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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.

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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.

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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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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.


Female speaker  23:26

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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

Thank you for listening. We hope you enjoyed the episode. For more content like this where to begin your own podcasting journey, head on over to obsidian-productions.com

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

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.


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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.

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Podcast episode

Values-based Capitalism: What is the Aussie Treasurer planning? w/ John Humphreys – EP175

Australian Treasurer Jim Chalmers argues for values-based capitalism and against neoliberalism in a January 2023 essay in the Australian Monthly magazine. In this episode, show host Gene Tunny discusses the Treasurer’s essay with Dr John Humphreys. John is the Australian Taxpayers’ Alliance (ATA) Chief Economist and the founder of the Australian Liberal Democrats. Gene and John discuss just how literally we should take the Treasurer, the risks of the so-called co-investment approach, and whether the Treasurer is arguing for socialism (or a different -ism).      

This episode features audio from an ATA Econ Chat livestream broadcast on 31 January 23. You can watch the whole thing here:

https://www.facebook.com/AusTaxpayers/videos/509950911277607

You can follow the ATA on various platforms including Facebook and YouTube.

You can follow John Humphreys on Twitter.

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 EP175

  • Jim Chalmers’ idea of co-investing with the private sector [4:21]
  • Regarding superannuation funds increasingly having social goals that they aim to meet as well as financial goals [9:12]
  • The Australian stage 3 tax cuts and values-based capitalism: are they compatible?  [12:37]
  • ESG, stakeholder capitalism, and socialism [15:24]
  • How does the Treasurer intend to direct investment? [23:28]
  • How a poor government policy can lead to another poor government policy [27:31]
  • The social impact investment bank expected in the 2023 Australian budget [32:34]

Links relevant to the conversation

Jim Chalmers’ essay Capitalism after the Crises

Clean Energy Finance Corporation Financial Outcomes 2021-22

Australian Government principles for social impact investing | Treasury.gov.au

Impact Investing Won’t Save Capitalism  

Transcript: Values-based Capitalism: What is the Aussie Treasurer planning? w/ John Humphreys – EP175

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. Thanks for tuning into the show. In this episode, I discuss so-called values based capitalism with John Humphreys. John is chief economist of the Australian taxpayers Alliance, and he’s President of the Australian Liberal Democrats. The idea of values based capitalism has been injected into the Australian policy debate by the Australian treasurer of Jim Chalmers. In a monthly magazine essay, the Treasurer argues we need greater coordination between the public and private sectors, and we need co investment. He argues that government business philanthropic and investor interests and objectives are increasingly aligned and intertwined. The Treasurer is the top economic official in Australia. He’s the equivalent of the US Treasury secretary in the UK Chancellor of the Exchequer. So obviously people pay attention when he tells us what he thinks. The audio of my conversation with John Humphreys is taken from a live stream I did with him on the 31st of January 2023. I’ll put a link to the full live stream in the show notes. Okay, let’s get into the episode. Please stick around to the end, because I have additional thoughts after my conversation with John. Well, I think we have to chat about this essay by the treasurer Jim Chalmers capitalism, after the crises, rather extraordinary for the treasurer to publish something like this. I mean, although we had the former PM, Kevin Rudd, publish something similar about how he was going to save global capitalism in I think it was around February 2009. While we’re all busy in Treasury, with actually managing the budget and all of that, somehow, the pm found time to write a 8000 word essay. And now, I mean, Jim Chalmers is done. Well, I think is 6000. It may not be as long as the one Rudd wrote. And Jim Chalmers wants to remake Australian capitalism. I don’t know if he necessarily wants to remake global capitalism. But he does have a critique of neoliberalism. So that’s the new thing that everyone hates. And I mean, it’s similar to a lot of critiques of so called neoliberalism that, you know, we we’ve gone too far in the direction of the market, and we don’t care about society as much anymore and isn’t as all dreadful. And isn’t all this inequality, terrible. It’s causing problems for Democracy Now look, okay. There’s certainly issues and in some countries, inequality has certainly increased, there’s no doubt about that. Overall, it’s this very simplistic analysis. And look, it’s Jim Chalmers is views. I mean, you know, fine. That’s his philosophy, it’s probably what you’d expect from Jim chamas. He’s entitled to those views. I mean, my personal view is you should be looking at specific policies. I mean, what exactly do you think we did wrong? Okay, let’s look at specific issues and see how we can fix those up. I mean, is it tariff cuts? You don’t approve of them in tariff cuts that the whole Keating government supported? I mean, what is it precisely that you think is the problem? So there’s this general critique of neoliberalism, which is no different from a lot of stuff you see online by various progressives? And, look, I mean, I’m not necessarily going to defend everything that that’s been done in economic reform. I mean, there certainly been like, I think there have been some great successes. But there have also been areas where the insert less than stellar results. There’s no doubt about that. But I think what’s important is to get it all. Okay, let’s understand what he actually wants to do because he’s got this general critique, okay. But what do you want to do? And his main idea seems to be this idea of co-investment. That’s the real substantive thing. That seems to be how he’s going to define his time as treasurer or his time as PM if he later becomes PM, because in a way, this is job application for PM he wants to be Labour leader. He sees this as defining his philosophy as a labour treasurer. We’re going to fix capitalism. He talks about values based capitalism, he thinks capitalism, we want to move away from a system where it relies upon people beings If interested in greedy and the private sector alone, we want to have a cooperation between the private sector and the public sector. We want the public sector, getting the policy settings right and and then co-investing with the private sector to provide some, some ideas about how that will occur. He talks about the Clean Energy Finance Corporation, which is designed to provide finance for various renewable energy projects. He sees that as a success, even though it doesn’t appear to be meeting its investment mandate. So I had a look at that, because I found it interesting that that was his one, the example that he gave, so he talks about co-investment as a powerful tool at our disposal. The Clean Energy Finance Corporation has been a great success, partnering with investors to direct capital where it can have the greatest impact, not by subsidising returns, but by helping structure investment vehicles in a rapidly emerging economic sector, we will employ this co-investment model in more areas of the economy, with programmes already underway in the industry, housing and electricity sectors. Okay. So they’re looking at providing some type of framework, having these entities like the Clean Energy Finance Corporation, and I think they’ve set one up similar to that in housing, it’s to encourage investment by the private sector and by I guess, providing more accessible finance, or making creating financial products, perhaps with some government guarantee, I don’t know, we have to wait and see what exactly the treasurer is, is talking about here. So yeah, that’s where I think we’ve really got to focus. This seems to be his idea of how he’s going to be this innovative, new wave labour treasurer. Yeah, Nick’s made a good point here in the comments that they want the super funds to, to invest in some of these areas such as housing, or an infrastructure. But again, I mean, we’ve got to ask exactly how are they going to do that? There’s, what I see is the risk that the government provides some sort of guarantee or does provide financing, he’s saying it’s not subsidised. But, I mean, you’ve got to wonder about if it isn’t subsidised? Or if if the government’s not making finance more readily available in the market within the banks would then what exactly is the market failure they’re addressing? Why wouldn’t the private sector do it? So I think there is going to be some sort of subsidy or, or risk taken on by the public sector that’s not compensated for. And so when I looked at the Clean Energy Finance Corporation webpage on financial outcomes, I discovered that and this is what this is a an institution that the treasurer claims has been a great success is its return its lifetime annualised portfolio benchmark. Return. So this is, this is a return that they’ve earned. So 4.38%, which is, you know, hardly anything, really, if you think about what you’d really want to be earning as an investment vehicle like that. So I think there is a risk that this sort of thing is subsidised. I think there’s a risk that they’re taking too much risk onto the government balance sheet. And there’s a potential to fund projects, which are uneconomic. So if that’s the big idea, I mean, okay, well, let’s see the specifics, and let’s analyse exactly what you’re, you’re recommending, and we can talk about that. Yeah. And there’s that point about, yeah, they do want access to the super funds, money, they will have to make sure that it’s a compelling investment opportunity to actually get that money. And, and that is a big risk. I mean, we don’t yeah, that those super funds, if they just invest in something because the government wants them to invest in it, then they are breaching their fiduciary duties. That would be a terrible thing if the government does direct where that money should go.

John Humphreys  09:12

Interesting points on that today. I think this is part of the problem that we’re sneaking up on the situation several ways. Super funds increasingly have social goals that they need to meet, as well as financial goals. You make a good point that, well, that needs to show that they’re going to meet the financial needs of the super investors. Increasingly, the super funds feel the need to meet their social KPIs, rather than their financial KPIs. And if they are required to meet social KPIs, then they’ll very easily get away with it. Remember, it’s not like this super is optional. We’re forced to give it and if the government gives the super funds who have guaranteed access to our money, social KPIs, you must do something social. By the way, here’s something social we want you to do. You can imagine it happening, even if it doesn’t have financial risk. I think the point Nick can correct me if I have not expressed her concern accurately, please jump into the chat again, Nick. But that’s my understanding of your point.

Gene Tunny  10:09

Yeah. So the whole thing with this values based capitalism, one of the concerns is that you end up with this very odd relationship between the government and banks and super funds. And in a way, it’s very odd for a Labour leader or an aspiring Labour leader. And this is a point that Matt Canavan made that he was very critical, as you probably would expect of this sort of thing. And I mean, he was saying that the treasurer seems to have been spending too much time in the boardrooms of banks and super funds. So yes, it’s, it’s very strange, but what I think might be going on, and this is, this is one thing that I’m wondering is, is this because he really doesn’t have many other options due to the state of the budget due to the high amount of debt, and due to the fact that he’s committed to the stage three tax cuts? Katherine Catherine Murphy on the Guardian podcast asked him, Okay, if you’re talking about values based capitalism, does this mean or she, she was basically asking me if you actually, given what you’re professing about values based capitalism and your concerns about inequality, etc? Does this mean you’d revisit those stage three tax cuts? And other there was a good question, and he just gave the standard line? I look, we’ve already dealt with that. And we’re, you know, my position on that. I think she probably could have pressed him more on that because it is a legitimate question, if in terms of traditional Labour government, some people have been saying that with this essay, Jim Chalmers is channelling Whitlam or it’s going back to the Whitlam government, I’m not entirely sure about that, because the Whitlam government was big spending on social welfare programmes, I really ramped that up. I mean, I know now we are spending more on that sort of thing. But there’s, I don’t know if there’s a capacity for this government, given the fiscal situation to really increase those welfare payments, or expand the welfare state much at all. And so he’s really falling back on this sort of thing, because he may not have any other option. And to an extent, that’s because the government’s had to go along with the stage three tax cuts for political reasons to win the last election. And now they can’t go back on it. So you know, this could be the only shot he’s got in the locker, so to speak. That’s one thought I’ve had on this, this essay.

John Humphreys  12:47

It will be interesting to see what they do in the next budget in terms of tax, I suspect, I’ll sneak that tax rate up, they are going into that. Look, I think that was politically hamstrung with their previous commitments. And quite frankly, I think they made the right decision to stick to their promise, both because I’m a big advocate of the stage three tax cuts, but also politically, if you want to keep any political capital, you can’t just line up lie after lie after lie in your first year in power. So I think it was the right political move and the right economic move. I suspect they also know it’s the right political move. They think it’s the wrong economic move, but they’re stuck with it. And so I’m happy about that. You’re not just a couple of quantifications. I haven’t thought about this article as long as you have, but I think you’ll write in one very important point. There’s been a lot of furor about the words. And I think the words of what Jim says, if taken literally, we shouldn’t be worried if they can, literally. But you pointed out, I think that it’s not necessarily true that we should take it literally, because there’s a lot of fluff and waffle in the middle there, that could be interpreted multiple ways. And to a large degree, what we have to do is go back to them and say, what does that mean, exactly? Exactly what I’m suggesting here. And I suspect what’s happening is there’s two things it’s worth responding to both. I suspect he’s the policy recommendations coming out of this, I suspect will end up being tinkering. I don’t think it’d be good tinkering. But this is probably a lot of grandiose statements. I’m not sure if they’re going to follow through on grandiose actions. I gotta say, as I say that, if I’m right, that would be a good thing. Because if they followed through on all the grandiose statements, I think it would be a supreme mistake for the future evolution of our country. So I am hopeful that this is a lot of bluff and bluster. But also if history is anything to go by, politicians are often full of bluff and bluster and grandiose statements. And then once they actually sit down and work out, what does this mean? It can be a tweak here and tweak there.

Gene Tunny  14:46

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

Female speaker  14:51

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Gene Tunny  15:21

Now back to the show.

John Humphreys  15:24

I do worry about them targeting the super funds, I do worry about what they when they say race, it just sort of interaction cooperation between the government in the corporate sector, that could be done in several different ways. Some of them supremely damaging, and some of them rather mild. And some of them perhaps useful, we really need to know the details first, but I worry that what he’s talking about is not the mild version. But hopefully what he does is the mild version. But what he’s talking about here has echoes of a lot of things that have been growing over the last couple of decades. Some people have actually said it in the chat and see if I can find some here. I think Percy said this twice. It’s the ESG goals. A lot of the language here is also the language of ESG, the environment, the social and governance systems. And it’s steadily in being embedded through several different means fair and foul into the goals of a lot of companies sometimes basically being shoehorned in there by governments, sometimes by industry super funds, which as was also pointed out by Percy, I think, that they are closely related to the union’s so you are getting lots of deviations from normal capitalism for ESG. Another term that’s been thrown around a lot by people that are it looks like Jim Chalmers is influenced by the stakeholder capitalism, and stakeholder capitalism, it sounds so benign, but if you scratch the surface, it’s a very worrying idea. The whole point of capitalism is that corporations are supposed to represent the owners and benefit the owner, it is capitalist who make a profit and the profit goes to the people who made the investment. That’s the idea. Stakeholder capitalism basically means all you know that ownership thing we told you about, yeah, not so much. Right? I mean, you don’t have to be an owner to have a stake, you could be a consumer, or a worker, or a neighbour or just anyone with a pet dog that ran across someone’s front yard. And that basically means society, if society is the owner, where that’s not a real thing, right? That’s always code word for government. If society is the owner of the business, i.e. government is the owner of the business. That does not, that system and economics does not have a good track record at work. There’s a couple of things here. The Chalmers thing has been likened to out and out socialism. I don’t think that’s quite right, because what he’s talking about is this incestuous relationship with big business and big government and big unions. And now socialism, just what’s the leaders of big business up against the wall, shoots them and takes their property. This is like traditional socialism. It’s been likened a bit to Whitlam. And you already mentioned that before, but it’s not quite that either. Because what Whitlam wanted to do was have the government take over all of the realms of how you help the massive welfare state, massive redistributions. He’s not really talking about changing the welfare state. He’s talking about changing the way business operates. So it’s not quite socialist. It’s not quite Whitlamisk, what I call it an eco socialism. It’s instead, this incestuous mix of big government, big corporations, big unions, and we need another word for that. There was a word for that this is not a new idea. This is the thing I’m seeing showing up by some of the op ed writers look at this wonderful new idea. It’s not Whitlam. It’s not Marx, it’s a new idea. It’s actually not a new idea. These ideas have been around for quite a while they were quite prominent, about 100 years ago. I believe, Jim Chalmers is the follower of an Italian economist at the moment. These ideas were very popular amongst a certain Italian politician. From about 90 years ago, if anyone knows their Italian history, El Deus, the Mussolini ideas were basically exactly this. But we don’t need to get rid of business. What we do is we need to have a really close relationship between big government, big business, big unions, we all work together. It may be better than for more efficient for socialism, but it’s a bloody dangerous system. And of course, if you actually call it fascism, everyone gets upset because they say no, no, no, Jim Thomas doesn’t hate the Jews. But fascism isn’t only the economic system of fascism isn’t just about being a Nazi. The economic system of fascism was quite literally the idea that big business can exist, but they just have to cooperate in bed with big government. That was literally the idea of the fascist model of the economy. And it’s not a new idea. I don’t think it has a good track record is actually working as an economic idea. And I’m not trying to say Jim Chalmers is a fascist, I’m just simply saying that we can look at how this has worked in the past. And I don’t think it’s been pretty. The other thing to note about this is they talk a big game about how much they want to cooperate with big business and integrate with them. It’s as if they that they’re unable to draw a distinction between the markets and a business. Right. I mean, most people on my side of politics we believe that a market is a better way of cool donating things, then bureaucrats and politicians. That’s true. That’s not from a love affair with business. Indeed, business are often also the enemy of markets. Like I am not pro business, I am pro markets and markets happen to have business in them. And it seems when a lefty stumbles across this idea and sees markets working, they think markets work, because there’s a couple of nice businesses. So they Co Op those businesses. But it’s not the existence of those businesses that make the market work. It’s the nature of the dynamic nature and the competitive nature of the market. That helps the market system to work. And sometimes a good market needs businesses to fail. If businesses make enough bad decisions, they fail this idea that markets defending markets are about defending businesses. Some people on outside of politics need to get out of that way of thinking, bad businesses should fail. We’re not here to defend businesses, I’m happy to defend people who make good decisions and get ahead and are rewarded for that, whether they are in any field of Endeavour. But it’s not just about defending businesses. And this approach the Chalmers has seems to be pro business anti markets, whereas I am pro market and indifferent to any individual business. And that’s some of the things I do notice in some of his language. He talks about redesigning markets, and that markets need to be carefully constructed. So I think once again, that shows a fundamental misunderstanding of what we mean with markets. Markets are evolutionary concepts. They’re not design. They’re not constructed at all. They happen sort of spontaneously out of the interaction of a bunch of voluntary interactions between consenting adults, it is a it is an evolved system. And one of the most dangerous things we have is these politicians that lack the humility to realise that they can’t design such a complex system meddling in a hugely complicated evolved system that is probably beyond their capacity, it’s beyond their can to actually understand the dynamics. It’s beyond the understanding of most people. Leonard Reed famously wrote a book saying no one knows how to, it’s called “I pencil”. And he pointed out that no one knows how to make a pencil, seems like a crazy statement. But if you unwrap each part of making a pencil, someone has to know how to cut down the wood, which means they have to know how to use a chainsaw, which means they have to know how to make the chainsaw, which means they don’t have to know how to get the metal for the chainsaw, which means they have to know how to make the iron, which the steel which comes from the iron, which comes from the mining. So you go back through all the parts of making a pencil, no one person can do it, but it comes together spontaneously, seemingly spontaneously without any central controller. That’s the important point. There’s no central controller in that. And yet, you can go and buy a pencil now for 10 cents. It involves the cooperation of literally 1000s of people around the world who speak different languages, and may not even like each other, they may hate each other. And yet 1000s of people around the world all coordinated and managed to bring you a pencil at your local store for 10 cents. That is insane. And there is no controller. It wasn’t designed, it wasn’t carefully constructed, as Jim Chalmers seems to think, it was a spontaneous order coming together. And that is the dangerous thing. I think there is when these politicians decide that they need to redesign markets in their own image. And often they have wonderful goals, right? I mean, their vision of the world, that vision of the future is not some dystopian nightmare. That’s just the accidental byproduct of their arrogance and their lack of humility. So anyway, that’s my rant on this. Now, I haven’t spent as little thinking about it as you, so maybe I’ll have to duck into it a bit more over the next week.

Gene Tunny  23:28

But I want to have a closer look at just what these vehicles are and how they intend to direct investment. I mean, he talks about, well, we’re not going to pick winners. Okay, that’s great. Oh, but we’re just gonna set the priority. So it’s like this state directed model that the French had, I think in the 50s or 60s, I wouldn’t call it fascism. I’d call it corporatism, or, or whatever the French used to call their system back in the day, the government’s got an idea of where the investment needs to go broadly. It’s sort of national economic planning. That’s the type of mindset and one thing I’m waiting to see is will they try and revive this idea of an infrastructure bank? So this was something that was raised during the time of the Rudd Government but got knocked down. Turnbull criticised Kevin Rudd has been Kev Lonnie, with reference to Kim Lonnie and there was the people were talking about well is this gonna be the new transcontinental I don’t know if you remember it was it transcontinental, the tri-continental, the, the Merchant banking arm of the state bank of Victoria that went bust in the late 80s. Victoria, when it just got into, you know, just made all these crazy loans during that, that colossal boom in the late 80s. There’s a real risk to government balance sheets here, and I just want to wait and see just what they’re proposing. And whether there is some bold scheme like that, that the treasurer could be announcing. That’s what I’m going to be looking out for.

John Humphreys  24:58

I think on the retail politics that is the right thing to look for I should reiterate, I don’t actually think Jim Chalmers is intended to be a fascist, because I don’t think he intends to follow through on the logical consequences of his own article. But I still think it’s worthwhile pushing back on the substance of the article, even if I don’t think you’ll follow through on it. I don’t want people to think of it as an ideal, because I still think the ideals in there are very dangerous. And look, I also take your point, in reality he’ll be whether it’s fascism, or corporatism, it’ll be a watered down version of that. And we need to see the details I agree. But still, the steel man version of that is worth addressing, in case it seduces the thoughts of any young people that stumble across these ideas. You make a good point that perhaps corporatism is the better word for it than fascism. I’ve thought about that a bit lately, that could work. I wonder though, whether there is a difference between the two, they both involve this incestuous relationship of big business and big government. Perhaps the difference is who has the upper hand. And I think in corporatism, perhaps the idea is that big business has the upper hand, and they kind of use big government as their tool for success. And in fascism, it’s the government has the upper hand, and they use big businesses, their tool for enforcement, or getting things done. But anyway, that’s a thought bubble there on what the potential difference could be. I don’t know which one Jim Thomas hopes he would achieve. Probably not corporatism. But I’ll cheekily put that aside for the voters. What he

Gene Tunny  26:17

wants to achieve is he wants to get enough votes from the labour left by imagining he’s can remake capitalism, where, really, he’s going to get some he’s going to create some investment vehicles. There’ll be some additional money into into renewables and housing. But is it really going to make much of a difference? And I don’t know, I mean, in housing that, you know, that’s one of their big challenges. I mean, that housing affordability is a massive problem now. And the number of people who can’t find accommodation, particularly in Brisbane, I mean, I go for a walk along Wickham terrace in Spring Hill. And I mean, the usual homeless people, you see, but now you see there are people living in cars, they’ve got all their worldly possessions, in, in the back of their vehicles. And it’s just tragic. And it’s because for years, we’ve just stopped people from building houses where people want them. So we’ve got, we’ve got problems that have been created, in part through government regulation. And now that’s going to be used as one of the excuses for remaking capitalism and providing, I don’t know, whatever, they’re going to do subsidised housing, there’ll be some money for that social housing, but it’s not really going to be enough to solve the problem, in my view.

John Humphreys  27:30

But it’s so often the theme, isn’t it? A government programme goes wrong. And the lefties turn around for capitalists to say, Why did you do that? And then they use that to justify another government programme that also goes wrong. And the whole cycle repeats itself. I do like the fact that every time I try to get us distracted in a conversation about the grandiose philosophy of the implications of Jim Chalmers article, he brings us back to the real retail politics, which I think is entirely correct. I think your read on this is true that his grand philosophical statements, they’re mostly just fluff and waffles so that he can try to get the Labour leadership and it’ll mean a bit of tinkering. I think you’re right. I just still enjoy rebutting the actual words. Anyway, that this has been a fun discussion.

Gene Tunny  28:13

Definitely John. Okay, I hope you enjoyed my conversation with John Humphrys about the Australian treasurer’s essay on values based capitalism. I’d say the takeaways from the episode include firstly, that there’s clearly been a big change in the intellectual climate since the financial crisis, and treasurer Jim Chalmers has picked up on this making some of the standard criticisms of so called Neo liberalism. Secondly, it’s important to consider specific policies and to weigh up their costs and benefits and the likelihood that claim benefits will be achieved in my view. If we do so it’s understandable why there’s been such a negative reaction to Jim Chalmers essay by economists and financial commentators here in Australia, I should say, I don’t want to be too negative. I have met Jim Chalmers in the past when he worked for treasurer Wayne Swan, and he struck me as a nice person. He clearly thinks a lot about economic issues, and I respect that. And the treasurer did say some say on things in the essay, for instance, he writes, in the wider world, the contest between democracies and autocracies is economic as well as military. Despite deep disquiet about our own economic models. The reality is that democracies largely work. As of 2021 GDP per capita is around 60%, higher in democracies than in autocracies and the gap isn’t closing. Thankfully, Chalmers is a Social Democrat rather than a revolutionary. But he argues that to protect democracy, we need to have greater economic inclusion. That’s fair enough, but we need to think critically about the measures he proposes to promote it. obvious questions include, will they actually achieve greater economic inclusion, what will they cost? What are the risks to the government’s balance sheet and to taxpayers who will ultimately bear the cost of any bad investments? As I suggested in my conversation with John, history tells us we should be wary of governments owning banks or other financial institutions that don’t have a great track record. The failures of the state banks of South Australia and Victoria were big news in the early 90s. But now three decades have passed and the lessons may have been forgotten sadly. Also, as I noted, when chatting with John the results of the body that the treasurer calls a great success, the Clean Energy Finance Corporation, well, they’ve been pretty ordinary and they don’t appear to be meeting the target of return. The presentation of the financial results for the corporation is rather confusing, but it looks to me that they’re underperforming. I’ll put a link in the show notes so you can see for yourself. One thing I should have covered in my chat with John is the concept of social impact investing. This is an investment where there are both financial and social returns, such as in a profitable social housing development. Social impact investing is one of the concepts that Jim Chalmers is fond of. In a recent financial review article, John Keogh referred to an example from New South Wales in 2013, a social impact bond which raised $7 million from investors to finance the new PIN programme. N E W P I N. New PIN stands for New Parent Infant network. It appears to be a programme to support new parents so they look after their children properly and the children don’t end up in foster care. It looks like the Queensland Government has tried something similar. Typically, impact investments require government involvement of some sort to ensure that the private sector investors get a return. For instance, governments could pay performance bonuses if certain social outcomes are achieved. There’s a handy note from the Treasury which summarises the Australian Government’s principles for social impact investing, which I’ll link to in the show notes refers to such things as payments by results, contracts and outcomes focus grants, that’s how the investors will be rewarded if the investment achieves its social objectives. These payments could be justified because successful programmes could result in budgetary savings in the future. For example, if programmes result in healthier children, that could reduce health costs in the future. You could also imagine programmes resulting in savings in welfare spending, or cost of the justice system. I’d say that such savings are possible, but we should think critically about the likelihood of such benefits and follow up to make sure that they do actually occur. That is, so we’re not paying nonprofits and investors additional money for results that they don’t actually achieve. It looks like treasurer charmers might end up announcing a social impact investment bank in his next Australian government budget in May 2023. James says that the Financial Review gave a good summary of what this bank could do in an article in October last year, which I’ll link to in the show notes. He wrote, the new body would work with investors to supply capital to intermediary funds, which would direct private investment into social housing, aged care, early education or disability services alongside government funding. This could take some pressure off the government budget for providing these services alone. Okay, that’s the point I made in my chat with John, that some of the motivation for what Chalmers is proposing is the poor state of the government budget, they just don’t have the money to undertake traditional programmes. He’s talking about impact investing because he doesn’t have a lot of options. With his social impact investing bank, he can support things that he wants to do off budget, so to speak. James Ayers continues, the institution would make returns when service providers who would typically be receiving some government funding make predetermined improvements to social outcomes such as housing, education or caring for more people under agreed service standards. Apparently, there’s a body like this already in the UK called Big Society Capital. There’s a fair bit to explore with impact investing, so better return to it for a closer look at a future episode. There are a lot of players involved and I’ll do my best to get someone familiar with impact investing on the show for a deep dive. In the Australian model, it looks like there’ll be a government backed social impact investment bank referred to as a wholesaler. Major commercial banks could also provide capital for this bank. It appears based on reporting from the financial review. There’s talk about 200 million coming from the government and 200 million from the private sector. I expect the social impact investment bank will provide finance at lower than market rates for social impact investing funds. These funds then invest in nonprofits or so-called Social Enterprise causes which are delivering programmes under government contracts. An example of a social impact investing fund is the $91 million social impact investment trust, established by social ventures Australia, a nonprofit and Hester a superannuation fund. How the performance bonuses are shared by the nonprofit, the investors and the government back bank will need to be defined by various contracts between the players. This all seems very elaborate to me. There are no doubt a lot of investment bankers and fund managers earning healthy fees along the way. Does this lead to better results? It may do so if the investors push the nonprofit to deliver superior services. As always, I’m open minded but sceptical. I’ve seen that the consultancy firm Airbus has undertaken a positive evaluation of the New South Wales new ping programme. So it could be good to go through that in a future episode. I haven’t had a real chance to dissect that one yet. I do wonder just how much we can rely on impact investing to solve social problems compared with other measures. As I noted with John, I doubt it will solve the housing availability shortage, which to me appears related to restrictions on housing developments. And it’s not going to replace welfare state programmes such as Australia’s various support payments and the National Disability scheme. Maybe you can do positive things at the margins, we have to wait and see because it’s still early days when it comes to impact investing. For a sceptical take on impact investing, which I’ll link to in the show notes, I’d refer you to a 2020 Harvard Business Review article by Ruben Finnegan, who I know well and Alan Schwartz is a prominent Australian businessman. Impact Investing won’t save capitalism. Okay, that’s all from me on values based capitalism for now. If you’d like a closer look at impact investing or any other topic, please let me know. Thank you. Right oh, 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 outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

37:41

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Podcast episode

China’s falling population & global population update   – EP174

The world’s population keeps growing and passed 8 billion in late 2022, but China’s population is now falling. There are concerns over what that means for its economy and the wider global economy. Is Paul Krugman right that a falling population means a weak Chinese economy? Show host Gene Tunny and his colleague Tim Hughes discuss the possible implications of a shrinking China, as well as global population projections out to 2100. The conversation touches on the environmental impact of a growing population and how well-placed we are to manage environmental challenges.    

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 EP174

  • The world’s population is on the rise and passed 8 billion in November 2022 [4:24]
  • Why post-war population growth was so strong [7:43]
  • What does a declining Chinese population mean for the Chinese and global economies? [14:09]
  • The importance of immigration in Australia population growth [19:27]
  • How the world’s population will eventually level out toward the end of the century [23:35]
  • Can governments solve environmental challenges? Discussion of the hole in the ozone layer and the Montreal Protocol [30:09]
  • Paul Krugman vs Dean Baker on the future of China [42:07]
  • Tim asks how do you maintain a growth mindset in a declining population? How do you make it work? [47:25
  • Will demographics and a weaker economy bring down the Chinese administration? [53:06

Links relevant to the conversation

UN World Population Prospects 2022 data

https://population.un.org/wpp/

Paul Krugman’s article “The problem(s) with China’s population drop”

https://themarketherald.com.au/the-problems-with-chinas-population-drop-2023-01-19/

Dean Baker’s article “Paul Krugman, China’s Demographic Crisis, and the Which Way Is Up Problem in Economics”

https://cepr.net/paul-krugman-chinas-demographic-crisis-and-the-which-way-is-up-problem-in-economics/

China’s old-age dependency ratio

https://population.un.org/wpp/Graphs/Probabilistic/Ratios/OADR/65plus/15-64/156

Stanford Business School article “Baby Bust: Could Population Decline Spell the End of Economic Growth?” discussing Charles I Jones views on the link between population, innovation, and economic growth

https://www.gsb.stanford.edu/insights/baby-bust-could-population-decline-spell-end-economic-growth

Transcript: China’s falling population & global population update   – EP174

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  00:07

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. This episode, I discuss China’s falling population and other global population issues with my good friend, Tim Hughes, who helps me out in my business Adapt Economics from time to time. Tim is not an economist, but I always enjoy chatting with him and hearing his views. And I think he asked very good questions, please check out the show notes, relevant links and for some clarifications, for instance, I need to clarify that the fertility rate for Hispanic women in the US has fallen over the last decade, and is now lower than what I remember it being although it’s still higher than for non-Hispanic women. The general point I make about Hispanic fertility contributing to a higher than otherwise, total fertility rate for the US is correct. I think about doing a deeper dive on fertility rates and other demographic issues in a future episode. Please stick around to the end of my conversation with Tim for an afterword from me. Okay, let’s get into it. I hope you enjoy the show. Tim, he is good to have you back on the show in 2023. Good to be back gene. Yes, Tim. Lots to chat about this year for sure. And today, I thought we could talk about one of the big bits of news that’s already come out this year is the news about how China has had a falling population. The population started to fall for the first time. So that was over last year. Did you see that news?

