Economic estimates don't account for tragic bushfire toll

That;s the headline for my latest piece for Independent Australia Obviously, costs like ecosystem destruction and the deaths of millions of native animals can’t easily be put into the framework of the National Accounts. But, even if we stick to the National Accounts, Gross Domestic Product is a terrible measure of economic welfare. As I always say, there are three reasons for that; it’s Gross, it’s Domestic and it’s a Product.

27 thoughts on “Economic estimates don't account for tragic bushfire toll

  1. Read it there. It is amazing how people including some who claim to leftish, cant get the notion of the base.

    In our world, doesn’t this notion include the ecological component of the material base that provides the platform for all else?

    The neo lib system seems to deny the probability of cornucopia as possibly an illusion at least based on the nurture of the economic base for safeties sake when science can point to a certain direction re an activity. If the CSIRO or university researchers point out that an activity is unsustainable, it means for both environment and economy, when the water has run dry, the land clearing has left a desert and components of an ecosystem break down to prevent it from operating as predicted while it has been healthy.

    I don’t get that downstream costs, forgive the pun, are studiously ignored in government thinking on “development”. With water policy, the river systems are employed for quick buck cotton farmers, but what of the water system wrecked through overuse, then the lives of people other than agribusiness who rely on a river system for a livelihood. If climate change wrecks the Barrier Reef, it is not just coral made a funny colour, but fisheries damaged and then tourism put under irresistible stress.

    If we do not know what the Artesian system can tolerate from water removal, how can we say there is a gain (mainly for some TNCs) , should we proceed in that latest antic without scientific assessments given and taken in good faith. If these issues are ignored, what is the future for another ecological component of the economic base and the economic base itself?

    Why would some folk claim that jobs can only come at the expense of the environment; is it a false dichotomy and should we laugh at people who claim Adani, say, is necessary for jobs when the freebies have been salted offshore and monies no longer available for alternative job creation?

    Microeconomics claims to have all sorts of formulaic and algorithmic tricks to guess better what is useful and what is not (to who?), but ultimately their system is not a closed system if everything there is to know is not necessarily known, let alone what is known, then corrupted for a rigged result.

  2. Taking just the Gross and Domestic biases, why do national statistical agencies give priority – especially in time – to GDP over NNP? Depreciation is an informed guess anyway rather than a measure, and can be applied instantly. Correcting for international flows requires looking at trade and finance, which are well tracked. The choice of GDP as the leading indicator over NNP just looks a mistake.

    The third issue, Product, is far more difficult and requires a major rethink, on the lines of the Raworth doughnut. One approach is to treat the biosphere as natural capital. Australia is losing a lot of this as we speak. But it’s technically iffy and open to ethical objections (reductionist materialism). But we have to do something.

  3. It is amazing how people including some who claim to leftish, cant get the notion of the base.

    “bottom of anything considered as its support, foundation, pedestal,” early 14c., from Old French bas “depth” (12c.), from Latin basis “foundation,” from Greek basis “a stepping, a step, that on which one steps or stands, pedestal,” from bainein “to go, walk, step,” from PIE root *gwa- “to go, come.”

    Thank you, Online Etymology Dictionary!

  4. I was most struck by “the conclusion that the fires won’t have much impact on GDP growth is, in some sense, predetermined”.

    Might it be as accurate to say that if GDP drops it’s because of political mismanagement rather than the Reserve Bank failing to do their job?

  5. Isn’t there another meaning which can be loosely applied to much of the motives of the Neoliberal Capitalist system and directly to the ideals of many in the LNP who “govern”?

  6. I was also struck by the magic number of 1000 people killed by air pollution, which is I’m guessing an example number pulled out of thin air rather than a meaningful estimate. I note that the WHO limit for PM2.5 is 10µg/m³ rather than the 50µg/m³ or 100µg/m³ limits more commonly used in Australia (67-99 is “fair” according to the NSW Dept of Industry etc… https://www.dpie.nsw.gov.au/air-quality/current-air-quality).

  7. “You don’t fatten a pig by weighing it”. The need to attach a number to this catastrophe is misplaced. There are measured output losses but these are dwarfed by the destruction of our biodiversity. And yes, you cannot attach numbers to extinction events or to the sufferings of 1 billion animals. We need to rethink what we want out of this society. The balance is wrong : An obsession with labour markets, inflation etc and the human economically disadvantaged and comparative neglect of the environment.

