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AARES after-dinner speech

February 16th, 2009

After-dinner speeches are generally best forgotten after the dinner even when (perhaps particularly when!) they are extremely funny. My speech to the Australian Agricultural and Resource Economics Society dinner wasn’t funny at all (at least not intentionally), but a couple of people asked me to write it up for the blog. So I’ve done it. I didn’t have notes when I talked, so this is not an accurate record, more like a reconstruction of what I meant to say

Having given and listened to a fair number of after-dinner speeches, I know that the ideal speech is intelligent, light-hearted and short. But, in the current state of the world, it’s hard to be both intelligent and light-hearted. Perhaps contrary to what was expected when I was invited, I’m going to go for intelligent. You’ll have to judge whether or not I succeed in that, but I can at least promise to be short.

Looking at the news and at many of the papers that have been presented here, it’s obvious that we as a society have made all sorts of unsustainable choices and we now have to deal with the consequences. Emissions of greenhouse gases are growing ever more rapidly, with obvious consequences for the climate, and for the destruction of natural ecosystems such as the Great Barrier Reef. Ever-growing debt and the belief that risk could be wished away have produced a global financial crisis on a scale not seen for at least a generation. And the global economy as a whole is still failing in what should be its most basic function; that of providing food and other basic necessities to all.

On the other hand, we are living at a time of great opportunity. We know what needs to be done to stabilise the global climate. We have a wide range of policy options to respond to the financial crisis and to make better use of the financial resources available to us. And we have more than enough resources to meet the challenge of global poverty.

Obviously, there is a huge gap between the dire situation in which we find ourselves and the glowing possibilities available to us. What can economists, and particularly agricultural, environmental and resource economists, offer to help bridge this gap?

First, we have an understanding of constraints, and with the duality relationship that, to every constraint there corresponds a price. The temptation to wish away constraints is ever-present, whether these are the budget constraints of households and nations, constraints on the capacity of the global environment to supply us with the services we demand or constraints on our ability to mitigate risk. Unless we associate the right prices with those constraints, we will take actions that disregard them, and that ultimately produce crises of the kind we have seen recently.

Second, we understand economic magnitudes. The cost of stabilising the global climate is likely to be between 1 and 3 per cent of global income. For about the same cost, we could meet the Millennium Goals for economic development, and raise everyone in the world above the minimal poverty line of a dollar a day. Since any sensible program for global climate change stabilisation involves the purchase of emissions credits from poor countries, achieving both goal together would not cost much more than 5 per cent of global income.

These amounts are not small – 1 per cent of Australian national income is around $A10 billion a year, and 1 per cent of world income is perhaps $A500 billion. This means that we cannot meet our goals with the kind of voluntary feel-good measures that cost nobody anything, such as switching to low-emission light bulbs or doling out the tiny quantities of foreign aid we currently provide.

To illustrate the magnitudes again, consider the argument that Africa has received tens of billions in aid, but is still poor, and that therefore aid is a waste of time. Those billions sound impressive, but any numerate economist can calculate that they amount to a few cents per person per day. Perhaps the aid has been effective and perhaps not, but there has been nowhere near enough to test the claim that generous aid could end world poverty.

On the other hand, as economists, we understand that these numbers are small in relation to the productive capacity of our society. With income growing at around 2 per cent a year, the cost of dealing with global climate and providing a decent minimum standard of living for all would barely dent the rate of growth over a few decades. Ross Garnaut estimated yesterday that his proposals for deep cuts in CO2 emissions would reduce the growth rate by around 0.1 per cent, and all serious analyses produce similar numbers.

Finally, a point of which we as environmental and resource economists are particularly aware. Economics is not about money. The ‘economists’ seen by the average member of the public these days, are typically bank employees whose ostensible purpose is to explain why prices in financial markets have gone up, gone down or stayed the same (the financial version of the Norman May trilogy) on the day just passed. But real economists understand that only a small part of what is economically valuable is traded in markets.

Looking at the Great Barrier Reef for example, the market value of extractive activities such as commercial fishing is small in relation to non-extractive uses such as tourism, and both are small relative to the kind of recreational uses that are not reflected in standard monetary valuations. And all of these consumptive uses are insignificant in comparison to the cultural, scientific and spiritual values of the Reef for Australians current and future, and for the world as a whole.

This is a time when it is vital for economists, and for agricultural, environmental and resource economists in particular, to step away from an exclusive focus on academic research and to make a contribution to public debate. The choices made by Australia and the world over the next five years or so will determine our success or failure in dealing with the challenges we face for decades to come. We can and should make our voice heard.

