What economic reform thinking might have looked like – if we’d bothered to do it

I have posted this talk previously, but can now post the transcript, worked up from a YouTube transcript with thanks to Shruti Sekar for editing it. You can download the slides to which I was speaking from this link.

Nicholas: [Slide 2,3]  I’m going to start with this quote from John Maynard Keynes which is a very striking quote, I think. And I guess the way I think about our situation, not just since the financial crisis but also, it turns out, over the whole generation of reform, is that, in a sense, we weren’t particularly serious. I don’t mean by that that we weren’t more revolutionary. It’s just that we reduce the thing to a formula very quickly and it ran out of steam very quickly. I’ll try to justify that claim as I go.

[Slide 4] Reform; the sort of reform Maynard Keynes foreshadows in the quote I’ve read was based on new intellectual understandings largely from the academy. That was Keynesian Macro and that involved very substantial reform. Post sixties reform was built on some simple ideas which are quite compelling.

[Slide 5] Stigler showed how regulation, which was often justified as protecting consumers, didn’t protect consumers but became a creature of the industry that it was regulating. Friedman’s critique of, if you like, the ‘vulgar Keynesian’ faith in a static Phillips curve. If anyone doesn’t know what that means, think of it as a predictable and linear relationship between unemployment and inflation, the idea that if you’ve got unemployment, you can always inflate your way out of it. There’s obviously something fishy about that. And if you read the literature of the time, the people who had any smarts kind of knew that too. But Friedman was the guy who pointed out what was wrong with it in his presidential address.

[Slide 6] The other thing that reform was based on was what I call ‘policy hacks’. Quite specific ideas. And as an example, Friedman makes a point of distinguishing between funding and delivery. That leads to ideas like vouchers, where the state withdraws from delivery but maintains funding, and things like income contingent loans in Australia copied around the world. Coase is another fertile mind who starts thinking about distribution, property rights, and so on. And from that, we get spectrum auctions, emissions, permits, and so on.

So good reform thinking offers insights that are specific, robust and actionable. And are they ideological? Well, all of the people I quoted to you are University of Chicago. An ideology got them to those ideas. They wanted the world to be more market-oriented, but the ideas themselves don’t need to be implemented in a pro- or an anti-market way. They are a repertoire of tips and tricks. And in the case of Stigler, if you say there’s regulatory capture, well, that’s good to know because if you’re there for the little guy, then you want to know about those kinds of things.

[Slide 7]So what went wrong?

  1. I want to suggest firstly something we’re all familiar with.
  2. Reform ran the gamut of vested interests. An intellectual dumbing down and overreach. That’s the big one in a sense.
  3. But the one that sort of upsets me the most is that we came up with almost no ideas after the ones that I’ve presented you and the generation of ones that I presented you. Now, that’s an easy thing for me to say. It really only matters if I can give you the feel of what those alternative ideas might look like. And I’m certainly not going to be comprehensive, but I think… I’m hoping to impress to you that, hell yes, there were lots of other tips and tricks we could have moved on to and that they are particularly well-suited to the development of our economy.

[Slide 8] So here’s a quick trip through vested interests. Here’s some examples. And maybe it’s better to look at the slides later, but here are some examples of ways in which the particular priorities are clearly ordered by vested interests. But here’s an important thing about using Australian sources, which is that Australia has an organization which is dedicated to the ten commandments of reform. It has an institutionalization of reform which is now called the Productivity Commission. And the thing is that the now Productivity Commission and its antecedents more or less went along with this ordering of priorities. At the same time as keeping the Smithian fires burning with hostility to vested interests, somehow took more note of certain kinds of vested interests than others. The record shows it far more concerned about vested interests down in the small end of town – workers on the wharfs and in factories – than the vested interests in the big end of town in finance, law and medicine.

[Slide 9] Dumbing down is the really big deal. Just as in politics we love debates between left and right so in intellectual discussion and particularly in economics we love paradigm wars. It’s so much more fun to have a debate about paradigms. It gets the emotions flowing. You can have an opinion without knowing much. Now, the first reform episode that I talked about – post-war reform – is the result of a paradigm change. And in macro in that context paradigm wars made sense. The question was how to think about running a macro economy, and we changed the model and that changed the way we worked. I don’t think that’s true of Smithian reform. Smithian reform picks up all kinds of stuff in the zeitgeist and makes good use of them until it stops making good use of them. [Slide 10] And there’s a real analogy, I think, with politics as culture war. As Martin knows, I’ve got a real thing about the way in which politics, as we can just watch it, polarize as people head for ideological debate as opposed to discussing the issues in front of them. So I think there’s a real analogy there.

[Slide 11] So the basic theory of this is that markets work miraculously, but it’s just so long as all those things hold, which just doesn’t tell you much, does it? [Slide 12] And so reform as deregulation, as becoming market-friendly, works when the background markets being acted on work tolerably well already. So where you can clear away the detritus of previous political deals and settlements and reveal a functioning market, it’s worth doing. So this regulation that we got rid of, airline regulation probably everywhere, certainly in Australia or in the United States, was never designed to improve the economic efficiency of the airline system. Likewise, tariffs in Australia, these were regulatory regimes that came out of political deal doing and providing they’re presiding over something which will function quite well as a market, you get rid of it and that’s what we did and that worked pretty well.

The other thing that worked well, are policy hacks. So we had income contingent loans. We sort of launched that on the world. The Child Support Agency is a similar kind of thing, using the tax office to administer maintenance payments between spouses who won’t otherwise agree. Spectrum auctions, congestion charging, and so on. Again, none of these things strike me as noticeably free market or left wing or right wing. They’re technocratic tinkering and they’re very effective at that if they’re done sensibly.

[Slide 13] And where did reform disappoint? Wherever it was difficult. In my country, it’s hard to think of a difficult sector that was reformed that we didn’t make an awful mess of. Now, it’s quite possible to argue that it was in a mess already. That’s an interesting argument, but I won’t dwell on that now. [Slide 14] So that’s just sort of a quick list of where market failure is pervasive. That’s a big list. And walking up to anything in there and saying “What we’re about is deregulation. We’re going to change some things on the basis that if it’s deregulatory, it’s good, and if it’s more regulatory, it’s bad,” that is not a recipe for policy success.

[Slide 15] Now, just a few years ago, in fact, I can tell you the day. I was doing a radio interview on a Lateral Economics. One of the things I normally dislike is to be asked in an interview “Summarize your report in a sentence.” But as I was doing this report, it struck me that I did want to summarize it in a sentence. We were talking about how to make Australia a supplier of funds management to the world. Don’t worry, nobody took any notice. And if they had, who knows whether it would have been very successful? But that was what I said. “Global funds management should be thought of as a joint product between funds management firms and their regulators rather than this idea that economists have in their head, which is that the firms do the production and the state just regulates them”. If you think about the complexities of international funds management, successful funds management centres have governments and private providers of funds management getting their heads together and trying to work out how to do it. Now, they’re also involved in helping people avoid tax, but you can’t become a successful exporter of international funds management if your regulators and your funds managers don’t understand themselves as involved in the same venture.

