Joe Hockey's crystal ball

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Joe Hockey delivers the Intergenerational ReportThe 2015 Intergenerational Report is reminiscent of a comment by that great 20th century philosopher and baseball player Yogi Berra: 'It’s tough to make predictions – especially about the future.'

Trying to anticipate how Australia will change over the next four decades may be an entertaining guessing game, but to think that present policy can be meaningfully shaped by such crystal ball gazing is a bizarre conceit.

That the Treasurer, Joe Hockey, immediately tried to use the report to justify current government policy only demonstrated either the shallowness of his understanding or the depths of his political cynicism.

Many economic commentators have pointed out, rightly enough, that Treasury cannot even get its one year predictions right. Believing that 40 year predictions are going to be in any way useful is simply silly.

Nevertheless, it is worth looking at how the forecasts are constructed to see the kind of thinking involved. The report says there are three 'long run drivers' of the Australian economy: population, participation in the workforce and improved productivity. It masterfully concludes, employing all the power of the circular argument, that the population will increase, people will live longer so they must be encouraged to keep working and it is important to become more productive.

Are these factors the 'long run drivers' of future events? They certainly have an effect, but they are only three of the many influences that shape nations (war and disease have influenced events from time to time, for example). The suspicion is that they are chosen because they are the easiest to analyse. It is not difficult to create a trend line for population growth, or ageing, or to assert that productivity is important. What is difficult is to anticipate the impact of discontinuous change, the effect of something genuinely new.

To get the point, think back 40 years. No Internet. No mobile phones. No laptops or tablets. No electronic banking. No $700 trillion mountain of financial derivatives dwarfing the 'real' world economy. No Facebook, no selfies, no social media.

Currencies were actually used to facilitate international trade. Manufacturing mattered. The finance sector was small and for the most part peripheral. Newspapers made enough money to employ journalists. Musicians sometimes got paid. Buying a television or a washing machine was considered a major expense. Flares were thought to be a legitimate item of clothing.

The next four decades will be see even greater changes. We are living in an era that the economist Jeffrey Sachs, in his 2007 Reith Lectures, described as the 'anthroposcene': a time when humans can control the natural world to such an extent that the greatest obstacle in the future will be to ensure that the artificial environments created do not destroy us. That, Sachs commented, will be 'our generation’s greatest challenge.'

French sociologist of science Bruno Latour noted in his Gifford Lectures the scale of what is happening. He commented that the  ‘anthropos’ is already powered by around 12 terawatts and on track for 100 terawatts if the developing world progresses at the same rate as the US (the earth’s plate tectonic forces create 40 terawatts of energy). The ‘anthropos’ is now dominating what is happening in the water, earth and air of the planet. No animals or plants remain unaffected. And forget the 'blind watchmaker'. It is mankind who increasingly controls the evolutionary process.

It would be a remorselessly grim picture were it not that the rate of change in technical innovation is also accelerating. The futurist and inventor Ray Kurtzweil is prone to exaggeration, but his point that technological changes that once took thousands of years to develop, then centuries, now take only a matter of years. Mapping the first human genome, for example, took decades, now it is done in minutes.

This accelerating rate of technological change, which is consistently under-estimated, makes it even harder to predict the future. One does not have to accept Kurtzweil’s extreme estimate of exponential technological growth – he believes that the 21st century will be equivalent to 20,000 years of progress at today’s rate of progress – to see that innovation is speeding up.

The impact that technologies like 3D printing, genetic engineering, robotics, quantum computing and nanotechnology will have is not known. What is known is that there will be surprises. And they will not be anticipated in the Intergenerational Report.


David JamesDavid James is a business journalist with a PhD in English literature. He edits Personal Super Investor.