Thank you.

Peaceful Warrior dvdrip

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  1. O6
    February 16th, 2009 at 11:16 | #1

    Is tourism really non-extractive? It uses a lot of fossil fuel and it slowly degrades what people want to experience. ‘Take nothing but photographs, leave nothing but footprints’ is a good start, but footsteps are wearing away the Acropolis, just as human breath meant the real Lascaux had to be shut away, and the foot of Michelangelo’s ‘Pieta’ was worn away with kisses before a crazed Australian tourist’s attack put it behind bullet-proof glass. And flash photography damages delicate images.

  2. Michael Harris
    February 16th, 2009 at 11:31 | #2

    Thanks John.

    As someone who asked for the talk to be blogged here, let me express my appreciation.

  3. Salient Green
    February 16th, 2009 at 19:57 | #3

    Your speech has made me think that it is pointless to tackle world poverty for the same reason it is pointless to tackle Anthropogenic Global Warming.

    That reason is because our current economic system is based on ‘growth’ and it is doomed to fail.

    There is no point in tackling AGW while certain powerful business interests continue to subvert Governments by advocating growth in consumption and population in developed countries.

    There is no point in tackling world poverty with this economic model to aim for as firstly, we are setting a bad example of frivolous overconsumption which can’t continue for much longer in a finite world.

    Secondly, some sections of business have a corrupting influence on Governments and while they are making a motza exploiting poor countries, they will continue to use that influence to keep them poor.

    We in the developed world need to change our act completely and there are currently too many very powerful influences working against this.

    The poorer countries need to be brought out of poverty inder a completely different economic model. Globalization will have to be rolled back to the minimum based on energy and pollution efficiency and exploitation by us, the developed world, will have to cease.

  4. mitchell porter
    February 16th, 2009 at 21:24 | #4

    “Ross Garnaut estimated yesterday that his proposals for deep cuts in CO2 emissions would reduce the growth rate by around 0.1 per cent”

    Are these claims really credible? As I recall, Garnaut’s review describes scenarios in which Australia’s actual emissions remain constant to 2020 (while the number of permits issued by the Australian government declines, the growing gap is made up by purchase of overseas permits), slow real declines set in after 2020 thanks to widespread use of CCS, and then deep cuts occur after 2050 and are attributed to the use of presently nonexistent technologies. (See figures 4 and 9 in technical paper 7.)

    Meanwhile, the avantgarde in emissions targets consists of CO2 levels lower than those presently existing, i.e. we’re already in overshoot and need to achieve zero emissions and then a carbon-negative period of CO2 drawdown. (Example 1, example 2.) To me, such “zero-minus” or “low-stabilization” scenarios have a ring of truth about them; they sound like the future you would aim for, once you really understand the situation. The basic facts are that the long-range equilibrium temperature rises with every rise in CO2, that the CO2 will only stop rising when we have a world economy with zero net emissions, and that even a 2-degree increase in average global temperature is forecast to produce huge changes, so there is a limit to how slowly we can go about the transition to zero emissions.

    Now I would like to think that we can get to a zero-emissions society in a positive way, and I support gradualism in *present-day* climate policy. But eventually there will need to be big steps taken. We need plans like these (and, for the poor world, “low-carbon development plans” such as those called for in the EU’s Copenhagen-conference position paper), constructed initially in the spirit of “doing whatever it takes”, and then we need to work backwards from there to the world of gradualism (e.g. Treasury CPRS modeling). And if we keep exploring the continuum between gradualism and emergency action, we may find a smooth path ahead after all. But a lot of work still needs to be done!

  5. mitchell porter
    February 16th, 2009 at 21:55 | #5

    Salient Green: “our current economic system is based on ‘growth’ and it is doomed to fail.”

    In normative economics, “economic growth” is a proxy for “improvement”, and I would agree that you can have growth which ultimately has bad consequences, e.g. it’s produced by consuming natural capital (in the sense of Robert Costanza), or it’s produced by borrowing from the future (see Steve Keen), so the proxy is not always reliable. Indeed, I wonder whether there is some risk, in the current world recession, that growth will be revived in a bad form. The debt option seems to have run its course, so presumably the danger is that short-term growth will be revived through environmentally unsustainable means. The popularity of the notion of a “green new deal” might suggest that people are alive to this danger. Still, I would be a lot happier if some critical analysis of the growth we have already had was going on. Most postwar US recessions involved housing and/or consumption. This suggests to me that the management of economic growth has mostly been on the demand side; population growth produces an increase in the labor supply, and it is just taken for granted that this extra labor will find the extra raw materials it needs to produce new value. But with Ayres & Warr arguing that 70% of this postwar economic growth is directly attributable to a corresponding growth in the supply of usable energy, you have to wonder whether there is a serious oversight in the mainstream theory of economic growth, comparable to the neglect in macroeconomics of the debt factor which (in my view) allowed the GFC to happen.

