the Financial Times. It was one about, ah, this sort of approach could have helped us in the early days of COVID. It could have avoided us from having some of your apocalyptic or Yeah, ridiculous, for ridiculous, and I think there was some criticism of the forecast room from his sage. I think they were sage forecasters. Yeah. That’s right,

Nicholas Gruen  38:20

sage, and was a guy who got himself briefly famous. And then arguably infamous. You put his name in these notes we have in front of us, Ferguson. Yeah, yeah. Yeah. Neil Ferguson. That’s it. And that, and you just had to look into that for a while to see that. The model was an immensely complex model. It wasn’t clear what it was useful for. But it wasn’t useful for quickly trying to understand, you know, ask quick, what if questions, it was an ornery monster of a model that produced a different result every time he ran it, because it was so common. Yeah. Just just not not built to certainly not in that situation. It was not built to help people make quick probabilistic decisions. But because it was a model, and because he was at a university Imperial College, as I recall, I hope correctly, then he had the stamp, you know, you had the brand. And so we spent a fair bit of our time with his model. It was pretty low grade stuff.

Gene Tunny  39:31

And so some of the negative comments or there were some people who are saying, Oh, well, look, you’re not you haven’t taken to account the fact that we’ve made all these advances in economic forecasting, and there are these new techniques and you’re unaware of them. I’m not sure that that’s true. And when I didn’t

Nicholas Gruen  39:47

mention any No, I didn’t mention any. So I mean, I’m sure I’m unaware of some of them, but he had no evidence that I was because what he’s or she is criticising me for is St. totally irrelevant. There is a state of the art of forecasting, the Bank of England or anyone else is either at the forefront or a bit back from the forefront. And the way to get to the forefront is to have a process of integrity, where people who are good at forecasting end up with better reputations than people who are not so good at

Gene Tunny  40:21

forecast. Yeah, yeah, exactly. And the point I would make, like when I read those comments, they were almost as I think they are assuming that it’s the model that gives the forecast that’s published in the Bank of England monetary policy statement or, or in any of these statements from economic agencies, it’s actually a forecast directly from a model. And it almost never is, there’s always an element of judgement, the model is one input into the the actual official forecast. And if you read the bank, the publication’s of the Bank of England, that’s very clear. And so your approach is about taking all of the the evidence out there or different views. I mean, you know, it could be in I think there’s something I was chatting with Warren hatch about, if I remember correctly, Warren was saying that, look, there can be value from having people in teams, like some people, someone has a model than there’s others who are more qualitative. And there are others who are looking at different bits of data you want. You don’t want a variety of approaches, I think and perspectives to get better forecasts.

Nicholas Gruen  41:27

I’d say some, I think that’s absolutely right. But I think you can say something more than that. We exist in a society in which governments and agents and organisations are performing for our entertainment, if I can put it that way, at least under the guise of the media, they’re doing stuff, they’re justifying them stuff. They’re got comms people coming out, saying, This is what we’re doing, and they’re putting over a plausible story. And then you get pundits, I would say, like us, except I try not to do this. But almost all pundits and almost all Twitter pundits, almost all instant experts, they come out. And they say what, really what you should do is x or y. But in fact, what you should do is a very complex and acculturated performance. So it will involve technical understanding and modelling. It will then involve judgments, as you say, but then how do you get the people with the best judgement to make the judgments? Well, we haven’t really solved that problem, we just get the most senior people to make those judgments. So it’s like me saying, I want a good COVID vaccine. And this is the process that we should go through to get the COVID vaccine. What I want is a process that has legitimacy, because I believe that if I looked into what that process was, it would add up it would have integrity. In the words of Charlie Munger, the highest form of civilization is a seamless web of deserved trust. In other words, there isn’t a clear line between the pundit class and what you do. If you’re doing anything difficult building a bridge or dare I say, a nuclear submarine pundits can can’t actually say very much, they can say a few things about what would be really dumb. But there’s so much that goes into this. And the public discussion isn’t had in that kind of way. But that, ultimately, is one of the reasons that I’m such a fan of Philip Tetlock stuff on forecasting and creating forecasting tournaments, because it’s one of the few areas where you can start to build some objective relation between reality. And as poor munchkins working away trying to work out what that reality is, and our social and political institutions have done? Well, the job they’ve done might be the best in history, but when you look at it, it’s not all that great, there are plenty of things wrong with it. So, this is a rare case where there is a better way you can see what it is you can understand its principles and we should really try to implement it and also learn from it how how we could extend that since making reality contacting function.

Gene Tunny  44:31

Yeah, absolutely, fully agree there. So, I mean, one other point I just wanted to make is on that, the forecasting the the whatever the you know, best practice or the in terms of technical forecasting. One of the articles there was, it was linked to in the in the comment section, the Financial Times it was an article that was by a number of forecasting experts and one of them was Jennifer Castle’s, who works with David Hendry. And Henry has been on the show. And if you’re interested in these issues, that would be a good conversation to go back to because David talks a lot about the ways that he tries to get his model based forecast as best as possible. Now, that’s, that can be an input into this a super forecasting approach. It’s not, these things aren’t mutually exclusive. But what he’s doing, he’s trying to build an econometric model that can be an input into the forecasting. For the point I’d like to emphasise is that the forecasts that end up in the reports and then end up influencing budget, so they’re never just the outcome of models, because we know that a model is useful. But you there’s always a judgement involved, you’re always going to be tweaking things to make it because there’ll be things in the model you go hang on that may not be realistic in the current circumstances. Yeah, exactly. Yeah, exactly. Right. Oh, so Nicholas. I just wanted that quick catch up. Because I thought, yeah, that was a great article of yours. And it’s got some excellent feedback. And I think it’s, it’s probably achieved what you wanted to achieve, I imagine.

Nicholas Gruen  46:08

Yeah, absolutely. Even though they told me I only had 650 words, and then they only allowed me 570 words. So my nice paragraphs about what a big fan I was of Andy Haldane, who was no longer at the Bank of England, they were all taken out the likes of fanboy helding while he was a civil servant, was my favourite civil servant in all the world. Very good. Yes.

Gene Tunny  46:36

I’ll put some links in to about Andy Hill died. Did you? Have you written this on your club dropout? Or Nicholas? Your? Um, I’m

Nicholas Gruen  46:44

not sure I have I’ve. Yeah, maybe I should. But But no, I have because I published some articles in the Mandarin, which is an Australian Public Policy Magazine, if you like, which is and they’re always backed up onto my blog, and one compared the Australian Reserve Bank, with the Bank of England and the and particularly the blog notes underground. I think it’s called always good to quote Dostoevsky. I suppose when Greg Clark isn’t quoting, isn’t quoting titles from Hemingway, the Bank of England can be can be paraphrasing Dostoevsky in the name of its blog notes underground, I think it’s called. And it has lots of really interesting think pieces. It’s not very standard academic stuff, although there’s some of that as well. I think it’s a very sad thing that government, certainly independent agent, government agencies around the world don’t do that a great deal more. I may be fondly imagined that Andy was one of the movers and shakers behind that. But certainly he did lead a lot of research showing the costs of too big to fail implicit subsidies for large banks and just did lots of use the, the US the independence of the central bank in a way that was very, very helpful in difficult times during the global financial crisis. And in the years after the financial crisis is people trying to work out what had gone wrong and how to fix things. Yeah, absolutely.

Gene Tunny  48:23

It’s, it’s interesting that Yeah, I agree about the Bank of England, probably being the best central bank certainly has the best museum. I guess there’s that literary connection. Yes. And I only learned about this when I went to the museum, Kenneth Graham work there, the author with the willows. Hmm, yeah, I work there. I mean, I have relatively senior position there in the Bank of England because they’ve got a little display about Kenneth grime in there.

Nicholas Gruen  48:53

I missed it. I missed it. I’m sorry that I missed it. Because I have seen that museum. It’s quite small. It’s just a few artefacts as I recall a room or 2am I

Gene Tunny  49:02

wrong. Yeah, it’s a maybe a few rooms, but there’s that great display where you can lift up a bar of gold, you stick your hand in a glass glass box, and you’re gonna lift up an actual gold bar, which I thought was pretty cool. And you know, they’ve got all the currency. Yeah, he got up to the rank of Secretary in 1908. So I don’t think he was he wasn’t the governor, but he got up to a senior position. Excellent. Very good. Okay, Nicholas, thanks. Again. That was such a it was good to catch up because, yeah, good. always interested in economic forecasting, because we’ve had such a, unfortunately a mixed record of it in Australia and around the world. So it’s, it’s good to talk about a new approach and well done for doing your best to advance one.

Nicholas Gruen  49:50

Thanks very much

Gene Tunny  49:53

rato thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch match, 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 you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

50:40

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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 PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

Exploring the Energy Transformation: A Conversation with Tucker Perkins, Propane Education & Research Council – EP206

Tucker Perkins, head of the Propane Education and Research Council (PERC), talks about the energy transformation we are currently experiencing with Economics Explored host Gene Tunny. Tucker advocates for renewable propane and for other sustainable liquid fuels in the future energy mix. The conversation also touches on the potential role of nuclear energy in achieving net zero emissions. 
Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored.

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About this episode’s guest: Tucker Perkins

Tucker is the president and chief executive officer of the Propane Education & Research Council (PERC), and his vision for the future is best explained by his own podcast’s title: “Path to Zero.” A firm believer that climate change is real and man-made,Tucker advocates for all energy solutions that will create a cleaner and healthier environment today and into the future. 

Zero emissions is a goal we can all get behind,but how do we meet the world’s growing energy demands AND reduce carbon in the atmosphere? Tucker believes the best and most realistic wayforward is a wide path that incorporates renewables and clean liquid fuels, such as propane, to accelerate decarbonization and reach our climate goals as soon as possible.

Tucker’s insights and theories are backed by his 30+ years of work in the propane industry. He operated his own propane retail company, Premier Propane, and has held executive positions at Columbia Propane, CleanFuel USA and Inergy Propane. Tucker is active with many industry organizations, including the National Propane Gas Association, World LP Gas Association, Industrial TruckAssociation and Outdoor Power Equipment Institute.

What’s covered in EP206

  • [00:05:43] Energy transformation and low carbon fuels. 
  • [00:09:24] Propane-powered trucks and environmental impact. 
  • [00:13:30] Cruise ships moving to LNG.
  • [00:18:21] The role of gas in the energy transformation. 
  • [00:21:13] Choosing cleaner energy options. 
  • [00:33:16] Nuclear power and the grid. 
  • [00:38:40] Energy transformation and renewable fuels

Links relevant to the conversation

Tucker’s Path to Zero podcast

Transcript: Business as Unusual: No such thing as Business as Usual anymore? w/ Rick Yvanovich – EP204

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. 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 in to the show. In this episode, I chat with Tucker Perkins about the energy transformation that we’re going through. Tucker is head of the propane Education and Research Council perk, and he’s the host of the path to zero podcast. In our conversation, Tucker argues strongly for renewable propane, and for other sustainable liquid fuels being an important part of the energy mix in the future. According to perc, the most common form of renewable propane today is a byproduct of renewable diesel and sustainable aviation fuel made primarily from plant and vegetable oils, animal fats or used cooking oil. Stay tuned to also hear Tucker’s thoughts on how the energy transformation is going, and whether we should consider nuclear energy in the transition to net zero. If you have any thoughts on what Tucker I have to say in this episode, then please let me know. You can email me via contact at economics explore.com. Okay, let’s get into the episode. I hope you enjoy my conversation with Tucker Perkins. Tucker perkins, welcome to the programme.

Tucker Perkins  01:53

I’m going to enjoy being with you today. Thanks so much for having me.

Gene Tunny  01:57

Oh, of course, Tucker. Yes. Lots to talk about, given that your background and your position. So you’re the president and chief executive officer of the propane Education and Research Council P. C? Or is it perk, PRC or perk,

Tucker Perkins  02:17

we’ll call it perk for the rest of this talk. So

Gene Tunny  02:19

very good. Could you tell us a bit about your journey to perk, please Tucker? How did you end up becoming the president of what what what’s your you’ve got a background in the industry?

Tucker Perkins  02:32

Obviously, it’s you know, as I reflect on it backwards, you know, it’s been the culmination of kind of everything I did up to this point. But let’s start at the beginning. Like so many people that so in the US, we’ll call it propane, but the rest of the world and Australia included you gonna call it LPG, right. But you grew up in a into a household or my father ran a propane company that was a fairly good sized regional company. So I’d watch him go to work and saw what he did and seem to have a good living and enjoy his work. So always something I did in the summers as I was growing up, went off to college and was an engineer, and didn’t want to work for my dad at a college. I wanted to do something else. He was the president. And I didn’t really want to be the son of the President. So I worked I was a consulting engineer doing today. Now when I look back on is really relevant work, land use planning, water conservation. You’re really thinking about how urban areas should evolve walkable cities, livable places. And now it’s really to me forefront of so much we do is around conservation, right? Conservation of energy, conservation of water, how could we drive less, I mean, things that are really relevant. So I did that for a while but pretty quickly was recruited to go to work in the natural gas industry. He’s kind of a, an engineer on a pipeline, designing pipelines, building pipelines, operating them. We then built and operated in a liquefied natural gas facility, actually operated facility that turned butane or propane into natural gas. So really got great exposure in the natural gas business from drilling through the golf or Appalachian mountains, and to cleaning it up and then transporting and ultimately putting it on to ships if that’s what it took for LNG, so great, great support. But eventually, I wanted to do something I was a bit more entrepreneurial, and found my way back into the propane business, and ultimately worked my way to be the chief operating officer of the fourth largest propane company in the country. We then sold that and I started myself the smallest propane company in the country. Just me then me and a driver than me a driver and a service person. Then we added and I grew that business up and then we sold it in to a larger public company where I worked with them, so really ever had such great experiences in natural gas, natural gas liquids, you know, multinational work, you know, smallest company in the world. And ultimately, I went in and was a manufacturer for a while we were actually manufacturing propane systems. And at the conclusion of that, a job came up at the propane Education and Research Council to be in charge of all the business development. And I took that job, and then not long after that became CEO, oh, and not long after that became CEO. So it’s been a great, it’s just a great transition. And now really, just the last couple of years, you know, we’ve really started talking about how do low carbon fuels like natural gas and propane or LPG? How do they fit into this energy transformation that we talk about routinely? So having an engineering background being real familiar with natural gas, LNG, LPG really helpful to kind of set up for this last phase of my career?

Gene Tunny  06:11

Yeah, yeah, very good. Okay. So we’ll get on to that energy transformation in a moment, I’ll I should know that you’ve got your own podcast path to zero, which is great. So we’ll talk a bit about that later. Before we get on to that, I just like to ask a bit more about perk. This is an is IT industry funded Tucker it what’s the mission of the perk?

Tucker Perkins  06:35

Broadly, a perk is industry funded, we take a small percentage from every gallon sold in the US. So we have a very us focus. But again, the technologies we’re developing, we really encourage him to be used worldwide. I mean, it’s, it’s good for everyone. To see this technology is expanded way beyond the US. But we’re funded and our funding comes into about $50 million a year. And then we take that money and deploy it really one of three ways. First is around safety and training and safety and training for the industry. For the consumers of propane, we want to make sure that our industry and those people who touch propane, use propane, understand how to use it safely, that it’s installed safely in accordance with the codes. And we really, I’m so proud of where we have come over the last five or six years in digital training, helping helping you whether you want to work for a propane company and become a driver or service tech or even a customer representative. Or whether you’re filling cylinders at the local filling plant, or you’re a consumer and you need to know what to do when you smell the odour of gas. So safety and training, top of mind, a lot of marketing and awareness, you know, just talking about the value of propane, renewable propane as a part of the energy mix. And then the last piece of that really has been technology development to embed in the different markets agriculture, transportation, power generation, residential commercial, to embed into those markets, and see where the gaps are, and to see how LPG can fill those gaps. And it’s been amazing. I mean, I know I talked with you earlier. And, you know, 15 years ago as as a world body, we saw that ship fueling was dirty, filthy. In fact, it from a mission standpoint, inexpensive, powerful, but filthy. And we realised that propane offered a much better way to fuel his ship. today. We’ve had a monumental movement in using propane aboard ships, something that has been adopted way greater pace than I thought. But you know, we work with farmers every day about how to use propane today not only to dry green, or perhaps propel their tractor, but how to use it for flame techniques so they could become more gain. It can use less herbicides, pesticides, we work with builders, we’ve got some innovative products coming out that generate power and heat. And maybe our most exciting programme right now is with Cummins and a programme that I hope you see in Australia soon. Really the crazy powerful 6.7 litre propane purpose engine that can power medium duty trucks and do it in a way that’s probably more cost effective than any other option. And we cut greenhouse gases 25% from the next best technology on the market today. So you know, just actually literally putting our money where our mouth is and bringing innovative products to the marketplace that actually make consumers comfortable. Give them an affordable energy source yet do great things for the environment. Hmm,

Gene Tunny  10:06

right. Yeah. Okay, there’s few things I want to follow up there. First, just for, I just want to make sure I understand. So LPG or propane. Where would most people be coming into contact with that now? Would that be it when they’re doing they have that having a barbecue, they get the, the cylinder for their barbecue? Would that be one of the uses?

Tucker Perkins  10:28

Well, everyone comes into contact with it, they’re when they’re having their barbecues. Hopefully, we’ve all moved past charcoal now but So yeah, that’s where that’s where the typical consumer, but you know, a farmer touches it every day in December anyways, animal heat, green drying. We see it in in the US. We are fairly dominant in residential heating, hot water cooking, clothes drying, same for commercial segment. And then in transportation, and few people realise, but we’re really the third most widely used fuel in the world for transportation beyond diesel and gasoline. The next the next most widely use fuel is propane, or LPG.

Gene Tunny  11:14

Yeah, I know a lot of taxis here. have used it in Australia. So yeah, absolutely. Okay. And what about with, you’re talking about shipping? So what type of ships are we talking about? And what is it replacing? Is it replacing diesel? What’s what’s going on there?

Tucker Perkins  11:34

Yeah, well, or generally replacing even the next dirtier version of diesel first, so bunker fuel. So that heavy, that Heavy Diesel that ships used, where it will again, it was inexpensive, it’s powerful. But, you know, when you look at the emissions profile, intensely Laden was particulate matter, co2, NOx emissions, nothing that we really want to be spewing into the air, and rightfully the international community, you know, said we, there’s got to be a better way, we’ve got to fuel our ships, because again, here’s an area where ships use, you know, gargantuan volumes of fuel on an annual basis, right. So that’s an area where cleaning up the emissions truly makes a difference in our environmental footprint. So the other movie, these ships are moving from bunker fuel or diesel, to generally either natural gas, propane. You read some about ammonia, or methanol, or those kind of the, those are the four fuels that are in play right now for a ship of the future.

Gene Tunny  12:44

Right. So what types of ships are we talking about cargo ships, ocean liners, what about the oil tankers? What sort of sort of ships are we talking about? So most

Tucker Perkins  12:54

of our ships are currently carrying LPG. So those would be LPG carriers. And they could be vlg seas, very large gas carriers. But, you know, propane has moved so much around the world. And though that’s the first choice, because they already had their vessel full of propane, and so it’s relatively easy for them to to migrate to propane engines. But it certainly won’t stop there. We’re seeing some cargo ships there. I do think the probably the last in the line will be cruise ships. But we see some cruise ships now moving to liquefied natural gas. And so it’s only a matter of time. I think before all styles of ships. One style we really are interested in something very prominent in actually Australia would be ferries work boats, tugboats, fishing boats. If you go to Chile today, a lot of the fishing vessels in Chile are powered by LPG much cleaner, much easier to store for them, and much less expensive. And so for a fisherman, they actually could twofold right? They cut their costs and improve their emissions. So, you know, depends on a little bit where you go in the world to see how it’s being used. But it’s so versatile. It’s highly used in engines,

Gene Tunny  14:17

Rod, okay, and so how does it compare? What’s the right terminology pound for pound or I’m just trying to think so You mentioned a 6.7 litre propane engine for the for trucks. If I fill up the truck, will I get a similar range? If I’ve compared with if I build it with diesel? Do I get the similar amount of power? How does it compare?

Tucker Perkins  14:42

So the energy content of a gallon of propane is about I don’t know three quarters of the energy content of a gallon of diesel. Right but fuel managers tend to think about things in terms of cost per mile. Yeah, or opera. Reading cost per mile. And it’s shocking to me where we are, we’ve always been cheaper than. But now we are significantly cheaper than in fact, in most in most. And I probably have looked at 100 or 200. Operating statistics over the last month or two, we’re always half of the cost of diesel or more, in a diesel right now has been fairly elevated in price, propane has been fairly depressed in price. So it’s not unusual for us to see 60 70% savings in a cost per mile, moving from diesel to propane. And that’s really, you know, that’s important in a medium duty truck. Right, medium duty trucks are our breadbasket. They’re delivering goods and services to us, and to be able to cut their costs by 60, or 70%. While we cut their emissions, while we quiet the engine, it’s monumental benefit to the driver, to every community they serve, and ultimately to the people who are paying for those goods and services they deliver. So massive benefit.

Gene Tunny  16:08

Yeah, is there any difference in the frequency at which you have to fill

Tucker Perkins  16:11

up now, you as a designer of those engines, we, we almost always make sure that we have the same range. So your diesel truck had 600 miles of range, then we make sure you have 600 miles of range, you know, we found is this conversation goes around electric vehicles and, you know, we, we really highlight, you know, that you probably have to change to drive an electric vehicle, certainly a medium duty electric truck, you’re going to change something you’re gonna it takes you longer to refuel, you won’t be able to go as far, you know, we just don’t find commercial businesses are really able to do that they need, they need to demonstrate significantly better than before they’ll leave diesel or gasoline. And I think with propane, we demonstrate significantly better than cheaper, more powerful, frankly, quieter, and much better emissions.

Gene Tunny  17:08

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  17:14

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Gene Tunny  17:43

Now back to the show. Right Oh, so you mentioned before about the role of gas, so propane and other and other gases in this transition in the energy transformation. So as we head toward Net Zero, how do you see that broadly Tucker? What’s the what’s the role? Is it just as transition field as we move toward more lower carbon sources? Is there a permanent role for gas? How do you see that their role in that energy transformation?

Tucker Perkins  18:21

You know, probably I probably answered your question, in a funny way. Because when we started, certainly we thought this, that gas would be a transition. But as as we really studied, where we believe hydrogen goes, maybe we’re wind and solar goes. And wind and solar are going to be completely captivated by how fast we get the battery storage and energy storage, right? We we really cannot have appropriate wind and solar without being able to store that intermittent supply that really relevant relates as well to Evie vehicles, right? It really gets to about can we make a light enough battery that charges fast enough that holds that energy that lets us have four or 500 miles of range? How long does it take for the engineers to come to those answers? And by the way, as a technologist, I certainly believe we come to those answers, right. But I think what’s interesting to me, as we really think, again, I keep the goal in mind. The goal in mind is to reduce carbon. And we can fool ourselves by saying I drive a zero emission vehicle. But the only time that vehicle is truly a zero emission is when it’s at rest, right? The minute we have to charge it and we have to really think about that system. What I’m excited this A is as we really studied both renewable natural gas and renewable propane. We find that even under the most optimistic scenarios that we can craft for electricity, there will always be a benefit to using a powerful liquid Fuel, like renewable propane or renewable propane blend in an efficient engine. And perhaps gene engine might be a hybrid engine me, that vehicle may be the best of electric drive and internal combustion drive. But I really pivoted my answer to say, No, I think there will always be a place for low carbon and renewable fuels. And the last piece is about this is economics, because we don’t really want to, you know, openly address the cost of this transition. But in the US, we talk openly about 3 trillion, I’ve talked openly on a worldwide basis that it probably looks to me more like 30 or $40 trillion. And a few outside banking agencies have kind of verified that number. Now. That’s a lot of money. And we have to think about, I think often about, are we deploying those dollars in the right place and a world where we need better medicine, better schools, better highways and bridges? can we really afford to spend that kind of money when we have some of these clean solutions right in front of us. And that’s a conversation that we’re going to have a lot of over the next decade. But I would say to you, I am perfectly comfortable. That to choose propane today or choose natural gas today, knowing that it was a 25 or 30 year solution. I can really be intellectually honest, it says that fuel can still be cleaner than any other choice of energy I have. Because we’re we’re migrating not only our conventional fuels cleaner, but our renewable blends are carbon zero or less. And so for example, I’m perfectly comfortable talking about carbon zero propane, perfectly comfortable.

Gene Tunny  21:48

Okay, how does it become carbon zero? Tucker, I have to ask you about that. Because when you hear that you think Hang on, how is that? It’s propane. It’s so hydrocarbon how on earth? Can it be zero? Kava? What’s going on there?

Tucker Perkins  22:03

Yeah, I agree. And actually, as a person who I think we’re all better to be naturally sceptical, you know. And so the first time I talked about some modern fuels that had a carbon intensity of minus 273, I’m like, How can that be. But let’s use one example that where we think renewable propane, some sources could have a carbon intensity of minus 300, minus 300. And that would be you know, we’re working on ways to take methane today that escapes into the air. Think about gas drilling, or well drilling, where you just have fairly large amounts of methane that are just skate escaping into the air, because they can’t deal with it any other way, to be able to capture that escaping methane and convert it into a usable product. The scientists have really said consistently, I should give you credit for that, without your innovation, that methane would have escaped in the air. So I’m going to give you credit for now capturing that methane, and doing something with it. And if we can do that something converted into renewable propane efficiently, you know, don’t use a lot of energy, don’t use a lot of land, then the way we would score that today is minus 300. The renewable propane we’re making today, some of the agricultural styles, they they score today is as seven. And I’m, I’m comfortable that by using some renewable power, and by being more efficient in the process, that will end up being carbon zero as well.

Gene Tunny  23:37

Right? So it’s renewable because you’re taking methane that’s otherwise going into the atmosphere. And you’re using renewable energy to extract the propane from that is, is that right? Right.

Tucker Perkins  23:53

So again, I mean, just even go up a level a little broader. We’re taking waste products, and converting them as efficiently as possible. And by the way, all inputs considered, there’s no, you know, there’s no black box where he just stick it over there and say, No, we don’t count once in that black box, everything’s considered. In fact, even as we think about moving these grains from where they are grown and harvested to where we convert them to propane, we have to figure the carbon intensity of that train, then move those grains, but we take waste products, essentially, and effectively convert them to energy, and we calculate all the inputs. And so you know, a good example, we’re growing a product that would be very applicable in Australia camelina plant, we grow it on fallow land, we don’t irrigate it. We don’t put a lot of nitrogen on the soil, and we very efficiently converts to energy. So that’s right now the government here’s corps that has a carbon intensity of six And, and I believe by the time we perfect the process will be zero. That’s that’s how you get to those numbers, rock.

Gene Tunny  25:06

And so where are we with renewable propane? Are we in? Are we still in the r&d or the demonstration or commercialization phase of it.

Tucker Perkins  25:15

So interesting that, you know, we’re making it today in the US we’re making it today we’re selling it today, it is eligible for a lot of the same credits that you get from us from buying renewable diesel or sustainable aviation fuel. And, you know, I’m proud to say I think we’re really, we’ve probably seen the market grow seven fold or eight fold in the last year. And that’s just really all around the activity from making renewable diesel or sustainable aviation fuel. Those other things, I’m talking about agricultural based versions from camelina plan or some other really interesting, a non food cover crops, capturing methane that we’ve talked about early, those are now moving, you know, out of the lab, past the pilot plants and into real production. So if you and I had this conversation a year ago, I would have talked to you about renewable diesel, and sustainable aviation fuel making renewable Propane is a part of that. That’s, that was where the conversation ended. Today, I probably have 13 or 14 other pathways that all have, you know, really strong commercial potential. Yeah. And there are a few really exciting possibilities into the lab that are being heavily funded. So we’re excited about the fact that there’s a lot of waste material. And a lot that easily converts think about agricultural waste, whether it’s animal waste, something, you know, you, you certainly have your share that, you know, in Australia that today has been how we make a lot of renewable natural gas, right, but forest waste, how easily can we convert that, and I’m convinced Gene, that it will be converted to some renewable energy, it won’t all be converted to renewable propane, renewable natural gas, some of it will turn into ethanol and methanol. And I’m a huge advocate of allowing the feedstock that most easily converts into a product. That’s how it should happen. And then we need to find uses. methanol, ethanol, natural gas, propane, renewable diesel sustainable jet. You know, it all has a need in our society.

Gene Tunny  27:31

Yeah, yeah. Gotcha. Can I ask about the renewable dude, so I’m clear, where does the renewable diesel and sustainable aviation fuel come from? How do we make that?

Tucker Perkins  27:41

So today, we make it almost exclusively from used cooking oils, vegetable oils, you know, we could we could make it from a variety of crops, soybean oil, palm oil, something that you know, really is, we don’t we don’t talk about we don’t use it just it’s not really fashionable to talk about palm oil. So today, it’s basically soy beans, and a lot of used cooking oil, that’s really been the primary feedstock for

Gene Tunny  28:12

just on palm oil, you mentioned is not fashionable. Is that because of concerns about the environmental impact? Absolutely. Yes. Gotcha. Yeah. Yeah, it’s a big issue in Indonesia, of

Tucker Perkins  28:24

just, you know, from just from an environmental standpoint, and not really good ability to control the source and to be, it’s to me, it’s a little bit like lithium, right? Or cobalt? Yeah. If we’re really honest, about how we source cobalt today, we have a long ways to go to think about responsibly sourcing these materials. And again, at some point, we’re doing all this to improve the planet to improve our health to improve the quality of life for all in concerned. Right. And I don’t know how you turn your back on, you know, the miners of cobalt in the Congo, right? I mean, we have certainly not improved their lives, in many respects and the things the same probably draws out the palm oil.

Gene Tunny  29:09

Yeah, gotcha. Okay. So, as we wrap up, Tucker, how do you what are your thoughts on how the transition is going? I mean, there’s a lot of talk about the need to get toward Net Zero, obviously, how do you see the energy transformation going in the US? So I’ve covered it in Australia quite a bit on the show. I’m just interested. How do you think it’s going in the states there?

Tucker Perkins  29:33

Well, first off, I compliment you and calling it a transformation and not a transition. Right? You know, that’s a hot button to me, because it’s not a transition transitions are smooth and easy. And you hardly know when you transition. And in the transformation, people fall and stumble and hit their head and some people, you know, thrive and other people lose and that’s exactly what we’re gonna do here. So, I love the fact that you call it a transformation because it is, you know, we’re on the one year anniversary of our inflation Reduction Act, which is really that first massive influx of money in, you know, I said an interview earlier this week, we can see how much money we’ve spent. But it is quite hard to see any benefits we’ve reaped. Now, in fairness, one year is a very short time duration to be measuring results. But I think it’s pretty clear to say that we’re not seeing benefits. And I think that’s one of the areas that we love to talk about, is we’re stepping over easy short term wins to benefit the environment. In this quest for this magical electric grid that could appear, or this magical use of hydrogen, in a new Australia’s light years, I feel like ahead of most in both those areas, frankly. But you know, we’re really a long way from having a hydrogen economy, we’re a long ways from having a true, resilient, affordable electric grid that just produced from solar and wind. And so I’m loving the fact that the focus is coming in on how to how to get to a cleaner climate. And I feel like wherever you go, responsible scientists and engineers are working towards a common goal. I would say in the US, I find often that fossil fuels aren’t equal, right? It’s, it’s quite interesting to me that we talked about coal, oil and wood is dirty. And then we use a lot of coal, oil and wood to generate electricity, which is going to be the next solution. Right? So fossil fuels aren’t equal at all. And I think propane natural gas are two that have a long runway in it just transformation. And, but I love the technology that I’m seeing developed. And I’m loving seeing the market niches that we see propane can play. years ago, we really didn’t talk much about LPG in power generation. And now if I took you around the world, you’d be so shocked how we’re industrially powering facilities in Puerto Rico. We are, we’ve moved so far past residential backup. Now we’re into some prime power applications, residentially and commercially, just today I met with a college that’s going to choose propane for a significant portion of their energy system, because it offers them the best combination of environmental benefits and cost, reliability and resilience. So where we are clearly not even in warm up of you know, where we’re going to be. But I see now engineers, scientist, and really the financing community pulling together to get to a good spot.

Gene Tunny  32:56

Gotcha. Okay. And finally, what about pumped hydro and nuclear? I mean, there I mean, pumped. Hydro is something we’re pursuing here in Australia, nuclear, there’s talk about it, we probably won’t have it. There’s a lot of community resistance to it. But there are some people arguing very strongly for it. Do you have any thoughts on either of those Tucker,

Tucker Perkins  33:16

probably probably have strong thoughts. I don’t really think we ever get to where we want to be with the power grid, until we learn how to make nuclear power, until we learn really how to make it as safely as possible, and how to deal with the waste. But I really think nuclear is going to have to be a part of our solution. Because one, one thing is evident, we’re going to continue to use more and more power, right? Where we’re we want to use our computers, we want to use our data centres. Now. We want to use artificial intelligence. And nobody talks about how that in fact ratchets up our power demand exponentially, right? And yeah, you just don’t really get there without having a significant nuclear base. Now, maybe one day we’ll be talking about fusion. But I’m just not an adult. We don’t have that long to wait. We cannot wait any longer for the silver bullets. We got to take action now. Right. For it’s interesting to me that you’re talking about hydropower, because I want to be such a champion of hydroelectric power. I want to I want to be, but the realist in me knows we’re not going to build any more dams. We’re not going to dam up more rivers just not going to happen. And at least in the US, we haven’t seen even though the pumped power projects we have here are magnificent. I don’t see enough on the drawing board here to create a blip in the supply. And so for us, I find pump storage and pumped power. Something that’s not really even in the conversation right now. I’m glad you all are talking about it. Because as a way to store power and use power when you have a lot of it, and to store it for a time when you need more of it, it makes a lot of sense.

Gene Tunny  35:18

Yeah, we just hope it works out because we’re, we’re betting a lot on it, that we’ll get the pumped hydro to help back up the grid. But one of the projects we’ve got as a snowy 2.0, and it’s just way behind schedule, it’s going to be like five times the original cost. It’s delayed by 10 years. It’s it’s not going well at all.

Tucker Perkins  35:36

You know, we’re seeing that we’re seeing that right now in offshore wind, right. I mean, all the financial models that really were built around offshore wind, those financial models changed significantly, everything became more expensive. And really, right now the projects that are moving forward are the ones that just really felt like they had no choice but to move forward. But those are, again, things change, right? labour costs go up, material costs go up, maybe technology shifts, and gives you every once awhile, a favourable result. But, you know, I think that’s one of the things few people think about in this transformation as well, is just how dynamic everything is right? What’s the cost of power? How long are you willing to contract it? I was thinking today about just mining and thinking about, I just don’t know, Australia is certainly a huge mining centre, it’s a part of your culture, you have a lot of land, that is a part of your culture, no other way to say it, you embrace it to the extent you can, I just don’t think we’re going to embrace it and in the US, right, like you do in Australia. And so I think it has significant impact on our ability to really think about how we’re going to produce lithium, or copper. And so we have to really think about that, I think as a global basis, but we can talk in the US about how we’re going to become independent for lithium or copper. He I don’t believe it for a moment. And it’s not that I don’t want to believe it. But is that I’m well aware of, you know, not that many people want to lithium mine in their backyard, or in their neighbourhood or in their state sometimes.

Gene Tunny  37:20

Yeah, yeah, absolutely. There’s some some big issues there, for sure. Okay, Tucker, any final thoughts before we close?

Tucker Perkins  37:29

No, I mean, I love the opportunity to have this conversation with you. I love the fact that we’re about as far apart geographically as you can be. But we share, we share the exact same desires right to get cut our carbon would be able to live our lifestyle afford, you know, our families a better lifestyle, then, you know, perhaps we had his children. And it is nice to have partners in that in that conversation. Because from this conversation, we’ll get to solutions. We will cut through the politics, we’ll cut through the rhetoric. And I think we’ll get to solutions that were

Gene Tunny  38:05

absolutely, Tucker, I think that’s a great note to end on. I agree with you about the need to be great to cut through the politics on these issues. And yeah, really appreciate all the great conversation and just learning so much about propane, and this renewable propane and how these renewable and sustainable fuels are created and getting your thoughts on their role in this energy transformation. I think I pinched that from you, Tucker, they were in our pre conversation you. You mentioned it is really a transformation rather than a transition. And I’ve chatted with other guests. And their thought too, is that the nature of it is it’s not going to be smooth. It’s it involves lumpy investments, there’s going to be disruptions at times. And yeah, we’re starting to see some of that. So yeah, Tucker, it’s been terrific really value, your perspective on this and your information. So thanks so much.

Tucker Perkins  39:05

I really appreciate you having me. I hope you have a great day.

Gene Tunny  39:08

Thanks DACA rato 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@conomicsexplored.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.

39:57

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Credits

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Categories
Podcast episode

Gigi Foster estimates COVID lockdowns cost young people 116x any benefits – EP205

Professor Gigi Foster talks about her paper “COVID’s Cohort of Losers” which argues that COVID lockdowns and other restrictions disproportionately imposed costs on young people with few offsetting benefits. Gigi is a Professor of Economics at the University of New South Wales, Sydney and was named the 2019 Young Economist of the Year by the Economic Society of Australia.
Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored.

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About this episode’s guest: Gigi Foster

Gigi Foster is a Professor with the School of Economics at the University of New South Wales, having joined UNSW in 2009 after six years at the University of South Australia.  Formally educated at Yale University (BA in Ethics, Politics, and Economics) and the University of Maryland (PhD in Economics), she works in diverse fields including education, social influence, corruption, lab experiments, time use, behavioural economics, and Australian policy.  

Gigi’s research contributions regularly inform public debates and appear in both specialised and cross-disciplinary outlets (e.g., Quantitative Economics, Journal of Economic Behavior and Organization, Journal of Population Economics, Journal of Economic Psychology, Human Relations).  Her teaching, featuring strategic innovation and integration with research, was awarded a 2017 Australian Awards for University Teaching (AAUT) Citation for Outstanding Contributions to Student Learning.  

Named 2019 Young Economist of the Year by the Economic Society of Australia, Gigi has filled numerous roles of service to the profession and engages heavily on economic matters with the Australian community.  As one of Australia’s leading economics communicators, her regular media appearances include co-hosting The Economists, a national economics talk-radio program and podcast series premiered in 2018, with Peter Martin AM on ABC Radio National.

What’s covered in EP205

  • Intro to the cost and benefits of lockdowns. (3:22)
  • Quality adjusted life year (QALY) and WELLBY. (8:07)
  • Fear and the crowd. (13:47)
  • The history of the cordon sanitaire. (16:58)
  • How many lives were saved? (22:14)
  • The cost and benefits of lock-downs. (27:25)
  • The economics of the lockdown. (34:24)
  • How do we determine the severity of pandemics? (36:25)
  • The difference between the 1918 flu and COVID-19. (41:18)
  • Citizen juries. (46:35)
  • New laws about misinformation and disinformation. (49:45)
  • Health and good nutrition. (56:01)

Links relevant to the conversation

Gigi’s paper for CIS:

https://www.cis.org.au/publication/covids-cohort-of-losers-the-intergenerational-burden-of-the-governments-coronavirus-response/

Information on WELLBYs:

HM Treasury’s Wellbeing Guidance for Appraisal: Supplementary Green Book Guidance

Transcript: Gigi Foster estimates COVID lockdowns cost young people 116x any benefits – EP205

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It was then looked over by a human, Tim Hughes from Adept Economics, to pick up any clangers that otters sometimes miss in their rush to catch fish. 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. In this episode, I catch up with Gigi Foster to talk about her thought-provoking new paper “COVID’s Cohort of Losers”, in which she argues that COVID policies massively disadvantaged young people with few offsetting benefits. My occasional co-host, Tim Hughes, took part in the conversation too. Gigi is Professor of Economics at the University of New South Wales. She was named 2019 Young Economist of the Year by the Economic Society of Australia. She has an undergraduate degree from Yale, and a PhD from the University of Maryland. Okay, let’s get into it. I hope you enjoy our conversation with Gigi Foster.

Professor Gigi Foster, welcome to the programme.

Gigi Foster  01:30

Thanks so much for having me, guys. It’s a real pleasure to be here.

Gene Tunny  01:33

It’s terrific. Gigi. I’ve got Tim Hughes with me, Tim, good to have you in this conversation, too.

Tim Hughes 01:43

Yeah. Good to be here. Nice to meet you Gigi again.

Gene Tunny  01:47

Yeah. So I mean, both Tim and I saw Gigi at a event in Brisbane on First Tuesday Club when we, you presented on your book, The Great COVID Panic, Gigi so after that you’ve, well, among other things, you’ve produced a paper for a Centre for Independent Studies. So that’s an organisation I’ve got a connection with. I’m an adjunct fellow there. And you’ve written this great paper “COVID’s Cohort of Losers, the intergenerational burden of the government’s Coronavirus response”. So to start off with Gigi, I’d like to ask you about this estimate, you’ve got in your paper, you estimate that the COVID policies Australia pursued. So we’re talking about lockdowns, keeping kids home, keeping them away from school, those COVID policies have cost the nation’s youth at least 116 times the value of any benefit that they could have received from these policies. And you’re, you say that this is a conservative estimate? Could you tell us please? I mean, how do you broadly just broadly to begin with, how do you come up with a number like that 116 times the value of any benefit.