So now I want to give you a bit of theory. And by theory, I mean broad descriptive, reflective stuff. I don’t mean equations and so on. I want to talk to you about public and private goods. [Slide 17] So that’s a kind of a textbook definition of a public good. And both an economist’s idea of public good and the public’s informal definition of a public good is something a bit similar, I think, which is that public goods are those things which no one will supply if the government doesn’t. And that’s a quadrant that the Ostroms (Vincent and Elinor) cooked up and they said a public good is something which is non-rivalrous and non-excludable.

Anyone like me to explain those terms? Yes, some people would. This pointer is a single thing. If I have it, you don’t have it. So that’s a rivalrous good. The words I’m using are non-rivalrous. I can use them. They don’t get used up. You can use them and so on. And excludability is, within this room, we can’t exclude someone from hearing the lecture but we have a place where we can exclude people and that allows us to charge a price. In the absence of excludability, paying a price is voluntary, which you will agree, is a different kind of transaction. So a public good is this coincidence of those two things. Now, that’s a definition of public goods as a problem. It’s important that you realize that economists have thought about public goods as a problem and they are focusing on excludability. So there’s the Ostroms’ “Public goods present serious problems in human organisation.”

Man 1: I’m just wondering about the lighthouse because I know that it’s a textbook example.

Nicholas: Yeah. Please, let’s do that over drinks because that’s a long, long story. But it’s a fair point. So our definition of public goods is oriented in a particular way. If you like these terms, I don’t much because they lead you to just get misunderstood by people. But if you like, it’s a neoliberal interpretation of what a public good is. And then there’s the other side of it. It’s hardly a problem that something is non-rivalrous. If you’ve brought it into the world, well, that’s a big opportunity, isn’t it, to share? So that’s the other side of it which doesn’t get focused on. And I’ll have more to say about that soon.

[Slide 18]. As Adam Smith said, it is not from the benevolence of the brewer, the butcher, or the baker that we expect our dinner. These are private goods. They’re nice discreet things. And lighthouses are public goods. I want to suggest to you that that’s not a satisfactory way to think about public and private goods and that public and private goods are co-dependent and co-evolve. And to prove that to you or to demonstrate it to you, we’re going into the 18th century. [Slide 20] We’ve got on our 18th century gear, as you can see. A wig for the guy’s at least. The room we’re in may even be from the 18th century for all I know. And central banking has come into existence just a few years before the beginning of that century. And central banking is a public good that is a precondition for so much economic development. The Navy keeps floating around the earth and bumping into continents late at night. That’s not going to do. And we don’t need to build more ships. We need some knowledge which is a public good, which we know about the competition for Harrison’s clocks. There’s knowledge that’s come from Portugal from the 15th century that if you take lemons and various other things with you, the sailors won’t die on you. That’s some public goods that the 18th century fits us up with. And there’s the joint stock company. We’re in the presence of at least one Dutchman in the audience who I know, and they got on to this a little earlier. But anyway, the joint stock companies came into their own at around about this time.

[Slide 21] We are now in the 19th century, as you can tell, and that’s the primary school I went to in Harkaway in Victoria. It was built by the Lutherans and bought by the government in 1867. Public education. Public sanitation. This extraordinary idea that the British came up with of a merit-based public service, an idea they nicked from the Chinese. Central bank notes, 1844. These are all extremely important public goods that are part of the economic development of the place. So the way I like to put it is that there is an ecology of public and private goods.

[Slide 22] And here is Adam Smith and Hayek explaining that. So you know that stuff in Hayek about spontaneous order? Every example he cites is a case of something he could have called a public good but didn’t. I’m not accusing him of anything there. He’s thinking a different way. But the market that emerges out of self-seeking is a public good. Liquidity is a public good. Price discovery are these things that emerge or they co-evolve with self-seeking.

[Slide 23] And in fact, our patron saint Adam Smith, good guy generally, built his whole economics on what I call the notion of emergent public goods. So in the Theory of Moral Sentiments, he talks about the evolution of human culture and he shows how this emerges spontaneously. And again, it doesn’t use the term public good. But culture becomes a public good, a regulating entity which enables us to sit in this room, nobody is stealing from anyone else, we all have rich expectations, and we’re all capable of constructing a public good which is this conversation. And then the Wealth of Nations is the same sort of story which I’ve given you. And there’s one other canonical public good which the government didn’t build and doesn’t appear in textbooks anywhere, but Adam Smith actually wrote a treatise on it and he explained its evolution in very similar terms. Anyone know what I’m talking about? Language. Isn’t it amazing? An emergent, a generative commons, as I heard it referred to on one occasion, which I think is a very fine expression, a very descriptive expression.

[Slide 24] Very quick. Actually, because there’s not time, I will move on from that one.

[Slide 25] And so here we have a rich ecology of public and private goods. Private goods are areas where we look after ourselves, and public goods are these things that can’t quite get their act together but we know we want them. Many of those things are not perfect. Public goods, they’ve got public good elements in them and that is a list of what is typically you get help from the taxman if you make donations. We sort of have quite a lot of this stuff fairly hardwired.

[Slide 26 first picture] That is a picture of human collective intention. I have it on good authority, just from what I’ve read, that you will not find a primate holding down a branch for another primate to pick fruit from a tree. So we are good at creating collective intentions. And in fact, I so much prefer that to this idea of self-interest and altruism which, as Adam Smith said, or benevolence, is a weak reed and you wouldn’t want to rely on it. Well, we could rely on this idea of collective intention to slaughter many men who we celebrated the slaughtering of or the end of slaughtering of a few days ago. I think it was during World War one where Bertrand Russell said he wasn’t going to study a discipline that was built on a single principle that people follow their own self-interest. He thought that was an extraordinary proposition.

[Slide 27] So for me, the world is a nested ecology of public and private goods. If you look at this picture, [Slide 26 second picture] everywhere you look, there are people acting on their own but they’re acting within a web of publicness. So there are two people playing chess and they’re competing with each other and yet the game they’re playing is a public good. It’s a public thing. A conversation is exactly the same thing. There is publicness and privateness shot through this picture at every scale that you look at, and that’s something I think is important to think about. And again, private goods, we see competition between private goods. And then public goods, these are the things which hold these social formations together.

[Slide 28] So I think reform should never have been seen as deregulation except where it was a harmless thing to do or acquire the summary aesthetic of market orientation. It should have understood itself as refurbishing the institutions of the mixed economy.