    In the long run I am a cornucopian – I think there are vast improvements in the human condition possible, including huge technological advances – but I suspect that to get there without tripping up, you have to consider concrete trajectories, you can’t just assume that historically recent rates of economic growth or productivity increase are abstract laws of nature that will persist indefinitely. Instead, they reflect particular social, ecological, and technological regimes, and an analyst must keep their eye on the concrete non-economic conditions which define those regimes, and the circumstances under which those conditions will change sufficiently to introduce a new regime. Thus, much of world economic growth since 1945 looks in retrospect to be the contingent product of the accelerating discovery and use of fossil fuels, and the regime of constantly growing availability of fossil fuels is one that necessarily ends. If you want the growth to continue, you have to look for a new regime and deliberately move into it. This is also what I was saying with respect to climate change mitigation in the previous comment.

    I have been looking at the collapse in world trade at the moment, and wondering what the best advice for national economic planners would be, in view of all the preceding. At the moment my advice is: first, you should examine the worst-case scenario, in which all trade ceases, and your country has to function as an economic and ecological autarky. What standard of living is possible under those conditions? Can it even support itself? Then, you start thinking about trade again, and about what improvements are possible if you posit specific trading relations with specific identifiable partners. I don’t quite have a rigorous argument, but intuitively I think that, given the completeness of the breakdown in world finance and world trade, it is advisable for each country to go right back to the bare bones of its economic and ecological existence, renew its self-understanding on that level, and then look up and out to the possibilities of cooperation with others. I emphasize that this is a *conceptual* move; I’m not saying everyone should physically cease trading right now, and only then cautiously resume it. But given the collapse in trade already happening, it’s probably advisable to get ahead of the trend and see what its most extreme manifestation would look like.

  6. El mono
    February 16th, 2009 at 23:25 | #6

    Salient if the main reason for poverty in the world was due to exploitation of the west then surely the wort performing nations would be those Thurd world nations with the greatest economic relations with the developed world. Compare what is happening to the Billion people in China to the (close to) billion people in Africa though. The majority of the people living on less then a dollar a day are usually ( i am not so naive to suggest always) not making anyone a motza (it is the people working for a dollar an hour which are making the developed world money). The reason why the west is not making the serious aid contributions is not a conspiracy of the business elite. It is equally the fault of the average westerner who does not want to pay any more tax/ does not want to see the decrease of the spending at home.

  7. February 17th, 2009 at 06:38 | #7

    Enjoyed the speech on presentation and again in reading here. It tied a lot of important ideas together and set out role for economists.

    Ditto #2.

  8. Ikonoclast
    February 17th, 2009 at 08:19 | #8

    Salient Green is spot on. Our economic and social systems are still heavily based on physical growth. They are based on using up natural capital or non-renewable resources. As such, these systems will fail. It is too late now to make a transition to a stable system running on renewables; probably about 30 years too late.

    Aid is a sideshow to the above problem, However, I note that Dambisa Moyo has published a book called “Dead Aid”. I have not read this book yet but it seems she points to the endless “aid” given to Africa as worse than useless. Given what I know about corruption and the corruptability of institutions and governments by money, I strongly suspect she is right.

    The way the West uses aid and the way 3rd world country elites receive it and apply it does not endgender any confidence that significant ‘aid’ will ever reach or help the poor. The bulk of aid enriches the elites and pays for their coercive apparatus, namely the police and military.

    I heard a report that Indonesia and PNG are giving us some aid for the Victoria Buchfires! Isn’t that a pointless churn? How much aid do we give to Indonesia and PNG? It is clear that any such aid from those countries (or rather their power elites) is a mere political gesture seeking to buy goodwill and increase their own aid receipts in future.

    Even where aid appears to assist the poor on the face of it, the governing elites in question apply national monies thus freed up to themselves and to bolstering their coercive apparatus. Much aid is also tied up to provide contracts to donor country companies thus representing a form of corporate welfare or subsidy.

    Australia would be better served by;

    1. Ceasing all international aid.
    2. Applying all these monies plus existing allocations to addressing internal disadvantage.
    3. Apply point 2 particularly to the aboriginal people.

    The simple saying ought to be followed; “Clean up your own backyard first.”