Tim Hughes  02:01

I do. Yeah. And it’s sort of in line with previous conversations we’ve had about world population and declining growth in a lot of countries. But that’s been mainly in the Western countries. So I think it’s the first time we’ve seen this in China.

Gene Tunny  02:15

Yeah, and this is one of the big concerns for China that China could get old before it gets rich. So it’s got an ageing population. And now it’s got a falling population. And there’s concerns about what that means for its economy, its economic dynamism, its ability to look after the elderly people. So that’s one of the concerns, you know, there’s concerns over the dependency ratio and the number of people of working age to support those.

Tim Hughes  02:46

So that’s the same principles. Because I know we’ve talked about a lot of the Western countries have declining, population rates are declining growth rates. So there’ll be the same challenges that those countries face as well, then yeah.

Gene Tunny  03:01

To an extent, it’s much worse in China than in many Western countries, because China really shot itself in the foot, really, if you think about it with that one child policy. And it seemed like a good idea at the time, because at the time, we’re concerned about, well, how do we feed a billion people or so. And so there was a government policy, instituted late 70s, early 80s, that each family can only have one child. And that seemed like a good idea at the time, to help improve living standards, and help feed the population. But what it’s meant 40 years later, is that they’ve now got a declining population. And while they’ve relaxed that one child policy, what they’re finding is that Chinese couples, they’re quite happy with one child, because you know, that’s been the norm for four decades or so.

Tim Hughes  03:56

Yeah, because that was in place until 2016, I saw,

Gene Tunny  03:59

Yeah, around then I think. Yeah.

Tim Hughes  04:03

So I mean, it’s pretty radical, because I guess China is one of the few countries that could implement that – that kind of law. I can’t imagine many countries being able to do that. So it’s interesting seeing it pan out, because it’s interesting that Western countries have a declining growth rate anyway. So without that being put in place.

Gene Tunny  04:24

Yeah. And one of the other big challenges for China, which is less of a challenge for Australia, and for the US, for example. Immigration is a that helps us alleviate some of the challenges from an ageing population, not completely. We’ve got a really strong immigration programme here in Australia, the US gets a lot of immigrants from all around the world. And also because the US has got the benefit of having a large Hispanic population and the fertility rate among Hispanics. So people from Mexico or from South America or wherever Puerto Rico, it’s, I don’t know, it’s over 2.1 For sure, which is the replacement rate. And so what that means is that the US, their fertility rate is not as low as in other other economies. And so they’ve there not the pressure doesn’t come a lot from that source. I mean, in Australia, we’ll end up having that that natural increase turned to a natural decrease eventually. And then we will have to start relying on immigration for additional people at the moment, we’ve still got some natural increase, because we’ve got, because the baby boomer cohort was so big, and then their children, there was plenty of them. And so there are still more people being born in Australia than dying. You get a problem if you don’t have people being born and you got everyone die in, that’s when you know, you don’t have immigration. And that’s what’s happening with China.

Tim Hughes  05:56

immigration has been a big part of national growth for so many countries for since forever. Like, that’s always been the case. And so certainly, places like Australia has count on that massively. Zooming out to a macro level. We’ve been talking about the cause, I remember we had this conversation years ago, and I was open-minded at the time but I was wondering, like, what happens, you know, if world population gets out of control? And you mentioned at the time that the thinking was it was going to level off around 2050 at around 10 billion? I think that might have been raised?

Gene Tunny  06:33

Yeah, it’s been revised. So if we look, we might go to the World Population Prospects. So I’ll put a link in the show notes to this. This is the really authoritative set of projections from the UN. And I mean, they’re really good. They essentially, they were forecasting that China’s population would start declining around now. Yeah. And, you know, India’s, the mean, India’s population is going to overtake China pretty soon, if it hasn’t already overtaken China’s population that we chat about that a bit later. There are some good references I found on that. They’re on the 8 billion mark now. Yeah, I think we crossed 8 billion last year. If you look at the world population, Prospects report, they’re released last year. So the world’s population is projected to reach 8 billion on 15 November 2022. Can you remember what you’re doing that day, Tim?

Tim Hughes  07:24

No,

Gene Tunny  07:25

No. But that was back to the momentous day for the world. So you know, 8 billion amazing. I don’t know what it was, when I was born, it might have been in the 70s. It might have been put it in the shownotes. But I remember when I was at school, it was 5 billion or so

Tim Hughes  07:43

This is a thing that I saw, I remember at the time when we first had this conversation, because the rate of the doubling of the world’s population was so fast. I mean, the turn of the century around the First World War turn of the previous century, is around the 2 billion mark, I believe. And so to get where we are now is like a billion. I mean, that’s a huge growth. And this is the history of the universe, for instance, like for our species on this planet, any planet, you know, to be this money. So it’s a really, it’s a really fast growth.

Gene Tunny  08:19

So why that occurred? It’s because of improvements in agriculture is because of the fertiliser, the ability that’s that process the was invented by those German chemists.

Tim Hughes  08:33

Those German chemists, yes.

Gene Tunny  08:34

I’m not going to pronounce it. I’ll mispronounce it for sure. But there’s a there was a process that to artificially or create ammonium, I think for fertiliser, if I remember correctly, so there’s a something like that there’s a there’s a chemical process that was perfected in the early 20th century by some German chemists. And that meant that we were able to produce, you know, fertiliser artificially, and then that meant that our agriculture could be much more productive. And all of these, you know, we could support much larger populations in India and Bangladesh, and all over Asia, in Africa. So that’s a big part of it. And the other part of it, of course, is just improvements in public health and understanding of germs and bacteria and viruses and all of that eradication of smallpox, all sorts of things that have that mean that billions of people who wouldn’t have been born or wouldn’t have survived beyond infancy, are able to survive and now we’ve got 8 billion people. It’s just incredible. When you think about it.

Tim Hughes  09:42

Infant mortality at that time was terrible, like, it was very common for families to have any number of kids who didn’t make it through to adulthood. And that has definitely improved.

Gene Tunny  09:58

Well, just got any I mean, you got any cemetery and yeah, any older cemetery and you just see all the graves and memorials to infants. It’s incredible, isn’t it?

Tim Hughes  10:08

But go back to the conversation that started this? Well, certainly, as far as I was aware, because so I was of the mind, like, you know, what happens if we just get more and more and more, there’s a massive problem, and it just gets out of control. But you mentioned that this was actually foreseen that there will be a levelling off. So this extreme growth that we’ve seen from so taking that 2 billion mark around the 1900 mark, 2 billion to where we are now 8 billion. I mean, if, you know, I’m thinking, Well, what happens at the point where we can’t sustain any more people, but it was foreseen that we would have this levelling off around 2050. And then 2100, not much growth between 2050 and 2100. Is that still the case?

Gene Tunny  10:49

Yeah, yeah. So if I’m looking, I’m looking at the UN, the world population projections that were put out last year, the latest projections by the United Nations, suggests that the global population could grow to around eight and a half billion in 2039. 9.7 billion in 2050. And 10.4 billion in 2100.

Tim Hughes  11:12

So that’s a real that’s slowing down a hell of a lot from where we are now.

Gene Tunny  11:15

Yeah, yeah. And that’s because of that demographic transition they talk about. So I think we talked about that last time. How as economies get wealthier, as people get wealthier, public health improves, then they have fewer children.

Tim Hughes  11:30

That’s interesting to me, because you would think it’d be quite logical to think it would go the other way, that people would have more children under those circumstances. But there’s actually fewer.

Gene Tunny  11:39

Yeah, yeah because in poorer economies in poorer countries, children are in insurance policy. And they help look after their parents in old age. Yeah, So that’s, that’s how it works.

Tim Hughes  11:52

 I’m thinking that my kids, I might have to mention that to them.

Gene Tunny  11:58

Yeah, so that’s why. And historically, yet, so you’d have that have more children, of course, birth controls, and other another thing, too, right. So birth controls part of the story. But I think largely, it’s, it’s due to the fact that if you’re in a more if you’re in a poorer economy, then it’s probably more likely to be agrarian, or you have lots of people on the farm. And you know, having children’s that’s, that’s your workforce. Right. Okay. Yeah. So, I mean, that sounds harsh, but that’s what it is, right. So that’s  your workforce, it’s to help you out in the home, and it’s to look after you when you’re old. And so that’s why in poor economies, they have more children, and there tends to be this demographic transition, that’s well observed that countries really have this sharp or this big drop in fertility, as they get wealthier.

Tim Hughes  12:53

It’s a really interesting, I mean, I think it’s a good thing, like, you’d have to say, you know, I mean, I was, I was pleased and relieved, to see that that was going to level off, you know, because it’s obviously, you know, if we think of like, a parasitic kind of relationship, you know, and the planet, if we’re a parasite on this earth, and just gonna get too many of us, and potentially, like, trash it, which is still possible with 10 billion people. But it looks like everything’s turning around there to make better choices towards the future generations. So hopefully, that works out. But if the population was going to keep growing, that was certainly going to be a bigger issue. But hopefully, that will make it easier for us to manage the planet and our lives on it in some more sustainable way, you know, that we can sort of level out and do something. And I know, this then brought us to another question of, you know, sustainable growth being constant. Always more, always more. What would that sustainable contraction look like? Or D growth or flexible growth, that we’ve got a few different terms for it that we’ve come with for it. But it’s an interesting sort of concept of like, well, you know, not everything is going to grow, grow, grow. So how do we sort of like, manage that levelling out, you know, as humans on this planet?

Gene Tunny  14:09

Yeah. Well, this is one of the big questions about the Chinese economy and what that means for the global economy. Paul Krugman wrote a really provocative, I mean, really well written piece in The New York Times following that news, or might have been earlier actually a better check when he released it. We might cover that in a moment because there is a question about what a declining population in China or Japan what that means for the dynamism of the economy and your ability to keep everyone employed. So we might talk about that. Just wonder if we need to go back over those world population implication?

Tim Hughes  14:47

Yes. Because that’s in China, for instance. That’s what implications already hasn’t it with what’s going on there. So there’s a lot to unpack just with China, let alone the rest of the world.

Gene Tunny  15:00

Yeah, so these are the big takeaways from this World Population Prospects report. So population growth is caused in part by declining levels of mortality as reflected in increased levels of life expectancy at birth. So globally, life expectancy reached 72.8 years in 2019. So that 72.8 years, that’s a globally that’s not that’s across the whole world, right, not just in the wealthy countries an increase of almost nine years since 1990. So that’s a huge achievement. The other thing I think’s really interesting, in this UN report, this is this demographic transition we were talking about. In 2021, the average fertility of the world’s population stood at 2.3 births per woman over a lifetime. So that’s above the replacement rate of 2.1. Because you need that extra point one to account for the fact that some children won’t make it out of childhood. So that’s 2.3 births per woman over a lifetime having for having fallen from about five births per woman in 1950. Wow, that’s extraordinary, isn’t it? Global fertility is projected to decline further to 2.1 births per woman by 2050.

Tim Hughes  16:14

So was the baby boom, in 1950, yeah?

Gene Tunny  16:18

Yeah, I mean, a lot of that’s going to be in the reason, it was five births per woman. A lot of those births would be occurring in the developing economies in the emerging economies in India and China, because I think China had a big baby boom. And in Australian trying to remember what our fertility rate got up to, I think it peaked in the early 60s, because I remember looking at the data, because we will look when we were working on the intergenerational report in treasury, we were all over this data, I think, maybe got to three or three, between three and four. In Australia, which was pretty high for Australia. Now it’s under two. So it’s below replacement, if I remember correctly.

Tim Hughes  17:01

That reminds me because wasn’t it Peter Costello, who said, have one for each other and one for the country? Yes. So that was the opposite of what China were doing. So Australia was like popping out? Well.

Gene Tunny  17:11

Because we were determined that we need people. Yeah, so it’s interesting. So historically, we wanted to grow Australia’s population for defence reasons. I think Arthur Cornwall who was a minister under Chifley I think that was his he wanted and that’s why he encouraged migration. Isn’t that how you got over here?

Tim Hughes  17:33

Do not tell the authorities, will you. No, my mom’s Australian. So that is my connection.

Gene Tunny  17:42

Oh, that is right, I am just kidding. We encourage, we encourage migration after the war to try to build up the population, I guess, because we thought there’s a limit to how many you know how many how fast you can grow the population just relying on the fertility of, of the population.

Tim Hughes  17:59

I know there was a big like that there’s been a constant source of people from the UK anyway, like, the Ten Pound Poms and all of those guys who came over.

Gene Tunny  18:08

BJs. Yeah. And it’s so I guess we were relying on immigration quite a bit. And even with immigration, we will still have facing this ageing population challenge. And then Treasury crunched the numbers, and it looked like, Okay, this is going to be bad and 30 or 40 years time, because there are going to be fewer people of working age supporting the people of the elderly people also children in the dependency, like, I can’t recall the figures off the top my head, but you’d often see figures, which would suggest that whereas once there were five working people, for every dependents by, some data, there’d be two and a half or whatever, they’d be those sorts of scary statistics, and the budget deficit would end up being 5% of GDP if we didn’t correct this. And so then they the government of the day developed a strategy to try to boost population, or boost the fertility rate and the baby bonus and there’s a huge debate over whether it was effective, whether it was whether it made sense to spend that money, because a lot of people just got the whatever it was $5,000 baby bonus and went out and bought a plasma TV.

Tim Hughes  19:27

We had a baby at least one baby in that time, maybe two, we had three altogether, but I think two of them had a baby bonus. Yeah. So we’re very happy with that.

Gene Tunny  19:37

Yeah. Totally, but the fertility rate did increase over that period. And which, which meant that there was all this talk about Well, Peter Costello’s being the only minister in the Western world, has ever managed to increase the fertility rate or something like that. So we got a lot of praise over that. And there’s that famous photo of him with all the babies surrounding him. Yeah, so I guess we work tried to address our concerns about ageing about declining population, well, we don’t I mean, we’ve still got a growing population, we’ll end up where 26 million now, I think and we’ll end up at 40 million by 2050. Possibly.

Tim Hughes  20:16

So the reality of that is that that’s going to be mainly from immigration.

Gene Tunny  20:19

Yeah, there’s still they’ll still be some natural increase, but a lot of it will be immigration. That’s correct.

Tim Hughes  20:25

I think it’s a really good. I don’t think it’s widely known by everybody, of the importance of immigration, like it’s it, as far as like feeding that growth and like, supporting the ambitions of a country, immigration is essential to have that growth. You know, it’s a big part of it. I know, certainly, in the UK. I know, people from West Indies and, you know, the Caribbean, India, Pakistan, you know, massive influx at different times to be invited over into work, you know, it. And, of course, then there were thriving communities of generations now of people who are British and add to the whole vibrancy and diversity in the country. And that’s part of I mean, I know, it’s a very controversial subject in many countries. You know, we’re not going to cover here. But the fact is that immigration is needed for that growth. Yeah.

Gene Tunny  21:18

Yeah, there’s one way that you can get around this, this challenge in particularly in the western economies, which are projected to have falling populations, you can take advantage of the fact that, well, the population is not falling in other parts of the world in the emerging economy. So there is that opportunity for migration. And we’ve got to look at better ways of allowing people to, to migrate, including on a temporary basis, a lot of the concerns about migration or about people migrating for work purposes, and then settling there permanently and bringing their families. So there’s a lot of concern that. So countries like Germany, which have had bad experiences with or they do them perceive the perceived that they’ve had bad experiences with guest workers in the past, that they’d want to make sure that any migration is temporary. So I think countries are looking at ways that they can have temporary workers schemes that I mean, we’ve got all sorts of visas for temporary workers now. And we’re getting people over from the Pacific where we were before COVID, to help pick fruit here in Australia. So that’s, that’s, yeah, I think migration, certainly part of the solution. At the same time, you want to make sure that it’s, it has community acceptance, and you’re not putting too much pressure on community services, you want to make sure you’ve got the infrastructure to support the population. Yeah, so a bit of a challenge there. Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  22:57

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Gene Tunny  23:27

Now back to the show. Let me just check that Australian population forecast Tim.

Tim Hughes  23:35

So I was gonna ask you Gene like, with that levelling out, frustrating gets around 40 million.

Gene Tunny  23:41

That’s what I wanted to check. Yeah. Right, because that’s the number I had in my head. But let me just check with that. That, but go ahead, keep going. 

Tim Hughes  23:48

Yeah, I was gonna say, I mean, I guess Western countries are already there, where they’re starting to level out and have a very slow rate of growth, or in decline. And so it’s just with infrastructure, and all those different things like at some point, you can imagine that people will still want to move around the world. So even with 10 billion, 11 billion, it might be a case of people leaving one area on mass to try and get into other areas, which happens all the time. I guess it’s certainly happening now. Yeah. And so a big part of that is just managing the amount of people that are on this planet, but with the sustainability sort of question, you know, it’s that up until now, everything’s been about growth, you know, population growth, and more, more and more, to getting back to the point I was talking about earlier, like, you know, it’s gonna get to the point where it’s like, well, this is we have to manage this the best way we can. And so yeah, it was going back to those areas of D growth or flexible growth, sustainable contraction.

Gene Tunny  24:45

Yeah, sure what you mean by that, Tim. And well.

Tim Hughes  24:47

I guess, I guess it’s the kind of thing because of, with that levelling out of the population, I mean, like I said, I think it’s a good thing, you know, because there are enough of us.

Gene Tunny  24:57

Yeah. If you’re concerned about the ability of the planet to support the population and there are plenty of people who are who are saying, Oh, well, we’re actually exceeding the planet’s carrying capacity at the moment, which I don’t believe because if we were, I mean, we wouldn’t be able to keep growing our population, and obviously, where we’re able to support the current population, just by the fact that we are supporting it, right,

Tim Hughes  25:20

I guess at some point as a planet, they’ll still be moving people moving around, like I mentioned, like, yeah, that’s understandable. But the growth mindset, as far as population goes, will have to change at some point, you know, like, you know, it’s not just going to be more and more, it’s a case of like, doing better with what we have. Does that make sense?

Gene Tunny  25:38

I think we should always be trying to do better with what we have. I mean, as an economist, as an economist, I think, yeah, I totally agree with that. We’ve got to be more efficient and do better and, and make sure we’re not we’re properly pricing our impact on the planet. So we’re talking with, we’re not polluting too much, or we’re managing the environment as best we can. Yeah,

Tim Hughes  26:02

yeah. I mean, I see good things coming from it. Like, I think it’s a good sort of place to be, because everything up until this point, like it’s, you know, from 2 billion in 1900, to a billion now to 10, or 11 billion. This is, I would imagine that things will have to change in the way that the world is looked at, as far as its population goes and said, Well, this is, this is, how many of us are going to be putting, you know, waste into landfill? How many of us are going to be, you know, how we deal with our own sewerage, and all that kind of stuff? You know, what I mean? Like, the stuff that ends up in the oceans, how we treat our soil, all of that, like as a global sort of, like management of, okay, how do we do this to the best of our abilities, so we can keep doing it indefinitely. And if we have if we had an exploding population that was getting forever, and that was going to be a scenario that would be potentially catastrophic. And so that’s, I guess, we’re looking at it’s like a macro sort of like view of the whole planet, it’s okay. Well, you know, what can we expect to do better? Where we’re not just constantly expanding? As far as like the population goes?

Gene Tunny  27:07

Yeah, I think why is this definitely an issue to manage? How do we deal with all of that, and greenhouse gas emissions? We’ve got to, we need to get them under control sometime, and then you can debate how quickly or not in the Greta Thunberg, we’re all going to die in 10 years, or there’s a climate catastrophe. I think we’re gonna I can’t say, well, basically,

Tim Hughes  27:36

I haven’t heard that.

Gene Tunny  27:39

Oh, yeah. I think so, I mean, we’ve had 30 years of blah, blah, blah, not doing anything, which is actually true, right? I mean, the government’s leaders around the world will talk about how they’re doing all of this, all of these great things to reduce greenhouse gas emissions and get climate change under control. And meanwhile, global emissions keep rising. And so this is one of the points that are the conservative critics of Jacinda Ardern pointed out was, she’s very popular. She’s a progressive politician. She’s very popular among progressives worldwide. And yet, before COVID emissions were rising in New Zealand, according to these commentators, I probably should fact check that one. It’s a big challenge, because our whole industry of our industry, and our economies have been reliant on fossil fuels for so long. And it’s like turning the Queen Mary around. Right?

Tim Hughes  28:34

Yeah, because I know, we’ve talked about that with the energy sector changing massively, yeah, at the moment, and there are good things that potentially can come from it, it seems to be heading in the right direction, but it’s, you know, obviously, in a transition period, at the moment. And I wonder how much of that, you know, is down to having short term governments, who, you know, we’re expecting too much from governments, with a limited term of three or four years to be able to make these changes, you know, like, because obviously, this is a long term view that we need to take, I don’t know, 2050. Net Zero, are these sort of like goals that get put in? But sometimes I think with the longer goals, it’s easier for people to say, Yeah, we’re gonna do that. And then the action is less than what it needs to be.

Gene Tunny  29:15

Hmm. I think you’re right. I mean, the system we have the democratic system, the three or four year electoral cycle, yeah, I think that makes it harder. But I think it’s better than the alternative. I mean, we wouldn’t want to have a dictatorship was I mean, they could end up imposing, you know, a very rapid decarbonisation or that is incredibly costly on us if they thought that that was the right policy, like look what China was doing with the lock downs with the COVID zero until I realised that okay, we’re going to have a revolution on our hands if we don’t relax this policy. I think you’re right I mean, I think the democratic system we have this short term focus. Yeah, the fact that it is easy to always point to the cost the short term costs of any action. Yeah.

Tim Hughes  30:09

I mean, because I have to say like, you know, at times it seems that with governments, it’s hard to know how much difference they do make, or they can make, you know, even with the best intentions in a term, which goes very quickly.

Gene Tunny  30:21

Well, I think they can make a lot of difference. Look at problems we have solved, look at the Montreal Protocol, which meant that we eliminated the use of Chlorofluorocarbons. The ozone hole.

Tim Hughes  30:36

I saw that that was that had improved that that was a Yeah, a good improvement from what it had been.

Gene Tunny  30:42

So 1987. I think that was the Montreal Protocol. Where all the governments, particularly all the governments of the world agreed that yet we’ll phase these things out. Now. That’s different from the climate change challenge, because there were easy substitutes or substitutes, which weren’t too expensive for CFCs. Yeah, that we could replace them in the aerosols. But I think, yeah, I think governments can make a huge difference. The problem with the current mean, there are all sorts of problems is the issue of, well, for Australia. I mean, the view I’ve always had is there’s no point us doing, doing much of if China and India are still going to keep increasing their emissions, and also the states. I mean, we need ultimately, you need the major economies to be leading this. Otherwise, it’s not, it’s not really going to happen.

Tim Hughes  31:37

Well, it seems clear that innovation is going to drive it, you know, because and I get that, yeah, because it’s hard to put yourself at a disadvantage when everyone else is able to take advantage of that, you know, so that argument, for instance, here in Australia, where we’re smack fairly small country, but not necessarily been supporting too many of the netzero sort of ambitions around the world, you know, because of what you’re saying, like, let the big guys lead the way. But innovation, I think we’ll do that as soon as it gets to the point where the energy is cheaper than digging coal out of the ground. If there’s a clean way of producing that energy, then everyone will follow.

Gene Tunny  32:16

Oh, exactly. And that’s what we need. We need that technological innovation.

Tim Hughes  32:21

And the market, like from our discussions before with people in the energy sector, has been that the market is driving this. So we don’t have to, I mean, governments can help by making it easier and sort of greasing the path towards encouraging those changes to happen. But certainly the market is driving it and innovation is providing the opportunity for the market to take up those options with renewable energy.

Gene Tunny  32:42

Yeah, you’re thinking about that conversation we have with Josh. Yeah, yeah, that was interesting. Or he’s talking about the fact that the nature of this transition of any transition really is it’s going to be disorderly, it’s hard to get these things done in an orderly fashion.

Tim Hughes  32:58

I always manage to steer it back to this, don’t I Gene. It doesn’t matter what we talk about.

Gene Tunny  33:01

It’s important. If I’m thinking about, well, what’s the big potentially the big risk to I mean, other than nuclear war, I mean, it’s always a threat, particularly with what’s happening in Ukraine. Now I’m in the risk of that elevated, but the other big, potentially existential risk. I mean, you’ve got to put some probability on it. I’m not as concerned about it as some other people. I’ve got the Steve Koonin view of it, he used to work for Barack Obama, he was in the administration, I think it was in science, one of the I don’t know if he was in cabinet, or he had a, he had a senior position in the Obama administration is a scientist, he was at Cal Tech. And his view is that Yep, this is something we’re going to deal with. But we’ve got decades to deal with it. So what we’ve got to do is to start putting in place agree on some policies globally that are going to get us on this smooth transition path and, and also fund innovation trying, you know, it’d be great if we could find the cost effective solution, perhaps nuclear fusion, that there’s, there’s a lot of excitement about that. But then you got to deal with the nuclear waste. And what was that? What was actually, maybe there isn’t waste with nuclear fusion? Maybe that’s one of the advantages of it. Well, there’s less waste.

Tim Hughes  34:18

I still get my fusion and fission mixed up. So

Gene Tunny  34:21

Fusion is more powerful. Fusion is what the sun does.

Tim Hughes  34:26

Yes, right. Yeah. Fission is the separating of fusion is the joining. Yeah. Yeah. But so and with and there was a breakthrough with Fusion then yeah, just the other week, but it was still claimed that that could be decades away from it being useful for an energy source on a commercial scale. However, if it’s decades where that’s significant in the history of humans, however, with that, especially with that conversation with Josh, it was record notion that, you know, having a suite of different options for clean energy makes a lot of sense. You know, we don’t have to put all our eggs in one basket. And, you know, one choice so, and clearly those things are happening as we speak. And quite successfully. I mean, like the, you know, there’s still a lot of clean, renewable energy is getting more and more prolific.

Gene Tunny  35:22

Oh, no doubt about that. I mean, aren’t they turning the North Sea into a wind farm in? Have you seen that in? Because the North Sea is really good for the wind turbines. Well, it’s I mean, it’s not shallow, but it’s it’s not very deep the North Sea? Was there’s bits of the North Sea that are only a few 100 metres deep, I think, isn’t there?

Tim Hughes  35:48

I mean, obviously, it must be, you know, viable. But it seems odd to me that a wind farm in an ocean, you know. But, obviously, there’s, you know, there’s something in it. Yeah, yeah. It’s extraordinary. It’s a really interesting time. So because all of this is coinciding with this levelling out of the population. So it seems to be a, I don’t know, it feels like it’s a good place to take stock and see how we can sort of really manage this planet. Well, you know, and cleaning it up is the first way to do it, you know, so how we can keep the oceans cleaner than they currently are, like, clean them and stop polluting them and how we can manage our waste, you know, 10 billion, it’s a lot of foods.

Gene Tunny  36:30

Well, I guess this is what’s part of this is what’s motivated all of these measures or measures we’ve had in Australia to reduce plastic waste, and then I was growning about it when they initially announced it. But I guess you adapt. I mean, you can’t get the single use plastic bags any more at the supermarket.

Tim Hughes  36:48

You’re still hurt about that one.

Gene Tunny  36:51

You can’t get the single use plastic cutlery Well, anyway, we should get back to this population stuff. It is important. I do recognise the importance of what you’re talking about. The population of Australia is projected by the Treasury, this was last year, or this was 2021, I mean, who knows. But if they updated and they’ve got different migration projections, these numbers could be significantly different. But they were forecasting the population would grow from around 26 million, around 2021, up to 32 million in 2041, 36 million in around 2050-51 and then 39 million by 2060-61. I think I’ve seen previous, I think I hadn’t had in my head the idea that it’d be about 40 million by 2050. And yeah, it’s hard. It’s hard to forecast. It depends on fertility, it depends on migration, and then all of that sort of thing. So and life expectancy. So quite a few moving parts there. Right. The other thing I want to talk about, Tim, if you still got time, yeah, it’s this issue of what does the declining population mean? So what is China’s declining population mean for its economy and therefore the global economy? One thing to keep in mind, of course, is that I think, what were we talking about a reduction of a population of 850,000 people. So that’s under 1 million, the Chinese population is 1.4 billion. So in percentage terms, we’re talking. What’s that less than point one of a percentage point? Yeah. Does that make sense?

Tim Hughes  38:37

Yeah, I mean, it’s. So it’s level that basically.

Gene Tunny  38:42

I guess that’s one way of looking at it is that it’s yeah, it’s hardly you’d have like, really noticed that on a chart, if you drew the population. The thing is, it’s a sign of things to come, because we all know that it’s expected that the Chinese population would, is going to start falling. And there are all sorts of projections as to where it could get to. By 2050-2100, I think I’ve seen an estimate somewhere that their population by 2100, could end up being, I don’t know, 700 million or so. Yeah, it’s a really big reduction because of that one child policy. I’ll put the actual figure in the show notes, but it’s quite dramatic. Just looking at what that impact of that one child policy, ultimately will be on their population in the future, because you’re not replacing your population. Right. So that’s, yeah.

Tim Hughes  39:42

So it’s funny actually, China is like a microcosm of the globe in a way, isn’t it? Because it sort of has fairly tight borders. And so the decline that that would be for China, would be an example of like, how do you manage that sustainably, how do you sustainably contract successfully from 1.4 billion to 700 million. And yeah, the thing is like, you know, China is extreme in many ways. They may manage it very well. Now, I’ve got no idea how but I think that’s a really interesting sort of point. I mean, they’ve had massive change. Was it 1962 to see the great leap forward? You know, I mean, certainly from 1980. They’ve made in the last 20 years, 25 years, they’ve made themselves this sort of, like, workshop of the world, you know, they’ve produced so much stuff. And they’ve become very wealthy in that time.

Gene Tunny  40:36

Well, the wealthier and some people have become very wealthy, their per capita income is still I don’t know, it’s under a third of what it is in the States. It’s gone. It has gone through big changes. I mean, yeah, considering that once but I mean, I don’t know when you were young and when I was young people were saying, well eat your food, because there are people starving in China. Right. I don’t know if maybe that’s an Australian thing. Yeah. I mean, yes. It was probably still true when I was when I was young. Right. But it’s not, I don’t think it’s true now. Or it’s only in small pockets. Right. Whereas famine used to be a huge problem. And you know, people were incredibly poor. And most people lived on the land. But now I’ve had all the shifts of hundreds of millions of people from the agricultural areas in China into the cities. And it’s just, it’s just amazing.

Tim Hughes  41:27

It is fascinating, because made in the 80s, like you couldn’t go to China, like it was closed off to I think it was around the mid 80s, that they sort of opened up or towards the end of the 80s. You know, and it was a new thing, like tourism in China was a new thing. And of course, it’s really well, I mean, COVID aside, you can travel there freely now. But it’s gone through massive change in a very short period of time. It’s really, you know, I don’t know, if they’ve come to a critical point in their sort of growth as, as this powerhouse of production. With a declining population, I guess that’s going to make a big impact.