  8. Harry, the scary thing is that in Australia we really can say “but what about all the people working in our concentration camps?” That’s not so much the death of satire as the death of historical comparisons.

    Part of the problem is that we’ve all been indoctrinated with the idea that value is measured in dollars, and that’s so pervasive that we often measure even the good works of charities using money. “St Vincent’s is 20% bigger than the Salvos because their budget is 20% bigger”… yes, but the Salvo’s shops are bigger. Neither of those is a meaningful measure of the things I personally care about for those organisations.

  9. Take our drought and bushfire crisis and just add 3 degrees C (if Morrison’s lot do not get their way) or more than 5 degrees C (if Morrison’s lot do) and convince me it is needless anxiety! The export earnings from Australia’s coal and gas industries are not worth it. Phase them out.

    Look after the workers – hell, give them full pensions for life – and honour them for their sacrifices. Or if they really think their jobs are more important than the future of the nation, expect them to be criticised and vilified.

  10. What happens if we suddenly get the 5-15m of sea level rise expected when Greenland and bits of Antarctica melt? Right now that’s expected to take centuries, but there are regular alarming reports that melting is happening faster than expected. Even a couple of metres will trim house prices right across Australia, as coastal properties lose value (the ones that become tidal will likely have no value).

    I assume that will come through in some sort of “net capital stock” measure of national accounts, and I doubt it will be compensated for by the steep rise in the price of non-tidal housing. But it will push the current housing crisis out of the political consciousness when suddenly it’s people who matter that can’t buy houses. I’m also betting that per Christchurch even people who think their insurance covers them for that loss will find that they’re wrong or unable to enforce the contract (commonly in Christchurch people who sued won, but the personal cost was significant and the financial benefit minimal – it costs as much to sue as the policy pays out, and of course you can’t get costs awarded)

  11. mkfabian

    The good news is that we won’t reach 5 degrees. The bad news is that the area between 2 and 3 degrees will do so much damage that populations will shrink rapidly, along with fossil fuel use.

  12. Relevant economic analysis from XR: “Deeper analyses point to something that many are unaware of, even economists. It is how private banks, not the government or central banks, create our money supply when they issue loans. It is this practice of issuing money as debt that over time creates a scarcity of money which encourages perpetual economic growth whether a society needs it or not.” https://jembendell.com/2020/01/07/the-economics-of-extinction-a-reason-for-rebellion/

  13. Not quite sure what Ken is getting at- the problem has emerged as manifestation of the globalising capital cult, not working people receiving the pension. I’ll take it I read it wrong because Ken is usually an excellent commenter.

    Poselequestion, I can answer your question is two words:

    “Bridget Mackenzie”.

    And Harry Clark sums it up, Quiggin is not talking metaphysics but dealing with the real world involving the DISCIPLINE of economics and at times its corruption by sneaks.

  14. Paul – I was being a bit flippant; granting life pensions was not a serious suggestion, but compensation/assistance for coal workers losing their jobs to specific “leave fossil fuels in the ground” policy changes can be. It would be a political measure, to make the phase out of coal more socially, politically and electorally palatable – although most Australians in changing industries are expected to find their own way and don’t get anything more than the dole. If lucky, without added derision and shaming.

    Making coal mining a protected industry is not reasonable, especially not on the basis that coal mining jobs of coal mining communities are more important than limiting climate change. But to put in place credible options for out of work coal workers, it is necessary to be up front about it’s necessity.

    Peter T – I think 5C is not highly likely but in the kind of world I suspect Morrison’s team wish for (but only in private), with no anxiety about or constraints on fossil fuel use, I suspect their Australia would help provide enough coal and gas to beat that target in a canter.

  15. Massive cost of the bushfire crisis https://t.co/cwfzOX3VAR via @newscomauHQ

    Yay, GDP goes up! 🤪@VoteSustainable
    — 💧William Bourke 🌏 (@William_Bourke) December 8, 2019

    It comes as something of a shock to see Prof Quiggin even sink for once to acknowledging the existence of the Sustainable Australia Party*, but is there a prejudiced inability to spot, appreciate, and engage with satire showing? Or is the so called “Independent” Australia editorial troika responsible for the above bs insert?