Gigi Foster  02:50

So basically, the approach I take in that CIS report, which came out a few months ago, is very similar to the approach I take in my cost benefit analysis of Australia’s Covid lockdowns, generally for the entire country, which was published by Connor Court in late 2022. That’s a book now that is co-authored with Sanjeev Sabhlok, who you may also know of through his anti-lockdown statements during the past few years, he used to be a Victorian Treasury economist. And then he parted ways with the Treasury in I think, September 2020. And fortunately, he was between jobs. So I was able to partner with him and producing this larger cost benefit analysis. And then CIS, well Matt Taylor at CIS asked me to produce a kind of focused report specifically on the cost to youth. So the mechanisms that caused damage during the COVID period, that were really the, the main ones I was worried about when we started with the lockdowns are the fact that when you lock people down you’re making them stressed and unhappy, right? So there’s that one immediate negative effect. And then also the fact that because we followed up lock downs with these large fiscal stimuli, the Jobkeeper programme in particular, that we were going to be racking up debt, we’re also creating inflationary conditions, which I mentioned at the time, but that seemed to be something nobody wanted to hear. But certainly the debt is basically signing us up to not be able to spend as much on other things in the future. And so for children or young people who are going to be around in the future, of course, that means that they’re going to have a less good life in the future, because we have accumulated this debt during this period, that three years ago, the COVID period were the two years really, which is what I’m analysing in the report and in the cost benefit analysis. So 2020 and 2021. And those two types of damage, those two mechanisms of damage are the major ones that are that are making up the large amount of costs, which is $116 billion. I believe that I estimate that the youth will have paid because of our COVID response. Now, of course, doing a cost benefit analysis, as the name suggests means that you also need to enumerate the benefits and so, of course the benefits that were touted when the lockdowns came in or that we would save people from COVID. Right? And as it turns out, and this was true in March 2020, if you actually looked at the data COVID is mostly dangerous to the elderly or people who are comorbid. So in fact, the average age of COVID death or death with COVID is basically the life expectancy in Australia right? And so, you know, really, if you’re thinking about the benefits to use of lockdowns, they’re not in the form of saving people from COVID deaths. They are actually more in the form of a few people not dying in traffic accidents or homicides who otherwise might have if we hadn’t had the lockdowns, those are benefits that were not sold as part of the marketing package for the lockdowns initially, but they are benefits. So there are fewer people go into pubs. And of course, the young people who go to pubs and sometimes get drunk and accidentally off each other. And then there were also fewer people driving cars. And so there were a few fewer deaths from that. So you know, those, those were the kinds of benefits that if you were looking for benefits to the young, it would count. Now, of course, the question then is, well, how do you compare these costs and benefits? Right? Because it sounds like you’re being more stressed when you’re sitting at home because of lockdowns is not really in the same category. It’s not in the same currency as a benefit. That means no, okay, I’m not gonna die from a homicide in a pub, right? So in order to do this, we have to choose and this is true for any cost benefit analysis that anyone has ever conducted, you have to choose a currency in which you are able to basically express or quantify the costs and the benefits of the policy or policies that you’re evaluating. And so for my cost benefit analysis of Australia, for Australia as a whole, and for the CIS report, what I choose to use is something we call the WELLBY or the well being year. And this is a new currency, reasonably new, we came on the scene in about 2018 or so it was the production of a bunch of researchers at the London School of Economics. And it’s built from a question that asks directly about life satisfaction. So there’s a there’s a question that appears on many life satisfaction surveys around the world across time that says overall, how satisfied are you with your life nowadays? Now, you know, you can argue about whether that actually captures everything that is important, right. But I think in terms of the immediate effects of the lock downs, it’s not bad, it’s probably better than alternative statistics that we have access to, like, you know, how many people were thrown out of work? Or how much is GDP expected to decline because it is really directly about human welfare, human wellbeing. And that to me, certainly as an economist, that is the most defensible maximand of government policy. It’s the maximand that I try to go for when I’m when I’m making policy recommendations. I want to recommend policy that has that is going to maximise human wellbeing, human thriving from the scarce resources that we’ve got, right? So I like the currency for particularly for that purpose for figuring out how much people suffered during lockdowns directly. And so the WELLBY is built from this question, the question’s answered on a zero to 10 scale. So zero is not at all satisfied and 10 is, you know, completely satisfied. The average answer to that question of somebody in a place like Australia when they’re feeling pretty good and healthy is about an eight. And the average answer of somebody who is kind of indifferent between life and death, because their life is so difficult and painful, is around a two, though there is some disagreement about this, some people say one I use two, which means that eight minus two being six, WELLBYs, so each increment there on that scale is one WELLBY, so six WELLBYs enjoyed for one person for one year, is equivalent to basically enjoying one year of healthy life. And one year of healthy life enjoyed by one person is also expressible, as what many of your listeners may already know, as the quality adjusted life year, the QALY, this is a currency that’s used a lot in health policy research, right? And health economics and decisions about what drugs to buy and this kind of thing. So the TGA, our drugs administrator, they use this QALY measure in order to bargain with the drug companies, when drug companies have new things to offer. The TGA says, Well, how many QALYs will I get from this drug? And if the number of QALYs is you know, let’s say 10. Then the TGA says, Okay, well, we’ll buy that drug if the cost is no more than 10 times some threshold value that they’ll pay per QALY. And that threshold value tends to be somewhere between 50 and $100,000 per QALY. So that shows you right there what the sort of social willingness to pay for a healthy life year is in Australia. And that value, by the way is higher in higher GDP per capita countries of course, then in lower GDP per capita countries. So as we increase our GDP per capita, so too, does our willingness to pay for a socially for an additional life year increase. That’s why GDP per capita is something we sometimes target in economics, right? We want to be able to afford better and more and you know, we want to be able to pay more for the good things in life including more healthy life years for our citizens. So what that means is that you can basically translate from WELBYs to QALYs to dollars that enables me then to capture other costs, like the debt, for example, in its native currency like dollars and translate back to WELBYs if I want to translate forward, and you know, there are some caveats around that translation which of course, you know, I discussed but, but that’s basically the method and that’s the method that I use in both the report and the CBA for lockdowns and I find that lockdowns were, as everybody else who has done a serious cost benefit analysis around the world is bound lockdowns were enormously more expensive than they could possibly have delivered in benefits, particularly for our youth who really had nothing to gain from them.

Gene Tunny  10:43

Yeah, I mean, certainly, during some of the lockdowns we had, if I was asked zero to 10, yeah, it wouldn’t have been eight for sure. So, yeah, yeah. So yeah, I can understand how the logic. Tim, do you have any questions for Gigi at this stage?

Tim Hughes  10:58

A lot of my interests and I find fascinating using WELBYs and QALYs and referring those to dollar value. I think that’s really interesting and a good way of quantifying responses and how we might have a better response. My main interest Gigi is in using whatever we went through to sort of determine what might be the best way to respond to something like this, if and when it happens again, because so much has been said about the response. And everyone’s got an opinion, which I fully understand. I’ve got my own opinions as well. I think the best thing that can come out of it is well what should we be doing the next time this happens, like what protocol can we put in place? And also, for instance, like to compare it to bushfire protocol, most people are quite familiar with what we would do in a bushfire, it’s going to come around more regularly than a pandemic, but is there something that we can learn from all of this that we can put into place to put in a better response, especially in the early stages?

Gigi Foster  11:58

Well, I think that’s a very, very important question. And I certainly like to think that the answer is yes, we can learn. But I would say that the the lesson is not as much in the space of quantification of benefits and costs and the technical side, it’s much more in the space of politics and psychology. Because if I were going to put the finger on what were the aspects of the, of the crisis that really drove this destructive response, they were very much in the areas of politics and psychology. And I and you know, some people will say, Well, you’re an economist so don’t talk about that, right? Well, fair enough. I mean, I studied ethics, politics and economics in university, actually. So I have a bit of a broader perspective, I suppose on the discipline and on social science, generally, than a lot of my fellow economists and my mother was a psychologist, you know, I kind of know a little bit about psych, I took psych in school, too. So for me as a broad-minded social scientist, the COVID era has been the most amazing lesson, the most amazing time to live it through, right, because I have not only sort of honed my existing theories of human behaviour and group influence, which has basically been the driving curiosity of my life, but also learned new things like for example, the power of crowd psychology in a moment of crisis to drive destruction. And we saw that, of course, we’ve seen this, you know, in the history books, right. I mean, we saw it in the witch hunts in the US, for example. We’ve seen it in 1930s, Germany, but I had never lived through something like this the creation of a cult and creation of crowd thinking, such that you literally had people whose minds had been hijacked by the crowd narrative, which in this case, you know, it’s an obsession, a crowd obsesses. That’s kind of the defining feature, it obsesses about one thing, right, and you’d have a conversation with these people who had basically had their minds taken away. And their minds were simply then in service to the defence of the crowd logic. And you would try to tell them logical things, you know, sensible things about real facts and things, you know, and they were just, they just couldn’t hear it literally couldn’t hear it. It was like talking at complete cross purposes. This is why early in the crisis, all of us who thought we saw what was really going on what the data really showed, which was certainly not that this was the black death or the Spanish flu. And, you know, we should probably protect the old people and try to figure out ways to minimise their likelihood of catching it. But basically, let everybody else keep going and develop natural immunity so that we could more quickly get to a point where we could protect the older people through natural immunity. That’s what we were all thinking, or at least many of us. But, you know, we were looking at the rest of the world and you know, these other people in our lives and thinking, wow, I just don’t seem to be able to reach this person anymore. I mean, am I going crazy? Or is this person going crazy? So that was a really interesting lesson. So all of that is to say that the answers to how do we prevent this from happening again, are really about how to control that fear so that the crowd is less likely to form, so that you don’t have that kind of obsession that drowns out out everything else that matters in normal times, right, which is why we were able to do this destruction blindly. Because we literally were blind to the destruction that we were doing. And and also how can we make the people in authority at such times more accountable to what is actually good for the people as a whole. Now, that’s a, that’s a difficult area because of course, the people were clamouring for lockdowns. In fact, that’s why they were delivered. Right. I when I gave the seminar about this yesterday in Macquarie that was, that was one of the points raised and it’s a very valid point, it’s not that the politicians came up with this whole lockdown shenanigans on their own, you know, and then we’re like, oh, you’re you have to have this everybody we’re gonna have to, you know, sorry, it’s, it’s a tough pill to swallow. No, no, no, the populations of the West became incredibly frightened. And they were demanding protection from COVID. And the politicians who were in charge at the time, read the writing on the wall, and basically thought to themselves, well, if I don’t do something big, I’m gonna lose my seat. And I’m going to potentially be blamed for, you know, not saving the country from what is perceived to be a mortal threat. And, you know, in such times that the character of a person really comes out, you know, and, and there is, it’s not like, there’s an easy way to tether actions back to the true interest of the people in that time, because so many people are caught up in this fear, right, but job one should be to reduce the fear. That should job one. And that actually happened in some countries, right. Sweden did that. So they tried to tamp down the fear. And then another thing that’s very important, of course, and then I’ll be quiet, is to try to make sure you’ve got independent voices, voices that are alternative, dissident voices about what’s going on. So you actually have kind of a, you know, some kind of a check on this mono vision that’s that’s barreling through the policy fields, which is what was happening in March and April, everybody thought the same way. And anybody who would say anything different was pilloried or or denigrated. I mean, I was called a neoliberal Trump cannot death cult warrior and Granny killer and a piece of human excrement. I mean, so many, I have a whole jar full of these epithets. And, you know, it’s like, why, all I was saying, was that what we’re doing has costs. You know, that’s all I was saying. So it’s, it’s a complicated question, what to do next. And, and I think we need to really think about that as a society, but not just in the area of technical costs and benefits.

Gene Tunny  17:25

Yeah, Gigi, what I’m wondering is if you thought, I agree with you, by the way on lockdowns, and now I see that it was, the cost far exceeded the benefits for COVID. But could it be the case that for another virus or another, say if we had, you know, if we had the plague again, I mean thankfully we don’t, that’s not really a prospect, but if it was something worse than COVID could lockdowns make sense then?

Gigi Foster  17:50

So that’s also a really great question. I’m actually at the moment writing a paper together with Sanjeev Sabhlok and Paul Frijters who I’ve both written with before as you know, about the history of quarantines. The history of quarantine policy whether quarantines, lockdowns, basically, or you know, cordon sanitaire, as they’re called in French, whether they actually have a track record of working in response to other disease threats over the ages, including the Black Death, and many other diseases as well. Now, what we are discovering, and this is really down to Sanjeev’s amazing historical work is that, in fact, in the 1800s, there was a movement that developed based on the the scant evidence that quarantines did anything positive and a huge amount of evidence that they were very destructive, there was a movement of the developed called the sanitarians movement, which aimed to basically beat quarantine as an idea out of the public health system and replace it with the idea that what we need to aim for in public health is clean water, clean streets, clean air, sanitary living conditions, basically, because in such conditions, of course, as we now know, germs are less likely to thrive, you have lower viral loads, you’d have more health for you know, individual people, it’s just more immune-supportive, if you can breathe free, you know, freely and fresh air and all this and drink clean water. So it’s really about supporting the immunity of the people and reducing the load of the infectious agents, rather than separating people according to whether you think they’ve, you know, been exposed or not, or certainly in the case of COVID, even people you don’t think have necessarily been exposed just whole healthy populations, locking them down, that that just you know that that’s not nearly as effective as the as sanitary measures. So there was a figure called Charles McLean, who was an advocate of the, in the sanitarian movement, and basically did a lot of the research showing that quarantines basically fail, and that really what they are. And this was the interesting, particularly interesting part of his work, that what they are is a tool for control that is often pressed upon populations by public health bureaucracies. So it’s much more about, here is something we can do. And we can justify our jobs by having this thing in place. Because I mean, my goodness, the bureaucracy and you know, COVIDeaucracy, that grew up during the COVID era was pretty large, you know, you had to hire more people and, you know, get them to help you enforce these various policies on the population. But in terms of actual effect on disease is pretty minimal. In my cost benefit analysis, I estimate that maybe we extended the lives of maybe 10,000, mostly elderly and comorbid people for a few years. That’s what we got out of lockdowns. And what we paid for that was way more than the roughly 6 million sorry, $6 billion, that in normal times we’d be willing to pay for that amount of of benefit, that is to save a few live years of about 10,000 people. So you know, so basically, the quarantine, so lockdowns, do not have a good track record. And that was already embodied in the pre 2020 pandemic management plans in place, not only in Australia, but around the world in the West, that said, look, locking down whole populations is just very, very costly, unlikely to be beneficial. And so we should avoid it. And we should target protection measures instead. So So basically, I like to tell people who say, Well, you know, what else were we supposed to do? You know? Well, the question is, you know that lockdowns don’t work. So what are you going to do? Right? Everybody’s scared. You need to find something to do, so that you don’t run headlong into a into a speeding truck, which is what lockdowns are. That’s what you don’t do. But of course, you have to take some action. Now, if you ask me, Is there any disease that one could potentially create or imagine in one’s head for which lockdowns might have more benefit than cost? I mean, even for the Black Death it’s questionable, compared to the other things that could be done, sanitary measures, right, compared to everything else we could do. It’s not like we have to let it rip versus lockdown. There’s a whole spectrum of possible response. And we really didn’t investigate that spectrum at all during COVID. So I think the answer is really usually it’s nuanced. It’s customised to the disease in play, it should be updated as we learn more information about that disease, and it should be targeted to the people who are truly vulnerable.

Gene Tunny  22:13

Yeah. Gigi. Can I ask you about that? Those numbers you cited regarding how many lives? Or how many years of life were potentially saved? Did you do that modelling? Or did you rely on modelling by epidemiologists? And how did you do that? Because I mean, you’re an economist rather than an epidemiologist, I don’t mean to be critical at all. But have you had pushback on that? Have people said, Oh, well, you have a model that why should we believe those estimates? I mean, because you you’re criticising this estimate from the Prime Minister, the Prime Minister Scott Morrison claimed, while campaigning before the May 2022 election, his regime of COVID policies had saved 40,000 lives, you’re, in my analysis, so your analysis shows this figure to be a significant overestimate, even being generous to lockdowns, potential deliver benefits, how confident are you in that assessment, Gigi?

Gigi Foster  23:08

I mean, I’m as confident as one could be based on the data that we used, I very expressly did not use model simulations. And by the way, that was one of the big errors of this time. In mid March, you may even recall Neil Ferguson’s ICL modelling came out saying that, you know, 60 million people around the world were going to die or something. And of course, as we know, the COVID death count, even now is, you know, an order of magnitude less than that. And, and by the way, Neil Ferguson had been wrong in the past, right? These epidemiological models that are run in a simulated environment in a computer that necessarily do not include all the real world variables that are actually relevant to whether people die or suffer from diseases are notoriously exaggerative of the bad outcomes that may occur from the new disease threat. Right, that has happened again and again and again. We’ve had SARS and the swine flu and the you know, all these different flus that have been modelled and they’ve basically always, there has been some coterie of doomsaying epidemiology people who have said “based on my model, everybody’s gonna die.” Right? That’s just a common thing it happens, right? And you know why? Because the, you know, the media loves that stuff. It’s, you know, if they get ahold of a guy like that, who will, you know, put on a bleeding headline, that’ll get eyeballs, right, and they get status, and they get to be the person who really cares about people, because if you care about people, then you know, don’t you care that they’re all going to die, or I mean, that becomes this whole narrative. And it really crowds out actual science. Actual science is based, at best on real data, real data, right? Of course, we have theories about what happens and we need to use those to structure our understanding of our world but our world is so incredibly complex and dynamic and there are endogenous factors that are happening and shocks that we can’t predict. There’s just so much going on, that all models are wrong, as somebody said in my discipline, but some are useful, that’s how you should see a model. So what I did in order to produce that estimate of how many people in a counterfactual non lockdown Australia would have succumbed to COVID is I looked with Sanjeev, we looked at the countries in the world that had low restriction levels. So obviously Sweden is one. But we also used another counterfactual, which was about six I think other countries, with populations over a million that had low restrictions, mostly in Europe, I think that oh, Taiwan might have been in there as well. And we basically took, you know, the average deaths from COVID. This is real data, real data, what they actually experienced, not something that comes out of a computer generated simulation, but actual data, because we just believe that much more. And then we of course, adjusted for population and then applied it to Australia. And we say, well, this is our best guess right? Now, even if you think that I’m under balling that low balling that, in fact, even if you think the Prime Minister’s estimate of 40,000, people who would have died is correct. If you look at the cost of lockdowns, they still weren’t worth it. Right. So even if I’m totally wrong, the Prime Minister’s right, the lockdown still shouldn’t have been pursued. Right? But I also think that the Prime Minister is using these simulation models, these SIR models or something like this, you know, from the Doherty Institute, or some other kind of, you know, institute that was supporting the narrative and coming out with these doomsday scenarios, to come up with that figure and make himself look like a saviour.

Gene Tunny  26:26

That’s fair enough. I was just just wondering what you did that seems to make sense to me. What did you find about the deaths of young people? So if we go back to the study “COVID’s cohort of losers”. How are we defining young people? And how do you recall how many young people did end up dying of COVID in Australia,

Gigi Foster  26:46

So young people are 25 and under, that’s the estimate. And look, there will have been a few that were 25 and under who died of COVID, but it’s going to be very, very small. And they they may have died of something else anyway, because these people almost to a man or to a woman or child will have been already sick with something else, you know, diabetes or a bad illness of some sort. So I think it’s very debatable whether there was any direct COVID related benefit to these younger people, from the lockdowns as I say they, you know, people in their young 20s and late teens are exactly the ones who may get into car crashes, and they get into bar fights. So really, if I’m looking for benefits from lockdowns, that’s where I’m gonna look for the on not not in terms of COVID deaths,

Gene Tunny  27:31

Right, and just wanting to just check this Gigi, you’ve got these figures in your paper somewhere, have you where, because the calculation you’ve done is this, you’ve got this 116 times the value of any benefits. So you’ve got an estimate in wellbeing of what the cost was to young people. And then you divide that by the benefits to young people to get that 116 times and that’s also in WELLBYs. So is, that’s in one of these tables is it?

Gigi Foster  28:03

So I mean, I don’t have the report up at the moment. But yeah, there’s a table of all of the costs. And then we also tabulate the benefits and then you simply take the ratio of one to the other, obviously, you want to make sure you’re using the same currency. So whether you’re using WELLBYs or dollars to get that ratio in the cost benefit analysis for Australia as a whole, I know the ratio was 68 times, as I recall, it was a bit higher. I, as I say don’t have the report open, but I think it was a bit higher for the young. But basically, the benefit just wasn’t as high. But there was some benefit. So you know that this as I say I keep saying that the traffic accidents was (inaudible)….

Gene Tunny  28:39

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  29:14

Now back to the show.

Yeah, so you’ve got estimated cost to the Australian Young of the 2020/21 COVID lockdowns and you end up with an estimate in WELLBYs of looks like it’s over 7 million, over 7 million WELLBYs so that’s saying that the costs imposed on the young, so there are 7 million years of poor wellbeing for young people.

Gigi Foster  29:45

Not exactly so a WELLBY is one increment on that satisfaction scale, right? So your probably thinking of a QALY, so if you divide that number of WELLBYs by six, then you get to the QALYs and that’s the the currency you’re thinking of, which is the number of healthy years. Okay? And but you’re right in terms of that, that is that does roughly the, you know, the way to think about it is that this is the amount that was deducted from the well being of the young, okay? And that’s in terms of number of years but also the health of those years. And again as I mentioned at the start, the two main components of that are one, the direct life satisfaction damage done during lockdowns because people reported less satisfaction. And by the way, we see that in the data for Australia. So these this question about life satisfaction was asked during lockdowns by the ANUPoll survey people. So we literally use that, their findings to calibrate how much we think there was as a detriment to life satisfaction during the COVID period. And then the second big element of that cost is the debt, which will crowd out future expenditure which would have otherwise made the lives of our young people much better in the future. Now, you may ask, you know, what about the school closures? You know, wouldn’t you think that would be a big thing? And, and it is a thing, but it’s interesting, a bit of a complication here. So I was seriously disturbed at the the degree to which school closures were just immediately adopted. And everybody thought, oh, yeah, this will be fine, we’ll just have everybody working from home, you know, doing the, you know, classes from home and all this. I mean, it obviously was not the same. And it put our teachers under an enormous amount of pressure, by the way, as well. And, of course, I mean, I would have naturally expected that, in that situation, those kids who are already initially before COVID, in a disadvantaged or stress situation are going to be seriously left behind, right? Now the more advantaged kids, you know, kids of mine, for example, if I had had small kids at the time, they would have been fine. And I had young, young adult kids at the time, and they were fine. Because, you know, we have the resources to be able to support them and help to mitigate the damage that otherwise would have happened. But it’s the people already at the bottom of the food chain who suffer the most right? Which, which really makes me angry, because that’s, you know, that’s the last thing we need. Inequality is so unhelpful. And and it’s just a horrible thing, when you know, these, these people in cushy government jobs and bureaucracies, who don’t have any problem with job security are pushing this on people who then suffer and they’re, you know, they’re already suffering. So it’s just really heartless. Anyway, so you might think, well, that’s going to, of course, limit the degree to which these kids are going to be able to learn whatever it is that they’re learning, whether they’re what we call in economics, their human capital, you know, what’s in their brains from their years and years of schooling and experience will be necessarily less and that is true. But what we have to do then to figure out the the sort of cost that has been eventually imposed upon them in terms of their WELLBYs or their QALYs is work out, well, how much is that productivity loss going to be reflected in lower wages when they get to be adults, and of those wages, how much is actually likely to then be spent on things that would have otherwise made them healthier, better off, you know, more satisfied, et cetera, but that we are not going to be able to spend now because of the fact that they don’t have as high wages? Well, it’s, you know, it’s not just the full wage of those kids that you want to count. Because as it happens, when we spend privately, we’re often spending on things like status goods, you know, we’re not always but particularly in a country like Australia, we’re spending to keep up with other people. So it’s not that every extra dollar that these kids would have earned would have actually led to increases in life satisfaction, you know, you you spend in order to keep up with the Joneses that doesn’t make you more satisfied, it just keeps you at the same level sort of thing. So what really you want to count is the fraction of those extra wages, counterfactual wages that would have been accumulated by the society as a whole and spent on public goods, like more health, better education, better infrastructure, and that sort of thing. So that’s basically the tax take. So that’s what we do to estimate the negative, the damage from the loss of schooling, the disruption to schooling, in terms of WELLBYs in the future for these kids. And as it turns out, that amount tends to be you know, it turns out to be much less than it would be if we counted that whole forgone wage. And so you know, that that’s a bit of a surprise, perhaps, to some people, but it’s just because of this interesting feature of the way in which our private spending is or isn’t related to creating more life satisfaction for us.

Gene Tunny  34:24

Yeah, yeah, absolutely.

Tim Hughes 34:26

With the whole economics of it, which, of course, is what you two are trained in and experienced in. And so yeah, the figures are pretty damning for any of the responses around the world, apart from those who took a lighter, a view of it like Sweden, for instance. And I think it was really good that different responses were taken around the world so that they could be compared and whatever would come from that, like I said at the beginning, my main interest in all of these conversations, really is to see what could we do better next time, in view of what happened? And that’s still largely the case because clearly, I mean, I’m a lay person, that’s my role in this scenario, you guys are economists. Clearly, we would all listen to epidemiologists, medical people who would have their views on this too, because, for instance, in the early days of COVID-19, from the pictures that were being seen from North Italy, for instance, the, you know, the scenes from the hospitals there, it seemed extremely dire. And I didn’t feel for instance, everyone’s got a unique perspective of the lockdown and what happened. I didn’t see or feel any great fear in Australia, we were a long way from it. So geographically, we’re a long way from that kind of action. But (cough) sorry, long COVID, bad joke. So, yeah, my feeling would be that one of the first things with this, because I saw not panic or fear, especially over here in Australia, but people just complying and sort of concerned but just going along with what appeared to be the best decisions at the time. You know what can we do to protect the hospitals and the doctors, nurses from being overwhelmed was one of the driving forces, and some of the logic that a layperson, like myself might see in a lockdown. So for instance, and if that turns out to be not the best response, then I’m really open to see what would be the best response because everything done and said, What are we going to do next time when this comes around? And there seems to be at an early stage of any of these pandemics? We mentioned SARS and MERS, Ebola, for instance, they all have different CFRs, so the case fatality rate, and how likely to die are you if you contract this? And they have different R naught scores, which is something I learned about as we did some background for this, the transmissibility of it how easily transmissible is it? And so there must be at some point, an area in early days of any of these viruses where we’re not sure, we don’t know. And so the first thing would be, I would have thought to say, Okay, well, how soon can we have any kind of certainty as to what we’re dealing with? How? What was the case fatality rate? How easily transmissible is it? That would be, I would imagine one of the first things we can do, and then let it unfold from there. Like I mentioned before, like if some sort of protocol that we can have in place that we’re not, I mean, everyone, all of us now have some experience with this, from what we’ve gone through for good or bad or whatever. And I don’t think, I think it was a one trick pony, for the amount of lockdowns that happened. Even the most patient person would be less compliant if this was to happen fairly soon. And so the next one will be different straightaway, you know, so what is it we can put in place that everyone can be generally okay with, that would be a good response? But like I said, sorry, going back to an initial point, how do we determine, you know, what would be that, that first response of like, just how bad is this? What are we dealing with?

Gigi Foster  37:56

Yeah, so I mean, it’s, it’s interesting to hear you talk about and having in place protocol, you know, so that we know what the steps are, everybody can agree to them. That is kind of what the pandemic management policies that we already had before COVID, which…

Tim Hughes  38:09

Which nobody had known about. And like, that didn’t seem to be any, it seemed to catch everyone by surprise.

Gigi Foster  38:14

Well, I mean, I think that people who, whose job it was to know about them knew about them, you know, the department’s of health in the various different states and the Commonwealth, I mean, that they would, of course, know about their own pandemic management policies, right? People, as all might not have known about them. But that’s because, you know, we don’t know a lot about a lot of things that go on in the back rooms of government that are just handling stuff, like, you know, do we know, how many steam rollers are purchased every year for the infrastructure projects? No, you know, I mean, there’s a lot of stuff we don’t know. And they’ve came to the fore that these pandemic management policies existed really, quite a long time after the lock downs were implemented, right? Nobody was talking at the time about, Hey, why are we doing this? Look, it says in the plan, we’re not supposed to. Nobody was saying that, right. So your your desire for a protocol, which everyone can agree, I mean, we had that and it failed. Unfortunately, that’s from my perspective. That’s why I say the key things here are politics and psychology. Those are the two things that we need to focus on if we want to get a better solution going forward. And, you know, on the point of the overcrowded hospitals and overworked nursing and Doctor staffs, I mean, yes, it is true that in times of great disease, and you know, the the influx of a new bug, hospitals sometimes become very crowded, and the workers in health care systems sometimes become very overworked. This is something that they deal with on a semi regular basis. There’s surge, capacity protocols that these hospitals have and that the staff have as well. And you know, that you can bring in more people. It’s like, if it’s like, if you have a war, you know, and you and you have to mobilise, right. There are ways we do this. And as an economist, I might make a dry observation that if you never have your hospitals overcrowded then you’ve got too many hospitals. Right? If you always have a spare bed and some spare hands hanging around, then you should redeploy the money that you’ve spent to hire those beds and that those workers to some other area that can support human wellbeing and thriving, right, because we only have so many dollars, right. And so you don’t want to have spare capacity underutilised. So there is just this natural ebb and flow of sickness and illness that and you know, and injury as well that hospitals have to manage they manage this in maternity wards, for example, right? A lot of women give birth, when it’s raining outside, you know, I’d have particular pressure or whatever causes people to go into labour. And that means that you sometimes have to, you know, basically employ a lot more people, doctors and nursing staff or whatever, at a particular moment. And then there’s less demand later. I mean, hospitals know how to handle this. So that’s, that’s point one about the hospital overcrowding. Point two, we’ve been through this exact kind of problem before the 1957 flu was very similar. We didn’t lock down whole healthy populations for that thing, right? We didn’t have the media that we have today, we didn’t have the global media spreading all of these scary stories about Italy, as you mentioned, or China, you know, people falling over in the streets or in New York City with the mass graves and all that. So we didn’t have the fear generation mechanism that we have today. But we did have a virus that was pretty similar in terms of its virulence.

Tim Hughes  41:22

I hadn’t heard of that one actually, the 1957 one, yeah okay…

Gigi Foster  41:24

Just another flu. Yeah, no another flu. And the thing about COVID, that really was different than some of the analogues that were being used was not only that it was less lethal, but it was also just not killing kids. Right? 1918 flu was scary, because it was killing everybody. Alright, kids as well, that’s really scary, right? Like, one of the worst things gonna happen to you as a human being is you lose your child, right? So that’s very bad. That was just not really happening during COVID. Except for children who are already seriously ill. And even then, you know, less likely. And even for some people, I mean, people were the exact risk baskets, they were still surviving with more than, you know, 50% likelihood but it wasn’t like it was a complete death sentence. So. So anyway, the second point on the hospitals thing is just that you’re presuming that going to the hospital is the thing that you have to do when you have COVID. That’s the only way we can treat it or the best way we can treat it. As it turned out, going to hospital was kind of a mixed bag, in a lot of cases with COVID, right. And if you put people on ventilators, Mechanical ventilators, they often have worse outcomes. Not always but frequently enough, it wasn’t a panacea by going to hospital didn’t mean that you’d be cured. In fact, it was, you know, kind of much of a muchness in a lot of cases. And sometimes so as the, as the panic wore on, and the protocols became more entrenched about, you know, how are we going to count COVID, and how much money goes to hospitals that have COVID cases, it became financially advantageous for hospitals to label somebody a COVID case, and then follow a particular protocol to treat that person which really might not have the best outcome for him or her. Right, so hospitals were a real mixed bag. And what we weren’t told was all of the other myriad things that one can do if one wants to: A, avoid getting ill, and B, if one is ill, to limit the the probability that you’re going to progress to a disease stage where you really will need to go to hospital. So there were plenty of things we could have done, you know, including all the stuff we already knew before COVID, about how to fight respiratory illnesses, you know, take lots of vitamin C, go outside, get your Vitamin D, have, you know, fresh drinking water and have lots of sleep and eat fruits and vegetables. And as it turned out, over time, we were learning about more things, the important role of zinc, and the important role of, you know, sort of other prophylactic measures, which were just suppressed. And in fact, you know, the crowning achievement of that suppression was the TGA, blocking ivermectin, which has been proven to be a useful prophylactic, and very useful in the early stages. But why did we block it? I ask you, that’s not public health. That’s not protocols. That’s politics, right there, that’s power politics. And so if we want to fix this, if you want a plan going forward, I think what we need to do is work on our political system, we need to revive the accountability of the people making decisions at times of crisis to the people as a whole and a representative bunch of people that need to be sort of responsible in some way for those who are in authority or the decisions or overseeing those decisions. So I’ve suggested a number of different avenues forward in both “The Great COVID Panic” and on some blogs that have come afterwards on Brownstone Institute sites, Brownstone is my publisher for The Great COVID Panic. So brownstone.org, you can see those blogs. One of them I’ll mention here is the citizen juries idea. So at the time of COVID, we saw a lot of bureaucrats who were unelected and completely unaccountable, who were basically driving policy. So you know, health health ministers, for example, around the around the country, right? Remember, Brett Sutton, who basically became a sex symbol. Yeah. And Brad Hazzard and a few other ones. And you know, these people were doing things and advocating for policies that never went through Parliament. They never they never got the tick expressly from the people, now the politicians will say, well, but the people were clamouring for more and more protection. And you know, that is true to a certain extent. But these guys were appointed by politicians. So there was also this element to which they were all kind of playing into each other’s game, right? Everybody was following a playbook, rather than really having anyone looking out for what was really in the long term interests of the people. So I, with my co authors, Paul Frijters and Michael Baker, we’ve proposed that instead of having those positions, like the head of the Ministry of Health, be political appointments, we have them instead be appointments by citizen juries. So we already use the jury system in the criminal justice system, right? The idea would be that everybody in Australia, every citizen gets put on a jury role and an expectation once in your life, you have to spend two to three months working with 20 to 30 of your peers. And your sole job is to appoint the next Minister of Health or Minister of the Environment, or Minister of Immigration or whatever it is right on top of the public service. And if we did this over a few years, and you know, kept replacing all of the various heads who needed to be replaced at the state level and the Commonwealth level, with people appointed by the people as a whole rather than politicians, we’d end up with a burgeoning cadre of people making, you know, in positions of authority, able to make decisions, and hopefully more responsive to what is actually good for the people, because it’s the people who would have appointed them, right, rather than the politicians. So that’s one suggestion to try to hack away at the bad politics of this whole situation. So that maybe the next time those people would feel a bit more of a duty to be responsive to what was actually good for Australia.

Gene Tunny  46:35

Yeah, very good. Gigi. I’ve had Nicholas Gruen on the show and we’ve talked about citizens juries in the past. So yeah, absolutely. Think I think they’re a great idea. Did you have a follow up Tim?

Tim Hughes  46:46

I heard that episode, that conversation you had with Nick, Nick Gruen, and yeah, the idea of citizens juries I find really interesting. It’s along the lines of what Warren Hatch, from Good Judgement is talking about with super forecasters to have skilled generalists, as opposed to experts. I mean, obviously, we need to listen to everybody. I think listening to different perspectives and different opinions is really important with all of this. And that that feeds in with the citizens juries is to have that diversity of opinion in these areas of selection. So I think that’s a really, really interesting point.

Gene Tunny  47:19

Just one more Gigi, Yeah, this is great. I’ve really enjoyed this and learning a bit, there’s, learning a lot. So particularly about your methodology, I find this whole WELLBY methodology fascinating, because it’s not something I’ve used myself. And it’s something that’s different from standard cost benefit analysis. So I’d just like to ask, I mean how has it been received worldwide, this WELLBY methodology, is it being applied for, what policy issues is it been applied to?

Gigi Foster  47:47

Yeah, it’s a really good question. And the one of the reasons I use it is because it is actually getting some traction. So right now in the UK Green Book, which is the kind of , I don’t know, guide for how to judge, how to evaluate policies or you know, what we should be going for, as a government. They talk about WELLBYs, they talk about how to produce WELLBYs through government spending. Government programmes have been evaluated against the metric of how many WELLBYs on net are we getting from this programme, and that programme can be something like, you know, mental health provision, mental health service provision, which by the way, has a very, in, at least in the UK studies I’ve seen, has a very high benefit to cost ratio. So you should do that, if you’re a government mental health support is very important thing. And you can also evaluate anything else that the government might do, like, bussing old people up to Stonehenge to have a look, you know, or taking people out, you know, disabled people out to lunch every week, or whatever the thing is that you’re hoping that that might help people. And you kind of want a measure of that, you know, are we really delivering higher quality of life to our people with this policy? So it’s being accepted, I think, more broadly as a reasonable and defensible metric, to which governments can be tethered there, they can be held accountable. There have been a number of cost benefit analyses, actually of COVID policy that have been conducted in WELLBY terms. So not only in Australia, but I think in about six other countries around the world, there have been these CBAs that have used WELLBYs, but of course, there have also been a lot of other CBAs that have US Dollars or QALYs, and we all come to the same conclusion, you know, broadly qualitatively, but it’s really lovely to see that diversity you know, as you’re saying before, you know, diversity is an incredibly important strength of our, of our modern societies, if we could only harness it, right? And what we did in COVID, of course, was we suppressed it you know, we kind of killed that that golden goose whereas another thing we really need to focus on is how to not move in the direction of suppression and censorship. So for example, these new laws about misinformation and disinformation I think these things are toxic. That’s awful, you know, because who is going to decide what is disinformation and misinformation? I mean, my gosh, it’s puerile right, and just the idea the conceit you know, the hubris, that somehow the government knows what the truth is. I mean, when has that ever been true? Right? Like nobody has has a monopoly on the truth. I don’t have a monopoly on the truth. You know, I, I would love to be proven wrong on some of these things during lockdowns, I was thinking to myself, My God, I hope I’m wrong, like God, I hope I’m wrong, right? Because if I’m not, we’re killing people, you know, these policies are killing 1000s of people. And and it’s just it’s too too horrific to imagine. So, you know, I, I would like to have more discussion of these if these issues are crossed aisles of belief and perspective and experience. So we need to relearn how to have tolerance for that, you know, this, this cancel culture dynamic we’ve got going on today, is extremely toxic. It suppresses one of the greatest strengths of our civilised post enlightenment societies. And, and it basically just means that you have a lack of innovation, right? Innovation comes from somebody in a minority, at that time, having a new idea, right? And saying, Hey, guys, why don’t we try this? That’s That’s what innovation is. And if you if you quash alternative voices, you’re quashing innovation and innovation as a source as you know, of all growth. So, right, that’s the wrong direction to go. If we want to build healthy, vibrant societies with gains in human life quality, which is what I’m going for,

Tim Hughes  51:22

Completely agree, I think, you know, healthy debate and having those guidelines around what healthy debate is, and the ability to listen to different perspectives, and avoiding the echo chambers, which I agree, I think that’s what the cancel culture encourages, is to people to go to their little sort of support groups and say their things amongst each other without any serious sort of challenges to their ideas or hearing new ideas. So I fully, I fully agree with that Gigi.

Gene Tunny  51:50

And I think, I think certainly young people, if you look at the cost versus any benefit that they obtained, yeah, it’s going to far exceed that, that benefit, I agree with that. You’ve come up with seven new, over 7 million WELLBYs as a cost, and around 60,000 WELLBYs as a benefit. Now, it’s going to be some multiple, large multiple of, of any benefits I agree with that? Have you thought about whether, you know, young people may have been willing to pay that? Because they thought they were protecting their grandparents or elderly people? Have you thought about that Gigi and how you might incorporate that in your analysis?

Gigi Foster  52:27

Yeah. So I mean, the the question there is, would the government in a counterfactual world have been able to take policies that would have readjusted people’s expectations towards the truth in the moment of crisis, because the truth was that it was not going to be protective of their grandparents to do all of this stuff. In fact, it would be more protective, if they went out, licked a lot of lamppost tried to get COVID got immunity, and then we’re on, you know, not dangerous to their grandparents anymore, right. That’s what we were doing. I mean, in my family, we were trying to get COVID every which way. And we didn’t manage to until finally last year, I got it. But you know, it was sort of the young, healthy people, you know, on paper, they just wanted to get immunity as quickly as possible. That’s what that’s what would have best protected their grandparents. So the reason why people believed that was the misinformation promulgated by the government. Right. So if you ask me, Well, you know, should we just have gone along with that? Well, no, you know, I like to think that we can have a society where the government isn’t pushing propaganda. You know, that’s, that’s, that’s not what in a democratic society, I look to the government to do, the government is our servant. It’s our servant. And it should not be stuffing our throats with, you know, wrong think., and calling it right think and calling everybody else who disagrees the people who are the wrong thinkers, right? I mean, it’s 1984. So, you know, you get no, it’s ugly, I think. And now, now, the issue of however, is that because we have now lived through this, many people have become psychologically tethered to the narrative, they have been themselves in part of the agent of a lot of this destruction, right. And in their own mind, their identity is swept up with this. And they took actions against their own family, often, that they thought at the time were protective, because of course, most people act, you know, in a way that that upholds their self image as being a good person, of course, right. But now that that’s being revealed not to have been true, we have got a massive psychological problem on our hands, massive. People are unable to talk about this in an unemotive way. They’re scarred psychologically, they are, the the actual realities are so shocking, that if they were to face them, I think many people would would just fall into a really deep hole, psychologically, and so that is, in my mind, one of the big problems that we have to deal with now, in the post COVID, you know, period, is to reconcile across the aisles. And it’s not the people like me, who were pilloried at the time, who took the most psychological damage. Like I can handle it, it’s fine, right? Whatever. I knew I was doing the right thing I sleep well at night, no problem. But for the people who were part of the damaging structure, including those who were, you know, calling each other out about the masking, you know, you don’t have enough mask on or, you know, dobbing people in for going to school when they had a sneeze and or whatever it was, you know, they were being the agents of this distruction. You know, they’ve now learned Oh, okay, the 1930s, I would have been part of the regime, right? That’s the scary realisation, and for them to really face that is just going to cause a huge psychological shock. So that, for me is is one of the big things we have to work out. How are we going to help those people going forward? And because history will eventually put this period down as one of the most tragic in history because of the mismanagement of the crisis by the government, and all the people who went right along with it, will have to, you know, read that in the history books. And that’s going to be really difficult for them. So yeah, I have a lot of compassion for those people.

Gene Tunny  55:55

Very good. Tim, your, well, we might end on your intelligent observation, assuming it is intelligent.

Tim Hughes  56:01

Well, thanks. I shouldn’t talk it up too much. It was more of along the lines, actually of a couple of things you said earlier, Gigi, about health and good nutrition, being able to go out in the sunlight and everything which of course, was restricted at times with some of the lockdowns of course. And something that we can do straightaway, to help us through any future pandemics is to become healthier, improve our immune systems naturally, which has all these multiple benefits as well. So going along with any psychological issues that we may be facing as a result of the pandemic, then to eat well, and exercise well and sleep well would go along with that fabulously and what I was going to put forward do you guys being economists, see what you think about subsidising the cost of vegetables and whole foods, so fruit, veg and meat in their natural state, so without being processed, and put a tax on ultra processed food to be able to pay for that subsidy. So instead of Pringles being whatever they are double the price of that and use that money to subsidise. So people can be encouraged to eat more healthily.

Gigi Foster  57:12

Yeah, I mean, this is a typical kind of economist response. Right. So it’s a sin tax basically, you know, we have at the moment as you know, a GST which applies to you know, a lot of goods and services but not the food’s you know, foodstuffs of various sorts, you could you could have, you could have exclusions for you know, fresh fruit and fresh vegetables, whatever, and then have a GST in place for anything processed. There’s all sorts of things you could do, if you wished. My reading of the closest thing to that, that I’ve seen elsewhere, which is the tax on sugary drinks experiments, right, that’s been run elsewhere, is that it does collect money. Yeah, you do collect money and it does reduce the purchasing of those beverages, those sugary drinks, but it usually doesn’t actually change the underlying issue, which in those cases is obesity. Right? It doesn’t really have a measurable impact on the amount of people who are obese the fraction of people who are obese, how obese they are or whatever because what happens is people switch to other things. They may not buy the coke but they instead buy the muffins and then you know they’re getting just as bad so in the case of the the taxation on you know, different goods, I just don’t know really. Partly it’s because I think that some of the reason if not the bulk of the reason why some people are not as healthy don’t choose as healthy habits as others is psychological. Okay, it’s not just about the resources that are literally available to you like do you have enough money to buy the fruits and vegetables? It’s a bit of that perhaps and certainly in some food desert areas it will be that and there’s a cultural element of course which is you know, if your family doesn’t eat this way how can you do that but then that’s is that really going to be that affected by you know, taxes? Probably not. So my my sense I mean, obesity is a mental health problem from my perspective. And I think that low immunity is also to an extent that as well. If I think about myself for example, I have this incredible luxury of you know, being able to have a nice good job, well paying job I, mean they haven’t fired me yet thank goodness, knock on wood, for saying all the things I’ve said during this period, I love my job. I love teaching, I love doing research, I love doing these conversations. I have the luxury of being able to afford kitchen appliances which let me make beautiful smoothies every day from fresh fruits and vegetables I buy from the store. I have great sleep every night, I you know I can run, I can exercise, I got sex every day I want and all these things that are obviously promotive of immunity. But I also have something that people don’t mention a lot which is huge amount of mental resources. Why? Because I am loved. I am supported. I was, I feel accepted. I feel I’m making a contribution to my world. I’m also healthy, naturally. So you know, because I’ve been investing in my health I can use that health surfeit to put more effort into being healthier right? A lot of people who are in places of disadvantage or not looking after their health do not have those kinds of advantages. They’re in dysfunctional families. So we’ve got multiple overlapping problems, you know, substance abuse and domestic violence. They’ve got unclean, you know, living environments that you know, hail the sanitation people again. So you know, those people, are they really going to respond to having to pay 10 cents less for a, you know, a carrot, or something? I don’t know, I think the problems are bigger than that. So I’m not saying don’t try it. But I think that the problems are, again, wider than just, here’s a protocol, you know, in terms of the COVID stuff. Similarly, with being healthy, it’s not just the costs, it’s also other entrenched problems, which have to do with psychology and culture.

Tim Hughes  1:00:39

No, fair enough and, and yeah like anything, it’s not straightforward. But for most of us, it is something within our control that we can sort of focus on and do better on. So it’s certainly something I think can be emphasised by governments and whoever is looking to improve responses and everything. It’s the foundation of our natural immune systems, which isn’t impervious to all of these viruses, of course, but certainly gives us a fighting chance.

Gigi Foster  1:01:00

Yeah. Totally agree

Gene Tunny  1:01:04

Absolutely. Okay, Professor Gigi Foster. It’s been terrific. Thanks so much for your time. I really enjoyed chatting with you. And yeah, it was great and thanks for answering our questions. And yeah, I really look forward to your future work. So thanks so much, Gigi.

Gigi Foster  1:01:20

Thanks so much for having me on. It’s a, it’s a great pleasure to speak with you.

Tim Hughes  1:00:23

Thanks Gigi.

Gene Tunny  1:01:24

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.