    There is some evidence that national aid, as opposed to international aid, can be applied in a controlled and effective manner.

  9. Salient Green
    February 17th, 2009 at 08:28 | #9

    Mitchel1#4 you fleshed out my thoughts very well and gave me more to think about.

    I don’t quite see why you see yourself as a cornucopian, from that post anyway. I agree that there are vast improvements in the human condition possible and they don’t include bigger TVs, houses, cinemas, cars, shopping centres, populations, investment portfolios or anything else bigger and frivolous.

    We can’t possibly bring the whole world out of poverty if it means living and wasting and polluting as we wealthy nations do. I personally believe we can’t continue as I just described even if the rest remained in poverty.

    My point, and I direct this to El mono, is that there are very powerful interests preventing a sustainable model for civilization from coming about and this is evident in the ‘growth fetish’ as well as the failure to mitigate AGW.

    There is no point in a concerted effort to end world poverty until we (the wealthy) have a sustainable model, have applied it to ourselves and know how to use it to end poverty in other nations.

    We can’t do the latter until the subverting and negative powerful interests have gone away. Hopefully, the intellectuals like John Q and Mitchell can work out a way to do that soon.

  10. Salient Green
    February 17th, 2009 at 08:43 | #10

    From Ike’s 3 point suggestion, why not, for example, Australia adopt a poor nation in Africa and bring it out of poverty in tandem with our own people?

  11. Marginal Notes
    February 17th, 2009 at 09:39 | #11

    Well said John. I have often fulminated in front of the TV when they trot out so-called ‘market economists’ to comment on short-term fluctuations in monetary variables. Columns in the print media are one thing (still few and far between) but what does it take to get serious economic opinion into the TV news commentary? Steve Keen got a bit of a run on the housing bubble and of course Ross Garnaut worked hard to explain the economics of climate change (until sidelined) but no-one seems to get called on routinely. Perhaps you need to re-grow your beard and reclaim your image as the Ned Kelly of the commentariat.

  12. melanie
    February 17th, 2009 at 21:52 | #12

    JQ,
    What’s the Norman May trilogy? (I remember the person only too well, but I’ve missed something here).

    This is a good speech IMHO. I like your swipe at the media for their reliance on Bill Evans et al. I’m also heartened by your contention that “real economists understand that only a small part of what is economically valuable is traded in markets.” I’m afraid that quite a lot of economists don’t believe this.

  13. BilB
    February 18th, 2009 at 06:40 | #13

    I’ve printed your speech, and I will read it after dinner.

  14. jquiggin
    February 18th, 2009 at 07:28 | #14

    Norman May noted in the course of cricket commentary, that a particular game had reached the interesting point where one of three things could happen: England could win, Australia could win, or the game could be drawn.

  15. 2 tanners
    February 18th, 2009 at 07:55 | #15

    John@14

    Thanks for that. My Norman May trilogy was the famous “It’s GOLD, GOLD, GOLD for Australia” from the Olympics. Which does fit in with bankers and money, but it did leave me a bit confused.

  16. nanks
    February 18th, 2009 at 08:10 | #16

    “Norman May noted in the course of cricket commentary, that a particular game had reached the interesting point where one of three things could happen: England could win, Australia could win, or the game could be drawn.”

    the game ‘hangs in the balance’ is another way of saying much the same thing

  17. Alanna
    February 18th, 2009 at 08:51 | #17

    16# Talk about overstating the bleeding obvious Nanks! Mustnt have been much news to report that day.

  18. Marginal Notes
    February 18th, 2009 at 16:16 | #18

    #14 Or there could be a tie – but that would be an extreme event.

    #15 Norman May was simply referring to what is termed in management jargon a “win-win-win” situation.

  19. Marginal Notes
    February 18th, 2009 at 20:37 | #19

    #18 Norman May eat your heart out! On the 7.30 Report tonight, in a segment about employees being forced to work less or lose their jobs, someone described such arrangements as a “win-win-win situation”. I rest my case.

  20. Ikonoclast
    February 19th, 2009 at 07:55 | #20

    I think Norman May missed at several more possibilities. England could win, Australia could win, the game could be drawn or the game could be a TIE or the game could be declared a no result or the game could even be an undeclared no result in the event of some great calamity which wiped out the players, the umpires, the MCC and the ICC.

    Some may call me pedantic.

  21. Ikonoclast
    February 19th, 2009 at 07:58 | #21

    But in relation to post 19, if the current world economic situation is a “win-win-win”, I would hate to see a “lose-lose-lose.”

    Well, actually, we are seeing it aren’t we?

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