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Welcome to La Trobe University, my name is Jan Libich and
I'm delighted to welcome
Professor Paul Frijters from the University of Queensland. Paul, welcome.
It is great to be here. Thank you for coming coming
Paul is not only a great teacher
and we'll be talking about teaching a lot because our agenda
is a first year
crash course in macroeconomics
but you're also a very prolific researcher and you've been, just to name one of the awards,
you've been awarded
the 2009 "Best Australian economist
under the age of 40" so hopefully we will get to enjoy
your insights
now let's start with the big picture of what macroeconomics is about
There is
this perception that it's really dry and boring it's all about
curve shifting and definitions...
Is this accurate?
I think not, I think that macro is one of the most exciting areas because
it's where
economics has so much power
If there's any area of economics that's where
what we economists think
is basic policy almost everywhere in the world
is what we economists say about macro so economic thinking on
inflation
drives interest rates it drives what everybody pays for their mortgage
it drives
money creation so
in interest rates but also in uh... in recession and boom cycles
uh... when it comes to priming the pump
when it comes to one of the whole debate about how which we are long-term
investments what the role of government in economies
economists are basically driving the agenda and so is one of those areas in
economics what we can be boss
uh... where politicians deferred to economic expertise so though that
there's the excitement of being in charge about macro sources say you're
basically saying it's not some extract from afar perfect thing but it's about
human behavior with what people do no harm in deciding
short of welfare implications there shorted but it's also an area where you
see the results of abstract feed so
the the ideas a macro as the ideas and any social scientists
will sound a little bit dr an abstract to the outside world
there is some of us have probably noting the backpack
but is nevertheless dole's ideas
that uh... the drive what is generally fourteen the population about how things
go what drives political force
uh... stuffing should be organized the macro level
so that
it is both writes that since the abstract world which has built up of an
understanding of human behavior
which uh... which in our institutions has become the the way that we now run
our economy
so you're saying that there are no
personal definitions will be harmed while we work with snapping up
now let me know anyway that make clear that there will be trying to provide
here is that crash course uh... in macroeconomics uh... and and we're
hoping for a fun crash course just to show that uh...
uh... that you know it it can be found so how does my correct we differ from
microeconomics
i would say that
macroeconomics differs from micro economics mainly that it deals with
bigger questions
uh... if we think about how to explain macro to students
we always talk about it buys you these micro right we talk about an economy as
if it is a farm
as if it is made up of
for your four individuals trading with each other
uh... aren't
but that's not really how we we we think of micro when we're giving policy
applies his more how we can best explain the advice that we have in how we
introduce people to macro concept but his most fundamental
macro is about the analysis a big picture questions of you know what
what is the optimal rate of interest
should government spend more should government spends less
are should government be worried about housing bubbles armed various questions
of of macro review macro questions that not to know
what this young lady pay
for the supermarket restored sp but it'll never lesbian how we explain
inflation riders to well you know pays now more than he did last year that's
what inflation aids
so we try to bring it down to reform we explain to try to think about it
but it's quarry it's not really about individual behave it's about trying to
understand what all the interaction between millions of people needs to
but they are going up
now do you have you heard from your own bowman hands in the university of
washington has the world sarah
leading stand-up economist at
uh... and and the only one i had a side issue
and he actually when he was going to run the are correct me if you stand
principles means that this pope we use in this class
and he was uh... which is different from the textbook europcar which hopefully
will talk about a little bit later he he he basically summarize the difference
between microeconomics macroeconomics by saying that
micro is uh... is wrong about specific things you as a macro is wrong about
things in general
using is is his accurately easy to pessimistic optimistic maybe a well as
the old joke goes right economists had predicted nine out of the last four
sessions
so i think that it is very true about
economics in general the were not so great at predicting what's going to
happen next
our theories are
but every level slightly wrong
uh... booked for me you this is always a great thing about economics that we try
our very best to give a
a fuzzy on situated precise question
uh... and i wouldn't want it any other way
right so
though there are those who briefly economics for that to say now look it's
not exact
you cannot tell me what interest rates will be you cannot prove that this is
what we should do
or you can give is a
is a very good reason ability argument that
on the faces of historical analysis and
the way we know few of the economy that roughly this is not may be the best
thing to do but it may not
uh... how many people put is down for that but for me that's the great thing
about economics ideas as to a vaguely muddling on
uh... and i love it for that right i doubt that sort of the
the challenge to that come out with a better modeling fruit of the previous
muddling through
and so all they need
old all the dogs will bark to the caravan is a this is not exactly i sort
of fantastic we ought to worry about what they say that rather sort of all
three
off the debate immediately because they're looking for some of the economic
never beat
this is this is this call joe that springs to mind uh...