1:02:11

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Podcast episode

Business as Unusual: No such thing as Business as Usual anymore? w/ Rick Yvanovich – EP204

Serial entrepreneur and executive coach Rick Yvanovich talks about his new book “Business as Unusual: How to Thrive in the New Renaissance.” Rick argues that the world is continuing to undergo a massive shift and that there is no going back to normal. He shares his insights on the mindsets, habits, and skills necessary to succeed in this new era. The conversation also touches on Rick’s journey to Vietnam, where he currently resides, and what it was like living in Saigon during the pandemic. 
Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored.

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About this episode’s guest:  Rick Yvanovich

Entrepreneur, Techie, Brit, baby boomer, bean counter in: supermarkets, accounting profession, breweries, newsagents, defence manufacturing, IT, Talent, F&B, property development and BP, in the UK, China, Singapore, Switzerland and Vietnam. Posted to BP China as Finance Manager, then to BP Vietnam in 1990 making him likely the longest Brit and one of the most seasoned expats in Vietnam.

Fellow Chartered Institute of Management Accountants (CIMA), Chartered Global Management Accountant (CGMA), Fellow CPA Australia, MSc Strategic Business Management (Manchester Metropolitan University, UK), Certified Coaching and Mentoring Professional (CCMP), Certified Master Coach (CMC).

Treasurer & Board Member BritCham Vietnam, Vice-Chair AMCHAM HCMC DEC (Digital Economy) Group, Chairman Industry Advisory Committee RMIT Vietnam, founder/co-founder/investor/advisor of multiple start-ups.

Regular speaker for Talent, Coaching, Accounting, Digital Transformation, Project Management, Doing Business in Vietnam.

For further info about Rick, check out:

https://www.rickyvanovich.com/about/

What’s covered in EP204

  • [00:01:45] Rick’s career and journey to Vietnam
  • [00:08:00] Business as Unusual. 
  • [00:13:27] The great reshuffle. 
  • [00:16:29] The impact of lockdowns in Saigon. 
  • [00:25:01] Technological advancement. 
  • [00:29:19] Climate change and AI. 
  • [00:33:24] How to Thrive in the New Renaissance. 
  • [00:36:11] How AI helps you overcome the tyranny of the blank page. 
  • [00:41:06] Reflecting on life during COVID. 
  • [00:46:19] Zoom calls as a lifeline during COVID. 

Links relevant to the conversation

Rick’s book Business as Unusual:

https://www.rickyvanovich.com/books/bauu-book-series/

Article on “How AI is helping airlines mitigate the climate impact of contrails”:https://blog.google/technology/ai/ai-airlines-contrails-climate-change/

Transcript: Business as Unusual: No such thing as Business as Usual anymore? w/ Rick Yvanovich – EP204

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. 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. In this episode, I chat with entrepreneur Rick Ivanovic about his new book business as unusual how to thrive in the new renaissance. Rick argues that nothing is going back to normal and in business as unusual. He gives us His thoughts on the mindsets, habits and skills we need in a world in which there’s no more business as usual. Okay, let’s get into it. I hope you enjoy my conversation with Rick Yvanovich. Rick Yvanovich, welcome to the programme.

Rick Yvanovich  01:17

Thanks for having me, Gene.

Gene Tunny  01:19

That’s terrific. Rick, keen to chat with you about your new book. Business as usual, how to thrive in the new renaissance. So very interested in that. To start off with I understand you’re coming to us from Vietnam. Could you tell us a bit about your journey to Vietnam, please, Rick, how did you end up there? In terms of your career trajectory?

Rick Yvanovich  01:47

Oh, great question. Gene. Yes, I am calling in today from Vietnam from Saigon or Ho Chi Minh City, as it’s known as today, you might be detecting from my accent that it’s from Britain. So I’m a Brit, although people do accuse me of having an Australian twang, but maybe your listeners would dispute that. How do I get here? How do I how do I get from where I actually started off with which was in a supermarket. In the UK, I used to work in as a as a as a management trainee in a supermarket chain. When I went to school and didn’t quite make the grades to go to university. And having worked in a supermarket for some months, after about six months, I realised I sort of felt brain dead. As in, I wasn’t applying my brain. Because I’m a numbers person. And, you know, I was a good student at school apart from when it came to those last exams. And for some reason, I suddenly decided, you know, work in a supermarket wasn’t for me, working with people wasn’t for me. I want to become an accountant. Okay, I don’t know where that came from. Maybe the numbers, or maybe it was a careers advisor at school who told me Oh, you’re a numbers guy, right key, you should become an accountant. So I went back to accounting school, became an accountant, joined an audit accounting firm, which I really didn’t like. So switch to management, accounting and work for a brewery, which was far more exciting. I think it’s the only company I’ve ever worked with where they, they gave you free beer and wine at lunch. I encourage you to drink it. And then that led me on to other things. You know, I moved to defence, manufacturing, defence electronics, and then Facilities Management, or an IT Bureau, which is today known as cloud and cloud computing. And then I moved to real estate. And then I moved to oil. And when I was working for that oil company, they moved me to China. And then they moved me to Vietnam. So that was all the way back in 1990. So I’ve been here for a while. It’s been a it’s been a long and and unusual journey.

Gene Tunny  04:21

Right? Yeah. So you’ve worked across a diverse range of industries and you were in oil, but you no longer in in oil. You’ve been doing your own thing or running your own business. Is that right? You’ve been that’s what you’re doing now.

Rick Yvanovich  04:33

Yeah, that’s right. I mean, back in. In 94, I was gonna get shipped back to London oil price was running at about $15 which was ridiculously low compared to today, and it was going even lower. So that obviously changed all the economics of those companies. And having been in Vietnam for some years, I hadn’t met my previous five bosses. So it would be very dangerous to step onto that plane. step off the plane in London and walk into the office because that will be a very short journey, I think. Yeah. So I found out about a voluntary redundancy package and I retired. So actually retired back in 1994. I am a workaholic, though. So that lasted for about five seconds. And I started up an IT company. And we’re still doing what we started literally 30 years ago or 29 years ago, so two years next year, which is to implement accounting systems, an accountant, implement accounting systems seems a bit obvious. And we do it in about 80 different countries around the world today.

Gene Tunny  05:39

Very good. Okay. As an economist, yes, I could, I’m very supportive of my cousins, or my fellow people in the accounting profession, and I understand the value of it. So that’s, that’s good stuff. Right, I will record better ask you about your new book business as unusual. So with the title business as unusual, what are you driving out there? What is the, the genesis of that title? Could you explain that, please? Well,

Rick Yvanovich  06:09

the genesis of of that was, you know, the book was birthed, as it were, in about 2020. I’ve always had this, you know, on my life goals list, you know, might be or could, may have been a life fantasy list, you know, go write a book. And it’s been for years. But if we go back, you know, some years if we can all remember, not pretty sure everybody listening can remember, 2020 is when we had that COVID pandemic sort of sprung upon us by surprise. And it was during that that period, that I actually, because I had time on my hands humbly enough, I started writing a book, and got it actually published earlier this year. But you know, as, as we were locked down, and I know in Australia, you know, you locked down the country for some years. And here in Vietnam, we effectively locked down the country for some years as well. So as an expat here, as a foreigner, I could leave, but I couldn’t come back, necessarily. So that was not a good idea to leave. And so therefore, I actually worked out from the start to the pandemic, when they started the lock downs, which is tail end of the first quarter of 2020, I didn’t move more than about 10 or 15 kilometres away from where I live for two years, or two years, wow, that’s this is all happening. And as things started falling apart, and all the wheels fell off everything people kept saying, when this is over, when we you know, go back into the offices, and it goes back to business as usual, when you know, this is just the new normal, you know, we’ll get over this and everything can just go back to the way it was before. And this just sort of annoyed me more than anything else, but there’s nothing remotely normal about any of this, there is no business as usual. And especially here in Vietnam, you know, where the clamp downs were pretty tough, you know, confined or apartment, you know, you need a permit to literally walk out your front door and go down to go down to the shop once a week or twice. So we really, really, really tightly controlled and it was open, close, open, close, open, close. And this went on for a while. And each time people thought it’s over, and we can go back to the office. Something else happened, oh, we got another lockdown or another another. And I said, there is nothing usual about this. This is all unusual. And that’s where the where the title came from business as unusual. Because shock up the shock or surprise after surprise kept hitting us whether it is another lockdown, or, you know, other things we’ve experienced. There’s a bit of a war going on and you know, in Europe isn’t there. You know, we have the economic turmoil that’s hitting some countries, we’ve had the great resignation or great insert word that you want. All these things are happening and have been happening. And, and it’s not over yet. This is just

Gene Tunny  09:34

unusual. Yeah, yeah. Yeah. Certainly the since 2020. I fully agree with you. I’ve got a couple of questions and a few things I want to explore. So Rick, you said you know things aren’t going back to normal? I mean, what have you noticed what things have you noticed haven’t really settled down in in say, the way we work or the way we live? So the economy society, what have you really We noticed hasn’t gone back to normal.

Rick Yvanovich  10:03

There are a few things. So when we look at normal, and what do we really mean by that? So you could say that’s linked to a bit business as usual. So that business as usual doesn’t have to be in a work contexts. It can just be an anon worker, a life contacts. And I think this is all very much linked to this, this great resignation or reshuffle or whatever you want to want to call it, free pandemic, free all of this happening. Normal, one could argue, was the, you know, we get up, we go the office, we sit in our cube, you know, we go home, we get on with life. So married with our job, married to a job, maybe married to our mortgage, got bills to pay, right? kids in school, all that kind of stuff. And I feel that there was a as an acceptance that we might be a bit bit like that hamster on a wheel at work, and we’re like you are in a cage. And we’re not going anywhere. COVID comes along, and they took the office away, they threw the cube away, and they threw that wheel away, you know, are we any better off? Well, we don’t even have a wheel to run around. And you know, we’re not even in that cube anymore. We’re just somewhere else which might be your home, or whatever you ended up being. Because at the end of the day, when the lock downs happen, it’s like musical chairs, isn’t it. And I know people who were on a business trip, and they couldn’t get back into Vietnam. They also couldn’t get back into their country of origin either. And they were just stuck wherever they were stuck. And as verdure on foot, you know, is crazy. I know some people who are stuck literally for six months or 10 months in a third country where they didn’t want to be in in the first place, but they couldn’t move. Anyway. So I liken it to they’ve, you know, we’re no longer that hamster or whatever, running in circles in a wheel going nowhere. I feel that people feel that they’re not too sure what direction to go in anymore. And so it’s more like, we’re still that hamster, or any other animal you want to call yourself. But we’re trapped in a maze. You know, there are lots of different directions we can go in. But they’re not necessarily leading anywhere. And it’s a bit like the, the Cheshire Cat in you know, Alice in Wonderland. And Alice comes to the crossroads and sees the cat and says, you know, which way should I go? And a cat sort of saying, well, it really depends where you want to go. Analysis replying? Well, I really don’t know, the cat saying, well, it really doesn’t matter why? Because you’re not going to go anywhere. And I feel that’s what the great resignation is all about. You know, some people have been forced to resign because their industry has collapsed, or the company they’re working for has gone bankrupt, and it’s collapsed. Or they didn’t like how they’re being treated when all this was happening, and so they’ve been, they’ve had to resign, or they were terminated, or they walked with their feet, because the grass is always greener. The only problem is, is people have found that the grass isn’t greener. And they’re still moving around. And so the ripple effects of the Great reshuffle as it’s, you know, as it morphed into, a still happening and is, you know, it’s happening across the world. So the way that we look at work has changed. And we can see this by the yo yo that we had, maybe it’s less this year, but especially last year, when companies opened up again, hey, you can come back to the office here, but we’ve been working remotely for a year and I like working remotely, and I want to come back to the office. So you know, if your company allows you to work 100% remotely and you like it, you know, you could zoom right? But no worries. However, what happens if you know, you’re forced to come back to the office and you’re told you must come back to the office? Or you must be in the office for X days, when you want to not be in the office? Conversely, what are those? What about those people who really, really miss the office, they missed all that collaboration, all their friends and they want to go back to the office, okay, but they’re told no, no, we got rid of the offices we worked out. We can save loads of money by having no offices go work from home or wherever you want. So the whole way of work is changing and some companies are enforcing it. Some people are sitting on the fence, you know, and that’s really confusing. Okay, it’s really, really confusing. And so not only does that affect each one of our citizens in Individual, Hey, what is our company doing in which we may agree or disagree with working within that? Okay? Because I’m I’m seeing that more and more or I don’t know what the percentages, but I feel it’s very high, very high percentage of companies have some form of remote work now or hybrid work. And the way that you work in a hybrid situation is new to a lot of us, okay? Like, hey, we went to the office and like we sit around the watercooler, we go out for lunch, we have a coffee, we go for a beer or whatever. That’s how it works. But how do you do that when half the people? So how do we communicate? And today we’re on we’re on a zoom call, which maybe two years ago, and we weren’t that expert zoom. Whereas today, we’ll come up with a basic skill to be expert on Zoom and teams, all the other video conferencing platforms, it’s just a new tool the you absolutely must know. So all how do we work? Well, that’s a tricky one. What’s the best practice for companies? Oh, that’s a tricky one as well. How can there be a best practice when we’re still trying to work it out? And let’s just work. Now, if we look at, but from another point of view, how about our lives, okay, in the year or so, depending on what country you are in, and whatever restrictions that you experience, you know, if your work, the way you work has changed. How has the way you live changed, and in a lot of countries is especially what I found here in Vietnam, having been locked down for so much. There’s some really basic things that I started missing. You know, I’m not a tree hugger. Okay. However, once then doors will open, he could actually go outside. Hello, gosh, there’s a tree. Let me touch it. I haven’t seen haven’t touched one of these for literally months. Okay, and then you know, what, when things are taken away, maybe we, we start appreciating, and we start noticing things that that we actually missed, going for a walk in the woods, silly thing like that. Or, you know, walking on the grass in bare feet or going down the beach, you know, strike going down the beach and striking up a Barbie. You know, all of these things were taken away.

Gene Tunny  17:35

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  18:10

Now back to the show. As a matter of interest rate, can I ask you about Sargon? Because I don’t know a lot about it. I mean, other than I mean, it’s a large city. So if it’s like other Southeast Asian cities, then it could be very difficult to go outside and just walk around and go on a nice relaxing walk. But what is it like? I mean, is it Are there places you can go? Are there parks? If you do get outside? Or do you have to travel further afield.

Rick Yvanovich  18:39

Hageman city, officially then 9 million people, okay 10 million people in a place with 10 million people. There’s one thing you’re guaranteed. They’re always people about? Yes, yes. And the weird thing during COVID was the the city turned into arguably a ghost town. Okay, because like any other sort of urbanised city, where are the people really from? Are they native to the city? Or do they come from outside the city? So the big challenge that that I feel the human city face and its impact on people? Was that yes, it’s you know, the bustling, the biggest Metropolis there is in the country. And it’s also the employer of an awful lot of people in in in the whole province of coachmen city because the city itself as a province is so big. There are multiple industrial zones, and there are hundreds of 1000s if not millions of workers there. Those are not native to the province. They come from elsewhere. So you When the pandemic hit, and they say stay at home. And if you’re a factory worker, that a home is the room that you’re sharing that you happen to live in, because you work in a factory. Okay, homers miles away. And as as they tighten down restrictions. And you know, we have things like tent cities emerge as an Yeah, if your company can provide you a place of sleeping a tent, literally, which could be set up in a factory or even in your office, then you can stay there, you don’t actually have to leave that office or builder. And that happened for a while. But what what happens if you employ 50,000? People? It’s been tricky, right? So there was mass migration, when they shut it down. And hundreds of 1000s of people were fleeing the city. Okay, so the city sort of shrunk because a lot of people laugh. And it was literally a ghost city. And whereas on a normal day, you have to look both ways very, very carefully to cross the road. And, and if you go into the busy streets, you might even learned need to learn how to cross the road, because there’s so much traffic at this ghost home, you can do what I used to do back in the early 90s. When I first arrived here, you could lie down in the middle of the street, and nothing would happen because there was nobody there. So it’s weird. So for me, it was like our nostalgia. There’s no one around this is wonderful. There’s an I can’t hear anything. There. No, no, guys, there’s no two right there. No, no, there’s no noise control here, either. And so there’s constant noise all the time. And it was like, it was wonderful. I loved it. So it also remind me what I missed what I missed what

Gene Tunny  22:00

I mean, it’s good that we’re out of lockdown and restrictions and have we’re not getting back to normal, even if we’re in this business as unusual. I think it’s still preferable to, to what we had during the pandemic with all the restrictions. Right? Can I ask Rick about a are you arguing or your you think that we’re in a phase now we’ve we’ve left the pre COVID world, and we’ve just got to get used to this unusual, you know, unusual things happen? Or maybe we were deluding ourselves pre COVID. And we forgot that things unusual things can happen. What’s your take on that? Should that just be our basic operating principle, you should be careful assuming things are going to be business as usual. There’s a debate about whether in the past we ever it ever made sense to do that. We should expect volatility, we should expect shocks, so to speak. What’s your take on that, Rick?

Rick Yvanovich  22:57

Yeah, I agree with you. It’s the book of mindset, isn’t it? Which was penned a long time ago? Yeah, the UCA as in volatile, uncertain, complex and ambiguous, so that VUCA mindset. Now, if we had a VUCA mindset with COVID, you know, we’d be highly resilient and agile so and like, whatever, we’d be able to cope with it. But not many of us knew that mindset. And therefore, like, you know, somebody moved all the goalposts. And you know, what do you mean, I can’t go in or out of the country? What do you mean, I can’t walk down the road and walking the dog or whatever? I mean, this is ridiculous. Yeah. So all of those personal freedoms that we have taken for granted. I think we have got a rude awakening that will okay, this is an unusual situation with we’re taking them away. And there’s huge backlash to that. So anyway, I believe that there is no going back to normal. Okay. That’s why I call it business as unusual. I think we need to embrace the unusual no matter what anybody says COVID is overall whatever you want to class it. Look at what’s happened just this year with a generative AI. Yeah, you know, that took people by surprise. Like, where did this come from? Well, okay, it’s been brewing for more than a decade, guys. But you know, it that that is hit the world by storm. So that’s yet another you could say it’s another shock. Okay. It’s another huge shock on top of all the other shocks that we’ve had. So do you want to call it a shock? Do we want to talk call it technological advancement, okay, because that’s what it is, is just some bright sparks dreaming up some more great, innovative ideas, and it’s called generative AI and the world is embracing it. in fits and starts. Okay, so some people are advocating all this is terrible legislate against it. And other people are, you know, the first movers are embracing it and racing ahead. That’s just version one you could say of generative AI, what’s next is going to keep on coming and coming at us. So how we live, okay? And how we work needs to be adaptive to that. Because we’re either going to get steamrolled and squashed by it, or we are going to be resilient to it. We’re going to be agile to it. And we’re going to embrace it and use it to keep moving forward.

Gene Tunny  25:43

Yeah, well, the take up of it is, is extraordinary. And I mean, all sorts of people are finding uses for it. And I mean, I find, I find it’s helpful, you have to bear in mind that it’s a not very good intern, I think, as Kevin Kelly described it, so if you do have to be careful what it gives you, and it says that all you look at it, it doesn’t necessarily give you factual information, if it’s if we’re talking about chat GPT. And sometimes the images that things is it mid journey, the the generative AI, image creator, but whatever it is, they can do quirky things like creative, you know, give people extra fingers and things like that. So you have to be careful with that as a first start on things. It’s just extraordinary. And I mean, the risk is if you know, we, I guess you know, if it’s, if it makes it easier for people to commit scams to hack to and then you know, if you think of all of these nefarious or these worst case scenarios where the AI becomes what a Skynet becoming Terminator two become sentient or became conscious. Takes over a bit. I think that’s probably a bit outlandish. But yeah, I agree with you AI is one of the things we need to that’s a huge, huge development. And yeah, we’ll have we’ll have to see how it all develops. And I mean, potentially, we will need some regulation around. Anyway, that’s just a comment rather than a question, Rick, but if you did want to respond in any way,

Rick Yvanovich  27:15

it’s true. At the end of the day, AI is a tool. And like any tool, it can be used for different things, you can use it use it for good. And you can use it for not so good. Yeah. And then unfortunately, there will always be not so good folks around doing not so good things. But we shouldn’t let that overshadow all the wonderful things that AI can actually do. I mean, there’s so many positive applications to it today. And I think as people become more aware of it, and it becomes more readily available and more cheaply available, not just for individuals, but for organisations as well. It can really, really, really help. And at the end of the day, you know, I like your comment that I agree, it’s like a not a very good intern, I would read refrain that I think it’s good to teach it like an intern in that doesn’t know what to do. Okay. So it’s not going to proactively do something until you prompt it. So it really is linked to how good are we in asking it to do what we want it to do? And I think that’s how most people are using the typical AI is that the moment? The next level is already? How do you teach it? And this is even chat GPT? How do you teach it to respond better? So again, take that intern analogy. How would we teach it to do things better? And if you know how to do that, then it will?

Gene Tunny  29:02

Yeah, absolutely. I mean, we’re, it’s just early days. And already, I mean, it’s helpful. I use it to generate the first drafts of shownotes. episode titles and episode descriptions. And yeah, it gives you somewhere to start. So it’s terrific in that regard. Right. Oh, Rick, what about some other things that could be coming at us? Or that could make things unusual? Have you thought about anything? What other possibilities? There are? I mean, climate change. I mean, if you think about some of the extreme scenarios around that, is that something that concerns you anything else?

Rick Yvanovich  29:39

Oh, yes, climate change should concern all of us. And maybe this is something where AI can actually help us. You know, arguably AI is collective wisdom, isn’t it? It’s all our knowledge. We just have to ask it in the right way. So again, it’s it’s a tool and how we use the tool So for climate change, there are a couple of things. I read an article the other day about what Google is doing with AI and the airlines, one of the biggest contributors to climate change is air travel. And one of the things that causes a negative climate effect is the vapour trails that aeroplane creates when it’s flying. Okay? And that contributes, I can’t remember the number but it’s some horrendously high number 30 40% of the pollution that it’s creating. So the challenge was, can we use AI to do something about the aeroplanes trajectory to minimise that, okay? Because it’s the aeroplane going through the different going through the air, and what you know, what type of air is it, you know, how saturated that air is, how warm it is, how cool it is, and it can cause more or less vapour traps. People long story short anyway, they worked it out, okay? And are trialling getting the air, when when they’re flying the plane is to do some minor adjustments to go a little bit higher or a little bit lower to reduce the vapour trail. And in trials, they reduced it by as much as 50%. And that’s just a little tweak. You know, that’s not very much. Now other things as well. I mean, we know we’re getting a lot hotter. Yes, we all wonder whack up that aircon and we’re whacking up the aircon to make our environment cooler. But we’ll make an environment cooler because it’s hot. Okay, so there’s other tech out there already to try and reduce the heat. Okay, that a building has. And again, using some AI in their analysis of this. So it’s a bit like the paints that they have created. All right, which will help reflect the right type of rays. Okay, the sunlight, which will, they’ve actually worked out that if they use these panels that they’ve created, which reflects the sun, okay, but only certain wavelengths, it actually cools, it’s cooling. Okay, but it doesn’t block out the sun. It’s only certain rays. And again, AI is being used for for things like this. So there’s an awful lot of good that we can use AI but AI sensibly, and obviously, you know, certain industries like the health industry. And I would expect see huge, huge inroads in that things will carry on changing. And I think with advanced tools like aI coming in and becoming more mainstream, I think the pace of especially technological change is going to accelerate. Yeah, now, going back to the business as unusual. And so without that, that’s unusual. You know, technology is all very well and good. And we all have our attitudes on whether technology is good or not so good. The second part of the book, or the second part of the title, and our business as unusual how to thrive in the new renaissance. Yes, thank you, you have got a book. And in this business, that’s unusual. Well, you got one, and I still have yet to actually physically touch one. That was another usual thing. But the second half of the, you know, the subtitle, how to thrive in the new renascence? What’s the renascence got to do with it? Well, I already touched on technology, in the original Renaissance technology was the printing press, arguably today that the new renaissance is technology advancement is Yeah, around the internet, the power of that all the apps we have and now generative AI, you know, the original Renaissance was all about exploration, you know, finding new countries, new lands, these days, it’s find the other things. It’s like going deep inside humans and seeing more inside the brain or whatever is going on inside us going into the depths of the oceans, but it’s going beyond the Earth, you know, going to the stars. The other thing, the other Biggie was the challenging of authority. So back on the original Rene science that was the challenging of the church and the power of the church, in today’s Renaissance is the challenging of political structures and countries and how countries are governed. Okay, Okay. And finally, I think this is the most important thing. And but I left it to last even though I should have said at first, the original Renaissance was about humanism, it was about humanism. And the new Rene songs is all still about humans. And it’s about human potential in the light of all these technological advancements that we have. So that’s why I really believe that the human side is super important. And AI is not a human. And there are quirks about humans that make us human that the AI doesn’t have. So I see AI and other technologies is a way to augment our potential, we can do a lot more using AI, for example, you yourself said, Hey, you use AI. And it can dream up a couple of topics for you. That’s wonderful. Yeah. Okay. And it saves you a load of time. Yeah. Which makes you more productive, and you have more time to do some other stuff. That’s wonderful.

Gene Tunny  36:01

It takes you away from what do they call the tyranny of the blank page? Which which can make you procrastinate, so it’s good in that regard. I want to ask you a couple of things about what you said there. Recall that that was all, all fascinating. So one of the things you you talked about was government and so that we’re in this new Renee songs, what are you thinking about with with government? I mean, clearly, there are all sorts of people seem to be more unhappy with government than ever before, there are concerns about? Yeah, I mean, the US in particular is, you know, really problematic. And just looking at it from the outside. It doesn’t look good. What’s going on there. Looks like it’s, it’s cooked. It’s very volatile. I mean, what are you thinking with, with government? I mean, do you see changes in the way we we govern ourselves? Is technology part of that story? What are you thinking? What are you thinking there? Eric?

Rick Yvanovich  37:05

That’s a big question. Yeah, I’ll put a caveat around that I’m not political in the slightest. Don’t like talk about politics. It’s always going to upset people. But if we go around the world, and we just look at COVID, I guess the jury’s still out, we can say, on which countries handled it better than others. Okay. And who’s making that opinion, anyway, is that us as individuals, I feel that it really doesn’t matter where we were on the planet during COVID. Each of us experienced, whatever we experienced. And the question is, is, were we expecting some kind of benevolent government to know better, and help and support us? Or should we be more independent, and be able to look after ourselves? That’s a big questions and a loaded question as well. My feeling, my feeling is, a lot of people feel that they need to look after themselves better. Because if no one was looking after them during that period, what are they going to do? And it happens again, because at the end of the day, if we go back to the earlier days of the pandemic, there’s some people saying, well, we knew this was going to happen. Okay, it was inevitable. Yeah, the some kind of pandemic of this scale would happen. All right. And maybe the voices have gone silent, or they’ve been drowned in the noise of everything else that is going on in the world. That, okay, we told you, so we told you, it could happen. And it can also happen again, because we’ve really proven that it can happen. So how prepared are we, for the shock? Or the the new challenge of something similar, but different happens again? Yeah, you know, how’s that, you know, how are we going to cope with it? So, going back to the business as unusual, so, how is business as unusual, which is the first in a trilogy is written from an owner and owner leader perspective of an organisation. So how can you make your your organisation more resilient to this kind of shock, if you will, in the hospitality business, tourism business, you got pretty well beaten up during during COVID There are certain industries which got absolutely flattened. So how can you be more resilient to that in the future, that the other two books just so you know, that are in the series? The next one I’m I’m writing is the life has unusual, so I’m not Kid, the individual know how that that needs to change how we view life needs to change. And it’s all of this, the next two books is all already in there in the first book, which is going into into more detail and taking a different perspective. Okay? Because on the life one, he’s going to peepees talk about work life balance, and too many hours at work your workaholic, not spending enough time at home. And some people say it’s not a work life balance is a life work balance. I argue it’s neither balances balance, balances balance, you know, who said life and work are the two sides of the balance, there are many aspects of the balance that need to be considered. And this is, I think, the the awakening the ISense has happened during the last few years, is people are reflecting on because they had nothing else better to do maybe, or they were forced to do it on what are they doing with their life? Yeah, so the fact that maybe you couldn’t go out, you couldn’t go for your walk, you couldn’t go down the beach, you couldn’t travel, you couldn’t do the things that you wanted to do. And that was taken away for you for a period of time. How important are those things to you? Some of them, you may realise that, oh, it was irrelevant. Others like are, I really actually need that. Okay, now as those realisations happen, whether it’s what you do, when you’re not working, the past times, and the hobbies that you have, because you might have had to change them to something that is restricted to where you live, the four walls of where you live, rather than being able to go outside, if he had to go outside to do it. I think we’re having to reevaluate it, what the importance of these things are, because that’s for us as individuals. The other thing that happen, that is, is really acute, I find over the pandemic is relationships. Okay, so how was it? You know, I think what, I can’t remember what the statistic was in the US, but I think the number of divorces went through the roof. Okay, because you’re actually stuck with your partner or your family for a prolonged period of time in a restricted space. So in a lot of cases, it didn’t go so well. And in other cases, it went wonderfully. Okay. But another scenario could be, well, what if you were separated from your family? There are many people who have moved, they might have siblings, they might have parents, they may have their own kids in other countries, and they didn’t see them for a long period of time. Now, what does that do to the relationship? I mean, during COVID, I lost my wife for 10 months. And I suddenly, again, Yeah, lucky, you know. But she was many back in early sort of around March 2020. And then they close the borders in Vietnam, so she couldn’t return. Okay, so I had made it back to to a third country, which was Singapore. And she was on rehab, because it was a back operation, they were teaching her how to walk again. And, and so she was in the hotel across the road and just had to go in for to see the doctors and all of that to teach her stuff. And then, as things tightened in Singapore, they commandeered the hotel as a quarantine location and kicked her out of the hotel, to another hotel that happened three times. Also, since to learn how to walk again, these to take her out outside to walk there had to stop doing that she wasn’t allowed to go into the hospital because she, she’s an outpatient, she’s not allowed to do that. So she was stuck there for about four months before I managed to move her to her country of origin, which happens to be Switzerland. So she managed to get in there. So for it took me several months to get the right permits when they allow people with the right permits to return to Vietnam. So it took me 10 months to get back. And my daughter was at University at the time, and yet another country. So for for a long period of time, I had my daughter and my wife and two other countries and I was here with my with my son. And by the time I connected my son and my daughter again, we’ve got got us all back in the same country. They hadn’t seen each other for two years. Wow. Yeah. That’s pretty unusual. And I guess in that case, well, our whole idea of the relationship changes the whole idea. I mean, there’s resume. I remember we had a bunch of interns, because we’re big on internships. And our interns come from overseas. So we brought them over from overseas, and they will work in Ho Chi Minh City. And we used to take interns with a big cohort from Denmark. So we had about anything from about 10 to 15 of them at any point in time. And their government recall doubled. You know, they gave them advice, hey, come back home, come back to Denmark, okay. And they were raging, like other governments, Australia did the same. You know, they’re arranging flights to bring their country people back home. And we did have some weapons and some didn’t. But going back to the, to the interns, in this period of time, where some of them moved back, and some of them didn’t, there were there were some quarantines as well, because some of them haven’t got COVID. So they’re put into quarantine. And, and we started doing these zoom calls, to check in on people on a regular basis. And the thing that really hammered it home into me is one day, one session we were having, and in turn, turned around and said, these calls are my lifeline, do realise you were the first people outside of quarantine, that I’ve spoken to this week. You know, it’s, you know, things that we can’t imagine things that we might get from the history books, or, you know, our great great great grandma parents or whatever, who tell us them old stories of the hardships when they were young things that that we would think would never ever happen to anyone we would ever know, in this day and age, especially in the more developed worlds that we live in, can actually happen to us.

Gene Tunny  46:57

Very true. Very true.

Rick Yvanovich  46:59

Things will remain unusual.

Gene Tunny  47:01

Yes, Rick. So that was the second book. So you said so you first is business as unusual, then life is unusual. What’s the third one going to be?

Rick Yvanovich  47:09

Workers unusual?

Gene Tunny  47:11

Workers unusual? Got it.

Rick Yvanovich  47:12

I’m leaving that to last because the jury’s not really too sure where the dust will settle? Because it hasn’t settled yet. It really hasn’t settled

Gene Tunny  47:21

yet. Yeah, I agree with you on that. Now, before we wrap up, I just like to ask, What do you think of the key takeaways for organisations or for CEOs or, you know, managers reading business as unusual? What are you think of the major takeaways for them? Top two or three books. summarise it in that way, however many you think are the most important.

Rick Yvanovich  47:51

Yeah, I think it’s really around a core belief that I hold really dear, is, I believe that every one of us has the potential to be the architect of change. Now, we live by all these weird technological, and non technological transformations that are happening. And our task, our challenge is not just to keep up and exist, but to actively shape the path forward. Okay. And every single day, our actions, whether they’re big or small, shape our future, because our action is a choice we choose to do, or choose to not do. And therefore each one of us needs to remember, we are our own brand. And every single one of these choices, every single one of these decisions we make is part of the unique story that makes us human, that makes us us, or makes me me and makes you, okay, how we react, how we adapt, and how we innovate in the face of change will define not only your story, but your legacy. So that’s, that’s the background to it. So to reflect on the takeaways that I believe there in the book, because the book is it gives you a framework. So you can shape your life in any way that you wish. But I’ll give you a framework. And within that framework, you know, the framework uses the metaphor of a castle. And within the framework, I’m just hitting you with a shedload of tools. These are all the tools that I use myself. But a lot of the tools I use are Arthur’s synthesis and multiple other tools. So I just say here, all the tools are a bunch of tools, you know, yeah, five tools trommel find out which one resonates. So going back to your original question, you know, I want people to remember that We’re not just a participant in today’s ever changing world, we’re the architect. And as architects, we are shaping the course of our own lives, our own careers, and the world around us. So I encourage all of us as individuals. And if you, you know, if you have more impact, like you’re the business owner or a business leader, I encourage you all to embrace the change, but define it, rather than just adapt to it. So be that catalyst in this in your own business as unusual world.

Gene Tunny  50:39

Yeah, absolutely. And, yeah, expect the unusual, I think I mean, that’s what I would be. I would be saying, Yeah, you’ve got to get across the new technology, so you don’t get left behind. You’ve got to stay as alert and as healthy and fit as possible to be able to make sure you’re, you can play the game as best you can. Yeah. Because I think you’re right. I mean, I think we are in this business as unusual world, just the extraordinary amount of change we’ve been seeing. It’s absolutely. Breakfast been great. Any final thoughts before we conclude?

Rick Yvanovich  51:18

Yeah, I, I, of course, encourage the people to go out, go out and get the book.

Gene Tunny  51:27

Put a link in the show notes. Yeah.

Rick Yvanovich  51:30

And, but more important to that is, you know, change transformation starts with each of us. As individuals, it’s, it’s ourselves that has to decide to change, or not, okay. And as we change, we transform because that’s what transformation is, that’s changed, you can’t go back after you’ve changed and wonder what’s the caterpillar is a butterfly, it can’t become a caterpillar. Again, it has transformed, okay. And this is really important. And I think the journey is only beginning. So I’m really, really curious to hear about your journeys. So as as your listeners embrace this, they try it out. I really encourage them to, they’re going to let gene know, let me know, reach out to us. And tell us about your journey, because I’m sure they’re going to be absolutely fascinating.

Gene Tunny  52:21

Yeah, that’s, that’s good. That’s a good point recommend. I’d be interested. If you’re listening, and you’ve got thoughts on or how things have become unusual for you and how you’re responding that would be that would be very useful and hear to the extent that you are that you have adjusted, you’re adapting then. Yes. And some thoughts on that would be great. So yeah, Rick, I think that’s a really good spot to conclude. And I’d like to thank you for, for your time for your, your thoughts on businesses unusual. And for the book, which does Yeah, it. I think you’re onto something here with businesses unusual. And you’ve got some good, good tips and good tricks, good bits of advice in that that book. So good work on that. And I think yeah, I think the idea of doing a trilogy is terrific. And yeah, I learned a lot from the conversation learned about your experience in Vietnam, during the pandemic, and just how disruptive that was. And also, that’s the info about Google and AI with the flights and reducing the greenhouse gas emissions. I found that online and I’ll put a link in the show notes below. That was really, really neat. So, again, Rick Yvanovich, thanks so much for your time. I really enjoyed the conversation. Dean,

Rick Yvanovich  53:42

thank you, too. I’d like to express my gratitude for for allowing me on your podcast today. It’s it’s been a fascinating conversation, some great questions. I hope our listeners have enjoyed it as much as I have. And to all your listeners, all our listeners, I really appreciate your time and attention. And just like Gene, I look forward to hearing from some of you from learning from your experience, and perhaps giving us the opportunity to share more in depth future discussions. Thank you again, Gene, and to all our listeners for this wonderful exchange. Until next time, goodbye

Gene Tunny  54:22

rato 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 you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

55:09

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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 PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

How to improve housing affordability and why the Greedflation thesis is wrong w/ Simon Cowan, CIS – EP203

Host Gene Tunny and Simon Cowan from the Centre for Independent Studies discuss housing affordability and greedflation in the CIS’s Sydney HQ. They delve into recent articles written by Simon on these topics and explore the factors contributing to unaffordable housing (e.g. zoning and other supply restrictions) and why the greedflation thesis is wrong. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About this episode’s guest: Simon Cowan

Simon Cowan is Research Director at the CIS. He is a leading commentator on policy and politics, with a regular column in the Canberra Times newspaper, frequent interviews on Sky and the ABC, and multiple appearances before parliamentary committees discussing the budget, citizenship, taxation and health policy. He has written extensively on government spending and fiscal policy, with a specific focus on welfare and superannuation policy. He earlier work focused on government industry policy, defence and regulation.

His latest work includes Attitudes to a post-Covid Australia and Millennials and Super: the case for voluntary superannuation. Some of his other works include a co-authored report on pensions, a deep dive into the Universal Basic Income, and a 2012 piece arguing that Australia should acquire nuclear submarines from the Americans.

What’s covered in EP203

  • The problem with housing affordability. (4:56)
  • High property prices and housing affordability. (10:02)
  • Should we cap migration to improve housing affordability? (14:24)
  • The role of public/social housing. (19:12)
  • Shared equity schemes. (24:15)
  • Home ownership as a key milestone on the way to retirement. (29:09)
  • Local government regulations and housing affordability. (35:06)
  • The Greedflation hypothesis and why it’s wrong. (39:04)

Links relevant to the conversation

Simon’s Canberra Times articles on housing affordability and greedflation:

The Coalition can create generational voting change by tackling housing affordability – The Centre for Independent Studies 

‘Greedflation’ myth hides real causes of inflation – The Centre for Independent Studies 

Images from the Bill Leak room including a poem from Sir Les Patterson (i.e. Barry Humphries):

Sir Les with Bill Leak.jpg 

Sir Les’s poem about Bill Leak part 1.jpg 

Sir Les’s poem about Bill Leak part 2.jpg 

Past Economics Explored episode discussing wage-price spiral mentioned by Gene:

https://economicsexplored.com/2022/06/14/stagflation-be-alert-not-alarmed-ep143-transcript/

Transcript of Q&A session following Phil Lowe’s speech in Brisbane in July 2023 during which Gene asked the RBA Governor about Greedflation:

https://www.rba.gov.au/speeches/2023/sp-gov-2023-07-12-q-and-a-transcript.html

Transcript: How to improve housing affordability and why the Greedflation thesis is wrong w/ Simon Cowan, CIS – EP203

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. This was then looked at by a human, Tim Hughes from Adept Economics, to pick up the bits otters might have misheard. 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.

Thanks for tuning into the show. Today, I have the pleasure of catching up with my colleague at the Centre for Independent Studies, Simon Cowan. We’re in the CIS offices on Macquarie Street in Sydney. And we’re going to be chatting about some recent work that Simon’s done on housing affordability and greedflation, Simon, so good to catch up with you.

Simon Cowan  01:06

Yeah. Welcome to the Bill Leak Room here at the CIS, our little office here in Macquarie Street. It’s fantastic to have you here in our facilities with our totally real plants and our wall of photos.

Gene Tunny  01:19

Yeah, well, it’s great this room. So Bill Leak was a famous Australian cartoonist, and there’s a there’s actually a poem about Bill Leak from Les Patterson, one of Barry Humphries characters. Yeah, just it’s terrific. So I might put a link in the show notes. I’ll make sure I take a photo of that before I go. But yes, Simon, you’ve written some great pieces recently, they were both published in Canberra Times on housing affordability and greedflation both topical issues and I thought I’d be good if we could chat about those.

Simon Cowan 01:40

Yeah, for sure.

Gene Tunny 01:43

Your piece on housing affordability was in the Canberra Times on third of July 2023. “The Coalition can create generational voting change by tackling housing affordability.” I’d like to start off by asking you about the context of that piece because CIS Centre for Independent Studies, it’s a non-partisan Think Tank. The way it’s pitched, it’s pitched as how the Coalition can create generational voting change. Now I know this is this relates to some recent research. Could you tell us a bit about the context of that piece, please?

Simon Cowan  02:29

Yeah, sure. So one of my other colleagues, a man by the name of Matt Taylor who’s actually working out of our Canberra facilities, we’re stretching our tentacles across the country with Brisbane and Canberra and Sydney. He did some work that looked at the prevalence of centre right voting patterns amongst younger people, in particular, millennials and Gen Z. And right. And now in Australian politics, the Coalition vote is a proxy for for the centre right. And, you know, to the extent that the Coalition embodies what you might describe as classical Liberal values and policies, then they’re, you know a proxy of some sorts for classical Liberal voting patterns amongst younger people. And the concern that we had as an organisation and I think it’s been heightened by Matt’s research, is that it’s not just that we’re seeing, you know, that traditional voting pattern of younger voters voting left and older voters voting, right, but that each generation that comes into the electorate is more likely to vote for left wing parties, so not just Labour, but increasingly, the Greens. And for Gen Z, in particular, what we’re seeing is, they’re actually moving further left, compared to the average voter as they get older, which is an unusual pattern, both in Australia and globally. So millennials are moving to the right, they’re doing so at a much slower rate than previous generations. They’re starting from further left, Gen Z started from way further left than the millennials and are becoming more left wing. So the end result of this is that we’re seeing a roughly 65% of that younger cohort is voting for left wing parties, roughly equally Labour and the Greens and that the centre right is attracting for Gen Z in particular, as little as sort of 10% of the vote. Now, our issue isn’t so much for the Coalition’s political fortunes, I’m sure that that’s a concern for them. But for us, it’s to the extent that the Coalition is more likely to implement classical Liberal reforms than the Labour Party, which I think is a reasonable deduction. To the extent that’s true. The fact that young people have no interest in centre right politics and therefore classical Liberal ideas is a real concern of ours.

Gene Tunny  04:56

Okay. So is part of the reason that Gen Z has these left wing views to the extent they do, is that related in part to this issue of housing affordability, the fact that younger people aren’t able to purchase their own homes, to the same extent that previous generations, particularly baby boomers, and to a lesser extent, Gen. Gen X, were able to, is that part of the story?

Simon Cowan  05:24

I think that’s a very big part of the story and Matt’s now working on some more research that will look into that issue more, more specifically around what the actual triggers of that, that are. But I think there’s definitely a problem with millennials and Gen Z, in particular, around housing affordability. The issue isn’t just, and this is, it’s a very important issue. It’s not just that they can’t afford to buy a home, it’s that the prospects of them ever being able to afford to buy a home, and ever being able to move out of that cycle that that sort of rental cycles seems very remote to them. So, you know, they’re not just moving into the market later than their parents, for example, there’s a real fear amongst Gen Z in particular, that they won’t ever get into that point, that they’ll be basically trapped as renters for the rest of their lives. And a number of people have sort of made this observation in the past. If you’ve got nothing to conserve, there’s no reason to vote conservative.

Gene Tunny  06:19

Yeah. And what do you think of that concern Simon, do you think that’s a legitimate concern on their part?