Gene Tunny  42:07

Yeah. So a lot of the discussion that pundits and commentators and economists having at the moment is around well, what does this mean for their economy? What does it mean for their society? Paul Krugman had a great article. I’m not sure I entirely agree with it, because there’s a really excellent response from another American economist, Dean Baker, which I’ll link to in the show notes. But so Paul Krugman in the, in the New York Times the other day wrote, a declining population creates two major problems for economic management, these problems aren’t insoluble. But will China rise to the challenge? That’s far from clear, the first problem is the declining populations, also an ageing population. And so you’ve got this issue of the dependency ratio, paying for looking after those people. The other thing Krugman is worried about is that a society with a declining working age population tends other things equal to experience persistent economic weakness, Japan illustrates the point. Now there’s a debate about just how badly Japan’s fared relative to other countries, it certainly hasn’t grown as fast as the US or, or the Australia. But it hasn’t collapsed either. I mean, it’s managed to maintain reasonably low unemployment, it’s kept people employed. But at the same time, they’ve been the government’s had to try to prop up the economy, it’s accumulated a huge amounts of debt. So there are certainly challenges with Japan. And partly that is because it’s, it does have that declining population, as Krugman notes. So the point Krugman is making its a Keynesian point, in a way. What he’s saying is that if you’ve got a growing population, then that, from that, for what follows from that is the need for additional capital investment in your economy, additional spending that helps keep people employed. Yeah, so that’s the that’s the point he’s making, and that if you don’t have that growing population, then you’re at risk of what Japan experience with his last decade or so and potentially at risk of deflation. So I’ll put a link in the show notes here, because we’re getting up to near the time we set for ourselves. This might take a while. Yeah. It’s incredible. And so Krugman is concerned because he thinks that what this declining population could mean ultimately is that China has a period it ends up being economically weak. And there’s also some evidence or there’s an argument from this, this economist at Stanford School of Business, Charles Jones, he argues that we’ll get a declining population is problematic because then you’ve got fewer people to solve problems, it’s less likely you’ll get an Isaac Newton or Albert Einstein, etc. So that’s one of the concerns. When who knows if that’s, I don’t know how valid that is. That’s enough. That’s a hypothesis. I mean, we’ve still got billions of people, right?

Tim Hughes  45:21

I mean, you can say those guys came around when there’s a far fewer people on the planet.

Gene Tunny  45:24

Exactly. So who knows if that’s actually a legitimate concern or not. But that’s quite a, that’s a, I should have him on the show just to talk through. It’s no Charles Jones, you know, and get him on the show rather than just say, I don’t agree with it, or maybe I haven’t done the the concept justice. But there’s certainly I can see the logic, but there are concerns that the dynamism of your economy would be at risk. If you have fewer people. There are concerns about well, how does your economy adjust to this in the short term as you’ve got declining population, and you’ve got less need for investment? We’ve got all of these buildings that have been, you know, what we don’t have as much need for new housing or new construction, which does help employ people? How do we how do we manage that? And that on the other hand, there’s this great critique of Paul Krugman by Dean Baker, who’s an economist and co founder of the Centre for Economic Policy Research, which is DC Think Tank, it’s a progressive Think Tank. I really thought this is a clever critique. And Dean Baker, apparently, his Wikipedia entry claims that he was one of the first people to have foreseen the subprime mortgage crisis in the States. So yeah, I think he’s, he’s got a good reputation. He makes the point that well, Japan’s not really as bad as you think. And then it hasn’t collapsed. They seem to manage to muddling through in some way. And then it’s not, obviously they’ve still got problems because of all the debt. But he’s saying look at something you can you can manage, and there are actually benefits from a declining population. He, he notes that Japan cities are less crowded than they would be if its population had continued to grow. This means less congestion and pollution, less time spent getting to and from work and less crowded beaches, parks and museums, these quality of life factors don’t get picked up in GDP. I’m actually not sure. Does Japan have many beaches? I mean, I understand his point.

Tim Hughes  47:25

Yeah, Echo Beach, yes that is in Japan. That’s one beach that I know.

Gene Tunny  47:32

I was just wondering, I don’t know, never haven’t been to Japan on an island. So I guess it’s yeah. Oh, of course, they have beaches. Yeah.

Tim Hughes  47:39

But that’s actually a really good way of putting, I guess one of the things that we’re talking about is like, you know, declining population doesn’t have to be bad news. I mean, I guess, you know, the, the challenge would be how do you keep maintain a growth mindset in a declining population where can you make it work to your advantage? Or, you know, how can you do the best, you know, with, because part of it would be in a declining population. Once that first surge of older people goes, then it should level out with the number of older people as opposed to the number of younger people, I guess, because as you’re peaking towards your peak population, you’d have the most amount of old people is that right? I’m sort of thinking out loud here. But I’m just wondering,

Gene Tunny  48:25

Tim, is a good question mate. I mean, you’re asking does the as if as your population declines, what happens to the age composition of the population? So I’m gonna have to take that on notice. I mean, I think that’s a hard one. I mean, there could be a point, there could be a time when both the dependency ratio gets worse and your population keeps falling? That’s a good question. I don’t know, let me put something in the afterword about that. I don’t know, conceptually, I can’t figure it out right now on the fly. That’s good question. 

Tim Hughes  49:00

But it’s that thing of like, I imagine, like the you know, because the challenge is this is to manage that. Well. Yeah. And like, so. I mean, one thought that comes to mind with that is, like, the whole thing of retiring at 65 has been around for a long time and around 65, whatever it is now.

Gene Tunny  49:16

67 in Australia now.

Tim Hughes  49:19

Y eah, this thing of like, it’s not necessary for people to stop doing what they do, you know, there’s so much wisdom and, you know, a good life experience that gets lost with that mindset of like, see you later at 67. You know, and I think opening up the opportunity for people to stay in a lower capacity timewise you know, because I think it’s important for people to wind down or do something different or start a new career, you know, like whatever it may be. So, I think maybe the way that you know, we approach ageing or the way we look at ageing, could be one of the factors that changes that declining population as to no right this could actually be looking at how do we manage a declining population better you know, maybe it’s our attitude towards all the roads that we can start with.

Gene Tunny  50:04

Yeah, I think it has to start changing because all the baby boomers are nearly retired, aren’t they? And then Generation X will start retiring.

Tim Hughes  50:13

But it’s that thing of like, you know, as we live longer, we can expect to have more good years, you know? Yeah, hopefully, yeah. And they can be, they can be good years to contribute back towards society as well. It doesn’t have to be just a retirement where you don’t pay any tax at all, because that’s part of the problem isn’t like we’re fewer people paying tax to support an ageing population. You know, so I guess and it’s not just making people work later unwillingly. You know, to give people the opportunity to have different options, different levels of engagement, you know, so they don’t have to do 40 hours a week, of course, but yeah, doing something different stimulating that, you know, people could enjoy doing for longer.

Gene Tunny  50:57

Podcasting.

Tim Hughes  50:58

Podcasting. Exactly. Everybody wants it to be a DJ, everyone was a DJ in the previous life.

Gene Tunny  51:05

Yeah, exactly. I don’t have the turntable, give it time, give it time and we can bring that into the show. Cable

Tim Hughes  51:13

Maybe that’s the way we merge the two.

Gene Tunny  51:17

See how we go. Okay, so I’ll put a link in the show notes to this, these articles by Paul Krugman and Dean Baker. I mean, I don’t know. I mean, some hours of the day I think Krugman is right, then I think I actually Dean Baker is making some great points. I’m still processing it all myself. So Dean Baker, I’ll put a link to this article. It’s on the Centre for Economic Policy Research website. One final point, I thought that well, I thought I should make that Dean Baker may not that was a good one is that? Well, actually, I mean, see it as an opportunity. I mean, China’s got a, it’s got an ageing population, still, while its population is starting to decline, you can put people to well, you’ve built all of that’s right. He’s saying one of the issues that Krugman identifies is that they were building all of this, all of these buildings that, that they may not need these ghost cities. Well, you could use them for aged care accommodation. Or, you know, I don’t know how feasible that is. But that was one of the points that he made. So I thought that was that’s potentially interesting. I mean, there will always be things people can do that the challenge is, can your economy adjust to employ them? So do you have a flexible economy? Gotta make sure you’ve got you’re not regulating business, there’s not the burden on businesses and to hire so that there can be that that adjustment, you don’t have rigid wages or rigid, rigid IR policies that prevent people moving into to new occupations? Yeah, so Dean Baker’s quite positive about what could happen in China. And I’ll encourage, if you’re listening, please read his article. I probably haven’t done it, done it justice. With that, that quick summary there. So yeah, I’d recommend reading that I thought that was really good. And Oh, one other thing we should talk about is that there’s one other concern with the declining population. And the issues with ageing population in China lack of dynamism and what it could mean for their economy, the stability of the whole country, right, the political issues. So Peter Zeihan, I think that’s how you pronounce it. He’s a academic over in the States, he’s come out with his controversial view that the Chinese system as it exists now, that Communist Party regime can only last another 10 years out.

Tim Hughes  53:44

And I mean, it’s been speculation, but it could be true.

Gene Tunny  53:47

If it turns out to be right, he would be held as a genius, the genius.So who knows.

Tim Hughes  53:52

Someone, somewhere will be making those calls.

Gene Tunny  53:54

I mean, my feelings is what I was talking about with Alan Morrison in this chat about enterprise China toward the end of last year. And I think ultimately, that there has to be a regime change in China. I think as economies get wealthier, then there’s naturally more support for democracy.

Tim Hughes  54:14

There seems to be a bit of a paradox with ideology in China at the moment. I mean, we’ve communism is the main ideology, of course, but they’ve embraced capitalism, to the point where individuals are getting mega wealthy, but then they’re sort of getting called into the headmaster’s office and sort of like, you know, put in detention for a bit to sort of keep them in line Jack Ma, from Alibaba, and different people who sort of like disappear off the, you know, public space or forums. And so there seems to be a bit of a tussle there going on, and you wonder how long that can go for. But yeah, there certainly, I think it’s fair to say that there would be an expectation of change coming sometime in the next 10 years. I mean, it’s really everywhere. I mean.

Gene Tunny  54:57

I guess change of some sort. I mean, let’s hope it’s a peaceful change. And there is, uh, you know, maybe the I mean, I don’t know whether they’re going to relinquish power will Xi Jinping I mean what what are the chances of him relinquishing power? I mean, given he set himself up as Emperor for life or whatever it was, I mean.

Tim Hughes  55:15

There’s only Jacinda Arden that I can think of this relinquish power. Yeah, it’s it’s pretty rare thing.

Gene Tunny  55:22

It is very rare because power is seductive, isn’t it?

Tim Hughes  55:27

So they say?

Gene Tunny  55:31

Tim, that’s been an amazing discussion. That’s been fun. Yeah, it’s been good. I’ve really enjoyed that. As always, we managed to go much longer than we expect to or prepared for. Any final thoughts?

Tim Hughes  55:45

No, I mean, it’s funny because it does crossover. I mean, I guess that’s why other things come into it, you know, because they’re all connected. And they, it’s a really fascinating time to be going through this. I mean, like, you know, we’re at a really interesting time, for anywhere in humanity’s history in our like, we’re at these sort of peaks that haven’t been reached before. So yeah, I’m really, and I personally enjoy the direction that things are going in for, you know, the environmental future of the planet, you know, like, I think it’s the right way to go. And I think that’s the overriding direction that it has to get when because otherwise, potentially, yeah, we’re gonna end up in a situation that’s going to be very difficult to reverse. And so seems to be heading that way, which I think is a really good thing. And hopefully, we’ll get there as quickly as we can. Safely.

Gene Tunny  56:39

Yeah, yeah. I mean, I’m optimistic. I think the biggest threat we’ve got is nuclear annihilation. So see how that goes.

Tim Hughes  56:49

It’s still it’s funny, isn’t it? Because that was those threats come and go. But I think our capacity to have our attention on it sort of comes and goes, I mean, it’s sorry, the threats always been there. But our focus on it sort of comes and goes with different things. It’s hard to live under that existential threat constantly.

Gene Tunny  57:09

Yeah, very true. Very true. Okay, Tim Hughes. Thanks so much for your time. I really enjoyed that conversation. I thought that was really he really enjoyed it. We got through a lot, and it was a good discussion to kick off the new year. So thanks so much. Yeah.

Tim Hughes  57:22

Thanks, Gene. You’re welcome.

Gene Tunny  57:25

Okay, I hope you found that informative and enjoyable. In my view, the main takeaway is that China’s declining population is a big challenge to the Chinese economy. And by implication, the global economy, it will be difficult for the Chinese regime to manage this declining population. And indeed, it could even contribute to the end of Communist Party rule, if the declining population actually does lead to a weaker economy and hence an erosion of support for the party. Arguably, one thing that Chinese administration could do to help partly offset the problem of a falling population is to have a more liberal immigration policy. Of course, the administration may worry that bringing in too many foreigners may create political instability which could cost at power. I’d note that for countries which are more open to immigration, and also which didn’t have as bigger collapse in the fertility rate as China did, I’m talking about countries such as the US and Australia, those countries are much better able to cope with demographic challenges. And indeed, they’re actually projected to grow over the future decades. For example, the UN projects that the US will have a population of 375 million in 2050. And between 390 and 400 million in 2100. That’s up from 335 million or so today. Before I go, I better respond to a question that Tim had in the episode. Paraphrasing, Tim asked a question about what happens to China’s old age dependency ratio as the population peaks and starts falling? To answer this question in the shownotes. I’ll put a link to a chart from the UN showing the projected old age dependency ratio for China. That is the ratio of the number of people aged 65. And over to the number aged 15 to 64. The chart shows the old age dependency ratio in China will keep rising for several decades, probably into the 2080s. So in China, we’ve got a falling population, and we’ve got rising old age dependency. So that ratio will increase from around 20 People age 65 and over per 100 working age people. So that’s today it will increase from 20 to 90 people aged 65 and over per 100 working age people in the 2080s. It’s expected China will eventually have almost as many old age people as working age people. That’s the median projection from the UN and everything depends on how closely reality complies with the UN’s assumptions of course, that said there’s no doubt The dependency ratio is increasing and China has a big problem. China’s one child policy has meant that too few people have been born in the last few decades, nowhere near enough to keep the population growing and to look after an increasingly elderly population. Many of the Chinese born are the big cohorts after the 1949 revolution, and before the one child policy was introduced in 1980. They’re still alive and they’re ageing. Right? Oh, I must confess that population dynamics are complicated. And I might try to get a demographer under the show and a future episode for a deep dive. If that’s something you’d be interested in, please let me know and I’ll see what I can do. Okay, thanks for listening. 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 place router review and later writing. Thanks for listening. I hope you can join me again next week.

1:01:30

Thank you for listening. We hope you enjoyed the episode. For more content like this or to begin your own podcasting journey head on over to obsidian-productions.com

Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Economics Explored is available via  Apple PodcastsGoogle Podcast, and other podcasting platforms.

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Podcast episode

Do environmental and business sustainability go hand in hand? w/ John Engelander  – EP172

Planet Earth Cleaning Co. and Ecobin founder John Engelander proposes that environmental and business sustainability can go hand-in-hand. Show host Gene Tunny asks John about the benefits and costs of businesses adopting more environmentally-friendly practices. 

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 we discuss with John Engelander, founder of Planet Earth Cleaning Co. and Ecobin

  • John’s epiphany that led to the birth of the Planet Earth Cleaning Company [4:15]
  • What are the costs and benefits of adopting environmentally friendly business practices? [8:00]
  • “It’s not an investment if it is destroying the planet” discussion, in which Gene mentions how economics has been trying to account for environmental impacts [20:38]
  • Do we have enough time to avoid a climate/environmental crisis? [25:50]
  • John asks Gene if we need to own cars? [33:54]
  • John’s final thoughts on the importance of being a conscious consumer [44:29]

About this episode’s guest: John Engelander

A true force of nature, CEO & Founder John was green way before it was cool. It was his belief in profit with a purpose that led him to start The Planet Earth Cleaning Company circa 1994, and he has been inspiring people and companies to be greener and better for the planet ever since.

In 2007, John completed his certificate in Sustainability Advocacy at Swinburne University.  He believes, “when you look after the planet, you look after yourself”. When we influence others to take responsible actions, there is a ripple effect. And that’s part of doing good by being good.

Today, John works with people that are looking for a healthier alternative & genuinely cares about making a difference to the planet, whether that’s through The Planet Earth Cleaning Company, the EcoBin business, or his personal advocacy & public speaking. John believes “conscious consumption is a great way to start. After all, less is more, and your planet will be healthier for it.” Now that’s good for business.

Out of the office, John burns off some of his high energy levels with water sports, snow skiing, mountain bike riding, cardio pilates and enjoying time in nature. And when not running after his kids and dogs, he likes to tinker on the piano, watch movies and have dinner with friends.

Links relevant to the conversation

John’s business EcoBin:

https://www.ecobin.com.au/

Quote by Vandana Shiva:

https://quotefancy.com/quote/925201/Vandana-Shiva-It-s-not-an-investment-if-its-destroying-the-planet

Mastercard study quoted by Gene:

https://www.mastercard.com/news/insights/2021/consumer-attitudes-environment/

CSIRO article on natural capital accounting:

https://ecos.csiro.au/knowing-the-price-of-nature-the-rise-of-natural-capital-accounting/

UN article on The Rise, Fall and Rethinking of Green GDP:

https://seea.un.org/news/rise-fall-and-rethinking-green-gdp

Australian Government guidance note on cost-benefit analysis, which makes it clear CBAs should consider environmental impacts, quantitatively if possible but otherwise qualitatively:

https://www.pmc.gov.au/sites/default/files/publications/cosst-benefit-analysis.docx

Transcript: Do environmental and business sustainability go hand in hand? w/ John Engelander  – EP172

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.

Ep 172 31 December 22

Sat, Dec 31, 2022 6:16AM • 49:58

SUMMARY KEYWORDS

people, business, economists, cleaning, planet earth, john, economics, planet, sustainability, clients, cleaners, green, company, eco, thought, buy, organisation, price, good, world

SPEAKERS

Gene Tunny, John Engelander, Female speaker

Gene Tunny  00:00

Coming up on Economics Explored,

John Engelander  00:03

And I do believe that businesses that are purpose driven, people are attracted to that. And that attraction makes people happier and more productive.

Gene Tunny  00:15

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny broadcasting from Brisbane, Australia. This is episode 172 on environmental and business sustainability. My guest is John Engelander, founder of the planet Earth cleaning company, and also the founder and CEO of Ecobin. In this episode, John and I discussed his proposition, but environmental and business sustainability go hand in hand. After my chat with John, I provide some reflections on the conversation, so please stick around for those. Also, please check out the show notes for relevant links and information and for details where you can get in touch with any questions or comments. Let me know what you think about what either John or I have to say in this episode, whether you have any thoughts on environmental and business sustainability? To what extent are they aligned or in conflict? I’d love to hear from you. Before we get into it, I would like to let you know that I’m going to take a short break from the podcast over January and come back in early February. Righto, and now for my conversation with John Englander of Ecobin. Thanks to Obsidian Productions for their assistance in producing this episode. I hope you enjoy it. John Engelander, welcome to the programme.

John Engelander  01:26

Well, it’s an absolute pleasure to be here today, Gene. So, thanks for having me.

Gene Tunny  01:30

It’s it’s fantastic to chat with you, John. So you’re very keen to chat about issues around business and environmental sustainability. So you’ve had a very successful career as a business owner, with the planet Earth cleaning company. And also with you’ve been involved in Eco Bins. I’m keen to understand those businesses, what you’ve done there. To start off with, I’d like to ask you about this. This philosophy of yours, I think it is that environmental and business sustainability go hand in hand. I mean, what do you mean by that? What does that mean to you, John?

John Engelander  02:14

Okay, it’s a good one because often I feel incredibly fortunate that I’ve been able to combine sustainability, and commerciality almost as a cocktail. And ther is some perfection in that because you give a lot of thought, I give a lot of thought and consciousness to how we think about the products that we consume, or what we offer our clients. Because I feel that the impact matters. And I think the price we pay for something, let’s call it whatever it might be, dollars, whatever. And then the price we have on our planet require some kind of balance, because, frankly, we don’t have an economy without getting it right with the ecology. Wouldn’t you say?

Gene Tunny  02:58

No, I absolutely agree with you there. I mean, we certainly need the environment to sustain us. So yeah, absolutely, absolutely, agree there. And would you be able to tell us about the planet Earth cleaning company? How you got involved in that? How did you figure out that this was a way that you could have a business that that met these, you know, that was both financially sustainable, and also environmentally friendly?

John Engelander  03:28

I think the like most things that can work out well, is there’ll be a problem. And if you can solve a genuine problem, then there’s likelihood there’s an opportunity, I don’t think you can make up. Often an idea, I’ve done it many times, it’s a good idea should do it. But in fact, there’s no problem to really fix or it’s not going to give people a great deal of joy. And I think there’s a problem when people buy a mountain bike, they buy that for joy, that’s not a problem. So it’s two ways, you either look at it as joy or you’re solving a problem. From my perspective. So how did it come about? I think, purely, it was by accident. I wasn’t planning on going into the cleaning industry at all. In fact, I still don’t plan on getting into the cleaning industry. I plan on trying to resolve something that made sense, and that was that. For those who have heard my story before, it was that one of the cleaners were sick, like they didn’t show up, and I ended up rolling my sleeves and ended up in a toilet cubicle of all things. Cleaning a toilet bowl, which never imagined that would happen. And as I opened up, the cleaning chemicals, the fumes were intoxicating. I also thought I was gonna suffocate and then if I thought that was bad, my hands were starting to crack split from the stingingness, I felt stinging you know, it was like burning, and that was it. Honestly, there’s got to be a better way. How can you subject people to this who were cleaning every day when that happened, and I guess that was one would call an epiphany moment, you know, if there has, if I can look after a way of fixing it for people cleaners, then there’s a there’s possibly a business opportunity, hang on a minute, if it’s good for them, it’s good for the planet. And that was essentially the birth of the Planet Earth cleaning company. Totally. Now, that didn’t mean that three decades ago, people talked about sustainability, then you can talk about green, greens is a fairly new word, back then it was just a colour. So I guess, feeling and believing and having purpose in my day-to-day life all the time drove me. And I could actually lead my people. So they understood that I was actually looking for a way to make their lives healthier. And that was a huge thing, until people started to wake up. Probably more recently, and I say recently went out when Al Gore brought out the documentary Inconvenient Truth, there was a bit of aha moment. And then that slowed down. And that now it just seems, there’s a real inertia in terms of the word impact. And it seems like that the whole idea of impact has become a big topic around what I do and probably attract investors, you know, get the calls, you know, I’ve been doing it for so long that I must know. I do. So that’s it sort of come together. So yeah, it was by accident to see a problem, the problem made sense to fix. And then I figured this is a good business to get into.

Gene Tunny  06:40

Yeah, for sure. John, would you be able to tell us a bit about I mean, how, what your scope of operations mean, where you operate the types of clients or customers that you have

John Engelander  06:52

Sure, so our clients are boutique large, or not so large, when I say not so large, that can fall under the type of clients that that would work with us. we have clients like Katmandu, we have clients like realestate.com, seek.com built a whole lot of building companies, McConnell Dow, which ones largest structural engineering firms in the world, and so forth, just to name a few and Cricket Australia, and other ones. So just a little, few little companies that probably they have good branding, good identity, recognise the need to not just take on cleaning, but see that by having planet Earth, it’s a huge upside for them in terms of letting their people know, when think about what that does to culture when you know, you’re a values based organisation. And we do this in Melbourne and Sydney, we’re looking at Brisbane, but at the moment, it’s really, really the two main cities in this country.

Gene Tunny  08:00

Okay, could you tell me a bit about what you do your operations? I’m interested in this because you mentioned the, the fumes, you mentioned the chemicals that cleaners traditionally use? And I imagine there are companies out there that are still using these chemicals? I mean, what what precisely are they are there some examples you could talk about? And then what what are substitutes? And are they as good? I mean, the thing that I’m wondering is, okay, do you do get the same quality of cleaning is at higher costs. So is this something that is a bit is a bit of a luxury? Or is this something that businesses across the economy can afford? Could you just talk about that, please?

John Engelander  08:44

Great question. First of all, chemicals. What price do you pay for your people getting sick? When those fumes go through your air conditioning wafting through something must happen, can’t measure it. But something must be going on, if it’s happening to my cleaners, because they’re right there and then it’s going to be happening somehow, indirectly to the clients. Better cleaning. Okay, let’s look at acid. It’s really good, isn’t it? I mean, you think about it, you’ve seen urinals we all have as men go into toilets and urinals and the only way to clean a urinal properly apparently is with acid, really. And an interesting story was some years ago, one of my prospective clients who became a client loved the whole story about Planet Earth, but he thought he would prepare cleaning his urinal without telling us so he went out and bought acid and did it. And a very sad story. He suffered for years. Now he called on us I would have gone no way. I’d never give that to my own people. He’s a client. I really adored this person. He took us on board for the very right reasons. And yet, sometimes consciously, it’s possible not to think so his health got a price when he paid for that. Do we have enough money for it? Well, I’m sorry, if you can’t look after yourself and pay for that. There’s an issue, how much more you pay is interesting, right? So think about this, we use chem free, we have a system, which is chem free by planet Earth, we actually installed it in the building’s plumbing system, it converts water through an electrolysis process and turns it into a sanitizer cleaner. The Cleaners just turn up with their little spray bottle, push it in, plug it in, it does that good noise rush, and then it fills the bottle up. And they can use that to clean and yes, it’s effective. And it’s not toxic. It was water, water through electrolysis process. Now, not every body wants to invest in that. So could you say it just cost us not, can do. But are we interested in getting it right for our people? And let’s face it, when you throw away chemicals into your waterways, after you clean toliets or mop floors, do you think that’s really good, can’t be good for the planet. And so all of that, and the beauty of about chem free is that we don’t have the containers. Because when you have containers delivered, that’s transport emission, then you have great big plastic containers filled with chemicals. That’s transport not only transported, but the plastic it took to make it one use. Maybe not, maybe you can send it back to the factory and they fill it up. Well, it’s got to be sent back again, transport. But imagine all you do is plug a little spray bottle in and it fills that up. Now, sometimes you just got to use a little bit more elbow grease. But if you care enough, you’ll do that. Is the price higher? I doubt it. I think what, if anything, it’s really good value. And it all comes down to the effort you put into the job. So the beauty also of that is, if I may, is that, think about this? Is everyone complaining about not being able to get labour at the moment, in this time? It’s 2022. And it’s really hard to find labour. Why is it that a purpose driven company like us doesn’t have a problem, that has to have a great outcome for our clients, because you’ve got people that actually are doing something because it matters for them beyond a dollar, because you’d never pay cleaners enough money to come do their job. But purpose will drive. And purpose if the message is properly conveyed to our clients, people, it all becomes it starts to build culture in terms of value based. And I do believe that businesses that are purpose driven, people are attracted to that. And that attraction makes people happier and more productive. Can you put a price to that? You betcha. You spent $100,000 on cleaning, you’ll get an outcome of three, four times then in your culture development, if you make sure you promote that you’ve taken on Planet Earth Cleaning Company, because it’s a big deal to make the right choices.

Gene Tunny  13:07

Yeah, I think the point you make about health and safety is a good one. I’m not familiar with the data for cleaning, I’ll have to check it out after this. I mean, I’m not sure what the studies show whether there is a significant improvement in health and safety outcomes with using these environmentally friendly products. 

John Engelander  13:35

Yeah, no, I’m saying the same thing I can’t measure. All I can say is it’s a good chance. But it’s good to know, if you’ve taken on a cleaning company they care enough about their people to you know, I mean, we go as far as even caring about their mental health, we have a service where they can call up if they’ve got issues. None of my management are allowed to know about it. So yeah, we’ve gone from product to people’s minds to actually having them, you know, on board with, with, with this whole idea of we’re getting it right, because let’s face it, we all have the planet in common.

Gene Tunny  14:13

John can ask you betting impact investing? I think you were talking about that earlier, you were talking about impact everyone people are interested or investors are interested in impact now. So does that. Have you been dealing with that in investment impact or what does it impact investing community? How substantial Do you think that is? Is? Is that going to help support or help grow a lot of businesses such as yours or other businesses and that are environmentally friendly?

John Engelander  14:43

I think that look I don’t know a lot about impact investing. I prefer to invest in myself. But the truth of the matter is that I do believe that there’s a there’s a whole movement towards looking at being ethical, and ethical and impact seems to have they complement each other, don’t they? So let’s, let’s look at it this way. My couple years ago, I think my brother in law showed me a return on investment with an organisation called Australian ethical. Did that year, he made close to 50%? I’ve never heard of that in my life. I fact, I was blown away. I don’t know if they continue to do that. Was that just a fluke that year? Either way, was it settled? It spoke volumes? Didn’t you look at businesses like? Well, if you bought Tesla a few years ago, just 2000. And I don’t know, let’s call it 2020 20, February to 2020. And that share price is $480. I know because I actually invested in that. And it got it went up and up and up and up, went to 2400 got split by five, what was that worth? Then it went up and up. And now I’ve got slipped by three, not doing so well at the moment, which is really interesting, because they’ve been more profitable than they ever have been. But they’ve actually led the field where they go to in the next 10 years. Who knows. Some have faith in it, and some don’t. But it brings a whole lot of other industries together about looking at what’s viable, both commercially and sustainably. Have To be frank, I’m not a big fan of the word sustainable. So which often shocks people, but I think we should consider the idea of being enabled enable the planet, the planets in trouble, we say it’s overheating the the blanket in the sky of greenhouse emissions that are just get thicker and thicker, holding the heat under. So our temperatures change on the planet. Is is that an interesting? An interesting idea. So I think, you know, when we consider the future we’re talking about so that the health of the planet, you know, with all these things, that people plan it all together pretty, pretty combined. I think there’s a good investment even to look after our children’s future that is enabling the planet, I think it’s an essential part of it all. So, you know, often I can call our teams and enablers, they’re proud of it. We recently had our tree growing programme, we do this, you know, half day tree grow, growing programme. And we’re actually looking to do that for our clients next year, too. So because the half day programme really enables a whole, I guess, one’s team to really come together and, and be connected, which is another part of it, too. We all feel connected, we feel better about ourselves and have something in common. So that whole thing has to be viable, I believe for the organisation. To give you an idea when we when we did the most recent one 30% of our staff actually weren’t working that morning. But they showed up to be part of it. What does that say? Yeah,

Gene Tunny  17:59

yeah, that’s a good culture. Yeah, not bad. That’s really good.

John Engelander  18:04

So that has to make, you know, if you have happy culture, and they’re more productive, which I mentioned earlier, that’s going to be a viable proposition for anybody.

Gene Tunny  18:11

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

Female speaker  18:20

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you Frank and fearless economic analysis and advice. We can help you with funding submissions, cost benefit analysis, studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world, you can get in touch via our website, http://www.adepteconomics.com.au. We’d love to hear from you.

Gene Tunny  18:49

Now back to the show. I think I may have asked you this. So I think you may have answered it before. But one thing, one thing I’m interested in is whether it does cost you money to do the right thing as a as a business owner. So does it make you less profitable than than otherwise? You may have answered that earlier. But if you can just reflect on that, please, John, that’d be great. Good.

John Engelander  19:13

Okay. So yes, it can and, and like anything, what you choose quality always cost more. But let’s look at it this way. If it’s not, if you don’t see it as quality, but you see it as doing the right thing. Can it cost more? Possibly? I don’t believe if you buy quality, like if we offer a quality service, you pay for it. If we provide green, I don’t believe we’d need to charge you more because we’re agreeing. I don’t think that’s necessary if we manage it fine, right. But when you can talk about what would you pay to drive your workforce? Because you’re purpose driven? What would you would you bring a you know the term people and culture that and companies bring people in and spend Lots of money, right? We don’t have to do that with us. And I think that’s a huge, huge tip, as is bringing in Sustainability Consultants, you don’t need that we, we can give it all eco been planning to go in and give advice on what to do next next year will be big plans to helping organisations transition to a green future. Because I really believe that’s the direction we need to take otherwise, why would you do business with companies that are destroying the planet, and then look at that. It’s not investment, it’s destroying the planet.

Gene Tunny  20:38

So this is a quote behind you. That whose it

John Engelander  20:42

by John, Dr. Vandana Shiva writes it. 

Gene Tunny  20:47

not an investment if it’s destroying the planet? So look, I don’t think that that makes sense. What it’s suggesting, as an economist, the way I think about that, is that if you do have something that is degrading the environment, then if we were properly account doing if we were properly doing the economic accounts, then what we would do is we would, we would recognise the subtraction of value in the environment. And, look, I know that economists, you probably object to the way that economists look at this sort of thing, economists would put a value, they would try to put a value on the environmental capital stock, or the natural resources. And then to the extent that there’s degradation of that you could subtract from that. And we should be recognising that in our national accounts as a, as a negative investment as a disinvestment in that in that natural resource asset. So there is a, there are economists that are looking at how we can measure that environmental damage that’s occurring. And it’s a field called natural capital economics, if I remember correctly, or there’s an environmental economics field, and there’s ecological economics, which takes a different perspective. Yep. So it’s not as I mean, economists are thinking about these issues. So yeah, I think that’s that is an interesting quote, to reflect on. I’ll put a link in the show notes to while reproduce it in the show notes and link to put some links regarding it, because I think it is a it is a very good quote.