[Slide 29] So let me now give you an example of what I mean in the area of information. [Slide 30] We know about Hayek. Hayek tells us that it’s very important that the central planning is going to be a bit of a disaster because we need to use information about relative scarcity that is distributed throughout the economy. What the hell am I talking about, to the non-economists? Well, a farmer or a trader in grain knows the grain is not growing very well this year and the price of grain goes up and everybody economises on the use of grain and substitutes to other grain. That’s the price system of work and it’s incredibly powerful. On the other hand, what Arrow and Stiglitz and Akerlof, the people who come many decades after and point out that that’s not all there is to it, that asymmetric information is one of the main problems of markets. Remember, Hayek talks about prices. Prices are the only information that are well-reported in a market because they have to be agreed between buyer and seller, not anything else. So all this other stuff is up for grabs.

[Slide 31] So remember this? Well, none of you will remember it from your lives, but you might remember it from books. This is the 19th century marketing patent medicine. And one has to wonder how far we’ve got from that. We’re much more genteel these days, but let’s just go through some things quickly. [Slide 32] Most advertising is not informational but symbolic. I don’t want to make much of that other than to say that that was a substantial topic in economics 50 years ago, very boutique now. We build conflicts of interest into things of immense public good importance, like the auditing of accounts. In governments, there are statements of regulatory impact and environmental impact, and they are invariably done or influenced by people who want to influence the outcome. The term “push the envelope.” [Slide 33] There’s an Ngram Viewer. It took off around about 1990. Likewise, stretch the envelope. I’ll leave you to draw the conclusions.

[Slide 34] The importance of reputation. Here’s John Kay talking about the way in which reputation is the way that markets typically deal with asymmetric information. And that’s how we deal with it when we buy a computer, whatever sort of computer, and now we’re using it online in lots of ways. But regulation doesn’t do that. [Slide 35] Policy is stuck in early prototype. Imposing mandatory disclosure, which we know almost invariably doesn’t work. Regulation of professions sometimes a little more than a PR makeover. And that’s the case with financial advisors who get to call themselves government licensed financial advisors and then go and pursue conditions the way they always were. Most of these people don’t even have university degrees. And all of this regulation costs a lot of money, but it doesn’t tell us the most important thing we need to know, which is how can I find somebody who’s good at this? And it doesn’t do that for financial advisors. It doesn’t do it for surgeons. It doesn’t do it for lawyers. And there are lots of ways in which it could.

[Slide 36] Quick romp through restrictive practices. In law, they’re as rampant as ever. And I’m not talking about the sort of standard economic textbook which is “Let everyone compete. Let solicitors compete.” The barristers, a lot of those barriers are down in lots of places. And if they made things better, well, they haven’t because the real problem is that the system is, infested with people who are gold plating things to their own advantage. So, lawyers control procedure and you end up paying $30 million for a fairly straightforward investigation about whether Andrew Forrest, an Australian, misled investors. $30 million in legal fees to the government agency.

[Slide 37] And I’ll let you read that comment from Andre Geim who is a Nobel Prize winner. I think he’s British and he invented graphene. Because of the time, I will actually jump ahead a little and just say that he was told by a guy, “Don’t worry about patenting it because if you patent it, we will put a hundred patents out afterwards and you will spend the rest of your life defending our losses.” That’s why he didn’t patent it. Now, my point is this: Is this turning up on the list of economic reform targets? Have you seen it discussed by economists as things micro economic reform that we need?

[Slide 38] Very quickly, it really does get a lot worse. So competitive incentives are crowding out the public throughout our knowledge and research infrastructure. Here’s two incredible quotes. 11% of pre-clinical cancer studies could be replicated. And to quote John Ioannidis, who is an expert on this stuff, “Overall, not only are most research findings false. Most of the true findings are not useful.” How can a true finding not be useful? Well, you do a randomized control trial between the placebo and a new drug and you get a result and you don’t know whether the new drug is better than the old drug or how it’s better. That’s an example. This stuff is being pumped out by universities all the time. They are meeting their institutional imperative and the public interest which is there and meeting these institutions together as best we can. And of course, we can’t do it perfectly. That falls by the wayside. [Slide 39] So none of these issues are a focus of economic reform, but in Australia, we have a list produced by the Productivity Commission of what is economic reform and making sure that non-pharmacists can own pharmacies as part of the economic reform. But this isn’t. So that’s the sort of thing that I want to refer to.

[Slide 40] And again, where market failure is pervasive, I want to suggest what I said to you earlier that output should be thought of as joint product of competitive and collective (collaborative and regulatory) activity, an ecology of public and private goods, multi-layered, nested, and so on. The collective interest represented at different levels in different ways. For the same reason that markets work well when they do, what we need to try to do is devolve decisions to a level where the knowledge exists and the incentives to act well are strongest. And we’ve barely begun trying to think about that sort of stuff. Of course, this sort of political theory about words like subsidiarity and so on, but economists have barely articulated these kinds of things.

[Slide 41] You’ve heard of the expression free rider problem. How many people have heard of the expression free rider opportunity? It’s sort of a countercultural comment and yet it’s more important than the free rider problem. That’s not a statement that free rider problems are not important. [Slide 42] It’s just that, as Thomas Jefferson told us, the free rider opportunity is so much more important, as Robert Solow could have told us with his productivity studies in the ‘50s and early ‘60s. This is the opportunity of non-rivalrousness, which of course has gone through the roof in the 21st century. Who can tell me a list of new public goods of the 21st century? Anyone got anything? Any thoughts? Not you. You know this shtick. The internet is a new public good. Yeah. It’s a late ‘70s public good, but any others?

[Slide 43] We’re in the 21st century. You need a hat? That simply won’t do, so we’re just going to have to go with that. I made that slide before a certain presidential campaign. There’s a bunch of new public goods, not one built by the government. But we’re going to have to change our definition of what a public good is from a world in which we think of public goods as a problem to a world in which we want to at least keep in mind the possibility of public goods as an opportunity. So we’re going to call this non-excluded. The way in which Google made something a public good was not by being non-excludable, but by choosing not to exclude it.

[Slide 44] So here we are. We are Google and we are thinking of the amount of value we can create. And this is the amount of value that Google can create behind a paywall. And it won’t get that many customers, but it will at least capture a lot of the value. And the alternative is to do it as a public good, in which case, on the back of my envelope, it will create something of the order of a trillion dollars’ worth of value. And here’s the thing. The cost of doing it, it can get 60 billion… It’s monetising just 6% of the value it creates. It’s getting by on the smell of an oily rag [32:14] but their costs are half that, so they’re rich beyond their wildest dreams. So that’s how these public goods have come into existence.

