Economic consensus, tell him he’s dreaming

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A week or so ago, I reacted to this piece by Ross Gittins that I thought may have implied that I was anti-action on climate change. I was wrong and that was not his interpretation but it was an issue I was sensitive on as I had gone out on a limb in the past to support the Government’s proposed actions on climate change (see here and here) even as most others had moved their support away. I did something that I rarely do and pulled the post.

Today, Gittins was back with another swipe against academic economists. The thesis this time is that the “lack of consensus” amongst Australian economists on how to implement climate change policy led to its downfall. Gittins is careful to note that some did support the Government’s plans but was scathing in his conclusion:

Parkinson concludes that economists’ lack of agreement on key implementation questions renders their preference for a carbon price signal largely meaningless in practice. In fact, it undermines public support for least-cost solutions. Well done.

The article recounts the Secretary of the Department of Climate Change’s view of why economists disagree. The possible reasons for this are (a) environmentalism has become synonymous with anti-growth (although that reason doesn’t quite wash to cause lack of agreement); (b) economist’s can’t evaluate catastrophic risk (well, who can do that well and in any case, I am pretty sure they can); (c) economist’s have a strong preference to leave things to the market; (d) they prefer perfection rather than a good compromise. Of these reasons, only the last has anything to do with disagreement on how to implement climate change policy. And even there it is arguing for agreement just agreement that the Government wasn’t on the right path! Oh and by the way, where are the perfection arguing economists in this debate. Could someone please name one and point to a few public words to that effect? Just one! I’m not even looking for The One who has supposedly de-railed current policy.

In any case, trying to work out why economists disagree is hardly practical. Indeed, it is lamenting an ideal view of public debate that policy-makers pine for but can’t have practically. Surely, we need to take it as an axiom of public policy implementation that economists will disagree.

Now, here is the thing, if it is an axiom, then it falls back on the policy-makers to work out what to do about it. My guess, given all of these discussions, mainly from public servants, is that in days old, public servants were the ones who did the job of translating academic economist opinion for politicians. There were few other paths by which academic economists could engage in policy debate and all of them were so costly very few bothered.

Today, that isn’t the case. Any defunct economist with a computer can hit ‘publish.’ The amazing thing for me is that this actually is mattering. I imagine that the politicians are being given the published arguments and that within the internal workings of government this is making the public servant’s job harder.

The right reaction to this is not to criticise the lack of agreement amongst now visible economists in public speeches. Instead, it is to work out how to engage with the new process. Public servants need to recognise it is there and come to meetings armed and ready to deal with it rather than, perhaps (and I don’t know if this occurs), dismissing them as the work of cranks. They need to be proactive in engagement, talking to academic economists who are likely to comment prior to policy releases. Work out how to explain the practical constraints earlier on. It is a new task to be sure but it reflects what seems to be a new reality.

And there are other ways of doing this. We economists don’t like to see public debate moved by politics rather than sensible discussion. That is why we organise conferences and certainly why we organise petitions to demonstrate large support when it exists. Others, in particular Warwick McKibbin and CEDA, have led moves to organise economists to collate policy debates in a more usable form. These moves require Governmental support to continue — and not in money but attention. Per Capita has been one think tank that has been doing this but more on that later.

Finally, perhaps this is the very charge that some budding young politician who might have some academic cred might be able to get behind and cut through.

Update: Over the fold is one of my favourite scenes from The West Wing. Josh has been sent out to sell free trade but they keep him in the dark over potential job losses in the short-term. He finds out and is upset. The episode is entitled Talking Points and is about how economic policy is sometimes just hard to sell.

Bartlet indicates for Josh to sit.

BARTLET
Leo's told me about the 17,000 jobs.

JOSH
We have to fix this thing.

BARTLET
We've talked about creative destruction.

JOSH
We made a promise.

BARTLET
It's the natural evolution of capitalism.

JOSH
This isn't economic theory. Where are our allegiances? To our own people or
to Third-World plutocracies?

BARTLET
There are children in those plutocracies who dig through trash heaps for
food who'd kill for a low-wage job. You think if they're not sewing sneakers,
they're downing cocktails at a debutante ball?

JOSH
This is different. These programmers have middle-class jobs.

BARTLET
Different how? Because we know them?

JOSH
Different... because you and I looked them in the eye five years ago, at
the Wayfarer Hotel.

BARTLET
I know that we did. And sometimes I wish I could stick to the theory. I
don't like seeing our friends get hurt.

JOSH
Then let's not hurt our friends.

BARTLET
By doing what? Building a wall around the country so we can keep those jobs
a bit longer and never create any new ones? Passing a law that no one can
be fired, even if played video games at their desk all day? I'd probably
get a spike in the polls for that one.

JOSH
The CWA's the reason we're in this room.

BARTLET
And they would prefer a Republican who'd support free trade then gut job
training and eviscerate unemployment insurance?

JOSH
We made a promise.

BARTLET
There was a man named Canute, one of the great Viking kings of the 11th
Century. Wanted his people to be aware of his limitations, so he led them
down to the sea and he commanded that the tide roll out. It didn't. Who gave
us the notion that Presidents can move the economy like a play-toy?

Leo comes back from his office.

BARTLET
That we can do more than talk it up or smooth over the rough spots? It's a
lie. What we really owe that union is the truth.

JOSH
We run around saying free trade creates high-paying jobs.

BARTLET
And it will. But I've been trying to tell you it's not that simple.