John Engelander  22:33

Look, I don’t blame economic, economical economists. I often believe that where I sit in this world is to be highly relatable. And you can’t do that without understanding others. It’s not enough for me to be persuaded and say, hey, you know, staunch Greenie and you guys are bad. I think that’s not the way to go. And nor is that the other way. Extreme. No one listens to extremist. Really, really interesting. I mean, look, I know both sides of the story. I don’t know if you’ve ever read the book, how the world really works. And it believes that we’re in such a heavy hitter, but

Gene Tunny  23:12

I’m trying to remember if maybe, maybe I haven’t read that one. I’ve read a I’ll have to look it up. I’ve read a book about maybe a thinking of a book about the deals that made the world I think I got confused momentarily. I don’t think I have read it. Sorry, John, can you tell me a bit about it’s okay,

John Engelander  23:29

so, look, all of us we don’t think about what we buy, we just buy it that way. And so don’t consider if we buy a plastic tub, how much oil has gone into it? Or we don’t think about whatever it might be. Oh, when was it the Climate March and I was wearing my planet Earth t shirt. And some young 21 year old came up to me and says, Hey, dude, I love your planet Earth T shirts. And hey, dude, I love your one use water bottle. And it went red. And I actually looked back at him. I said, Look, I’m really not looking at you. And judging, I just think we do forget not thinking. But when when you think about the different layers. For example, ATP is a good good case in point, we brought out a waste system for being able to separate your waste using different colours, red landfill blue for paper, green for food, yellow for recycling, and so forth for plastic recycling aluminium. And, and I’ll go back to the book in a second because it’ll all come together. And when I chose to do that, it’s really good that we’re able to help people sort waste because let’s face it when you change people’s ways, habits through colours, it’s much easier Yeah. Now it’s made in Melbourne, Australia. Not only is it Australia and I thought about what’s called an LCA, a lifecycle analysis, went through the whole thing and understood how much carbon we were able to find a plastic fabric, plastic, believe it or not, but a certain type of plastic that used to 80% less energy and its manufacturing of an equivalent sized plastic bin. How’s that? So the consideration was good, by the way, cost less to make. So I can charge less for other people use the no excuse. It’s quite affordable. So talk about is it costly? Do grain not in that case, but the separation of it means imagine, you throw a plastic whatever in there. And it turns eventually into plastic garden furniture. I mean, it’s it’s pretty phenomenal, isn’t it? I mean, you didn’t have to steal the resources out of Mother Earth. You actually did it, because it was available there and then and didn’t have to go back into it didn’t have to end up in landfill. It ended up converted, right. Good point, right. Here’s the thing. Look at this book. And it’s bizarre how the world really works. And it says, we’re addicted to plastic. We’re addicted to oil. We’re addicted to steel, we’re addicted to ammonia. How are we ever going to change? Then I’ve got another book on the other side of it called the carbon carbon Almanack. It’s not too late. So which one do you believe?

Gene Tunny  26:08

Which one do you believe the carbon Albert ACK or the how the world really works?

John Engelander  26:13

Yeah. Because the Almanack says it’s not too late. And the other one says are we’re in? We’ve got all these habits. Yeah. Plastic oil, you know, ammonia, concrete, you know?

Gene Tunny  26:25

Yeah. Well, I mean, I’d like to think it isn’t too late. I recognise that there is a need to decarbonize our economies? Our look, I think it’s, I mean, I’m, I’m of the view that we need to, I’d be probably advocating a more gradual transition, then then many others, including many other of my fellow economists, I think most economists would support a carbon tax or an emissions trading scheme, which imposes a carbon price, I think there’s a recognition that we need the right signal air to, so that businesses and consumers are considering the what you call the marginal social cost of, of greenhouse gas emissions. So that’s included in the in their economic calculation. So I think there’s there is a recognition that something needs to be done. I’ve just been concerned about the pace of it. And I think, with the issues over energy here in Australia at the moment, cost of energy rising. That’s, that’s something I’ve been concerned about. But I would like, yeah, so I guess I’m saying I’m probably more of a carbon Almanack view. Because I’m just trying to, I think we just need to understand that the world the way that economists think about this, and it is that with these resources, I mean, you mentioned these resources that have been depleted or being used. And you could say, you know, maybe they been used unsustainably. But the standard way that economists look at this is that to the extent that they are, then that’s going to be reflected in the price. And that will encourage conservation of those resources. So that’s the way the the economists tend to look at it. And the argument would be that we really haven’t run out of any essential resource globally. So that’s the that would be the economic argument there. So I guess what I’m saying is that if he asked me to choose between those two, those two books, what was the one that how the world really works?

John Engelander  28:44

It really works and the carbon Almanack Carbonell Almanack. It’s not too late. It says underneath it. Yeah.

Gene Tunny  28:49

Yeah. I mean, my, my view, or rather, my hope is that it isn’t too late. I think it’s something perfect. We can, we can sort out in time. I mean, a lot of these predictions of Apocalypse are coming from numerical models of the climate. Yeah. So Well, yeah. Okay. I know that there are there have been there. Definitely. There’s definitely change occurring. I’m not denying that. But my hope. And I guess my expectation, if I had to put if I had to make a best guess, my best guess would be that we have time. But look, I may be wrong. I’m not. I’m not 100% confident in that, that.

John Engelander  29:34

You don’t have to be Gene. I think the the point here is why wouldn’t we just do the very best we can? Yeah, there’s no harm in that sort of harm. And the other way, there’s no harm in that. And so you think we all live pretty well. Let’s look at look at Australia. How many TVs do we have in our house? How many cars do we drive? And what kind of is that quality of life or is there something else that’s actually hot at a higher value? I have to tell you I much prefer getting on my mountain bike in the country and writing that than then jumping into someone’s petrol car, you know? So it’s it’s those considerations, what is life? What is it? What is really the essence of the quality? That one would really require the kind of 140 square home carpark underneath? Or do we really need that much? Do we? I’m not saying it’s not a judgement call, by the way. Choices are there? But I don’t know, it’s like, I think it brings it down in my fundamental philosophy. And that is, if someone was to ask be you’re really passionate about the planet? And I’d say no. And so that shocks, but there’s a reason behind that. It’s not important for me to be passionate about that. I mean, I love my you know, I could have someone you ask someone, do you love your mother? Yeah, very much. Are you passionate about it? No. Love it. And so it’s those things that you kind of look at, it’s logical, I look after myself, do you look at yourself? Do you eat good food? Do you do all the right things for yourself? So you do it for the planet, wouldn’t you? You don’t have to be passionate, just passionate. From my perspective, live life fully is my passion. I do stuff, you know, I get out there enjoy the fresh air. I don’t want it to go naturally I want to look after and preserve what’s happening. And what price do you put to that? Now? $1 financial, you know, it’s not important. Entirely. Put it in perspective. But if you have very little it is important. But when you have more, how much more do you need? What is at what point do you say it’s enough? At what point do you tell your shareholders that, you know, we’re going to deliberately make this? It’s okay. But maybe it’s not? Because I didn’t come into business just on that basis, I need to be interested in what I do. And when I’m interested, that fuels me, and somehow Money takes care of itself. Not always. But most of the time, yes, I’ve made, we’ve all made mistakes, I brought out a product called Eco to life. Would it be 14 years ago, that in 14 years ago, while I was trying to and as we were building the product together, it was actually concentrate to sugar cane and corn made into a cleaning product. And there’ll be little little packets, he buys spray bottles. So once you once once you buy spray bottles, you’d have to buy them again, you have to go to the supermarket and get more, but you just add this little bit at the waters, you’re not carrying heavy loads of water home either. And I thought that would be a good idea. And I threw a lot of money into this idea. And it didn’t, didn’t happen. So the timing, you know, today I know what’s happening because I you can buy this, you can buy this. So in a sentence pioneering is it’s very painful. But I’m interested in the topic and it becomes part of my story. And I’m good with that. Instead of being sort of being a victim, you look at it and go, What have I learned? Where can i What, how can I use that moving going forward? And I do believe we’ve got a chance. And it’s a great story for all of us to come together and get it right. And there’s so much new technology coming out. It’s unbelievable. In terms of what we’ll see we’ll see people with solar on their roofs, sharing their power with other people. That’s a great example. Yeah. What about geothermal, and housing your home with heat and air conditioning from the natural substance of Earth, underneath us, and by the way, that could be economical to once we get the price down in terms of that technology.

Gene Tunny  33:54

I think the point you make about the local energy grids or whatever you call them, with the sharing of solar and if we can use EVs as batteries, and if we have smart metres in the household, I mean, there has to be a lot of investment that occurs before this all happens and you know more batteries around the place that Yep, EVS mean, everyone will need to get an EV they’re currently twice as expensive as they probably need to be to have widespread adoption by consumers.

John Engelander  34:27

Jane, question though, do we need to own cars? Ah, we currently use if you’re lucky one and a half hours worth of driving a day.

Gene Tunny  34:37

Yeah. Look, I agree with you there, John. And I mean, I’ve I myself have spent several years of my life without a car. But I recognise that the only reason I was able to do that was because I lived in the inner city. So I didn’t have to commute. I didn’t have a family to to ferry around. into. So I think I think it’s a fair point. And you know, we could look at mobility as a service, I think they call it. So yeah, yeah.

John Engelander  35:12

Call on it when you need it. And now that way, because battery technology, if it’s function properly, it can go a long way. Otherwise, we’re wasting a terrible resource. And we can have less cars on the road. And instead of people going, our batteries are bad. Well, maybe we can turn that whole notion to something that’s productive, as opposed to focusing on what’s wrong, rather than what’s right. You think?

Gene Tunny  35:42

Yeah, well, yes. I mean, I’m all for having fewer cars on the road. I try and walk wherever I can. I just, but that’s partly for self interested reasons. It’s not necessarily for the environment. I think it’s good that it is positive environmentally. But I, I look at it as incidental exercise. I mean, I think that I find that if I don’t, if I don’t walk, to go down to the shops then that I lose an opportunity to do a bit of exercise, and then I’ll go to the gym. But I find that if I can not take the car, I get a benefit that way. And yes, it is good that it is good for the planet. That wasn’t that probably wasn’t my first consideration, though.

John Engelander  36:25

But you know, you said something really profound is that you looked after yourself. Look at the planet, you look up.

Gene Tunny  36:34

Yeah, there’s a nice correlation. There are a nice coincidence of, of interest there. Yeah, yeah.

John Engelander  36:40

Yeah. I just, I just hope that the economists see the logic and the fact that, from what I understand is a sustainability scorecard that I that I believe will will come to come to businesses, whereby it’ll be just as important as your financial accounting, as it will be to show that you’re actually showing your impact.

Gene Tunny  37:04

Yeah, yeah. I mean, one thing I’m interested in it is, to what extent can this be led by this transition? To what extent can be led by business and consumers directing? Well, by their purchasing power, directing, production, directing the commercial activities of businesses and how they treat the environment? In particular, we have the scorecards, if there’s greater transparency, to what extent can change be led, in a bottom up way, rather than top down with government policy to have any thoughts on that? I mean, to what extent is a lot of this stuff already happening? Or does it? Or do we? Or do you need government policies such as carbon pricing as well?

John Engelander  37:53

Yeah, it’s, it’s, it can be, it feels a bit disappointing if you thought that’s what it would have to happen. Look, look at our young generation, they want to work for companies that are values based, they care that have this notion about the planet. So it could happen from the bottom up, down, right? Because you do attract. I’ve heard this so often attract and retain staff. I know, it happens, we do it. So if you, you can do it from the bottom up. And I don’t really want to see people forced to engage being engaged. It’s like leading a horse to water, isn’t it? So imagine if you just got people from a feeling of what would we call it excitement, or at least be happy and joyful about the fact that work for a company that actually cares put together green teams develop ideas together. It’s, that’s one of my missions next year, actually, is to help business transition to a green future. And there’ll be in this regard our membership base solopreneurs, coming together, and having evening discussions about what’s possible, and then see what of the possibilities we can actually put into action or influence others to put into action. But to I can’t have all the answers, but I can certainly bring the right people together in order to support the needs of of local organisations. And certainly one of the things I do find really of high value. And I mean, when you talk about bottom up, if I get invited as a speaker into an organisation, I’m talking with a level of enthusiasm that will that I’m believable, inspire everyone to actually feel like we can do this. We can all be planted enables. Because by that way, we enable the planet and they’re viable because they’ve got a sense of purpose when they come to work every day.

Gene Tunny  39:47

I think that does make sense. The challenge is, and this is this is probably obvious. It’s probably rather a trivial point. But the challenge is that you as a Business, you could be doing the right thing. But if your competitors aren’t doing the right thing, then they can get a competitive advantage by having a cheaper product. But then you’ve got the advantage that you’ve got, you can label well, you can promote yours as the clean green, the environmentally friendly alternative. So that could give you an edge in the marketplace.

John Engelander  40:20

I think it would accept that when you say that, and you have a cheap, cheap and nasty cleaning company, putting it together a quote, one needs to ask, what are you really getting for the money? Let’s put aside the green aspect. The Greens there to you know, from my perspective, you have that as a product, it better be good. Once it’s good, everything else should come together. I hope you know. And so I don’t, yes, it does give it does allow people to have their eyes pop out and go up, I’m going to listen to you because you’ve got a green way of doing things, but also gives you an opportunity to say how you’ll do it. And how you’ll do it better for them. If you get that chance that really shouldn’t have that boring conversation that most companies are, oh, you should use our business because we’re we give good service to our customers. And we do this and we do that. And you know, I’ve heard that everyone, everywhere. So what makes you really stand out? And it’s what you stand for. That makes you stand out?

Gene Tunny  41:27

Right? Yeah. And I mean, have you had? How do you prove that to to your customers? John, how do you are the fact that you’re the sustainability? You’ve got testimonials? And you’ve got? I mean, you got a track record now, haven’t you? I guess one thing that would be it seems like you’re talking about the service people trying to promote themselves based on superior service. And I mean, a lot of businesses will say that. How? Yeah, yeah, exactly. So I guess you do need to demonstrate that if you have this environmental commitment, you need you need some is that there’s a certification, I’m just trying to think how

John Engelander  42:13

it’s a great term certification, I think that does belong to some people who need it. And so when you’re born green, the birth of a planet back in 94. So essentially, that’s us were born green, we know it, we should be the ones giving the certification to others. And that’s why when companies take us on, they suddenly become greener, they, they have an opportunity to tell their people. And let me tell you that that’s a good news story for their for them. That’s, they want that message. And so when you offer eco bins, colour coded bins, systems, and you roll it out for no charge whatsoever, and then you give a morning tea talk on why we do what we do, and how they can also become plant enablers. The who does that, and then with, with all those other aspects about talking about chemical free cleaning, and then everything just comes together, you can’t find that just anywhere. You can’t. Even in the name planet Earth, we imagine this, you have the person who made the decision they send on their intranet, to their 500 cluster. We’d like to welcome to planet earth, their new caretakers around our building, starting on Monday, you can’t do that if you’re gonna make up a name Zen topless and Sons cleaning service, it just doesn’t feel it just it doesn’t register, right. And that’s more than ever, this whole idea, it has never been more relevant for what’s going on in business. And what’s and it’s relevant for what they tell the people, it’s relevant to attract people to your company. By golly, you know, all you have to do is ring up, see, all you have to do is ring up any of our clients. You know, it’s it’s a given. And in my decision, because I’ve done it for three decades, and know what I know and want to help and support organisations. How do you beat that? Warren Buffett has a great line. And he talks about enduring, competitive advantage. You can’t beat three decades. He can’t beat being born green. Can you?

Gene Tunny  44:29

Exactly John, that’s, that’s terrific. Any final thoughts before we wrap up?

John Engelander  44:35

Yeah, whatever you do, start to think about the choices. Because our choices do have impact. And being a conscious consumer makes a huge difference. And people notice you. They do they do when I when I bought my first TV seven years ago, boy, did they have a message. I didn’t just buy a car. So I think being conscious and other people watching you do what you do. You don’t even have to tell people, if they watch how you do it. Let them ask you the questions, but really, that don’t. I don’t think it’s a good idea to be an extremist. If you want to be listened to, and and hold an open mind, and we’d live with what’s possible, that’s what I do.

Gene Tunny  45:22

Okay, so a steady, can we take a steady approach? I mean, I’d like to be more conscious, more environmentally conscious. I’d find a difficult making radical changes at the moment. But I know that because I know there’s a movement for people to live off the grid. I don’t think I mean, I could never imagine myself doing that. But I mean, is that something you’d be considering? John?

John Engelander  45:43

Not? Yeah, I have solar and I have batteries. And very convenient. But depends. I like this term shades of green. Okay, where you sit, let’s just get, we don’t have to be perfect. Let’s you don’t have to be you just be better, not perfect. And if you just do one thing at a time and think about the one thing you can do today, I think that makes it simple. Otherwise, it becomes complex. And honestly, it’s not as hard as you think.

Gene Tunny  46:15

Yeah, I think that’s a great message to end on John, John Engelander. And that’s been great. I’ve really appreciated your, your thoughts and your insights into business and sustainability. So thanks much for your time.

John Engelander  46:29

It’s a pleasure, and I’m really glad that you’re able to catch up with me. So thanks, Gene.

Gene Tunny  46:36

Okay, so what are my big takeaways from my conversation with John? My first takeaway is that it’s clear that many business owners can have sustainable businesses and look after the environment to John’s businesses are great examples of how that can be done. As an economist, however, I wonder just how widespread this phenomenon can be. In the absence of regulation or policy measures covering all businesses, many businesses will probably choose lower cost and less environmentally sustainable practices. And many consumers will choose lower price options over more expensive, environmentally friendly ones. That said, public attitudes are changing and it’s possible consumer behaviour will drive more environmentally sustainable practices by businesses in the future. Following my chat with John, I found a really interesting study done for MasterCard and 2021. And I’ll put a link in the show notes to it. This study reported that more than half 54% of those surveyed across the world believe it’s more important to reduce their own carbon footprint since COVID-19. And more than three and 560 2% said it’s now more important than before that companies behave in a more sustainable, and eco friendly way. changing attitudes could have big implications for business in the future, and I’ll aim to have a closer look at consumer attitudes and behaviour in a future episode. My second big takeaway from my conversation with John is a reminder that we need to consider any degradation of our natural environment if we’re properly measuring the benefits of economic activities. The discussion I had with John in this point was inspired by a quote that John had on the wall behind him in our conversation over zoom. It’s not an investment if it’s destroying the planet. That quote is from Dr. Vandana Shiva, an Indian scholar and environmental activist. I would know that for several decades now, economists have thought a lot about how to account for any environmental degradation and cost benefit studies of projects. This is not something we’re ignoring or don’t care about. Economists have also thought a lot about how to augment the traditional national accounts to reflect environmental considerations. I’ll aim to cover how economists analyse environmental impacts in some depth in a future episode. For now, I’ll include some links in the show notes relating to the field of what’s called natural capital accounting. And I’ll also add some links regarding how economists have been trying to account for environmental impacts and cost benefit analysis. Okay, those are my big takeaways from my discussion with John Englander. The EcoBin, do you think I picked the most important ones? If you’re willing to share your own takeaways from the episode, please send them to me via contact at economics explore.com or send me a voice message via SpeakPipe. You can find the link in the show notes. Thanks for listening and Happy New Year. Okay, that’s the end of this episode of economics explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact@economicsexplored.com And we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye

Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

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Podcast episode

Aussie energy crisis & Net Zero transition w/ Josh Stabler, Energy Edge – EP170

Energy market expert Joshua Stabler shares his views on the current Aussie energy crisis and how well placed Australia and other countries are to transition to net zero greenhouse gas emissions. Learn why Joshua thinks that transition could be disorderly, and learn about the role self-driving EVs could play and whether Josh thinks nuclear energy and hydrogen are realistic options for 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 PodcastsSpotify, and Stitcher.

About this episode’s guest: Joshua Stabler

Joshua Stabler is Managing Director of Energy Edge. He has extensive experience in supply-side market operations for the electricity and gas sectors, and as an advisor and system developer in the Australian energy industry.

Joshua is the architect of the Gas Market Analysis Tool (GMAT), which is utilised by gas producers, LNG participants, gas generators, end users, financial intermediaries and banks. Joshua is also the author of The Edge – Gas Market Update report.

Joshua has a BE (Computer Systems).

You can follow Josh on LinkedIn:

https://au.linkedin.com/in/josh-stabler-6683895b

Links relevant to the conversation

Energy Edge, the advisory business Josh is Managing Director of:

https://www.energyedge.com.au/

What are Renewable Energy Zones? 

https://www.climatecouncil.org.au/resources/what-is-renewable-energy-zone/

Abbreviations

EV Electric vehicle

NEM National Electricity Market

REZ Renewable Energy Zone 

Transcript: Aussie energy crisis & Net Zero transition w/ Josh Stabler, Energy Edge – EP170

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  00:00

Coming up on Economics Explored.

Josh Stabler  00:03

So we have a known urgency that we need to get rid of carbon out of the atmosphere because it is causing issues with regards to climate change, our ability to shift that rapidly, may be outside of our economic grasp. That’s the danger.

Gene Tunny  00:19

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny broadcasting from Brisbane Australia. This is episode 170 on the Aussie energy crisis and the transition to net-zero, not just in Australia but around the world. I’m joined by Josh Stabler Managing Director of Energy edge. Energy Edge is a Brisbane based advisory firm specialising in energy markets. Also joining the conversation is Tim Hughes, who helps me out of my business adapt economics from time to time. It’s great to have Josh on the show because energy has been very topical lately. High coal and gas prices, largely as a result of the war in Ukraine that pushed up the costs of power generation worldwide. Also, a cutback in maintenance during the pandemic has compromised generation capacity. Also increasing prices as Josh explains in this episode, just how bad are things energy markets, Josh helps us understand what’s been happening and what’s to come. Please check out the shownotes relevant links and information and for details where you can get in touch with any questions or comments. Let me know what you think about this episode. I’d love to hear from you. In the show notes, you’ll also find a list of abbreviations. There’s a lot of them when it comes to Australia’s energy sector, including any M for national electricity market and our Zed for renewable energy zone. Righto. Now for our conversation with Josh Stabler on energy markets. Stick around for the end of the conversation for what I think are the big takeaways. Thanks to my audio engineer Josh Crotts is the assistance in producing this episode. I hope you enjoy it. Josh Stabler Managing Director of Energy Edge welcome to the programme. Thank you for having me. Oh, it’s great. Josh. Tim, who’s joining me as well. Tim, my occasional co host, recommended you as an expert on the gas market and energy in general. So I thought it’d be good to have you on the show. So Tim, thanks for that. And good to have you on the programme again.

Tim Hughes  02:18

You’re welcome, Gene. Good to be here. Hi, Josh.

Gene Tunny  02:20

Excellent. Okay, Josh would be keen to know about your role at Energy Edge. What is Energy Edge? What, what do you do at Energy Edge, please?

Josh Stabler  02:30

Sure, so we’re a small boutique advisory firm in the energy market, we have sort of two different arms of our business, one sides, our advisory sites. So that’s helping businesses in the wholesale energy market, understand their exposures, that’s with both traditional assets and renewable assets. And on the second side, we have our software arm of our business. So we have our own deal capture system, we have our own risk and analytical system. We have a gas market analysis tool, and we have our own edge report, which we talk about things that are going on in the industry.

Gene Tunny  03:02

What do you mean by exposures? What are they exposures toward?

Josh Stabler  03:05

Oh, yes, so the commodity exposure. So we we we delve deeply into understanding what the business are, how it makes money, how it pays for its energy, and then using that commodity exposure, where then we’ll say simulate out the exposures that they have on making a sort of at risk assessments of the money that they could make. And then from that you can go into deep sort of risk metrics. So you can work out a business’s probability of exceeding certain levels, and that’s known as at risk modelling.

Gene Tunny  03:39

This is Monte Carlo, Monte Carlo simulation modelling. Yeah, good one, using At risk. That’s one of the tools you can use. Right. And what sort of clients

Josh Stabler  03:50

Ahh yes, we’ve we’ve actually supported about 80 to 100 energy businesses on the East Coast, which surprised me sometimes I never wouldn’t think there’d be that many. But, you know, we help all sorts we help, you know, most of the Queensland Gox, we’ve really supported. So we’re actually heavily involved with the setup of Cliniko, which is the latest Queensland Government generator that took over all the renewable projects in 2019. So we came in, help them set up their risk systems and help them get started ready for day one, and then they flip went on and did their own things themselves.

Gene Tunny  04:25

Right. So this is one of the Gox the government owned corporations here in Queensland, that’s looking at renewable energy options for the Queensland Government. Okay. Right. That’s great. Sounds like quite a nice portfolio of clients. And that’s great. Yeah. Okay. Yeah. Tim, did you want to kick off with the first policy or economics question?

Tim Hughes  04:54

Yeah, absolutely. So it’s funny we’ve we’ve all talked about this at different times. So cobbling it together. We’re gonna start with Josh, a summary of how we got here, because I know you’ve talked about this before. And I think getting an understanding of this then helps with the conversation we will have about where we go from here.

Josh Stabler  05:14

Yeah, definitely. So how do we get here is such a, you know, an open-ended question, but in terms of, what are we looking at there. So during winter 2022, in Australia, we saw unprecedented levels of pricing. So the electricity prices settled at $300 a megawatt hour for the quarter, the highest ever previously was about 170. And this was across all the regions. So Queensland, New South Wales, South Australia, and Victoria, were all at record high levels. And this was an accumulation of so many different things that have happened over the last few years. And if we go back two years ago, we have to go through the traumatic experience, again, with going through COVID was that during COVID, we had travel restrictions and congregation restrictions, which means that you couldn’t bring expertise from international space, and put them together to do preventative maintenance. And because we didn’t do the preventative maintenance on coal generators on gas generators that lowered their reliability of those assets. Now, the exact causality of each of those is not perfectly known. But what we started seeing was a rising of unavailability of the coal generators. Now, as we move forward through time, we started seeing other international things starting to change. The, the war of Russia and Ukraine was in March this year, but they actually started reducing their supplies into Europe at the end of 2020. So by the time that they’d reached the point of the Nord Stream failure in July this year, they had actually stopped delivering mushroom to Northern Europe, had lowered their deliveries from 17 petajoules, a day to 1.6. Now, that’s 16 petajoules less now that seems like a big number. And it is a big number, it’s actually the equivalent of 95 million tonnes of LNG, which is 25% of the world’s LNG cargoes. So the extraction of one country’s deliveries to Europe was the equivalent of 25% of the world’s LNG. So it’s a it’s a big, big variation in terms of this is probably the largest shock in terms of supply shock, ever, like I know what the equivalent would probably be the 70s sort of oil shock conditions. So it’s an amazing sort of outcome. But it started happening well, before we actually got to the point of war, which meant that we actually started seeing gas prices in the international space rising from September 2021, six months before we actually had the the actual war. And that led to a scarcity of that of energy starting to appear across the planet. And by the time we got to April, in Australia, we’d actually been buffeted away from this, we weren’t seeing any of the higher prices until we started in April. And that’s when it’s first started seeing a rising of the of the energy prices. This is on two fronts, one was on the coal international coal prices which reached $450 a tonne, which is the equivalent of around about $25 a giga Joule in the in the coal pricing. So that means that coal was not cheap. Coal was very expensive.

Tim Hughes  08:24

What was the regular price?

Josh Stabler  08:27

 Yes, for the first decade of the market, it was $1 a giga Joule for coal and $3 or Giga Joule for gas. So that’s in the early 2000s. And progressively gas prices have risen and fallen. But the coal prices have stayed in that sort of $1 to $3 range. So to see it go 10 times the level is really just driving up an underlying input cost. And then by the time we got to May, we had our first event, the event of the roundabout, the 28th of April through to the sixth of May, was when we first saw a sharp increase in the electricity prices. And that was primarily driven by a large reduction in availability of coal generators. And so we saw a spiking of sort of 30% of the fleet was completely offline during May. In New South Wales, we’re talking 40-45% of the fleet was offline. So this is an unprecedented level, like a AMO forecast 12%. So we are three, four times the height in terms of unavailability of the coal generators during that period that caused electricity prices to spike. Two days later, gas prices spiked. So it wasn’t a gas rose and caused electricity to price up. Its electricity went higher and that caused the input costs to follow it up. So we had and once that once the dam had broken once we had the gas prices jumped up to around about $30-40 it connected to the international price which coincidentally was around about $40 a giga Joule, but just pure coincidence. And when once it reached that point, we started having the prices remain in that area. Now, the coincidence wasn’t that the price joined up the coincidence is that in the late 90s, we decided that the market should have a cap, the market cap should be $40. Nobody thought about that $40 cap when thinking about the Ukraine war in 2022, she just happened to be in a note number that worked out very nicely. And once it came that $40, we’ve just had it stay that level. And we’ve had the market go into a price administered state. And then during that, that level, there we had very high electricity prices. But we didn’t have shortfalls, they weren’t customers that were losing the ability to consume. They were just paying a lot in the spot market for those for that generation, that consumption.

Gene Tunny  10:52

Right. So look, there are a couple of things I’d like to follow up on there. Josh, you mentioned that COVID meant that we couldn’t get people over to do maintenance on coal-fired power stations and gas-fired power stations too. Yeah, right.

Josh Stabler  11:10

An outage is literally bringing expertise and putting them really close to each other in a kind of confined space. So we couldn’t get them in because they couldn’t fly from overseas. And when they were here, they also couldn’t do the work. So what we did was a lot of the generators moved their outages just to the next slot. And the slots are normally the April, May or March, April, May. So the shoulder seasons in terms of weather. And the second slot is in the September, October, November period, where you also have a lowering of demand. So you’d normally fit the outages in there, and they didn’t. So they moved them into the next area. And eventually we just squeezed them all together, and then assets just started to fail.

Gene Tunny  11:50

Yeah, that’s interesting. Something that Tim and I are interested in for in terms of, it’s another one of these potential world costs of lockdown or costs of COVID policies that are on the year, the negative side of, of COVID, or the cost side in a cost benefit analysis. So I have to check with Judy Foster’s included this in, in her analysis because we went to an event a couple of weeks ago in Brisbane here on pandemic and managing the pandemic. And there’s a lot of discussion about the costs and benefits of lockdowns. I mean, that’s, that’s not for this conversation. But I just thought that’s interesting as another cost of those policies during COVID.

Josh Stabler  12:42

And it’s not just Australia, the French nuclear facilities are all having an unheard of levels of maintenance right now. Because again, they also had to delay their work. So there was just that there was just a period of and so that that created some of the false security because in 2020, nobody had outages. So everybody had extra supply to the market, which caused prices to fall. So it wasn’t just that we had a lot lower demand, we had a slightly lower demand because of COVID. But we had an incredibly high level of availability of assets. Because no one did any work. No one was doing any work. But the repercussions of that are that there’s an increased unreliability, but be they’ve got it then do that work. You can’t avoid it. There are statutory obligations, you have to actually do it within a certain time period. Otherwise, you’re breaking the law.

Gene Tunny  13:32

Josh, can I ask you what’s the connection between the domestic price paid for gas in Australia and the international price they’re linked?

