Category Archives: Politics

333. Reducing bushfire risks

All the world has seen media coverage of the extraordinary fires that Australia has endured this summer. They sparked an intense discussion and debate about what Australia should do to reduce bushfire risks going forward. What does our economic modelling of fire management say about that?

I had a direct stake in the fires. We have a small cabin in a coastal town an hour north of Perth, and before Christmas we had about a week of temperatures above 40°C (104°F), and a big fire threatened the town. It got to the point where they evacuated everybody, but thankfully the weather improved just enough and just in time for the firefighters to get it under control.

Over the past 8 years, I’ve been involved in a number of projects looking at the economics of bushfire risk mitigation in different contexts. We’ve done case studies in four Australian states (Western Australia, South Australia, Victoria, New South Wales) and in New Zealand.

The different studies analysed different combinations of fire management options. The one common element in all the studies was prescribed burning to reduce fuel loads, but in particular cases we also looked at land-use planning to exclude assets from high-risk areas, retrofitting of houses to make them more fire-resistant, fire breaks, and community education.

It was a mix of research and consulting projects, and some of it still needs to be published.

We found that the economics of bushfires are really complex and data-intensive, and often there is a lack of data to do a bullet-proof analysis. In some cases, we met some of the data needs using sophisticated fire simulation models, but in others, we relied on data synthesis and expert judgments.  Despite the variations in context and methods, we did learn some pretty clear lessons across the various analyses.

The results for prescribed burning were somewhat variable in different contexts, but overall, we found that the long-run benefits of prescribed burning tended to outweigh the costs in most cases.

Interestingly, though, we found that prescribed burning leads to reductions in average losses that are modest relative to the overall losses due to fires. These modest reductions in losses are worth pursuing – they exceed the costs of prescribed burning – but it means that we need to have realistic expectations about what prescribed burning can do for us. Especially in extremely bad (“catastrophic”) fire conditions, losses can still be large, even with the best possible prescribed burning strategy in place.

One of the questions we looked at was whether prescribed burning should be done close to properties or more distantly. Closer to properties has higher benefits, because it increases the chance that a recent prescribed burn will block the passage of a bushfire. But closer to properties also has higher costs, because of the need for additional fire-fighting crews and equipment to reduce the risk of prescribed burns escaping and doing more damage than they prevent. In a detailed analysis of this (Florec et al. 2019), we found that the costs of burning close to houses outweighed the benefits.

In the analysis we did for the Perth Hills, we found that strong land-use planning was the most cost-effective strategy. While it is easy to see the sense in that, it comes up against the reality that some people especially like to live in locations where the fire risk is especially high. We didn’t factor in the likely transaction costs to government in trying to impose a policy that a group of people is opposed to.

Another interesting finding was that a broad policy of retrofitting houses to reduce their likelihood of burning was not economically efficient. Such a policy imposes substantial costs on a large number of houses to avoid the loss of a much smaller number of houses, and we found that the numbers just don’t stack up. Interestingly, new houses in bushfire-prone areas of Western Australia are now required to meet high standards of fire resistance.

Finally, in one case where we had access to a fire simulation model, we looked at possible impacts of climate change on future losses from fires (in 2030 and 2090). In brief, the additional losses due to climate change were large, potentially very large. In the media discussions during and following the recent fires, some politicians were suggesting that bushfire risk is not a reason to pursue stronger policies to mitigate climate change; all we need to do is a better job of prescribed burning. While there certainly can be benefits from prescribed burning, our analysis shows that there is no way increased prescribed burning could come close to offsetting the worsening fire risk from even modest climate change. Indeed, increasing prescribed burning may not even be feasible following climate change, as climate change narrows the window of time within which prescribed burning can be done without excessive risk.

From a bushfire perspective, Australia would have a lot to gain from effective international action to mitigate climate change. This suggests that we should be playing a stronger role in the global climate policy process.

Further reading

Florec, V., Burton, M., Pannell, D., Kelso, J. and Milne, G. (2019). Where to prescribe burn: the costs and benefits of prescribed burning close to houses, International Journal of Wildland Fire https://doi.org/10.1071/WF18192

321 – Communicating economics to policy makers

When it comes to communicating research results to policy makers, economists have some advantages over other disciplines. But economists commonly make a range of mistakes when trying to communicate to policy makers.

Included amongst the advantages that economists have are that economics can be used to clarify the pro’s and cons of different decision options, and this is exactly what policy makers need in many cases.