LEO
I'll set up a call with Bill Parsons.

BARTLET
It'd be nice to roll back that tide, wouldn't it?

JOSH
Yes, Mr. President, it sure would.
10 Responses to "Economic consensus, tell him he’s dreaming"
  1. <i>” this is the very charge that some budding young politician who might have some academic cred might be able to get behind and cut through.”</i>
     
    And if they happened to be the Member for Fraser that would just be a happy coincidence, eh, Josh? 😉

  2. Josh, you are again showing how you don’t understand the practical policy process.

    The issue is not that public servants aren’t aware of academic arguments. The issue is that academic economists, collectively, often confuse rather than enlighten, and hence end up as barriers to change.

    Let’s use climate change as an example.

    The majority of Australian economists think that pricing carbon is necessary. But they disagree strongly on how it should be done – carbon tax, cap and trade, baseline and credit, hybrid, etc. Each proponent (Warwick is the best example of this) is much more interested in arguing in favour of their own scheme (and the flaws in all other models) than furthering the general case for carbon pricing. So we get an endless stream of often contradictory pieces pointing out how carbon pricing should be implemented and why going down an alternative track will be a disaster.

    You get similar arguments on the details even within a single scheme – safety valves, auctioning, compensation, etc.

    The rest of the media or politicians with an interest in killing carbon pricing then run with the line that there is no consensus or that there are major problems with scheme x, and so the public case for change becomes harder to make.

    The changes within the bureaucracy you are talking about would not change the current equilibrium much at all.

    Warwick won’t stop banging on about his hybrid scheme just because some public servants have a few meetings with him.

    And economists underestimate just how vague the average person’s understanding of complex policy issues is, and so how, what is in their eyes a balanced piece, will be used and misinterpreted by others.

    So, the problem that civil servant economists have with academic economists is a combination of naivity about how the policy process works and what needs to be done to get through reform, and egotism in that many academic economists are more interested in pushing their preferred policy (and undermining others) rather than advancing the reform that is most practical.

  3. I agree with Josh that Gittins is being unfair in laying the blame on economists.  The fundamental problem was that the Rudd government refused to explain the CPRS to the public.  Economists’ views then filled the information vacuum.   Gillard has taken it back to square one: \there needs to be a price on carbon\.  I imagine that all economists would agree with that: except for the extreme libertarians or climate-change deniers.  So, won’t it be great if we hear a deafening consensus from economists during this election: \we need a price on carbon!\   That would prove Gittins wrong.  But will it happen?

  4. Sorry, my post got mangled.  I’ll try again.
     
    I agree with Josh that Gittins is being unfair in laying the blame on economists.  The fundamental problem was that the Rudd government refused to explain the CPRS to the public.  Economists’ views then filled the information vacuum.   Gillard has taken it back to square one: “there needs to be a price on carbon”.
     
    I imagine that all economists would agree with that: except for the extreme libertarians or climate-change deniers.  So, won’t it be great if we hear a deafening consensus from economists during this election: “we need a price on carbon!”
     
    That would prove Gittins wrong.  But will it happen?

  5. The brutal truth is that Josh’s position here is self-contradictory. “Surely, we need to take it as an axiom of public policy implementation that economists will disagree.” does not square with “We economists don’t like to see public debate moved by politics rather than sensible discussion”. The fact is, if economists don’t agree (despite their scientific pretensions) then what determines which outcome will prevail is politics. “Sensible discussion” is politics by another name. It may be genteel, funded-academic-conference, highbrow, back-room politics, but it’s still politics.

  6. I tend to agree with Labor Outsider. Policy formulation necessarily involves debate which may get heated at times. But when the debate is over and a decision reached, whether by majority vote, consensus, executive decree, whatever, it becomes implementation time. People who can live with it, shut up and get on with it. People who can’t go away and do something else.
    In particular, long after the government opted for cap & trade, some economists were still carrying on about a carbon tax. Maybe a carbon tax would be better but either would be better than nothing at all, which is what we currently have.

  7. Do MikeM and Labor Outsider really believe – as their comments imply – that it was economists debating carbon tax versus cap and trade that stopped the ETS from becoming legislation?
    Would like to see some evidence of that claim please!

  8. That is a good point, Rachael. At Copenhagen, the Chinese government essentially sabotaged the rationale behind a CPRS that could be extended into a global emisssions trading system. That leaves any cap and trade system in tatters; might as well just tax carbon on a country-by-country basis (as some countries are doing in any case).

    I got the impression that our government didn’t have a Plan B for ‘selling’ the CPRS to the voters without an internationally-backed system that could be used as an incentive for Australian public compliance.

  9. I suspect that it was a mixture of both the politics and the complexity that sank the CPRS.  The CPRs was a complex scheme at best and made even more so by the various compensation plans the government added to it to ensure business support.  Since Rudd was the self-appointed spokesperson he was never going to be able to explain it simply and possibly didn’t even understand fully himself the government make it understood to the general public. (Whether Garrett or Wong would have made a better job of it we’ll never know.) On top of this you had disagreements between the “experts”, economists and others as to whether “cap and trade” or “tax” was best and the whole thing fell in a heap. 

  10. talk about wong….and where is wong now…just a joke!

    but saying we need a price is find …but setting up a market is not…and the market may fail for lots og good reasons

    go read mckibbin – we need a proper market with an ibdependent carbon central bank etc etc

    we also should go an d put some public money behind some researchers – they might be smart enough to solve the problem with a bit of long term support and luck!

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