Josh Stabler  13:41

They are at time. So we’ve we had a very, very strong relationship during 2019, 2020 and early parts of 2021. And then in mid 2021, electric the gas prices domestically jumped up very rapidly, primarily due to domestic issues, domestic supply concerns, and then the gas prices internationally started to rise and they rose steadily from 10-15, 20-25, 30, $40 a Giga Joule, but the Australian Government gas market after about October or September 2001, all the way through to April was only about $10 a giga joule. So we had this rising International and a very low flatlined was still higher than historical numbers, but it was very low in relative terms. And the relativity really matters for a lot of businesses. If you are a fertiliser business and you sell fertiliser, you are a price taker, you take what the international price of fertilisers are worth, and that is priced on international price of gas. So if you have a relatively low price that absolutely high, you are still in a strong position. Whereas if you are a domestic customer who sells domestically then the absolute price is a problem for you because you’re passing that on to a domestic an audience who have to take the higher price. And that will directly increase their, their outcomes, because there they are a price setter themselves. So that, that differential there matters, especially over the medium term in terms of what that does for certain businesses. Now, once we got to make we, that’s when it joined up, and we had lots of periods where the domestic and international were about the same. There are periods where it looks like the domestic is cheaper than the is more expensive than the international but the international price was jumping $10 a giga Joule, every couple of days. So the volatility was more to do with the when you sample the data more than it was to do with the market price it was moving between 40 and $60, depending on the international experience at the time. You know, when Russia first did that change in their availability, the market moved to $20 in a day. So it gets a bit hard when you’re trying to say, well, what is the exact outcome, in general for the year substantially cheaper than almost any other country other than, say, the US and Canada, Australia in terms of gas pricing. Because most other countries are highly linked, you have a Japanese Korea market, okay, yeah. And you have the TTF, which is the Dutch price for gas, both of those have been elevated in the 60s $70 for Giga Joule equivalents for the entire year. And Australia had 40 for about two to three months, and has had 15-10, 15 for the rest of the period. And long term contracts have been in and around about $12.38, I think was the number that the ACCC reported on so substantially below where the international prices are. Now there are some people who have offered very high prices. But that doesn’t mean that anybody traded there. It’s like going and saying, I asked a hotel. Well, I thought price for a night was and I asked a guy on the street, if I could buy his house, they came in at different prices. You’ve got somebody who doesn’t have any guests available to sell, and you ask them to sell you gas, and they’re going to obviously offer a very high price.

Gene Tunny  17:03

Okay, so I just want to make sure I understand what’s going on. So is it the case that the gas suppliers or the big gas companies, they’re they’re entering into these longer term contracts with their customers, and they’re doing that at a rate that’s much lower than the spot price, because they know that will that spot price is just temporary. That’s what’s going on.

Josh Stabler  17:27

And it’s just for short periods of time that those prices are at that very high levels. So you’re not seeing that pass through that long term contracts unnecessarily getting done at $4. There are, if you go to businesses that do not have any gas, yeah, it’s already in you ask them to give you a price, it’s going to be high. But that, but that post, that business doesn’t end up doing the deal. And that’s what we’re seeing. And when you look at the ACCC report they’ve got the price range was between 10 and 60. But the price ended up being 12. So it’s yes, there are some numbers that look, and they are frightening if you are a customer, looking at the deal like that, and trying to make it work. But most of the ones that were especially the ones that made the media were related to the accident of western energy, which went broke in late May. And the basically, businesses were then going out to so that that retailer had to give their contracts back to the retailers last resort. And that didn’t that those prices were back at the tariff rate. And they were very, very high. So there was some bad media around that. But in general, most customers who have gone to long term, producers have had prices in the order of 10 to $14 a giga Joule right, not on a weighted level. Is it anywhere in the 30s or 40s?

Gene Tunny  18:54

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

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Gene Tunny  19:29

Now back to the show. I’ve got some more questions. But Tim, I should ask if you’ve got any questions for josh.

Tim Hughes  19:36

I know between the three of us we could talk for days. For us and for everyone else who might be listening, we should not. However, so if you did have any more questions with that Gene, what I was going to come to and we might want to move on to this after if you have any questions to finish, but basically, because we’re in this fascinating point in our history of our time with emerging energy markets to clean and green options that are coming, the opportunity or the challenge to get to net-zero. So that’s what I’d like to put forward for the next part of it. So if you’ve got anything to add from what we will do that first.

Gene Tunny  20:18

I might just ask you about the risk of what happened earlier this year, happening again, it sounded like that there were some specific circumstances the fact that there wasn’t this maintenance going on, in their catching up with maintenance, does that mean, we won’t see another repeat of what happened earlier this year?

Josh Stabler  20:42

Okay, so, I guess, there’s two parts to that we have the problems that we know that are deterministically at fault. Yeah, which is that we know that there is some coal supplies that are low, some of the local mines at say Mt piper, in near Newcastle, have reaching end of life, and they will need to get coal from train links. And the train links have a limitation in terms of the delivery. So we know there are some facilities that will be energy limited by the fact that their suppliers are constrained. That’s the deterministic issue. On the probabilistic issue, we had outage rates of three times what we anticipated during May and June periods. That of those were random events. So they weren’t failure, reliability failure, they are a probabilistic event, they there is a chance that those numbers could come back, there’s chance those those things, as we are getting closer and closer to the end of life are these assets that are less likely to spend the money to go and fix the power station to be ready. Because they don’t, they won’t recover the profitability. And that’s that there is so if you’re only going to survive five years, and you want to spend $100 million, you need to make an extra $20 million out of that asset every year in order for that to even makes sense. And if your input costs are high, then you won’t go and do that. So that’s why we’re seeing a whole lot of power stations, even in a very high price environment. But it’s also a high cost environment, are worried about what that means for them as they get closer to their end of life. And that leads us to that, I guess, if we can carry on to the next question is what happens in terms of as we get closer to transition. And the complication of transition is that it is by default, disorderly.

Tim Hughes  22:38

So this is transition to new energy sources.

Josh Stabler  22:40

As you transition anything from any old, anything old into anything new, you are going to hit this issue in regard to how you get somebody to give up their space for the next person. Now, if a power station has no goal, no plan for profitability over the next three years, then you would be better off to turn off rather than lose money three years in a row. So that means that you’ve got this, you don’t get an overlap in a transition. Normally, you get old assets who are there will want to exit because they see no path to profitability. But we don’t have a solution yet, because that hasn’t come on yet. So we have a renewable wave and a battery wave, and we have a decline of the coal. And if you don’t act to try and keep them so that they overlap, then there will just be a gap. And if you have a gap, then you’ve got an issue because then the power stations as they become less reliable, will fail. And in fact, when they fail, they will withdraw their capacity from the market, which will cause prices to rise. Making them the reason why the prices are high is because of their failure caused the event. So you actually have to that, and that leads you to part of the policy plan, which is how do you keep something online that doesn’t make money. And that’s where you had starting to talk about capacity markets or anything else to try and social licence. This is why a most said that you’ve got to give three now three and a half years notice before you can exit is because you need to tell them in advance that you’re going to leave. Now the obvious response was origins, which was if I had to tell you three and a half years, I’m just gonna tell you three and a half years and I’m just gonna make a different decision at a later date if I need to. If I get close, and I want to keep it online, well, you didn’t tell me I have to shut and three and a half years. I can just keep it on for another two years with a year’s notice. And I’ll just keep it going. But if I’m forced to make a notice then I’m gonna give it early. And then I’ll update it if I need to.

Gene Tunny  24:48

Yeah, good point. Good point. So amo was the Australian energy market operator. And yeah, it’s interesting. This I mean, I’m, as an economist, I’m rather laissez-faire. I’d prefer to just to rely on market hours, the market as much as possible. But yeah, with energy, you’ve got to take into account the fact that you need to keep the power on you need reliability. So we need, we can’t just rely entirely on the market. And that’s why we’ve got this Australian energy market operator that’s overseeing things and trying to get the right policy setting. So we do have, we don’t end up with unreliable power. And we don’t have to have blackouts in that horror show scenario.

Tim Hughes  25:32

I see. Am I right in? I think it might have been one of your podcasts Josh, or something I read recently, and it was a rant. There, there is gas that is used as a backup currently, for that kind of situation where it is expensive, but it kicks in and that can sort of cover any shortfall. Is that right?

Josh Stabler  25:52

Yeah. And it’s, it’s important to like, when sometimes when you think about what is the what is the idea, you can think globally, you’re like, Okay, well, nuclear is going to work for the world in terms of meaning things because of the problems that some countries have. But Australia has the situation we have, we have a lot of sun, we have a lot of wind, we have a LNG export capability that is delivering gas offshore, all the time. So if we get ourselves into a situation where we are short of wind and short of, of sun, we actually have this enormous amount of gas being delivered, that can be interrupted for a short period of time to deliver that energy back into the grid. And the amount that has been delivered is the equivalent of the entire electricity market. So the four petajoules, that goes off is approximately 100% of the net. So if you actually brought it all down, you could power the whole network if you had enough power stations. But what it does is it provides resilience. Now, not every country has an LNG export option. And it’s not saying that we need to use the gas all the time. In fact, we only want to use it when it’s required, because it’ll probably cost us more to interrupt them. So if we had a commercial arrangement where we could say, give me your gas when we need it, and we’ll pay you some money for it, well, then we almost never have a reliability issue. So long as we can get that gas where it needs to go.

Tim Hughes  27:21

I mean, that would obviously cause some problems with markets. So you’ve got to keep a consistent supply to the current customers overseas, etc. So that might be in a sort of like a short emergency sort of situation.

Josh Stabler  27:33

Yeah, a percent of theirs is a huge amount of gas for the domestic market. So a percent of a day is still 40. It’s like 150 megawatts, 24 hours a day. So it’s 1000 megawatts for six hours, it’s a huge amount of gas that can be moved through into power stations to meet the short term problem.

Tim Hughes  27:55

So with the broader view of where are we going, you know, what’s, what are the options open to us? What are the opportunities for Queensland and Australia in particular, but there was clearly a lot of choices about, you know, renewable energy is obviously growing very quickly. It appears to be green and clean, which I know is a little bit of a side conversation as well. You know, everything has some impact of some sort. But that’s the direction we’re heading. Net-zero is the term that we are all familiar with, that covers it all as in like, whatever we’re going to be doing, it’s not going to be harming the planet. That’s pretty much what the goal is. And so we’re in this transitional period that we’re entering now. So from gas and coal in towards these different areas, and like you say, gas may form a part of the contingency or the emergency supply. So we’ve got renewables, we’ve got wind, we’ve got solar, waves, hydro, all these different things, in your opinion, and your experience. What are your views on these new available sources of energy?

Josh Stabler  29:04

So if we separate it into two parts, one is can we get the electricity grid towards a greener environment? Yeah, we have moved a lot further than most people think. So when we signed the Paris accord in April 2016, so six years ago, six and a half years ago, we had an a carbon emissions for the electricity grid of 171 million tonnes per annum, 171. And this year to a couple of days ago, we were just below 120 million tonnes. So we have reduced our carbon emissions and our electricity grid by 40%. In six years.

Gene Tunny  29:41

Are we talking about Australia or Queensland? Australia?

Josh Stabler  29:45

Australia wide and so in the last couple of days, this is the gold period of the year is the golden period for renewables. It has great sun, no much demand, fair bit of wind. We are sitting in Most days at about 65% renewables during the day, and about 25 to 30% renewables every night.

Tim Hughes  30:06

So that 40%, so 40% reduction in six years. Yep. And that’s purely attributable to these renewable energy sources.

Josh Stabler  30:16

Yeah, it’s basically a one for one reduction increase in renewables, one for one reduction in brown coal fired power stations. So that was it, certainly for the first like four years, and then it’s progressively eaten out some of the black coal, that appears to be really first it’s very, very fast, quite a lot. We’re moving 10 million tonnes per annum reduction. That’s on the electricity side. And we are now we’ve now you know, we’ve got days when we’re more than 50% reduction in terms of our carbon emissions, which is, which is great. That’s really, really wonderful. The problem is, is that it’s not the only thing that our requirements our Paris Accord is not electricity market requirements, it is an economy wide, starts getting a little bit confusing, which is that you cannot use renewable solar panels to meet our agricultural emissions requirements or our industrial requirements. But there are still good news stories in it. As we bring in electric vehicles, we move away from inefficient oil to efficient electricity. And as our carbon emission of our electricity grid becomes cleaner and cleaner, it has a multiplicative effect. Now, five years ago, because the ratios change every year, five years ago, the ratio was 36% was our electricity, and 18% was out was transportation. Now, this is where I’ll jump into some of the numbers for this so EVs, we have 15 million cars on the road. Each EV is at two kilowatt hours, if you had them as a Tesla mum, Tesla Model three, just as far as an example, which makes it 1200 gigawatt hours worth of storage, which is about the equivalent of 250 Wivenhoe, and why Wivenhoe is able to support about 1000 megawatts worth of renewables.

Gene Tunny  32:03

So that’s if everyone in Australia had an EV. If we replaced all the cars, on the road with EVs, we would have how many Wivenhoe dams?

Josh Stabler  32:12

250 Wivenhoe’s in storages which can do 1000 megawatts, which makes it 250,000 megawatts worth of hydro of renewables, which is more than we use switches will far more than we use. So we actually only need about 15% of the equivalent of cars moving down in order for us to have a situation where we have enough storage from cars. But cars don’t plug into the grid every night, we need to have them absorb them the right time, there’s a whole lot of, you know, complications that come around that plan. But it’s just a point of what is an opportunity available to us, we have so much storage there that would need to be replaced. Because at the moment, we have all these cars with their engines, and all they do is drive people. Whereas if we had them being engines that were able to be electricity driven as well, they would have a they would have a role in this market. Now, that is a wonderful vision for 2040. Okay, but as a idea of the same problem they have with any bridge, if you start a bridge at one side and start on this side, you’ve got to make sure they meet in the middle, you can’t just have a dream of where you want to be in 2040 and go off and just hope it’s gonna work out. You have to aim the bridges at each other. And that’s where it gets complicated, is how do you transition across. And right now our danger, is it we’ve seen what happens when things don’t go right, and it’s unpalatable. It is politically unpalatable. Electricity is not run by the governments anymore. But it’s politically considered to be run by the governments. So having it move fast is something that people can not accept, that it’s not politically acceptable. So therefore, if you have these another event like this, then people will start giving up on wanting to transition because I think that that is the reason why it’s happening now. Is that the reason? Well, there’s it’s far too it’s not you can’t point to one thing and say there’s definitely been fault on multiple sides of the fence here because renewables have made coal, not make money which has made them unreliable and made them unreliable before they have to exit and renewables are not ready to take over the role yet because they haven’t got the cost structures in order to do it. So we’ve we’ve got one abdicating the role and the other one, a child who can’t take over it.

Tim Hughes  34:34

So what’s your feeling on that? Josh? Like? Because I mean, is it just the transition is happening too fast? Or is it? Are there other things that we need to consider?

Josh Stabler  34:42

We’ve we’ve, we have a known urgency. So we have a known urgency that we need to get rid of carbon out of the atmosphere because it is causing. It is causing issues in regard to climate change, our ability to shift that rapidly, may be outside of our Economic grasp. That’s the danger.

Gene Tunny  35:02

Okay, that’s a good point. I think I know what you mean. But what do you mean by economic grasp?

Josh Stabler  35:08

Exactly. So it’s the cost of solar falls 36% for the doubling of capacity. So if you wait until you’ve doubled the amount of capacity in the world, you get at 36%, cheaper, wait for your next installation. So that part of the deflationary learning curve that we have, right, so you are highly motivated not to invest now, right and wait for it to be cheaper, and then be beat everybody on the lower cost structure. All other things being equal, not all other things are equal, because initially, you have high income for being in a scarce market. So the initial investments of PV got paid 42 cents a kilowatt. And there was a really good incentive for those first people to invest in solar while it was expensive. Yeah, but eventually, you’ve got to compete in is this worthwhile in the long term. And that same applies to batteries, batteries are falling very rapidly. And if you invest, now, your income stream is high, but your costs are high. And eventually, if you don’t get the right deal in place now, then eventually, someone’s going to come along and eat your lunch. And that gets harder, because you’ve and that’s what does that lead to? It leads to, if you accelerate the process, it will cost money. Is that an unpalatable level of money? I don’t, I haven’t clearly worked out, it’s got better, if we had accelerated faster, five years ago, we would be a very expensive system. But we are accelerating now and batteries are coming on. And they are likely to have a heavy impact because we are having a under normal circumstances a very negative during the day price and a high evening peak, which gives a very large arbitrage, temporal arbitrage, buy low sell high. And therefore people are incentivized to put in batteries to meet that obligation. But as you bring on more batteries, that arbitrage shrinks, lowering your income. So therefore, you need to win on costs at that point, because the revenue numbers will start to decline. So it’s just a it’s a there are you know, there are assets that are getting built now that will make money. But if we built all the assets now at this cost, we will just have a high-cost system,

Gene Tunny  37:18

Right. Okay, yeah, good point.

Josh Stabler  37:21

And eventually that comes back because the customer the godly truths of our market is as the customer pays for everything. Yeah, everything has to be extracted from the end user.

Gene Tunny  37:31

Right. Okay. And what do you think about what the state governments here is proposing with? They’re looking at pumped hydro, aren’t they?

Josh Stabler  37:40

They are. So there’s some very, very large pumped storage hydro that they’re talking about. It’s gonna take a long time to get into the market. Yeah. pumped hydro is so when we’re talking about how solar drops in price, as we instal more pumped storage hydro increases every year, because it’s the civil project. It’s not getting smarter technology, its its its potential energy, gravity and height. That’s that maths still the same from 1950s, as it is, now it’s, we probably gained a couple of percents in efficiency. So we are we are getting more expensive, which is a problem, which is why the state’s doing it. Because the state can afford to do something like that, that has an 80 year life and take on that level of risk. Because the of the there are two outcomes, either it was not needed, and everything’s fine. And they’re happy with that, or it was needed, and they helped make it better. And they’re happy with that, as opposed to a private company, which would be unhappy with a scenario where they were unneeded. So iIt’s not that it’s warped. It’s just that they have greater vision in terms of what what is important to them compared to a private in private industry.

Gene Tunny  38:55

I liked the point you made about EVs and in just how many Wivenhoe dams the EVS could represent if Wivenhoe, Wivenhoe is not Hydro Electric is it?

Josh Stabler  39:06

It’s a pump storage. So it is a small drive to a big lake, okay, and it’s called split Creek. So it has the ability to move water up and down from the so an actual slide on the dam is not good for the power station, unfortunately. But it has about 20,000 mega litres of water. So it’s got a large area that it can fill. Yeah, this gives a you know, having all of those batteries gives a incredible capability to meet the rearrangement of data nine, right, we probably have too much, which means that we will, we’ll probably get to a situation where not everybody has to do it. Because we’ve got we’re going to have all these batteries and all these cars and we’re not expecting everybody to be doing this every night. We don’t expect you to get because the other problem is is that you have to fill during the day and then empty when you get home and your rooftop PV is on your roof and you’re not at home because you drove your car away. So if we’re imagining in 2040, we have an answer to that, which is when the car drops you off, it goes home again, because there’s an automated car, and it returns to the base and fills up. And then it comes and picks you up in the afternoon in the process, it’s filled. And when it arrives, it pumps power into the grid, and keeps everything’s sorted. Because it’s moving energy around, not just passengers.

Tim Hughes  40:24

I see this feeds into an area, which I think is really interesting, because the technology is moving so quickly. Yeah. Is that then a hindrance to adopting new technology because you know, you’re investing in infrastructure that all of a sudden becomes, you know, it gets superseded by the next shiny thing.

Josh Stabler  40:40

Oh yeah, especially big costs, like a great example is distribution networks, you’ve got these power grids, or these power lines, they are long, long, long life assets. But if you’ve got power that’s moving by car, you don’t need the distribution network anymore. You got this. So which leads you to the threat, which is known as a death spiral, which is that you have a large cost, but by structure, and you’re smearing it over customers that are getting smaller, which means that you need to charge them more. So eventually, we’re in a position where my, my mom needs to pay $250 million a year in order to keep everything on track. So because you know, it’s the last people obviously, regressive, the people with the most money exit first, and the people the least money exit last. And that means that you’re smearing more and more customers, people who can’t afford it. But that just leads you and that could be where we’re at, we could have some of these assets that are built that are a little bit stranded. But again, you know, some of these things need to get done. In order for us to get there,

Tim Hughes  41:41

You end up with a drawer full of Betamax videos and CDs.

Gene Tunny  41:46

This is fascinating. I’ve never, I hadn’t thought of that before. But if I’m interpreting what you’re saying correctly, we’ve got a car that drives us to work, it’s all automatic. And then it drops us off, and it goes home. So we have all these empty cars travelling on the roads to go home, so that they home when the solar PV is collecting the energy, and they’re storing it.

Josh Stabler  42:12

Yeah. Do you want to make it’s really crazy? They may not go back to your house.

Tim Hughes  42:15

I was gonna, I was going to say they go to the closest available home. Yes, you know, but the thing is also like so this, I mean, we’re getting into the speculative nature of this.

Gene Tunny  42:27

Imagine the IT or the AI  that you need to organise all of it.

Tim Hughes  42:31

That is an exercise in efficiency. Yeah,

Josh Stabler  42:34

well, that’s, that’s the classic, I’m travelling salesman issue. So you got to got all these ones that you need to move on. Because once they select does, it does the first person who gets to choose it, because I’ll just choose the one next door for the next 17 years right now. So that it doesn’t every time. But you need to make sure that that is an equitable sort of delivery of energy. And when we get to that state, then, you know, if you’ve got this demand that can be moved, and can be selected as selective and discretionary in its consumption, then we can just keep on installing more solar, because it will find a find somebody who wants to buy because the power all the cars will come and fill it up. Which leads us then to a problem, which is what have we just built the world’s most expensive way of doing that. Because most of our energy that we need to have, we need to move from the middle of the day to the evening. If I put power into a car, I can come back 100 days later, and it’s still at 99%. So long as you don’t put on a sentry mode, then it will consume it all. But you got to you’ve got to technology, a wonderful technology that is able to keep this energy for long periods of time. But in fact, we don’t need wonderful technology, we need terrible technology that is highly inefficient. That just does it for nothing between the middle of the day and evening peak. And then we can just keep on plunking down more and more solar, because it’s going to solve the more and more expensive evening peak with gas issues or any other thing else or its competition is expensive other vehicles or other batteries. And you’re just trying to undercut them by buying for nothing and selling for anything.

Tim Hughes  44:11

So becomes a market sort of battleground if you like,

Josh Stabler  44:15

Well, I think we’ve over engineered the solution. We’ve there’s probably a much cheaper, easier, stupid engineering solution.

Gene Tunny  44:22

So what and what is that job?

Josh Stabler  44:23

One example would be let’s freeze ice and your roof and make your house cooled down when it does that. Now that one’s I’ve already been asked somebody I think it’s been debunked, but there are answers, which are to do with most of our most complicated times like today. We’re 37 degrees too hot and what we need to do is just move these copious amounts of sun because it’s hot, and it’s bright into the evening and just make cold and if we make it cold if you make the house cold, like in Germany, you have pipes throughout the house and you just heat up that and that hits that water heating keeps the house warm. Same thing We just need to know, is that economically viable? Do you need to go to every single house and water? You know, there are, these things start getting highly complicated when you start thinking about all the engineering and and there’s just a point of, we kind of don’t know what we are going to have. I can think of 25 ideas today on what could possibly happen. And none of them will be right in comparison to what we’re going to do. 20 years time is a long, long time, in a world where people are incentivized to reduce their costs, where something starts causing, you know, the old adage, high prices as a cure for high prices. Because when it starts getting up, people start finding different answers, they find, oh, I don’t need to use that much electricity, I can lower my consumption, I can make these changes. And once you start having those drives, correct drivers people follow, follow the economic behaviour, we, we underestimate our citizens. And that’s why we make our electricity tariffs so simple, in terms of the way that they’re done, the billings insane. But the actual methodology is very, is too simple. It’s, you have a flat price from 7am till 10pm at night, even though that you don’t consume that way anymore, because most people have solar, which means you don’t consume during the day, and then you consume a lot during evening. So we actually need more definition that will drive behaviour, if you were aware that these things were driving you and changing your behaviour, then you would do things slightly different. Anyway, that was it’s a nice little.

Tim Hughes  46:29

It is interesting, because, again, it’s an it’s a question of efficiency. Yeah. And yeah, and householders are interested in efficiency, especially when it’s gonna save them money, especially when it’s gonna save them money. I did have another thing I wanted to pop in there, because I don’t want to make it too speculative. Because I mean, it is fascinating. But solid state battery technology has been mentioned by a mutual friend of ours who John Atkins, who was on a previous show, previous episode. And he had come across this technology, I think Toyota are one of the leaders with this new battery technology, which ultimately could have the potential to charge your house. So it’s not just running the car, you can then plug it back into your house, and it can run the house in the evening. So one of the main areas of concern if you like, at the moment, obviously, it’s you can’t take a punt on future technology that’s not here, we have to go with what’s here. But this must be also a concern for not a concern. But like, governments aren’t always going to be the first to adopt this new technology. But it must make it harder for them to commit to putting infrastructure in for a technology that they think could be redundant fairly soon.

Josh Stabler  47:42

Yeah, and that’s where, you know, a lot of the res idea is that we’ve we have this expectation that we’re going to need large scale wind and solar, out in the out in the regions, that’s going to bring all the power in and that and therefore that’s where the energy is going to come from. And the biggest error in any of the forecasting for the last 20 years of electricity has been the forecast of rooftop solar, every one of them is like this year, it’s gonna be the same as next year quadruples. This year, it’s gonna be the same instead of quadruples, there’s just been this constant misunderstanding of how quickly people were going to invest in it. And they’ve and the and the forecasts have been just horrendously wrong. And now, rooftop solar as a market share is one of the biggest in the net, it is got a now a major part of the electricity grid is what happens from rooftops. And that is driven by mums and dads.

Tim Hughes  48:40

The market is driving this as we’ve had conversations with quite a few different people. And the common thread is that the market is driving these changes.

Josh Stabler  48:48

It is but do you get to talk? Do you get to go into the room and tell people that you’re going to go and do this? Are you going to tell people that you’re putting batteries in, or the big guys can? It’s easy. There’s only like 100 of them, we just go and ask them are you going to go and install batteries and they say sure, I’ve got this big plan to build this big battery out there. And I’m gonna build this wind fine over there. And this is where my solar farm is going to go. And they can tell the people who are going to make those plans. What it is, they didn’t go and interview 15 million households to find out who’s going to invest in batteries. So there’s a level of a lack of advocation on behalf of those customers on behalf of mums and dads in terms of what they’re going to do. They also don’t really get paid for it. Because when they installed batteries, they lowered the consumption during the middle of the day. For the first 10-15 years of this market. The middle of the day was the most dangerous part. It was the most worrying section was what’s going to happen at the hottest point of the day, two o’clock in the day. It’s the highest demand we have the hottest weather and the electricity grid starts failing power lines can’t move anything. And then we don’t have that problem. Because rooftop solar has completely carved out the amount of demand we have at what used to be the most threatening. Now we’ve built, the whole market has built all sorts of power lines, and extra things that need to handle hot weather to move really long, lots of power at certain points in time, that are completely unused now, because that requirement doesn’t exist. And then when we start thinking about what’s going to happen with people, when they put vehicle to grid, and they can move their own power between themselves, Well, no one’s getting asked. So we don’t know what they’re going to do. So there’s like a just an unknown when that starts happening. And what I suspect is going to happen is that eventually, a, someone like probably Macquarie Bank, because they’re the kind of people who would do it, which is they’ll work out that if they install a battery on your home loan, you are now better, you are now a better creditworthy person, because your costs have just gone down, so they can offer you a better deal. And at that point, it all starts changing when you can just put on your home loan.

Gene Tunny  50:49

Right? So you can buy a Tesla Powerwall.

Josh Stabler  50:52

Put it on your home, you are now you are now considered a bit less of a threat, because you don’t have an electricity bill anymore. So at that point, they’re like, oh, okay, well, yeah, you deserve to be I can, I loan you money if you know, whatever percentage lowest because I think that you’re in a better, better position. And you can put that money on to your on your home loan, and we’re going to accept that. And that’s all fine, because we consider this an investment, not a bad, not a negative decision. Once that starts happening, things start moving quickly. Once debt gets involved, the world moves changes very fast.

Tim Hughes  51:24

Yeah. And that technology is obviously good for a considerable time to come. Solar seems to be working really well, that 40% drop in six years that you mentioned down to renewables. Great news. Yep.

Gene Tunny  51:39

Yeah. Okay, so, Tim, I think we suspected we, we might be picking Josh’s brain a lot, we’d go on quite a while. So we’re at 50 minutes, I’ve got a few questions I want to make sure we get answered before we wrap up. So if I try and wrap up for the next 10 minutes or so. Okay, so first, what about nuclear or hydrogen? How much potential do they have in the future electricity grid?

Josh Stabler  52:07

In the world nukes have a very big role, in Australia. I think that that the moment, most of the discussion that is around nukes is probably not in good faith. It’s more in a let’s stop doing things and wait for this new technology. And then our didn’t work out? Well, you might as well stay with coal. I don’t feel like the discussion is necessarily in a in a with completely good faith. Your issue with nukes, which is the same ones that you have with coal is that you can’t get cheaper than solar in the middle of the day, when it’s delivered to your house on your roof. It is cutting through transmission distribution directly into the source of where the demand is, which means that is impossible to get cheaper. So that means that nukes will never be able to run 100% capacity factor, because they will be carved out by the six hours of sun every day, which means that their capacity factors will be lower, which means that their very, very high capital costs will have to be smeared over a smaller volume making their costs, every estimate of costs will be based on 100% capacity factor. That’s all impossible, which means that everything’s going to be more expensive than you anticipated, unless they plan on turning off solar. So they need to get rid of a better solution to make this other one work. So I just don’t see it really working on hydrogen. I am the biggest issue with hydrogen is economics. And it is an inefficient process to produce energy that can be moved. Now, if we have infinite free energy in the middle of the day, because we have so much solar, then having something that costs nothing to put into this energy. So if it’s inefficient, inefficiency doesn’t matter when it doesn’t cost you anything. Zero times by an efficiency of 30% is still $0. So so long as you can get to a point where there’s basic never ending spilling of the load of the solar that it would do nothing, it would literally be turned down and dig and shorted, then you’ve got something that can make sense there. Because then you can just the inefficiency doesn’t matter. So that’s what I was talking about before we you know, we have what is our engineering solution? I mean, that one there is a horrendously inefficient way of getting energy. I don’t know you might fit the bill. I it just doesn’t fit the bill now. Yeah, because the cost structures are $2 or $2 a kilo. That’s $15. If you could do, we’re not doing anything at $2 a kilogramme. Right now we’re doing things at six and sevens. We’re talking 80s and $90. A Giga Joule, you know, we’re having conniptions right now, because the gas prices are above $12. We, we can’t expect to move from something where the world goes in goes into crisis mode at the best possible price point of the future. Like that’s there’s there’s a there’s an issue there. So we’ve got to work out how we’re going to bring the capital cost down and then the marginal cost down so that the the dollars per kilogramme that was a giga Joule for hydrogen falls. But even with all of that, I don’t see how it beats EVs, like, how does it be just putting the power directly from the roof into your car? Like why introduced another thing between an inefficient thing in between there. So if you lose that market, you don’t have EVs are okay, maybe you’re going to get car trucks, because they might need the energy, well, there’s probably better answers to that one as well, why not just have replaceable batteries in your truck, because then you can just take it out, and then you don’t have the energy problem, you can just put a new one in moving energy to other countries so that they can use it that very much relies on the demand, wanting to pay more for it. We’re not, we’re not in charge of that. Japan’s in charge of that. And Toyota most recently, sort of can’t there or not can but they’ve di D prioritise their hydrogen cars, which is not necessarily a great sign for where that’s going. But there are other things green, green steel, you know, there’s always other things, there’s always other things that use hydrogen and making that green. Sure, that doesn’t seem to that seems like a great direction, because you need to build it anyway. Need to get the hydrogen somehow anyway. And your choices are using natural gas or using clean options. If your carbon has got a price on it, then you will end up with a clean one. Without a price. You need regulation to say you can’t do it that way in order for it to hurt. So that’s, that’s my concern is just it’s just economics. That’s that that’s worries me there. I just needs to get the economics. You know, the numbers are so big that it needs to be like have like, eight times. And things can get hacked. It’s easy, you do a lot of economies of scale, and suddenly you find something that’s half the price. But doing it eight times feels like a lot of steps that you need to make better.

Gene Tunny  56:54

Yeah, here there,

Josh Stabler  56:55

you know, yes, you can get a couple if anything’s out by four to one. And its initial stages. Yeah, that’s, that won’t take any time to fix. But, you know, 100, to one that starts getting to a point where you’d like we, there’s a lot of things that need to go right together.