[Slide 45] I’ll skip that too, but that’s an example of ecology of public and private goods on the platform. That’s a successful platform is something which gives you something and then turns it into a public good that is of interest to others. [Slide 46] So now we’ve got a new landscape and we’ve got those things in the textbook which is over there, and then we’ve got these emergent public goods, language being an example. Open-source software, the language instinct rendered into executive code, eternal extraordinary thing, executive, does stuff. Then we’ve got these platform public goods. But there’s a problem and the problem is that this thing is clicking a lot slower than we wish it was. The problem is that what happens when we get to a stage like, for instance, take roads, take the funding of roads, we could fund then… If you build a road, you can put billboards next to it and you make some money from billboards. The problem is you can’t make enough money from the billboards. So that is the equivalent on the net.

And so the question is what global digital public goods exist in there that can’t be built by the market? There must be some. And I knew that I needed a kind of killer example of this to kind of capture people’s imagination rather than saying this is a nice theoretical proposition. We’re funny that way, human beings. [Slide 47] And so I came up with this sort of framework in about 2009, and then in 2012, I was looking at Ann Wojcicki who is the CEO of 23andMe, which is a consumer genomics company. She was married to Sergey Brin at the time. He’s the co-founder of Google. And things move fast in Silicon Valley. She no longer is. [Slide 48] And what 23andMe does is for then $99, now I think $149, I send you a little kit, you spit into the kit, send it back, they do a genomic analysis. It’s a partial genomic analysis and then they can tell you various things about ancestry if you’re interested in that or possible health issues that you might be interested in.

[Slide 49] So here’s my example. I’m looking at this and I’m thinking she’s facing exactly the same decision that her husband had, which is “Do I build this as a private or a public good?” As a public good, I’ll try and explain to you why it is so much more valuable, but you can’t get enough money to do it. So that’s the cost of it and that’s going to make a loss. So the obvious thing, she didn’t know this. She’s an American and Americans don’t know that you’re going to have public health systems right there and then. And so I immediately think of Medicare. I’ve translated this into the NHS. The funding comes from the NHS. They get access to your data. It’s all voluntary. If this is icky to you, you just say, “No, I don’t want to do it.” The doctors are encouraged to nudge people in. “Do you want to do this? If you don’t, that’s fine. If you do, tick here. Spit here. We’ll sort it out.” And then it gets connected up to the health system: diagnosis, pharmacovigilance, research, population-based screening. If that’s not worth $100 per unit to the state, to the NHS, I’d be very surprised. And if it’s not worth it to the NHS, it’s surely got to be worth it to the economy at large.

[Slide 50] So here we have public-private digital partnerships and that’s just an example. And you can do this. Any SaaS hub, any software as a service hub, you can think of similar kinds of things to do. [Slide 51] This is a start-up in Australia which does employee engagement. If government said, “We’ll fund this” or “We’ll have a tender so that this can be made available as a free thing,” you get a standard, you get data, you can connect firms up with their permission who have similar, or one firm might have solved an HR problem that another firm has, etc. You start to create all kinds of possibilities. [Slide 52] That’s software as a service on accounting.

[Slide 53] And it doesn’t necessarily just have to be like this. An example I like is windows on workplaces. We debate the liberalisation in the workplace as if there wasn’t a problem knowing… It seems to me obvious that the fact that people don’t really know how good a workplace is before they get into it is a problem. Now, it might just be a problem we have to deal with, but it seems to me there are things we could do. We could, for instance, try and make sure that workers’ compensation premiums are published and prominently given to applicants for jobs as a proxy for safety. But it would also be nice to get employee engagement surveys out into the open so people can see from the outside which ones have got good employee engagement. Of course, you all know why it doesn’t happen, or you all think you know why it doesn’t happen because it might be embarrassing. Correct? But that doesn’t answer why the best firms don’t publish that. And I think the answer is because there’s no standard to report to. If PwC is doing a lot better than KPMG, KPMG can go and dig some stuff out of their survey which is done in a different way and present the data as if it’s as good. So standards are an emergent public good and we can help them emerge. Governments can use their convening power to help those things emerge. So, look, I will leave it at that. That’s another thing, but I’ll just leave it at that and hand over to Henry. [Slides 54,5 were skipped.]

Henry: Thank you very much, Nicholas. Now I’ll ask Martin to give a brief response. Martin Wolf is probably well-known to all of you. I love the way he describes himself as a journalist that focuses on economics. So he’s someone who manages to be authoritative over economics without having the hard work or the boredom of having to study economics for a long time. I think it’s a great achievement. And obviously, he’s written extensively, particularly the Financial Times, but a whole range of books, a lot about finance but also about globalisation. He knows about the 0.0001% and how they live and what they think about. But with that, I look forward to Martin’s comments.

Martin: Thank you. Okay. So first of all, just to spare the my teachers, I did do a graduate degree in economics. So the people who taught me, some of whom Nicholas knows, would be very embarrassed if my professional credentials were denied. Anyway, I was a professional economist for quite a while before I rose into journalism. Now, I think we want to get to discussion and Nicholas, as always, has raised an enormous number of issues. I think his lecture would make a pretty good book of about 400 pages and I imagine that many of you must feel a little bit overwhelmed. If you haven’t, if you don’t, then you shouldn’t be here because you’re formidable geniuses. So he has done a whirlwind tour of his thinking. I got to know his work over the last few years. He’s not somebody you come across that easily, but once you do, you become addicted. He is, I think, extraordinary original and imaginative and thought-provoking, and there are no buts there.

Nicholas: Oh, I was waiting for the but.

Martin: There are no buts there.

Nicholas: However…

Martin: However will come. So I do think not only that you should… There is a text which I’ve read. You should read it. You should look at his blog. I think it really is remarkably original. And one of the things he’s done in a very interesting way is to get into an area in which lots of other people are , in different ways. Somebody like Ferrari, for example, in which is to try and think about what makes us human. And what he’s doing in part when he talks about public goods and private goods all mixed up together, he’s really talking about human beings as cultural animals and the way that shapes us. And of course, if you start looking at economics in that way, you end up thinking about it in a very, very different way. So it does actually go back in some rather important way to 18th-century thinking. It links up with some of the more interesting modern evolutionary ideas and also some of the more interesting cultural ideas. So I recommend this very, very highly. So that’s the first big point I wanted to make.

But the second… I’m going to cover just two other areas and it’s completely different from what I carefully prepared. I knew that when I prepared my ideas, I would end up talking about something different. So I want to focus on, one, what is really, in all truth, this lecture covered far too much. It breaks all the rules of lectures in my view. And if I had been the editor, which I frequently am, I would have told him to focus on just one of the ideas. So one of the ideas in this, a very central idea, is what he calls hacks- which is the idea that if you understand a problem relatively well and look at it in a relatively non-ideological way, which is very difficult for you and me to do particularly nowadays, and you think about what you’re trying to solve, you can come up with some really quite clever ideas. And cumulatively actually we have generated quite a lot of very clever ideas. Some of them are very big clever ideas like legal systems which there have been some problems; and even bigger clever ideas like language because really nobody ever had that as an idea; but also lots and lots of concrete ideas to solve specific problems.

