Canterbury University's Tom Coupé on economists and climate change, uncontrollable technology, rugby and economics, reaping the gains from international migration and the economics Nobel Prize

Canterbury University's Tom Coupé on economists and climate change, uncontrollable technology, rugby and economics, reaping the gains from international migration and the economics Nobel Prize

This week’s Top 5 comes from Tom Coupé an Associate Professor in the Economics and Finance Department at Canterbury University.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

And if you're interested in contributing the occasional Top 5 yourself, contact gareth.vaughan@interest.co.nz.

1. Economics, climate change and other catastrophic risks

In a recent column titled “Why are economists letting down the world on climate change?” two British economists argue economists do not do enough research on climate change.

“Action on climate change is arguably the greatest challenge for public policy of our times. But despite economic forces being the major driver of the carbon dioxide problem, this column argues that economists have so far been too silent on the subject. For example, the Quarterly Journal of Economics, the most-cited journal in economics, has never published an article on climate change. Good economics can and should play a fundamental role in guiding the policy framework that will influence investment decisions in the coming years, so it is important that the profession dramatically increases its work now.”

After reading that column, I decided to read a bit more on the topic. There are some good reviews on economics and climate change, one from 2018 and one from 1993(!).

One of the more interesting pieces I read was this one on ‘Catastrophic Risk and Its Economic Implications’, by MIT’s Robert Pindyck.

“Although many of us would prefer not to think about it, the fact is that we face a variety of global catastrophic risks. Examples include an eventual climate catastrophe caused by continuing Greenhouse Gas (GHG) emissions, a major pandemic as bad as or even worse than 1918-19 Spanish Flu, nuclear or bioterrorism, or a financial crisis and economic depression as bad as the Great Depression of the 1930s. 

"Given the economic important of potential catastrophic events, why don't they receive more attention? Perhaps we ignore some of these risks because doing otherwise is too depressing. In addition, it would force us to acknowledge the unfortunate fact that we are doing little or nothing to avert most of these possible catastrophes.”

2. Uncontrollable Technology

Pindyck identifies some more catastrophic risks: “If you feel you don't have enough to worry about, here are a few more things: robots and AI that become uncontrollable”. Those interested in this scenario might want to read “The Next Word - Where will predictive text take us?”, recently published in the New Yorker. In the article, the author lets AI predict part of the article

“What if some much later iteration of GPT-2, far more powerful than this model, could be hybridized with a procedural system, so that it would be able to write causally and distinguish truth from fiction and at the same time draw from its well of deep learning? One can imagine a kind of Joycean superauthor, capable of any style, turning out spine-tingling suspense novels, massively researched biographies, and nuanced analyses of the Israeli-Palestinian conflict. Humans would stop writing, or at least publishing, because all the readers would be captivated by the machines. What then?

GPT-2, prompted with that paragraph, predicted the next sentence: “In a way, the humans would be making progress.”

If you do read the article, make sure not to skip the small text at the end, however!

Other interesting tech related articles in October are this one on the value of free internet services:

“The results? The median user would need about $48 to give up Facebook for one month. The median price of giving up video streaming services like YouTube for a year is $1,173. To stop using search engines, consumers would need a median $17,530, making it the most valuable digital service.”

And this one on technology and offshoring:

“Contrary to popular predictions made in 2007, offshoring risk is not related to job loss for hundreds of occupations. Instead, those jobs predicted as “at risk” of being offshored are significantly more remote work based today.”

In September, the NZ Productivity Commission also issued a first draft report on ‘Technology and Productivity”. For those with little time, this 3 minutes video of the Productivity Commission gives a good intro.

3. Rugby and Economics

As mentioned above, it has been argued that economists don’t do enough research on climate change. One could also argue that economists have shown little interest in studying rugby: a search for rugby in the Journal of Sport Economics results in just 1 article on rugby but 73 articles on soccer.

There is some interesting rugby economics research, however: Liam Lenten of La Trobe University has a recent column on the bonus scheme used in the Rugby World Cup and shows that incentives affect behaviour, but not always in the way they were intended to affect behaviour.

“In research to be published in the Scottish Journal of Political Economy, we report that the introduction of the try bonus was effective in increasing the likelihood that teams would score four tries in a match (which is an above-average number).

The effect was concentrated on home teams, which given the advantages they already enjoy are more often in a position to go for the bonus. It would appear to lend support for the view that the rule (or policy, in economist-speak) had achieved what it was meant to.

But not so fast. We also found a significant reduction in teams scoring five or more tries.

That’s right, a reduction.

We believe it was driven by teams reducing their attacking effort once the bonus had been secured, as a large share of teams that score a fourth try already have a comfortable lead, and it is generally late in the game.

It means that, on balance, the evidence in favour of bonus points achieving their aims is mixed. At best they achieve something, at worst they are counterproductive.

This is especially so when it is considered that average scores actually fell by about 15% in the seasons where bonuses applied, although that might have happened for other reasons.”

Note further that the current World Cup did generate coverage from both The Economist (‘Why Japan is learning to love rugby’) and the World Economic Forum (‘3 lessons Japan's Rugby World Cup can teach us about leadership’).