Gene Tunny  57:10

Okay, so now some policy questions and probably haven’t left enough time to go through these complex issues. I’d be interested in your thoughts on the you mentioned capacity, capacity markets before paying for capacity. So you talked about the problems that nuclear and coal, they can’t compete with solar during the middle of the day? Should we be paying to the generators, the fossil fuel generators, or if it’s nuclear, paying them to make sure that they’re online, that they stay in the market, that they’re available? If we need them? Is there a need for some payment like that? So that’s one policy question. The other big policy question at the moment is regarding the and the one of the challenges we’ve got, as this episode will be released after the national Cabinet meeting that we’re having this week to decide on whether we have a cap on coal prices, whether we have a cat isn’t it is proposing a cap on gas prices and also a domestic domestic gas reservation policy. What are your thoughts on all of those,

Josh Stabler  58:10

please start on the gas cap one and then go back to the GST. So the gas coal caps, your biggest issue with any type of so let me start with gas gas one because and they’re all good, we got analogue across to call it the gas, the problem with the gas market cap is that you need to you are having a broad based market response to try and solve what is not a broad based problem. So your businesses a an example a coal mine does not need cheap electricity, because it is making more money than it knows what to do with. So charging it more for charging it an appropriate price for electricity, based on its cost structures end up its revenue stream is part of the reason why cost structures are so high, which is why electricity is high. So if you give them a discount on their electricity, then they’re just making more money. If you are a services business, I’m sure electricity doesn’t even make it or a percentage number in terms of a normal business or normal professional services business. So increasing the cost of electricity doesn’t make a difference. It doesn’t materially change your market, your value of your business. It doesn’t materially change whether or not you’re viable. However, there are businesses that where there is a clear difference, which is if you are a domestically focused manufacturer, and you have a implication of high absolute prices will cause you to pass on high absolute prices to the domestic market that has an inflationary impact, and therefore it needs to that has a legitimate claim to being fixed and to being resolved. Your other group is that mums and dads have paid two points to Extra 2.9% of the total costs for the last 40 years on electricity might be slightly higher right now, but the number is about the same all the time. It’s also not a lot with it, our cost of living has increased remarkably much this year, because of interest rates, not because of electricity. So we’ve had a massive increase in terms of people’s livelihood costs, because of because of the interest rates. And electricity is like a thing that is annoying because it’s on top of so. So for depending on which sector of the market, if you are a low income earner, then that 2.6 is not 2.6 is probably four or five, because your consumption doesn’t really change that much based on your, you know, your your money, you still have to do all these things to keep the lights on and to consume. And therefore that becomes a regret your recess, regressive sort of threats. So you need to manage low income, and you need to manage domestically focused manufacturers or consumers, energy intensive consumers, if you are the rest, which is a lot of the energy consumption, aluminium spouses, you know, your fertilised and everybody else, they are competing internationally, and they are competing in a high market international price. And therefore, their prices they’re passing on, I’m not even going to Australians, they’re going out into the world. And the most of us not even coming back to Australia anyway. So what that doesn’t, so doing a broad based outcome for that kind of doesn’t really fit the bill. So I think that’s where the problem is. Now when you take a look at coal, coal really only has one market in in Australia, which is thermal electricity, our, our meteorological metrological cold, there was stuff that’s used for coking coal, we don’t, we don’t make steel in Australia anyway. So all that stuff is going off to China where the iron ore, it’s getting turned into steel. So there is the implications on the coal market are purely on the electricity space, so long as you can still get the energy. Our problem in winter was not because coal prices were high is because the coal generators were offline. And the ones that were online had limited coal supplies, and you couldn’t give them more coal, because they’re not next to the coal mine. The ones in New South Wales are off the spur of Newcastle and you need to drive the train through a major city to get it to a power station. And you can’t deliver any more to that power station. So you get physical limitations. And just simply saying, your price of your coal is cheaper, doesn’t make them have better power stations, or find more coal, they are just limited by their energy. And that makes it a that that’s an that could return next year, we could have kept on the market, low coal prices, and no energy. And therefore prices are high, because we’re not actually keeping anything that fundamentally keeps the market under control. So our threats right now are not only input, the problem that I find is that everybody said the market is going up because of Ukraine, which makes it feel like it’s an external thing. And all we have to do is disconnect ourselves from there, and it’s all fine. But we aren’t we aren’t actually we’re not we’re in we’re in our own scarcity issue domestically, at the same time as the scarcity issue internationally. And when it goes bad, it joins the international market, which makes it feel like it’s all related. But it’s actually just joining whether they’re in a bad place, and we’re in a bad place. And unless we see some sharp increase in availability, then we don’t, we may just have the same problems again. So that’s, and that leads us to our other question, which is what do you do about capacity markets? How do you make a power station that is unreliable, more reliable? One way, definitely making sure it goes to be less reliable, is to not spend any money on maintenance, so that it will turn off. So if you are thinking that your power station has two years left to live, you’re not going to spend any money on your maintenance, just like you don’t spend money on that car, a clunker that’s about to break down, you don’t go and send it in for a service. When it breaks down, you leave on the side of the road and get someone to deliver it to their records. That’s the problem we’ve got with the power stations as we’re getting to the record stage. When they break, like realistically This is at the point in their life where they might have four units, one breaks, it becomes parts, it doesn’t get turned back into service, it just left to make sure the other ones survived through to the end. Right. So that’s where your capacity might do is it might give you an incentive to stay around for a longer period. Yeah. Which gives you the money to be able to do that to spend on the maintenance so that you can have an asset that will be able to survive until you’re no longer required.

Gene Tunny  1:04:50

Yeah, so we’ve been talking about this for for years now. Do we know if we’re gonna get one capacity? Okay.

Josh Stabler  1:04:57

I think now that we’ve got So many power stations planning on exiting over the next X number of years. It’s also about with we’ve rapidly changed our expectations. Yeah, even just two years ago, we were in a position where coals wood, coal was cheap. There was coal mines were losing money on what they were delivering in. So they stopped slowly stopped there, the supply, you had power stations that weren’t making money, because they were they weren’t, the electricity prices were so low, you know, we’ve, we have gone from $30 a megawatt hour to $300 a megawatt hour in two years. Like it’s such a variation in terms of the outcomes, it’s so quick that nobody has in a market that that builds its world over 10 years, you can’t respond in two. And, and that’s just where we’re, you know, when we’re, you know, we go into a price cap on gas on coal, it doesn’t fundamentally make doesn’t change the engineering just changes the economics. And then the hope is that the economics works. Because if, if you’re saying that’s the next year, anybody who sells coal only gets a lower price, then you just hold and you own it, and you have a stockpile of coal, well, then you just wait to the year after and some of the higher price economic theory is you just waiting there. Or if you can deliver to a boat and sell into $500 a time overseas, then you definitely do that. So you’re definitely getting this position where if you deflate the domestic one, you also need to motivate them to continue to supply because otherwise, you’ve just given them the exact opposite, which they don’t supply, because no one’s going to pay you anything that’s worth anything.

Gene Tunny  1:06:35

Yeah, well, I mean, is that what we’re going to end up with? If there’s a domestic gas reservation policy, where we say that you’ve got to supply this amount of gas to the domestic market at this price, I mean, is that where we’re heading,

Josh Stabler  1:06:49

it does appear that that’s where the direction they’re going. It it. The problem also applies to where that supply is coming from Australia is a lot the tyranny of distance. We with this usually said in the fact that it takes a long way to deliver things from Australia to other countries. But the tyranny of distance also works for our large country to deliver gas from Dolby to Moomba, to young to Melbourne is 2800 kilometres, yeah, which is the same distance as Edinburgh to Turkey. Yeah. So it’s very long distance in terms of of how far you have to deliver, which means that we don’t necessarily have the infrastructure to be able to deliver all the guests that’s required in the south via the infrastructure that we have we we have limitations on that, which means that we need to build up our, our storage in the south ahead of winter so that we can actually deliver it. Now if there’s a cap on the market. And it costs you $12 To buy gas, and it cost you money to put into storage so that you can take it out and get paid $12 What was the financial incentive there? So your cost $12? And then you get paid 12? So what are the $2? Or you just lost that? Okay, well, once if I deliver it from Queensland, where you buy it at two or $5, you’d paid $3 to deliver it down, and then you can sell it for $12. So you’re taking a financial hit there as well. So you, it’s not just so simple as to say that everything’s the same, because then you’ve got no incentive to do anything. If you’ve got gas in Queensland, and you’ve got no reason to move it to another region, other than regulation, that you must deliver excess capacity. It’s just this is when you start delving into how you want things to work. It’s the the problem with putting a cap in is you lose merit, or you lose who deserves to get the gas, who’s willing to pay more who’s willing, or has a higher need for that. So they can actually meet that meet their requirements. Because you don’t have the merit order, you then don’t have the volumetric assessment. So if I was somebody there, I’m just going to say, Can I have a billion petajoules of gas. And if we prorate or down, I’ll have 99.9% of it all, because I asked for the most amount, because there’s no difference between my $12 and your $12. Let’s just split it, split it down the middle of who bet in a billion versus one. I’ll have my billion and you can have your lunch. So it’s it just your problem. You’ve it’s there’s a lot of unintended consequences that need to be managed there. And it’s it’s difficult. It seems simple, but it’s difficult.

Tim Hughes  1:09:33

Yeah. Does that fall into the category of the infrastructure needed for that particular energy source? So for instance, you know, it’s obviously going to be expensive to deliver that, that amount of gas. One of the things I was going to say it was like clearly, not clearly, but it would appear that a diverse array of energy sources would be a wise thing to do. So we now have all of our eggs in one basket Solar has its limitations. Wind has its limitations, etc. Coal has its limitation has its limitations and gas has its limitations as you were saying there’s so like, a sort of array of all of these solutions that would get us towards Net Zero. Yep. would seem like a good idea. So hydro might be a good part of that.

Josh Stabler  1:10:21

Or we should definitely have every single piece of the puzzle that we can get, then the question I think has been slipping in regarding the Niccolo answer. The problem with the nuclear answer is there’s no way we’re getting a nuclear facility in, in Australia. 15 years. Yeah. So even even, you know, we can even have the conversation just so long as the conversation isn’t, we should spend more time talking about Nikola the, the the reality is, if somebody wants to go and do that, yeah, change the law, and then have somebody go and pay the money and spend the 15 years getting it organised. Talking about it now, and with it never been within, you know, not five election cycles away. That’s, that’s, that’s a long, long time. Now, and I guess that also leads to how quickly things have changed away from what we expected, our expectation of gas was that it was going to do nothing anymore, we were just going to have a little bit in Victoria, it’s expected to continue to decline every year, the gas storage two years ago, almost did nothing. The amount of gas that we should be expecting, you know, we, we ran near record levels during winter, but we ran an absolute record lows during spring. So that’s, you know, that’s like a 10 to one variation in terms of daily consumption between spring and winter. We’ve got this, it’s, it’s not just that we have a, an, a constant need is this we have this massive variations and our experts, the forecasts, then beforehand, were like, we’ll use 22 petajoules. And we ended up using 100. Like, we’re completely, we’re completely misreading how it’s going to occur, because things happen that we didn’t expect. And those unexpected things relied on certain technologies to solve it. Because you can’t ask solar to be brighter. You can’t ask wind to get more wind it, it can do everything it does, which it what it does, it does, it runs as hard as it possibly can. The problem with that part as possibly can is, is you can’t go more and go less solar conquer more can only carry less. Gas is already less, and it can do more. But our complication of that is that ends up costing money. Now that might be the cheapest money we could spent. Like that might have cost us a lot of money. And we managed to have no shortfalls. And we managed to keep society going on. And we had no other issues other than a whole lot of political noise around the outside of it. But in reality, we only had a small, very small marginal change in terms of people’s bills. And everything’s, you know, some people are bad, but you know, in general, we have worked our way through it. That cost us money. Yeah, could have been the cheapest option we had available, probably was the cheapest option we had available.

Gene Tunny  1:12:56

Right? I think we might have to.

Tim Hughes  1:12:59

It’s quite an it’s so good hearing your insights and your your from your experience, Josh. And, you know, we could go on and on.

Gene Tunny  1:13:11

I think we’ll have to have you back on again, Josh, because I need to digest. Yeah, this episode. And what’s what’s been said here, because there’s a lot of, there are many things to think about. And I mean, I’m starting to think oh, yeah, I mean, there could be some things that are really positive and make it easy. But then there are other things that are big challenges. And, and you mentioned how this is all uncoordinated. And yeah, I mean, it sounds to me like there’s a risk of some bad outcomes in the next decade or so potentially the non trivial probabilities of, of blackouts. And it just, I mean, I guess we will muddle through somehow. But could could be messy.

Tim Hughes  1:13:54

We seem to be doing remarkably well, like that. The figures you mentioned about reducing 40% In six years is is fantastic. Yep. And I was going to mention, of course, like, there’s a geographical advantage that we have in Australia, for instance, like with solar, like the other parts of the world. Yeah, they would love it doesn’t have, you know, I said so they might have different nuclear might be more viable for certain places, with all its, you know, issues that come with that too. But certainly as technology and this emerging technology, which is coming through very fast, you know, if they can get solar through to be doubly triply 10 times more effective, then it can make it more viable for different parts of the world. So it’s, it’s fascinating, where we’re going and it’s it’s amazing to move so fast. And I guess this transitional period that we’re in is really important that we not trip ourselves up. Yeah, on the way to net zero like, which, of course, you know, who wouldn’t want to be there? I certainly wanted to be there. But we want to get there with the lights on.

Josh Stabler  1:14:59

Yeah, we need to do it. with the least amount of, you know, this is an essential service. Yeah. And it, you know, society doesn’t function if this if this breaks and and transition will lose its lose its losers backing if it can’t keep the lights on. So it’s these are these are important parts. But it’s also I have one last point which is always very difficult to imagine the world different to the one you’re in. So right now we’re in a high market pricing, we’ve got all these danger, we’ve got all these conditions that are that are creating uncertainty where we are, but we have so much, you know, it can change so quickly in this space, we’ll just two years ago, we’re in 1/10 of the price. Yeah. And it can move very quickly against you in or not against you, but in very quickly into a different environment. And it you know, leaps of faith could leaps of technology change, or, you know, we could have, like, everything that’s basically happened in the last couple of years has been supply side failure, it’s just been everything that happened just happened to be on the supply side, we didn’t have a smelter go down. We didn’t have customers do large scale production, because they got their meeting, you know it the spot price was high. But domestically, they’re probably making pretty good positions that are able to pass on these costs. That’s why we’ve got such high inflation, these things are happening, which is allowing people to survive. But if these if we suddenly got lucky on the supply side, and things started getting better, and some things just started getting lucky, you know, we could really move that back away, and then we could leave the international space where it is solve our domestic scarcity issue. And then it won’t be Ukraine that’s holding us up, we were in, we’re in a we can return back to a a more settled environment, which is a little bit like the US us as far as you could your gas, because they are separated for physically separated and the ability to export more is not there. If we suddenly solve some of these problems, we can really pull back, we don’t use other gas for electricity, and that won’t set the price. And therefore we can see it dropping back down if we see some of these problems get resolved. So it’s just a, you know, it’s easy to be stuck in it and to feel the you know, the shadows, the darkness of the shadows in the times when they’re in there. But it’s also you can move past that and you know, we’re definitely at 40% down in emissions, we are on the right path and once we start bringing EVs that’s 54% of the emissions in two sectors, and if we can bring them down to full 4% That’s a long way in terms of where we want to go.

Tim Hughes  1:17:31

Well, I was gonna say I mean, because the way this is driven by the market is, is giving it is decentralising in its effective, like, yeah, if you’ve got rooftop solar, and ultimately you can be self sufficient. The consumers have more autonomy and, and that collectively around the world will make a massive difference. And so it’s, it’s a good direction, it appears, you know, like, I mean, who wouldn’t be happy with that, because you’re not going to have the bigger issues with those outages, you know, it’s going to be more of a localised

Josh Stabler  1:18:04

issue, and a 5% fault is 5% of a million, which makes it 50,000. It’s, it’s not 5% of 20. When you start becoming actually 5% means it’s probably those two, all which is probably the 1% of the time is four off, it’s like when it’s a million, it’s always the same, it’s you know, it’s distributed, the the law of large numbers kicks in, and it’s just 5% Haircut across all the time, on everything, as opposed to occasionally being a very large number, which is what we’ve had very large numbers of times where we’ve had coal fail at the same time as coal fail, same time with gas fail and the, in the in the misalignment of a couple of bad things at the same time, because they’re large, ends up creating large impacts. Lots of little ones and it all disappears.

Gene Tunny  1:18:54

Okay, Josh table, it’s been fascinating. Thanks so much for your time and for your insights have really appreciated that. And once we digest this and think about some more, I’m gonna have to chat with you again, since it’s been terrific. Thank you. Thanks, Josh. Thank you. Okay, so what are the big takeaways from our conversation with Josh? My first takeaway is that the transition to net zero will probably be a bumpy ride. I love the way that Josh described it. To quote Josh, the complication of transition is that it is by default, disorderly. my conversation with Josh confirmed my fear that we could end up with unreliable electricity in coming years. I’m still very concerned, we will have to start expecting the occasional blackout as we bring more renewable energy into the system. My second takeaway from the conversation is that the energy solutions of the future may not be obvious to us at the moment. We need to allow innovation and we need the right incentives in place. EVS could be a big part of the transition path in the conversation with jasha was blown away by the idea of self driving EVs returning home or going to other people’s homes to fill their batteries during the day after they drop us off at work. That’s just incredible. Okay, before I leave, I should note that the Australian Government legislated a highly interventionist energy market package earlier this week, I recorded this conversation with Josh last week when we only had an outline of what could be included in that package. I’ll aim to have a closer look at the specifics of the package in a future episode. Thanks for listening. Okay, that’s the end of this episode of economics explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact at economics explore.com And we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye.

Thanks to Josh Crotts for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

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Podcast episode

Understandable Economics w/ Howard Yaruss, NYU – EP168

In his new book, Understandable Economics, Howard Yaruss from NYU argues “Understanding Our Economy Is Easier Than You Think and More Important Than You Know.” Howard is an Adjunct Instructor in economics and business at NYU. Previously, he was Executive Vice President and General Counsel of Radian Group, a mortgage insurance company. Howard lives in Manhattan and serves on his local community board. 

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.

Links relevant to the conversation

Where you can buy Understandable Economics:

https://amzn.to/3VCsxMV

Howard Yaruss’s website:

https://howardyaruss.com/

EP159 with Romina Boccia from the Cato Institute on the future U.S. fiscal crisis:

https://economicsexplored.com/2022/10/03/the-future-us-fiscal-crisis-and-how-to-avert-it-w-romina-boccia-cato-institute-ep159/

Transcript: Understandable Economics w/ Howard Yaruss, NYU – EP168

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  00:00

Coming up on Economics Explored.

Howard Yaruss  00:03

I saw reason survey that the majority of young people don’t trust capitalism. That’s a catastrophe as far as I’m concerned. And I think what we need to do is give them a reason to have more faith in the system that has created more wealth than any system in the history of humankind.

Gene Tunny  00:23

Welcome to the Economics Cxplored podcast a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny broadcasting from Brisbane, Australia. This is episode 168. It’s on a new book I’ve been reading called Understandable Economics, because understanding our economy is easier than you think and more important than you know, the author is Howard Yaruss, and he joins me to talk about his new book this episode. Howard is an adjunct instructor in economics in business at NYU. Previously, he was Executive Vice President and General Counsel of Radian Group, a mortgage insurance company. Howard lives in Manhattan, and he serves on his local community board. I’m grateful he came onto the show to share his thoughts on how a proper understanding of economics can help people argue for better public policies. Please check out the show notes, relevant links and information and the details of how you can get in touch with any questions or comments. Let me know what you think about what either Howard or I have to say in this episode. I’d love to hear from you. Right now from my conversation with Howard Yaruss on understandable economics. Thanks to my audio engineer Josh Crotts for his assistance in producing this episode. I hope you enjoy it. Howard Yaruss, welcome to the programme.

Howard Yaruss  01:38

Thank you, Gene. It’s great to be here.

Gene Tunny  01:40

Excellent. Good to be chatting with you. Howard, I’m keen to chat with you about your new book, Understanding economics, because understanding our economy is easier than you think. And more important than you know. So how would I like to ask you? Why do you think that understanding our economy is easier than you think? Can we begin with that, please?

Howard Yaruss  02:10

Yes, I think a lot of people are intimidated by economics. Virtually anyone who’s taking a course, taking a course in economics, has been confronted with a bewildering array of formulas, graphs, jargon, those of the people who’ve taken a course the people who haven’t taken a course, understandably, don’t know much don’t know much about it at all. So I think there’s a lot of misunderstanding about economics, but what is economics about? It’s about how society allocates scarce resources. And that’s not a science, like physics or biology, you could just plug some numbers into a formula and get an answer. There are value judgments involved in how we allocate our resources. Our resources involves value judgments. And so it’s, it’s a different type of discipline than a bit different from what most people think it is. And I think what it really is how human beings interact, is easier to understand than the typical economics course, leads people to believe.

Gene Tunny  03:18

Right? What do you think is wrong with a typical economics course, Howard.

Howard Yaruss  03:22

That they begin with a whole bunch of formulas and jargon and graphs. And what we’re talking about is human behaviour. It’s like if you went to a psychiatrist, and they said, Let me plug everything into my formula. The world just doesn’t work that way. There’s, as I as I say, in the book, there’s a reason why a downturn in the economy a severe downturn in the economy, is has the same word is called by the same word as a severe downturn, a psychological downturn for human being or depression. These are psychological phenomenon, they quickly have real world consequences. But again, you can test the industrial capacity of a country right before, lets say, something we’re more accustomed to a recession rather than depression. Fortunately, we’ve had very few depressions, you can test the industrial capacity of a country right before a recession starts. And right after it’s the same, you can test the skill level of the workers right before a recession begins. And right after it’s the same, what’s changed? Outlook. It’s an infectious gloom that takes over. So I think understanding economics requires thinking about human behaviour. And it’s somewhat different from what’s often taught in economics courses.

Gene Tunny  04:43

Rod, okay, we might delve into that a bit later. The other part of your the subtitle is it’s it’s more important than you think. Why do you think that is the case are more important than, you know? Understanding economics

Howard Yaruss  05:00

I was going to rewrite that part of the title, I’d say much more important than, you know, simply because people are told all sorts of things by politicians who have self-serving motives for making certain claims. And I think, because most people don’t take a course in economics, and those who do are, again, faced with a bewildering array of graphs and formulas, so they don’t really get a sense of it. I think people can easily be misled by claims of politicians and other people who have motives to support a particular policy that they want to see enacted. I think it’s essential for people to understand how the economy works a bit better, so that they cannot be as easily fooled, and so that they would support better policies that would make our economy better and more productive.

Gene Tunny  05:53

Okay. So what do you think they’re being fooled about Howard?

Howard Yaruss  05:57

Well I can give you a few examples, this one went off the top of my head. There are a lot of politicians in the US who claimed for years that giving tax cuts to wealthy individuals would increase employment and improve the economy. And if you think about it, why does a business expand not because there are more investors with money, it’s because they’re more consumers wanting to buy their product or service. So if you put more money into the pockets of middle and lower income people, they’re going to spend on goods and services, and businesses are going to be forced to expand and hire new workers to produce those goods and services. If you merely give it to wealthy people who tend not to spend as much of their money, they have a lower propensity to consume, the businesses are not going to expand because they don’t have the additional demand for their product. So that’s an example of something that’s that’s said, by politicians that often misleads people. And it’s not something you need complicated formulas, or very, very specific kind of knowledge to figure that out. You just have to not be intimidated and use your good common sense.

Gene Tunny  07:14

Yeah. Okay. Now, you’re saying that you think there are some issues with the way economics is typically presented? Is it just not presented in in an intuitive enough fashion? Because when I read your book, I saw a lot of good economics in there. I don’t, I just want to, I just want to understand where you’re coming from with this book. Is it that you’re you’re not saying that a lot of economics is bad, it’s just not well presented? What’s your actual position here? How could I ask you that, Please?

Howard Yaruss  07:49

I think you said it very well. It’s not taught very well. First of all, let’s start at the beginning. Most people, at least in the United States, don’t learn economics, it’s not required in secondary school here. What is required is trigonometry. Which to me seems to use a technical term crazy. And I have a lot of respect for math, I was a math major. So the fact that we require something like trigonometry, and don’t require economics is shocking, to say the least, when it is taken at the college level, it there are all these assumptions made perfect information, everyone’s rational 100% of the time, and the real world doesn’t work that way. I live on the Upper West Side of Manhattan, which is a fairly affluent neighbourhood, about 40% of the retail spaces are empty. Many retail spaces have been empty for decades, that, according to economist shouldn’t, just shouldn’t be. Why why are people greedy? We always assume landlords are greedy. Why? Why are greedy landlords seeking zero income? There’s a disconnect there. And I think a lot of people are confused by this phenomenon. And the answer is that the real world doesn’t work perfectly. According to these models with all of these assumptions, I know economic the economics profession, is trying to there’s behavioural economics now. But the point is, people people, it’s people should be able to make some of these judgments on their own, they should be able to understand some of this on their own, because if they, if they don’t, they can easily be manipulated or misled by people who have ulterior motives.

Gene Tunny  09:33

Right. Okay. Now, I saw in your conclusion that originally this book was titled, economics for activists it was its focus was the people who were troubled by our economic system, yet optimistic enough to engage in activism in the belief that change was not only possible, but also that they could play a role in making it happen. Okay, what sort of activists are you talking about here? Howard, are we talking About the Occupy Wall Street? Are we talking about, I mean, who exactly is this pitch at, this book?

Howard Yaruss  10:08

oh, all activists and what and what I had in mind is people who are fed up with the current system and those include Occupy Wall Street, the Donald Trump voters, the Tea Party, and I know Australia has has their equivalent of these groups, there are a lot of people frustrated with the way our economy is going I call it the winner take all economy in the book, that the people who are doing well are doing better than ever, and the people who are not doing well are stagnating at best. And these kinds of actions is exactly what I’m talking about. What happened to Occupy Wall Street, Donald Trump, the Tea Party, they haven’t made life better for anyone. And my hope is that by understanding how the economy works, people would support more constructive policies that would make life better. What originally was he title of the book was understandable economics, because you can’t improve a system you don’t understand. If people don’t understand something, they can’t work to improve it, or if they try working to improve it, if they become an activist that their efforts may be for not. So the goal is to arm readers with the tools to understand what in fact, would improve the economy. And what on the other hand is a false medicine, is a false cure for the economic ills we are suffering.

Gene Tunny  11:30

Okay. Can I ask you about the fact that you grouped tea party with Occupy Wall Street? So is it your view that they’re both coming from the same frustration that and but they’re both got different, those two groups have different prescriptions or different recommendations. I mean, they’re both after different things, aren’t they? But are you saying they’re both motivated by the same? The same concerns?

Howard Yaruss  12:02

Why is it said there are some similarities between the two groups and some differences? What are the similarities, they’re frustrated with our current system, they both clearly have that in common. And at the risk of sounding cynical, they both didn’t achieve very much. I think what they were different is Occupy Wall Street had a specific flaw in that they did not recognise that it’s the political system, that effects change. That’s the system we live in. Unless there’s a revolution and there hasn’t been one. That’s the system we live in. So they were particularly ineffective in that they did not have a mechanism for getting people who had views similar to theirs into the legislature to effect change. They basically shot themselves in the foot by not doing that. On the other hand, the Tea Party was extremely successful, getting people into the legislature, the problem is just cutting the government without giving thought to what is the government what the government does is use, what useful things the government does. And what non useful things the government does is not really helpful to the average person either. The point I make in the book is how I use highways as an analogy. Cars are great for getting people from one place to another. But if there were no rules on the highway, people could drive on either whatever side they wanted, if eight year olds could drive, drunk drivers could drive, if there were no speed limits, and people could do whatever they wanted on the road, the road would not work. There have to be clear rules. Obviously, rules that are overly burdensome, shouldn’t be there. But the highway just cannot function without rules. It’s the same thing with a market economy. If there aren’t clear rules, it can function.

Gene Tunny  13:54

Yeah, yeah. Can I ask you about this, this point you made before that, to be able to affect change, and to be able to, to really participate? You need to understand how the economy works. What do you think of the key principles? Do you set this out in your book? Could you What do you think are the big things that we should understand in terms of how the economy works?

Howard Yaruss  14:23

I read a survey and it was an international survey so I’m sure it included Australia, of economic students, and they asked them where new money came from, and the majority couldn’t answer it. How could you talk about resources or equality and not know where money comes from? Again, if you want to improve a system, you have to have some understanding of it. So I think what I tried to do in the book is give some foundational knowledge about how the economy works, how trade works, how the central bank in the United States, the Federal Reserve System, affects the economy and how they create new money. So people have a basic understanding of the foundational components of the economy. And then I talk about different aspects of the economy. And I hope readers reach their own conclusion as to what makes sense, but at least they do it in an informed and intelligent way. As opposed to, we’re talking about the people who supported Donald Trump or Occupy Wall Street, they’re expressing their frustration, but they’re not pointing people in the direction of something that would improve the lives of the average life for the average person.

Gene Tunny  15:40

I think it’d be good how, if you give a just a rundown of how you explain that, or just take us through that, that where money comes from, I think that would be really useful. I’d recommend. If you’re listening in the audience, I would recommend this book, I think there’s a lot of really good stuff in there. And I really loved your chapter on trade. I loved your chapter on industry policy, your, your criticism of the bailouts, and maybe we can chat about that later. But to start with, if you can explain, Well, how do you how do you explain to people where money comes from, I think that would be really useful?

Howard Yaruss  16:20

Yes, well, I have the quote in the book, that all money, all new money is loaned into existence. And again, the average economics student didn’t know that. And in the book, I tried, I tried in the book to make it very user friendly. To write with a sort of basic style, it’s supposed to read like, readable narrative nonfiction, but how money is loaned into existence is, as you know, is not the easiest thing to explain. Basically, when a bank lends money to someone, they’re not grabbing the cash from someone’s account, this is not like, I have to make a very contemporary joke. FTX, they take people’s cryptocurrency and do with it what they want, the bank merely creates new money, it’s totally created brand new money. That’s what a licenced bank does, in virtually every country in the world. So that’s how new money is created, it’s created through bank lending. And the money can go away, when the when the loan is repaid, it disappears. So it’s how critical it is to understand that I’m not sure what people’s particular frustrations are or what their particular interests are. But to understand where money comes from and how it’s created, it’s basically important to anyone who wants to get more involved in these kinds of issues, to understand them better. And ideally, to have an impact on policy, you have to understand the basics before you can go ahead and get involved in, in assessing policy.

Gene Tunny  17:59

Right, okay. And it’s certainly important for macro economic policy we’ve had, because of how our monetary policy has pushed down borrowing costs, and then there’s been a huge explosion in credit for housing here in Australia. And that’s pushed up property prices and and that’s also help keep the boom going. We’ve had this incredible post COVID Boom, that I think will probably end.

Howard Yaruss  18:28

We’ve had this here too. I think the whole developed world is having inflation, eight, nine 10%. It’s an important issue for people understand, I also talked in the book about hyperinflation. Inflation is a problem, clearly a problem that needs to be dealt with. But it’s not a civilization ending kind of problem like hyperinflation, hyperinflation almost always results in nation collapse and death, which is fundamentally different from just eight or 9%. Inflation. It’s, it’s again, it’s not a good thing. But people have to separate the two and, and they make it very, very clear point in the book that I don’t think there’s any advanced nations, certainly not the United States or Australia, that’s risking hyperinflation, which is a whole level, a problem on a whole nother level. We do have inflation, which is a problem, but it’s you need to separate it from the kind of hyperinflation inflation that for instance, brought us nuts, Nazi Germany.

Gene Tunny  19:25

And what do you say about the Fed? How do you say anything about their quantitative easing policies that they’ve had over the last decade and a half?