Simon Cowan  06:23

I think in part, it certainly is. There are some people who will be rentals forever, probably more so than was true in previous generations. I mean, if you look at the sort of Baby Boomer and then the previous generation to them as well, almost 95% of that generation ended up buying home at some point during their their lifecycle, once you get into retirement, you see that almost everyone, there’s sort of a core of 10 to 15% of people who who don’t own a home, in retirement, most of the current cycle of retirees own their home, the vast majority of them own it without a mortgage. So far the trend is increasingly people coming into retirement with mortgages, rather than having paid off that during their working life, I think we’ll also see, though, a generation of people, a larger percentage of them will be renting for far longer. And the issue there is, at least in part around the enormous difficulty of saving enough money to get into that first rung of the housing market. And also, you know, those affordable entry level houses are now, so much further away from the CBD of the city, that if you’re someone who works in, you know, if you’re working in the city, it’s very difficult for you to have a young family and commute from two and a half hours away each day. And that option, like if you’re gonna buy a home, you have to, you know, you’re now looking at that two hour commute each way, that becomes a very difficult prospect for a lot of people.

Gene Tunny  07:53

So you’re talking about in Sydney, there’ll be people who are doing that in Sydney.

Simon Cowan  07:57

Yeah, absolutely, so if you go back a couple generations a long commute was was sort of from what is now the sort of almost not necessarily the inner ring of suburbs, but there was a sort of middle density ring of suburbs around, you know, the Canterburys, the Bankstowns, etc, that were all, you know, still 30 or 40 minutes commute from the city, but the prices in those suburbs are now well beyond the entry level, you’ve got to go another 20 kilometres from the CBD before you start to get to places where people can afford to buy houses in that entry level of, you know, even as far as sort of Blacktown and places like that you’re seeing median house price is well over a million dollars. So that becomes very difficult and you end up with a situation like we’ve seen in London, for example and other places, too, as far as I’m aware, people who do essential jobs that are not particularly well paid, you know, your teachers and your nurses in inner city areas can’t afford to live within commuting distance of the places where they work. And that then becomes a real problem for society. If you can’t get teachers for your school, because they can’t live within two hours of your school, you’ve got no teachers.

Gene Tunny  09:10

Yeah, this is the key worker problem isn’t it that they talk about, you know, the key workers can’t find affordable places to live…

Simon Cowan  09:18

There’s always a slight risk that some of this is overstated, right? It’s not it’s not an absolute catastrophe. But things have changed enough that it’s having a significant impact on voting patterns and that’s probably where we’re at now. If things continue to get worse, if the trends that we’re seeing of you know, systemic underdevelopment, particularly in the parts of Sydney where people want to live. If those trends continue, then things will definitely get far worse. Right now we’ve got a problem, not a catastrophe. But there’s a real problem and it’s not yet clear to me that particularly the centre right, there’s been a sufficient level of engagement with this problem, that they’re willing to look at solutions that might actually work.

Gene Tunny  10:02

Okay, okay. Australia does have high property prices relative to median income, we must be one of the highest in the world are we are, you know, particularly for Sydney and Melbourne that I’ve seen some of those ratios, I might dig them up and put them in the show notes. But yeah…

Simon Cowan  10:19

Yeah we’re top, so regularly, so Sydney, Melbourne in particular have been regularly in the top 10 least affordable cities in the world, at various points other Australian cities have snuck in there. So I think at one point, Perth managed to make its way in at the height of the mining boom that it was, you know, one of the most unaffordable cities, so New Zealand has a similar problem, as well, around that, that issue of affordability comparable to us. And then I mean, you’ve got a lot of American cities, and then your Tokyos and Londons as well.

Gene Tunny  10:49

Yeah. But what’s extraordinary is like, based on what you were just saying then, it’s not just, you know, there are some exclusive suburbs in Sydney here say out at Double Bay or out in the Eastern suburbs, and you’ve got places worth 10s of millions of dollars, but this is, you’re paying a lot of money just for property in, in what was traditionally a working class area. I mean, over a million dollars, whatever your…

Simon Cowan  11:12

Yeah, absolutely and places like you know, the Northern Beaches, suburbs, which are a fair way from Sydney. And, and we’re never I mean, they’re not they weren’t poor areas, by any means, right. But they weren’t, they weren’t the areas that the elite and rich of Sydney lived in. But now, many of the homes in that area are way outside the price range for a young family, particularly if you’re in a situation where one of your partners isn’t able to work full time. Or if someone’s in a job where you know, they’re not in a professional capacity and being paid six figure salary, it’s really hard for them. And the thing that becomes even harder, it’s largely about getting over that that initial hurdle of having to save, you know, you need 20% deposit for a million dollar home, you got to save $200,000 of after tax income. When you know we’ve got cost of living spiralling out of control at the moment, we’ve got, you know, 11% of your income’s being diverted into retirement savings. And you’ve got to somehow find $200,000 plus of post tax income. It’s yeah, I mean, it’s a real challenge.

Gene Tunny  12:13

Yeah, yeah. And what do you think’s caused this housing affordability problem we have in Australia Simon?

Simon Cowan  12:19

So the evidence on this is actually really clear, despite the fact that a lot of people really didn’t want to accept that this was true. It is abundantly clear from the work that my colleague Peter Tulip, and others have done that the issue is overwhelmingly restrictions on supply. So people want to say that it’s about demand, it’s about immigrants, it’s about negative gearing, capital gains, they have very minor impacts on price what’s having by far the biggest impact on price is the restrictions on bringing new properties to market, on redeveloping existing properties, it’s zoning and taxes and government restrictions that are aimed to stop people developing, and in Sydney, in particular, and a number of suburbs around the city. But also on the major arterial train lines, you’ve got councils that are simply refusing to allow development. And my colleague has highlighted some of them have massively undershot housing targets. But we see time and time again, things like heritage restrictions and zoning restrictions. And, and you know, even you can’t build high density housing around train lines. If you can’t build high density train on train lines, where are you going to build it? And the answer is, well, for them, at least build it way out in Western Sydney, don’t put it anywhere near where I live. And that attitude is pervasive in the eastern suburbs, in inner West and where I’m currently based in the North Shore, some of the councils out there are actively and very hostile to development of any kind.

Gene Tunny  13:52

Right. Okay. On immigration, do you think that what doesn’t have a major impact on housing affordability? Because that’s one of the things that people are concerned about, because we’ve had a record level of net overseas migration in Australia of 400,000. And there are concerns that, like, it’s just, we should be slowing that down while we let the housing stock catch up, on infrastructure catch up. Do you have any thoughts on that level of immigration we have at the moment?

Simon Cowan  14:24

Yes so my take on this, and I’ll be the first to admit there is, there are differing views on classical liberal amounts of immigration, but for me, personally, I would have almost uncapped skilled migration, I would be happy to take as many skilled migrants as we can get, because I think the economic benefits of skilled migration outweigh the costs. Now, the flip side of that is that we have to provide sufficient infrastructure and build sufficient houses to have those people, give those people somewhere to live. But I think you go, you’ve got it completely backwards if your approach is we’re going to stop migration because we can’t build fast enough when we could build faster, the roadblock, the handbrake on house prices is coming from that refusal to allow development, trying to take some of the pressure off so that councils don’t have to fix their obvious contribution to this seems like just the wrong way to go about it to me, I’d rather have more great migrants and way more housing, and I think you can do it that way. And the economic benefits of doing that way outweigh the costs of it. One of my other colleagues a few years ago, did some work around the sort of, what are the outcomes for skilled migrants in Australia? On average skilled migrants are they earn a slightly higher income, they pay higher taxes, they’re more likely to own a home, they’re more likely to be married, they’re more likely to have kids than the average person. So there’s a there’s a benefit to society beyond just the economic benefit of having more skilled migrants. There’s an issue around housing supply, I would fix the issue around housing supply rather than trying to create alternatives to remove some of that pressure.

Gene Tunny  16:02

Yeah, gotcha. Okay. In your article in the Canberra Times, you wrote that Labour’s signature housing affordability policies have huge problems. So Labour being the federal Labour government led by Anthony Albanese, the Prime Minister, first locking future generations into renting their homes from union-controlled super funds. What’s going on there, Simon? What’s, how to, how would the labour government’s policies lead to that outcome? And what’s the, what’s your concern there?

Simon Cowan  16:40

Yeah, so for long time, Labour was convinced that the issue was, was greedy landlords and negative gearing and capital gains. And Gene, you did some fantastic work for us on that issue, in fact, I think you did a an analysis, not necessarily for CIS, but previously that looked at the impact that those capital gains and negative gearing policies had on housing affordability and found it was what like 4%, almost nothing. Yeah. So for a long time, Labour believed that that was the issue, and then started to come around to thinking about this as a supply side problem. But the solutions that they have, they have two main supply side initiatives. And there’s been some more movement more recently. So this is at least as positive, but their main initiatives were: one they were going to encourage institutional superannuation investors to build residential properties for rent. So that meant in practice, I think it meant that they would incentivize the large super funds, which are overwhelmingly controlled, they’re overwhelmingly industry super funds, which have a 50% union 50% Business control. But overwhelmingly, those funds would be then encouraged, incentivized, to invest in and build rental properties for lease. And the other policy was around building a whole bunch more public and social housing. So rather than allowing, having, they’ve identified the right market block, but instead of removing that block and allowing the market to function, their solution is how do we use government incentives and government money to build additional supply? It just seems extraordinary to me that you would create a situation where individuals couldn’t use their own superannuation money to build their own home, but their super fund could use their super money to build a home for them to rent. And that just I mean, one of the reasons why this policy, I think, has been dis-emphasised by Labour is that there’s almost no one who actually wants that outcome. Super funds don’t want to do it, because they’re seeing the the noises around rent controls and increasing tenant rights and think this is a bad investment for my Super fund. And people are like, well why would I want to rent from my super fund with my money? Why can’t I just use my money to buy my own home? So I think that that policy has just got so many flaws to it, that even Labour’s now started to sort of move away from that.

Gene Tunny  19:07

Ok so they’ve moved away from that, but they’ve, they’re investing more in social housing and it sounds like well, reading your article, you’ve got concerns about social housing as the solution, would you be able to go into that please?

Simon Cowan  19:21

Yeah, you’re gonna get me started on talking about social housing. So look, there is a role for public and social housing, but it’s not the role that the government keeps pushing for it, right. So social housing is very important for people who are temporarily homeless, particularly people say who are fleeing domestic violence, they need emergency accommodation in the short term, and they don’t necessarily have access to funds that would allow them to rent a property go through, you know, the hoops that you need to go through to get a rental property. So you’ve got, you know, people who are in, fleeing violence you’ve got people say, who have, you know, sort of sickness or mental illness issues that need accommodation, you’ve got disability support accommodation, those, those are completely appropriate uses of social and public housing. Now, the difference between social and public housing, public housing is government funded social housing is funded by not for profits. What the government is talking about, though, is providing long term government funded accommodation to people. Basically, along the sort of a line you’re seeing in Britain, where you have a council house for decades, and that’s your home and you don’t own it, you are given it by the government. The problem with that is that it’s a terribly inefficient way of providing support for people who need rental accommodation and are on low income. So when you compare, providing a government house to providing, say, rent assistance through Social Security, it’s way more efficient to provide social security. And it’s way more equitable. Because what you have with government housing, as we have here, there’s a 10 year waiting list. And often, people don’t move on that waiting list at all. So you have people who get they spend years on a waiting list, waiting for free housing, they’re disincentivized to take actions that would get them off that list, especially if they’ve got to the top because if they go back on the list, they go at the bottom, you have people who are living in these public houses who are disincentivized, from getting out of public housing, because if they again, if they you know, they take a job that makes them eligible for public housing, and they lose that job in six months, they go to the bottom of the 10 year waiting list. So and then you also have the the way that rent is structured in public housing, where it’s a percentage of income rather than a fixed amount. So the more money you earn, it’s an effective marginal tax rate of 25%, you lose 25 cents of each dollar extra dollar you earn to your public house rent, rather than the rent being a certain fixed amount a month.

Gene Tunny  21:59

I did not know that. Is that how they do it in New South Wales?

Simon Cowan 22:02

Yeah, yeah, well look I…

Gene Tunny 22:03

I’ll have to check what they do in Queensland, other states…

Simon Cowan  22:06

Social housing again I mean it’s all different, but one of our recommendations, we looked at this when they were putting up the last sort of big round of public housing. And one of the things is that, and it’s designed to make it more affordable, it’s 20% of whatever 25% of whatever your income is. So if you’re on, you know, if you’re on Newstart, then 25% of that’s very low. But the problem is when you then start working and earning money, you’ve got an another marginal tax rate from your accommodation.

Gene Tunny  22:32

Yeah. And without, I don’t want to stig, stigmatise or be critical of anyone who’s who’s living in social housing, but because, you know, obviously, there are people are doing it tough and they’re trying to do the best they can. There are a lot of social problems with social housing is that right?

Simon Cowan  22:49

Yeah especially in the, and again, this has experienced the United Kingdom in particular, that social housing estates, particularly where a lot of public housing is clustered together, you tend to find a lot of antisocial behaviour, you find a lot of other problems, there’s a higher rate of crime. And so what you have is a situation where it’s not particularly pleasant for, for people living in social housing but it’s also, you know, a big disincentive for people to live near social housing. And then you have the effect where if there is a cluster of public housing in a particular place that affects property values that people who live around that by so no one wants, public housing, especially not clusters of public housing, anywhere in their suburb. Yet again, you know, we have this disincentive for development, people want the public housing somewhere else. And then in Sydney, we had a particular issue where, and this is largely a legacy issue, we had public housing that was worth just an extraordinary amount of money by virtue of where it was, you know, in The Rocks, which it’s in the, right in the centre of Sydney with views of the harbour. There’s public housing that had been there for 100 and something years, and each of those houses was worth millions of dollars. So you know, you had this this issue of well, do we, we’re giving away this public housing to someone for basically no money, why don’t we sell their public housing and build, you know, a lot more with with the money that it came from? So you’ve got a whole bunch of problems. I mean, fundamentally, I think the issue with this is if, if the issue that you’re looking at is housing affordability, rather than the need for temporary accommodation or something else, if the issue is housing affordability, you’re always going to be better off allowing the market to develop property than trying to do it by government. And there’s, and there’s a filtering effect of adding supply at any point in the market reduces prices of at every point in the market. Because if you think about this logically, even if you put the supply right at the very top end, the people who are buying those $10 million apartments are selling their $8 million apartments and the the effect of that sort of filters down all the way through the market, so adding supply anywhere, increases supply everywhere.

Gene Tunny  25:06

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  25:41

Now back to the show.

And what about this this idea of Shared Equity? Labour or the government has a scheme a Shared Equity scheme, there’s concerns about how wide a coverage it is? I mean, it seems like small numbers relative to the total, total need out there. But what do you think of these Shared Equity schemes where the government effectively owns part of your property don’t they? Would you be able to take us through that, please?

Simon Cowan  26:09

Yeah so, there’s a I mean, so part of the problem with a lot of these schemes is that they’re designed to be so small, they can’t have an impact in the sort of aggregate level, because the number of caps are limited. And whenever you see a government policy like this, and it’s, it’s limited to a small number of people, you know, that it’s not a good deal for the taxpayers as a general rule. But so you do have that situation where the government would, in some instances, it’d be providing a portion of the deposit. So that the individual who meets a certain criteria jumps through the right hoops in order to be eligible for the scheme can can apply for a loan and basically buy a property with as little as sort of 5% equity. Shared Equity schemes don’t have a fantastic hit track record in Australia. And it’s not so much around the issue of the deposits. But one of the things that we looked at at the other end of the market was was how you could get into equity release schemes for pensioners. So you’ve got an issue with a percentage about sort of one in five people in the age pension are very, very cash poor and very, very asset rich, and most of them, the main asset they have is property. So when we looked at this 5% or so of people who were on the full rate of the aged pension had more than one and a half million dollars in home equity. But what they didn’t have was an ability to release any of that equity in order to fund their lifestyle. So my interest in in Shared Equity comes much more. And again, there’s, there’s a much bigger tradition of this in the UK, where banks and financial institutions will take over a portion of equity for your home and use that to provide an income or a lump sum to people. So it’s not that Shared Equity itself is a bad idea, where it becomes a bad idea where you’ve got government effectively taking the risk for marginal borrowers. And, you know, people who can’t actually afford to borrow the loans that they’re taking, not just they can’t afford the deposit, but they can’t actually afford the loan. And what we saw in America in the lead up to the financial crisis was exactly these sorts of schemes, schemes where the government tried to manipulate the criteria for eligibility for home loans to effectively give a certain group of people a greater chance of buying a home. And the end result of any of that sort of manipulation around loans was the potential for government to bear, the government to bear losses in relation to home equity. So, you know, it’s a small scheme, it won’t have a big impact for that reason, but it does expose the government to risk of default, which seems like a bad way of doing things.

Gene Tunny  28:52

One thing I should ask Simon is, we’re presuming that the ideal is that people end up in their own home by the time that they’ve retired, would you be able to expand on why that is such an important thing? Or why that’s such a desirable policy goal, please?

Simon Cowan  29:09

Yeah, sure. I’d bring it forward in time. I actually think that, you know, there’s some sort of key milestones in people’s lives, you get married, and then you have kids and buying a home’s one of those milestones and ideally, you know, the ideal situation, I think, is you want to be having that in the middle of those two things. So you know, you you get married and you buy a home together and you have kids and you raise kids in your own home. And that’s sort of the sort of model of of family life that was exceptionally prevalent in Australia and I think it’s, it’s one of those sort of, again, you know, talk about conservatives and for a second, but you know, when you’re, you’re married with kids in your own home, you’ve got something to conserve, you’ve got a stake in society, you’ve got, you know, roots and values there. From a retirement perspective, though, it’s, it’s even more important because Australia’s retirements system was built around a couple of specific ideas. And so one of those is voluntary savings, which is or involuntary savings, superannuation, but another, another one is the age pension, obviously government funded income. But the biggest one in Australia in particular was around the idea that you would own your own home. So the Australian retirement system is actually modelled around people owning a home in retirement without a mortgage. And that takes care of a lot of their basic needs. And what we’ve seen consistently and you know, what we see now in particular, the group of people who are struggling the most in retirement, are overwhelmingly people who don’t have voluntary savings, they don’t have any superannuation left, but they also don’t own their home. And they’re the people who are most risk of genuine poverty in retirement, it’s if you don’t own your home, and you’re dependent on the age pension, and you’re renting in old age, overwhelmingly, that’s a group of people who are right at the bottom in terms of income and living standards. And so, you know, whatever our retirement system is built around this idea that you’re going to own your own home in retirement and own it without a mortgage, then the system has to actually facilitate people being able to do that. And right now we’re starting to see that disconnect happening. More and more people are entering retirement with mortgages. Over time, you’ll see more and more people entering retirement who don’t have a home at all.

Gene Tunny  31:22

Yeah. And what’s really worrying is you’ve got all of these people who are then at risk of homelessness. And you know, people living living in cars or worst case…

Simon Cowan  31:34

Yeah, so one of the biggest, one of the biggest demographics of homelessness, and aside from, and this is sort of the broader definition of homelessness, right like because the the you think traditionally people who live on the streets, are far more likely to be sort of middle aged men, but one of the biggest groups of the biggest demographics of homelessness is actually older single women. And overwhelmingly, that’s the issue. It’s really, you know, they’re dependent on unemployment benefits or pensions, but they don’t own a home. They may have been married, their husbands died, they don’t own their home, they’ve got no income. That’s the group that’s most at risk of poverty and homelessness, was one of them at least. And it’s a big issue.

Gene Tunny  32:12

Yeah, yeah. Okay. What about tapping into your own Super? I think you were alluding to this before. What are your thoughts on that, Simon?

Simon Cowan  32:21

So one of my colleagues that sort of looks at that issue, and his view is that what you should use super for is guaranteeing a loan, rather than necessarily being able to tap into it. One of the issues with allowing people to take money from Super is that it is effectively just increasing demand. So you do have a, you do have a slight demographic shift, in terms of who is able to buy properties, if you can, you know, you can withdraw from Super to buy your own home, but you can’t withdraw from Super for an investment property, you do slightly shift who owns property at that point, just in terms of the simple should you be able to take money on your super to buy own home? Yes, because it’s your money. It’s your money, it’s your savings, you’d be better off in retirement, if you could do it, will it solve the problem that it’s trying to solve? Probably not without something else attached to it. And that really has to be around sort of that supply side reform. And, and it doesn’t have to be, I mean talk about supply side reform, it doesn’t have to be the cratering of house prices, what it needs to be is more flexibility in what people can do with their own property. And when you increase flexibility for owners, and you increase flexibility for people who want to buy, you have a more dynamic and more effective and more efficient market, and that’s better for everyone. It’s not just the case that one group has to win and one group has to lose.

Gene Tunny  33:43

Yeah. Now with, with what the federal government is proposing to do is one positive thing that they’re proposing around targets for, or they’re trying to incentivize the states to encourage development, is that, am I geting that right?

Simon Cowan  33:59

Yes, so this is one of our recommendations, it’s been picked up. And it’s it’s got a, you know, it’s a policy tradition that’s been around for a long time, which is the federal government has all the money, but not necessarily all the levers. So they incentivize states to make good policy by, you know, giving them either withholding grants from them, if they don’t do the right thing, or giving them extra money, if they do, and in this instance, they’re talking about, you know, states that meet housing targets should be able to access additional government money. And that makes sense, right? If you’re building more houses, more money for infrastructure is probably right. But if there’s a challenge, it’s that a lot of the levers and the need for incentive isn’t even necessarily at the state government level. It’s actually the local government level. And so, you know, we’ve seen a number of states, I think, both in Victoria and New South Wales that appreciate the issue around supply and housing affordability, but they’ve been unwilling to impose the requirements on local government level, where all the incentives work the other way. So, we think it’s a good policy. We think it’s something that we’ve recommended, but it won’t be as straightforward perhaps as it seems.

Gene Tunny  35:06

Yeah, you’re right about that. I mean, a lot of the problems are at that local government level. So in Queensland where I’m from, some of the places where we’ve been able to get the high density, where we’ve been able to get more people in, it’s, it’s areas that the state government zone priority development areas, so formerly light industrial areas around West End or, or Newstead so the state government’s been trying to do its best but the Brisbane City Council goes and bans town, townhouses in you know, a lot of suburbs, there’s all these character, all these character protection, and anytime someone…

Simon Cowan  35:39

Yeah, well heritage is increasingly become, basically an anti development scam, unfortunately. And you can look on Twitter and you can find fantastic examples of things that are heritage listed. Like there was a, there’s a heritage listed electrical substations and heritage listed broken fences, and it’s like, rusting machinery, heritage listed car parks, I mean, there’s not actually any historical value in a lot of this stuff. What it is, though, it’s a valuable as a foil or as a stop to development.

Gene Tunny  36:11

And it seems to be a lot of grounds for people to oppose developments, whether it’s, ah there’s, there won’t be enough car parking, there won’t, you know, it’ll affect local traffic and there’s all sorts of grounds for objection. So yeah, absolutely. agree there.

Simon Cowan  36:24

I tell you what’s interesting, just to leave this point, I think is in New Zealand, what we saw was that they basically changed the zoning rules that allowed you to have medium density as a right, so that you didn’t actually need Council permission to go up to sort of three or four storeys from, from a freestanding dwelling. And that resulted in a massive increase in, in the sort of developments that would be allowed that council used to say no to, and a reduction in relative prices in Auckland compared to Christchurch and elsewhere. I am reliably informed, however, that, that initiatives towards housing affordability in New Zealand are now trending in the other way, in the same way they are here, unfortunately. But it was a really good example of a sort of natural experiment. What happens if you change the zoning rules? So it turns out more supply, lower prices.

Gene Tunny  37:11

Okay, yeah. But I’d be mean to have a closer look at that. Because I know there are some, there’s a bit of debate about those data, but I’m just not familiar with them enough. But I want to come back to that. I’ve read about that in the past and mentioned it. I just know that the like everything there ends up being a debate on it. But I agree. I think that would be what I expected. If they did that. I would expect to see that. And if it didn’t happen, then something else must have happened to have stopped that. I guess Simon I think we’ve had a great chat about your article on housing affordability. Was there anything else in that article or any other thoughts you had on housing affordable?

Simon Cowan  37:49

I’ve got a lot of thoughts on housing affordability, but, but I have a lot of thoughts on a lot of things.

Gene Tunny  37:54

Okay, well, maybe I’ll ask you, in the last 10 minutes or so about greedflation.

Simon Cowan

Yes greedflation!

Gene Tunny

So yeah, this became, you know, this has been topical because of our friends at The Australia Institute have been very prominent promoting this view that inflation is due to greedy corporations. And I ended up asking Phil Lowe, about this, I asked our Reserve Bank governor about this at the lunch he he spoke at in Brisbane, and I asked, well, what’s your, what are your thoughts on this? And, and Phil Lowe said, well we looked at it and we don’t really think it’s a it’s really a reasonable hypothesis. And you’ve written something similar, or two, on greedflation, you’ve, you’ve said if, well, this is in an article in Canberra Times 12th of August 2023, “Greedflation myth hides real causes of inflation.” So Simon, could I ask you, what are those real causes and why do you think this greedflation hypothesis, it’s a myth?

Simon Cowan  39:00

Yeah sure, so let’s, let’s start with what greedflation is. Greedflation is the idea that the cause of our current cost of living crisis across the western world, is that corporations, collectively, and spontaneously decided to increase profit margins, and take additional money from, from consumers somehow. You know, the best explanation that I’ve seen for this, the best explanation, the only actual causality that I’ve ever seen someone try and say is, oh, there was supply side shocks as a result of the pandemic and that gave companies the ability to change the prices and so they push the prices up massively. Now, internally, I don’t think that’s actually consistent as an argument because if, support, if the cost of supply went up, then profit margins would go down, not up. But I don’t think any of this is actually about what causes inflation because what caused the bout of inflation is actually really clear. During the pandemic, particularly during 2021, across the western world, governments and central banks massively over stimulated the economy. In Australia, we saw an enormous increase in government spending in the tune of hundreds of billions of dollars, we saw a massive stimulus from the RBI in terms of basically creating money, we saw that across the western world, huge deficits, massive stimulus. Now, in 2020, you could argue that that stimulus was needed. And there was this significant shock as a result of the pandemic and significant uncertainty. By the second half of 2021, though, we had most of those variables under control, and governments kept spending and Reserve Banks kept printing money. And the result of that, as it has been, every time this has happened across history, was a massive surge in demand and as a result of that a surge in inflation. Now, the idea of greedflation, greedflation is actually measuring a real thing, there was an uptick in corporate profits, that came from, it wasn’t the cause of, it came from that stimulus, that massive increase in demand. It’s a simple supply and demand issue. There was a massive stimulus in demand, supply is limited to a certain extent, maximum capacity of the economy is certain amount once you go past that, it’s inflation, and that’s what happened. That’s what happened in Australia and Britain and America and Europe, over that period of time, massive increase in demand. And the reason why, you know it’s an increase in demand, and not an increase in costs of supply, is the corporate profits went up. And what we’ve seen in recent times is corporate profits have gone down, as inflation has come down. Why? Because across the western world, governments have been tightening budgets and reserve banks have been increasing interest rates, in other words, reducing demand.

Gene Tunny  41:58

Yeah, yeah. I think that’s, that’s, yeah that’s good. Simon. I mean, I, I largely agree. And I think when I looked at this in a previous episode, I, I talked about a study from Chris Murphy. So Chris, has done modelling of this and he came to that view that it’s because of the huge stimulus…

Simon Cowan  42:18

Yeah I think he predicted it was sort of six or 7% inflation and got pretty close to where it actually landed in Australia for that survey looked pretty good. But I mean, the bigger picture issue here, there’s two really important points coming from this greedflation thing. One of the reasons why the greedflation hypothesis is is so popular or being pushed so hard, is connected to this idea of of wages, and who should be responsible for paying for the cost of bringing inflation under control. So if you can argue truthfully, or realistically or correctly or not, that it’s not workers, and it’s not, you know, ordinary people who are responsible for inflation, therefore, you can’t restrict wages, and your government should be providing cost of living support through their budgets, what you’re trying to do is actually shift the incidence of who has to pay for the cost of getting inflation under control. But it’s such a dangerous thing to do. Because what we know is that the thing that will make inflation enduring, and the thing that will cause the biggest problems if inflation is translated into wage expectations, it creates a cycle that makes it exceptionally hard to break. And the unions and to an extent the government are trying as hard as they can to put in put forward this idea that wages should at a minimum keep pace with inflation. And ultimately, that’s a very dangerous sentiment, in my view.

Gene Tunny  43:49

This is the concern about the wage price spiral. So yeah, yeah, I’ve looked at that in a previous episode. So I might, I might link to that. Yes. So you’ve written in your article on greedflation. “The dissidents seek to de emphasise monetary policy, especially the role of monetary of managing inflation in favour of a greater role for fiscal policy and an equal focus on maintaining full employment.” So you, you see this, this greedflation view, you’re, you’re worried about it because it could lead to really bad policy outcomes in your view?

Simon Cowan  44:31

Yeah I think we’re seeing a shift already. And it’s been coming for a little while, I think, you know, we had a period of time where there was a fairly clear settlement, particularly Australia and macro economic management stability issues were almost exclusively a domain of of monetary policy, and then micro-economic efficiency issues and supply side concerns were the domain of fiscal policy. And the problem with that is that that doesn’t really allow a progressive government that wants to, to, you know, put its finger on the scales in various places to use macro economic measures as a rationale for changing government spending priorities. And so there’s this shift. You can see in America, it’s not just, just here, but away from monetary policy being mechanism for micro, macro economic stability towards fiscal policy being responsible for for huge components of economic well being. And it fits very clearly, I think into what the treasurer has been saying about the role or the return of government to more central position in in determining the direction of economic forces and so greedflation, if you take it away from that over stimulus point and bring it back towards a discussion about employment and wages. It allows you to centralise government in that decision making process again. And it was so hard for us to get past that first time.

Gene Tunny  45:58

Yeah. What are the greedflation, people arguing for greedflation, what are they actually, what would they be suggesting price controls or something? Who really…

Simon Cowan  46:07

Yeah, price controls and tax increases and ,there’s a was a retribution component in some respects. But it’s also this idea that, you know, workers weren’t responsible for this. Therefore, they shouldn’t have to bear the costs of it. And I mean, from a, from a moral perspective, that that sounds right. I mean, it’s not it’s not instinctively wrong, the problem is from an economic perspective, the argument they’re basing that on doesn’t make any sense.

Gene Tunny  46:37

Yeah. Yeah. And particularly, and this is the point Phil Lowe made in response to my question, I might, I’ll put a link in the show notes regarding that, because I had a look at some of the data he was talking about. You don’t see this big spike in the profit share of national income other than in mining, you see it in mining because they’ve had a big terms of trade boom. But you don’t really see it elsewhere in the economy. There’s a little bit but it’s not huge. So it’s hard to see how it supports his greedflation hypothesis. I think that’s a fair point. And I like your point about the lack of a causal mechanism, because, you know, people like the Australian Institute people, what they’ve done is that they’ve shown or they can demonstrate they do some decomposition of the GDP deflator. And they argue that it’s largely associated with, with profits rather than wages. Now, that’s a nice statistical calculation, but it’s just they’re showing a correlation. They’re not necessarily proving any causation, which I think’s your point. Yeah,

Simon Cowan  47:40

Yeah, cool, but far more fundamentally, right? What is inflation? Inflation is an increase in prices. If, and it can only come from from two places, right? It either comes from an increase in costs, or it comes from an increase in in profit share. Now, either it’s come from an increase in costs. That’s a supply side driven inflation. And we’ve seen some of that during the pandemic, particularly around the energy costs. But what they’ve effectively triumphantly discovered is that inflation is an increase in prices, doesn’t say anything about what causes that increase in prices. And you often see, I mean, because unions, I think, unions think this way, because this is how unions work in the sense that everyone gets together and they make a sort of centralised decision. And that then flows outwards, they assume that their opposition works the same way. There is no business or collective sort of companies that can decide what the profit level is like they can’t, there is no mechanism by which you can actually do that. So what we’re seeing is that that sort of accumulation of literally 10s of 1000s of individual decisions in individual markets by individual companies, there’s no, there’s no overarching sort of business sector that makes decisions. It’s just a reflection of what’s happening in the market. And that’s why I mean, it’s the biggest reason why this doesn’t work. Like if, if you wanted companies to reduce profits to cut inflation. How would you actually go about doing that?

Gene Tunny  49:15

Yeah, I largely agree. Now, you’re not saying that, I mean, would you recognise that there are some areas of the economy where there may be excessive concentration or or we do need to be conscious of abuses of market power. Do you have any thoughts on that? Like so…

Simon Cowan  49:31

Yeah, I mean, I have some thoughts on that. I do have a lot of fairly uncharitable thoughts about competition policy for what that’s worth. I do think there are issues around efficiency within markets, and that is a problem. But it’s not at all clear to me that any of the people who are pushing the greedflation agenda, have any idea how to make markets more efficient. And none of their solutions would make markets more efficient or resolve any of those issues. So I I’m less convinced that that’s a solution to this problem. But what we have seen, I think, is over the last sort of 30 or 40 years, as you know, international trade has increased enormously as the sort of tyranny of distance, you know, internet, the ability of markets to sort of reflect international trends, competition has become enormously increased in a number of different markets. So the fact that it’s not immediately visible in Australia, because you can only see the Australian companies doesn’t mean that there’s not a whole bunch of potential competition that could arise there. So, but I mean, I think competition is important, and it’s not as efficient as it could be. But and I’d be very much in favour of making it more efficient. But I don’t know you make competition better or more efficient with more government?

Gene Tunny  50:47

Yeah. Oh, yeah. Yeah, we might have to come back to that in a future episode. I just thought of it because I know there’s a lot of talk lately about Qantas. And how close Qantas is to the government. And the government is making decisions in favour of Qantas like not letting Qatar Airways take a route into Australia. And at the same time, we’ve got Qantas coming out in favour of a policy position advanced by the government on the Voice, and it’s given Anthony Albanese, some chairmanship lounge membership.

Simon Cowan  51:17

Yeah well so I actually looked at this issue in the past too, and this is a really important thing, it’s what it comes down to is what the future direction of the economy is. So there’s, there’s a view where you say, you know, it’s big business and big union and big government, they all get together, and they do what they think is in the best interest of the country. Or there’s a model where you say, consumers should be sovereign, and they should make choices and the market reflects whatever people decide to buy with their money. And what we’re seeing is so many more people coming out in favour of that first view, the idea that, you know, the benevolent elites will come and decide what’s best for everyone and that Qantas and, you know, the ACTU and Jim Chalmers can get together in a room and decide what the priorities for the economy should be. And I mean, I fundamentally reject that view. But I think more importantly, my vision is not a business-centric one, it’s a consumer-centric one. Markets are consumer democracy. It’s not about what’s best for business. It’s what about what’s best for people and consumers?

Gene Tunny  52:17

Absolutely. I fully agree. Simon Cowan it’s been terrific. I’m so glad to have caught up with you here in Sydney at CIS’s offices. So thanks again for your thoughts and for your hospitality today.

Simon Cowan  52:30

Appreciate it. Thanks for your time.

Gene Tunny  52:33

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.

53:20

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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 PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

Australia’s Net Zero transition: successes & challenges w/ Andrew Murdoch, Arche Energy – EP202

A conversation regarding the transition to net zero greenhouse gas emissions in Australia, with Andrew Murdoch, the Managing Director of Arche Energy. Andrew shares his positive outlook and realistic insights into the challenges of integrating renewable energy into the electricity grid. He also advocates for being open to a range of options, including nuclear power and carbon capture and storage.
Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored.

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

About this episode’s guest: Andrew Murdoch

Andrew Murdoch is the Founder and Managing Director of Arche Energy. 
Andrew has been operating in technical-commercial roles in the Queensland National Electricity Market (NEM) Zone since it was first founded over 20 years ago. In 2017, he founded Arche Energy to provide a high-quality clean energy, power and infrastructure consultancy to facilitate investment in the clean energy sector. He is an experienced general manager, project director and engineer operating in renewable power, power generation, energy, ports and heavy infrastructure.
His experience spans business development activities, major approvals, project execution, operations and maintenance and decommissioning. Andrew is an innovator and optimiser thriving in changing environments through the adaptation and integration of emerging and innovative technologies into business applications.

What’s covered in EP202

How is the transition to net zero going? (1:59)

The problem with intermittent generation. (7:36)

Transitioning from one energy source to another. (13:40)

Traditional hydro & pumped hydro. (16:08)

Geotechnical risks in construction. (20:11)

The infrastructure challenge. (24:00)

Zero marginal cost power. (30:23)

 The role of nuclear energy in the transition to net zero. (45:42)

Links relevant to the conversation

Previous Economics Explored episodes mentioned in this episode:

The Aussie electricity market malfunction of June 2022 – EP156 – Economics Explored

Sir David Hendry on economic forecasting & the net zero transition – EP198

Transcript:
Australia’s Net Zero transition: successes & challenges w/ Andrew Murdoch, Arche Energy – EP202

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. 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. In this episode, I catch up with Andrew Murdoch to talk about the transition to net zero greenhouse gas emissions here in Australia. My occasional co host, Tim Hughes took part of the conversation to Andrew is the managing director of RK energy, which describes itself as a clean energy power and infrastructure advisory providing depth of experience to the investment community as it develops and executes clean energy power generation and infrastructure projects. It’s headquartered in fortitude Valley, Brisbane, not far from my office. As you’ll hear, Andrew is generally positive about the transition to net zero. And he has that can do attitude you’d expect from an engineer is also a realist. He gave us some great insights into the challenges associated with bringing large amounts of renewable energy into the system. And he made strong arguments for remaining open to a range of options such as nuclear power, and for persisting with r&d and carbon capture and storage of so called clean coal technology. Okay, let’s get into it. I hope you enjoy our conversation with Andrew Murdock. Andrew Murdoch from RK energy, good to have you back on the programme. Thanks, John.


Andrew Murdoch  01:59

Good to be here.
Gene Tunny  02:00

Excellent. Tim, thanks for joining us for this conversation, too.


Tim Hughes  02:04

You’re welcome. Good to be here.


Gene Tunny  02:05

Excellent. So Andrew, you got in touch after the conversation that Tim and I had recently with Sir David Hendry. And one of the things we talked with Sir David about was the transition to net zero. And we talked about what was happening in the UK and what he thought about nuclear energy as a possibility for Australia. And we talked about these small modular reactors. So you got in touch with us. And you’ve been on the show before. And you’ve mentioned that you have some thoughts on renewables on how we’re going with the transition to net zero on nuclear energy. So we’re keen to chat with you about that today. If you’re happy to do that.


Andrew Murdoch  02:44

Yeah. Thanks. Thanks, John. Yes, happy, happy to do so. Yes, sir. David, raised some interesting points. And so I thought it would be good to expand on some of those a little bit.


Gene Tunny  02:52

Excellent. So to kick off with Andrew, could you tell us how do you think this transition to net zero is going here in Australia? And then we might chat about how it’s going overseas, please.


Andrew Murdoch  03:05

Yeah, look, I think in Australia to date, the transition is going going very well. There’s a lot of excellent projects that are that are happening, we’ve seen a significant increase in the share of renewable energy on the market, and a corresponding reduction in the intensity of greenhouse gases per megawatt hour generated. Each of the states have now got some some ambitious renewable energy targets that they are all working towards. And, you know, we’re starting to see statistics like 25% renewables penetration in states like Queensland and higher in other states as well. 25% 25 Wow. 25% for for financial year 2023, which is, which is fantastic.


Gene Tunny  03:48

So this is the percentage of the electricity generated in the state that is coming from renewable sources, such as solar, and hydro, and it includes the rooftop solar, as well as the big solar farm.


Andrew Murdoch  04:01

Yeah, that’s correct. Yeah. So it’s predominantly solar, wind and rooftop power.


Gene Tunny  04:05

Gotcha. Okay. So we’re at 25% or so here, but we’ve they’ve got some pretty ambitious targets every day for where they want to get to.


Andrew Murdoch  04:14

Correct yes. So for example, Queensland’s renewable energy target is 50% renewables by 2030. So that’s only another another seven years away. And then 80% renewable by 2035. New South Wales is targeting a 70% reduction in greenhouse emissions by 2035 from 2005 levels. So they are really quite ambitious targets. And as renewable penetration increases, it gets harder and harder to manage, as we have to shift more power from times of high renewable generation such as the middle of the day when all of the solar farms are operating long periods of high wind, collecting the surplus power storing it and shifting it to times when the wind is not blowing the sun’s not shining is is one of two significant challenges. The other significant challenge we have in terms of significantly increasing renewables penetration is in increasing the transmission infrastructure to be able to collect all of the energy that’s generated in the in the renewable energy zones or areas where the sun is strong when the wind and the wind blows and moving that into the load centres in the cities and industrial areas.


Gene Tunny  05:23

Okay, so what’s the issue at the moment, we don’t have the lines where they need to be.

Andrew Murdoch  05:28

Yeah, so the lines have historically connected the large baseload thermal power stations in places like the Bowen Basin and the Hunter Valley, and connected them to, to the load centres in the big cities and, and industrial areas. So because that’s where the energy is flowing, it’s flowing, it’s flowing from the areas where the coal is to where the where the load is, now it needs to now we need to get the energy from where the wind blows in the sunshine as to where the to where the load is. And that’s a lot more geographically dispersed. And, yes, there has always been transmission lines to a lot of these communities. But those transmission lines have been sized to suit the towns and communities in the area, rather than and of course, that load is much, much smaller than the hundreds and 1000s of megawatts that we want to be transmitting from those areas back into the cities.


Gene Tunny  06:20

Right. So what does that mean? We need bigger, more high capacity? Lines? I mean, how do we think about that? It’s more expensive than is there needs to be upgrades? It needs to be new lines, correct?


Andrew Murdoch  06:30

Yeah. So so the renewable energy zones are all about connecting the high renewables areas to the load centres? And yes, physically, that means new lines, higher voltages, higher capacity transmission systems into those areas.
Gene Tunny  06:45

Right. And what are these renewable energy zones? Do you know roughly where they are?


Andrew Murdoch  06:50

Yes, so New South Wales has a five renewable energy zones. They have the central west Irana, they have had New England, hotter, Southwest, Queensland released its renewable energy zone roadmap. I won’t try and list all of them. That’s right. There are quite a few, right, some of the areas that Queensland are progressing North Queensland area around the wheel or west to build a wheel of their weather, there is already some some pretty good transmission systems, but it’s all about connecting, connecting local farms into the local wind farms and solar farms into the into the existing transmission system, Darling Downs, areas around McArthur wind farm, expanding those expanding those zones as well.


Gene Tunny  07:34

Great, okay. Right. You mentioned that as you get more renewables into the system, you have these issues of like, it’s going to be harder to go to the next stage. I mean, we’re at 25%. So you’re saying that it gets more difficult because then you’ve got more of your power from intermittent sources from the renewables, you don’t have as much from coal or from gas. So here’s what you’re saying, Have we got the low hanging fruit already? So the the rest of the fruit, they’re going to be more difficult to pick? Is there any rule as to when you have problems? I mean, we’re at 25%. Now, I mean, can we can we get up to 50%? Like, what does that entail? Is does that is that when we need the pumped hydro, do we need pumped hydro to get to 50%? How do we think about this?


Andrew Murdoch  08:22

You’re short, so No, there’s not a there’s not a hard rule, things just get harder and harder. So okay, you know, using the low hanging fruit analogy, you need a bigger and bigger ladder as the as the fruit gets higher and higher. So the driver for pumped hydro or any storage is the volatility in the price. So the difference between the low price and the high price is what provides the economic incentive to put storage in. So the more the more generation that happens at the same time, whether it’s solar in the middle of the day, or wind, when the when the wind is blowing as a ratio against the peak demand. The greater that difference is, the greater the economic incentive is for run for the installation of batteries. From a energy supply perspective, from a security of supply perspective, it becomes a probability game. So you’ve got the probability of the sun shining, and the probability of the wind blowing in various different geographically dispersed regions around around the country on the network. And what’s the probability of any one meteorite meteorological event impacting the energy supply to the point where we have to start turning power off? The more storage you have on the system? The more dispatchable generation you have whether it’s coal or gas, the lower than probability is the more concentrated your your, your renewable energy resources are meteorologically, if you have all of your solar farms in the one location, for example, and and you get you get right in that location, will you you’re going to get no generation whereas if you spread them out all over the country, well, you’ve got a greater chance of there being a Everything’s sunny in any one spot. And of course, if you spread them out in a line that runs east west, then you’re extending your generation day as well. So yeah, yeah.


Gene Tunny  10:09 Tim, do you have any questions for Andrew at this stage?


