Listen

I’ve stumbled across a new(ish) podcast that some of you may be interested in. It’s by Tim Harford (aka the undercover economist), with the delightful title of Cautionary Tales. It is readily available, likely from your podcast platform of choice or at timharford.com.

In the podcasts, Harford explores a range of stories where things went wrong and analyses why that happened and maybe what we can learn.

The first one I listened to (Lala Land: Galileo’s warning) is about how risk mitigation measures can sometimes increase risk. He tells the story of the mixup in 2017 at the Academy Awards, where Faye Dunaway and Warren Beatty announced the wrong film as the major winner of the night. While there were a number of things that went wrong, central to the debacle was the duplicate system where there were two sets of envelops, in case anything went wrong. But when the custodian of one set of the envelopes failed to discard the envelop with the name of the just-announced winner and handed that envelop – not the one for best picture – to the presenters, well…the rest is history.

But in response to this mix up what was the result? Among other things, THREE sets of envelopes!! Harford draws on the work of Galileo to note that when complex, complicated systems or processes are highly connected, the potential for mistakes is much increased. Simplification, not added complexity, is often the best way.

Harford sights the meltdown in the nuclear reactor at Three Mile Island. The control panel was huge, poorly designed and the alarm system set off all alarms and there was no way to turn off the less important ones. A consistent design and less information at critical moments could have resulted in a much better outcome.

There was an earlier near meltdown at an experimental nuclear plant, the Fermi 1 reactor, near Detroit. Safety requirements of the regulator meant that a filter had to be retro fitted at the last moment in the coolant circulatory system. But it came loose and blocked the route of the coolant and caused the reactor to overheat. That time the folks at the control panel were able to prevent a meltdown, but only just. So the cure was worse than the disease.

These stories got me thinking about regulation, of course. I got tired of hearing myself tell regulators that ‘just in case’ regulation was NOT a good idea and unless compelling evidence was to hand that the portent of doom was likely to be realised, I would not be recommending more regulation. Regulatory systems are generally complex and complicated. Often they are highly coupled and sometimes the links are not obvious – especially to those working outside the system. So it’s best not to meddle too much on the basis of ‘just in case’.

Just for you nerdy folks, yes there is a financial example as well – the failure of AIG during the global financil crisis, but I’ll leave you to listen to the podcast to learn what happened in that instance.

I have just finished listening to another episode – this one is about an oil tanker that ran onto rocks and broke up off the coast of Cornwall. This also has some good economic lessons – when you make plans be flexible, take advice and recalibrate when things do not go to plan. Some good things to think about generally, but also to get economists thinking more realistically about how people behave, and why people may fail to act in their own or others best interests in light of changing circumstances.

I’ll leave you to draw your own conclusions about how this might apply to Australia at the present moment and the things people are concerned about like, oh, emergency response services provision or climate and energy policy for example.

I’m looking forward to my next episode.

Read 1

In this season of fires and shouty arguments about climate change and so on, I stumbled upon a PWC report on energy policy. (https://www.pwc.com.au/power-utilities/future-of-energy/future-of-energy.pdf) LinkedIn is full of all sorts of interesting surprises.

What struck me about this paper was its approach. PWC has eschewed the ideological arguments and focuses on what is technically possible (now) and the economic effect of the four scenarios it posits. Putting it in these terms takes an awful lot of heat out of the discussion, especially when the economic effects include not only the effects on the systems costs but also the flow-on impacts for the economy via an assessment of the social cost of carbon. (The ‘social cost of carbon’ is a measure of the economic benefits of greenhouse gas emission reductions. PWC reference this concept extensively, for those who are interested check out the link above.) Adding this to their system cost economic benefits, means that moving to a scenario where renewables replace retiring thermal plants – whether at a slow or accelerated pace – produces a bigger economic benefit than business as usual or replacing 50% of retiring thermal plants with High Efficiency Low Emissions coal fired plants.

One thing worth noting is the call for a coordinated national response in the very near term. Things appear to be moving in this direction but I am not sure they will move fast enough given the propensity of political point scoring to overtake rational policy development. But we live in hope. Not only will a considered national approach offer more certainty for investments, but it will also – if it gets it right – provide markers for transmission and distribution investments that will support renewable energy generation.

Read 2

I have also read some – but certainly not all – of John Quiggan’s new tome – Economics in Two Lessons (Princeton University Press 2019). It’s a bit of a curate’s egg. I liked his deep discussion of opportunity cost – and suspect that a diligent non-economist might also find it enlightening. His short, three-paragraph treatment of oligopoly was a big disappointment.

He says he has eschewed the traditional economist’s love affair with graphs, preferring words, to make this book more accessible. But the nerd in me says this was a mistake. Both would have been better.

One thing to note is that although this is a book by an Australian author it is clearly aimed at a US audience. It took me a little while to work this out as some of the examples he uses of, for example, how policy makers were too strongly wedded to a strict neoliberal view of the world (private good/public bad type of thinking) didn’t ring true. But there you go.

My advice, take it in bits, read chapters as you feel inclined and don’t necessarily try to read from front to back – dip in as interest dictates. If you’re a non-economist, be prepared for hard work.