    Another question, the Reserve Bank revolving doors. Immediately before and leading into the above patently bs “Independent” Australia insert Prof Quiggin wrote, presumably unchanged by the troika, that:

    If the Reserve Bank gets its policy settings exactly right, it will maintain the level of economic activity at its ideal level, regardless of shocks like bushfires, by strategically lowering and raising interest rates. So, the conclusion that the fires won’t have much impact on GDP growth is, in some sense, predetermined.

    Talk about food for genuine satire, are we to believe Prof Quiggin believes the craven Reserve Bank has had now for some time and will have in future its policy settings exactly right? Going forward on past performance that is indeed a big “If”, and who is it again that has from across the way done much of the predetermining thus far?

    *Kelvin Thomson in his first paragraph there refers to this Melbourne ABC Drive Program radio interview of Leith van Onselen:
    macrobusiness.com.au/2019/12/lvo-demolishes-melbournes-rat-wheel-economy-on-abc-radio/

  16. JQ in article said; ” but there is no way to put a dollar value on that horror.”. Is this “reverse opportunity expense” to things unpriced by teh market?

    As government funding stands at the moment, the price of Australian mamals, reptiles, avians = 4 CENTS each. And B McKenzie may hyper pork barrel in future.

    “Over 1.25 billion animals are thought to be dead in the wake of bushfires, while experts say hundreds of billions of insects may have been wiped out.

    “as the Government establishes a $50 million emergency fund to address the devastating loss of wildlife this bushfire season.”
    https://abc.net.au/news/2020-01-13/bushfires-government-invests-50-million-wildlife-recovery/11862714

    Faillure to fund feral eradication leads to greater extinction rates. How many foxes and feral cats died?

    The Tounge in Cheek Government says “Sorry to the supporting biota, we didn’t factor you in at all, as we haven’t seen any of you since we were kids.”

    “My estimate that 700 insect species are at critical risk involves extrapolating from the information we have about the catastrophic effect of the fires on mammals.

    “So there are at least 185 insect species for every single land mammal species (B = 185). If the current bushfires have burnt enough habitat to devastate 4 mammal species, they have probably taken out around 185 × 4 = 740 insect species in total. Along with many species of other invertebrates such as spiders, snails, and worms.

    “This “best case” is still very sad. There is a strong argument that these unprecedented bushfires could cause one of biggest extinction events in the modern era. And these infernos will burn for a while longer yet.”
    https://theconversation.com/australias-bushfires-could-drive-more-than-700-animal-species-to-extinction-check-the-numbers-for-yourself-129773

  17. From the “we wont tell you, SO HOW Would We Know Department”…

    “Phos-Chek retardant were “potentially harmful” but their exact impact was unclear because state agencies would not share water quality data collected.”

    “Fears retardant could threaten sensitive drinking water catchments

    “One of the main fire retardants used by the NSW Rural Fire Service is Phos-Chek, known for its characteristic red pigment, which is used by pilots to track where it has been sprayed.

    “While the RFS would not confirm the volumes nor the formulations of the products it has used this season, sources told the Herald that Phos-Chek has been sprayed liberally around the state. [Spraying our money too… spoiler at end.]

    “Unfortunately, very little research has been done in Australia on the immediate and longer term effects of fire retardants on plant and animal communities,” Dr Bell said.

    “The Phos-Chek brand was pioneered by chemical giant Monsanto in the 1960s but since 2018 has been owned by US-based Perimeter Solutions.”
    https://www.smh.com.au/national/fears-retardant-could-threaten-sensitive-drinking-water-catchments-20200113-p53r30.html

    From above article… ”
    “The CSIRO was subsequently commissioned to investigate. Its report noted the additives in the Phos-Chek retardant were “potentially harmful” but their exact impact was unclear because state agencies would not share water quality data collected.

    “However the report concluded that the health risks were minimal, while the risk of not using retardant to control intense bushfires was “very high”.