Tim Hughes  10:12

It is a sort of like more of an overview, sort of like question, I guess, when we look at 80% by 2035. Without obviously having a crystal ball, I mean, it’s there as a target, what are the chances of achieving it? And what does it look like to be able to be 80% reliant on renewable energy with those things that you mentioned that, you know, there are pitfalls with wind with solar, with having hydro, which I understand really acts as like a bit of a battery, so that it can have water pumped to the top during the day while there’s available power? And then it can access that power in the evening? With 18%? In your view, is that achievable? Are we on track?


Andrew Murdoch  10:52

Yes. So greerton, did some excellent modelling about a year or so ago. And what they found that was that 90% was a was an achievable target from a market operations perspective. And their modelling was around reliability of supply versus time of day, and they found that 90% renewables penetration that was about the optimum. Now the final 10%, was was made up by gas, when it comes to the probability of being able to achieve it. Yeah, look, with enough pumped hydro, and with enough batteries, yes, you can do it. And certainly with the gas in the system to deal with those periods where the sun doesn’t shine, and the wind doesn’t blow for for weeks on end, well, you can just just run gas for that 10% of the time. And if you’re 90%, carbon free and 10% carbon at that gas intensities of roughly half that of coal, you know, that’s a pretty good outcome on average 24/7 basis. So in terms of carbon intensity,


Gene Tunny  11:49

so this is interesting, because, like you mentioned, oh, yeah, so it doesn’t you haven’t got the renewables for for a week or so. Like there could be prolonged periods where you don’t have the renewables who got very little from renewable. And therefore, if you’re saying, well, the gas is 10%. But then for those periods of time, the gas is going to have to be providing 5060 or 70%, isn’t it? So you might need that you need more gas capacity than you would in the current configuration? Is that is that one way of thinking? Is that right? Correct.


Andrew Murdoch  12:22

Yeah, and your gas becomes more of a standby generator. And so in that scenario, where you have very low levels of renewable generation, for a for a long period of time, and all of your batteries are flat, and all the hydro dams are empty, that’s when the gas has to has to kick in. And that raises a whole heap of questions around security of guest supply as well. Yeah. When you are only providing gas for a short period of time, where do you store it? And yes, pipelines have have low impact capability. But that has to be commercial for the pipeline operator and for the provider of the guests in the first place, as well.


Gene Tunny  13:04 So yeah, what’s that capability line,


Andrew Murdoch  13:06

line pack. So line pack is gas that is stored in a gas pipeline and a transmission pipeline. So we have transmission pipelines that criss cross the country, taking gas from gas fields into the into industrial and city centres, the pipes are typically somewhere between 306 100 millimetres in diameter. And they’re pressurise, the more the greater the pressure that that you run the pipelines in the more gas you can store in there. So it kind of acts as a big gas bottle, and a transmission pipeline at the same time. And so but that stored gas is what we call line pack.


Tim Hughes  13:40

Gotcha. Okay. Yeah. I was gonna ask, actually, because one of the other things with this some with different sources of energy, how does the transition looks so for instance, like just to be able to switch from, from one source to another source to another source to then put gas in or hydro or whatever it’s going to be? Undoubtedly, we’re charting, you know, getting into unchartered waters a little bit, because this is the intention to try and make that work, have a good problem. Is that likely to be that flexibility that will be needed?


Andrew Murdoch  14:08

Well, yes. So this is the beauty of the market. So the market operation is such that the generators will each bid in the different technologies that they have at different price points, depending upon what their bidding strategy is, typically, you’ll be in such that you you’re bidding to generate whenever the spot price is greater than your short run marginal cost of operation, your cash costs. So then you’re then Generating Positive Cash Flow, the market and the transmission system doesn’t really care where the electrons are coming from, if they see, as soon as there is energy flowing through the system. It just flows through the system and the Australian energy market operator amo, they run a dispatch engine, where they collect bids from from all of the generators around the country and every five minutes. It will it will issue dispatch instead rushes to each of the generators to either output more power output less power or maintain the same level depending upon what price they’ve built into the system and, and what level of generation they’re physically able to provide at that point in time.


Gene Tunny  15:14

Okay, so, Andrew, in terms of how we compare with other countries, I remember maybe it was when we were chatting last time, but there are some countries that seem to have high renewable penetration, but it’s, it’s the countries with geothermal. Is that correct?


Andrew Murdoch  15:30

Well, it depends upon what natural resources you happen to. Yeah. So if you’re New Zealand, or Iceland, and you happen to have some excellent geothermal resources, and then great tap in tap into the side of the volcano that you happen to have, and grab some of that heat and turn it into power, so yeah, yeah. So that that works very well. If you happen to have a lot of hydro resources, if your Nordic country for example, or or, again, New Zealand, or Tasmania, then then you know, you’re blessed with that rainfall and you can harvest it, then, then then you have that option. mainland Australia is a little bit more difficult. We don’t we don’t have the rainfall to support massive hydro schemes other than Snowy Hydro in Tasmania. So we are limited to solar and wind for the bulk of our, the bulk of our renewable, geothermal is an option, but our geothermal resources are very deep and not not high grade, so quite expensive to get that heat to the surface and turn it into power.


Gene Tunny  16:32

So can I ask you a question about hydro versus pumped hydro? Who was your you mentioned? Norway? So there’s no I have a lot of hydro. So is it able to generate a consistent or quite irregular amount of energy, from the hydro resources, they don’t have pumped hydro, they’ve got actual, they’ve got enough rain fall? Or that they’re capturing it? They’ve they’ve set up these hydroelectric dams in a way that it’d be good to have some understanding of that just is there a difference between normal hydro and pumped hydro? Yeah, is that we’re


Andrew Murdoch  17:02

Yeah, so so the key difference between normal hydro and pumped hydro is for normal hydro, the rain or snow falls onto the top of the hill, yeah, a plateau somewhere, collects somewhere into a reservoir or, or some other collection system up high in the mountains, then you run it through a set of penstocks into a turbine that might be several 100 metres, maybe, maybe further underground. And then it will discharge into the river system, several 100 metres below where it’s collected, as opposed to pumped hydro, where you taking water from a lower reservoir using cheap power to pump it back up the hill, and then storing it at the top of the hill. And then and then running it back down again, during periods when when prices are higher. Now you can do both in the same scheme. And there there are several examples of of both, so you might collect the your snowmelt or your rain up in the up in the hills, run it through the run it through the turbine once and then go, Well, you know what, I wouldn’t mind doing that the second time, and pump it back up the top of the hill again. And that that is particularly useful for areas where there’s seasonal variations in the amount of water that come through the system, snow melt, for example. So during the during the autumn, you might, you might pump more water up the top of the hill and use it in pumped hydro mode during the spring, you might just use it as a one through system.


Tim Hughes  18:31

And so that will be something where, for instance, because one of the issues that seems with solar or wind, but particularly with solar here is that we can’t store we can generate more than we can store. Is that right?


Andrew Murdoch  18:44

Yeah. Correct. At present, yes, the generation, the PV generation capacity is significantly higher than our ability to store it.


Tim Hughes  18:52

So the pumped hydro is a good solution to use the excess energy in a way of pumping the water back up. So that effectively having it as an extra battery like that the hydro itself serves as a battery. So you can then use that power in the evening.


Gene Tunny  19:06

Yeah, well, it’s a solution. The question is, is it a good solution relative to other solutions we have for for transitioning to net zero, right. Right. Because it’s there’s a cost to it, isn’t there? I mean, presumably like building these big, these pumped hydro dams. That’s I don’t know how billions of dollars, isn’t it? I mean, it’s huge amount of money that we have to spend and


Andrew Murdoch  19:28

Correct, correct. Yeah, these are big projects. They’re big civil works projects, billions of dollars, many years. Lots of geothermal risk, lots of opportunity, say lots of geotechnical risk. I beg your pardon. Lots of opportunities for the projects to not go as well as perhaps we first planned


Gene Tunny  19:47

now. Geotechnical risk. You mean the risk of earthquakes? No, I


Andrew Murdoch  19:50

mean, the risk of rock being harder than new. Gotcha. I mean, and I’m in the risk of tunnel boring machines getting stuck for months. underground, those kinds of those kinds of exercises. So it really impacts in terms of cost and shedule risk and you know, it’s it is difficult to it is difficult to predict what rocks underground will cost. And many a construction company has gone to the wall because of not not understanding geotechnical risk.


Gene Tunny  20:22

Right. Wow. Okay. Yeah, that’s that’s a really good point. Because we’ve got to build two new pumped hydro here in Queensland. And that’s because yeah, we need the storage, because we’re going to be relying a lot on solar and wind, we don’t have geothermal as they do in was it Iceland or something like that?


Andrew Murdoch  20:39

Yeah. Iceland or New Zealand, New Zealand, to a lesser extent PNG.


Gene Tunny  20:44

And geothermal will be good. Because is it? 24/7? Effectively,


Andrew Murdoch  20:49

correct. Yeah. So the volcano doesn’t sleep. Right. Yeah. So the heat source that is there? 24/7? Yeah. Baseline reserves.


Gene Tunny  20:59

Yeah, I guess what we’re interested in is, because there’s an upcoming event at the start that typically I think isn’t a Tim, I think so. Yeah, around the corner from where we are here in in fortitude Valley or Newstead, and it’s about does Australia need nuclear power? Because we’re discovering that the greater penetration of renewables relying more on renewables, well, we need to upgrade the grid, we need to upgrade transmission lines. And there are all sorts of, you know, huge estimates of what that could cost. I’ve seen a trillion dollars or so it seems that there’s there’s an argument about all what is really the cheapest cost of electricity. Once you take into account all the all of these network costs, there was a controversy about the CSIRO levelized cost estimates, could nuclear be part of the the solution given that there are all of these costs with renewables? And we’re not really sure whether it will? Well, I mean, maybe maybe we are sure it will work. This is what I want. I’m interested, in your view on to what extent should we be looking at nuclear as a potential backup or a plan B, if this, this current plan doesn’t work out?


Andrew Murdoch  22:09

Yeah, well, we certainly should be considering nuclear as one of the options. The the engineer in me likes to consider things with a sceptical and inquiring mind. So what are all of the options? What are the ones that will work? What are the ones that won’t work? What will they cost? What are the probability that we will achieve the outcomes that we’re trying to achieve? So in the context of assessing any type of technology, we should be looking at? What is it going to cost? What are the consequences? How does it impact our society? How does it impact our landscape? My personal view is that that advanced small modular reactors have a role to play, particularly when we’re getting into the very deep baseload. So the power that has to run 24/7 at very high levels of reliability, that’s going to be very difficult and expensive to do with intermittent renewables. And it is possible to do it with independent renewables, it’s possible to do it with intermittent renewables and storage and gas topping. But another arrow in the quiver of decarbonisation tools that we could use is small modular reactors.


Gene Tunny  23:21

Okay, we’ll take a short break here for a word from our sponsor.


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Gene Tunny  23:55

Now back to the show.


Tim Hughes  24:00It is a really interesting area, because it’s changing very quickly. I was gonna ask, one of the big costs that gets talked about is infrastructure. And I know before we started recording was mentioned about Mount iser, for instance, and the cost of running the copper string connection, which is good to just talk about in a sec. But as a general thing, the infrastructure as we currently look at it is extremely expensive, with the technology changing as quickly as it appears to be. Is it possible that, obviously, the decisions have to be made now and action has to be done now? Is it possible that some of this very expensive infrastructure may become redundant in the not too distant future with the possibility of, for instance, we haven’t also leading into the conversation about SMRs small modular reactors, which I imagine would require less of this infrastructure, if that was to be the case that they would be rolled out in more locations so we don’t need them. move energy over large distances. So I guess the overriding question would be, you know, like with this changing technology, battery storage is obviously a big part of this, where it may not be necessary to put all this expensive infrastructure in place. Now, how does that pan out? Obviously, we have to go with what’s available, but current technology, how do we stop ourselves wasting money on infrastructure that becomes unnecessary, fairly soon?


Andrew Murdoch  25:26

Sure. Good question. I guess you there’s a whole heap of crystal balling that there is.


Tim Hughes  25:33

I realise it’s an impossible question. And it’s very much a sort of moot point, because this is clearly I mean, it’s all expensive. But there’s a lot of money involved in this. And and it’s, you know, it’s taxpayers money getting invested in these systems. And, of course, it’s contentious. And yet, of course, we have to go with what we know, we can’t put things on to what we think is going to happen. But it appears that is moving in a direction quickly enough that we might be able to, I don’t know, it might be prudent to hold off on some of these bigger things. So sorry. I’ve put about five different questions in there. So the copper string connection if we can go with that. So the current way of moving power over long distances is currently quite expensive. Yeah.


Andrew Murdoch  26:13

Great. Yeah. So I guess I’ll talk specifically about copper string because it’s an interesting project. And it probably in describing it, it, it probably addresses many of your questions. So firstly, the fundamental reason that you would want to connect mount iser, to the national electricity markets are currently mount highs, a Cloncurry. And all of the mines that operate off that system operate on an isolated grid. So there’s a small power station diamond Tina power station that operates in Mount iser, it burns gas, it’s connected to the Carpenteria gas pipeline, and it provides power to those to the mines in those in that area. The original value proposition and this value proposition still holds true today in connecting Metalizer to the national electricity market is to reduce the cost of minerals processing in Mount iser. So if you reduce the cost of power, the bulk of the power consumption in the mount Isaac grid is used to make big rocks into small rocks so that copper and other minerals can be can be leached out of it. So if you reduce the cost of power, all of a sudden, you can chase lower and lower grades or your mind lifes get extended, and economic output from the northwest minerals province increases. So that’s the value proposition. If you connect mount iser, to the national electricity grid, those existing power stations at Mount iser, they still exist, and they can still generate power. And instead of just selling it to customers on the Mount iser grid, they can certainly sell that power to people elsewhere on the grid, they can sell it to you and me here in Brisbane or people in Sydney or anyone else who’s connected to the national electricity market. So that opens up the number of customers to them. You also end up in a situation where you have a high voltage electricity network connection going a long way west into a very high solar flux region. So you can still be making a lot of solar power and mount iser, at 6pm when the sun’s gone down here in Brisbane, and we can take advantage of some of that geographical diversity in the in the network by building that extension, you’re also crossing over the great divide. So going from Townsville to mount iser you’re crossing you’re going very close to Hughenden. And there’s excellent wind resource. And of course, a lot of really, really sunny paddocks along the road as well. You’re going past Julia Creek and all the vanadium deposits in there. There’s multi pronged economic output that comes out of out of this particular investment.


Gene Tunny  28:43

So vanadium is one of those critical minerals, is it so this is what you’re suggesting that we it might become economic to a we might need it already. And then we process it there. What would be the advantage of?


Andrew Murdoch  28:56

Yes, so there’s there’s a number of vanadium projects in the Julia Creek area. Okay. Yeah, that are going ahead and they they will probably those projects will probably proceed with or without copper string, okay. It’s just if they can get lower cost power, then that helps the production. So those projects, going to ship the or they’ll delay the process that on site or ship it to Townsville where it will be where it’ll be processed, and then either export it as vanadium. They also have some other other products that come with it as well. I think one of them has a an oil shale product as well. So there’s a petroleum product that comes out as well from


Gene Tunny  29:33

Okay, good one. Sorry, I interrupted you before it’s just interested in vanadium.


Andrew Murdoch  29:37

Yeah, and then I guess to come back to the redundancy risk point. So for project like copper string, the redundancy risk is I guess, offset by the fact that minerals production in the Northwest will will continue for some time won’t continue indefinitely. At some point we’ll run out of minerals there to mine, irrespective of that is that solar farms that are being built out there and the wind farms that have been built out there, once they’re built, they will continue to generate and very low cost forever. Whenever, you know subject to upgrades and stuff like that, you know, you might need to replace your solar panels and upgrade to the next level of technology, etc. But once you’ve, once you’ve developed them, why would you ever turn them off if you’ve got this zero marginal cost power coming onto the system? So I’m not so much worried about redundancy? In the context of putting new technologies such as SMR, or clean coal or any other technology into the grid? Well, yeah, okay, they’ve got to stand up on their own two feet, every project has to be economically viable. And again, if I owned a wind farm or a solar farm that they’ve lived out on the end of a long along spur or in a renewable energy zone, I wouldn’t be turning it off to make space for a competitor would just keep keep generating. So


Gene Tunny  30:58

on the clean coal, you mentioned clean coal, that’s not really a thing anymore. Is it? Because they figured out it was not economic? Is that right? The whole carbon capture and storage,


Andrew Murdoch  31:08

not so much figured out that it was an economic, I think we just gave up on it. Which is a shame. If you look to Norway, and the US and Canada, they are continuing with carbon capture and storage. There are some carbon capture and storage projects happening in Australia. Santos are doing a project on the Moonee fields, right, of course, is Chevron during the Gorgon project, and all of the under the safeguard mechanism of any new LNG projects have to be 100% carbon neutral, so that sort of enhances the driver to collect reservoir co2 and reinjected back into into underground aquifers. So so that’s


Gene Tunny  31:51

that’s just the co2 or the greenhouse gas emissions associated with the actual extraction. Is it because it’s not in terms of not the greenhouse gas emissions associated with the burning in some other countries? Is it


Andrew Murdoch  32:03

correct? Yes. Gotcha. Yeah. For reservoirs, such as typical Northwest shelf reservoir where there is there is co2 and methane in the reservoir. Yeah, instead of venting the co2 and selling the methane that will now be required to deal with the co2 for new projects connected to LNG facilities. Yeah, got mechanism. So their


Tim Hughes  32:25

own process becomes neutral as such. Correct. Okay.


Andrew Murdoch  32:28

So back to clean coal. Yeah, my personal view is that in Queensland in particular, we’re doing ourselves a disservice by not pursuing clean coal. Now, that’s not to say that it’s going to be the answer. But again, it could be one of several solutions, or one of several contributors to lower lower carbon power in Australia.


Tim Hughes  32:51

Right, just on that note, so for instance, to get to 80% by 2035. So if clean coal was an achievement that could be done, that would be part of the 80% not part of the 20% remaining.


Andrew Murdoch  33:03

Well, it depends upon how you define renewable. Okay, so yeah, okay, so


Tim Hughes  33:08

So actually, sorry. So that’s the distinction is it’s renewable, not necessarily carbon? Yeah,


Gene Tunny  33:13

I guess you could say it’s renewable equivalent?


Tim Hughes  33:17

Well, no, it’s a fair point. I mean, like, for instance, I mean, as a consumer, like, you know, I love the direction this, this is going and it’s quick, and it stalled for a long time. It’s not too long ago, Tony Abbott and Joe Hockey, were making it making a joke out of renewable energy. So the acceleration and the takeoff has been incredibly fast, which is really exciting to see. And so the intention here is really good from the consumers through to the market through to government now, which is great. And of course, like the conversation like this really is like, well, how well can it be done? Is it realistic? And, you know, what are the best choices? Because it’s moving so fast? So clean coal? Yeah, I mean, like anything that gets extracted from the earth is still viable, in my view, if it can be done in a good way for the environment, like, you know, it’s a big conversation, but it’s basically can we do things ethically, sustainably, renewable, etc, that’s, that’s great. But these figures, these, these amounts going towards 80%. And, of course, at some point, 100%. I mean, that would be the ultimate target. And so I


Gene Tunny  34:24

think that’s, I think, in Australia, that it would be too difficult because of the intermittency and just, you’d need some gas still, don’t you? I mean, no one’s talking about 100% renewable at the moment in Australia, are they I can be the first you can be the first I’m just wondering whether it even be feasible. I honestly don’t know. I guess


Tim Hughes  34:42

from that all I mean, is like, you know, new technique because of the emphasis and the money and the brains and the word going behind this. Now, obviously, this technology is moving very quickly. So ultimately, I mean, like we could end up with very clean energy fusion could be at some point in the future. I mean, like, this is decades away. Who knows what may happen? But the direction we’re heading in is a positive one. And yeah, we have to do what we can with what we have currently. Can we go back to the SM eyes a little bit because this is something this is something that was new to me with that conversation we have with Sir David Hendry. Looking into it a little bit like everything else, it’s a little contentious. It does appear to be a cleaner option, certainly than the traditional nuclear reactors. But it’s not without risk, and it’s not without some waste. What are your views on SMRs? Andrew?


Andrew Murdoch  35:35

Yes, so I think there are a good option that we should consider for that very deep baseload generation, that role that is currently provided by coal in mainland Australia. We need to address safety and we need to address waste because they are obviously weaknesses in the SMR option. So I’m going to make some comments. These comments are based on the the GE Hitachi BW RX reactor, which is currently being designed for a project in Canada. So bw is boiling water reactor. It’s a it’s a reactor that consumes uranium 235 split cells into into through a fusion reaction, the core is surrounded by water that water boils, the water is then dried and then go through a steam turbine to generate power.


Gene Tunny  36:23

Sorry, you mean a fission reaction? fission reactor? Yeah, gotcha. I might have misheard


Tim Hughes  36:29

it further. So close. I had to really work that one out and lock it in. So fusion is the one that’s talked about often is a bit of a an Eldorado of energy production. But we’re not there yet. And it could be some time away. But fishing is what we currently have it Yeah,


Andrew Murdoch  36:44

fishing is what we currently have. Yeah. So yeah, so that’s splitting atoms fusion is squishing them together. Yeah. The power output is moderated in the in the fusion reactors by a boron set of boron carbide plates that move up and down within the uranium to regulate the absorption of neutrons. And that dictates the rate of the nuclear reaction and the generation of heat. So these boron boron carbide plates in a modern reactor is when they’re fully inserted, they will will slow the reaction right down and let it come to an end. So in a modern reactor, they’re held up by a set of electromagnets, should power fail to the reactor, if something happens, then that electromagnet obviously loses power, the boron plates will drop under gravity into the off position, and then the reaction will come come to an end. All the reactors don’t necessarily have that failsafe mechanism, there might have been some mechanical linkage that might have had to push them up rather than rather than let them drop down etc. So, you have this this safety system where if the power goes up, it moves to a safe position. One of the improvements that came out of Fukushima was to introduce reduce the energy density in the reactors so that they could cool naturally using convective currents. So the the the G material states that the BW RX will call naturally for up to seven days without any operator intervention without any external power. So when we when we start to look at Chernobyl, and that was an issue with the positioning of the control rods, and Fukushima where the the circulating pumps stopped working. Those two failure modes have been addressed in these new newer reactors. The other comment is that they lower temperature, lower pressure. So the GE Hitachi machine runs at 285 degrees C and around seven and a half mega pascal, which compared to a coal boiler is relatively relatively low temperature and low pressure. So if we were, if I was specking, up a new coal fired power stations today, it would be 600 degrees and 30 MPa, so significantly hotter, significantly higher pressure, so pushing the boundaries of modern material science, whereas the BW RX has a lot more achievable, I guess, more comfortable pressures and temperatures that give you a wider range of materials that you can select from and will last a lot longer with respect to creep life and fatigue right


Gene Tunny  39:20

there. One of the things I think I remember about these SMR hours, I don’t know if we chatted about it last time, or if I was when I was chatting with Ben Scott on on the show, can you just put these where we’ve got existing coal fired power stations, you can replace the the coal fired power? What is it the generator or whatever it is, with the with the actual SMR?


Andrew Murdoch  39:45

Yeah, it looks so in my view, that’s a good location for them because you already have the transmission infrastructure and you already have the water. So an SMR is going to use about the same amount of water as an equivalent coal fired power station, maybe a little bit more because that because those temperatures and pressures are a little bit lower, so the sample efficiency is not quite as high. So it might use a little bit more water. And there’s no reason why we can’t put some hybrid cooling in there as well to reduce that water consumption. So those issues are all are all solvable. But yes, hybrid cooling. So the traditional way of cooling steam turbines is using evaporative coolers. So they’re the big hyperbolic cooling towers that with nuclear power stations, actually nothing to do with the nuclear part, it’s everything to do with the steam turbine part. Yeah, so and that basically evaporates water to, to take the heat out of the condenser. A dry cooling tower is more like a radiator in your car, where you’re just using the air circulating through the radiator to cool it, a wet cooling tower will an evaporative cooling tower will will be more efficient, because it drops the temperature to the dew point temperature rather than the dry bulb temperature, which gives gives you a couple of percent of efficiency in your steam turbine, which is very valuable. And then if you do a hybrid you the reason you would do a hybrid is essentially to save a bit of water, drop the high temperature heat out using the radiator and then still achieve those lower temperatures by by taking maybe the last 10 20% of heat out using evaporative cooling. Right. Okay, gotcha.


Tim Hughes  41:15

So there’s still some radioactive waste from SMRs. Is that right? So it’s reduced. So compared to the energy it can generate, it’s less than a large nuclear station, nuclear power station, but there is still some waste percentage wise, I guess, compared to the power generated, correct?


Andrew Murdoch  41:35

Yes. Yeah. So radioactive waste. I mean, correct? Yes. So yes, it does generate high level radioactive waste. And the most significant part of that is the spent fuel rods. Now the spent fuel rods can be reprocessed. It’s I can’t remember the ratio. Now it’s something in the order around 95% of the energy remains in, in the uranium fuel rods after they’re removed from the reactor so that reprocessing which is essentially is, is refining the amount to view to three, five and removing some of the you two, three A’s. And once it’s reprocessed, it can go straight back in the reactor and run for another. So


Tim Hughes  42:08

is this transionic waste? Is that right? Because this is David Henry mentioned about he referred to transionic waste, which can then be reused by the SMR. I’m just repeating this is. I mean, this is we went over this briefly with Sir David. So it would be something we could put to him directly. But that was my understanding that there was a certain amount of the waste that can then be used as fuel. By the SMR.


Andrew Murdoch  42:37

Yeah, correct. Correct. Yeah, the bulk, the bulk of it can be reprocessed, okay, and reused. Now, that said, even if you don’t, and a lot of countries don’t reprocess their waste, because it’s quite expensive compared to to producing new fuel rods from raw uranium, even if you don’t just still only generating a very small amount of waste.


Tim Hughes  42:57

Radioactive Waste is pretty serious stuff for a long period of time. So the disposal of that, I guess, must be quite expensive, let alone the dangers of handling and processing that


Gene Tunny  43:08

we’ve got a lot of places you could bury it in, in Australia, Outback Queensland, Australia, you know, plenty of place.


Tim Hughes  43:17

So, um, but the thing is, obviously, with the aim for clean energy, it’s an uncomfortable addition to the suite of energy provision sources that we may be looking at. However, I mean, it was interesting, because I didn’t know of it until just recently with the interview with David Hendry. He’s a climate econometrician so very keen on having, you know, a clean, ethical source. And he was a supporter of this. So it’s certainly interesting. And, you know, it certainly is something that needs to be considered because obviously, the alternatives, everything’s got to pay off at some point.


Andrew Murdoch  43:55

Yeah. And that we shouldn’t we shouldn’t be too glib about the waste issue. It is a serious, it’s a serious issue. And, you know, one of the one of the cons on the pro con balance of of any technology, my personal view is that if we do go down an SMR path that we should also be committed to reprocessing. Yeah. So look, I think the this conversation sort of highlights how complex and as yours Yeah, and that in any technology choice we make there, there are trade offs that we have to make. If we look at things like land impacts, okay, well, in nuclear, yes, you’ve got to, you have to store the waste somewhere. So that’s going to have any impact on land. And yes, we’ve got some good geological characteristics about Australia and lots of space. If I look at Coal, for example, well, you’ve got to dig holes in the ground and that has an impact on the land if you want to burn gas you’ve got to go and you’ve got to go and sink gas wells and that has an impact on the land if you want wind then you’re going to have to go on go and find some windy hills that are probably covered in some nice gum trees and and put up some wind turbines. If you want to put up solar farms, you’re going to have to go clear some bush or tell Take some agricultural land or grazing land and turn that into solar cells. So there are no free lunches. And


Tim Hughes  45:05

if you want to store the energy, you’ve got to build the batteries, build the batteries


Andrew Murdoch  45:09

or dam, the dam, the valleys or whatnot, all of these things there are paid off, there’s a bill to be paid one way or the other. So the best we can do as, as a community is to is to assess all options. On a level playing field basis with a with a sceptical and inquiring eye. What is the best engineering? What’s the best economics? What’s the best ecological science? Can we afford it? will it produce the ecological social power reliability needs that we want? Or is it the best compromise of all of those?


Gene Tunny  45:42

Yeah, yeah, absolutely. Based on this conversation sounds like we should be considering some more options. Maybe we’ve taught our hands. Because we’re not talking about potential role of nuclear, we’re not talking about potential role of clean coal, or there’s less focus on that, then there once was, has been amazing. Again, really good. Good for us, because this is such a complex area. And I mean, I’ve got my own thoughts, but I don’t know enough about the engineering to be able to speak authoritatively on it.


Andrew Murdoch  46:15

Now. Look, it’s been a good discussion. Yes. Thank you. Thank you for the opportunity.


Gene Tunny  46:19

Oh, it’s a pleasure, Andrew, we’re always, always happy to chat. And yeah, it’s good to get your insights on the transition to net zero. So Thanks, Andrew. Thanks, Tim.


Tim Hughes  46:29

Thank you. Thanks, Andrew. Thanks.


Gene Tunny  46:32

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.


47:19

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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 PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

The role of experts in a democracy: pandemics, monetary policy & AI w/ Peter Kurti, CIS – EP201

The Centre for Independent Studies’ Peter Kurti asks “ Should those who know best rule the rest of us?” In this episode, host Gene Tunny chats with Peter about his new paper “Authority, Expertise and Democracy,” which explores the role of experts in government and how society should best utilize their knowledge in public policy making. They delve into the question of when it makes sense to delegate power to experts and the relevant considerations. The role of experts in decision making around the pandemic, monetary policy, and AI are discussed. 


Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored.

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

About this episode’s guest: Peter Kurti

Peter Kurti is Director of the Culture, Prosperity & Civil Society program at the CIS. He is also Adjunct Associate Professor in the School of Law at the University of Notre Dame Australia, and Adjunct Research Fellow at the Australian Centre for Christianity and Culture at Charles Sturt University. He has written extensively about issues of religion, liberty, and civil society in Australia, and appears frequently as a commentator on television and radio. In addition to having written many newspaper articles, he is also the author of The Tyranny of Tolerance: Threats to Religious Liberty in Australia; Euthanasia: Putting the Culture to Death?; and Sacred & Profane: Faith and Belief in a Secular Society, published by Connor Court. Peter is a Fellow of the Royal Society of Arts, and an ordained minister in the Anglican Church of Australia.

What’s covered in EP201

[00:02:30] Authority and experts in government.

[00:04:07] Impact of experts during COVID. 

[00:09:29] Discrimination and lockdown restrictions. 

[00:13:29] Delegating power to experts. 

[00:18:12] Politicians’ difficult role in decision-making. 

[00:21:11] Trade-offs in decision making. 

[00:27:23] Vaccine mandates. 

[00:34:27] AI and expert advice. 

[00:37:35] Expert advice and self-interest. 

[00:37:59] The importance of delegation of monetary policy decisions. 

[00:40:19] Expert Failure book by Roger Koppl. 

[00:43:33] Experts and human failings. 

[00:50:32] The length of the leash. 

[00:52:12] The role of experts in policy making.

Links relevant to the conversation

Peter Kurti’s new paper for the Centre for Independent Studies:

Authority, Expertise And Democracy. Should those who know best rule the rest of us?

Episode on Public Choice theory mentioned by Gene:

EP93 – Public Choice theory with Dr Brendan Markey-Towler – Economics Explored 

Transcript:
The role of experts in a democracy: pandemics, monetary policy & AI w/ Peter Kurti, CIS – EP201

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. 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 in to the show. In this episode, I chat with one of my colleagues at the Centre for independent studies Peter Kurti. Peter is director of the culture prosperity and civil society programme at CIS. He is also adjunct associate professor of law at the University of Notre DOM Australia. Pete has written a great paper for CIS on the role of experts in government. The paper is titled authority, expertise and democracy should those who know best rule the rest of us in the paper, Peter asked how society should best use experts in public policymaking and he provides some very useful tips. This is a really important issue given how much we rely on experts. At different times, experts have wielded a lot of power. Dr. Anthony Fauci in public health and Jay Powell and monetary policy come to mind. When does it make sense to delegate power to experts? What are the relevant considerations? Peter Kurti provide some great advice in his latest paper, which we talk about in this episode. Okay, let’s get into it. I hope you enjoy my conversation with Peter Kurti. Peter Kurti, thanks for joining me on the programme.


Peter Kurti  01:59

Thanks, Gene. Great to be with you. Very good. Peter.


Gene Tunny  02:02

You’ve recently had a new paper published by a centre for independent studies, authority, expertise and democracy. Should those who know best rule the rest of us, I’d like to ask to begin with what got you interested in this issue of expertise? Why did you think this was a good topic to write a paper on?


Peter Kurti  02:24

This all started really during the period of COVID and the lock downs. And I felt that here in New South Wales, and I know in other parts of the country in Queensland and Western Australia, and certainly Victoria, premiers, it seemed to me seated a great deal of authority to unelected chief medical officers, who determined what a government could and couldn’t do, and should and shouldn’t do, and certainly what the population should and should not do. And I felt that it in the course of managing an understandably complex public health situation. Nonetheless, politicians were ceding too much authority to experts, and that when politicians do this, they pose a threat to the liberal democratic society in in which we live, because we elect politicians to do a job we elect politicians on the basis of policies they undertake to implement. And we look to politicians to regulate the kind of society in which we live. But they are accountable, because if we don’t like what they do, we can we can talk them out of the next election. And we can turf out individual members of parliament, by elections. But when we have unelected unaccountable experts, such as chief medical officers dictating what can happen in any society, I think that it poses a great danger to us. And we saw the impact of this because there were social consequences. There were economic consequences. And there were cultural consequences as well. And I’m thinking when I talk about that I’m thinking about the impact on families of not being able to travel for funerals, not being able to visit people who are sick or terminally ill. And I think that the standard that chief medical officers set which was you know, keep everybody safe, and that there must be no risk of any contamination or, or contagion whatsoever, meant that the additional costs, the consequences that are borne or have to be borne from those decisions, were not taken into account. And that was really what made me start to think about the problem of experts. I mean, we need experts. They are an integral part of a bit of a technologically complex society. I don’t say we don’t need them, but we need to hold them to account and we need to make sure that But elected representatives, politicians who are appointed by us to do a job actually do do their job.


Gene Tunny  05:09

So would you say that the to an extent these experts were ruling over the rest of us during that COVID period? Is that That’s the argument you’re making there in 10, COVID?


Peter Kurti  05:18

Yes, I think they were. And I think that there are a number of reasons why that happened. One was that it was a once in a century, once in 100 year, public health emergency, and no politician really knew what to do. Nobody really knew what was coming. And there was a lot of anxiety and a lot of fear amongst the population at large. And politicians clearly had a responsibility to not just to set an example, I think, but to reassure by the easy populations, and one of the ways to do that is to cite medical advice, scientific advice. And the it to an extent, we all looked to chief medical officers to tell us, first of all, what is happening, and then tell us what’s going to happen next. And so as I said, a moment ago, it was a very understandable set of circumstances, but I don’t think it justifies or excuse, it justifies that it doesn’t excuse what happened. And I think that we must always be sure. Should such a pandemic ever occur again, that public health advice is just one part of the body of information, one part of the body of opinion that is taken into account?


Gene Tunny  06:38

Yeah, yeah, I agree. Yeah. There’s a something I’ve covered on this show before and I had concerns about is there’s a point you’re making the paper about how there. There are trade offs involved, and you need politicians to make those judgments. And there’s no real technocratic answer or no real. I mean, there’s that one of the arguments you’re making is I mean, the the idea of having an expert in charge or, or their view, almost prevailing all the time, the problem there is that that’s a technocratic answer. It assumes that there’s always a technocratic answer. Is that a fair reading?


Peter Kurti  07:17

I think that’s right. So Jean, and one of the reasons I think we got ourselves into this situation during the pandemic was the politicians didn’t really know what to do, because it was such an unexpected and unanticipated set of circumstances. And I think that they were speaking about in very general terms about a large group of people with different political affiliations. But on the whole, I think, political leaders did not want to be caught out, they did not want to be sort of caught out by the media, who might then say, if if things get worse that to say, well, you know, if you’ve taken that advice, this wouldn’t have happened. How do you account for that? And so I think we have an increasingly risk averse group of politicians who will just as it were hide behind or rely upon or depend upon that sort of expertise in order to, in a sense, make life easier for them. But we need that sort of, I mean, in a sense, we can’t, we cannot avoid engaging with experts. And we cannot avoid engaging with people who have expertise in public health when it comes to managing health issues such as the pandemic. But if we don’t hold people to account, if we just allow experts to make decisions for us, without regard for the broader set of consequences, those trade offs that you mentioned, then I think we’re in trouble. And we saw that we saw that in every state, and territory. But we certainly saw that here in New South Wales, where areas were locked down. So that there was an area in in in Sydney, from which a lot of traders needed to travel in order to work when they can’t travel, they can’t work when they can’t work, they can’t earn money. And well, I mean, we know what the economic consequences of and the social consequences of that are. And I think simply to say, you must stay home and stay safe is not enough, because everyday life is full of risks. And we take risks and assume risks and make calculations about risk every day.


Gene Tunny  09:26

Yeah. What area was that? Peter? Was that from Western Sydney? Fairfield? Fairfield. Gotcha. Okay. Was there also a an issue of the composition or the demographic makeup of that area that that suggested that I mean, this was almost discriminatory in a way because I know that some areas which had higher ethnic populations, they ended up being suffering worth restrictions, didn’t they? And that can lead to social tension.


Peter Kurti  09:54

That’s right. And that is exactly what happened because they found I mean, the police were very, in my view were very heavy handed during a lot of this time, and then the police or others found but in communities with large, the large ethnic component, people were not being as observant about the restrictions because, for example, in, in Muslim communities, there are larger families and getting together and mixing with one another is is very important. And they attracted, I think, the particular attention of the authorities because of this. And so the lockdowns and restrictions were more stringent. Again, you know, judging everybody by one standard, everybody must stay safe. Everyone must stay home, regardless of whether or not that’s something that’s practical or even necessary.


Gene Tunny  10:51

Hmm, yeah, exactly. He talks about this concept of double delegation. So I’d be grateful if you could explain that and also reflect on is this something that we’re increasingly seeing these chief medical officers, they’ve been introduced in the last couple of decades? I mean, we didn’t have a Chief Health Officer in Queensland, I don’t think until the early 2000s, we had a public health act in 2005 that came in, and this this new position they’ve created, and they delegate some powers to that position. And presumably there are other examples of this as is something that’s becoming more common. Is this something you’re concerned about the trend? Could you talk about that, please, Peter.


Peter Kurti  11:36

it is part of a larger trend. It was COVID that alerted me to the problem and brought it into focus. And I suppose maybe I have simply been complacent before because we are used to experts, advising government and all kinds of things. We just think, Oh, well, that’s the way the world works. But not in my lifetime. Have you seen what kind of impact this expert advice had? But I think it is part of a broader trend. And we see it in other areas. I’ll say something just about double delegation. Before I come back to that to that manifestations of that broader trend. It’s a phrase I picked up from the English political scientist, Adrian Papst who talks about the the fact that we describes this problem that arises when we as it were delegate to elected politicians, we delegate to them, we say we appoint you to do a certain job for a certain amount of time, we will assess you. I know this is not necessarily what we actually think. But we say we will assess you at the next election and decide whether you’re going to keep the job. Those to whom we delegate delegate in turn to, to this body of experts, and perhaps describes it like this. He says, double delegation arises when representatives elected by citizens delegate power to unelected officials, who are part of a professional political class. So it’s not just a matter of delegation, but delegation to a professionalised group of people who, who are then use their professionalised status to further entrench their position. And to argue that what they say not only is right but needs to be observed. Now, we’ve seen in public health that was the most obvious example but I think we also see it when, when there are discussions, for example, about energy, about climate and changes in in the climate. We do see it a lot in economics, although I think that’s to an extent a rather specialised example, because economics is so is so technical. Certainly monetary theory is very technical. But we hear these phrases that are put about when there are discussions about climate change, like the science is settled, for example, which I think is a contradiction in terms because I don’t think science is settled. But a group of professionalised. Climate scientists decided that this is this is the position we need to adopt. And they’re backed up by the media, who emphasise their opinions and so consolidate their position. So it’s part of a broader trend. And I think we’re going to see more of this, I think with when areas that really, so few of us actually do understand such as AI and the emergence of AI and development of AI. We need to be really vigilant about the way in which we use expert advice. The paper is not I’m not anti experts. I’m not saying we don’t need experts, we can we can make our own decisions any more than I’d say we don’t need we don’t need surgeons. I’ll do my own surgery. Thank you very much. Well, I’m not saying that. What I’m saying is that if we are going to use experts as we are bound to do we as soon as Since a liberal democracy in Australia, need to be thoughtful about the way in which we engage them in ways in which we hold them to account. And we also need to be stronger about defending freedom of speech in the sense that I think we need to be more willing to tolerate dissent, we need to be able to say, well, this group of scientists over here says, you know, there is a climate catastrophe, for example, whereas this group of scientists over here is saying, well, warming and cooling is just part of a trend. These are parts of trek, these are trends that that take place in on the earth over a period of years. We need to be able to tolerate dissenting views. I’m not saying we are necessarily able to determine which view is correct. But we are increasingly reluctant I feel to tolerate it today. We’re reluctant to tolerate dissenting views, because we want to have the right answer. We want to know what the right position is the right solution is. We saw that during COVID. Of course, when debates about the efficacy of vaccine mandates or mask mandates, or social distancing, dissent was not tolerated. And I think that if we are going to make an intelligent use of experts, we do need to be willing to tolerate dissent and to live with perhaps the discomfort that comes from having dissenting views.


Gene Tunny  16:24

Yes, yes, exactly. Yeah. It makes it difficult for politicians, though, if, if the experts don’t agree, so how, how do we think about that? Or what’s the relationship mean? You mentioned tolerating dissent, that’s one of your rules or your tips for getting experts, like using them effectively? I mean, there’s obviously a role for expertise and people who understand the issues, and they provide the advice to the government of the day. How do you think about how those experts should be used? And I mean, what the decision makers do when there is a situation of of that of that descend to mean, is it up to them to judge where the weight of evidence is? I mean, because the politicians will say, Well, look, the bulk of evidence is in favour of this hypothesis. It could be climate change, for instance. So yeah, how do you think about that, Peter, how should politicians use experts?


Peter Kurti  17:21

Well, I think it really adjust the way that you have outlined by examining what it is the experts are saying, By assessing the evidence by determining where the bulk of opinion lies, and then using judgement and skill to make a decision. We can apply that sort of framework to any policy area where might think about migration levels of migration, there are people experts who say Australia, we can’t have a big Australia, others say we can have a big Australia, and each side will mount will present evidence to bolster their own arguments. And I’m sure believe, quite passionately, the evidence that the cogency of the evidence they present, but somebody then has to make a decision about how we do that, and an elected government has to take a position, we can see it in terms of going to war, or whether we supply arms, for example, to Ukraine, we went into Iraq 20 years ago, very controversially, but we did so on the bait, I mean, at the Howard Government did so on the basis of evidence that was presented. And as we remember, because we know those around at the time, there was a huge amount of dissent in this country about that. At the end of the day, it’s elected representatives who have to make the call and are then held accountable. So I think it’s it’s a difficult role. And I’ve never been an elected politician. So I’ve never been in the position of having to implement this. I’m simply really someone on the sidelines who’s advocating for a certain as it were, a certain style of, of a certain style of living, if you like. But I think it’s by by weighing and assessing, carefully, evidence that is presented. And I think not allowing fear, I talked about the importance of political courage, not allowing fear of adverse consequences to deter somebody to do just hit you from making the right decision, for example. When I mean, how many years ago was it now it’s it’s must be nearly 30 years since the Port Arthur tragedy. And the Howard Government decided that they were going to take a stand on on firearms. And there’s a lot of controversy about that at the time. I remember not being illustrated very long. And the view was that people living in the country or people who are really attached to their weaponry wouldn’t be happy with this. And there were arguments on both sides, but I think the weight of public opinion, or rather, I should say this put it this way. I think the Howard Government made it made a decision based on on the evidence and the politics, and also having to judge which way public opinion whether public opinion would accept this. And it was a controversial decision. But I think, given the horror of what happened at Port Arthur, the Australian public did accept it. But there was no telling, which was the right what was the right decision or not? I think it’s in a sense, you only know whether you’ve made the right decision with hindsight.