Howard Yaruss  19:35

Well, we see inflation. So I think that speaks a lot more loudly than anything I can say. If, if their policies were more effective, we wouldn’t be having inflation. So the suggestion is or the inference is that they were hit the accelerator a little too heavily. Yeah, yeah. Yeah, for sure. And now they’re slamming on the brakes. A lot of people claim they may be slamming the brake too heavily, because there’s, as you know, there’s this very significant lag between them hitting the brakes and the car coming to a stop. And it’s very hard to know how hard to tap the brakes as the car slowing down, but it may not be slowing down enough. My own personal opinion is that we’re going to see a assuming, again, there’s so many assumptions here, that the war in Ukraine doesn’t doesn’t escalate, that the supply chains get sorted out that there isn’t another problem that arises on the horizon, we’ll probably see the effects of all the central banks, their attempt to rein in inflation to start having some success.

Gene Tunny  20:44

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

Female speaker  20:53

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you Frank and fearless economic analysis and advice. We can help you with funding submissions, cost benefit analysis, studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world, you can get in touch via our website, http://www.adepteconomics.com.au. We’d love to hear from you.

Gene Tunny  21:22

Now back to the show. Okay, can I ask you about what you see as the false solutions? I think you suggested before that economics helps us understand how the economy works, what sound policy responses would be. And then also, what are some of the dead ends to go down or false solutions? What would some of those be?

Howard Yaruss  21:49

Well, I already mentioned one in the tax cuts for the wealthy to spur the economy. We see in England that in a period of inflation, the government proposed tax cuts for the wealthy, which is just throwing more money out there, creating more inflation. So that’s definitely a false solution. I’m not sure what the problem was. But it’s definitely a bad policy idea. That seems to be in response to I don’t know what. So that’s one example of something in the United States, we’ve had a debate about Social Security, pensions for older people. And there’s always this talk of the government running out of money, Social Security going bankrupt. And as Alan Greenspan, the former chair of the Federal Reserve System, once said, It can’t run out of money. The United States government can always create money. What it is, it’s a question of will and will not, it’s a question of politics and not economics. It’s a decision as to whether we, as a society wants to devote our resources to these things. And that takes us back to what we just discussing at the very beginning. It’s not like physics, where you plug certain variables into a formula and outcomes an answer. It’s a value judgement about how we, as a society want to use our resources. Do we want to help people in their old age and obviously tax workers to do that or not? And again, there’s no formula that will give you an objectively right answer on that. What, what we need to do is have people understand the trade off, and then make an informed decision as to what they want. And I want to give one example, I serve on my local community board here in New York City. And we talk about different projects, like a bathroom in a park, or an elevator in a subway station. And these all sound great, but then I look at the price of these things. And a bathroom in a park is $4 million to put in. To make one subway station handicap accessible, which involves in all fairness, putting in multiple elevators. Yeah, it’s $70 million. That seven, zero million. And so again, people need to be cognizant of these economic issues because it all comes down in that case to a cost benefit analysis. And all of these things are good, Social Security is good. But there is no formula that’s going to give you the right answer to that. Although I think even if there were a formula it would tell you the $4 million bathroom doesn’t make sense. But the point is, this is a value judgement. It’s something that people shouldn’t rely on economic experts because there’s no objectively right answer for that. It’s something that people have to get an understanding of how it works, and then apply their own values to that issue and make the decision for themselves.

Gene Tunny  24:55

Yeah, I think that’s, that’s right. This is one of the points I’ve been trying to make on this. show over the years as I’ve been, as I’ve been doing it is that, you know, we economists need to be honest or need to be. Yeah, we need to realise that there are in decision making value judgments come into play. And often the best thing economists can do is outline what are the trade offs and, and what we expect will happen. And then it’s up to any decision typically involves a value judgement. Yeah, I’m just saying, Yeah, essentially, I agree with you. I agree with you there with Social Security. I’ve had a guest on the show, Romina Boccia, she was at Cato I forget, I’ll put it in the show notes. I think it was Cato or Heritage. But she’s very concerned about Social Security. And look, if you project it out, and you don’t, it is going to add to the deficit. And, like, you can think about that two ways. And I guess that’s what you’re saying, it depends on your values, you could, if you, you could try and limit that spending, you could reduce the entitlement or constrain it. Or you could just raise taxes to address the deficit. And making that choice, to an extent, depends on values. But I think what economists should be saying is that if you do make the choice to fund the higher social security, then you need higher taxes, and there are efficiency costs associated with that. And I mean, that’s the way how I’d be trying to frame it. What what do you think about that, Howard?

Howard Yaruss  26:41

Well, it’s again, it’s a trade off, I think we, in a democracy, should decide how society uses resources. And we shouldn’t make the decision in that context. It’s running out of money, you need to cut it with your personal finances, you have a job, that’s an issue, it’s finite, with a nation, there are all sorts of trade offs that can be made. And people need to understand this is not a crisis situation. There’s in the United States, the $22 trillion of goods and services created every year. And if we are committed to certain programmes we have, we have the ability to support them. It’s it’s not something that there’s a finite amount of money there that can only be used, I will go back to the first President George Bush, when he was talking about education, which I think is the most important investment of society could make it to keep itself wealthy, and not only wealthy but happy and secure. Again, I’d make the point in the book, you could look at places like Congo, and Venezuela and to a large extent Russia, which have enormous resources, natural resources, and yet they’re relatively poor countries. And you could look at Germany or Switzerland or Israel, which really don’t have any or Japan or any resources, and they become quite wealthy. What’s the difference? Human capital. And so the original, the first President Bush said, with regard to education, we have the will to fund it, but not the wallet. Well, I think he had it totally backwards, we’re a very rich country. And it’s there’s the question of just allocation of resources, which is, again, something that I think people who haven’t studied economics don’t understand the concept of opportunity cost that, that you can have, if you if some, if you prioritise something enough, you can have it, but you just have to realise that you’re not going to you’re going to have less of something else.

Gene Tunny  28:38

Yeah, absolutely. I think that’s an important concept. And you talk about how what we’ve got in this in advanced economies, we have a mixed economy, and, and in different countries, they make different judgments about the scale of government versus the private sector. And, and, you know, us is one where it’s, I mean, there’s still obviously, government plays a very substantial, significant role in the economy, but not as much as say, in Scandinavian countries or in France or, or Germany. So I think that’s a good point.

Howard Yaruss  29:14

All along a spectrum. Yeah. Yeah. I think it’s easy to fall into that trap of, are you capitalist or are you socialist? We’re all basically the same. It’s just that some countries are a little further on the spectrum of government spending, and some countries are a little less on the spectrum of government spending. We all basically have free markets that are regulated by the government. It’s not a question of socialism that they throw around the word socialism in the United States all the time. The textbook definition is where the government controls the means of production. I don’t think that’s what anyone’s talking about. And I make the point in the book pretty emphatically that all these isms can sometimes warp understanding of what’s going on in the economy, the way to understand what’s going on in the economy is to actually look at what’s going on. And that get involved in all this esoteric theoretical discussion of different types of economic systems.

Gene Tunny  30:11

Yeah. A lot of people are interested in crypto currencies. What does your book say about cryptocurrencies, Howard?

Howard Yaruss  30:19

Well, I make the analogy that it actually is, in a certain way, very similar to the US dollar or the Australian currency. It’s something that’s created totally out of thin air. The big difference is who creates, I don’t know, who creates Bitcoin, or Dogecoin, for that matter, but I know exactly who creates the US dollar. It’s the Federal Reserve System. I know exactly who the people are. I know exactly what the rules they operate under. I know exactly who to turn to if there’s a problem. When it comes to cryptocurrencies, we don’t know any of that. If you have a problem, we’ve all had problems with our checking account. And we know how frustrating it is to call customer service. But could you imagine if your quote unquote bank didn’t even exist, there doesn’t have any employees and doesn’t even have a customer service number to begin with? And I think we’re going to see more problems with cryptocurrencies because it’s just something created out of thin air by people. We don’t know operating under rules they claim they have but how do we know we have them in Bitcoin suddenly doubled the number of tokens out there? Who would we sue? What recourse would anyone have?

Gene Tunny  31:30

Yeah, exactly. And I mean, you mentioned what’s happening with the news around FTX. Is it and Sam Bankman-friedand here what we’ve seen in the news recently, yeah, yeah. Yeah.

Howard Yaruss  31:45

As I’m concerned, he was supposedly FTX was supposedly a place people could use to store their cryptocurrency. Well, if it’s not there, it was stolen. It was misappropriated. So I think it’s this is something that the prosecutors need take a look at.

Gene Tunny  32:04

Yeah, it’s all very confusing. I mean, I thought the great benefit of crypto was this decentralisation. And then suddenly, people are losing all this money, because they’re involved with this exchange.

Howard Yaruss  32:19

It’s decentralised. But the question is, what we were discussing before, there need to be rules, there are literally no rules with regard to this. So it’s like going to a highway driving on a highway where there are literally no rules. People could drive at any speed on any side, and do anything they want. If eventually there’s going to be a crash. If enough people come to that highway, you guaranteed a crash.

Gene Tunny  32:44

Yeah, yeah, for sure. What I liked about your chapter on money, was that you talked about how a lot of the value or the value of the US dollar is that you can pay bills in it right? Or you can, you can, people will accept it. It’s widely accepted. And it’s a fiction that everyone believes in. So I think that was a little something along those lines, I’m trying to remember the exact words used, but that’s essentially what Milton Friedman, how he described it. I mean, all money is fiction. So I thought that was, that was good. Okay. Now, what about modern monetary theory, which is another popular topic? What are your few things to say about modern monetary theory in your book? Could you take us through that Howard?

Howard Yaruss  33:39

Well, the most amusing thing I say about it is that it’s not particularly modern. It’s not a theory. And yes, it has to do with money. So I’ll give it that. Basically, they’re saying that the government can create as much money as it wants, as long as it doesn’t create inflation. That’s, I don’t understand why that’s anything new. Everyone knows that the government has printing presses and they could create as much money as they want. What I think is interesting about what they say is that the government should not be constrained by a balanced budget, that we all know it can produce as much money as they want. The modern monetary theorists say they should be able to create as much money as they want, as long as they don’t cause inflation. And arguably, that’s right. They if they’re printing money, and it’s not causing inflation, that really is a free lunch, if if you create an extra $10 and magically, an extra sandwich appears. That’s that’s literally a free lunch. The problem is, you need some constraint. And that’s why we have the central banking system we have today. Because if politicians could just rev up the printing presses, and print money for whatever They want tax cuts for their donors, giant spending programmes, you have the catastrophic problem we discussed before hyperinflation. And yes, if politicians could show adequate constraint, restraint rather. Yeah, I guess it makes sense. I think there are lost opportunities when the Fed is a little parsimonious with the money, and the economy could be more robust. But I think the downside risk of the politicians running amok and printing too much money and having the lose, lose control over that risk is too great, because that’s, again, a nation ending kind of risk. So I agree with what they say. I just don’t agree with their conclusion that we should turn trust, trust our politicians to show proper restraint. If we gave them the right to rev up the printing presses and print whatever they needed or wanted.

Gene Tunny  35:59

Yeah. Exactly. Okay. Do you say anything about climate change in the book, Howard, the solutions to climate change, or if that’s really to worry about?

Howard Yaruss  36:13

Not really, included in the book is the fact that if we want change, if people want change, then they have to assert themselves, it doesn’t happen on its own. If, if company if there’s a company that is doing something that people don’t like they need to, to promote policies that would rein in that behaviour. And it’s the same with climate change, that people need to be clear that this is something that is important to them, and that they want, because that’s how our political system works. Again, economics is not like physics, you don’t put things into a formula and outcomes and answer, it’s, it’s, it’s what you can get people to agree to do. And the more people understand, and this is a perfect example, the more people understand the harm we’re doing to our climate, the more they’re likely to support regulations that would rein in climate change. Ignorance is a threat to good policy. And that’s the whole point of the book. It’s to get people to think about it more, to understand it more. And I make it very clear in the epilogue, I passionately believe we would have better public policy if people had a better understanding of what’s going on, not only in the economy, but in with regard to climate change as well.

Gene Tunny  37:34

Okay. In terms of better public policy, one thing I liked in your book was your analysis of bailout. So you were highly critical of the bailouts that occurred, or the all of the assistance that went to was it to airlines in the States and other companies? Airlines as an example? Yeah, yeah. You were highly critical of that during the, during the pandemic. Could you explain your logic there, please, Howard?

Howard Yaruss  38:03

Oh, certainly, we gave billions of dollars to the airlines. But what did we get for it? Were the planes going to disappear? The planes are there, they were grounded, because there was a pandemic going on. But they don’t, they wouldn’t fall into the earth. So by giving money to the airlines, we were just saving the management of the airlines and the shareholders of the airlines. What what a lot of European countries did is they actually funded the wages of workers, which would have made a lot more sense and would have been a lot cheaper. Instead, we threw enormous amounts of cash at the airlines. And I think I don’t remember the exact figure in the book, I think it came out to about $750,000 per employee, we could have saved a lot of money by just paying the wages of the employees saving the employees. And the airplanes would save themselves, they’re not disappearing. So they’d sit there on the tarmac, the shareholders would get hit very hard, which is unfortunate. But given that there are finite resources, I don’t think they’re at the front of the queue in terms of warranting a handout. And when the economy came back there, the airplanes can be put back into service. So the point I’m making in the book is bailouts help management and shareholders as opposed to what Europe did, helping individual employees or or not offering assistance at all, and the assets would stay there and be acquired presumably by another company.

Gene Tunny  39:36

Yeah, yeah. I think that’s, that’s a good point. And remember, during the pandemic, there was a Silicon Valley, one of the billionaires in Silicon Valley who was making that point on or a similar point on CNBC and I thought, you know, that’s a that’s a that’s a good way of looking at it. And yeah, I think, you know, the way you go through it in your book is great. So I’d recommend your book for that. on that issue. It’s a key issue in industry policy. So I think that’s great.

Howard Yaruss  40:09

Okay, I’m just gonna add that that’s, that’s another great example of how people are misled that the hotels are going to go away, the airplanes and the airlines are going to go away if we don’t offer them a bailout, the hotels are there. There’s bricks and mortar, if they don’t get the bail, if they don’t collapse, the planes are there. The executives, if they lose their jobs, don’t get to fly them off and take them wherever they want to take them, then there, it’s just the management and the shareholders that are the risks. Now, not the actual wealth of the country, the actual infrastructure, the hotels, the air, the aeroplanes, they’re, they’re not going to go anywhere, whether or not there’s a bailout.

Gene Tunny  40:49

Yeah, yeah. Good point. Okay. I just want to go back over, go back to this winner takes all economy, you mentioned that early on, is that what you see is one of the big challenges in advanced economies at the moment? And what exactly brought this about? I think, if you could take us through that I think your book does a good job of explaining how we’ve ended up with what you call a winner takes all economy, or at least an economy where, at least in the US in, in Australia, it’s we haven’t had the same increase. And it’s a bit of an argument about whether we’ve had an increase in income inequality, certainly in wealth inequality. But could you explain what you know, what’s led to this winner takes all economy, please. And what in your view, economics suggests is a way we could get out of it. Or your logic suggests there’s a way we could get out of it.

Howard Yaruss  41:48

I teach this subject and I love one word answers. And I can give you a one word answer to that. And they’ll give you a more expensive answer the one word answer the internet, basically, the cost free platform that enables Jeff Bezos, or any of these big companies to do their business, internationally with no costs, has enabled the best providers to have economies of scale that have been able have enabled them to grow much larger than any company was able to grow before, before the internet era. For instance, in 1950, if you were selling clothing in New York, and wanted to sell clothing in somewhere in Australia, that was incredibly difficult. Just the phone calls alone wouldn’t cost a fortune. And now, it’s cost free. It’s frictionless. They’re the ultimate economies of scale. So Jeff Bezos can do his business, internationally, and basically take all so technology actually, it’s not just the internet, it’s technology in general, has facilitated this winner take all in the book, I use the example of musicals before 100 years ago, every city of any size, have a musical where people want to hear live music, and now he’s just flicking it on your computer. There are a few major international stars who provide the music. And I’ll add that not only do they provide the music, but they provide their performance in infinite number of times whenever you’re interested in hearing it, based upon one performance. That wasn’t the case 100 years ago. So yes, the best performers in New York City 100 years ago, probably or definitely earned more than the mediocre performers somewhere in Indiana. But the point is that many people earn livings in connection with that business. And now there are just a much smaller number of people. And the earnings are much more concentrated among the most popular performers.

Gene Tunny  43:52

Raw. Yeah, yeah. And what about the role of there’s obviously the role of monopolies or market power in this?

Howard Yaruss  44:01

Absolutely. Because with this, these economies of scale, we’re natural monopolies what economists would call natural monopolies develop. And you see this in ride sharing with Uber. I mentioned Amazon, information Google, social, social networking with Facebook, there are many more natural monopolies because of these economies of scale. And it’s a problem. Why is it a problem? Your Facebook’s free. Why is that a problem? Because you lose, you lose innovation when there’s a monopoly there’s no incentive to innovate. And as they really consolidate the monopoly, it’s, it’s it reduces opportunity for workers. And this is again fueling the winner take all phenomenon that the average worker has fewer options for potential places to work. Certainly entrepreneurship is foreclosed, you can’t go up against these behemoths. And so there’s a shift of resources from labour to capital, when you have these kinds, when business gains more power in this way.

Gene Tunny  45:16

Yeah, yeah. And so what in your view is the is a way to address this winner takes all economy? If you? I mean, I’m assuming you think it’s, it needs to be addressed. It’s not something that we need to spur innovation. I mean, it’s not actually I think probably most people agree that there’s a problem with big tech so far across the political spectrum. So, or across the economics profession to.

Howard Yaruss  45:45

This is a perfect example of what we were talking before about regulation. Here’s a question. I’m a lawyer that Facebook has had hate speech or a speech that motivated people to commit all sorts of crimes on its site throughout the world. Why isn’t there a potential liability there, and in the United States, they’re exempted from liability. But because they claim to be like a town square, but they’re not a town square, they prioritise certain speech over others. For instance, on Twitter, I tweet something it’s going to get, it’s going to be replicated many fewer times. And if someone else tweets something, so they are curating, they are involved in amplifying certain speech. So I don’t know why they’re exempt from free speech, from the laws governing libel and slander. So that’s one thing we were not we’re sort of asleep at the wheel in a way, we are not regulating these companies the way we need to regulate them. Every monopoly is different, or companies get monopolies for all sorts of reasons. And the government needs to look at them, it has the tools, it just needs to employ them to make sure they’re not abusing their market power. Because ultimately, if they do that, it’s not good for the economy. And it’s not good for workers.

Gene Tunny  47:09

Right? So would you break up any of these big tech companies?

Howard Yaruss  47:15

Well, there are such incredible economies of scale with a social networking site, you don’t want to go to a social networking site that only has a few people. So I think the government is going to have to look at, for instance, I talked before a moment ago about legal liability, to the extent they promote certain speech, and it causes harm, maybe they should be on the hook for that. And maybe they would be more equitable, and more fair, in running their business, if that were the case. So I think that, again, every monopoly is different. I think the government needs to look at them, and make sure we’re getting the best social benefit from them. Because again, they are natural monopolies in my opinion, if I wanted to set up a social networking site, I could set it up. But Facebook has 3 billion users, I’d have one, none’s going to it. I think, I think given that the government needs to, to impose some fair rules so that society gets the maximum benefit out of it.

Gene Tunny  48:15

Right? And what about inequality? How do you propose dealing with that? How would you see that as a substantial problem? Do you and how would you deal with it?

Howard Yaruss  48:26

 Yeah, as we have more of a winner take all economy, there’s more of a gap between the people who are doing well, and the people who are not doing well. And that’s a great failing of a society as as our economy grows, on average, most people should do better. And that’s what was so great about America and Australia for so many years, people bought into the system. And to the extent that people are alienated by the system, I saw a recent survey that the majority of young people don’t trust capitalism. That’s a catastrophe as far as I’m concerned. And I think what we need to do is give them a reason to have more faith in the system that has created more wealth than any system in the history of humankind. I make the point in the book that since roughly 1800, we evolved from a society where the vast majority of people were food insecure to a society where the average person does quite well. And so we have to keep that, that we have to continue that to make sure that people buy into the system and we continue to grow.

Gene Tunny  49:31

Right, and what measures in your view would be required to do that? Are we talking but yeah, exactly what measures would be needed?

Howard Yaruss  49:41

Well, in the United States, there was a lot of talk a few years ago about a universal basic income that we may get so efficient. John Maynard Keynes talked about this. There was a writer I think his name was Edward Bellamy in the in the late 1800s, who talked about this how’s this It got so wealthy, that people, many people just didn’t have to work. And we could just have an income and benefit from automation. And the fact that society would be so efficient, we haven’t reached that point yet, in my opinion, I don’t think we’ve reached that point in anyone’s opinion. So that’s not going to work. But what can work is, is to have a more progressive tax system. And let me be clear what I’m talking about. In the United States, hedge fund managers pay a lower tax rate than teachers and firemen. That’s ridiculous. Again, to use a technical term, that we people need a better understanding of exactly what the 10s of 1000s of pages in the tax code are doing, and try to have a more reasonable, a more equitable approach to the way we allocate society’s resources. So off the top of my head, I would say that better funding for education to give people opportunity, certainly increase the tax rate on hedge fund managers. So it’s at least as great as teachers and fire man. Warren Buffett always says that he pays a lower tax rate than his secretary, that makes no sense. So that’s one easy place I would start to have a to provide more opportunity to the average person, I would I would have higher taxes for the people who who’ve enormously benefited from this winner take all economy and provide more resources to, for instance, for education, so as to maximise the chances that children growing up today can participate in contribute to this kind of economy.

Gene Tunny  51:40

Right. Yeah, I think certainly there’s some issues with the tax code in the States, I did an episode with Steve Rosenthal, from Urban Institute, do must have been toward the end of last year, just on the rules that you’re talking about, so I think is it carried interest?

Howard Yaruss  52:03

There’s a rule of carried interest exactly the provision that allows hedge fund and venture capital executives to basically have their income taxed at capital gains rates, which rates are lower than personal income rates. But I’ll raise a bigger issue, why should investment income be taxed at a lower rate than working income? I think that’s something that should be changed. And not only is it equitable, but by having the two types of taxation, you make the whole tax code so much more complicated, you introduce all sorts of distortions that people go through, so as to re-characterise their earned income, as investment income, it throws friction into the economy. And so that’s something that I think needs to be corrected. Again, to make it more equitable and more efficient. There are companies that have meetings in Bermuda, to leave the United States, because of tax reasons, that literally makes no sense. That’s a lost opportunity for the American hospitality industry, and just a colossal waste of resources. That’s something that needs to be looked at. And, frankly, when the tax code is 10s of 1000s of pages, I think the Internal Revenue Service is going to be out manned, by the whole army of lawyers and accountants that businesses and wealthy individuals have, it has to be simplified.

Gene Tunny  53:30

Yeah, I have a lot of issues with tax. I’ll have to come back to them in a future. Just interested in your thoughts on how to deal with that. Okay. Now, how would we better start wrapping up. I’ve been really grateful for your time. I mean, this has been this has been terrific talking about your new book, which I think yeah, I certainly recommend reading it. There’s a lot of good stuff in there. I’m probably more concerned about debt, you’re suggesting in your book that, you know, the federal debts. It’s not a huge concern, I guess it depends on how you characterise it. And your point is that it’s something that you can manage over time. But I should ask you about that. I mean, what is your view on the US federal debt and the fact that the US is running, you’re running a structural budget deficit, aren’t you, which is quite substantial, you’re not? You’re not raising enough revenue to pay for the spending. Do you see that, do you see that as something that has to be fixed up? I mean, you do have to be ultimately concerned to some extent about the debt and will you want to try and stabilise the percent of GDP, what’s your exact view on the debt, please in the States?

Howard Yaruss  54:51

This is such an important issue. It’s like the allocation of society’s resources that I tried to give people the foundational knowledge so that they in turn can reach an informed conclusion on their own. What I do in the book 20 trillion – 30 trillion. I don’t know about you, I can’t get my head around it. So what I do in the book is divide the national debt by the 330 million Americans and I come up with a national debt of roughly six to $8,000 per person with an annual interest payment of roughly $1,045 a person. And so there’s the question, Is that sustainable? Is that an existential threat to the United States? And I make the point that virtually everyone who went to medical school or started a business has bought a home for that matter has a debt hanging over their heads greater than that. The question is to just step back and offer some insight, try to offer some insight is that if the debt is growing faster than the economy, there could be a problem. Yeah, I mean, yet grow at the rate of the economy. It’s like, you owe a certain amount of money. If your income doubled, and your debt coverage doubled. It’s not a problem. It’s only when the debt is growing faster than the economy are issues raised. And yes, our debt has been growing faster than the economy, not significantly faster. The past fiscal year in the United States, the deficit was half of what it was in the preceding year. And so well, we have to watch it. But the question is, do people feel comfortable with this level of debt, I also make the point that when you say it’s a crisis, this debt is being paid, we have to pay it. But to whom is it being paid, two thirds of the payment goes to other Americans. So this is merely a transfer of money, from taxpayers to bondholders, which quite frankly, overlap enormously. Wealthy people tend to pay higher taxes, and wealthy people tend to own more bonds, poor people tend to pay lower taxes, poor people tend to own fewer bonds. So it’s really just moving most, two thirds of it is literally moving money from one pocket of the left pocket of a American to the right pocket of American, it doesn’t necessarily do any harm. A third of the interest payment, roughly 300, and some odd dollars here does go abroad. And you know, there are questions about that. But the question is, is $300 a year, per American in a $22 trillion economy? An existential nation bankrupting kind of issue? And personally, I don’t think it is, but you might reach the conclusion as that it is, and and vote and promote policies accordingly.

Gene Tunny  57:43

Right oh well, look out I think your book does, yeah, it makes a contribution. I think it’s got a place. It’s in this emerging genre of economics for everybody. I chatted with some people from the UK early this year, they had a book, what is the economy? I think it fits nicely in that, in that genre. To finish with, what do you think is different? Or what’s special about your book? Or what are the main? What do you think should be the major takeaway, or if there’s anything else, any other thoughts you’d like to make? Before we wrap up, please, that’d be great.

Howard Yaruss  58:21

I appreciate your asking that. And I think my book is, is is special, or I’ll go as far as saying it’s unique, in that it does, it tries not to have a political perspective, it tries to be fair, it tries to give the foundational knowledge to people so that they can reach their own conclusions as to what makes sense for the economy. Or there are points at which I do say something, but I make it very clear that it’s my opinion. And I make it clear why I’m saying so I think the book is accessible. It’s one of the only books on economics that has no formulas, their jargon, no graphs, it’s supposed to read like narrative nonfiction. And I hope it can reach an audience that ordinarily would would not learn about economics, but would pick up the book, read it, become more informed, more able to understand what’s going on in the economy, and hopefully, support better policies that would benefit not only their lives, but yours in mind, frankly,

Gene Tunny  59:20

That’s terrific. I just thought when you said about no equations. There’s a joke that John Kenneth Galbraith used to make in some of his books where he said that his publisher told him that every time there’s an equation in the book, it cuts sales in half. That’s what he heard you didn’t want to have any equations because it’s bad for sales. Okay. Howard Yaruss from NYU that’s been terrific. I really enjoyed the conversation. Thanks so much.

Howard Yaruss  59:51

Yeah, I really enjoyed it. Thank you.

Gene Tunny  59:55

Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact@economicsexplored.com And we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye.

Thanks to Josh Crotts for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

Please consider signing up to receive our email updates and to access our e-book Top Ten Insights from Economics at www.economicsexplored.com. Also, 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. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

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Podcast episode

The Progress Illusion w/ Jon Erickson – EP166

Professor Jon Erickson is an ecological economist and advisor to policymakers including Senator Bernie Sanders. In his new book The Progress Illusion, he criticizes what he calls “the fairytale of economics” and argues we are failing “to design an economy that is socially just and ecologically balanced.” Show host Gene Tunny discusses Prof. Erickson’s new book with him in this episode of Economics Explored. 

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: Jon Erickson

Jon D. Erickson is the Blittersdorf Professor of Sustainability Science and Policy at the University of Vermont, faculty member of the Rubenstein School of Environment and Natural Resources, and Fellow of the Gund Institute for Environment. His previous co-authored and edited books include Sustainable Wellbeing Futures, The Great Experiment in Conservation, Ecological Economics of Sustainable Watershed Management, Frontiers in Ecological Economic Theory and Application, and Ecological Economics: a Workbook for Problem-Based Learning. He is also Adjunct Professor at the University of Iceland, and has been a Fulbright Scholar in Tanzania, Assistant Professor of Economics at Rensselaer Polytechnic Institute, and visiting professor in the Dominican Republic, Norway, Germany, and Slovakia. Outside of the university, he is an Emmy-award winning producer and director of documentary films, co-founder and board member of numerous non-profit organizations, past-President of the US Society for Ecological Economics, and advisor to state and national policymakers. Jon lives in Ferrisburgh, Vermont with his wife Pat, their occasionally visiting sons Louis and Jon, and a menagerie of dogs, cats, horses, chickens, and donkeys.

Links relevant to the conversation

You can buy The Progress Illusion and if you listen to the episode Jon will reveal a discount code:

https://islandpress.org/books/progress-illusion

Transcript: The Progress Illusion w/ Jon Erickson – EP166

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  00:00

Coming up on Economics Explored.

Jon Erickson  00:03

Since at least the night, late 1970s. For a country like the United States, we’ve been in a progress recession, the GDP has grown, grown, grown, grown. But these alternative metrics, whether it be GPI, or surveys on quality of life, or the ecological footprint, these things have not improved. They have not kept up with the pace of growth, right.

Gene Tunny  00:25

Welcome to the Economics Explored podcast a frank and fearless exploration of important economic issues. I’m your host Gene Tunny broadcasting from Brisbane, Australia. This is episode 166 on the progress illusion, a new book from Jon Erickson, Professor of sustainability science and policy at the University of Vermont. Professor Erickson is past president of the US society for Ecological Economics. And he’s an adviser to state and national policymakers, including Senator Bernie Sanders. Please check out the shownotes for relevant links and information and for details where you can get in touch with any questions or comments. Let me know what you think about what either Jon or I have to say in this episode. I’d love to hear from you. Right oh, now for my conversation with Professor Jon Erickson on his new book The Progress illusion. Thanks to my audio engineer Josh Crotts assistance in producing this episode. I hope you enjoy it. Professor Jon Erickson, welcome to the programme. 

Gene Tunny 01:00

Thank you so much. 

Jon Erickson  01:03

It’s a pleasure, Jon to have you on. I’ve read your new book, progress, the progress illusion, reclaiming our future from the fairy tale of economics. So given this as an economics podcast, there’s definitely a lot to talk about with your new book. Yes, yes. So can I ask you first? Why do you think progress is an illusion? What are you trying to communicate in this book, please?

Jon Erickson  01:56

Sure. Sure. Yeah. So the progress illusion is really a reference to a fairy tale of humanity’s place and purpose in the world. Certainly, economics isn’t the only discipline that is subject to the solution, but it’s the one that I’m trained in. It’s a story that economists like myself have been teaching and practising for decades, decades that, you know, every time we see the size of the global economy double, which doubles every 25-30 years at current growth rates, that we erode the very foundations of life and human societies in the process. So, in this book, I questioned that, that reigning logic, that reigning story, I unpacked various dimensions of this grand illusion of economics, you know, which I see as an illusion of history and a lot of economics programmes, mine included, we don’t teach the history of economic thought we don’t discuss the debates of, of economists of the past. It’s an illusion of the individual, me, so much of the focus of economics is on the individual and what’s best for the individual in the assumption that whatever’s best for the individual is best for society. So I unpack that and think about the debates over that question. It’s an illusion of choice. I mean, economics sort of sets itself up as the science of choice. But it’s always framed this choice at the margin, right, the choice of the next incremental decision. Yet, when you add up all those decisions together, we very often get into situations that the original decision makers never would have voted for. Right. And ultimately, it’s an illusion of growth and illusion of, you know, a sort of fairy tale or dream of infinite economic growth on a finite planet.

