The government is undertaking a review of one of our central pieces of environmental law, the Environmental Protection and Biodiversity Protection Act. They have a facility for quick comments of up to 300 words, as well as traditional submission (thanks to the Australian Conservation Foundation for the link). Here’s my 300 words

The catastrophes that have afflicted Australia and the rest of the world over the last year, including coral bleaching, unprecedented wildfires and the coronavirus pandemic point up the need for a radical reconsideration of existing approaches to environmental protection.

Far from achieving a sustainable balance between economic, social and environmental values, recent Australian policy has focused on protecting sectional interests and amplifying second-order issues such as the effect of environmental policy on energy costs.

The disasters of the past year show that the risks of widespread species extinction are far greater than has previously been assumed. As well as reflecting specific risks associated with exploitation of wild animal species for food and other uses, the Covid-19 pandemic has dramatically illustrated the folly of the presumption that, since previous potential disasters have not materialised or have been successfully, managed, the threat of environmental catastrophe can safely be ignored or deferred for the future.

In terms of the EPBC act, the key implications are:

• a much stronger weight on preventing further loss of biodiversity
• consideration of all effects of proposed developments, notably including Scope 3 emissions of coal, oil and gas projects

Here are some comments I’ve written in a rapid response to Brendan Murphy’s recent press conference. (I haven’t yet seen even the summary of the modelling that has apparently been released, just a picture of flattened curves.)

The idea of “flattening the curve” is fundamentally misleading, since it implies that most people will be infected until herd immunity is achieved, while the number of cases remains within the capacity of the health system. But assuming spare capacity of 2 beds per 1000 people, and 20 per cent of patients requiring treatment, we would need at least five years for herd immunity to be achieved. Optimal policy is to aim for near-complete eradication, then maintain sufficient distancing to ensure local outbreaks don’t spread. We will need quarantine for international arrivals until vaccination is general, or until other countries achieve near-complete eradication.

The main insight from economics is derived from option value concept. Better to adopt stringent measures early and relax if they turn out to be excessive than to move slowly and risk widespread community transmission.

I’m running behind, but here’s my latest piece in the Conversation. Although the situation is very different from that of 194t, this, from the White Paper on Full Employment is as relevant as ever

Despite the need for more houses, food, equipment and every other type of product, before the war, not all those available for work were able to find employment or to feel a sense of security in their future.

On the average during the twenty years between 1919 and 1939 more than one tenth of the men and women desiring work were unemployed. In the worst period of the depression, well over 25% were left in unproductive idleness.

By contrast, during the war no financial or other obstacles have been allowed to prevent the need for extra production being satisfied to the limit of our resources.

Under emergency conditions, all sorts of things that were said to be impossible are suddenly found to be necessary, and the objections raised against them turn out to have been excuses for serving the interests of the well off. That’s the case for both Universal Basic Income and a Job Guarantee, both of which now exist in embryonic form.

The ABC has an article quoting University of Melbourne epidemiologist Tony Blakely as saying (approvingly) that the object of the current “flattening the curve strategy is to smooth the path to herd immunity. Key quotes

You don’t go in too hard because you actually want the infection rate to pick up a bit and then hold,” he said.

“What they’re not saying is [that] ‘flatten the curve’ likely means [that] by the time this is over, 60 per cent of us will have been infected, to develop herd immunity,” he said.

The arithmetic here is pretty horrifying. 60 per cent of the population is 15 million so with a 1 per cent fatality rate, that would be 150 000 deaths. The number surviving but with long-term lung damage could easily be over 1 million.

It gets even worse. If herd immunity is supposed to be achieved over 12 months (by which time we are hoping for a vaccine) that would imply 40 000 new cases every single day. If even 10 per cent required hospitalization for several weeks, they would fill every bed in the country.

As for intensive care, we have a total of just over 2000 beds. Even with a hospitalization rate of 1 per cent, they’d be full in five days. And given that 1 per cent is the estimated fatality rate with treatment, that implies triage on a massive scale, which in turn would greatly increase the death rate.

This is simple arithmetic. If Blakely’s explanation of the government’s strategy is correct, it should be spelt out.

We won’t be travelling anywhere much  by air for some time to come, so this is a good time to reconsider our whole approach. I thought I’d start by digging out this post from 2007.

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Last year I published a book chapter arguing that the first step way to get to a Universal Basic Income was to expand the existing benefit system, increasing payments and removing conditionality (relevant extract over the fold).