4. How to pick up some of the “trillion-dollar bills on the sidewalk”

Another hot topic in New Zealand is migration. Here is an interesting idea from a Voxeu column on two-sided markets in work permits. Some more details:

“It is widely agreed (at least among economists) that there are likely to be substantial efficiency and equity gains globally from freer international migration. As Clemens (2011) puts it, there are “trillion-dollar bills on the sidewalk”, Yet freer international migration is not a very popular idea; indeed, some people are extremely hostile to it.   

"In a new paper we point out that restrictions on international migration generate a missing market in work permits (WPs), with important policy implications (Lokshin and Ravallion 2019). In a nutshell, our policy idea is to create a market that helps capture the gains from international economic migration, while keeping the host government in control of domestic employment. An anonymous market exchange would allow working-age citizens to rent out their right-to-work (RTW). (There is much they could then do, including financing education or training, homecare of loved ones, or taking a long vacation.) Simultaneously, someone else would pay for a WP and would then be free to take up any job offer in that country, if admitted by other criteria deemed relevant. If the option of selling your RTW is confined to those in the workforce then aggregate labour supply would stay the same. A broader base of eligibility would allow rising employment. “

5. The economics ‘Nobel Prize’

Finally, this month, Abhijit Banerjee, Esther Duflo and Michael Kremer won the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” for “their experimental approach to alleviating global poverty."

“The research conducted by this year’s Laureates has considerably improved our ability to fight global poverty. In just two decades, their new experiment-based approach has transformed development economics, which is now a flourishing field of research.”

They use ‘real life’ experiments to find out what policies work and what policies don’t work. Seems like a reasonable idea, right, so why don’t we see more of such policy analyses? Unfortunately, many people don’t like experiments:

“In an important and sad new paper Meyer et al. show in a series of 16 tests that unease with experiments is replicable and general. 

Unease with experiments appears to be general and deep. Widespread random experiments are a relatively new phenomena and the authors speculate that unease reflects lack of familiarity. But why is widespread use of random experiments new? In an earlier post, I wrote about ideas behind their time, ideas that could have come much earlier but didn’t. Random experiments could have come thousands of years earlier but didn’t. Thus, I think the authors have got the story backward. Random experiments generate unease not because they are new, they are new because they generate unease.

Our reluctance to conduct experiments burdens us with ignorance. Understanding and overcoming experiment-unease is an important area for experimental research. If we can overcome our unease.”

Indeed, yet another topic that needs more research!

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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#1 says it all; “Why are economists letting down the world on climate change?” Fundamentally economists advise Governments and banks on policies and policy settings. As Mr Coupe identifies, and I think PDK has also said this, there are reports that identify the risk going back decades, but to get traction means that the people who are being advised are both smart enough to identify that something needs to be done, and politically and personally strong enough to be able to actually put policy in place to achieve it. I seriously doubt whether Politicians will do this because they are too often influenced by the money, and the main stream voices simply squashes those who are not singing the party (or organisational) tune! The immediate problems get addressed, the not immediate don't. A man with a gun is immediate, the possibility of a weather event, Not.

As the pressure ramps up what kind of policies get put in place? BS rubbish such as an Emissions Trading Scheme (ETS) which allows the wealthy and business to skate out from under while the low to middle, who can't afford it, bear the consequences. governments privatise power companies to rort the public on profits so they get a dividend, and of course not real debate or solutions appear for sustainable power despite increasing demand, because all profits are paid to the shareholders, the majority of whom are the GOVERNMENT! Economists don't advise on Global Warming because the ears they are playing to simply do not want to hear their message.

The research conducted by this year’s Laureates has considerably improved our ability to fight global poverty. In just two decades, their new experiment-based approach has transformed development economics, which is now a flourishing field of research.”

Well, at least someone's getting wealthier..... :)

Wealth is the ability to buy stuff you need ('want' being secondary). We can argue about some of that being virtual, but essentially wealth means the ability to physical stuff (particularly if someone has privatised a commons) - food, water, shelter, energy. If those are being supplied from finite sources (as per oil, coal, gas, phosphate) or over-used renewable sources (topsoil, aquifers, old-growth forest) then the supply must reduce.

That reduction is exacerbated by a sequential reduction in quality, concentration and in energy-return. Plus the inevitable onset of entropy. So even with a static population, real wealth per-head must decrease per time, after the initial stock-plunder has peaked.

Increase population and per-head consumption from 'stock-plunder-peak' on, and you accelerate the loss of wealth per-head. Stratify the access to the remaining wealth (remembering that it's energy and resources) and you will indeed appear stratified, but it will be under a sinking lid overall.

But they've come up with a way to make the bottom-end wealthier, have they? Excellent. That means I can chuck away the radiator in my car.

#4. Almost anything is better than what we have at present. Other than seriously conflicting cultural practices (eg FGM) a hard-working highly intelligent professional adds value to NZ. They exist and it is good they are happy in NZ because usually they would earn more in other advanced countries. On the other hand there are too many pseudo-students using low level tertiary study as a means of escaping their impoverished countries of origin. They study to get residency not to learn and we only permit them because it props up our tertiary education. Admittedly they do work checkouts eficiently, drive for Uber diligently, etc but they are stopping poor New Zealanders earning a decent wage.