Gene Tunny  03:52

Gotcha. I think it’s interesting. You mentioned that there were these debates, and they’re not always well covered in economics. I remember. I remember learning at least about Malthus, and there was the Malthusian prediction or his his view that, well, we’re in trouble because any economic growth we had, we just ended up having more children, and we’d be back to subsistence. Whereas I think the way that economists started to view that was all well, we solved that problem with technological progress. And, but I mean, look, I understand the point that that’s in a few 100 years or over the last couple 100 years say we’ll be able to do that. Who knows if that can continue indefinitely? I mean, who knows what shocks are coming? So, I mean, maybe, is that what you’re arguing? We could be we could be too optimistic based on recent history.

Jon Erickson  04:48

Well, look, I mean, we’re recording this in the second week of November during that latest Conference of Parties for the UN Framework Convention on Climate Change. And there’s ample evidence to show that this economic system we’ve created is putting dangerous strains on the global climate system, right? A climate system that is, is increasingly called as chaos as in danger of, you know, collapsing the whole experiment of the economy. So, you know, we can go back to Malthus if you’d like. But we’ve always seen that a growing economy creates benefits, and costs. And what we’ve seen, particularly over the last three or four decades is as those benefits have become super, super concentrated. And the costs have been spread out on more and more people, and especially on future generations. So we’re in kind of, you know, yet again, a kind of Malthusian tragedy.

Gene Tunny  05:51

Right. And so is that your biggest concern at the moment, climate change, or other other concerns,

Jon Erickson  05:58

tThere are plenty of concerns to go around. But having a habitable planet is a big one. It’s a big one that fellow economists are concerned about. You know, economists have been part of various signatures, signatories to various pledges of action. It’s a concern that’s related to mass extinction. It’s a concern that’s related to growing inequality and persistent poverty and declining quality of life, even in the richest countries. You know, I think it was, I think it was Alcoholics Anonymous, right, that said, you know, when you do the same thing over and over again, expect something different. You know, that’s the kind of insanity. And that’s what this book is about.

Gene Tunny  06:39

Right? Now, you mentioned, well, you talk about the fairy tale of economics, you mentioned you were trained in economics, do you still consider yourself an economist?

Jon Erickson  06:50

I mean, I often describe myself as an ecological economist, because I’m really trying to understand interdependencies between the economic system, and society and culture and the social system and the environment. I see this work as reforming economics for sure. I’d love someday, where we didn’t have to have all these kind of competing camps and different flavours of economics, we could just call it economics. But since I really don’t identify with the mainstream of economics, I tend to call myself an ecological economist.

Gene Tunny  07:22

Right? And you tell a story in the book about how just something like that was it the JEL, the Journal of Economic Literature codes, and you were stunned? Yeah, the way that Yeah, could you tell that story because of those fascinating, I’d never thought the JEL. Yeah, would be so controversial, or yeah, but please tell the story. I thought it was a good one.

Jon Erickson  07:47

I don’t know that they were controversial it just it just gave me pause. When I saw that ecological economics was given its own code, and treated as a sub discipline of a field that we were trying to overturn or be the alternative to. And this really is, you know, this, this is, you know, reflect on kind of why I wrote this book. You know, it’s a reflection on my career in Ecological Economics, when ecological economics was formalised in the late 80s and early 90s, before it got to JEL code, books and journals and organisations and degree programmes, and folks like me were supposed to be created to try to question the mainstream and reform it. So in many respects, this book is kind of my midlife crisis book, where I take a critical look at the history state and fate of this movement of ecological economics as an alternative to the mainstream. Funny story about 10 years ago, I was the president of the US society for Ecological Economics, and one of these professional societies that have emerged to support this field. And I was at our conference at Michigan State University, and I had thrown my back out. So I was like, during most of the meeting, I was horizontal in my hotel room, just miserable, just really grumpy. I was laying on my back, trying to write notes for my presidential address right, to the society’s membership. And I just was so grumpy, so grumpy, so grumpy. And it really got me thinking about the state and fate of ecological economics, and made me think about like this code, Q 57. Right, the seven hundreds plus subject areas of economics, and how ecological economics was increasingly being absorbed by the mainstream, including by folks who call themselves ecological economists. In fact, at that meeting, there were just, you know, all of these sessions on monetary valuation of ecosystem services, which I saw as, you know, a real slippery slope, you know, can we sort of challenge the mainstream with the logic of the mainstream and commodify nature. So, in a lot of ways that kind of grumpy week in Michigan, set the stage for this book, and, and my desire to really critique my own field.

Gene Tunny  10:16

Right. Okay. So I probably should provide some background on so these JEL codes, they’re the codes that you would put at the bottom of an abstract for a journal paper or a conference paper to signal this is the field or that the field of economics are the sub discipline of economics that it’s in. And so that helps them identify where it should go in conferences, for example, which session. Now, it’s interesting you mentioned how environmental economists have come to start valuing nature or to quantify environment, environmental damage, or to value what a wetlands are worth or in I mean, as a, as an economist, I’ve done various exercises like that in the past. I just want to understand where you’re coming from, do you think that’s the wrong way to go about it, to think about the the economy or the environment to think about? Well, we’re doing this many dollar dollars of damage to the environment, and therefore we need to impose this, this cost this charge on people who are damaging it, and to make sure we have, you know, where I’m going, what we’re trying to get ya get some sort of, we’re getting some solution by having the right taxes and charges in place or Pigovian tax, for example, what do you what are your thoughts on that, Jon?

Jon Erickson  11:43

Yeah, that the field of environmental economics and and before that natural resources, economics, really preceded this field that I’m describing of ecological economics, really treating the economy as an ecosystem, and environmental economics has its roots in the late 1960s, early 70s. And, you know, reaching back to Pergo, in the 20s, and 30s. And fitting the environment inside the marketplace, right, using prices to correct the so called market failures of what were framed as environmental externalities. So that’s how I was trained at Cornell University, I was in an agricultural economics department, learning natural resource, environmental economics, and kind of, you know, buying into that logic of, of the environment is just a failure of the marketplace. Ecological Economics. So that’s valuable. And that’s pragmatic. And I’ve done my share of work that is trying to make the case the economic case for environmental protection. The challenges is when that tool when that approach, when the sort of expansion of cost benefit analysis to environmental concerns, when that rises to a worldview, right? When you commodify all of nature and when you reduce all social relations of humanity to market logic, we start to run into what economic historians or people in the 40s and 50s The Economist name is escaping me right now, the fellow who wrote The Great Transformation, Karl Polanyi. Yeah, the Karl Karl Polanyi warned of the merging market society, right. Whereas the rules and priorities of a market system that envelop the democratic system, that envelop our social and environmental values. So I’m okay using economics as a tool and treating economists as mechanics or janitors to sort of tune the market system. But when economists are sort of framed as overlords of the social environmental system, right, or conveyors of a master worldview, that’s where my hairs go up. And that’s, that’s largely what this book is about, and thinking about the progress solution of economics.

Gene Tunny  14:08

Right? Is the problem that we have this objective of maximising economic growth where we’re concerned about GDP, are you arguing? We’re not as concerned about these environmental measures? How do you what do you think we should be concerned about? Or how should we be making decisions as a society?

Jon Erickson  14:30

I’m making the case that 21st century economics should reflect 21st century problems and values. I think when the mainstream of economics or what we often call neoclassical economics was formed in the late 1800s, early 1900s. Maybe the focus was well placed on growing an economy of the efficiency of market system right, of taking power away from the church and state and putting it into the hands of the consumer. and producer. You know, it’s much like thinking about an ecosystem at the early stages of any ecosystem. It’s the pioneering species that are prioritise its growth and competition and resource exploitation, that is prioritised. But as the system matures, as the system grows into a fixed, fixed environment, the goal should change, right, the goal should move away from growth and towards maintenance, bitterness, towards durability, towards resilience, away from competition and towards cooperation right away from sort of thinking about the number one priority is to grow our way out of problems, to realising that growth itself creates problems that growth can’t fix. So Ecological Economics reflects a maturing of economic thinking, that reflects the challenges of the 21st century.

Gene Tunny  15:59

Right. Okay. So it seems you’re, you’re concerned about the problems that growth can’t fix. Okay. You don’t think regulations can help? I mean, because we’ve got cleaner air?

Jon Erickson  16:12

Not exactly. I mean, I think we need to move beyond just economic instruments to fix things using the market to fix market failures, right. But really trying to find that balancing act between market mechanisms and government regulation between improving and making government work better, instead of the opposite narrative of, you know, government is the problem, not the solution. No, in this book, I reflect on kind of my own upbringing in the United States, and my parents generation, you know, and growing up in the Kennedy years, where the narrative was, you know, you know, ask not what your, what you can, what your country can do for you ask what you can do for your country. And I grew up in the Reagan Thatcher generation, right. And the Reagan narrative was, you know, it’s all about the individual, it’s greed is good. Don’t ask what you can do, you know, do for your country, get government off our backs, you know, that’s what we need to do. So, I think in an age of climate chaos, in an age of the sixth mass extinction, and an age of growing inequality, the narrative has to change, the story has to change, we have to recognise that a system and an economics that was created in the context of a 1940s 1950s expansion out of the Great Depression had its day. And now, the realities of our time, need to need to start to shape a new reality.

Gene Tunny  17:44

Okay. And so what does that? What does that mean, Jon? Does that mean, we need? Do we need redistribution policies? Is that what you’re arguing for to address inequality? We need greater environmental? Well, we need to prioritise the environment. I mean, that’s gonna be I mean, obviously, the environments important, I’m not denying that. I’m just thinking in in Australia here. I mean, it’s we’ve got very stringent environmental regulations already. And if we have more stringent environmental regulations, it’d be very difficult to develop anything. So I’m just wondering what it all means is it? Does it mean, we have to accept a lower standard of living in the future? are you pessimistic about technological change or ability to to innovate our way out of these constraints? Could you talk about that, please?

Jon Erickson  18:38

Yeah, I think that’s too narrow of a frame. When you think about economy environment, and what I’m concerned about, there is reams of evidence show that so called advanced economies, such as the United States and Australia, built on hyper individualism, built on the legacy of a social disease that sociologists call affluenza, right, or this addiction to consumerism, that this model of progress has leaves a little lot to be desired. And that in fact, maybe we’ve been in a progress recession for some time now. Scholars in the United States and Australia and dozens of other countries around the world have been estimating for years now. What’s called the genuine progress indicator, something that is meant to be compared to the more common gross domestic product. And what this indicator does is it recognises that a growing economy has benefits and has costs. In fact, I first discovered the GPI when I was in grad school in the early 1990s. And in the US, we were in in the the bush one recession. And there was a beautiful article written in the in the Atlantic and it had the title of something like if GDP is up. Why is America so down? Right? We were kind of in this recovery state. And people were, you know, economists are saying, hey, the economy’s growing, we’re all good again. And the average American, I’m not good, I can’t make ends meet. I’m miserable. And the same narrative has popped up at the tail end of every recession ever since ever since. In fact, it started working on this book at the tail end of the so called Great Recession. And the same thing was happening, we were using the instruments of economics using mainstream thinking to grow our way out of problems. And the average person was saying, who is benefiting? And who does who? Who’s paying the cost? Yeah. So the GPIO through this series of 26, some odd calculations and says, What are the true benefits of a growing economy? And what are the costs? What are the environmental costs? What are the social costs, and have shown quite convincingly that since at least the night, late 1970s, for a country like the United States, we’ve been in a progress recession, the GDP has grown, grown, grown grown. But these alternative metrics, whether it be GPI or surveys on quality of life, or the ecological footprint, these things have not improved, they have not kept up with the pace of growth, right. So we have to start asking at these kind of higher levels. What do we do with this for right? What’s, what’s the new balancing act in a maturing economy? How should we reprioritize what is the good life? And how should we I mean, you frame it as accept the lower standard of life, the standard of living the material standard of living, I frame it as as asking the question, how do we live better? How do we how do we live well, within our means?

Gene Tunny  21:47

Yeah, sure. I can, I can understand that. I guess what I’m thinking, Jon, is that at the moment, in Australia, one of the big issues is, well, the rising cost of living, high inflation relative to wages, and the lack of housing, I mean, we’ve got a dire shortage of housing here in Australia. Now. I mean, look, there are a variety of reasons for that, possibly. But I mean, at the moment, when I’m looking at things, I’m thinking a bit more economic activity to construct houses would have been good over the last 10 to 20 years. And, and we’ve got rising cost of energy. So yeah, I take your point, I think I think a lot of people out there would be concerned though, about this. Yeah, that they that, yeah, I’m not I’m not necessarily wanting to criticise what you’re saying, I understand where you’re coming from. I’m just yeah, that’s where I’m coming from, if that makes sense.

Jon Erickson  22:51

Yeah, that makes perfect sense. And that’s the big question, right? Like, can the same kind of thinking that got us into these current messes? That is making the billionaire class hugely, hugely more material well off, while the rest of us feel like we’re on a treadmill, just barely getting by? Can the same kind of system, right? That has privatised the benefit of growth and socialise, the costs? Can that continue? Or should it continue? Right? Should we sort of create a social movement and start to ask, what is the economy’s purpose? Who is the economy? And growth for whom and for what? Now, you know, when I debate economists, they always say, like, come on, come on, you know, you’re not being fair economics is just a model. It’s a model of progress. All models are wrong, some are useful, right? They quote George George Box. Right? All models are wrong, some are useful. And I said, Yeah, I, I agree, all models are wrong, some are useful. But what box didn’t ask is useful for? Right. So in the US, we’re seeing these energy prices, and we’re seeing record profits to oil companies. In the US, we’re seeing housing shortages, right? Yet we’re seeing record rents to the ownership class. In the US, we’re seeing families, you know, struggle to get by in these kinds of post pandemic months and year. And kind of returning to, you know, try and train as quickly as we can to get back to normal, right? Pre pandemic years. And a lot of us, and a lot of folks that are most vulnerable in this current system, are saying we don’t want to go back to normal normal was already in crisis.

Gene Tunny  24:47

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

Female speaker  24:55

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Gene Tunny  25:24

Now back to the show. Okay, can I ask about that genuine progress indicator? Who’s producing it? And can I ask him about what, what some of the the variables that go into? It are? Please, you’re really interested in that? Because look, I understand the criticisms of GDP. And I mean, at least if we’re destroying, or we’re subtracting from the environment, or we’re, we’re damaging the environment that you probably should recognise that as some sort of disinvestment or a loss of capital stock. So yeah, would you be able to explain the genuine progress indicator, please?

Jon Erickson  26:04

Sure. I mean, it starts with the basic premise, right, that the economy is subsystem of the environment, and that when the economy grows, it has opportunity cost. So I mean, it’s a basic, it’s built on basic economic system has benefits and has opportunity costs. So with GPI, we start with consumption, the biggest part of GDP, and we say, Okay, let’s take consumption, and then let’s correct it for income inequality, to recognise which what Pergo recognised in the 1920s and 30s, right, that growing incomes grow and give diminishing returns, right, that the next unit of of income to a rich person creates far less welfare society than the next income, a next unit of income to a low income family or a low income person. So we correct for income inequality. We then go through a series of calculations that for example, take consumer durables and GDP and say, you know, a society a GDP benefits by building a throwaway society. With durables, washing machines, automobiles, long lasting expenditures, if they were out often have to be replaced. That’s great for GDP. Right. But is it good for progress? So we say, Okay, here’s the expenditure of durables, and here’s the benefits of durables, right? Over time, these things are supposed to last more than a year or two or three years. So there’s economic adjustments, there’s an adjustment for over for underemployment, right. Idle work, people who wish they could work more. So it’s got that kind of basic economic logic built into it. But then there’s a whole category of depletion and pollution costs, right? We shouldn’t be treating depletion of our soils, our water, our air, as income. In fact, any business that treated depreciation of capital assets as as income instead of costs wouldn’t be in business very long. But that’s exactly what we do in our economic book keeping for nation states. Then there’s a whole series of interesting calculations on the social side of thing, right, we have to recognise that the GDP only recognises the value of your time in a market, earning income, earning wages earning profits. And so what the GPI the genuine progress indicator says is that there’s, um, use trade offs, right? Every hour extra hour work, the opportunity cost of that is an hour, not with your family, an hour, not in your community. And now we’re not leisure. So rather than feeding every single hour at work as a benefit with no costs, GPI goes through and says, let’s be honest here, right? Work is good, up to a point, income is good, up to a point consumption is good, up to a point. But we have to recognise that consumption and income and growth have diminishing returns. And at some point, at some point, the growth of an economy creates more costs than benefits. What Herman Daly, one of the founders of ecological economics, who, unfortunately passed away a couple of weeks ago, called an economic growth, right, a growing economy that creates more cost and benefits. Okay, we could do a whole podcast just on GPI, so don’t get me going.

Gene Tunny  29:40

Yeah, that’s fine. I might. I’ll have another look at it. Because, I mean, it’s one thing that comes up in various conversations I have, and I’ve been looking at the national accounts recently, I’ve had people on talking about that and their conceptual foundations and we’ve, we’ve we’ve mentioned that every

Jon Erickson  29:58

time we have a recession Yeah, the critique of GDP comes up, right? Yeah. Like, hey, wait a second growth isn’t providing what’s going on here. And every time coming out of recession, we question the metric. And then we kind of start growing again and says, Okay, let’s go back to normal. Yeah. But we have to kind of keep revisiting these alternatives. You know, the original architect architects of GDP back in the 30s, and 40s. Were very careful to say this is not a measure of human progress, human welfare. This is a measure of economic activity, which contributes to human welfare, but is not in and of itself. human welfare.

Gene Tunny  30:40

Yeah. Yeah. I agree there. Now, what about what can be done? Do you have a set of policy recommendations? Jon, are there? What would What do you think needs to be done? Are there things that there will be things that need to be done by governments? Are there things that need to be done by individuals? I mean, it sounds like, Well, okay, maybe you tell me if I’m wrong here. But when I read your book, and I heard about the progress, I was reading about the progress illusion that concerns about how we were consuming too much, I mean, do we need to show that we as individuals be consuming less Is that is that part of your argument? We should we shouldn’t be going on as many overseas trips, we shouldn’t be using the car as often we should think about our purchasing decisions, not get a new washing machine or get a I only get one, when it breaks down, try to repair things. What are you arguing in this book? Is the solution?

Jon Erickson  31:40

Well, what would an economy look like? That was built on maintenance resilience and cooperation is that growth, efficiency and competition, right, a late stage maturing economy like yours in the Australian ours in the US? That’s, 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, it’s 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. And to sort of fill the void with more consumption. And I actually think this is one of the lessons coming out of COVID. Right, as 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 pee 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 the reprioritization of goals, which is going to have to reprioritize policy instruments. Daily Herma, daily use the analogy of a plinth 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 cargoes ship is loaded, it sinks into the water. And when it gets to the line, you’re supposed to stop, right, because you’re in, you’re in danger of overloading the ship. So if we sort of reprioritize and think about the principle 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 pump, some land goes underwater, right. And there’s ample evidence to say that we are 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 gonna have to quickly think about the fairness of this distribution of benefits and costs of that system. And then it only then can we get to efficiency, which is the priority of economics. So this means that you know, new policy instruments stuff that focused on scale distribution, then efficiency is the way to go. And I talk a lot about this in the last chapter book, as I kind of wrestled with the idea of how did I put it radical pragmatism? Right? Yeah, that’s a 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 a 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  36:05

Okay, so I’m just wondering what exactly that involves? And is this part of this whole idea of D growth? Is that what you’re arguing for? I’ve heard about this concept of D growth, that that’s coming up, and there was an article in the FT about it the other day. So you’re just wondering, what needs to be done? I mean, do how do we, how do we have that, though? How do we recognise those constraints? I mean, you mentioned carbon tax. I mean, that’s something that, but you’re also saying that that’s not going to be enough and mean, given current magic

Jon Erickson  36:41

bullet, but it changes that changes the system? Yeah. Yeah. I mean, degrowth is the sort of social movement side of ecological economics, if you will. It’s a question of, how do we orchestrate a just transition to a right sized economy. Now in some parts of the world, and for some people in the world, you know, growth still creates more benefits and costs. But there are plenty of parts of the world and plenty people in the world where growth, Grace, more cost and benefits, right. So we have to orchestrate a kind of Race to the middle. And in fact, if you plot something like the HDI, the Human Development Index, which is a UN level index, this used to sort of monitor, you know, the benefits of development. If you plot HDI at national levels against energy per capita, you get this curve, right that the initial development improves considerably, with just a little bit more energy use per capita a little bit more than final impact per capita, Right. but only to a point that we get into this kind of club of countries, where continuing use of energy continuing depletion of the environment, continuing materialisation of the economy, doesn’t improve development doesn’t improve the HDI. And you get this long tail with countries with the same HDI of countries that that consume 20 or 30, or 40, or even some cases 80% less energy and material. So countries like mine, the US were way out on this tail, where we’re not getting improvements in human development. Yet, we’re consuming way, way, way more energy than the average human right. And way more energy in the countries that have similar levels of development, similar qualities of life. So what are we doing? Right? We’ve got to orchestrate a race to the middle and whether you call that d growth for the rich countries, and to be more agnostic about growth for everyone else, like grow, where it makes sense and shrink where it doesn’t. That’s the kind of century that we’re in. That’s the biophysical reality of the new economy.

Gene Tunny  38:57

So Jon, do you need a command economy to actually to orchestrate this transition to a right sized economy? I’m just trying to think about how this would happen. Because I mean, people, a lot of people out there, just, you know, they’re trying to live their lives and do the best they can. And a lot of people have to a lot of families, the couple have to work two jobs. They’re trying to make ends meet. I mean, they Yeah, they probably wouldn’t see themselves as as living a hugely materialistic lifestyle, but then compared with other parts of the world. Yeah, sure. It probably is. Yeah, I’m just wondering how we how we can do that. I mean, I’ll

Jon Erickson  39:37

yeah, yeah. My trainer has economists. I assume you’re trained economists. We were sort of taught these, these two different DS, roughly two different models, market economy and a command and control economy. And we were taught that this command and control thing is inefficient and unfair and results in a kind of an over regulated world and we need to the market economy is not perfect, but may Is it better than command and control? I’ve come to realise that that’s a load of BS. The market economy is also a command and control economy, right? Markets are designed by those and power markets are social constructs, especially the last three or four decades of neoliberalism has created a kind of free market experiment, right? That is concentrating the benefits and widely distributing the costs. So talk to the average guy or gal on the street and ask them, Is this economic system working for them? And if they say no, do you say, well, let’s double down on the logic of the system? Or do we try something different, right. So we’re finding that more cooperative forms of of economies are resulting in more shared benefits and shared costs. Were working with a group called the next systems project that has been sort of systematically cataloguing different political economics systems, local skills, community skills, United States that have dramatically different outcomes and dramatically different structures. It’s not just either or of command and control of free markets. It’s blending things in between, it’s the continuum in between, that is the secret sauce. So I don’t buy that we immediately just have to go to command and control. Although in crisis, what we learned from COVID is what happened is the world’s government goes goes to command and control, right? If climate is a crisis, if, if environmental depletion is a crisis, we might be using the very system of free market thinking, to push us into a state where the only option is going to be command and control. And I don’t want that you don’t want that. People don’t want that. We want our basic liberties and freedoms. But we want to do it in a way that creates an economy for all for children and for for future. I also kind of reject the the narrative of economic freedom, right? Because that’s awesome. That’s also painted as freedom to do things. And instead of freedom from tyranny, right, freedom from the impacts of, of the environmental costs of a growing system, freedom from the social inequalities, of a system that’s geared towards making the billionaire class even richer. Freedom from the costs of growing economies, what we should be thinking about, not freedom to do things to our neighbours, to our environment, and to future generations that ultimately are going to come back and bite us in the tail. Yeah, a buy in any of this.

Gene Tunny  42:58

Well, I’m interested in the new systems project. I’ll have to make system next systems project. I’ll have to look into that. I mean, do you have any examples of those communities you’re talking about?

Jon Erickson  43:10

Well, it’s examples of of. So you take the US and you think that we’re this kind of, you know, outside looking in and the narrative on the mainstream news channels is that, you know, we’re this free market, capitalistic system. It’s actually not true. So much of what makes the US economy work is cooperative ownership, collective ownership, state run, companies, state state run banking systems, state state runs systems of have that make the the economic system work. Take the banking sectors, trillions of dollars and coops where the depositors get votes on the matters of their banks. Take agriculture and education, and even energy and electric utilities. So much of those industries are run by cooperatives. In fact, electricity cooperatives deliver electricity, the United States, to a well over half of the geography of the high states, to rural communities, where the sort of economics doesn’t work for for industrial companies. There’s experiment after experiment, after experiment of different kinds of political economic institutions that have that we have lots of lessons to learn from. And this is what I meant in the beginning, when I talked about you know, economics, part of the Progress illusion is this kind of illusion of history right. To think that the current economic system, the neoliberal system, the free market, system, is is is the only one is has been perfected, right? Is the kind of logical inclusion of everything along the way, and that we don’t have to learn from our history. We don’t have to revisit the debates. We don’t have to consider the morality of our economic choices, or their biophysical consequences. And yeah, there’s a lot. I mean, I speaking mostly as a, you know, from the perspective of an American, maybe it’s different in Australia. But man, we have this sort of US centric view of the world, that everything we do is right. And every thing that we do is the best that ever was. And we don’t need to learn from our history. And we don’t have to need to learn from other other experiments around the world. And where I land is, that’s some pretty insular thinking,

Gene Tunny  45:45

huh? Yeah. Yeah. Okay. We’ll start wrapping up soon, Jon, this has been Yeah, really thought provoking. So it’s good to have you on the show. could ask you about neuro neuro economics. So you talk about that in the book. This is a new field, I’ve only learned about recently, what what’s that? What’s your interest in that field? And what’s it broadly trying to tell us? Or what’s it found?

Jon Erickson  46:11

Yeah, sure. Well, so this is where, you know, I’m kind of researching the book, like, what are some alternative ways to think about the human agent and our economic models? Because the economics, we’re taught a very, very, very narrow version of humanity, right, which is sometimes called like a subspecies of human homo economic is, yeah, isolated individual at a point in time, right, who

Gene Tunny  46:36

just wants more? The rational utility Maximizer? Yeah,

Jon Erickson  46:40

exactly. Exactly. And both within economics and outside of economics, you know, we’re learning that when we test our theories, with real data, and not just abstract mathematics, that this sort of foundations of this rational actor model, unravel. So what I do in the book is I explore what you might call borderline disciplines, right? Where economists have cooperated with other disciplines, especially other natural science disciplines. And so neuro neuro economics is one of those examples where economists have collaborated with neurosciences to ask questions of proximate cause. Right. So in science, we think of proximate cause and ultimate cause. And then the case of economic decision making proximate causes asking how we make decisions, whereas ultimate causes more a question of why do we make decisions that we do? Neuro economics is an example of a borderline disciplined, proximate cause where, literally economists are taking tests objects, with their neuroscience colleagues, asking people to solve economic puzzles, or make economic choices that are watching their brain light up, right, and trying to understand where and when do the kind of precepts of the rational actor model hold up? And where don’t they? So it’s one of these Borderlands this was, such as neural economics is an example. But also behavioural economics, experimental economics, where we’re trying to kind of understand the brain in the case of economics, the whole human case of behavioural economics, groups of humans in the case of experimental economics, groups of groups in the case of institutional economics. And then there are entirely evolutionary history as a species in the case of evolutionary economics. So these are all examples of, of the isolated discipline of economics, starting to cooperate with other fields, and building what I call in the book, borrowing from the biologist, EO Wilson, a more conciliate form of economics, where we find the jumping together of knowledge to really watch it watch the 21st century version of this field.

Gene Tunny  49:13

Right now. Okay. Well, yeah, oh, it’s something I want to have a closer look at, because I definitely recognise the limitations of that. That standard economic model. I mean, for years, economists were saying, Well, it’s, we recognise that all the assumptions are a bit unbelievable. But as long as it makes good predictions, and it’s, then it’s fine, but it turns out, it may not actually make good predictions. So,

Jon Erickson  49:39

I mean, I gotta go through the history of you know, the running joke, of course, right is that economists have successfully predicted seven of the last three recessions. So it’s, this this model of the rational actor model turns out to be not a very predictive model, or a model. Again, all models are wrong, some are useful. But we should start asking useful for whom? And it turns out this this isolated model is useful for the billionaire class but not useful for the rest of us.

Gene Tunny  50:10

Right I so we might start wrapping up, I’m keen to just learn about, what are you hoping this book we’ll achieve? Jon, what’s your What are your hopes for this, this book,

Jon Erickson  50:22

my generation, I’m 50 birthday this month, I’m 52 going on 53 My generation was inspired by the works of a number of like, you might call a renegade economist, right? Who sort of solid different path. Folks like Herman Daly, who I mentioned to, we just recently lost that 84 years old. I mean, Herman was on a similar journey that I was he started out with aspirations to be a growth economist, he thought that the logic and approach of market fundamentalism could be sort of bred when he was training to be an economist in the 50s and 60s, to solve problems, particularly problems of poverty, right to grow the economy, lift people out of poverty, but in his own educational journey, set against the aspirations of the Great Society in the US in 1960s, the civil rights and environmental movements of the 60s and 70s You know, he was inspired by inspired, inspired by the work of earlier group of renegades folks like Nicholas Dzerzhinsky regime who wrote on energy and the economic problem, bringing the principles of physics into economics, Kenneth Boulding, who wrote the infamous article, the economics for the coming Spaceship Earth that was really coming to terms with the opportunity costs of a growing economy inside of a fixed ecosystem. John Kenneth Galbraith, who, whose social critique in the affluent society really sort of, you know, early on question a society built around, creating more and more affluence into an affluent class. And, of course, the 1962 book by Rachel Carson’s Silent Spring, which was really impactful on Herman’s thinking, and design of an economic study of economy inside environment. So, you know, these sorts of scholars were also inspired by long standing debates about the function and purpose of the economy, you know, really going back to the classical era of economics, when economics was seen as as a branch of moral philosophy, right. Not not a pseudo science hiding behind abstract mathematics. So Herman’s work was another kind of link in the chain. His work on economics, the life sciences, first big published article, his work on steady state economics in 1977. Book, his work on for the common good that he wrote in 1989, with a theologian, John, John Cobb, you know, he was created another link in the chain that was trying to build a study of economics as if people and planet mattered. So I hope, you know, this book is yet another link in this chain of link that comes from my generation, that can continues to build a kind of more modest, more humble economics that can contribute to social well being and environmental, environmental protection, and not just simply,

Gene Tunny  53:39

okay, well, I’ll put a link in the show notes. So if you’re in the audience, and you’re interested in, in the in the progress, illusion, and look, it’s got a lot of, it’s got a lot of great information in it. Lots of lots of great analysis, and it’s very thought provoking. So I certainly enjoyed or I learned a lot reading it. I thought it was good. I liked how you went through the evolution of of economic thought and all the debates and even what I was struck by was, I didn’t realise that was Tinbergen, the famous Dutch economist. Yeah, he had a bit of a Nobel Prize winner. Yeah, he ended up he started to question the whole the the economic growth narrative in the was it the 80s or 90s? Are some of the you tell the story along those lines, I thought was interesting. Yeah. Yeah. So I think there’s a lot of good stuff in there. Okay, Jon, any final thoughts before we wrap up?

Jon Erickson  54:42

Look, I really appreciate this. Thanks so much for your podcast. I was listening to a bunch of your past thoughts in preparation for this and this is such a great show. Very valuable show. And yeah, folks are interested in this book. It’s, it’s been published by Ireland press which is One of the bigger nonprofit publishers of environmental books in the US and give your listeners the secret code. If they order a book from Island Press they get 20% off if they answer the enter the code illusion so but on my capitalism have there for a second

Gene Tunny  55:17

okay, is that all is that this capitalization matter is what did you just tell me that and I missed it sorry was

Jon Erickson  55:24

no I don’t know that it needs to be capitalised. But it’s the word illusion is the code for 20% off.

Gene Tunny  55:30

Okay, good one. Well, I guess people try it and if, yeah, hopefully it doesn’t matter whether you capitalise it or not, or try and capitalise that, that doesn’t work. Without caps. Okay. Very good. Okay. Jon Erickson. Thanks so much for your time. I really enjoyed the conversation and really appreciated your insights. So that’s been terrific. Thank you. Okay, that’s the end of this episode of economics explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact at economics explored.com And we’ll aim to address them in a future episode. Thanks for listening. Till next week, goodbye.

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