You know an election campaign has run off the rails when the pollies start hurling the results of economic modelling at each other. Voters find it incomprehensible and cover their ears, and the only people who think it proves something are the pollies themselves and the journalists silly enough to imagine their incessant demands to “show us your modelling” will expose the truth.
The more you know about modelling, the less it impresses you. There’s a place for economic modelling, but it’s in a seminar room, being pulled apart by experts, not in the argy-bargy of politicians seeking election, vested interests seeking more bucks, and journos who think their customers will just love a bit more meaningless conflict.
Thinking people know and accept that the future is unknowable. Unthinking people delude themselves that somewhere out there is an expert with a magic box – or maybe a crystal ball - who can give them a sneak peek at what only God knows in advance.
The only truly honest thing a modeller could tell you (which their need to earn a living invariably stops them doing) is: What on earth makes you think I’d know?
In the public debate, modelling is about misleading people – unknowingly or, more often, knowingly. It’s used like a drunk uses a lamppost: more for support than illumination.
There are two approaches you can take to modelling results. One, believe all results that fit with your prejudices and ignore all those that don’t. Two, be sceptical of them all and don’t accept any results where you haven’t been told which assumptions are the main drivers of those results.
Although Prime Minister Scott Morrison has only an unconvincing policy to achieve the 26 to 28 per cent reduction in greenhouse gas emissions by 2030, to which Australia has committed itself, the media is pounding Opposition Leader Bill Shorten to reveal the “cost” of his promise to reduce emissions by 45 per cent by 2030.
For reasons I don’t understand, Shorten is displaying a degree of honesty rarely seen in Canberra and claiming he doesn’t know the cost. The media can tell a lie when they see one, and are almost apoplectic in their efforts to extract the truth from him.
To the media, it’s a simple question, so it must have a simple answer and Shorten must know it. If he knows but won’t tell us, this can only be because the cost is absolutely horrendous. His climate change spokesman, Mark Butler, says it’s impossible to know the cost – but that’s obviously another lie.
Which, in a way, it is. It’s not possible to know the cost with the remotest degree of accuracy, but it’s perfectly possible to fudge something up and say it’s the cost.
What cost is that? The cost of whatever suits. Cost to the budget? Cost to the economy? Cost to the economy that ignores any benefit to the economy? Cost to the economy that ignores the cost of not doing anything?
Shorten’s in trouble because - for once – he isn’t playing the game the way the denizens of the House with the Flag on Top expect it to be played. Why won’t the man do the honourable thing and pay some “independent” economic consultancy to do some modelling that proves the cost would be minor?
An old political rule says that, whenever you leave a vacuum, your opponent will be happy to fill it for you. Enter Morrison, waving modelling carried out by Dr Brian Fisher, a former head of the Australian Bureau of Agricultural and Resource Economics, and now a consultant to the mining industry.
Fisher denies being a climate change sceptic and says the government didn’t sponsor his modelling. He’s been modelling the cost of acting against climate change since his time at ABARE in the 1990s and invariably finds it to be surprisingly high (I can remember decades ago writing to explain why his results weren’t as bad they could be made to sound).
His latest modelling finds that Labor’s policy would cause gross national product to be at least $264 billion, and as much as $542 billion, lower than it would otherwise be in 2030. By then the wholesale price of electricity would be up to 67 per cent higher than otherwise. Real wages would be up to 10 per cent lower than otherwise, and employment would be up to 300,000 lower than otherwise.
For what it’s worth, other economists who are experts on climate change have said these estimates of the costs are (to put it politely) far too high.
What’s more important to understand is that econometric models are built on a heap of assumptions – assumptions about how the economy works, and assumptions about what will happen in the future.
Dr Richard Denniss, of the Australia Institute, offers this list of things no one knows, but modellers have to make assumptions about if they want to claim they know what some policy change will cost: how far and how fast the cost of renewable energy and battery storage will fall; how far and how fast the cost of electric cars will fall; how quickly firms that face higher energy prices will adapt by increasing their efficiency; how the introduction of new sources of electricity generation and storage will disrupt the business models of today’s highly profitable electricity retailers; how regulation of energy prices will increase or decrease the monopoly profits of energy and petrol companies; how much the trend to household electricity generation and storage will increase the efficiency of the national grid by reducing problems with seasonal peaks in demand; whether the batteries of electric cars will be a form of free storage for the national grid; and how long it will take for autonomous vehicles to transform car ownership and use.
Still think the cost of Labor’s emissions policy is a simple question with a simple answer - that’s believable?