Gene Tunny  20:33

Yeah. What really annoyed me during that COVID period was the politicians making decisions and saying, the science tells us this, we have to do this, this is the only the only thing we can do and, and not going into what the decision making process was all they didn’t show that they were weighing up pros and cons, whereas I really should have because there are going to be pros and cons of any decision. There are the trade offs we talk about, there was no right answer in necessarily, in my view, it’s always a judgement call to an extent when we’re we’re dealing with those trade offs. And what made that clear to me and to others, and this is something I was chatting with. One of my colleagues, Joe Brannigan about on this, this show when it happened, we had a Chief Health Officer who I don’t know if you remember, they let Tom Hanks in, you know, if you’re a movie star, you’re a footballer, you you had no problem getting into Queensland. But if you were just some regular, you know, person and yeah, bad luck, you got to do two weeks quarantine. And then we had a constraint on the number of hotels for quarantine. So that meant people were camping. On the border. It was just disgraceful. So that that’s one thing that annoyed me that I don’t think there was too much relying on the experts saying this is what the experts have told us that it’s based on science. And there’s no acknowledgement that they’ve actually, you know, there’s really a call that’s been made there, or there should be a call, there should be a judgement that the politician should be involved in. I think that makes sense. Does that make sense? What I was just saying, yes, it does.


Peter Kurti  22:16

And the trouble is that the politicians just caved in. I think there was a I mean, there were these sorts of stories all around the country. But there was that famous incident where a mother I think living in Tweed Heads needed to get her very sick child or children to a hospital. The nurse was in Queensland, but it’s quick. You can edit this bit out tweets, edits, Tweed Heads in New South Wales isn’t it’s not so correct. Yeah. She needed to get across the border. And Pat O’Shea said famously, are notoriously the Queensland hospitals of a Queenslanders? Well, I thought, you know, I mean, it was a disgraceful thing to say, because I felt what was also happening in this time of panic was that our national identity was fragmenting and we were becoming a sort of a collection of fragmented callers, and I would do your former columnist, and I thought that even our sense of national cohesiveness has, has has gone. Yeah, all kinds of stories, like I’ve had people who weren’t able to visit sick, sick relatives in hospital, because there was this fear of contagion. And I think, and politicians just seem to be happy to let that happen. In New South Wales, interestingly enough, when Berejiklian left, left the job of Premier and Dominick parity came into office, the first thing he did was reduced the period of isolation that you had to have if you tested positive from seven days to five days. And there was the usual concern expressed by public health experts that actually this you know, you could still be contagious after five days and, and, you know, this is really not a good decision to make, but parity had the wisdom to see that, in fact, people needed to get back to work and they need to get on with our lives. And that five days was enough. And that you just had then have to assume a degree of risk and in in what you do next, and we all of us, you know, we exposed to the flu virus every year. We know that if we’re sick, we stay home if we’re not if we if we feel really unwell we go to bed, and I think for the state to say and saying to people who are actually very well but happened to have tested positive on a on a on a rat rapid antigen test, which in itself was not 100%. Reliable, meant that people were exposed or subjected to all kinds of inconvenience. So I think there were lots of examples such as such as the ones that you cite, and and the ones that I’ve cited,


Gene Tunny  24:55

and just on Tweed Heads, so just to provide some context. So it’s part The same urban area as the Gold Coast effectively. I mean, if you if you drove through there, you wouldn’t unless you saw the sign, you wouldn’t realise you were crossing over Queensland and New South Wales. So it’s, and that was the that was part of the problem. And then they had to put the barricades up and have the police there. It was just just awful situation. So I should ask Peter about the those tips for dealing with experts. You mentioned them before, I just want to go over them again. Because I think there’s really good I think there’s one of the best things you do in this paper, you’ve got these three cultural contours. There are three of them that if cultivated, emphasised can underpin the approach to engage in experts and help encourage an efficient and responsible contribution to democratic decision making and one tolerance of dissent. Absolutely. political courage. So the elected representatives need to be less anxious about upsetting public and political opinion in determining the policy trade offs. I think that’s great. I think what would have worked? Now it sounds like I’m picking on the politicians or politicians during the pandemic, but of course, it’s it’s one of those, you know, it’s an example. It’s one of the, you know, it’s one of those crisis periods where you really, these issues come to the fore. So, look, I understand the human, I don’t want to be super negative about them. But they really did provide this, this example for us to talk about. So I will talk about it again that say, you know, what would have been better is if say, our premier had said, okay, look, yeah, this is what the Chief Health Officer advised. I’ve weighed this up, I’ve recognised the fact that this is going to cost the economy, but this is the judgement I make, which you should the politicians should have be more honest about that is that that’s what you’re getting out there?


Peter Kurti  26:45

Well, yes. And I think, not being frightened of making a decision. Lest it turn out to be the wrong one. I felt they played it safe, or all the time. And so I think that’s right. We saw it with the vaccine mandates that I mean, we were, for example, we knew that vaccine wouldn’t stop you necessarily stop you getting COVID. But it would alleviate the symptoms, you would have it less badly. But it didn’t. If I’m vaccinated. It doesn’t stop me from infecting you. It just something that affects me and yet we had in New South Wales and around the country, these vaccine mandates, and he got ridiculous, you couldn’t go in, you couldn’t go into shops, you couldn’t go into these unless you prove that you’ve been vaccinated, whereas vaccination really did not affect my vaccine status did not affect you or any other of my neighbours. And yet nonetheless, we were required to do this, and the horridly developed vaccines were presented to the Australian population as being safe. And we know that they were not entirely safe as I mean, no vaccine is because science 20 cent is an art. I mean, it’s a science, but it’s also it’s an art and we don’t, we can’t always be sure of an outcome. And certainly, I think with things like vaccination, especially when they’re rapidly developed, there will be there will be difficult, and they’ll be problems. But anyone who raised those sorts of problems would announced those who expressed concern about about the safety of vaccines, vaccines were, were denounced as being irresponsible. And it seemed to me that no politician was prepared to say, we don’t need to do. We don’t need to do things in exactly this way. We need to be calmer, we need to be more realistic about about the nature of disease, we panicked. I mean, Western Australia shut down the entire state, when there was one case, yet we seem to be blindly indifferent to the 1000s of people who die every year of flu. And I felt there again, you know, the politicians were just caught up in this pandemic. Panic. And I think that a degree of political courage, we don’t allow them to say, It’s okay, you know, we have sickness we have people do get sick, but life has to go on. And we need to make we to be responsible and take decisions in a way that minimises the harm that we expose others to, but that allows us to continue with the lives that we’re living. Yeah. And the the incomes that we’re earning. So yes, I think it’s, it’s that sort of response that I would like to see cultivated by when that I’m really scribing in terms of political courage.


Gene Tunny  29:45

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Gene Tunny  30:20back to the show. Okay, very good. So we talked about tolerance of dissent, political courage, and the final cultural contour is institutional integrity. Yes, exactly. Yes. So, no democracy today can dispense with experts, but institutional mechanisms of accountability can ensure that experts exercise autonomy, responsibly, could what? What mechanisms do you mean there? Peter?


Peter Kurti  30:49

I think? Well, they cite a number of examples. One is the oversight of budgets that are available to experts, the appointment of experts to advisory panels and boards, the codes of conduct that guide the behaviour of of experts, codes of ethics, just, you know, various sort of social and institutional frameworks that we put in place to ensure that people know experts know that they have to be accountable and cannot simply claim their expertise as a warrant for doing whatever it is they want. You know, it’s a slightly nebulous idea, because it’s not it’s not something it’s not like a switch that can be can be flicked. And suddenly we have institutional integrity. I think that is a that’s why I call them these three points I call cultural contours, because cultural culture evolves and cultural contours, something has to be cultivated. And in a sense, practised as well. Another form of institutional integrity might be the very fact that we can question experts and say, but, you know, you’re wrong. Going back to the pandemic, it was simply not acceptable to say that Sweden had got it right. And Australia got it wrong. I remember doctor as a doctor friend saying to me that ivermectin was, which, which in his ex medical experience was somebody that had that had the capacity to alleviate COVID symptoms, could now no longer be prescribed off label. And he was very indignant about that, because he felt doctors always have a discretion about prescribing medicines. And that whilst the medication can be prescribed for a specific condition, that is states on label, it might also have an effect on conditions not specified hence the description off label but they were actually prevented from prescribing of labour. Well, I think we need to also why is this why but even to utter the word, ivermectin would get you disconnected from, you know, various groups and various fora. So that’s another form of another manifestation of institutional integrity that we can actually, we can have systems in place that are robust enough to ensure that people are held to account and are not free to make those sorts of decisions without without regard for the wider consequences.


Gene Tunny  33:18

Yeah, exactly. I mean, to me, so they’re getting some scrutiny. I mean, there is some media scrutiny, arguably not enough, there was not enough probing, there weren’t enough probing questions during the pandemic of the politicians and the officials and the chief health officers, they should subject themselves to more media interviews. And part of the problem is the normal processes of government were suspended, weren’t they during the COVID period, because we had these public health acts that gave them these emergency powers. So there wasn’t the usual debate in the parliament or the you know, the committee processes where there’s something serious, you know, something of such magnitude or such. Such great impact on the economy and society would be debated for a minute should be extensively debated in parliament in committees, and it just wasn’t. So that’s that was what I see as one of the problems to agree. Yeah. Okay. Very good. So that’s one thing I really liked about that paper. And I’m going to put a link in the show notes because I think it’s Yeah, I think that’s great. Okay, AI, you mentioned AI, what are you concerned about there? Exactly. If the experts are formulating the response, what are you actually concerned about there?


Peter Kurti  34:37

Oh, no, I think we need we will need to be very attentive to expert advice when it comes to AI because it’s, it seems to me from my layman’s perspective as a non computer expert, that it seems to me that experts themselves are debating about the capacity of AI and these large language models and generative AI to assume increasingly demanding roles. And this is a long standing issue in, in areas like philosophy of mind, and certainly in cognitive science about what consciousness is and whether a machine can be conscious. And we don’t know. And I don’t think the experts know. And there are some AI some some experts who are calling for us to slow down and take things more steadily, others who are quite happy to let the horse out of the stable words out of I say what, but let the horse gallop at whatever speed it wants. So I think that that’s an example of an area where we clearly are going to have to depend upon experts. And it will be foolish not to, but at the same time, we need to, we need to accept that there will be dissent within expert groups. And we need to be comfortable with that a sense that with that dissent, and we need to, in a sense, not abdicate responsibility for my for making our own decisions about these things to experts, and to to attend as best we can, to what experts are saying and to think critically, about how we ourselves respond to what they’re saying. I think AI is very exciting. And I think it’s it’s whether it’s in, in in medicine, or space exploration or, or defence, AI is rapidly changing the way we we interact with technology, then we don’t quite know how it’s going to go. And I think we need to be, as I said, we need to be attentive to what experts are actually saying and to follow the debate, you know, not to give all the authority and all the power away.


Gene Tunny  36:47

Yeah, gotcha. One of the conclusions you reach United that this report has argued that any economic account of experts, which takes into consideration the tenants of public choice theory. So that’s something I’ve covered on the show before, I’ll put a link in the show notes to that episode. So any economic account must always allow for the influence of personal interest, opinions and prejudices of those providing expert advice. So do you see that that has been? That has been a serious problem? Do you have any examples of that? Peter, are there any examples that come to mind?


Peter Kurti  37:26

I know we’ve talked a lot about COVID in our conversation, but I think COVID provides a good example of that. This notion of information choice theory is an idea I discovered with the writings of Roger Koppel, who of course, develops as you’ve mentioned, public choice theory, but really, information choice theory. Kapil is arguing that perverse outcomes can occur when expert advice is is tended that experts themselves will be motivated by self interest. And he would say that what we have to do is abandon the idea that experts seek only the truth without regard to motives such as fame and fortune. And that sounds a bit cynical in some ways, but I think Kapil is is right that we can’t, we must imagine that experts themselves have got are devoid of human motivation or ambition or desire, and accepting that that’s just the case that is human nature, that Kapil argues that information choice theory suggests that what we need to do is have is to avoid situations where one body of experts has a monopoly over opinion, but they must be able to compete with one another, an example that he cites, and I’m not sure it applies in quite the same way in Australia, but one of the examples he cites is forensic medicine. And he argues that, that when there is no competition about forensic scientists, amongst forensic scientists, and forensic medicine is devoid of those the competing voices of experts, there’s a danger of, of scientific error, which of course, being forensic medicine can in turn lead to instances of injustice, and that where there is more than one forensic medical point of view, the there is a greater chance that error will be avoided and therefore injustice avoided. Now it does happen to an extent here we know in each state and territory of this country, forensic medicine has led to in just miscarriages of justice, which are then which are then corrected. The problem in the United States is that the death penalty is is reasonably widespread, and that all that can take many years, faulty forensic medicine, forensic research can lead to, you know, very draconian punishments. We don’t have that quite that problem here. But it’s an example of a couple sites and I think it’s a it’s an interesting one that You would do well to attend to.


Gene Tunny  40:02

Okay, I’ll have to look up his work. I wasn’t I’m not familiar with Kapil. Did you see in the public choice school?


Peter Kurti  40:09

Oh, he is. Roger Capo he’s actually it’s finance and financial management. He teaches drive. I’ve not got the book right beside me.


Gene Tunny  40:21

That’s okay. I’ll put it in the show notes. Is he at Syracuse in? In the States? Yes, I think he is.


Peter Kurti  40:26

I think he is. And the book that he wrote a really interesting book was expert failure, a book published in 2018.


Gene Tunny  40:35

Yeah, I’ll definitely look into that sounds. Sounds interesting. Okay. Before we wrap up, I just want to ask you again about? Well, I want to ask about monetary policy, because you mentioned this is one area where and this is a case study you given your paper, this is one area where delegation can be justified. Now, could you explain why that is? Peter, why we would delegate the monetary policy decision. So changing the cash rate in Australia, changing the federal funds rate, why we would delegate that to either the Reserve Bank of Australia board or the Board of Governors of the Federal Reserve Bank?


Peter Kurti  41:13

Well, it’s an interesting example. And I think, in a way, it’s a timely example, because the again, this really flowed out of the way in which the Reserve Bank was considered to have performed in the wake of COVID, not raising interest rates fast enough, not getting on top of the knock, knock, tapping, trapping that inflationary genie in the bottle promptly enough. And so there was a review. And there was a feeling one of the recommendations in the review was that there should be this, this monetary check, what’s it called a monetary? That’s right, the Monetary Policy Committee money, but money money policy board that said that there should be a separate board that will advise the Reserve Bank board about what to do. And there’s this view that, in fact, your view put forward by Peter here, that the the Reserve Bank, governors are well, meaning amateurs, and that’s possibly true. Not all of them are, but they’re engaged in business and corporate and economic life in the country, given that the Reserve Bank has a target band of inflation, and there are ways of meeting that target. And the board has to make a decision about interest rates in order to try to meet that inflation. retirements involves some very difficult some very technical decisions that are really beyond the capacity of ordinary members of the public. So I think I use as that as an example of an instance where we do need experts. But we mustn’t abdicate all responsibility, and that they need to be held to account in in some ways, and I think some it or the way the monetary policy board was promoted in the review. And the way it’s been greeted in the press, by some people, is that this body of experts will now correct and avoid all the failings of the Reserve Bank. And I think that’s a problem. I think that we need that sort of advice. But there were commentators like John Edwards was one of them, who wrote in the Australian saying that actually, the Reserve Bank didn’t do such a bad job when you consider other central banks around the world in western democracies, that the Reserve Bank board didn’t do such a bad job. And I think there’s this idea that now we’ve got the experts, everything will just be fine. And we won’t have those mistakes again. And I cited as an example, because I think it’s an area where we do need experts, we do need people who are proficient in the complex technicality of monetary monetary policy. But in the sense that an instance of that might be an example of information choice theory where you need to account for the fact that even these experts with these technocratic experts, even these people have, have human failings, desires, ambitions, and goals. We cannot think that somehow there is this pure, disinterested advice. That’s been that’s been tendered. And I cite the Reserve Bank. And the other example I cite is I CAC The Independent Commission Against Corruption, because it shows actually how in a sense how complex modern life in a country like Australia is, and that there’s no rule. You can’t say, well, we need experts in these situations that are not in those situations. We need experts in in different ways for differing rules, but we have to think about how we use them. So if we have a monetary policy board, is this board a board that is going to be accountable? To who? The treasurer, perhaps the board? Probably not, it’s independent, who appoints them, and how For how long are they appointed? and how they removed? Those are the sorts of questions that I think we need to ask about such a board. And that’ll be an example of the kind of institutional integrity that I’m talking about. When we think about what are the parameters of control? What are the terms of office? How are the people appointed, how they removed? What are the criteria that are used to make those appointments? And you may feel at the end? Well, that’s all a bit fuzzy. And I suppose in a sense, it is fuzzy. We these are, there is nothing, there are no hard and fast rules about how we approach these questions. I don’t think that means the questions are unimportant, nor do I think it means we should avoid asking them.


Gene Tunny  45:40

Yeah. So that Peter, the other Peter, you mentioned as Peter tulip, Chief Economist at Centre for independent studies, and Peters argued that there should be a separate monetary policy board separate from the the bank board with that could run the Reserve Bank. And yeah, look, there are some there are arguments in favour of it. I don’t know whether it’ll actually mean we get better decisions. It might. Because the the current board does have the, it’s got some RBA members on it. It’s got the Treasury Secretary, and then it’s got, you know, it’s getting all the advice from the Reserve Bank. So maybe we could get better decisions. I don’t know. I’d be willing to have the experiment as possibly worth doing the experiment. But one of the things I would point out to or one thing I should note is that, you know, there is a delegation already to the board from the government. I mean, the government, the Treasurer doesn’t make the interest rate decision that is delegated to the Reserve Bank, board and economists have generally, you know, most they all sort of agree that that’s a great thing, because, well, monetary policy is a technical decision, we want to keep the politicians as far away as that away from it as possible, because their political interests could be in favour of inflation, getting some short term, you know, giving the economy a short term boost prior to the election, accepting some inflation that comes later, because they want to get elected so that there’s a risk there. So that’s why that’s been delegated. And then what Peter’s arguing for as well, we should then go even further than that, and have a or have a special Monetary Policy Committee with expert economists on it. So you know, really increase the expertise of the body that’s making that interest rate decision here in Australia. Yeah.


Peter Kurti  47:37

And I should say that Peter was kind enough to read that section of the report and gave some helpful feedback. And it was I incorporated a number of his comments in that section. So that I, he corrected any sort of that I was drifting at one point. I mean, I’m not an economist, and I was grateful to Pete for so he’s read this. Yeah. And he knows what I’m, what I’m saying are very good.


Gene Tunny  48:00

Okay. And, yeah, I guess the point is that we’re delegating the the technocratic decision on the exact interest rate at a particular in a particular month. But the government does still decide what the target is it decides what the it reaches an agreement with the Reserve Bank on the conduct of monetary policy. So they’re not, they’re not completely abrogating or dodging responsibility for it. They are, they are still accountable. The government is involved in it, but they’re not making the technocratic decision on the interest rate, which could be problematic if they were involved in that. Because for that reason that I mentioned that the you could end up with really bad policy and evidence from the 80s. From before the 80s. It was, the evidence came, I think it was Alice Cena or in the 90s, late 80s, who showed that central banks that are more independent, that don’t have that the government telling them what they should be doing with monetary policy. Those countries ended up with better inflation outcomes, so lower inflation. So that’s, that’s why it’s good to delegate that decision to


Peter Kurti  49:17

and I agree with you, I remember when the the the Blair government was elected in 97. Very soon after the trailer, the chancellor, the Treasurer, Gordon Brown, declared the independence of the Bank of England that it needed to happen long ago. And I mean, Australia has got an independent bank had already got an independent central bank. And I think that that’s very important because we can imagine that for example, if the Anthony Albanese decides to go for a double dissolution, we’re talking now on the last day of July, but if he decides to go for a double dissolution, he’s not going to want to run on on on on his economic policy at the moment because Australians are very cheesed off with the way things are going and so it’d be very tempting for a government To tweak interest rates with if they’ve got their eye on an election. So I think having it depends is very important. And why I cite the example is because I think it’s an it shows the complexity of the relationship between experts and their elected overseers and how that relationship, how is managed, how they are held accountable, and how we decide to what extent they are. They enjoy autonomy and to what extent they need to be to be reined in. There’s a phrase that is used by one of the writers they quote on this, because there’s a lot of literature about expertise, which was, so it’s a very interesting paper to research and write. He talks, Michael shoots and talks about, we need to work out the length of the leash on which we keep experts, he can’t be too short. Otherwise, they won’t be able to do their job. But he can’t be too long. Otherwise, we won’t, you know, they’ll they’ll just make decisions without any kind of accountability at all. They have to be autonomous, but not to autonomous. How do we calculate the length of that lease? It’s a very difficult thing to do. But I think that I am completely in favour of an independent central bank. And I certainly wouldn’t want this paper to be interpreted by some as advocating for returned to government control.


Gene Tunny  51:20

Oh, no, no, no, not at all. I read that section that Oh, yep. That’s That’s right. And the one thing I would have added into it was that point about how having that delegation of the actual choice of the policy rate that’s, that’s good from the point of view that that independence does lead to better or lower inflation outcomes. So that’s something that’s been widely researched and, and proven so very good. Okay. Peter Kurti. Thanks so much. It’s been great. And I agree, we need to think more about the role of experts and how they’re used in policymaking. It’s important if we have another pandemic, let’s hope not, but also in decision making and all the other great challenges that we face challenges relating to climate change challenges related to AI. So it’s important to think about the role of experts in advising government and we want we want to avoid the experts taking over we need governments to be weighing up the the advice thinking about it, you had that the great the trilogy of of tips, which was good, the, you know, being courageous and tolerating dissent. And obviously thinking about those that accountability, institutional integrity, I call it institutional integrity. Very good. That’s great. Peter Carey. Thanks so much for your time. I really enjoyed it.


Peter Kurti  52:47

Thank you, Gene. It’s been a real pleasure. I’ve really enjoyed our conversation


Gene Tunny  52:53

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 you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


53:40

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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 PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

Highlights of last 100 incl. Brad DeLong, Sir David Hendry, Leonora Risse, Andrew May – EP200

In this special 200th episode of Economics Explored, host Gene Tunny is joined by Tim Hughes to discuss some of the highlights from the last 100 episodes. The episode features clips of Brad DeLong (UC Berkeley) describing how we’ve been slouching towards utopia since 1870, Sir David Hendry (Oxford) on the merits of small modular nuclear reactors, Leonora Risse (RMIT) on the benefits of diversity, and Super Forecaster Warren Hatch on what makes a good forecaster, among others.  
Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP200

Links relevant to the conversation

Episodes from which clips were taken from:

Slouching Towards Utopia w/ Brad DeLong – EP163 – Economics Explored

The Progress Illusion w/ Jon Erickson – EP166 – Economics Explored

Thriving w/ Wayne Visser, Cambridge & Antwerp sustainable business expert – EP130

Sir David Hendry on economic forecasting & the net zero transition – EP198

Superforecasting w/ Warren Hatch, CEO of Good Judgment – EP176 – Economics Explored

Women in Economics with Dr Leonora Risse of RMIT, Melbourne – EP124

Truth (or the lack of it) in politics and how to think critically with help from Descartes – EP123 – Economics Explored

The importance of physical & mental health for top CEO performance w/ Andrew May – EP193

Link to info about Windscale fire mentioned in conversation between Gene and Tim:

Windscale fire – Wikipedia

Transcript:
Highlights of last 100 incl. Brad DeLong, Sir David Hendry, Leonora Risse, Andrew May – EP200

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It was then checked over by a human, Tim Hughes from Adept Economics, to see if the otter missed anything in it’s rush to catch fish or star in YouTube videos. 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 in to the show. It’s episode 200. And joining me this episode to chat about some of the highlights of the last 100 episodes is Tim Hughes, Tim, good to have you with me again.


Tim Hughes  00:56

Hey Gene, good to be here. Thanks for inviting me on, and congratulations on your bicentenary.


Gene Tunny  01:01

Yes, yes. Thanks, Tim. Well, you’ve been part of, you know, quite a few episodes over the years, and I thought it’d be good to get you on to get your perspective as the man on the street so…


Tim Hughes  01:16

Isn’t it the guy on the Clapham omnibus, is that right?

Gene Tunny  01:19

Yes. The man on the Clapham omnibus, I think it is. Yes. Exactly.

Tim Hughes  01:23

Looking forward to it.

Gene Tunny  01:25

Right. Well, that’s the reasonable man test. So yes, what’s the reasonable man on the street think?


Tim Hughes  01:33

Well, I’ll try and be as reasonable as I can.


Gene Tunny  01:35

Okay, so what I’m going to do, Tim, is I’ll play some of the clips that I think are the best of Economics Explored over the last 100 episodes. Now. I mean, there’s so much good content. And I mean, they’re great. There’s great material that I haven’t been able to include. But these are ones that I really think are great. But look, I’m grateful for all the people who come on the show. So yeah, let’s get into it, we’ll go over these ones that I think are, you know, really standouts. So okay, so to start with, I’m going to play a clip from the episode we did, so this was episode 163, last year with Brad DeLong.


Brad DeLong  02:24

And that’s the state of the world before 1870. And that means that unless you’re in an extremely lucky place, or like Australia, or an extremely lucky class, that life is going to be kind of brutal, short and without very many options, which means that in most times, in most places, governance is going to be how does an elite figure out how to grab enough for itself and maintain its rule over society. And after 1870, everything changes, technological progress becomes rapid, the technological competence of the human race globally doubles every generation, you quickly get a world in which people are kind of rich enough that infant mortality falls substantially. And with that falling infant mortality, and with the erosion of patriarchy, all of a sudden, you don’t have to concentrate a lot of effort on having children, to be confident that if you reach the age of 50, you’ll still be able to run your own life. And so you’ll we get the demographic transition, now headed toward a stable world population of 9 billion. So for the first time after 1870, technology wins the race with human fertility, you know, and we begin to look forward to a time when humanity will be able to bake a sufficiently large economic pie so that everyone can have enough. And you know, people back in 1870, and before, you know, they thought most of the problems of society came because incomes were low, and technology was underdeveloped. And you had this elite running a kind of domination and exploitation game on everyone. And once you can bake a sufficiently large economic pie for everyone to have enough, those things should fall away. And the problems of properly slicing and tasting the economic pie, right? Of equitably distributing it and then utilising it so that people can feel safe and secure and live lives in which they’re healthy and happy. Yep, those should be relatively straightforward to solve. And so we today, at least we today in the rich countries should be living in a Utopia, which we are manifestly not. And so the story of history after 1870 is how we’re well on the way to solving the problem of baking a sufficiently large economic pie. While the problems of slicing and tasting of utilise, of distributing and utilising it continue to flummox us.


Gene Tunny  04:59

Okay, so I thought that was a really great clip, Tim and I was talking to Brad about his new book, or new last year, Slouching Towards Utopia. And it’s a the economic history of the world, basically. And, yeah, I thought that was a really nice way that he talked about just all the, the economic gains we’ve had since 1870. He sees 1870 as the hinge of history, before that we’re in this sort of subsistence way of living. And then after that, when the industrial revolution really took off, and we got electrification, then we just had these massive increases in living standards. So we’ve solved well with I wouldn’t say solved, but we’re so much wealthier, and the, you know, our production possibilities are so much greater. But we’ve still got, we haven’t got everything, you know, perfectly right, obviously. And there are issues, arguably issues of distribution. And there are also environmental issues, too, that I wanted to talk about. So I thought that was a good one to kick off with, because it reminds us that when we think about the economy, when, as economists we should be thinking not just about the GDP, not just about production, but we should also think about distribution. And we should also think about other impacts, so impacts on environment, etc.


Tim Hughes  06:29

Yeah, it’s actually a really good one to start with, because it sort of sets the scene. I know you’ve grouped together a few clips, that are of the same kind of genre. So this is a good one to lead off. It gives a good sort of snapshot of the, of where we’re at and where we’ve come from in the last 150 years. So it’s the equitable distribution question, I guess, is, is really a big one. And of course, a very, as simple as it should be, or could be, clearly it’s, it’s not simple to execute it, it ends up with a lot of the equity being in the hands of a few and people are struggling in great numbers around the world. So that slicing up at the pie seems to be a big challenge that we haven’t really cracked,


Gene Tunny  07:14

Well, fewer people struggling around the world than previously. So I think one of the great things about the last 30 or 40 years, particularly since the economic reforms in China, as we have seen hundreds of millions of people get out of dire poverty. So that’s great. And that’s a that’s a real win for market economics. So it’s a, you know, a win for free markets. Now, I think what Brad is, he’s really concerned about what’s happening in the States, because in the States, particularly since the 80s, you you’ve seen a lot of the gains, the economic gains, go to the top, go to the top 10%, top 1%, top 0.1%. So that’s one of the things he’s concerned about. Now. You know, there’s a there’s a trade off there, because there’s this trade off between equity and efficiency. The big trade-off as Arthur Okun called it. Whereby, I mean, you don’t, you need some inequality. I mean inequality is unavoidable to an extent and you need some you need rewards for people taking risks and working hard. Otherwise, people will, they won’t, they won’t be working hard or taking risks, and you can end up with the Soviet Union. Right? So we want to have a system of rewards. But then there is a question of, you know, what are the right tax policy settings to make sure that those who can pay more, those who can afford it pay more? There’s some redistribution, there’s a, there’s a big debate to be had about that what those appropriate settings are?


Tim Hughes  08:55

Yeah, yeah, I know, we get into a little bit more detail in certain areas in the next few clips. But it’s a massive conversation, and knowing our ability to go at great depth with these, I’m going to cut myself off there, because I’ve got more to say on that on the next few clips.


Gene Tunny  09:12

Very good. Well, I should play some more clips. I thought that, that one from Brad DeLong is Professor of Economics at University of California Berkeley, so very distinguished American economist, a former senior official in the US Treasury, and in the Clinton administration, so very prominent economist, so I was really glad to have him on the show. Okay, so that’s, that was from Brad DeLong. The next clip I want to play is from Jon Erickson, and he’s an ecological economist. He’s from Vermont, and he’s been an adviser to Bernie Sanders. And he’s got some interesting things to say about, well he’s got his, you know, an interesting perspective on the constraints on economic growth. So I’ll play this now. This is from episode 166.


Jon Erickson  10:01

Well, what would an economy look like that was built on maintenance, resilience and cooperation instead of growth, efficiency and competition, right? A late stage maturing economy like yours in the Australia ours in the US. So that’s what I’m asking, you know, an economy, a mature economy should have different goals than an economy at pioneering stages. So it really is about a reprioritization of our goals, especially on consumption, right? Because there’s ample evidence to show that we in the West are over consumers, and our kind of addiction to consumption is creating psychological problems, social problems, that consumption has been kind of become a cure for social ills, right, like a distraction. I mean, the whole advertising industry is designed around the idea of kind of making you and I feel bad about ourselves, right? To sort of fill the void, with more consumption. And I actually think this is one of the lessons coming out of COVID, right? It’s this sort of people were, especially, you know, high income people who, who could weather the storm, better than most, were forced to slow down, were forced to be at home, were forced to kind of reevaluate life’s priorities, and found out that, you know, this kind of ever burning hamster wheel of economic growth isn’t all that it’s cut out to be. So it’s a reprioritization of goals, which is going to have to reprioritize policy instruments. Daly, Herman Daly, used the analogy of a Plimsoll line, I’m not sure I’m pronouncing that right, of a cargo ship, right. So this is the line that’s painted on a ship, very easy technology. And as the as the cargo ship is loaded, it sinks into the water. And when they get to the line, you’re supposed to stop, right, because you’re in danger in danger of overloading the ship. So if we sort of reprioritize and think about the Plimsoll line of an economy, we can’t just more equally or equitably distribute the cargo of an overloaded ship and expect it to be resilient. We can’t just more efficiently load an overloaded ship, and expect it to weather the storm, as the Plimsoll line goes underwater, right. And there’s ample evidence to say that we are a kind of in an overshoot on a lot of environmental parameters, you’re in danger of sinking the ship, especially in stormy waters. So this analogy implies that as we run up against planetary boundaries, planetary limits to growth, the scale of the economic system is way more important to stress than distribution or efficiency. And if we can’t count on a growing system to solve distribution problems, then we’re going to have to quickly think about the fairness of the distribution of benefits and costs of that system. And then and only then can we get to efficiency, which is the priority of economics. So this means that you know, new policy instruments that that focus on scale, distribution, then efficiency is the way to go. And I talk a lot about this in the last chapter of the book, as I kind of wrestle with the idea of, how did I put it, radical pragmatism, right? Lots of pragmatic things that we can do now, for example, to wean ourselves from fossil fuels, you know, home weatherization, and carbon taxation, and, you know, maintenance of our systems, electrification of transportation, transition to renewable energy. But all of these are really hard to do in an economy that continues to bloat, an economy that continues to grow. So we have to be thinking about the scale of the system and that’s probably the radical part of radical pragmatism, right? What’s it going to take to rein power away from the status quo, that part of the system that’s benefiting from this growth model, and create an economy that works for all?


Gene Tunny  14:25

Okay, so that was Jon Erickson, from University of Vermont. Jon Erickson is the David Blittersdorf, Professor of Sustainability, Science and Policy at the University of Vermont. And we were talking about his new book, The Progress Illusion, and I thought that was a great clip, Tim, to play because it’s a completely different perspective from my perspective. And so I’m all for having, well being open to different perspectives and having that conversation. I think he makes you know, some of the points I agree with in terms of what we’ve got to do, I mean, I think long term, there’s no doubt we’ve got to get off fossil fuels. I agree with that. We’ve got to electrify, I’m not disagreeing with that. I’m probably sceptical of what, to what extent we’re, we’re hitting these planetary boundaries already. To what extent we, we should be trying to, I don’t know, he didn’t use the term degrow. But there is this, you’re aware of this term degrowth, aren’t you? And this is something I’m looking at, at the moment for a paper for Centre of Independent Studies. So I think the whole Ecological Economics field, I think, coming out of that there is this, this concern that we are hitting up against these planetary boundaries, we need a, if not degrowing, if we don’t degrow, we at least have to have a steady state economy. They’re worried that we’re just, you know, this, this ever growing economy, ever growing demands for resources that’s causing us a lot of problems. So it’s an interesting perspective. I mean, I’m, I’m a bit sceptical of it. But I did enjoy that conversation with Jon, he’s, he’s a great guy, and I thought that would be a good clip to play.


Tim Hughes  16:09

Yeah, I really enjoyed this one. I think the whole aspect of sustainable contraction, for instance, which we’ve talked about before, as opposed to sustainable growth, like at some point, there’s only so much that can be done, there are parameters. I mean, I see the planetary parameters being quite clearly defined as we get, as the population gets bigger, 9 billion, 10 billion, up to 11 billion by the end of the century, forecasted population. You know, the oceans aren’t infinite, the atmosphere isn’t infinite, the soils, everything that we pollute, you know, we, there’s a point at which, with so many of us on the planet, that, yeah they’re the parameters, and I think they’re quite well defined, Whether people believe in climate change or not, I think the question should be that, given the, the fact that these aren’t infinite resources, at some point, it’s going to be an issue, even if people don’t think it’s an issue yet. And I think we do have the technology and the know-how, and the the will now to, to make ourselves more efficient. So we have less waste, cleaner energy, you know, look after the planet more. So it sort of fits in with, you know, environmentalists that have been talking about this for years. And I think, I think it’s great that it’s come to the fore in conversations around economic policy, because yes, I mean, for instance, I, I firmly believe that it’s really important, it’s possibly the most important thing that we could do, is to be really good in these areas. So talking about, you know, like, so from going from more and more, which we’ve had this incredible growth, you know, going back to Brad DeLong, from 1870 through to now, it’s all been more, more, more. And, and at some point, the question becomes, well can we do it better, better, better, not just more, more more like, it’s, we’ve got enough, like, we’ve got enough to feed the planet, for instance, we’ve got enough to feed everybody on the on the planet. But we don’t distribute it. You know, it’s the whole way of working out who gets what or how we manage our resources isn’t done well enough to do on a good social scale, or a scale that would work financially, economically. And I think that’s the right way to go about it. You know, he talks about the ever burning hamster wheel of economic growth, you know, and that’s a great, great term, radical pragmatism needed to sort of have a fresh look at how we do things. And I couldn’t agree more. I think it’s really good and clearly contentious and not easy to do. But I think that’s the right direction to point in. And there is momentum going towards us, you know, net zero for 2050 fits in with this kind of thinking. And it has a, you know, a lot of support behind it. And I think it’s good.


Gene Tunny  18:50

Yeah, I think the more, well we might have to have a, an episode on degrowth, specifically, because some of the more radical people who are concerned about these planetary boundaries would be saying that we need to do even more than net zero, right? Because conceivably, we could get to net zero, and still keep growing the economy. And there are people who are optimistic. And then there are others who say, well, though, those techno-optimists, they’re naive. Now, I mean, I’m a great believer in technology. And I think technology is one of the reasons that we have had that strong growth since 1870. Or we’ve had all of these amazing gains in productivity, gains and living standards, because we’ve managed to solve our problems, have managed to, we haven’t run out of resources, we’ve managed to, well we’ve explored with our new resources, we’ve switched to new sources. I mean, we switched from whale oil to, to oil to from originally from Pennsylvania and then from the Middle East and all other places. So we’ve managed to, to, you know, to actually to innovate to avoid those constraints. And we’ve historically we’ve been able to do that. Now, I’m not naive enough to think that we, you know, we’re always going to be able to do that. But so far, we’ve had an incredible run at it. Really? So we haven’t really hit those constraints we’ve managed to grow so far.


Tim Hughes  20:22

Well, as far as planetary constraints, I mean, I see that as a resources thing and space, air, water, you know, soil, those kinds of things. That’s what I was, was, yeah, I was reading into that.


Gene Tunny  20:34

And we’re trying to manage those, certainly, in Australia, I guess the problem is in, in other countries and in emerging economies, and you had that great chat with Guillaume Pitron didn’t you…


Tim Hughes  20:44

Yeah, I was thinking of that, too. And it is that thing about, and that’s part of managing our expectations, because the more, more, more in economic growth can be directly transferred over to us as humans materialistically wanting more, more and more, and so our driving, desire for these things, you know, for possessions, is part of that whole story. And so part of managing the planet’s resources better, I think, would also be a question of maybe managing our expectations better as well, you know, like, if we can, I don’t know, become more content with less, you know, which is is often referenced around the world where people seem to be extremely happy with very little because they they engage in, they have strong communities, they don’t necessarily necessarily have a lot of wealth or material goods. But they engage with the things that as humans, we, we need the most, which is social connection. And, you know, that contact, which is lacking more and more, there’s more loneliness in the Western world. And, you know, people unhappy, they have more, but they’re, they’re less happy. So it’s this thing of like, okay, well, maybe we need to look at that, as well as part of this whole conversation about our expectations and who we are as people and what we need as people.


Gene Tunny  22:02

Yeah, well, there’s that concept of the hedonic treadmill. Yeah, so I might put a link in the show notes to that, because you’re right, I mean, you can, at our standard of living, additional increases in standard of living aren’t necessarily going to make us happier, right? I mean, we can, we could be happier on much lower incomes than we do have in Australia. Well, this is what the…


Tim Hughes  22:25

Haha I know I’m kidding, we all we’re all sort of influenced by this, and I…


Gene Tunny  22:28

Or an average or a lower average, lower average income, I suppose. Because part of the problem, I guess, is the yeah, there’s the Keeping Up with the Joneses. And there are a lot of expectations on us.


Tim Hughes  22:40

Well, again, I know, this comes up in one of the other clips, you know, with, in the realms of free market, and you know, the ability for entrepreneurs to do their thing, to be supported or not, etc. And so, with those freedoms come risk, you know, and that’s part of the game if you like, but with most of the western countries, there were social systems that are good enough to help people who are struggling, and you know, that’s, that’s so important to have that, of course, and it gets into the realms of UBI, universal basic income, where that may form part of a fairer society. But you know, it’s, I think, again, it’s, it’s good to point in that direction to see where we might be able to manage, I, you’re the policy guy, I don’t know much about it, until I see it and see what it does as a man on the street, the guy on the street. But clearly, there seems to be a lot of wealth in a few hands and not so much in others. So if it can all be managed better, to be better, equitable distribution, then I’d like to see what that looks like.


Gene Tunny  23:45

Well this is what a lot of the political debates are about. I mean, yeah, again, it’s that trade off, right. I mean, equity and efficiency. I mean, if you have too high tax rates, and you know, you’re not encouraging entrepreneurship. You’re not encouraging people to work hard. But then again, I mean, if if you don’t have some form of progressive taxation, then you can end up with high inequality. And, you know, arguably, what you’re seeing in the US at the moment. You’ve got the, yeah this huge gap between the wealthy and the US and, you know, the middle class, the former middle class. I mean, it’s there’s still a middle class, but it’s not as large as it was back in the, in that post war era. The first 30 years after the war, so yeah, there’s there’s big issues there. Tim, I’d better move on to the next clip, I guess, because I want to play a clip from someone who’s super optimistic. So a South African Professor, I think he was South African, Wayne Visser and he’s, he’s got some role at Cambridge. I’ll put a link in the show notes. And he’s also he’s a Cambridge pracadamic. That’s right. Remember, we were chatting about that? Yes. Actually, he’s not South African. He was born in Zimbabwe. Okay, very good. Well, Wayne, he wrote a book, Thriving, and I interviewed him last year. And that was episode 130. So we’ll hear from Wayne. And he’s got a really optimistic perspective on just how technology is going to help us get out, or get us out of a lot of these environmental challenges.


Wayne Visser  25:29

Eu Green Deal, it’s effectively the Europe strategy on climate change, very, very comprehensive and very ambitious. And it touches everything. It’s got a Farm to Fork area, which touches agriculture, it’s got a mobility area, all around electrification of mobility, it’s got a circular economy element, it’s got a finance element. So yeah, I mean, it’s, it’s a very, very strong policy and it’s being, in some ways, you know, America is, is trying to copy that with the new Green Deal. So, so yes, policy helps with the coherence piece. And then you’ve got creativity, which we’ve talked about a little already. So for things to change for all living systems to change, they need innovation, and that happens through diversity. Again, something we’re working very hard on, but we, we are living in an age of innovation, no doubt about it. And many of our most difficult problems, we are seeing some amazing solutions coming. If we just pick on one, for example, we know electric cars, I’ll leave that alone, but just remember that that is changing much faster than people think. I mean, Norway is banning fossil fuel cars by 2025. That’s just around the corner. And most other countries, you know, UK, it’s 2030. So within 10 years, it’ll really be something to watch. But take food, for example. There’s a whole movement of course around going more plant based, that makes sense from a health perspective, because 20% of mortality can be reduced, just by going more plant based, but also from a climate perspective, and a biodiversity perspective, and of course, animal welfare perspective. But here we see innovation, you know, you’ve seen the Beyond Burger and the Impossible Burger, you know, these are really engineered to look and taste, you know, like the real thing I know that may be a hard sell in in Australia but uh, on blind tests, actually, they they’ve done extremely well. Not only that, but we’ve got cultured meat coming. You know, this is grown in labs, meat essentially grown fermented, grown in vats, like you do for insulin. And this is this is going to completely change everything because again, you don’t have the the input of land and water. You have much lower energy input and you’re not killing anything. So you’re literally just taking cells, live cells from a cow, for example. And you’re creating that is already in Singapore, you can already go to a restaurant that sells cultured chicken. So this is innovation happening very fast, massive amount of investment going into this.


Gene Tunny  28:27

Okay, so that was Dr. Wayne Visser, Professor of Integrated Value and holder of the Chair and Sustainable Transformation at Antwerp Management School. So he wrote a book, Thriving, I was really grateful to have him on the show last year. Tim I thought that was a really good, well, there was some great observations about technological change. And I mean, he had lots of other good examples in his book, I’d highly recommend it. He’s someone who is incredibly optimistic. So I was really glad to talk to him last year. Do you have any reflections on what Wayne said in that clip?