Secondly, a good economic analysis is holistic, bringing together all, or at least most, of the relevant elements, including social, biological, physical, financial, behavioural elements, accounting for risk and uncertainty.

Thirdly, economics tries to assess outcomes from the perspective of society as a whole, rather than a particular interest group, so it can be seen as more balanced and independent than some other disciplines.

On the other hand, economists often squander these advantages by making basic communication mistakes. Too often they fail to cut out the technical jargon that is meaningless and perhaps annoying to their audience. They focus too much on abstruse technical details of their analysis, rather than focusing on why it is important and what the results mean. They explain things in abstract, conceptual terms, rather than giving examples and telling stories to make things tangible and real. In short, they are often not tuned into, or don’t understand, the perceptions and needs of their policy-maker audience.

In July I attended the annual meeting of the Agricultural and Applied Economics Association, in Atlanta, Georgia. One of the highlights for me was the presidential address by new president Keith Coble from Mississippi State University. His address was on “Relevant and/or Elegant Economics”, but mainly on making sure economics is relevant. I got a nice surprise when, about half way through the talk, he started talking positively about an old paper of mine on communicating economics to policy makers (Pannell 2004).

In that paper, I reported results from a small survey, including responses from economists who work in the policy world, senior bureaucrats, past or present politicians and a former ministerial adviser.

The most strongly emphasised advice provided by these people was to understand the policy maker’s situation and perspective.

Other messages included to be practical and pragmatic, to be persistent, to understand the importance of timing, to establish networks in order to build support, to not tell your target audience that they are wrong, and to keep your communication brief and clear.

There are many other useful pieces of advice in the Pannell (2004) paper, so have a read.

Further reading

Pannell, D.J. (2004). Effectively communicating economics to policy makers. Australian Journal of Agricultural and Resource Economics 48(3), 535-555. AgEcon SearchJournal web page * IDEAS page

Gibson, F.L., Rogers, A.A., Smith, A.D.M., Roberts, A., Possingham, H., McCarthy, M. and Pannell, D.J., (2017). Factors influencing the use of decision support tools in the development and design of conservation policy, Environmental Science and Policy 70(1): 1-8. Journal web page * Pre-publication version * IDEAS page

308 – Vote yes for marriage equality

Australians currently have a chance to vote for marriage equality by postal ballot. I know this is a bit off the usual topics for this blog, but it’s something I feel strongly about. If you have the right to vote, here are six reasons to vote yes.

1. Because it’s the kind and decent thing to do. It would create joy for many thousands of people without hurting anybody.

2. Because gay people still face prejudice in many forms, and still attempt suicide at higher rates than their peers. Voting yes would be one small step towards turning this around.

3. Because we should not let the religious beliefs of a minority dictate how the rest of us live our lives. There is and should be a separation of church and state in Australia. Nobody should be required to follow the dictates of a religion to which they do not voluntarily subscribe. That is the real issue of religious freedom here – quite the opposite of what some “no” advocates are claiming.

4. Because the position of some Christians against same-sex marriage is not supported by the Bible anyway (Whitaker, 2017). The Bible has vastly more to say about being kind and generous than the few vague fragments it includes on homosexuality. Nowhere does it actually proscribe same-sex marriage. In the Old Testament, it does say that a man lying with another man instead of his wife is an “abomination”. But (a) this is about adulterous sex, not marriage between a loving couple, and (b) there is an interesting list of other things that the Old Testament also describes as abominations, including wearing mixed-fabric clothing, tattoos, mocking the blind by putting obstacles in their way, and trimming your beard. Why are we not having a postal plebiscite on the trimming of beards? The highly selective focus of some Christians on homosexuality is hypocritical. Neither testament of the Bible says anything whatsoever against lesbians.

5. Because Australia is lagging behind the rest of the civilised world. Same-sex marriage is already legal in The Netherlands, Belgium, Spain, Canada, South Africa, Norway, Sweden, Portugal, Iceland, Argentina, Denmark, France, Brazil, Uruguay, New Zealand, the UK, Ireland, the US, Luxemburg, Colombia, Greenland, Finland, Slovenia, Germany and Taiwan.

6. Because this change is inevitable, and saying no now would needlessly delay us doing the right thing. It prolongs the debate and increases the number of public expressions of anti-gay prejudices.

Post your completed survey form back by 31 October to be sure of meeting the deadline.

Further reading

Whitaker, R.J. (2017). Same-sex marriage: What does the Bible really have to say? Here

307 – John Kerin’s memoirs

John Kerin was Minister for Primary Industries in the Australian Government between 1983 and 1991. His memoirs are now available as a free download. Having seen him speak several times since he ceased being a minister, I think his memoirs should be fascinating and very informative. Agriculture was very lucky to have him as minister during this period of great change and disruption. 