    “Effects of the fire retardant Phos-Chek on vegetation in eastern Australian heathlands
    “…  However, it did cause whole plant and shoot death of key species Allocasuarina paludosa, Banksia marginata, Leptospermum continentale and L.myrsinoides, and was observed to affect other species. The fertilising effect of the fire retardant generally increased shoot growth of the key species but did not significantly increase the overall height of these species. The application of fire retardant enhanced weed invasion, particularly when supplied at higher concentrations. A number of research recommendations are made from this preliminary investigation.” https://www.publish.csiro.au/wf/WF04024
    International Journal of Wildland Fire 14(2) 199-211 https://doi.org/10.1071/WF04024

    Phos Chek au seems like a “marketing company and financialisation vehicle”

    “Since the start of the bush fire season the company has sent thousands of tons of fire retardant and Class A foam in support of firefighting activities. This past week, over 100 tons of fire retardant were delivered to Nellis AFB in Nevada where the product will be flown by military transport to Australia.

    “PHOS-CHEK Australia’s Equipment Service Center Operations provides equipment, field services and distribution of parts and supplies for fire suppression operations.  The company also operates a fleet of mobile equipment capable of ground applying fire retardant.”
    https://perimeter-solutions.com/2020/01/14/perimeter-solutions-supports-australian-bushfire-suppression-efforts/

    “PHOS-CHeK Australia is Australian owned. We operate with the support of the PHOS-CHeK group.”
    http://phos-chek.com.au/about-phos-chek

    Beneficial owners of phos-chek
    “ABOUT US
    “In March 2018, SK Capital Partners acquired the Fire Safety and Oil Additives businesses of ICL and established Perimeter Solutions. 
    https://perimeter-solutions.com/about-us/

    Patners with NO LIABILITY but ALL profitability…
    “Firm Overview
    “SK CAPITAL PARTNERS, LP is an SEC Registered Investment Adviser (RIA). The firm is based in NEW YORK NY UNITED STATES. As of the firm’s last SEC filing on August 20, 2019, the firm has 33 employees and has $4.69 Billion in Regulatory Assets Under Management (RAUM).

    “Jurisdiction/Type
    “DE Limited Partnership”
    https://predictiveops.com/advisers/161487

    “… while the Limited Partners possess no liability for the company’s debts, obligations or actions.”…
    https://www.delawareinc.com/limited-partnership/

    I was advised to register as a Limited Partenership in the 90’s. Ban them except for exceptional requirememts. I know of none.

    You have to go to SEC filing to show sk capital partners are… go on… guess… one guess only!

    “Name of Issuer
    SK Capital Partners Overage Fund V-B, L.P.
    Jurisdiction of Incorporation/Organization
    CAYMAN ISLANDS”
    https://www.sec.gov/Archives/edgar/data/1731584/000173158418000001/xslFormDX01/primary_doc.xml

    Did you guess first time?

    Phos-Chek – your trade secret fertiliser dumping chemical fire break – and ecology destroyer.  Which we spray with gay abandon because we didn’t do what we were supposed to do prior to the bushfires.

  18. Thanks Paul, I meant another meaning for the word “base” but “Bridget Mackenzie” fits the bill equally as well.

  19. Macro-economics has its limits. The conceptual framework excludes both individual welfare at any point in time and the sustainability of human life over time. It is essentially an aggregation of balance sheet data, roughly speaking, as understood by accountants. It is helpful if the financial strengths of countries at a point in time or over time is of interest. The balance sheet for the eco-system is excluded in step one (only monetary transactions are included).

    Paul Walter raises an interesting point about closed systems. He writes: “Microeconomics claims to have all sorts of formulaic and algorithmic tricks to guess better what is useful and what is not (to who?), but ultimately their system is not a closed system if everything there is to know is not necessarily known, let alone what is known, then corrupted for a rigged result.”

    The Arrow-Debreu model and subsequent models in this research program do model ‘the economy’ as a closed system, although without representing the complexities of eco-systems. Furthermore, the ‘for who’ question is answered for every human in ‘the economy’. If I understand correctly, Paul’s point is that this abstract closed system is of no use unless everybody knows everything there is to know and there is no corruption. Since scientific knowledge is itself a research program in progress, Paul’s point bites, even without corruption.

    However, new approaches to having eco-accounting (eg comparing the rate of reproduction of the natural environment with the usage rate to arrive at a ‘surplus’ or ‘deficit’ – we are accumulating deficits for quite some time, given current scientific knowledge) makes perfect sense in the conceptual framework of the ‘micro’ and ‘macro’ combined models without monetary values I have named above. This follows from the definition of ‘an equilibrium’, which is very different from the ‘micro’ only definition. In the latter only wealth feasibility is checked (eg budget feasible and profitability) and ‘market clearing’ in some applied work, while in the former the resource feasibility in the aggregate is checked in addition to wealth feasibility for each individual agent and in each period. Market clearing does not entail resource feasibility in general.