This is often called a Guaranteed Minimum Income (GMI). I counterposed the GMI approach to the alternative of making a small payment to everyone in the community, and then trying to increase it over time. I suggested three initial steps

Assuming a ‘basic first’ approach is preferred, how might it be implemented? Three initial measures might be considered:

(i) increase unemployment benefits, at least to the poverty line;

(ii) replace the job search test for unemployment benefits with a ‘participation’ test;

(iii) fully integrate the tax and welfare systems

We are already on the way to taking these steps. Having floated the idea of a separate benefit for people who lose their jobs due to the virus crisis, the government has quickly abandoned it in favour of an increase in existing benefits. This is supposed to be temporary, and, in theory, at least, there has been no change in compliance efforts like work testing. But ‘temporary’ will turn out to be a long time, and compliance efforts are going to be impossible until things return to normal.

In a subsequent post, I”ll look at the alternative of a universal payment which might be increased from the levels in the stimulus package to an amount sufficient to live on.

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I had an inquiry about this and am posting my response

Some relatively good news on this. The volume of over-the-counter derivatives, including Credit Default Swaps, has generally been declining since the Global Financial Crisis. It’s still large and a potential source of danger.  The place to go for detailed information is the Bank of International Settlements. Here’s a press release from late 2017 with a graph for the declinehttps://www.bis.org/publ/otc_hy1711.htmI’ve attached detailed statistical data.

I suspect, though, that the real problem this time will be in more standard forms of corporate debt. The long period of low rates has allowed corporations to load up on debt. This story from Forbes is useful
https://www.forbes.com/sites/mayrarodriguezvalladares/2019/07/25/u-s-corporate-debt-continues-to-rise-as-do-problem-leveraged-loans/#4c55672a3596
And you can get statistical data for the US from the St Louis Fed
https://fred.stlouisfed.org/tags/series?t=corporate%3Bdebt

Thanks to Big Data, it would be easier to stop the toilet paper panic in its tracks.

Step 1: Announce that anyone holding more than, say, 50 rolls (per person in a household) must hand in the excess to a charity, and notify the government that they have done so.

Step 2: A week later, order supermarkets to hand over the data they collect on purchases, and raid people with large stocks that have not been surrendered. Confiscate the lot, and leave them with an ample supply of newspaper.

Is this a serious option, in view of the associated invasion of privacy? Given the kinds of restrictions on anti-social behavior that are going to be needed, I think it would be the right kind of signal to send. And, if we are scared about the potential misuse of this kind of data, this would prompt some proper restrictions once the emergency is over.

Like most of us, I’m not expert on epidemiology. But I have spent most of my life studying risk management. In the current crisis, one of the most relevant issue,s and the one that policymakers seem to be ignoring is that of option value. To see what’s involved, consider a policy choice like shutting down bars and cinemas, as opposed to waiting two weeks to see what happens. If, in two weeks time, it turns out the virus has been contained, the ban can be reversed and the loss is that of the two week shutdown,. On the other hand, if the virus spreads through contact in these venues, there is no way of limiting the damage to two weeks.

Nearly all the time, this reasoning favors aggressive early action. The exceptions are actions like cancelling events scheduled some months in the future. Deferring the decision would increase losses in the event of a cancellation, but keep open the option of going ahead if the situation improved.

Sadly, there seems to be no sign that those in charge of the policy response understand this. Rather, the reasoning seems to be to wait until they are sure a risk-reduction measure is necessary before implementing it. That is a recipe for avoidable disaster.

I didn’t get a lot of responses to this invitation back in 2008, but I’m hoping for more now. I can offer video presentations on a wide range of topics (climate change, water, infrastructure, digital economy & culture, employment and macro policy in general, among others).

As regards technology, it seems that Zoom is state of the art now. I’m hoping to have that set up so I can do it from home, which will allow more flexibility about time.

Repost from 2008

With the release of the Garnaut report, it’s time for me to look again at ways to reduce my carbon footprint. I’ve been trying to reduce air travel, turning down invitations and offering to do videoconferences instead. That’s had some success, but mostly people aren’t set up to handle video, and, by the time invitations are made, there are often arrangements in place that make it difficult.

So, I’m going to take the initiative, and announce that I’m available to offer video presentations on a wide range of topics (climate change, water, infrastructure, digital economy & culture, employment and macro policy in general, among others). It’s easiest for me in business hours (9-5 pm, Mon-Fri, AEST) as that’s when I can use the UQ facilities, but I’m willing to look at alternatives at other times, if there’s someone who can handle the setup.

Obviously, I can only do a finite number of presentations, either in person or by video, so get in with your request.

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