John Kerin was unusual as a minister in that he knew a lot about the issues he was responsible for. Not only was he experienced as an agricultural producer, but he was also trained as an agricultural economist, and worked for a while in the Bureau of Agricultural Economics.

Apparently, his expertise was not always appreciated by his department. In the last part of the book he says “the ethos of some government departments was that they preferred ministers who knew nothing – the better to manage or control them. However, I thought that it was not necessarily an impediment to know something about your portfolio areas. The constant rotation of ministers is not good for policy making.”

Not only did he know a lot, he was clearly very thoughtful and remarkably frank. “Nor … do I want to give the impression that I was always sure about what I was doing, what the outcome of some policy options may be or where the changes and reforms we were introducing may lead. … By nature I am a pessimist, slow to come to decisions and generally believe that I am wrong until convinced of the path to take.”

A landmark event during his term as minister was the wool crisis. His eventual decisions for the industry were critically important and rather heroic as they faced fierce opposition from the whole industry, which seemed determined to do itself almost unlimited damage.

Some of his perspectives are all too relevant in our current political climate. “I have always been terrified by people in politics who are absolutely sure they are right, have God on their side or tell me they are ‘men of principle’. Such people seem able to blind themselves to their own hypocrisy and humbuggery – and are dangerous.”

I’m really looking forward to reading the book.

Further reading

Kerin, J.C. (2017). The Way I Saw It; The Way It Was: The Making of National Agricultural and Natural Resource Management Policy, Analysis and Policy Observatory, Melbourne. Available here: http://apo.org.au/node/76216

Pannell, D. (2014). Supply and demand: the wool crisis, Pannell Discussions no. 266.

301 – Inequality in the USA

Following the catastrophic result of the US unpopularity contest last week, one of the many suggested explanations was the level of economic inequality in the country. This made me think of the graph below, which I saw last year. It shows that, when it comes to inequality, the US is truly exceptional.

The graph shows the Gini coefficient (a measure of inequality) for 115 countries, plotted against their GDP per capita (a measure of their average income). There is a very clear pattern. Above a certain level of inequality (Gini coefficient of about 37), almost all countries have really low average income levels, while above a certain level of average income (GDP per capita of $12,000), almost all countries have fairly low inequality.

 

gini

Source: http://visualizingeconomics.com/blog/2006/01/04/gdp-per-capital-vs-gini-index

 

The exception is the US, which has both high average income and high inequality. There is a lot of wealth in the US but it is concentrated into a minority of hands. As one illustration, between 2009 and 2012, 95% of income gains in the US accrued to the top 1% of income earners. Other data seems to show that their inability to share around the wealth has become worse over time. Other countries with a similar level of inequality have about one eighth as much average income.

If it is true that inequality is behind this incredible electoral result, we can perhaps draw some solace from the fact that inequality is so much less in all other wealthy countries.

On the other hand, inequality was clearly not the only factor. Already, like-minded politicians around the world are feeling empowered and emboldened to spread their noxious views throughout their societies. We can see that happening in Australia, France and The Netherlands, for example.

And there seems plenty to worry about from what could now happen in the US. The world’s most powerful country will soon be led by a deeply ignorant man of appalling values and character. Even by the low standards of politicians, he tells obvious lies to an extraordinary extent. I feel angry that so many Americans were taken in by this conman, and now the whole world will have to suffer the consequences.

The other thing I can’t stop thinking about is a certain historical parallel. Can you think of another prominent national leader from the 20th century who was elected on a promise of making his country great again? This other leader also used an ethnic minority group as a scapegoat for his society’s problems, and found a sympathetic ear from countrymen who felt they had been badly treated. He had notable authoritarian tendencies, fomented hatred and resentment, was not averse to jailing his political opponents, did not respect the rule of law or democratic institutions, and was unable ever to admit that he had made an error. He excited mobs with messages that were simple and bold but facile and dangerous. He was friendly with other authoritarian leaders (although that didn’t last). And he had a distinctive hair style.

I’m not expecting that the US will now proceed to annex Alberta as a prelude to invading all of the countries they can practically get to, but I do think there is a serious risk that voices of reason, balance, kindness and openness within the country will be repressed and perhaps even persecuted. We have to hope that good Americans will be able to moderate or even prevent the barrage of stupid and repugnant policies that will now come forth.