And if you think about the last, this is very close to it I suspect. I don’t even remember when you cited him but it’s very close to Karl Popper’s idea of what he called piecemeal social engineering. Piecemeal social engineering in his counter to the Austrian school or his version of the Austrian school, you can think of this either way, is the way he thinks about it. And economists tend to rather like that way of thinking. Not all economists because there are lots of potentially ideological ones; rather like the idea of piecemeal social engineering. So to take one example that you mentioned, we have the question of how should we fund higher education and what role should students play in funding it or should it be free for them. But is that equitable given that they’re clearly going to be the more successful members? So there’s clearly a technical and political problem to solve in that sense. And he mentioned the Australian invention of income contingent loan scheme which we subsequently adopted and created lots of problems. We did it very badly.

The point I would make about this is I’m very sympathetic to this view of things but it obviously creates two very big classes of problems. And these are, if you like, the political philosophy of reform if it’s piecemeal. And I think it has to be because revolutionary reform is, to put it mildly, rather disappointing. So the problem with piecemeal reform is, of course in practice as we know, one of the great mistakes of economics to ignore this. Everything is connected to everything else. So it’s usually very, very difficult to think of a way of fixing X which doesn’t create problems even if it was just stopping for Y, Z, A, B, C, D, and all the rest of it. And so,  going at things as a series of piecemeal problems, though I think probably the only way we can do it, creates very large intellectual problems of its own. Even more so, it creates very large political problems. And they are core if you think of them within the context of a political democracy which is these hacks are quite complex and some of them are really very complex. You can talk about, for example, congestion charging as an idea but implementing it in a sensible way and thinking about all these externalities associated with it is really, really hard.

So in practice, piecemeal social engineering tends to me ruled by technocratic platonic guardians and this is profoundly anti-democratic. One of the reasons I think we’ve ended up in our intensely ideologically divided world, there are many other reasons for this, is people really don’t like that way of doing things anymore. Of course, it’s been made worse by the fact, which is pretty demonstrable while I’m coming to my last point, a major area, that it turns out that a lot of the technocrats were completely clueless. So if you have a combination of completely clueless technocrats and complexity and obscurantism, and he’s given plenty of examples of that, then what you’ve got is a recipe for complete collapse of confidence in the entire political system which is where we are. And so my challenge to Nicholas is how do we solve that? Finally, where do you get the license to do your piecemeal social engineering given where we are? It’s just something I’m thinking about. If you can solve that problem you’ve given me a chapter of my book.

The final point I was thinking about is some of the really important things he said about the mixture of the economy we have today. So it seems to me another way of thinking about what he was talking about is we have developed a situation in which we have private monopoly ownership of crucial public goods. And in fact, pretty well all these platforms fall into that category. And that is I think a social catastrophe as well as an economic one. But they are public goods and they have clear public monopoly aspects. And so how do we fix that? Second problem is that a lot of these public goods have, and he didn’t use this phrase I think, carried with them a stupendous quantity of simply spectacular public bads. Like the perfect spread, as the way I think it goes, the famous remark about the internet, and it builds on Jefferson and so forth, is that information wants to be free. That information doesn’t necessarily want to be true. There’s no reason why it should be at all. False information spreads at least as well, if not, there’s quite a lot of evidence, better than true information. And indeed, the point he made on science is that science, he says, has become a system for disseminating public bads.

Nicholas: So the thing you’re reaching for, Martin, is that information wants to be truthy.

Martin: Information wants to be truthy?

Nicholas: That’s the problem.

Martin: Yeah. Okay. Yes. Okay. So the point is we’ve got the private dissemination of public bads, the private ownership of public goods, and we have the private creation and destruction of some key old public goods, which he does actually mention, at which the most important probably is money. And so, what I would like you to do is to think a little bit more about how the hell we manage systems which have these characteristics because the mix-up that we are now living with, in the areas which he focused on in his article over the introduction of money,  that you mostly focus on the information economy, aspects of the information economy, seems to me to be creating simply stupendous and, as things are at the moment, unmanageable public bad problems of various kinds. That will be all I would say and I will leave the other lecture.

Henry: Okay. Thanks very much, Martin. Right. Well, that’s a huge breadth of area to go at and we’ve got about 35 minutes. So let’s see what anyone wants to come back and ask about.

Man 2: Yeah. Just on your last point, Martin. Just to hear your thoughts. Could you counter some of these public bads with new public goods? So for example, if this information had a new system in which it’s been verified by so and so [52:11].

Martin: So can I just comment on that one before you get to it? So here’s one area which I’ve been thinking about. But it’s conservative. I tend to be more conservative in this sense. So looking at what has happened in America, I’ve come to the view that the BBC is even more important than I thought it was. So if you’ve inherited an institution, not perfect, clearly not, but still it exists to do this, it’s rather important. And secondly, we have retained at least in relationship to television, though this is anonymous and not in relationship to newspapers, essentially I can’t remember the exact terms we used but the balanced and fair requirements which the Americans got rid of in the early ‘80s. So as things are at the moment, Fox TV or equivalents, Fox is obviously greater, couldn’t be created here. So that’s a pretty heavy-handed form of regulation and BBC is obviously quite an unpopular tax. But it seems to me that though we’ve got into terrible message here, we have avoided some of the more extreme dimensions because of these things which are essentially legacies of the past to start with.

Nicholas: I completely agree with Martin that these are the many of the great issues of our time. The one thing that I’d want to do some fancy footwork on however is the idea that what I presented there was somehow whitewashing or not owning up to that. I mean, I wasn’t talking about that. As he observed and you may well have observed, I was talking about far too many things as it was. So I’m encountering a world and trying to say this would be a worthwhile thing to do. In fact, I think in some of these cases, and it’s certainly not comprehensive, but I think in some of these cases I can actually follow the logic that I introduced there to show how it could really do some quite powerful good.

So take 23andMe. 23andMe gets your data. Okay? Now, it will sell your data. It will behave relatively well with it if it wants to hang around, one presumes. But that’s a very different story. And now the way I would envisage this is that the NHS observes 23andMe doing this and says, “Well, actually what we need to do here is we need to think about the sort of principles of governance according to which we would like to see it in the market for genomic data.” And then it will say, “Well, here’s our offer. We’re prepared to pay as much as $150 for a partial genomic sequence if they’re any use and $500 for a full genomic sequence.” It might take co-payments, whatever. And then if you take on board that funding, you sign on to a government structure in which this is open, the data is anonymised and used for research, and so on and so forth. None of this is going to happen with 23andMe on its own.