 

Topic tags: David James, economics, treasury, Intergenerational Report, Joe Hockey

 

 

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Existing comments

Thank you David for a reasoned critique of a very flawed document. The almost total neglect of consideration of the effects of global warming, exploding populations (except of course as consumerist punters) and of the possibility of global pandemics (i.e. plagues) leaves one gobsmacked. As you say the IR is "an entertaining guessing game".There is a helpful distinction between "futurologists" and prophets. Prophets discern the underlying but profound, long-term shifts that are happening now and point them out. "Futurologists" seemingly now all work in Treasury and their predictions are about as reliable as the past predictions of that Department!
Paul Collins | 06 March 2015


Thank you, Mr James, your article is a cogent follow up to Andrew Hamilton's article yesterday on "intergeneralisation fairness". I'm afraid that the Hockey IGR confirmed my worst fears. Even though politicians refuse, rightly, to answer journalists questions that are hypothetical, here in the IGR we find almost eighty pages dedicated to answering the question "What would be the state of Australia's economy if we had continued with the ALP socio-economic policies?" No hesitation there. The Treasurer (and The Treasury) knows that governments adjust their policies every year using whatever economic levers at their disposal. I live in a seaside village where the two main industries are aged care and tourism. I predict that with advances in preventative medicine people will live longer but they will be a lot healthier. The task will be to keep them happy and occupied (in paid or unpaid occupations) As for tourism, since it is based on the natural beauty and recreational opportunities of the region, it could fall foul of the ravages of climate change unless we start taking action on carbon emissions now.
Uncle Pat | 06 March 2015


A very interesting comment David. The Treasurer's paper seems to treat only one side of the equation, in financial terms that is expenditure (income) and even that is based on what is happening now. As if we were going to proceed along the same track that we are on today. I wonder what new ways of earning an income and new ways of living will happen in the next 40 years eg. will we need all the medication and that health intervention that we do at present. Will the moon yield some miraculous product that will nourish us and keep us warm . Will we need buildings , transport vehicles , politicians etc.etc.?
David | 06 March 2015


Joe Hockey talks about increasing productivity and people should work longer to maintain a sustainable economy. Predicting the future is no easy matter. As ordinary people we don't know what will happen to us from one month to the next or let alone the next 12 months. Coming back to my first point on increasing productivity. At the present time, the Productivity Commission is conducting an inquiry into minimum wages and conditions. Should wages be reduced how are we going to afford to buy things? Less purchasing power means less company profits, increasing unemployment and less government revenue. I hear the certain business groups stating that Australian minimum wage is too high compared to our trading partners. Large corporations should start paying their correct amount of taxation and not voluntary taxation.
Terry Stevenson | 06 March 2015


From Mr Hockey's viewpoint the most important thing about this document is that it gave him the opportunity to pontificate on policy without the risk that, within a week, he will be proven profoundly wrong. It would not be wise of us to give it any more weight than we would give to the waffling of any man trying to preserve his job.
Vincenzo Vittorio | 06 March 2015


A complementary way of assessing the future is to envisage the Ideal, and work out the ways to achieve it. In one aspect the future would be much brighter if there was common agreement on religious matters such as relationships between all humans and with God. Gone would be wars, genocides, crimes and disputes. The economic savings would be astounding. No more defence budgets, prisons, law enforcements, and instead cooperation, peace and harmony. No more brutal competition, fraud, exploitation, or deceit. What hinders it? In a word, selfishness. Personal selfishness, and what is much worse, Group selfishness, when personal selfishness is cloaked in and promoted by the group or herd instinct, which is much more powerful. This shows up in politics, and even in religions, when the leaders promote views as if they are the only ones that matter. In every sphere we need to lift our sights, refine our Vision, and purify our hearts. Then we can look to a Future to be welcomed.
Robert Liddy | 06 March 2015


Anyone commissioning a socio-economic report looking 40 years ahead, as you point out David, is a bit like someone consulting a fortune teller. Acting on such a report, as you wish to understand it, is an act of faith. I think Joe Hockey needs to pause very, very carefully before his next step.
Edward Fido | 07 March 2015


Joe Hockey is so naive!
Where do they get these
flawed people from?
Sir Robert Menzies would
roll-over in his grave if he
knew who had now taken
over his political party, with
a very different agenda.
We don't want to
be a country of 40 million+.
We don't want to end-up
as a Loser Country!
These are not Australian
values. What school did
Hockey attend, to put him
in a very powerful position?
Sarah | 07 March 2015


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