Tim Hughes  28:59

Yeah, I thought it was really good. I’m going to quote from him, he said, “for all living things or systems to change, they need innovation and that happens through diversity.” And it’s great seeing that highlighted as something that is perfectly natural in our world. Like it’s funny diversity is often seen as something that we have to accommodate or get used to and, and bring in, and it’s like, it’s been there all the time. It’s, it’s a perfectly normal part of how we’ve evolved, of how everything’s evolved. And, and the importance of diversity, the role that diversity plays in so many different things. And again, I know this is going to come up with a couple of other clips. But it just shows I mean, and to have, to have it mentioned in this regard, it’s like yeah, great, that that makes so much sense. And also you can see how those things are coming together with technology that fits in with the economic efficiency, if you like or the way of making sure that we can do something better instead of just more and more well, how can we do it differently? You know, what would be a different way of doing this and, and those plant-based meats or meat alternatives are good examples of how we can do something where it’s better for animal welfare, it’s better for human health, it’s better for the environment, there’s a lot of wins with that direction in that area.


Gene Tunny  30:15

Well, I think the cultured meat or the meat grown in a lab that’s effective, it’s effectively the same thing. It’s like the real thing. But you don’t have the you don’t have to raise the livestock and you don’t have the all of the ethical and animal welfare issues associated with with livestock. So I think that’d be terrific. If we could do that on scale.


Tim Hughes  30:36

Yeah, I think there are still a couple of ethical issues around that. But then ethically, you know, as long as it’s safe, and all these different things, as long as it can, you know, tick that ethical box. It’s ethically better than, you know, the the amount of meat that’s going through the current system with the abbatoirs and everything. I eat meat, you know, so like, you know, I wouldn’t, I’m not wanting to be a hypocrite about this and I think meat is important as a choice. But I would like to see, raised ethically, killed ethically, you know, as much as possible. And to have less, you know, I’d be I’d happily eat less meat, with these kinds of alternatives available to, you know, sustain us with our protein intake, for instance.


Gene Tunny  31:18

Yeah, yeah. Very good. Well, I thought that was great from Wayne now, just on this whole theme of economy and equity and environment. Then this theme, I thought I’d play a clip from our recent conversation with Sir David Hendry. So professor at Oxford, he’s an absolute legend in econometrics. And we will, I was really glad to have him on the show. And he made some really interesting observations on the potential role of nuclear energy. So that that surprised me in that conversation. And it’s good that we’re glad that we got onto that subject. So I’ll just play this clip from Sir David Hendry.

We don’t have nuclear energy here, and the opposition party is trying to push it. But then I think there’s going to be a lot of community resistance to that here in Australia.


David Hendry  32:08

Yeah, I can believe that. But do people understand small nuclear reactors? That’s the only ones we’re arguing for, not the big ones, the small ones. In Britain, lots of big ones. And they’ve produced a lot of transuranic waste, that’s going to be a huge problem for humanity. Now, there are two advantages to small nuclear reactors. One, they can use that transuranic waste as their fuel, and greatly reduce the amount of radioactivity that needs to be dealt with from it. And secondly, they’ve been used in nuclear submarines for 50 years, and there’s never been an accident. So they’re very safe, and they don’t have any fissionable material that terrorists might want for bombs. I mean, the stuff they’re using is useless. Other than burning up the waste that’s a problem anyway. If the public knew that these are harmless, that they’re getting rid of a problem, you don’t have nuclear reactors so it’s less of an argument there. But in Britain, people would jump at the chance to cut the amount of nuclear waste that needs to be disposed of burying it, or putting it in deep caves, etc. And these guys can do it.


Gene Tunny  33:23

Right yeah. These are the small modular reactors are they?

David Hendry  33:26

Yes. they are indeed,

Gene Tunny  33:23

Yeah, I think that’s what Peter Dutton, who’s the Opposition Leader here, what he’s talking about.

David Hendry  33:33

Good for him. I think they are actually an important component, but only one possible component, of an electricity provision that would give more energy security and, and be something that can work in almost all circumstances.


Gene Tunny  33:50

Okay, that was Sir David Hendry on nuclear energy. Tim, I mean, we’ve chatted about this conversation with Sir David before, haven’t we? And we both thought, yeah, good stuff.


Tim Hughes  34:00

Yeah it was great and this was something for instance, that I hadn’t heard of before, the SMRs, small modular reactors. And it’s funny that I like it made me very much aware of my own prejudice towards something nuclear, towards being a viable power source because it gets such a bad rap, understandably, from you know, Chernobyl and Windscale and different things around the world where the consequences are catastrophic. And the amount of waste, nuclear waste that has to be buried, like is dangerous for 1000s of years, whatever it like, it’s not great. So the clean, the push for clean energy, seems to be something that would be without anything nuclear. However, it was, it was good because that my first response was like, that doesn’t sound great. But listening to these SMRs, or small modular reactors, and what their capabilities are and what the consequences are. You know, here we are in 2023. There’s a net zero target for 2050. There’s a transition period there of 27 years and in that transitional period, you know, something like SMRs could well be part of that picture to be able to get us through that time or may be part of the future for longer. But I think it helps in opening up the conversation about what these, this range of possibilities might look like. It does not, it seems to be clear, there’s not one thing that’s going to be our main power source. It may be but there’s certainly going to be several. And so if this forms part of that transition, or part of the solution, to be able to get us to net zero, then I think it’s really important to have the right conversations around it.


Gene Tunny  35:36

Absolutely. You mentioned Windscale, so I was I wasn’t aware of that. So there was a fire on 10, October 1957. The worst nuclear accident in the UK’s history. So yeah, I’ll put a link in the show notes to that, I wasn’t aware of that.


Tim Hughes  35:50

Up around the Lake District if I remember correctly around Cumbria? If it’s still called Cumbria, I’m not sure. It is that thing of like, you know, the consequences and concerns or, you know, naturally like, you know, people don’t want to be living near a nuclear reactor. And if they’re big ones, well, the, the spread or the the possible influence of, you know, geographically, the disaster zone is quite big. Right. So, these SMRs, it was interesting. That was something new. And, and hearing the rest of the talk with Sir David, it was like, well, this is coming from a guy who is looking towards net zero, you know, incredibly smart guy and this is the kind of thing that you know my ears really prick up when I see or hear people talking about these things. It’s like, ok, well, this, this is worth, you know, really considering or learning more about.


Gene Tunny  36:46

Okay, we’ll take a short break here for a word from our sponsor.


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Gene Tunny  37:21

Now back to the show.

We might leave that theme now and move on to the next theme of of great clips from the last 100 episodes, which has to do with decision-making, forecasting and critical thinking. So the first clip I’ll play is from our conversation early this year, Tim with Warren Hatch, CEO of Good Judgement in New York City. So Warren’s been involved in the whole superforecasting project with Philip Tetlock. So I’m going to play a clip from Warren on what makes good forecasters.

How do you get on this superforecasting panel? Who’s a super forecaster? What are their characteristics?


Warren Hatch  38:05

That’s a great question. And that’s something, and something to keep in mind, too, is that in the research project, that wasn’t part of the research plan at all. They just observed that in the first year, there were some people who were consistently better than everybody else. And being researchers that caused a new research question, what would happen, they asked themselves, if we put them on small teams? Would they get better or would they revert to the mean? And they did not know at all, a lot of people thought there’d be a mean reversion, turns out, no, they continue to get even better. And so we still do the same process now with our public site, where we’ll just take within the top 1% of the forecasting population there, and other platforms too invite them to come and join the professionals. And they have certain things in common. For sure, they gave us a lot of psychometric tests, hours of them before we got to do the fun stuff, you know, when forecast on elections in Nigeria and the like, and then to see what kinds of characteristics correlated with subsequent accuracy. And there’s certain things that really pop out. One has been really good at pattern recognition, right? So you can think of, you know, you’ve got a mosaic about the future that you’re trying to fill in and see what’s coming faster than anybody else and fill in those tiles. And being good at that is a fundamental characteristic of a good forecaster. Another is being what they call cognitively reflective. And basically that means that if you’re confronted with a new situation, you don’t automatically go to what first pops into your head because what first pops into your head might not be right, you might be overfilling the mosaic too quickly and getting the wrong picture. So you want to slow down and in Kahneman terms, let system two be your friend. You know, it’s hard work, but that’s the way you get a better a better result. So those are two very fundamental characteristics that good forecasters have.


Gene Tunny  40:03

Okay, so that was Warren Hatch from Good Judgement. Tim, that was another great interview subject that you lined up along with Sir David Hendry. So well done on getting Warren onto the show. Yeah, I thought that was terrific. Everything he was saying there about the importance of pattern recognition and being cognitively, cognitively reflective. So any thoughts, any reactions?


Tim Hughes  40:28

Yeah, I loved this episode, I got so much from it. We’ll have a round two I’m sure, at some point soon. It was really interesting. And like, it fits in with a lot of the, well, conversations that we’ve had. I mean, for instance, you know, I try and bear those things in mind, you know, if, for my own decision-making, etc. So, so for instance, cognitive being cognitive, cognitive. I’ll start that one again. Gene.


Gene Tunny  40:56

Is that because I struggled with it?


Tim Hughes  40:59

No I’m just trying to make you look good! Being cognitively reflective, is what I, for instance, did with the SMRs that David Henry mentioned. So my first response was nuclear, nuclear, whatever, that doesn’t sound good. But keep listening, keep, keep the mind open as to what that might look like, you know, so there’s good lessons, there’s so much good stuff in that episode, with Warren Hatch, and everything he was doing and talking about. They’re all things that we can all do as humans in our everyday life. So you don’t have to be a super forecaster to benefit from those same practices. You can make better decisions for yourself, for your family, for your colleagues. It’s a good way to approach you know, the way our thought processes are. And yeah, I got a lot from it. I thought it was great. He didn’t actually mention in that clip. But in the episode, he did explain how important the diversity was in getting a group of super forecasters together. Yeah, that’s like six to 12 people and the importance of them not just coming from the same area. The reason that why they outperformed the CIA in a test was because the CIA are all white 50 year old males from the West Coast of America or from a very similar sort of background.


Gene Tunny  42:15

Yeah, East Coast. The old they used to talk about the wasps in the States, you know, from the East Coast, often from the ivy Ivy League schools, so they all went to prep schools, like you know, Phillips Exeter, or whatever.


Tim Hughes  42:31

So the lack of diversity in that regard, held them back as far as like having a better overview or being able to make a better forecast or decision on something. So again, it just showed it was another reason that diversity is such an important part of our build up as humans and you know, to be better as humans make better decisions. And in this case, better forecasts.


Gene Tunny  42:54

Excellent. So just on diversity you because that’s come up twice now, hasn’t it? I’ve got a clip on diversity from Leonora Risse is at RMIT. Leonora is as a former Queenslander. But she’s been doing great work down in Melbourne, she’s involved with the women’s, Women in Economics network, she’s really grown that. And yeah we had a conversation on women in economics in Australia. And we got into this issue of diversity. So Leonora is a Senior Lecturer in Economics at the Royal Melbourne Institute of Technology. So I’ll play this clip from Leonora now.


Leonora Risse  43:36

The issue of diversity, at first glance, it’s about broadening topics, broadening ideas, and broadening the range of issues that are being considered. And then that is really a guard against the risks and the downfalls of what we might call groupthink. If people think the same, you are, by virtue, narrowing your spectrum of potential ideas and potential topics, and then by an extension of that is also the process. So think economics, really an analysis, you know, from identification of the problem, to analysis of the problem to a solution to the problem is a process of interrogation and asking the right questions and deciding on methodologies. It’s all a set of decisions. And what you find in this research is that, that process, you can shortcut it if you all think the same, and you probably just have a standard way of doing things and are less likely to interrogate, you know, are we taking the right decision here? Is there an alternative? Is there a perspective, we just haven’t thought about? Where can we road test this? And if you had that diversity within your pool of minds and brains working on this, you are more likely to engage in those process of interrogation. Now, that doesn’t mean it’s easy this, there’s a quote in the paper to where I found this amazing quote by Justice, the late Justice Ruth Bader Ginsburg. And she talks about dissent, you know, having a different differing opinion. And when they’re, when dissent occurs amongst judges or lawyers, you know, weighing up the evidence, it necessitates a deeper and more robust and more thorough interrogation of the evidence, it forces you to come up with a more convincing argument or to question any assumptions that you may have jumped to. And I love that quote from from Ruth Bader Ginsburg, because I think it has such applicability to economics, where we are, we are weighing up the evidence where we’re making decisions as to what you know, how do we act on this evidence? What gets more weight? What, what do we choose to? You know, what do we judge is good quality or inferior quality? All those all those points of decision making along the way, I think are all ultimately a value based or a subjective choice that we’re making as objectively as possible. But there’s always scope to think, Oh, there’s another way of doing this. So I think the advantage of having diversity of thinking is that it presses for a more robust process. If anyone’s doubtful, then I would, I would say, well, think about the topics that you study, or the the areas of interest that you have, it’s probably been influenced by something throughout your life. So it’s about being shaped by your life experience, which isn’t specifically about gender. It’s just about, you know, those gender, we have gender patterns in our life experiences. And so ultimately, you know, how we operate is a subjective dynamic, because it’s, it’s a function of our view of the world and the bundle of experiences that we carry around with us.


Gene Tunny  47:00

Okay, that was Leonora Risse from RMIT. Tim, what did you think of what Leonora had to say?


Tim Hughes  47:06

I thought it was terrific. It’s right up my street. First of all, Gene, I want to pull you up. You said that Leonora was a former Queenslander and I don’t think there’s such a thing as a former Queenslander…


Gene Tunny  47:18

Aah very good point! That’s a good point yeah exactly. I mean, she’s not living in Queensland anymore, but she went to University of Queensland,

Tim Hughes  47:22

you know what I’m saying?

Gene Tunny  47:24

You’re right. That was poor form on my part.


Tim Hughes  47:28

Ok sorry I just had to point that one out. This was great. And, again, yeah, so diversity of thinking leads to developing robust processes. And it’s so good. There’s so much in there, and it fits in, it dovetails in with so many of the other clips that we’ve just talked about. And it makes sense, you know, the thing that I love about this stuff for me anyway is, like it completely makes sense that accepting of diversity, that necessity for diversity, it’s better. It shows how important it is to stand up for what you think’s right, and to explain why. So that thing of dissent, to push back against groupthink, and all the banal commentary that might come through accepted norms that aren’t good enough, all these kinds of things. And I had to say she didn’t actually mention the quote by Ruth Bader Ginsburg, and I checked it out. And I’m going to read it out here because I thought it was so good. So Ruth Bader Ginsburg said, “dissents speak to a future age, it’s not simply to say, my colleagues are wrong, and I would do it this way. But the greatest dissents do become court opinions and gradually, over time, their views become the dominant view. So that’s the dissenters hope that they are writing not for today, but for tomorrow.” And that’s the thing you know, it needs people to stand up, it needs people to speak their mind, it’s important to listen to hear and you know, not everything is going to be good, not everything is going to make it but you know, by, again, not going with our first what was it? Count? What was that one?


Gene Tunny  49:08

we want to be cognitively reflective…


Tim Hughes  49:11

That’s the one Gene! That’s the one, we want to be cognitively reflective, so not just go with our first opinion, our knee jerk reaction, but to let it settle, give it more thought. And to be okay, listening from places that you wouldn’t normally listen to, I think is a big part of that is so if you find you vote for the red team, listen to what the blue team has to say, in the best possible way and vice versa. And from different news channels, different areas, different people, let it sink in, because it’s quite possible that you can hear something that will land from anywhere. And it doesn’t mean you will agree with everything from that place or person but there’ll be parts of it that maybe should be heard.


Gene Tunny  49:50

Yeah, I think that’s a really good point. Tim, try to genuinely see where the other person’s coming from what their their point of view is. That’s the advice Dale Carnegie, I think it’s it’s been well tested through history that that’s, that’s a good thing to do. So absolutely.


Tim Hughes  50:08

And another thing is to consider, you know, what part you might be playing in groupthink? You know, like, because we’re all influenced by this stuff, whether we’re conscious of it or not. And you could find yourself following or repeating stuff that is just within the group of people you’re with, or political preference, or whatever it is. So be mindful of what you repeat, you know, just blindly I guess that’s, that’s one of the things I get from that.


Gene Tunny  50:32

Yeah. So I mean, I would say that there was a lot of that during the pandemic. So, yeah…


Tim Hughes  50:38

Which is good. So on reflection, this is where, with those, especially when things are heightened in the moment, you know, I guess is how this works. On reflection, we can look back and maybe do a better dissection, you know, with the benefit of hindsight and all of that. But so for instance, with the pandemic as an example, well, the chances are that something like that could well happen again, there’s no reason why it couldn’t happen tomorrow, you know, so, what would we do then? You know, with that benefit of having gone through that, and what would be a better decisions or better decision to make?


Gene Tunny  51:08

Yeah. Okay, Tim, well, I think we’ve got time for one more clip, in this session, I’ve still got the four or five other clips to play, but I might save them for a bonus episode, or for another episode, if we ever catch up. We’ll just play one more clip that’s on this whole theme of critical thinking and, and being cognitively reflective. And it’s from Professor Deb Brown from University of Queensland, who’s in the she’s a philosopher, isn’t she in the philosophy department? And that was someone who, John Atkins, so your friend John Atkins put us on to because she’s been running a project on critical thinking, and was it in the media, evaluating media? Critically, she talks about her Critical Thinking project, yes…


Tim Hughes  51:57

That’s right, with schools, I believe. And yeah, yeah, it was, it looked really good.


Gene Tunny  52:01

So she’s a Professor in the School of Historical and Philosophical Inquiry at the University of Queensland, and we spoke to her early last year. So I’ll play this clip from Professor Deb Brown, Episode 123.


Deb Brown  52:20

And, you know, what we do fundamentally is distinguish between critical thinking, which entails being able to evaluate the quality of one’s own thinking. And so it’s essentially metacognitive. It’s, you know, it’s about, you know, What reasons do I have to believe that, you know, does this evidence stack up, you know, what’s the what’s the contradicting evidence, you know, sort of being disposed to look for not just evidence or reasons that support what you already believe, but actually looking for disconfirming evidence, right, you know, doing doing due diligence in the foundations for what one believes. And we distinguish that from other forms of thinking that that don’t concern that kind of the kind of quality of the foundations for one’s beliefs. So these might be things like, you know, free association, or associative thinking. And that’s very common. And often people mistake that for critical thinking. So, associative thinking is where you’re essentially looking, you know, you’re selecting for information that supports what you already believe. And what you find, then naturally coheres with what you believe, so we all sort of move around the world with these mental models, and the associative thinker, will be looking for things that fit with their mental model. And in you know, in science and in, you know, in other disciplines, this is, this often is connected with what’s called the confirmation bias, right? So that sort of, you know, preferencing, confirming evidence over disconfirming evidence and so on. And it also passes, it also, critical thing is also distinguished from what we call careful thinking, which is where somebody might be, you know, applying rules or procedures, think about, you know, a student in the class, you know, applying their procedural knowledge of mathematics, let’s say to, you know, to derive an answer or value on the basis of the arguments they have, you know, and that careful thinking, people often think they’re being critical thinking when they’re doing that as well. But what’s distinctive of critical thinking, is that critical attitude that one’s, one takes to one’s own reasons, and also to the principles or methods one’s relying on in drawing inferences on the basis of what one understands. So critical reasoning is very much connected up with what Descartes would have called the method of doubt right? Subjecting what one believes, you know, to doubt and, you know, in order to establish a better foundation for, for one’s belief and really being careful about the foundations for one’s belief.


Gene Tunny  55:08

Okay, that was Professor Deb Brown from the University of Queensland, Tim, I thought that was a great clip, I love the idea of thinking about how you’re thinking or metacognition, she really nailed what critical thinking is, and it’s not what you might think it is necessarily. I mean, you might think you’re doing critical thinking, but if you’re just applying a method that you’ve always applied or an algorithm, that’s not necessarily critical thinking, you’ve got to think about, okay, why am I doing that? Is that the right paradigm, the right framework? Is that does that really make sense? What are the implicit assumptions, I think that’s good for economists to do because when we analyse problems, we often go into analysing problems with a specific model in mind.


Tim Hughes  55:53

Again, this was such a good one with, with Deb, and everything she talked about, I found fascinating, because that whole area of like, for instance, to have critical thinking project, delivered in schools makes so much sense. Everybody could benefit from this, but the sooner the better, you know, like, you know, to get these things in as part of your DNA as part of your thought processes. And I think that’s a big part I get from a lot of the guys we’ve just listened to, it’s about the process, you know, what’s your process in, you know, discerning whether something is true or not, or what a good direction is to go in, and what’s a good process. And that’s what these guys talk about. Well, here’s a process that you can use, that’s tried and tested. It can be improved upon no doubt. But it’s, here’s something to go by, because there’s so much bad dialogue in the public forum, where it’s just people shouting at each other or opposing views where, quite realistically, they could probably agree on something that the other person is doing, but because of the party lines, they they have to be opposing and this is quite tedious, you know, to sort of watch, and it’s certainly not a way to come to a good decision. There are better ways out there. And we can employ these individually. And again, like within, you know, for yourself, within families within businesses, you know, with colleagues, here are good processes that are worthwhile going with because they’re better for us as humans, and the better, you come to better outcomes.


Gene Tunny  57:20

Yeah, exactly. Okay, Tim, we might have to wrap up. I’m gonna put links to all of the episodes that all of these clips are from in the show notes. I’ve still got a handful of clips left, but I think we’ll leave that for a bonus episode. There are some others on some other great conversations, but so many great conversations over the last couple of years. aah Tim okay. Yeah, Tim, you did want me to play one clip.


Tim Hughes  57:50

Now you chose this clip, you chose this clip…


Gene Tunny  57:53

I chose this clip that’s right, it’s a good one to finish up on, a good one for your ego so…


Tim Hughes  57:59

No, no, no you chose you chose the clip, it wasn’t about that. It’s about what is said not…


Gene Tunny  58:05

So this is our conversation with Andrew May the Australian Performance Coach, the coach to CEOs on the importance of fitness and business and when, it was funny when he because he hadn’t seen you in years had he Tim? No. And so I mentioned to Andrew about his book Match Fit. And then Andrew makes an observation about speaking of being match fit. So and we’ll just I’ll just play this clip.

How do you go from being a performance coach of the Australian cricket team? If I’m getting that right to coaching CEOs? Can you tell us a bit about that story, please, Andrew?


Andrew May  58:43

Yeah absolutely but before I do, if you want to know about being match fit, look at the guy sitting on your left. I first met Tim 20 years ago, he still looks the same, full head of hair, I’m very envious, so it’s great to reconnect with Tim.


Tim Hughes  58:55

Smoke and mirrors.


Andrew May  58:57

Ok so how did I end up coaching executives and doing mental skills for elite athletes around the world? There was no definitive plan Gene, and a lot of your listeners are going, “What do you mean you didn’t have a 20 year plan?” No. I was a good athlete, not great. I mean I won multiple state championships but never won at the national level, had a scholarship at the IIS in Tasmania. And we moved down to Hobart, which was wonderful in my early 20s. And I just finished studying exercise science. I had a physiology base and then went to the Institute of Sport. And it was a great learning in that high pressure environment. And when I look back, I got to the level I believed I could get to and I believe coaches should coach what they’re good at or what they’ve stuffed up and if you can combine the two you’ve got a really interesting mix. I left talent on the track literally, that any athlete any executive I work with, my real fuel is to help them fulfil their potential. So back to in Hobart, as a runner in Australia you don’t get paid a lot of money. Unless you’re a Craig Mottram or perhaps a Sally Pearson, so I had to supplement my income back then. It’s not politically correct, but I used to walk fat blokes. It’s now called personal training. So the clients I had, that’s Timmy when I met you, when I moved back to Sydney, after I finished down in Tasmania. And Gene a lot of the clients, I were training, they would lose 10 or 15 kilos. And then they’d say, Do you realise I’m not as cranky with my wife or my husband on the weekend, and the kids are not saying I’m an A hole, and I’m actually conscious at their school sport. And I’m not just thinking about what’s going on here. And I’m making better decisions, and I’m more creative. And we’ve opened up this other offshoot in Asia, what have you done to me? And I said I don’t know, just keep walking, don’t drink as much alcohol and keep swimming in the ocean. So I then really started to look into oooh, there’s a link between well-being, physical and psychological well-being and executive performance that was 20 plus years ago.


Gene Tunny  1:01:01

Okay, so wise words from Andrew May there, Tim.


Tim Hughes  1:01:05

Oh, yeah. And, and so just want to reiterate, he was very kind with his comment about me at the beginning. And that’s not the reason that I wanted you to play it. It was very kind, but I just wanted to, because this is the space I’ve been working in myself for the last 17 years and so it’s close to my heart. I’ve known Maysie for many years, even though we’ve been out of touch for quite a few. So it was really good to reconnect. But I just wanted to point out like, I mean, this is one of the areas I think of improvement that we all have at our disposal, which is often overlooked, you know, and that goes back to the pandemic, and all these kinds of things, you know, what can we do next time? Well, next time, the first thing we can do is to get healthier. Now, the healthier the population is, the less devastating anything, any kind of pandemic will be. So that’s like, that’s the first thing I would say. But the link between physical and psychological well-being and executive performance that Andrew was talking about, it’s so true, like we perform better all of us, you don’t have to be an executive or CEO. We’re better when we eat better, and when we move better, and it just makes so much sense. And as far as resilience goes, like with Andrew’s story himself. So he, by his own admission, was a good athlete, but didn’t reach the heights that he he hoped to. But in doing that, like he was able to become a world class coach with what he’s done since then. So he’s, he used that, which some may see that as a failure, ah you didn’t get what you set out to do, you failed. Not at all, like he was able to, it’s a very stoic sort of approach or sort of road he’s taken to say, Okay, well, that didn’t work. Let’s see, why it didn’t work? Or how could it, how could I help that work for someone else, which is what he’s done. And so the research is done on physical and psychological well being helps him, or has put him where he is now as this world class coach. And so for all those reasons, I wanted that to be included. Because I just see that as such a good thing for us all to learn from like we could all the, things he talks about, obviously, there’s there’s detail in there that we don’t have time to go into. But it comes back to the simple things of like, if you can eat well move well sleep well and connect with others, you’re going to tick a lot of boxes that as humans, when we’re going back to one of the earlier conversations about the economy, and in our equitable distribution, all these kinds of things well, just being healthier is, is one of the easiest and at reach, things that we can do. And it’s often overlooked, because we’ve got shiny things, material things that are further away. And these things I think, help us become better humans. And so along with that, the thought processes as well. It’s all part of how we can be better. You know at being, being human.


Gene Tunny  1:03:49

Yeah, just responding to that Tim, the point you make about connection is really an important point. And this is one of the things I really love about podcasting right? And it’s the ability to connect, I mean, like just us having a conversation helps us connect, right? I mean, I’m learning your perspectives. The guests we have on, people I’d never would have connected with otherwise, someone like Andrew May for instance. And you know, being able to get you know, really eminent economists such as David Hendry or Brad DeLong on the show that’s just amazing and then I’ve got listeners who’ll reach out to me with you know what they think and then you know, some of them I’ll, I’ll have on the show even so it’s just amazing for that connection. So that’s one thing I’d say that’s one reason I’m really glad I started podcasting. So that’s connection. The other point I’d make is that yep, since yeah listening to Maysie and also other stuff I’ve been reading, I read his book Match Fit. I read that other great book by Kelly Starrer, Built To Move, Kelly Starrett. Yeah, that’s right, that’s great. And, and since then, I’ve been trying to not just get out of like going to the gym or going for a walk or, or doing some exercise. It’s so easy to go. I’ve just got so much on. I’ve got so many projects on, I can’t find the time. But the attitude you’ve got to have and I think I got this from Laura Vanderkam who in her book, Tranquillity by Tuesday, I think it was, I think it was from her. If it’s not, whatever mentioned is, her book’s worth reading, is a great book regarding how you manage your time. But the attitude you’ve got to have is that working out or exercising, it doesn’t take time it gives you time. I think that’s so true. Because you’re so much more productive, like maybe you lose an hour or an hour and a half even. But when you go back to work, when you go back to the office, you’re really focused, because you could just have an hour a couple hours at work. Like imagine if you don’t take that time, your last few hours at work, you could just be unproductive. You could be demotivated, you could just be checking out what’s happening on on the news? What’s, you know, what’s on YouTube? You know, it could be? It could be, you could just be distracted?


Tim Hughes  1:06:01

Absolutely. And there’s so much good information out there. The big one is prioritising you know, in your diary in your day, to make sure you have time to do this, because most people would say they don’t have time. Well you do, it’s just not a priority, and it needs to be a priority. Or if it is a priority, you’d be better off for it.


Gene Tunny  1:06:19

Yeah. And I mean, I guess maybe it’s easier for me, because I do work for myself. But I guess if you if you’re an employee, then I guess Yeah, go on your lunchtime, or, you know, maybe have a chat with your manager or your boss and say, This really helps me out get makes me more productive. And I’ll stay a bit longer than than I would otherwise. I mean, there are sort of, you know, I think there are ways you can find that time to, to train.


Tim Hughes  1:06:44

Well people like Andrew May are at the leading edge of how this might work in with, with companies. In fact, we’ve got a round two that we have to do with Andrew, we spoke about executive performance for CEOs. Andrew doesn’t know about it yet. But I’m going to email him this week to talk about the impact, of course, on the workforce, you know, which is like everybody else, but it’s a fascinating area, because, you know, quite often, especially with these podcasts, and first of all Gene, congratulations on 200. It’s a huge achievement.

Gene Tunny  1:07:00

Thanks, Tim. Yeah,

Tim Hughes  1:07:02

and you’ve introduced me to guests and areas that I wouldn’t even thought about. And even though you know, like, you said I represent the guy on the street, which is basically, that’s that was an example of we saw that, you saw the value in that diversity, for instance, because as an economist, sometimes you would see things purely through an economists eyes. And so you told me, you you found value in some of the things that I would come up with, I mean, I know, I’ve probably said some crazy stuff. But you saw value in some of the things I saw from a different perspective. So that diversity, just between the two of us was valuable. Yeah, so I appreciate everyone that has been a guest on the show, especially ones I’ve spoken on, because it’s been great, you know, I’ve been opened up to all these different things. And a lot of the subjects or what you would say are outside our control or in the realms of things that are outside our control, which then brings it back to the health perspective of like, well, that’s really very much in people’s control. So it’s something that you can have an impact on.


Gene Tunny  1:08:17

Yeah to a large extent. I mean, obviously, you can have bad luck in your life. For Yeah, for the majority. Absolutely. Okay, Tim Hughes. Thanks so much for joining me on episode 200. It’s been a blast. And I’ll put links to all of the episodes that these clips are from in the show notes. So if you’re listening in the audience and you want to, you’re interested in checking them out, then you can go, go listen, so yeah, thanks for joining us, Tim. Thanks for for being here. It’s been terrific.


Tim Hughes  1:08:43

Yeah no, thank you, Gene. And I want to extend the thanks again to all the guests that have been on the show and to the listeners and for your feedback. It’s been great, and looking forward to next 200


Gene Tunny  1:08:53

Terrific thanks Tim. 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.


1:09:43

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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 PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

The ESG puppet show & taking Liberty seriously w/ Nicholas Gruen – EP199

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.
Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored.

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

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 PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

Sir David Hendry on economic forecasting & the net zero transition – EP198

Sir David Hendry, the renowned British econometrician, talks to hosts Gene Tunny and Tim Hughes about the state of economic forecasting and the transition to net zero greenhouse gas emissions. Among other things, Sir David talks about how to avoid major economic forecasting failures (e.g. UK productivity), forecasting global temperatures after volcanic eruptions, and the role of nuclear energy in the net zero transition. Sir David is currently Deputy Director of the Climate Econometrics group at Oxford. 
Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

About Sir David Hendry

Sir David F. Hendry is Deputy Director, Climate Econometrics (formerly Programme for Economic Modelling), Institute for New Economic Thinking at the Oxford Martin School and of Climate Econometrics and Senior Research Fellow, Nuffield College, Oxford University. He was previously Professor of Economics at Oxford 1982–2018, Professor of Econometrics at LSE and a Leverhulme Personal Research Professor of Economics, Oxford 1995-2000. He was Knighted in 2009; is an Honorary Vice-President and past President, Royal Economic Society; Fellow, British Academy, Royal Society of Edinburgh, Econometric Society, Academy of Social Sciences, Econometric Reviews and Journal of Econometrics; Foreign Honorary Member, American Economic Association and American Academy of Arts and Sciences; Honorary Fellow, International Institute of Forecasters and Founding Fellow, International Association for Applied Econometrics. He has received eight Honorary Doctorates, a Lifetime Achievement Award from the ESRC, and the Guy Medal in Bronze from the Royal Statistical Society. The ISI lists him as one of the world’s 200 most cited economists, he is a Thomson Reuters Citation Laureate, and has published more than 200 papers and 25 books on econometric methods, theory, modelling, and history; computing; empirical economics; and forecasting.

What’s covered in EP198

Conversation with Sir David:

  • [00:02:27] Economic forecasting: are we any better at it? 
  • [00:05:56] Forecasting errors and adjustments. 
  • [00:08:04] Widespread use of flawed models. 
  • [00:12:45] Macroeconomics and the financial crisis. 
  • [00:16:30] Indicator saturation in forecasting. 
  • [00:21:02] AI’s relevance in forecasting. 
  • [00:24:23] Theory vs. data driven modeling. 
  • [00:28:09] Volcanic eruptions and temperature recovery. 
  • [00:32:26] Ice ages and climate modeling. 
  • [00:37:09] Carbon taxes. 
  • [00:40:10] Methane reduction in animal agriculture. 
  • [00:44:43] Small nuclear reactors: should Australia consider them?
  • [00:49:08] Solar energy storage challenge. 
  • [00:54:00] Car as a battery. 
  • [00:57:01] Simplifying insurance sales process. 
  • [01:01:19] Climate econometrics and modeling.

Wrap up from Gene and Tim: 

  • [01:03:23] Central bank forecasting errors. 
  • [01:07:12] Breakthrough in battery technology. 
  • [01:11:18] Graphene and clean energy. 

Links relevant to the conversation

Climate Econometrics group at Oxford:
https://www.climateeconometrics.org/
Conversation with John Atkins on philosophy and truth mentioned by Tim:
https://economicsexplored.com/2021/10/16/ep109-philosophy-and-truth/
Info on solid state batteries and graphene:
https://www.topspeed.com/toyota-745-mile-solid-state-battery/
https://theconversation.com/graphene-is-a-proven-supermaterial-but-manufacturing-the-versatile-form-of-carbon-at-usable-scales-remains-a-challenge-194238
https://hemanth-99.medium.com/graphene-and-its-applications-in-renewable-energy-sector-333d1cbb89eb

Transcript:
Sir David Hendry on economic forecasting & the net zero transition – EP198

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. In this episode, Tim Hughes and I chat with the legendary British econometrician, Sir David Hendry. We talk with Sir David about the state of economic forecasting, and about the transition to net zero greenhouse gas emissions. Sir David Hendry is co director of Climate Econometrics and Senior Research Fellow at Nuffield College, Oxford. Previously, he was Professor of Economics at Oxford, and before that he was Professor of Econometrics at the London School of Economics. After the interview with Sir David, Tim and I go over our main takeaways from the conversation. Okay, let’s get into the episode. I hope you enjoy our conversation with Sir David Hendry.

Gene Tunny 01:26

Sir David Hendry, welcome to the programme.


David Hendry  01:31

Thank you very much, Gene. Thanks for inviting me.


Gene Tunny  01:34

Oh, of course. It’s a pleasure to have you on to talk about forecasting. So forecasting’s something that Tim and I have been thinking a lot about. And we’ve chatted with Warren Hatch who’s a super forecaster with I’ve also spoken with John Kay, about radical uncertainty and how you deal with that. And I’ve also read your book on forecasting, the one with Jennifer Castle, and Michael Clements, and I thought that was very good. And who better to, to have on to talk about forecasting than someone who has really transformed forecasting and economics, someone who’s had a major impact on forecasting? So to begin with, David, I’d like to ask, how has economic forecasting developed over your career? To what extent has it improved? To what extent are there still areas for improvement? Could you talk to us about that, please?


David Hendry  02:34

So Gene, I don’t think it has improved. I think technology has but the actual practice hasn’t. The time that I got really interested in forecasting was acting for the select committee of parliament that was looking into economic forecasting, after the debacle of Nigel Lawson’s budget and then crashing the economy in the early 1990s. And what I discovered, and acting for them as an advisor, is that 90% of the evidence he got was people actually forecasting and only 10% was looking at how you should forecast, what should you do, what goes wrong when you forecast with no analysis at all? So we started a long programme of analysing what can go wrong in forecasting and why. And once you know that, what can you do about it? Well, obviously, there’s nothing you can do about things that are unpredictable. Right, so the pandemic, unpredictable, forecasters shouldn’t kick themselves because you’ve got it completely wrong forecasting December 2019, for 2020, to discover that it’s vastly different. I mean, the biggest ever fall in GDP in Britain, you couldn’t possibly have forecasted that, that’s not a problem. And we can’t do that, it’s you can start to improve the forecast as you go through 2020. and realise that things are going badly wrong, but you can’t forecast in advance. So we isolated two key features that go wrong in forecasting. One is unpredictable events like that, that shift the data. So data is going along, and then either shifts up sharply, like inflation, or shifts down sharply, like output. But once it has changed, you can do a great deal about it. Some methods now don’t work. And some methods do work. And the methods that don’t work are the methods that stick to what went on before. So they carry on at the same level. And that’s completely wrong relative to the new level. So you have to have very adaptable methods that jump as soon as the forecast has gone badly wrong. You use methods to try to adjust for that. We call them robust methods. Right? So they’re after the shock to GDP. They’re robust. So the Office of Budget Responsibility in Britain, forecasts productivity per decade, completely wrongly, every year, they were wrong for 10 years, if they’d used our methods of adapting because productivity had been growing at about 1.7% per annum up to 2012, and suddenly it stopped, we don’t know why it stopped. But it’s come back to the levels that we had in the 19th century. Point seven. But if you keep forecasting 1.7, we just get massively wrong forecasts all the time, very bad advice for governments. And our methods would have adjusted to that within a year, saying, Okay, it’s changed, it may change back. But meantime, you better forecast along this direction. So the actual, if you like, the forecast errors that people make today are very similar in size to the kind that were being made in the 1960s.


Gene Tunny  05:56

Right. Yeah, that’s a that’s a shame. I should I forgot to introduce Tim. Tim, do you have any questions for Sir David on that?


Tim Hughes  06:04

No, it’s, it’s interesting. I mean, this isn’t my level of expertise. I’m here as the layman in this partnership with Gene. So I tend to look at things from a macro view and more from a guy on the street sort of perspective. But I’m really interested in that when you say that, well, for instance, it hasn’t changed since since the 60s. What’s the delay in the take up of these modelling systems for government?


David Hendry  06:27

Well, one of the reasons it hasn’t changed is that the frequency of large, unpredictable events hasn’t changed. And they’re very common and much more common than people realise, except to see the pandemic has been, Oh, quite unusual. Of course, we’ve had lots of pandemics, some of them happened like SARS too, not to go anywhere. Others like the COVID have gone everywhere. Inflation in Britain in the 1970s. It’s very similar to what it is today. And for very similar reasons. Now, I think a lot of forecasting that you hear about comes from central banks. And that’s the kind of forecasts we can analyse because they’re made to publish it. We don’t see the forecasts within many major institutions like JP Morgan, or Citibank, or whatever, they tend to keep them to themselves unless they do really well, in which case, they tell you oh, we were doing really well. But when you look at Central Banks, say we take the Bank of England as a paradigm, their model collapsed with the financial crisis, it just fell apart, and they said it fell apart. So we started to build a new one, we pointed out to them why it had fallen apart. They’re using a method of mathematical analysis that works fine if things don’t change, but becomes like navigating around the globe using Euclidean geometry when things do change, that just, it just doesn’t apply. And its widespread use has been a disaster in my view, for macroeconomics, and is the reason so much of it has gone wrong, because it assumes that the method that these models are built on assumes there are no sudden, unexpected large changes. Whenever they occur, the models fall apart. And we had a letter recently in the Times saying the bank should try testing their models from the 1970s. And they would find it’s a shambles. It doesn’t work at all. Because the 1970s in Britain was filled with crises, 3 day weeks, IMF coming in, interest at 25%, inflation, etc. And their model just wouldn’t cope with that. And we’re now in is not quite such a bad situation, but we’re now in a similar sort of situation where a wage price spiral is kicking in, these models don’t have wage price spirals. They didn’t allow for the fact that people had saved a great deal during the pandemic, because they couldn’t spend it wasn’t, it was forced saving if you like, and as soon as the pandemic ended they started spending, the supply side had improved to meet this high level of expenditure. So of course, you have all these factors coming and they’re not in their model. So naturally, the model was A they said inflation wouldn’t go up and B they said when it did go up it would be transitory, whereas we were saying, it will go up and it will not be transitory, it will be very persistent and very hard to dampen down.


Gene Tunny  09:24

Right. So this is a letter in the Times I’ll have to have a look for that. That sounds interesting. And it’s a bit of a concern that the Bank of England hasn’t improved its, it doesn’t sound like it’s improved its models very much at all, because in 2010, so you gave a talk to the Institute for New Economic Thinking, and you were talking about the problems with the models that central banks were using. And this was in your conclusion, you said that “there are huge costs to underspecified models and I think the financial crisis is partly due to central banks having very badly under-specified models in their repertoire.” Would you be able to explain what what you meant by that? Is that what you’re talking about here? They’re not allowing for structural breaks. But are there also are there variables they’re not including? Could you just unpack that a bit, please?


David Hendry  10:16

Yeah, there are variables they’re not including and often including variables in the wrong way. So for example, the Bank of England includes wealth. Now some wealth is expendable, like your house, some wealth is potentially spendable like money invested in stock markets and bond markets. In some it’s very spendable, which we call cash, deposits and demand at financial institutions. And it makes a huge difference, to break these up, because wealth itself can change a lot but it doesn’t change expenditure because house prices go up, or house prices go down. But it can also change a little bit and hugely changes expenditures because people run out of money, they have to start borrowing, and they haven’t got time to sell their house or the bond markets in disarray. And financial markets have fallen hugely, and you don’t want to make big losses. So you need to think very carefully about how you include variables in models, as well as which variables to include in models. I was referring to the fact that the housing models in the US when the financial crisis started, were very weak, they didn’t cover all the aspects that that matter, because in some States, if your house price falls greatly, and leads to a large indebtedness, if it was sold, you can just hand back your keys and walk away. You can’t do that in other States. And the subprime crisis generated articles, even from central banks, saying that it’s really important to get poor people onto the housing market, because that’s where how you build that wealth, of course that led to all sorts of speculation, and then house prices crashed. And that’s poor people who end up suffering most and we got a very bad financial crisis. But you guys didn’t have it. Right Australia avoided it, because it hadn’t got engaged in quite such nebulous activities as the AAA assets that were worth nothing.


Gene Tunny  12:16

Yeah, yeah, we avoided it. I mean, partly because of mining. And then the Treasury and the government here, they would say that they had a timely fiscal policy response. I mean, there’s debate about the extent to which that was relevant. But yeah, we were we were lucky. And maybe we hadn’t had as much crazy financial activity as in the States and Britain. We’ve got our regulators too. So yeah, a variety of reasons. But yeah, that’s, it’s fascinating.


David Hendry  12:46

I was gonna say, the way macro economics is taught in almost all major universities around the world still relies on this approach of believing agents optimise across time into the future. And you can’t do that in a world in which you suddenly get big shifts, right? You’re what looked optimal one day becomes a disaster the next, for example, Royal Bank of Scotland trying to buy this Dutch Bank looked optimal to them in the state of the world before the financial crisis and did become an absolute massive disaster after it. And that isn’t something that’s taught in macroeconomics courses that I know off.


Gene Tunny  13:29

Yeah. Yeah, unfortunately, a lot of the macros become very mathematical. And you’ve got all of these forward looking models, these Ramsey type models, and yeah, but I wonder about the just how applicable, they are. So good point. Can I ask you about your methodology David? So you’re famous for having promoted this general to specific methodology, if I’m getting that right. Could you just explain roughly what that is and how its implemented and what the modern implementation of it is? I mean, you’ve got this automatic forecasting system. Could you tell us a bit about that, please.