So it seems to me, and I was trying to think of a nice term for that and I’ve just cooked it up in front of myself, tell me what you think, public envelopment. It sounds a little sinister, I suppose. But the point is that here we have these public goods burgeoning and a very dominant political class and economic class and they’re not thinking about this and they’re not going, “Oh, crikey, there’s an issue of public good obviously here. Let’s try to think about this.” Now, I don’t mean by that that they should take control of it, but they should own up to it as an issue and start talking about it. The BBC actually did this in a fairly ham-fisted way, but a way that should be recognized, because in around about 2005, ’06, ’07, the BBC refused to use Microsoft video stuff, all of which was freely available for them to use, because they made in principle statement that they would use open source software or their own software and they weren’t doing a favour to some private multinational. Again, a crude and not necessarily particularly helpful thing but the right instinct which is to say, “Put something in our intro.” And most economists didn’t even see it in their intro. So it’s in the intro. Don’t imagine that you’re going to be the great social engineering, you’re going to sort all this stuff out. But it’s in the intro, for Christ’s sake. And economists start behaving as if it is in their intro.

A couple of other points would be the standard competition policy. And we’ve been remarkably slow, not really doing much about that. And the other thing to think about with regard to the great digital oligarchs of our age is that some of you will be familiar with the marginal cost controversies of the ‘20s and ‘30s, and that was all about what price should we pay for a London Underground ticket? And the textbook answer is the marginal cost not the full cost. Now it turns out on utilities that that’s hard. That’s analytically hard. It’s politically difficult. Guess what? It’s not hard in the digital world most of the time because the marginal cost is zero. And that’s exciting because it gives us some very clean kinds of potential policy hacks.

So I would for instance say that Microsoft, which has something like 90% of the paid, it would be more than 90% of the paid, word processing software in the Office Suite. I would impose upon Microsoft an access regime. And the access regime would say this: Anyone can copy the look and feel of Microsoft because that’s in our wetware and there’s x network externalities to that. They can’t copy your code but you have to publish full documentation of the format so anyone can interact with it. And so I think it’s quite likely that we could unpick their monopoly power in a much neater way than monopoly power raises in the world of high fixed cost and non-trivial marginal costs. So those are sort of scattered thoughts, some thoughts that I think are helpful but they by no means solve the problem.

Man 3: I think our faith in politicians has reached new lows.

Nicholas: Yeah. A whole new subject.

Man 3: Yes. In Australia, in the U.S., in the UK.

Nicholas: Happy to give you another talk about that sometime. Go on.

Man 3: I was thinking about examples of organizations that I think do a great job. You mentioned BBC. I think if I choose, even TFL is doing a great job too.

Nicholas: I don’t know what that is.

Man 3: Transport for London.

Nicholas: Okay.

Man 3: So it’s a unified, I think mixed economy, organization that runs pretty much every transport type in London. I was wondering, given all of the inhibitors to adoption of making public good products or services work, have either of you seen around the world anywhere an example of a new public service that has been brought to market successfully? So you mentioned 23andMe which has huge potential. And I can imagine what’s coming up in the next twenty years.

Nicholas: Well, yeah, if you can copy them, sure.

Man 3: Has anybody in the room seen an example of a new public Google service that is being successfully brought to the public that was actually [01:00:56] all the myriad best interests, regulatory reasons, etc. 23andMe is potentially very exciting. I agree.

Nicholas: Well, I’m not that excited about 23andMe. I’m excited about genomic… Yeah. Yeah. Well, of course the mind naturally goes to Singapore because that’s the sort of thing that Singapore tries to do from time to time. I can think of some things they’ve tried to do but not anything very grand in terms of some grand new public good. The other thing I’d say is that I’m aware of two things in Australian policy which I call the uncovering of the commons and the development of an uncovered commons. And what I mean by that is that there are many things from which many people will benefit. But because so many people will benefit to a small amount, nobody has an incentive to take a large stake- a stake that will really keep people taking over. But if you look at two things, and you will have examples,I’m sure there are examples around the world, two things that the Australian Government had done in the last 30 odd years. There is a program called land care which is farmers looking after land with a little bit of help from the government, a little bit of money, a little bit of seeding, of voluntary activity, and so on. And so that’s what I call an uncovered commons. A little bit of help enables a whole group of people to act in small ways to advantage the whole.

And an equivalent example is the Australian aid strategy which involved connecting up community groups, some expenditure on health and awareness. And we were sort of famously one of the least homophobic places in the world, which is kind of odd because our national cycle is a bit native. And we just handled it with great maturity and some real insight and intelligence. And that’s a bit of a case study as a good thing. I’m not that familiar with it. But there’s a couple of examples. Anyway, don’t forget the human side of things. This is something Smith understood that we have all this potential. And he’s a virtue ethicist really. I mean, we’re all trying to grow in virtue together. And the more virtuous other people are, the more we are and the more we can do, the more of these uncovered commons can be constructive.

Henry: I just want to add to that. I mean, what we’re talking about here I think is institutional design and the institutional world.

Nicholas: Just be careful. Institutional design or institutional evolution?

Henry: Yeah. Both. And because.. [01:03:58]

Nicholas: It’s incredible. Exactly. That’s right.

Henry: And surely one of the things is there’s been a renewal, sort of, when we think back to the co-op movement. But now we’ve got a renewal of the social enterprises. We’ve got fair shares, we’ve got impact investment, we’ve got a growth in enterprises that have a sort of public-private dimension. Isn’t that a new and interesting thing?

Nicholas: Yeah. It is a new and interesting thing. It’s very dangerously close to being massively overhyped, but it’s an exciting thing. But I think it needs something more and the state may…  David Cameron tried to do this with big society capital. Nice idea. That’s going to be a long time working out how the state fits into this. But if we want that stuff to do big things rather than lots of nice little things, we’re not there yet. We don’t know quite how to do that but it’s an exciting thing.

Martin: I’ll just comment on this because I think you’ve raised a fascinating question and it sort of links with what Nicholas was saying which is why we are so unimaginative in a sense. So we have three huge legacies from the past. They go back to the 19th century I think, which we’ve never solved. Land, which you’ve introduced, right? Money and the corporation, the limited liability corporation. And they are hugely problematic. And as far as I can see, nobody has fixed it. You could say in some sense that certainly communism wanted to, but it clearly didn’t. And I think it’s quite astonishing how the people are beginning to think about the corporation, but they’re all three incredibly enormous. We really have to revisit that. Then we had the creation, which I think is absolutely central, of crucial natural infrastructure monopolies, which you mentioned. And basically, they all ended up as either publicly owned or private and regulated. And by and large, people have found both alternatives rather unsatisfactory, but some of them haven’t worked too bad. And I think many of us would feel we can still do quite a bit more work on this, perhaps nationalise one or two of them.