and our that wind god created economists make
weather forecasters recruitment did say there's a few sentences wrong and i
think some of the right
well
ebitda for me this is an empirical questioned right at the start of the
twentieth century there were a columnist who would like physicist they built
shield from all the finals in the fare wars and went out of measured everything
in the hope that we would be his exact as physicist about our predictions
i'm maybe nineteen hundred this was a reasonable thing to try out but it's
failed dismally
right it's gotten as absolutely nowhere these big models
uh... we've not gotten any better outcome in the last fifty years either
but nevertheless the advice that we've we've geared to in the last twenty
thirty years a lot better than the advice we gave seventy years ago other a
lot more economic problems then but we managed to avoid now you know we have
learned we've retrieve level the mistakes are roughly why there were
mistakes in one not to repeat them but as to what's been happening
do you mean they're gonna have some economists have been getting the live
before the global financial crisis well
some mobilized before the global financial crisis great let me give you
an example of great advice which which really sway the day
that one of the mistakes we made during their great recession of the nineteen
thirties was the cut-rate ties with other countries ryan
countries sort of reneged on their promises to other countries go from a
the bonds of the held of each other so the amount of money they'll reach other
but they also started to actively put up more and more import
barriers
making it harder for countries to uh... export towards them
and this is a bigot unable policy middle poor dot barriers
and has led to an enormous collapsing trade which aggravated the recession
completely
now the same reflects was their in the global financial crisis you had union
saying that we must come
must protect local jobs who had local industry shopping this end
it's not ok something like that in the united states can go out of the united
states put a few jim poor various for solar panels right if you're
if you think about something funny right rikki
the whole global warming debate is predicated on trying to find them
the cheapest put up a solar panels like
and the american stock getting hectic
uh... well i i wish i could live
advocates for it
but by and large this works for the politicians resisted this because
mainstream economic thinking so firmly says this is a bad thing to do
so we've resisted the temptation to do this to the same degree before him
is where economics has come to the four of the world trade organization
the i_m_f_ the world bank we all said oh no
don't do this again this would be a big mistake
i wouldn't make mistake which is why australian g_d_p_ has gone up in the
global financial crisis because we are the big winners of global
uh... trade sir
flow so everywhere one of the beneficiaries of of mainstream ako king
and they let me start with that
uh... the long-term perspective on the economy and yeah i think that's always
said the way that every text books and stuff because otherwise the pf
the students consider the forest for the trees
his mother of the major aa
long-term and micro concepts
the major ford in economics about the long-term is that you are as rich as you
projects right
uh...
and so that the whole economic debate about what makes is rich in the long
term
is how many production factors you build up so we we pretend to the long run the
economy is a little bit like a fox or a little bit like a a group of businesses
and it's just a matter of how productive they manage to become
so it's all about long-term investments long-term investments into
how much we know which schuman capital long-term investment into helping these
farms are how many buildings help with the fbi machines are in its caption the
notion of capital in the notion of technology
aren't in the interaction between everybody namely
or suppliers or clients
the overseas people which allows us
to work to coordinate and this comes forth in the notion of networks
and so with those kind of basic production factors
you can build on your convinced are to say now
what affects the cost of capital what affects the cost of educating people
you could have second round production to to to say no
in apartments are good because
they reduce the cost of doing business with each other they've reduced the
number of people to smash each with his brain
uncw convince a who would do the justice cooper l
go back five reviews many they were doing that
and you can say no luker trade barriers about because this makes it harder to
have networks makes it harder to specialize means that we all do simple
things instead of
do the things that were actually best at
unjustly go on and on and on and in that part of the longer run perspective in
macroeconomics is that
we are as rich as we are productive
aren't we've got pretty good ideas as to what makes this productive on the
the mainstream advice as to how to become richer as a as a country is
exactly the policies that country's now becoming richer are enacting
so you look at china and india today that the two big emerging powerhouses
they're making huge long-term investments in education at the number
of years of education amongst the chinese
has risen about free four years and the last
uh... generational so and certainly in india primary school education is really
spreading secondary school education
capital investments are are shooting off the the plummeted and so i think if you
don't have to do is so important as a lot of a research that that shows that