David Hendry  14:11

The whole idea started in the 1970s, when it was quite clear that the then big models in the US and Britain didn’t really incorporate enough information. And if any, if you leave a variable out of a model that matters, say you didn’t include housing in a macro model, and suddenly you get a big change in house prices, the model will go wrong, because it should be, housing should be in the model, and it’s not there, and it shifts and that then shifts the reality relative to the model. So it became clear you needed to think very hard about all the things that might matter. And that then required you to put statistical method that could discriminate between what does matter, and what you thought might matter but does not matter. And so we had this paper in the mid 70s, on the consumption function in Britain, showing that you could explain everybody else’s consumption function failures by a more general consumption function that pointed out why they went wrong. And that led us to develop this general to specific as a very general approach. Now, it evolved greatly in terms of, as we realise, more and more the importance of shifts and outliers in forecasting, we began to develop these methods, which at first, I have to say were greeted with not scepticism but total disbelief that you could do it. So that to take the basic idea. Say you’ve got a relatively short time series that’s got 10 observations. And you think that within those 10, there might be a discrepant observation, somebody wrote down 10, when he meant one, right? You just fit the model to it, or it’ll go very badly wrong. So what we do is we create an indicator variable for every observation. So it’s one for that observation and zero elsewhere. So you get 10 of them. And you put them in in big blocks, say five, and then the other five, and they won’t do anything, if there is no shift, but they’ll pick up the shift when it happens. And we call this indicator saturation, because you put in as many of these indicators as observations. Now why would anyone think of doing that? Well, it was serendipitous. I was asked to participate in an experiment in econometrics, to model food demand in the United States, from 1929, which isn’t a great date to start, any time see, through to 1986. And I looked at what everybody had done, and they had all thrown away the data before 1946, they couldn’t model it. So I built a model of it and looked what had gone wrong in the interwar period, and discovered there were two gigantic outliers in I think, 1932 and 33 but don’t guarantee that it could have been, but round about that period. And Mary Morgan kindly went to the archives and discovered, guess what, the US had a food programme? Well, will a food programme affect the demand for food, you bet it will. So I put in indicators for those observations and immediately got a very good model for the whole period, for the period up to 1946. So then I thought, right, let’s fit the cost period, including the early one. But we’ll put in indicators for all the observations, which is the kind of forecast test and found the Korean War I think had one big outlier, but otherwise, it was fine. And then about a year later, thought that’s funny, I had put in indicators for every observation. All the ones for the pre war period and all the ones for the post war period. And it had worked, I got the best model of anybody. So I started talking to Soren Johansen, a famous econometrician statistician, he said, “You’re nuts. You can’t do that!” And about a month later, he emailed to say, “Yeah, I think you can do that and I think I know how to analyse it,” which because if you don’t analyse it in economics, they just ignore it. And so we published several papers showing detailed analytics of why it would work for impulses, we then extended that to steps and then trends. So we can pick up trend breaks, step breaks etc. So for our 10 observations, we might end up with 40 variables. Most statisticians look at you, you’re nuts. But actually, you can show it will work. Because if there’s no break, no trend, they’ll all disappear. If there’s no step shift, they’ll all disappear. There’s only one outlier, you’ll be left with one outlier. And that’s it. So that’s how we do general to specific now. And that’s why you need automatic modelling. Because a human can’t do that. The number of possible things is far, far too big. The computer programme can of course, do it in seconds, at worst, maybe minutes if it’s a huge data set, because it’s got many, many things to look across.


Tim Hughes  19:27

Actually, this probably feeds into one of my questions for you, David, which was, you mentioned about the modelling and the mathematics, and the current uptick in artificial intelligence, in AI, is that something that has made a big difference with the work that you do?


David Hendry  19:45

Now our programme is a sort of AI programme date back a long way. Because it’s experimenting with everything. It’s a programme that’s designed for data that keep changing. Most AI programmes are not. Most AI, it takes all the cases and trains the computer to identify things in those cases. But if the cases suddenly change, that’s not going to work. And so AI has itself, the way people have used, it has not made a big impact on forecasting yet. They have to adapt AI to learn from the data, and be ready for it to be adaptable into the future in a way that if you were trying to teach a programme to identify measles, you probably would just take all the cases of measles and the programme would be able eventually to look at the spots and say, Yeah, that’s measles. But if Measles can suddenly evolve, as say the pandemic did, what you’re trying to pick up by AI would no longer be relevant. It would look different, and AI would misclassify. So AI has got to be hugely changed to be relevant for forecasting, which is about a changing world. We’ve got climate change, we’ve got pandemics, we’ve got wars, we’ve got crises, we’ve got inflation, we’ve got changing population levels, etc, etc. Unless it can adapt to that it won’t be useful in forecasting.


Tim Hughes  21:15

In your view, do you think that that is quite likely that AI will get to the point where it will be more predictive and not just reactive?


David Hendry  21:22

Well, we’ve shown you can do it, ours is very simple AI, it’s nothing like the kind of complicated neural networks that are being used in some areas. But it does show that you can do it for forecasting, and it does matter. And in the M4 Forecasting competition, which was run from Melbourne, the AI ones or machine learning, as they were then called, did not do terribly well. We came seventh in our very simple one. And and it turned out that we spent about a 50th of the time that most of the other teams did.


Gene Tunny  21:57

Was this of a motorway was it was at the M4 motorway?


David Hendry  22:01

no no. M for Makridakis fourth forecasting competition. The M four we’re now at five. It’s currently ongoing. Makridakis is a Greek forecaster, who decided the only way to improve forecasting is to find what worked. So he asked people, here’s 1000 time series, we’re not going to tell you what they are, model them, and send us your forecasts for the next 10, 20, 30 observations. we’ll analyse those and see who did best. So at the M4 there was 100,000 time series to model. And you then have to forecast I think, up to 20 years ahead for some of them. And you’ve to send in all your forecasts. And they then worked out who did best and got closest to the actual numbers in the future. Actually Uber did, Uber won the competition, Uber, yeah, the car hire people got algorithms of the kind that could be applied to forecasting. But what they did, we think was accidentally wrong, that they looked across, say, nobody knew what the time series were. But it does turn out that some of them were, say, GNP from 1950 to 1980, and somewhere from 1990 to 2010. Right. Now, they looked across, do some series help us in forecasting other series. And we think they actually included the future of the series they were to forecast in the, seeing if these series helped it, which is why they forecast much better, because we’ve mimicked their method, when all the series are completely independent, and it doesn’t help. So they had to be doing something like that accidentally, I don’t think they realise that, some of the series where the future of others of the series…


Gene Tunny  24:00

Okay, yeah. Can I ask you a question that’s related to that? It just reminded me, because you were saying that they don’t tell you what the data series are. Now. There’s this debate about, well, to what extent do you use theory and you’re modelling, you know, theory driven versus data driven, is it the case that you can get a reasonably good forecast without any theory whatsoever or without any understanding of what the underlying what the data are actually measuring? Or do you need theory? How do you think about the role of theory in your modelling? David?


David Hendry  24:33

Well, when we were forecasting week ahead Covid deaths and cases in the UK, the model only used the past data. And for the first six weeks we were by far the most accurate forecasters relative to epidemiologists with their big models and taking account of whether, you met people who had it and all the rest of it, and that’s because their models needed about 10, 12 weeks of data before they even began to be useful, whereas we could forecast immediately without any theory. I mean, I understand the big models and why they work, but we thought you can’t use that. And it’s because the way COVID hit, it did big jumps, measured on very few cases. And suddenly, like Bergamo, you had 50 people dying in a day, right? And so you get these big jumps and our methods adapt rapidly. So in that area, you could do extremely good modelling without theory. But when it comes to economics, how many variables are there? 5 trillion, possibly in the economy, if you think of everything that’s going on, so you have to have some theories and say, well, most of those don’t matter. We just can’t deal with that. So we use a lot of theory in our models, but we embed it in the general. So say you have a theory, let’s take a very simple theory that only income causes consumption, consumers spend their income and that’s it. So consumption is related to income, period. Okay, we keep that and embed that within a model in which things like well, maybe interest rates matter, maybe wealth, maybe liquidity, maybe, etc, etc, etc, matter. But when you’re searching, you don’t search over the relationship between consumption and income, you always keep it there. And if it doesn’t matter, then it will turn out to have a very small coefficient, and you can decide to drop it in the end. But if it does matter, and it’s the only thing that matters actually our method will give you the same answer as your theory model. So we embed theory in such a way that if it’s correct, that’s what you will get. And if it’s wrong, you’ll get a better model. So it’s both theory driven and data driven.


Gene Tunny  26:53

Okay, we’ll take a short break here for a word from our sponsor.


Female speaker  26:58

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Gene Tunny  27:27

Now back to the show.

And so you start off with a very general specification, lots of data in your database, lots of variables, if I’m getting this right, and then you allow for the potential potentially all of these structural breaks things where things go a bit crazy, you jump up to a new level, like during the pandemic or, or whenever, and we we dropped down from the trend growth path we were on maybe we were cycling around it and suddenly we’re somewhere we’re in this hole and so you’ve got models that can adjust for that sort of thing is that if a fair way of thinking about it,


David Hendry  28:05

Yes, it’s post, yeah. Yes. Once it’s happened, then the model will pick it up. So quite a good example that might intrigue you is finding out where all the volcanic eruptions occurred over the last 1000 years. And when the when one of my colleagues gave a paper in our methods at our General Environmental Conference, all the volcanologists were intrigued and asked us can you use these adaptive methods to show where volcanoes were and measure how they work? Well, the answer is yes, we adapt our methods instead of them being one zero zero. They’re kind of like a V. Because when a volcano erupts, the temperature drops immediately. But it then recovers roughly half a half a half a half of what’s left. So the V shape picks that up. So we found all the volcanoes from 1200 AD in the data set of tree ring growth dendrochronology. And the key thing about that Gene is as soon as you’ve got the first observation of the volcano erupting and the drop in temperature, you can very accurately forecast all the remaining observations to the recovery, by having this V shaped go half a half a half. And we showed we could forecast, okay, forecasting after a volcano in 1650 isn’t all that interesting today, but it tells you that the next time we get a world explosive forecast like Tambora or Krakatoa, we will be able to tell the world after it’s stopped erupting, how quickly the temperature will recover to the previous level. It also lets us adjust the so called baseline temperatures that IPCC use. That in fact have been several quite big volcanoes that have dropped the temperature a little bit for a few years, and that actually means that they’re cheating by using a slightly improper average over the periods they’ve picked, as they shouldn’t include the volcanic eruption, right? Because that’s when you should use the natural level that had been over that period overall, if that makes sense.


Gene Tunny  30:22

Yeah, that’s fascinating. And so your, so is that an application of your method? Or are you, the point you’re making about the volcanoes there? Or are you saying that you can apply some theory to get a better forecast? I’m just trying to understand


David Hendry  30:36

It’s our methods purely. And it’s just the knowledge that when volcanoes erupt, the temperature falls, but it goes back again. So the question is, what form do you use for that? We just invented one that says V shape, and then we put in a V for so, it’s just over, I think we had about 900 observations. So we’ve put in 900 of these Vs in big blocks, but it only picks up a significant g if there was a Volcanic Volcanic eruption, right, because otherwise, it doesn’t help fit the model. So it then just picks up all the volcanic eruptions, and the volcanologists started using this method, we’ve done one to get a new archive of volcanic eruptions since zero, like 2000 years ago,


Tim Hughes  31:24

Actually this probably leads us on, do you have anymore questions Gene?

Gene Tunny 31:30

No not at the moment, go ahead Tim.

Tim Hughes 31:33

David, I was gonna ask you about climate econometrics. So you’ve written a book on that with Dr. Jennifer Castle. So I was interested to see exactly what climate econometrics is, and how it might be able to help us tackle climate change.


David Hendry  31:44

Yes, climate change is caused by our economic behaviour. All our methods were developed for modelling economics. So it would be quite unsurprising that they would work from modelling climate change, which is due to economic behaviour, CO2 emissions, and nitrous oxide emissions, the way we travel, the way we live, the way we eat, the way we warm our houses, etc. All these things are economic decisions. And so if the methods work for the economic behaviour, they’ll work for explaining climate, they’ll actually also work for claiming, explaining things like ice ages, even though there’s no humans around then, because they, the kind of dynamics of ice ages how the amount of co2 in the atmosphere, the amount of past sunlight falling on the Earth, that’s created the temperature, the amount of ice that’s around, etc. All of these carry forward into the future and there’s really good data on ice ages, I mean, 800,000 years of pretty accurate data and how it evolved. And we can fit our models to that, again, very general. Now, why would you want to put in indicators? Well, of course, there’s often a lot of dust in the atmosphere. And dust falling on ice turns it black, which turns up the amount of heat that absorbs. So if you have a period of massive volcanism, which does occur, I mean, often you can have 50 years of vulcanism puts up so much dust, it actually changes the pattern, and you can pick that up, and the sudden jumps in temperature that were unexpected, for example. So it can be applied to all these issues. We’ve been applying it to modelling ‘How well is the UK doing in getting to net zero?’ Now we were at a particular point that we had very good data on all the ingredients that lead to CO2 emissions, the amount of coal, which was huge in the 19th century and up to about 1970 was pretty large in Britain, but then began to drop dramatically, because it became inefficient relative to other sources, but also because it was banned in household fires. When you were not allowed to have fires based in smoky coal because smoke, so you get the demand for coal falling, and that led to the discovery of natural gas in the North Sea. Prior to that the gas system was coal gas, which required you to burn coal to get the gas but it’s very inefficient so that got rid of coal and natural gas is much more efficient. And oil was throughout beginning to replace the use of coal in many industries particular. And then in 2008, the government banned it from being used to produce electricity. And that’s the death knell for coal in Britain’s there’s almost none used nowadays. Now, 2008 is something The Climate Change Act of 2008 amazes many people, both parties unanimously voted for it as did the Lib Dems is completely we need this, let’s do it. And you get a huge, very rapid drop in the amount of CO2 emissions in the UK. Now Britain’s been moving towards a service economy from a manufacturing one. But it hasn’t been doing that to get rid of CO2. It’s been doing that because World Trade Organisation rules meant you couldn’t put extra taxes on people who are cheating in the way they were pricing their products. And so they killed off a lot of British industry. So I don’t accept that the offshoring has anything to do with climate change and claim that our domestic reductions. So Britain’s come down from 12 tonnes per person per year to four and a half tonnes per person per year over that period, which is a very dramatic reduction. America is still at 15. So it’s still above the highest it ever was in Britain. And one of the explanations we came across recently is that in Britain, cars went about 20 miles to the gallon in 1920. Now on average, they’re going 55. In America, they went about 20 to the gallon. And now they’re going about 20 to the gallon. And there’s many, many more cars, and they’re driving much further. So they’re consuming vastly more oil, and therefore gasoline. And therefore pumping out much more CO2, nitrous oxide, particulate matters, etc. They’ve had no efficiency gain, whatever, because they’ve gone for these bigger SUVs, much heavier, much bigger engines and petrol, gasoline has never been taxed in the US, whereas in Britain, the tax is about two thirds of the price of a pump.


Tim Hughes  36:54

Yeah, it’s expensive. Yeah, it’s a lot.


David Hendry  36:57

Yeah, it hasn’t discouraged people from driving. Right, people are still driving, there more and more kilometres on aggregate in Britain driven every year despite these high taxes and gasoline is one of my reasons for believing that carbon taxes will not by themselves solve the climate change problem. We need technology we need to adapt until we’ve written several papers, proposing a system of what we call five sensitive intervention points. That can be used to exploit how people behave without trying to change their behaviour, but to make them do things that will then be climate optimal. So for example, cars in Britain last nine to ten years on average, and then become obsolescent. So instead of buying another internal combustion engine car, price electric cars so that they automatically move over and buy an electric car. And if we did that, over the next 30 years, we’d end up with every car being electric, and nobody having suffered and have got the new car that they wanted at each point in time, but switching over gradually. But that requires you to be providing more electricity all the time to meet this, which requires upgrading the grid and installing more wind farms or solar cells, and maybe more small nuclear reactors and perhaps investing more in fusion in the hopes that the current breakthroughs can be made useful for society before 2050, and so on. And the paper tries to spell out how all these steps interact all the way down, clean right down to farming, how we get rid of the massive amounts of nitrous oxide, methane and even CO2 to come out to farming. That’s a huge concern in New Zealand, your neighbouring country, poor farmers, they’re objecting to fart tax. I don’t blame them. I mean, so how can they deal with it? Right? It’s, it’s not like you can deal with the tax when cars were getting more efficient when they’re driving less or getting an electric car. They need to think of the technology that will reduce methane emissions from animals. I don’t know if you know that there’s an island off Orkney called North Rolandsay, where the sheep are not allowed off the Shore, there’s a wall around the island and all the sheep are kept on the shore, and they eat seaweed. But methane…


Tim Hughes  39:25

Yeah, I heard about this recently. And because I was going to say I agree with what you say about technology, making these changes. So you know, rather than forcing people’s habits to change or you know, doing something drastic with our food chain, etc, the technology will contribute towards those changes. And yes, I saw that the seaweed or additives made from the seaweed could be one of the solutions for for methane. So just by adding it to the food. Obviously, it’s early days to see if that may or may not work on scale. But it’s encouraging It is encouraging to see those breakthroughs.


David Hendry  40:02

I think the breakthrough that’s needed is to synthesise the chemical. that does it. Because I don’t think you can grow enough seaweed to feed all the world’s cattle, sheep, goats, etc. I think that’s not on. But knowing that asparagopsis taxiformis, which is the one that seems to be best for stopping the thermogenic reactions within animals, it could be synthesised in the way that aspirin was taken from willow trees, and then Bayer worked out how to synthesise it. And I think these these things are possible. So yeah, I mean, our paper suggests that all of it is possible. Some of it needs subsidies, I don’t think tax is the right way to do it. Because we saw the uprising in France from the yellow vests. And that’s happened in Sweden, people object to their lifestyle being disturbed. This doesn’t disturb their lifestyle. It just says, oh, you know, you’d be better off if you do this. And then you can keep manufacturing going making cars but electric cars and wind turbines and solar cells and heat pumps and so on. All of it’s out there. And the thing that I do emphasise when I meet sceptics is by the end of the 19th century, we had cars that were electric with rechargeable batteries that could go up to 50 miles between recharges. We had solar cells, on roofs, we had wind turbines that were being used on farms, we knew that climate change was caused by excess CO2. And everything was in place for an all electric society, we knew how to generate it from hydro power, from wind power from solar power. But then the Americans discovered oil and the internal combustion engine. And that


Tim Hughes  41:54

So that technology was there at the end of the 19th century. You’re saying?


David Hendry  41:57

At the end of the 19th century, all of it was there. And we trace who invented it, how they invented it, how it developed? Yep, it was all there. Not LED lighting, that’s an important, more recent development.


Gene Tunny  42:12

Yes. Can I ask about that? That paper? I’ll have to look it up. It sounds fascinating. So have you you’re you’ve done modelling, have you of this path to net zero for Britain? Is that what you’re saying?

David Hendry 42:20

That’s what we’re saying yes

Gene Tunny 42:24

Okay. And yeah, it’s feasible. If there’s this technology, some technology shifts, technological improvements, but also that there may need to be some subsidies for electric vehicles, I think, was that what you were…


David Hendry  42:37

For the electric vehicles, but also for the grid. You need a massively improved grid, both because there’s vastly more electricity, but it’s got to be more resilient to climate change, because climate change is going to happen. Irrespective, even if we managed to reduce everywhere, it’s still going to carry on for a long time, because the oceans and the air have got to calibrate the temperature. And that takes a long, long time to happen. So sea level rise will continue, the Earth will continue to warm but at a slower and slower rate, if we stop pumping out quite as much CO2. And obviously, if we can find ways of extracting it, to research that, that would help. One of the things that does extract it, believe it or not, is basalt. Stuff that volcanos erupt, right? Now, if you look at photographs of volcanoes, the land around them is very fertile. So you can actually replace artificial fertilisers by ground up basalt. And that will act as a fertiliser, because it’s got all the minerals in it, but it also absorbs CO2. So it actually helps reduce CO2 whereas artificial fertilisers in making it they produce CO2, they produce nitrous oxide, etc, etc. So one of our proposals is that we start switching quite rapidly to using ground up basalt which costs next to nothing. There’s 300,000 cubic kilometres of basalt in India. That’ll take a long time to use that up.


Gene Tunny  44:12

Right, I’ll definitely have to check this out. I mean, this is a big issue for Australia. How do we get to net zero? And I mean, Britain’s probably got some advantages over us, you, you don’t have as big an area. I mean, we’re gonna have to build all of this transmission to connect up the renewable energy. Like we don’t have nuclear energy here and the Opposition party is trying to push it, but then I think there’s going to be a lot of community resistance to that here in Australia.


David Hendry  44:37

Yeah, I can believe that. But do people understand small nuclear reactors? That’s the only ones we’re arguing for, not the big ones, the small ones. In Britain, lots of big ones. And they’ve produced a lot of transuranic waste, that’s going to be a huge problem for humanity. Now, there are two advantages to small nuclear reactors. One they can use that transuranic waste as their fuel and greatly reduce the amount of radioactivity that needs to be dealt with from it. And secondly, they’ve been used in nuclear submarines for 50 years, and there’s never been an accident. So they’re very safe and they don’t have any fissionable material that terrorists might want for bombs. I mean, the stuff they’re using is useless. Other than burning up the waste, it’s a problem anyway. So if the public knew that these are harmless, that they’re getting rid of a problem, you don’t have nuclear reactors, so it’s less of an argument there. But in Britain, people would jump at the chance to cut the amount of nuclear waste that needs to be disposed of, burying it or put it in deep caves, etc. And these guys can do it


Gene Tunny  45:52

Right Yeah. These are the small modular reactors, are they?

David Hendry 45:56

Yes,

Gene Tunny 45:58

I think that’s what Peter Dutton, who’s the Opposition leader here, what he’s talking about,


David Hendry  46:02

Oh good for him, I think they are actually an important component, but only one possible component of an electricity provision, that would give more energy security. And, and be something that can work in almost all circumstances.


Tim Hughes  46:18

This is an area that we’ve talked about a few times, and one of the things that comes up is that the most likely scenario would be to have a suite of different options as to where they get the power from. So for instance, we’re very lucky here in Australia, we have abundant supply of sunshine. And so that’s clearly one of the options open to us, which we currently use, and it will grow. But there’s also hydro, there’s wind, there’s other options and having the various different things available. So that for instance, I mean, I know in the UK, for instance, like to rely on solar isn’t something that you’d want to rely on fully. So it would be the same everywhere I imagine and that that those suite of options or those suites of available power supplies would be different around the world. But it does seem to be that a lot of this is driven by the market, which we’ve noticed here and it has come up in conversation, which is that’s that seems to have been a big change, where that it’s been widely accepted that climate change is real, and that most people do want to have clean oceans, clean atmosphere, clean fuel. And so that driving force from the market, seems to be also then instigating the technology from the suppliers of those options, you know, people like Elon Musk, or, you know, these, these people who can make things happen very quickly, much more quickly than governments can. So it seems to be accelerating and going in the right direction. And so the net zero target is 2050. I think, is that right for the UK?


David Hendry  47:51

That’s right, it’s too far in the future. But we’ve picked it because the costs of adjusting to it are near zero, and probably even positive benefits from doing it slowly, in terms of machinery running out, cars getting obsolescent, trucks needing replaced. Developments, I mean, in solar cells, for example, Perovskite cells are now able to produce 30% of the energy from the sun as against the standard solar cells 22. That’s an enormous improvement. And that technology will take a little while to get commercialised and applied. And then people will have much, much more efficient solar cells to put on their roofs.


Tim Hughes  48:32

And the infrastructure needed for electric vehicles is obviously going to be enormous, especially in the built up areas. So it’s going to take some time for it all to happen.


David Hendry  48:44

Absolutely, but if the market prices correctly, it can be profitable for them to instal all the connections, it doesn’t necessarily cost much in the same ways they built filling stations. I mean, they didn’t build them for fun. They built them to make a profit to build these guys to make a profit as well.


Gene Tunny  49:03

Yeah, there’s some big issues here. Tim, one thing I would say on the solar I mean, even though we’ve got abundant sunshine, the challenge is, it we’ve got to store that solar energy for when it’s actually because yeah, that’s one of the problems because you don’t have it at night and yet there’s a big peak in demand when everyone gets home from work. And yeah, that’s why we’re having to build hydro where the State government’s here is investing heavily in hydro and trying to progress some couple of hydroelectric plants quite rapidly, which is, which is what you need to do so


David Hendry  49:33

Yeah, Britain’s rethinking hydro again, taking the Great Glen and converting it to a massive lake to reservoir to bag more hydro and Norway has always produced most of its energy from hydro. The first ever house to be lit by electricity was driven by hydroelectric. Armstrong, the gun manufacturer, built a hydroelectric system for just providing his house with electric lighting. That’s the first in Britain. So that’s part of the 19th century that we could have got an all electric world. And storage is a big problem Gene really is. And we’ve recommended using nighttime much later nighttime surplus energy to produce hydrogen. There are several methods, let’s not go into them parallel assistant electrolysis and creating liquid hydrogen, right. And liquid hydrogen is a fantastic storage of power. Okay, and you can use it either for heat, or to provide the electricity that you don’t have otherwise, indirectly or as a high heat source for industry if we’re going to get rid of coal and oil, they’ll need a high heat source. Well, you just see NASA’s rockets taking off and you realise you can get a lot of heat using liquid hydrogen mixed with oxygen


Gene Tunny  50:56

And so do you think that could be commercially viable, we’re trying to build a hydrogen industry here, not me, but the state government and the industry. And I know the Japanese are very interested, Mitsubishi and companies like that they’re looking at, they’ve got all these exploratory projects up and down the coast here. I mean do you think it could be commercial?


David Hendry  51:16

Yes, definitely. I don’t know what the cost to steel makers is of their energy provision. But if the hydrogen is made from the surplus energy at night, from things that wind turbines, which often have to be switched off, because you’re producing electricity that can’t be consumed, but it will always be able to be consumed from making surplus hydrogen, that’s our surplus energy for making hydrogen. And the cooling will also require a lot of energy. So I think it could actually, they could actually end up paying people to make hydrogen. Right to stop the wind turbines being turned off when a large percentage of your electricity is coming from wind turbines. And it’s coming at night, when you know three in the morning, the demand is zero. So I think there’s strong possibilities of using that.


Tim Hughes  52:10

That’s good battery technology is really another area as well, of course that is is going ahead. I was just trying to remember the name of the technology, I think it’s single cell batteries. If that sounds right. But I know Toyota, for instance, have invested a lot of money in this next generation of batteries. And it’s been talked about in the realms of that there will be sufficient enough in a car that you’ll be able to power your house from your car. So it’s that kind of capability that is being expected. Remember John Atkins, mentioned this in one of the


Gene Tunny  52:42

Yes, we might have to go back to that Tim and have a look and put some links in the show notes.


Tim Hughes  52:49

It’s a thing, it’s a thing. I didn’t make it up, I promise.


David Hendry  52:51

Okay, so you have to remember that using that kind of technology, a glider went around the world. Right? Yeah. It was a glider, but they did do it, and Britain has several electric aircraft for short distance travel, which are all electric. And trains. I think both Germany and Britain have been developing trains that ran off fuel cells of the kind that are driven by hydrogen. And they do produce enough electricity. But at the moment, the machines that do it are enormous and very heavy. So they have to find some way of producing fuel cells that work from much less expensive and heavy technology. But why not have solar cells in the roof of your car? Well, at the moment people would rip them off, of course, thieves would just take them, but they become ubiquitous. That may be one of the routes that we could do. Another as you mentioned, Musk, at one point, Tesla put up a video on the car being the battery. And they used graphene tubes filled with electricity all the way around the car, and then it provided enough electricity to drive the electric engine for 1000 miles. They dropped the video very quickly. And we don’t know if they dropped it because it was giving away secrets of they didn’t want or it didn’t work to try to match it didn’t work. I think it should work. I can’t believe that I mean graphene is a super capacitor can store enormous amounts of electricity. And there must be a way of using it and making graphene has now become very straightforward. You can take waste plastic, it was a laser and you turn it because it’s a carbohydrate you turn it into carbon and the carbon can be turned into graphene. Just pick up the tiny bits and join them the way that they originally discovered graphene in Manchester.


Gene Tunny  54:57

Incredible. That’s just incredible what’s going on, David we’ll have to put, I’ll put a link in the show notes to your research group on climate at Oxford, isn’t it. So I’ll put a link in because there’s links to all sorts of great stuff you’ve done and all great articles. There’s one more thing I wanted to cover before we wrapped up, because I know we’re getting close to time. There was one thing that you mentioned in that talk that you gave in 2010. This was to the Institute for New Economic Thinking, if I remember correctly, I think was George Soros in the audience? It was incredible. It kept showing George Soros in the audience because I think it’s his, his Institute, or he funds it. But there’s a mention of the insurance company, you talked about this large US insurance company that you’ve done some modelling for or they were using your approach and 5000 variables, and but only a few 100 data points? And could you give us a flavour of what type of modelling that was? I mean, without revealing anything commercial, I was just…


David Hendry  55:55

Yeah, okay. So the 5000 variables are things like a 28 year old, single woman living in Texas with one car, and no children and owns their house. And that’s a variable. Right. So they then price their insurance for her house, knowing all these factors. They were finding that the sales were getting too difficult. And they wanted some simplification of what was actually driving their profit. So Jurgen Doornik who actually did this work, already had auto metrics, working with quite short time series on these sorts of various people. But you could then model all the things that might be taken into account and discover, actually, it didn’t matter that they were single, it probably didn’t matter, they’re female, it probably didn’t matter they’d no pets, right? What mattered was that they owned the house or didn’t own the house that did have a mortgage or didn’t have a mortgage and whether it was fixed term or so very few variables turned out to matter. And it allowed the company to dramatically simplify the number of people that they employed for sales, right, they came way down until when the financial crisis hit, their cost base was vastly lower. And they survived the financial crisis in the way that many insurance companies didn’t, because they, you know, they lost so much money in housing, for example. So that, although it says 5000 variables in most of them could never have mattered when being male would not apply taking female, for example. So males would not have been entered in the models for females and age that older people can’t be young females. So you can see immediately, although they talked about, we talked about 5000 variables, and there were most of them wouldn’t have been relevant in any given situation.


Gene Tunny  57:56

Right. And so this was the autometrics or autometrics is that part of


David Hendry  58:00

OxMetrics. That’s part of the OxMetric system. And it’s written in Ox, Ox is a computer language that Jurgen developed in the 1990s, early 2000s, it was the first attempt to get fully automatic modelling. And I have to say, our first attempts were really ridiculed by the profession, the idea that you can automatically model it didn’t require human intervention. Well human intervention is of course, thinking about what goes into the model. After that, itt’s pointless spending hours trying to see which is the matter when the programme can do that much more efficiently, much faster and much more generally. So it gives, we believe it gave much more time for thinking and much less time wasted in front of the computer desperately trying to find the model.


Gene Tunny  58:51

Yeah, it sounds to me like our central banks and treasuries and finance ministries should be, yeah they should, if they haven’t got a copy of your programmes, they should get a copy of them and start applying them because we certainly need to do better than the, than we have been in terms of forecasting. So…


David Hendry  59:09

RBS definitely has a copy, the sorry the RBA.


Gene Tunny  59:14

Okay, yeah. Yeah. It’s hard to know what they rely on some, I guess they they’ve got a model. I don’t know to what extent that it informs their policy actions. They got this Martin model, which is Yeah, yeah, it’s I don’t know. I don’t it doesn’t I don’t know whether it’s was developed using your

David Hendry 59:25

No, it wasn’t.

Gene Tunny 59:30

No I might have to come back to that because it’s a it’s a rather complicated model not not today, but just just good to Yeah, it’s good to good to find that out at least they’ve got your software if they and hopefully they’re making use of it to some degree. Okay, Tim anything more for Sir David?


Tim Hughes  59:50

No, I just think so it was really interesting. Thanks again for your time, and I think it just reinforces the, the way you talk about the modelling and the conversation we had about AI. Again, it’s something that’s come up in other areas where it’s a really powerful tool, but there’s a human discernment at some point to sort of like, bring it all together. And without that, it’s only so useful. And so I think it’s always encouraging to see that we need that human intervention to make sense of things. And sometimes humans get in the way of good modelling. I imagine, you know, that, but if we can give that amount of work over to the models and the AI to do the work for us as a tool, then, yeah, it’s very powerful.


Gene Tunny  1:00:35

Very good. Okay. Well, Sir David Henry, thanks so much for your time. I really enjoyed it really appreciate it really learned a lot. So thanks. Thanks so much.

Tim Hughes 1:00:40

Thanks for your time.


David Hendry  1:00:43

Thanks a lot. Thanks for having me interviewed.

Tim Hughes 1:0046

You’re welcome.

David Hendry 1:0050

Take care.


Gene Tunny  1:00:54

So Tim, that was an amazing conversation with Sir David Hendry, what did you think?


Tim Hughes  1:00:59

Yeah, that was fascinating. I really enjoyed it. I was a very happy audience member for most of that but yeah, I really lapped it up.


Gene Tunny  1:01:06

Ah, you’re more than just an audience member Tim! I mean, I think you are. You’re participating in that conversation. And you’re asking some good questions. So yeah, it was good to have you onboard. And what I found fascinating is I mean, I had the I had the line of questions about forecasting. And then we went broader than than just the forecast. And we started talking about climate econometrics. And you know, what he’s doing the modelling of getting to net zero for the UK, which I thought was absolutely fascinating.


Tim Hughes  1:01:40

Yeah. And he mentioned that the modelling hadn’t actually progressed in many ways, like, not necessarily with the climate econometrics, but with the other modelling that we were talking about in the first half of the conversation, which was surprising to hear.


Gene Tunny  1:01:53

Yeah, the forecasting. I mean, not what he’s doing, because he’s really a leader in forecasting

Tim Hughes 1:01:59

Yeah so his model he could back

Gene Tunny 1:02:03

Yeah, I mean, and of course, he’s going to back his own modelling, but I’d actually believe it because he’s one of the gurus of econometrics. So when I was studying econometrics, or first started studying back in the 90s, he was one of the big names. And yeah, the approach that he had this general to specific approach where you’re, you’ve got this very general specification, you’re trying to hone in on this more specific specification, you’re searching for the right functional form the right way to express the equation, the right variables, the right number of lags, and some clever things to get things back on track. If they’re shocked things like error, they call them error correction mechanisms. You remember, he was talking about the volcano modelling the global temperature after a volcanic eruption, I thought that was really interesting how he had this clever little functional form this V shape to get to get it back on track to model that I thought that was really clever. And I mean, he’s renowned for doing that sort of thing in his economic models. And, yeah, I was surprised that there hasn’t been a more widespread take up of that approach. And I think my takeaway from this is that, yeah, there needs to be more education or more outreach from from David’s group, I guess, at Oxford to really, you know, promote their their methodology, I guess they’re they’re doing it, they’re trying to do the best they can. And it looks like, you know, central banks or reserve banks got a copy of their software, the OxMetric software, which has PcGive and the other, the other parts of that software, but from what I’ve seen, it’s not as widely used as it probably should be


Tim Hughes  1:03:50

With any modelling, couldn’t that just be run in tandem as a hypothetical to see how it might have performed against the current models? Is that how it would work?


Gene Tunny  1:04:00

Yeah, yeah. And hopefully, they’re doing that. But


Tim Hughes  1:04:03

yeah, because like, you would think at some point, you know, if it’s outperforming, everybody’s interested in, you know, the best outcome s o it would be interesting to see, didn’t, didn’t actually ask that direct question. But that would be interesting to know if that might be feasible or possible, or if it’s been done?


Gene Tunny  1:04:20

Well, I think hopefully, the central banks and Treasuries are using this approach, or they, or I hope they they’re experimenting with it, they should use it more from what I can tell. What I found interesting about our conversations, he was talking about how I forget whether it was the Treasury in the UK or the Bank of England, they were overestimating productivity growth in the UK for a consistent period for like a 10 year period or something. And so that sort of mistake could have real consequences because if you, if you’re overestimating productivity growth, then you’re overestimating what you’re GDP growth is, what your economic growth is, your, in your forecasts, and therefore, what that would mean is that you may not have your policy settings, your monetary policy settings, right, because you think GDP growth is going to be faster than it actually will be. And so maybe you’re not giving, you don’t have the bank rate low enough to to help, you know, promote economic growth. So that sort of forecasting error can have material consequences, if you know what I mean. So it’s important to get these forecasts, right, because if you’ve got those forecasts of where the economy is going wrong, then that can affect what the Bank of England does, or what the government does with its budget.


Tim Hughes  1:05:41

Yeah. And it seems to be human. The human influence, which is the most unpredictable, or the, the element that is most likely to bring around an incorrect forecast.


Gene Tunny  1:05:53

Yeah, I mean, I guess the human element and yeah, I mean, all sorts of things. But the problem is that the economy Yeah, I mean, ultimately, it’s about humans, because they’re, they’re the the units in an economy. But the economy is so complex, and so many moving parts, it’s just very difficult.


Tim Hughes  1:06:13

There was some, also, with the second part of it, the climate, econometrics, which was fascinating, I didn’t realise the extent to which Sir David had been involved in that. And so he was very deeply involved, and it was really interesting, that part. And I know we’ve talked about climate and getting to net zero and the the challenges faced with that, and the changes in the technology that is driving us towards that, which is obviously an ongoing and very interesting subject. And I have to say, so I made a, I was trying to recall this information that our friend John Atkins initially mentioned to us about solid state batteries. So I was trying to remember what it was exactly. So this, these is the one of the new generation of batteries, which, you know, is still in development. So we’ll link in the show notes, I found something from the Guardian of July 2023 that explains a little bit more about solid state batteries.

Gene Tunny 1:07:00

Oh, good. So what does it say?

Tim Hughes 1:07:05

It says, just briefly, that basically Toyota has made a breakthrough that will allow it to halve the weight, size and cost of batteries, it would be that we are, da da da make batteries more durable, and believed it could now make a solid state battery with a range of 1200 kilometres or 745 miles that could charge in 10 minutes or less. And the company expects to be able to manufacture them as soon as 2027. So this is obviously not, it hasn’t happened yet. So this is a projection. But it seems that they’re quite close. So this is the sort of, I saw this a few months ago, it wasn’t the Guardian article, it was something through ABC, I believe in Australia. Along those lines of about Toyota has worked with solid state batteries. Clearly, there’s technology being, you know, pushed forward all around the world on different areas, and which ones come to the fore or make it to market like, you know, we can only speculate. But it certainly seems that there are changes coming and more efficient, effective ways of storing energy and producing energy, that are all moving towards that target of net zero by 2050.


Gene Tunny  1:08:16

So this is something that’s better than the lithium ion batteries. Yeah.


Tim Hughes  1:08:21

And like everything else, there were problems at the beginning that they’re trying to work out. Yeah. So yeah, it says that for benefits compared with liquid based batteries. I think one of them was I saw that it doesn’t, they don’t burst into flames as easily, which is a good thing, like so when they say there’s no spills, for instance, from a solid state battery, if they get in a prang, or whatever may happen. I mean, I’m sure that there’s pros and cons with most new technologies. And I’m sure there’s none. You know, it’s no different with solid state batteries. But it seems to be one of the ones that’s coming through, it’s been around for a little while, and it seems to be progressing. But it’s just one of those areas that by the end of this decade, it’s going to be very different. And of course, by 2050, there’ll be things we haven’t even heard of yet, that will be key parts of the whole target net zero target,


Gene Tunny  1:09:10

We might have to get someone on the show who can explain to us batteries, solid state versus other types of batteries, because I’d be fascinating to know about the technology and what minerals are required. Right? Because I mean, you had that conversation with Guillaume about the Dark Cloud, wasn’t it? And that’s, you know, the, the fact that we do need to mine all of these, these critical minerals and that’s that’s got consequences, of course. So yeah, we’ll be good to have that conversation. Tim, one of the other things I found fascinating, yeah a couple of other things in the conversation. I found David’s point about all the technology that was available at the end of the 19th century. I thought that was fascinating. That was fascinating.


Tim Hughes  1:09:55

I didn’t I didn’t know that at all. That surprised me. It surprised me big time.


Gene Tunny  1:09:59

Yeah. yeah. And also the point about nuclear energy I was, yeah, that was really surprised by that, that he was so positive about it and thought it could work here in Australia, and that perhaps some of the concerns that we have in Australia, about nuclear energy are misplaced.


Tim Hughes  1:10:20

So that was specifically modular.


Gene Tunny  1:10:23

Yeah, the small modular reactors, and he’s saying they’re a lot safer. And this is something I talked about Ben’s, I talked with Ben Scott, about a couple of years ago, I think, on this show, the potential of small modular reactors, I though that was good that David brought that up.


Tim Hughes  1:10:39

Yeah, that was interesting. I hadn’t actually heard of that before. And I know that we’ve, like spoken about it before with Josh Stabler, for instance, with the the likelihood that there’s going to be different solutions to the energy provision in the future. So it’s not just going to come from one main source it’s going to come from most likely several different ones. So if modular nuclear power stations are a part of that, that’s quite possible. But it’s clearly going to be not just one thing. And just on that subject as well. There was it was mentioned about graphene, David mentioned, oh, yeah, I know this, that’s come up in a conversation we’ve had before here in Brisbane. There’s GMG, who are involved in that, here in Brisbane,


Gene Tunny  1:11:23

with GMG. So G stands for graphene I guess, and there’s…


Tim Hughes  1:11:27

Graphene Manufacturing Group. And so it’s in the space of renewable energy, and this whole push towards clean energy.


Gene Tunny  1:11:35

But what’s graphene got to do with it? Because graphene is a material, isn’t it?


Tim Hughes  1:11:39

Very good question, Gene. And this is something that I will get back to you as soon as I know. Yeah, because this is actually my solid, solid state battery moment in the in the wrap up, I managed to get another one in. So we’ll put something in the show notes to do with the graphene, but I know it was, it came up in a conversation we had with


Gene Tunny  1:12:02

ah apparently it’s going to create products with a better efficiency than the existing ones.


Tim Hughes  1:12:07

Yeah so it’s part it’s part of the all of this emerging technology towards better energy storage. Like most other things, it’s happening in many different parts of the world at the same time but we do have this, this company in Brisbane,


Gene Tunny  1:12:19

it looks like Yeah, yeah. Sorry Tim I just noticed it looks like someone’s built a graphene solar farm. So it looks. Okay.


Tim Hughes  1:12:25

Yeah. So to be to be explored, like, because it’s not something I know a great deal about, or, you know, so I think that w’e’ll definitely will, will earmark that for the next conversation we have about clean energy and where that’s going.


Gene Tunny  1:12:36

Yeah, for sure. Because this is it’s an ongoing issue. And I mean, the conversation, this isn’t going away. And you look at this northern hemisphere summer, and yeah, I mean, that’s just going to intensify this conversation, I think. Yep. Yeah. Okay. The other thing I thought was good about the conversation with David, I liked your question about AI and what’s happening with AI? And David pointed out, well, what they do, their algorithm, their automatic model selection algorithm, their auto metrics, that’s a form of AI. I thought that was a good point that he, he made there. Yeah, yes. Yes. So yeah, it was good question. So all in all, what a terrific conversation. And yeah, I really thought Sir David was amazing. He’s someone I would love to have here in Australia participating in the Australian policy debate on energy in particular, I think he could be that he could provide that sage perspective. He’s someone you’d pay attention to, he’s someone who’s very thoughtful, you know, good communicator, and as well as being a real gentleman.


Tim Hughes  1:13:43

Yeah, I really enjoyed it. And I found it very eye opening. And yeah, I think there’s, like you say, it’s an ongoing conversation. So it’ll, it’ll keep evolving. And hopefully, if we can, maybe they’ll be a round two with Sir David to continue that conversation.


Gene Tunny  1:13:59

We can only hope, so Tim, anything else before we wrap up this, this debrief?


Tim Hughes  1:14:05

No, I think I think I should stop while we’ve still got enough room in the show notes for


Gene Tunny  1:14:13

you introduce a new concept – then I ask ‘Tim that’s fascinating can you tell me more?’ Nope!


Tim Hughes  1:14:20

They say a little knowledge is dangerous. On this one I was lethal, but no, it was fun. I enjoyed it. And yeah, it’s it’s something that affects us all. And it’s something that’s changing very quickly. And so yeah, we’ll we shall return to that conversation no doubt.


Gene Tunny  1:14:36

Absolutely. Tim Hughes thanks for joining me on this conversation.

Tim Hughes 1:14:40

Thanks Gene.

Gene Tunny 1:14:43

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.


1:15:27

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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 PodcastsGoogle Podcast, and other podcasting platforms.