    The only accountant and public figure I know is Barnaby Joyce. I imagine people in his position resist the sensed threat of experiencing a cataclysmic collapse of their conceptual world at present.

  20. Thanks Paul, I meant another meaning for the word “base”

    It has a great many meanings, as noun, verb, and adjective. I gave the etymology of the noun (from which the verb also derives), because the expression used was ‘the base’. The adjective has a different etymology, also discoverable at the Online Etymology Dictionary.

  21. A bit disillusioned at mo, a balm to read several comments here, the people offering them up will know who I mean.

  22. OP: “But, even if we stick to the National Accounts, Gross Domestic Product is a terrible measure of economic welfare.”

    This is a truth reinforced continuously since 2003 when Howard opened the floodgates to sky-high immigration, and made yet more true by Rudd openly doubling down with the 2009 Big Australia ponzi initiative that’s been furtively further increased immensely by Gillard and all subsequent prime ministers. NOM for calendar year 2019 is near 300,000. The number of permanent and long-term arrivals into Australia remains turbo-charged approaching 900,000 and over 1.5 times permanent departures. The immigration ponzi from the government standpoint is all about chasing successive quarterly positive GDP figures. All about avoiding a “technical” recession. All about government spin as to their credentials as economic managers based on GDP figures. It’s all they have, and its only as good as a lie.

    A far better measure of economic welfare is GDP per capita. It’s been shrinking, barely staying positive. In the last few years Australia has suffered several quarters of negative GDP per capita.

    https://www.sustainableaustralia.org.au/kelvins_blog_more_fake_growth_just_what_we_need

    In Australia’s case, nearly all our growth comes from population growth. This is fake growth. If more people come and live in your street, an economist or a journalist is likely to tell you “your street is richer”, having added up the wealth of everyone living in the street. But it doesn’t make you personally any richer. Indeed you are likely to be worse off, given the prospect of more traffic in your street, trees being cut down for extra dwellings, and more competition for open space.

    With the frequency, size, and economic impact now of recurring “natural” disasters expect lib/lab/greens controlled NOM to stealthily break way past the 300,00 mark this calendar year, and see GDP per capita shrink mightily.

  23. Svante,
    it is certainly true that out politicians employed people movements as a wonderful wedge to keep progressives out of government on irrational fear stirred up, in order that a complex economic model developed as a means for skinning the Australian cat alive be instituted.

    We have lost control of our country and behind the facade modes of robbery beyond the average voters miniscule imaginations continue as the country is prepared for more misappropriations of public monies by capital to pay for the harm incidentally done enviro and symbiotic economic structure through their indecent rush for easy money, definitional of the last generation’s story.

    The ignorant rush to get at the golden eggs leading to the unseemly demise of the goose has folk wondering what now for the future.

    Don’t think it hasn’t happened in the past. Historical precedents abound whereby regions through formerly prosperous parts of the world have been reduced to famine ravaged wrecks in the interests of a few magnates safely tucked away thousand of miles away from the locations of grief.

    OK, early days in some ways, but do not be fooled by people like Morrison, the Dickensian coldness and cold bloodedness is not a point of amusement but indicative a new and dangerous mentality.

  24. I agree with you James Wimberley that we need to do something in our National Accounts with regard to valuing changes in the ecological stock. We make estimates with regard to human capital, so why can’t we at least have a go with regard to the ecosystem. And now is a good time for ABS in cooperation with others to have a go at measuring it. Now is a good time for several reasons. One, its politically relevant. Two, David Gruen has taken over as the Statistician, and he has a long term interest in measuring sustainability (and in addition Steven Kennedy , Secretary of Treasury, has some expertise and interest in this area). . Therefore, for the first two reasons, it might be possible to get some decent resources allocated to this topic.

  25. We need to switch from privileging economic indicators (especially GDP, which is just a measure of what’s bought and sold) to using meaningful indicators of health and wellbeing. How healthy and well are the people? How healthy and well are other species? How healthy and well are ecosystems?

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