all these intrusions growth literature
but should we
you know is that argument for providing free education even at the treasury
level
well the there comes a point it out of course will which more education is no
longer useful because you're spending more years and in educational issues
being productive so there's always an opportunity costume
to being educated
of the jury is always out us to whether we've reached that point in a place like
australia of the u_s_ but it's clear that they've not yet reached that point
in a place like china need so
for them there is a clear benefit to the government investing in it
because individuals don't have enough money to to spend on this friday just
can't afford to wait so long
for the benefits of education to come out
but in a place like australia most investments of course may by parents and
students
these students here for this
make a major investment in their education by spending time
living economics
rather than having annex a couple of hours in there
jobs
annes so
uh... one of the things that we need to talk about when we talk about the
long-term picture is is how
with the did this growth that we've seen recently and what was one thing we
should say is it's a very recent phenomenon basically started
one of two hundred and fifty years ago with the industrial revolution we've had
thousands of years of virtually no growth but the you know has is that he
benefited
uh... everyone all most people have has it in the the selected few of us
as some of the uh... you know
or ninety nine percent movement with would
that on vietnam
what happened to pound poverty over all this will uh... i mean i'm arlene the
camp of of people who sing the praises of economical
writer as you say
continued economic growth decade after decade
wasn't unheard-of phenomenon before right you hide grow from particular
regions for a while and sort of very slow incremental grow four for a long
time
but now we've been growing two percent for more than a century
on if you go back to top centuries a sort of in on on the steady one to two
percent growth path
and this has been associated
by tremendous improvements in everything for the whole population so
life expectancy has gone up
wise life expectancy gone up uh... we can pay sandwich for everybody
fractionation for everybody
blood fitness formers everybody hygiene has improved off the scale
our local environment has improved which is uh... has help both of the quality of
life on health again
literacy rates have gone up everybody gets a a chance reading and writing in
our societies
uh... people no longer dive poverty or just in our country but
throughout the west and indeed most of asia most of latin america dire poverty
says agree that you are threatened by pipeline of starvation
is basically on her off
and you see the same phenomena in the up-and-coming economies and so uh...
other world level dire poverty is virtues an awful lot infant mortality is
reduced wife
introduced in china basically wiped out in china
is reducing very rapidly now i mean it's reducing
in the last pockets in latin america in the evening
in place in africa that are growing so economic growth in my estimation israeli
reason humanity
from the dregs to a much better place we're now old etc boulder were happier
we don't have to fear was much crime fraud case because violence is also gone
down we we trade with each other as that is kill each other
and i rarely go all those things so why don't we lost the future homecoming as
you mentioned charlize two times in this
the some very good economic reasons uh...
and theories that predicted that the chinese grow growth that we've seen
recently cannot lost at the same thing that happened in japan
needs another economies
will continue just outlined what what theory teason
already subscribe to earn uh...
the that uh... one of the theories of chinese grow food is in back of people's
mind is that
they they will not be able to be that much more productive and other people
who have sort of made all the investments
into uh... education and factories already
so the main theory which says that chinese economic growth masa some
point stop
is notion of a a technological frontier private things can only get as good as
they are
in the most rich countries at the moment an awful lot
the growth of ten percent which the chinese have heard from a thirty years
must come to an end
and i certainly subscribe to that
china still has a lot of growth left if you look at their educational
investments that comes to increase a lot
thorough networking improve a lot of a lot more population which is not really
a used in a moment sector so
on one of the people who would say go from china can keep on going from the
fifteen to twenty years easily
but offer that i do expect it to sort of level out
just as other asian countries have leveled out some
they have historically level without without two-thirds to seventy percent of
u_s_ pruer capita
g_d_p_
uh... so that they're not as quite as rich as the americans because the
economy has a structural problems missiles treat china side are expected
to be as rich as the americans per person
uh... two-thirds produced per capita g_d_p_ of the americans
the chinese economy will be
three times bigger but at the u_s_ so
it is a clear expectation that china will become
the world super power of this century and
probably won't be able to take a nine year until maybe the end of the century
of india can
stadium and
martin would you just just to summarize it for the students would you were
talking about in terms of the technological frontier we presented is
that
as the diminishing returns to capitol kind of uh...