But anyway, we understand the problem that this is a very special problem of knowledge and information which fortunately was a monopoly in the ‘20s, so we created the BBC. We wouldn’t do it now. But I think nowadays that’s the biggest new one because of the explosion of the whole knowledge industry which is such a complete nightmare and the one that we should be thinking about and really are thinking about as far as I can see at all. And there are so many dimensions. Nicholas was talking about science, the universities, and of course, the great platform [01:07:38] the internet and all the rest of it. And I don’t think there’s any really interested, I mean, new thinking here. So I have a colleague who sort of calls from breaking out of a stroke doing something about Google. I haven’t devoted a lot of thought about what should be done about Google. I haven’t read anybody who has produced something that says, “That’s what we have to do about Google.” I don’t know. But it is remarkable that these entities have emerged to such a transformative effect without anybody really thinking about their governments.

So these are the categories I’ve put things into. They’re all problems we never solved. The infrastructure problem that we sort of know how to solve, even if we don’t do it perfectly, and the new monopoly problems with which so much rental value is associated which seems to me we’re just not thinking about it at all. But it sounds like Nicholas sort of. And so my answer to you is no, we stopped thinking about this quite a long time ago. It’s rather depressing.

Nicholas: Can I just comment on [01:08:48].

Henry: We’ve got lots of hands out there.

Nicholas: Oh, sorry. Okay.

Man 4: Yes. I’d like to make a  remark. So on the last one on what is a free market, I don’t agree that the limited liability corporations, because it encourages…[01:09:05]

Martin: I didn’t say it was a bad thing. I said it’s a very problematic thing.

Man 4: But to get to what I think is the core of Nick’s issues is that you sort of seem to me as a group of pragmatically minded economists who are sort of non-ideological and who in that sense would look out for opportunities or different kinds of theories as to how to tackle all kinds of problems in a fairly pragmatic way. But I think that sort of misunderstands a little bit how we as a country has learned. Because, I think we learned the most from lots and lots of experiments from other countries where they tried lots and lots of things for all kinds of very ideological or other reasons.  But we’ll copy it anyway if it works. So the Chinese are trying an alternative to Google, basically out of government control issues, and while that’s very successful we might copy it. They too are thinking of biogenetic hacks, so sort of having access to the whole population. If they get to, we’ll copy it. Other countries are looking to the house as a means of reducing the number of x politicians.

Nicholas: Sounds like a means of increasing the number of x politicians.

Man 4: No, no, no, because you keep them in the system and you stop it from becoming obvious.

Nicholas: Yeah. Okay.

Man 4: And so we look to each other as countries for all kinds of experiments without even knowing what theory they have.

Nicholas: Sure.

Man 4: And so it’s not really about understanding the problem. It’s more recognizing the solution when you see it.

Nicholas: Yeah.

Man 4: Which is a totally different kind of knowledge today. All you need is a group of well-interested people. They don’t even need to be well-informed. They don’t even need to be well-theoried.

Nicholas: Sure. I just think I’m trying to use my discipline in a constructive way. But yeah, that’s absolutely true. Stuff happens and you try to learn from it.

Man 4: And it also happens. I mean, there’s quite a bit of copying, thinking about, putting up more internet [01:11:15].

Nicholas: Yeah, absolutely.

Henry: Adam, you have…?

Adam: Yeah. I just want to say thanks for the talk. It was really fascinating. Probably the best talk, I reckon. It’s a fantastic talk.

Nicholas: Henry will be arriving for the second best talk. Henry will have the second best talk now because it’s now been surpassed. Sorry. Go on.

Adam: I think the reason the talk was interesting was there were fresh ideas there, it seems to me. You’re looking at areas of economics that are underexplored. I thought they’re very interesting areas that you’re talking about. So I slightly disagree with Martin’s characterisation of it as a pragmatic kind of hack even though that is the way that you sort of presented it.  Because to me, there’s an underlying theory that’s trying to get out there which is to break down some of these ideological barriers about what we’re studying because, by implication, if you do that you’re going to generalise your theory of, say, public goods, right? You’re going to have a more general theory of public goods. One can account things like the internet much more easily than these textbook examples of lighthouses and things like this, right? Because the world has moved on. So my thing about where I think it should go then is that you should look at biology  and risk in biology because you’ve got 3.6 billion years of risk management on this planet. And it’s great that you have a history of the 20th century and the 19th century and the 18th century, but that’s 300 years of one species. And there’s so much over that I’d love to discuss with you. So many ideas. Information is what nature is all about, evolution is all about, and the breakthroughs that’s going on, signalling and…

Nicholas: Digital information.

Adam: Yeah. Yeah.

Henry: So is there a theory?

Nicholas: No. I mean, I look around. The way I think about this is is best described by Jerry Seinfeld. And he says in a routine, “Girls,” and he’s talking about men. He says, “Do you want to know what we’re thinking?” And they say, “Yes”. He says, “We’re not thinking anything. We’re just walking around, looking around.” And so I think these grand theories are actually trouble. There are people who come along and they do spend a lifetime working on something and they give us something that can be quite valuable. But I look around and look for things that fairly quickly I can put together with this, with that, and this goes with that, and then maybe we should try this and you can try it out. And biology, of course, is full of these things that you can take that from. Anyway, it sort of leads to my whole idea about we’ve got this idea that we’re in the image of science and science is about understanding the world in some kind of holistic way and then we make predictions. Well, that never worked out in the social sciences. But then we have enough knowledge to then say, “Well,” to then sort of somehow intuit, “Well, if we did this, then that would happen.”

Now, we actually never have knowledge of that that’s good enough to do that but somehow we work out what to do. And that’s because most of the time the most useful thinking is normative thinking. What should we be doing? Now, of course you can’t do normative thinking without any idea of the substance that you’re interacting with but it’s the normative thinking for me that is the prime mover. It’s where you start and it’s where you come back to and then you learn as much as you need to about this system. And we have it all around the other way. Why? Because it helps build disciplines. It helps so people who are the custodians of the discipline can keep producing this stuff. But that’s a big theory all in itself and I’ve just contradicted myself.

Man 5: I think I agree with the last speaker. I really enjoyed your talk. The one thing that surprised me most was that you were so critical of the idea of talking about paradigms. Seems to me that there is a genuine paradigm shift underway in economics. There’s a real difference between thinking that the economy works like an equilibrium-based, deterministic system and thinking that it works like a biological, evolutionary, context-adaptive system. And that’s not just philosophical. It is a mathematical difference. It’s a modelling difference. It’s a theoretical difference.

Nicholas: And it would have made no difference to any of the things I said.

Man 5: Well, that’s what I was going to turn into.

Nicholas: No, it is true. It is true.

Man 5: I was going to ask you what you really thought.

Nicholas: Well, take the example of a public-private digital partnership. Okay? It enables us to do something that is not otherwise doable. Take the example of limited liability companies. You don’t need to know whether you’re in a biological world or a neoclassical world because we all know that the neoclassical world isn’t this beautiful Newtonian thing. We’ve got enough common sense to know that unpredictable things happen and that’s why we have limited liability companies. So I don’t want to say “People, you mustn’t talk about this stuff.” I mean, it’s interesting stuff. It’s just too interesting in terms of the amount that it yields.

So I got into a big debate with Paul Krugman about whether it was so much worth his time building imperfect competition into trade when people like John Hicks had said before the event, “It’s not worth it. It’ll take you years and you’ll end up with answers which are basically- it depends because it’s all so complicated.” Okay? So there. That’s an explanation of what I’m doing. It isn’t saying you mustn’t talk about this stuff, but I do think that it sounds too serious. It’s too entertaining. People love having these fights. And there’s so much that we can achieve by just trying to use whatever paradigm we have constructively, thoughtfully, conservatively, carefully because it’ll get you a long way. And then sometimes you will really have to say, “Well, we don’t know what kind of world we’re in now and maybe we have to go and try and do some of that stuff.” What we’ve discovered with agent-based modelling and so on is that it’s really, really complicated and it’s really hard to make predictions. Hello. That’s imperfect competition. Okay? So just proceed with the possibility in mind that what you’re going to achieve is much less grand than it feels like having all the debates.

Henry: Nicholas, can I just follow up on that?

Nicholas: Yeah.

Henry: Surely in your presentation you’ve shown how a particular paradigm of thinking about public and private has led to lots of problems. And your differential way of putting it takes you into a different place where maybe you even find some solutions. So isn’t that a paradigm?

Nicholas: If you want. That’s a paradigm. It’s a little bit of a shift of focus.

Henry: Yeah. Isn’t that what paradigms are is a shift of focus?

Nicholas: All right. Okay. What’s that?

Man 6: What you said was the single one sentence conclusion of your report, that follows very naturally from thinking about it as an evolutionary system. So it’s very difficult to put forward that conclusion that you did; that the output was co-produced by the financial sector and the regulators.

Nicholas: Yeah.

Man 6: If you’re seeing it as an evolutionary system, that’s more intuitive. That’s more obvious.

Nicholas: Yeah.

Man 6: So suggesting that the change in the theoretical paradigm would really support the arguments that you’re making.

Henry: Martin, do you want to take it? Where do you come with this one?

Martin: I’m very close to Nicholas on this. So the way I think about this now is you have to understand the sort of question you’re trying to answer in this particular case. So if I were asked, “How do you think about the economic system as a whole over time?” then clearly the evolutionary paradigm is the useful way of thinking about that. And for certain purposes, that’s ideal and gets to a lot of questions. There are certain other questions that I have been interested in for which much simpler models like balance of payments theory, for example, very precisely, and the link between balance of payments theory and the financial crisis which I wrote about in my last book: Where I think that you have fairly standard Mundell-Fleming type balance of payments models actually throw a lot of light on what is going on. So the way I think about this, which I think is what those physicists who still use Newtonian mechanics for certain problems do in working out how to send and I’m not an expert on this, spaceships to the moon. I don’t know how much, I mean, relativity they need. I think it’s pretty Newtonian given the speed.

So you need to be, particularly in social science, to be a heroic simplifier but you mustn’t simplify more than you can get away with. And how do you know the answer to that? One, you never do. And two, probably thinking about things for half a century else. So I feel when I think about problems, great science problems and how to approach them as an economist, I think now everything I thought with the first 30 years of my life as a freshman economist was worthless because I didn’t understand any of that. So I think I’m just rephrasing what Nicholas said in a slightly different way. So for certain purposes, very important purposes, I’m completely with you and for other purposes, fairly good old-fashioned theory can get you there. And the trick is knowing which one is which and often you’ll be wrong.

Nicholas: Marshall is good, I think. Marshall thinks of the economy as a biological organism and he’s trying to sort of find analytic hacks through the undergrowth that give him good perspectives on things.

Henry: I think that’s our take on pluralism. Tim?

Tim: Yeah. Thanks. That was a very good talk but the big thing that was missing was the natural environment as an activity [01:22:43] and of course, the standard economic…

Nicholas: [01:22:45] Australia? Silly comment. Sorry. Go on.

Tim: The standard economic description is emissions tradings, property rights. But what we found is that that’s very difficult to do in a way that is effective and equitable.

Nicholas: Well, politically I don’t know how inequitable it is but we found that we’re not up to it. We’re not up to snuff.

Tim: Yeah. Right. I guess my question was how would that fit into your scheme? It seems that it should fit well with your scheme of this combination of the public and private. We’re looking 55 years to actually get on with this.

Nicholas: No. I can’t offer much. I’m terrified it might already be too late. I mean, this is a tragedy. I remember watching somebody talking to the UN or something and she burst into tears. That’s the appropriate thing. This is madness. It’s going to cost the world 1% to 3% of GDP. That’s getting as rich as you were going to get but three months, no, nine months later. That’s what we’re talking about. Over the next 50 years.

Tim: It’s nothing to…

Nicholas: And there are apparently underpasses in Alaska that stink like rubbish tips and that’s the permafrost melting, you know? What the hell are we doing? Okay? But there’s nothing much I can do. I can’t conjure up a rational world. I’ll make a somewhat critical comment about mainstream economics here which you might have heard once before, which is that economists went off and they turned it into a nice little set piece about what the right discount rate should be.  Now the point is that ask yourself what was the right discount rate for D-Day. The sunlit uplands if we win and darkness if we lose. So the idea of a discount rate is actually in its own terms a simple equation for discounting. It’s got three terms in it and if you are going to be in a poorer world then the discount rate goes positive. Okay? So don’t picnic. Don’t sort of have a big smorgasbord about this little set piece out of the textbook and just show, and now I’m being ruder than I should be about people who are cleverer than me but show that you didn’t really even understand the textbook. That you didn’t take the discipline and use it on its merits.

Another very simple way to think about my message is that we get taught that economics is sort of like a rectangle box and this much is theory and that much is applying it. And I put it around the other way. There’s theory up here and there’s always resources. And I hope I’ve shown you that all the ways in which various simple ideas can be just used in slightly different ways to give you an insight into a situation. But you have to be a craftsman at that. You have to be imaginative in the way you try these things out. But that’s not going to save the planet, I’m afraid. We just have to decide whether we want it or not. We want them for our kids. We’re going to be, I’m going to be okay, by which I mean dead.

Henry: Right. I think we may have one last question.

Martin: It’s one sentence because it’s something I’ve thought about quite a bit. Again, this is the extreme example of this, which is that it is astonishingly difficult to persuade us, and I include myself in this, to pay for something that one is used to having free. It feels like our natural right if it’s being free. Just getting people to pay for parking in front of their houses or driving in London or, of course, using up the entire atmosphere for our purposes, it just seems wrong. And that seems to be a very profound human conservative emotion.

Henry: And maybe that’s why a carbon tax would never work but maybe other things would. Anyway, I’d like to now thank Nicholas and Martin enormously for a fascinating evening. And thank you.

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