the idea that you just invest more heavily into machines but then
the the productivity of each additional in physical capital uh... is is going to
kind of
stub level out overall vision
that means that the slow add that the growth should eventually slow
and we haven't mentioned any of those political constraints that organizing
china and we know that i go ahead but if you're interested that was actually had
a series of frock
uh... blog post on
the economics of komal where you are on the logo on the politics of china and
and what the future holds i what i would think about it for this month ahead
right now i do i think we know is that our users group on china satpathy out on
my daughter julie took look it up
so by this installing tried our it seems that there's a lot of ways is that the
the growth in
countries like the united states is over or at least that's going to slow down in
and i'll drop gordon has had some recent arm
uh...
articles uh... on this would would you think about this uh...
and it is very hard to predict the future of economic growth
in general if we're talking about centuries to come up because one is
talking about the unknown of technology
improvements
one can say is that historically speaking the last fifteen years of had
higher growth
vander sort of the one half century before that
so what we do know in a in a very long time scale horizon mind the last two
centuries
the growth overall have actually been increasing
so if one just rings of it is
keep going on the trend line
then what would say that growth probably won't come to an end
because they're still huge technological areas to go at medicine income
can can still improve
beyond all recognition that we can become hoffa robots and maybe live a lot
longer and
i thought area where i have no doubt about that
lets the head
who knows
um...
but they're they're great medical improvements i_t_n_ provement saw are
happening all the time uh...
or to make sure that it is likely to happen all the time the
the use of robots and every day the life uh... has huge potential future so
but there are clear areas where we all expect
economic growth to come from technological improvements are
reminding us that our future it's very very difficult
well yet i don't have a good idea to writers the basically the the kind of
file
a technological advances that we've seen uh... late nineteenth century like
running water and sewage in inferno that medicine and and and so on
that uh... you know this is a kind of we've kind of depleted decent
and all this kind of technological
uh... progress that we've seen and on the icd front hasn't really been that
come a satisfactory uh... in in terms of raising our productivity it you know
whether you have life on four oh i thought i phone five
you know is does that make such a big difference in terms of our productivity
a
i think that's uh... a little bit foresight to this emotional pretty
beatty's right if we think of productivity has
improving people's lives as building things that we want more than the things
we already have
then we get a visit with a
the slope of human improvement is still a leslie
so we are still in the last ten twenty years
increasing our life expectancy and almost meteorite
it's quite amazing but it's truly happening that there are still huge a
process to be night
on the notion that you know the end of the nineteenth century that was the
renewal
era of programs that's when things happened that were relieved benefits and
it sort of take us half a century to a truant
now we're just twiddling at the edges
i see no real evidence for that what so ever rightly
our ability to build cars quicker
has gone up another nothing up
computers the cost of computers has gone down the mountain now i'm just think of
the technological marvel that you and i use every day in terms of
our little iphone strife if you go back twenty years when supposedly
technological development would've
being finished
that same iphone would have needed a all truck full of stuff
and now it's in these teeny weeny little faith
but and so what what what does he mean that there hasn't been technological
improvement
yet you can hold the technological provement you hunt
and i'm just reflect on what what they say they've been possible five years ago
what would i've needed five years ago to get the same thing
bus just beyond recognition how much with advanced archive so army
some people would argue even if we accept that the long-term drivers or
untouched in the life you know some people would argue that gold is growth
and all this increases in despair he hadn't actually make people
at bia losing um... that uh... and you've done a lot of research and have
been so what
quickly say about that quantity it is definitely a a stylized back within the
happiness literature of that
in a country that is rich like australia while the u_s_ or much of europe
there is not being improvement you know how to be our
from year to year rights are in australia we're close to an eight one
zero to ten scale
i would be in close to a night for a very very long time
aren't we are expected to be close to make for a long time still
but there are two things to say about that for the long term future one is of
course that
if you live longer well then urinate for next a couple of years
and so even if you accept the argument that there's unlikely to be an
improvement
in happiness per year just a thought that you enjoyed
happiness for more years is a direct improvement for my happiness
point of view moral as the two years old to you
lying in backing the artificially keep you keep your life you know they're not
and so the stylized sides that happiness levels are constantly also includes this
happiness levels of at
older years and
in fact the group which is almost happiness in australia are the very old
peoples between
sixteen seventy five so they
the stylized factors when people are happy is not that they're happy when
they're young in their miserable was deaf approaches that's only true for the
last ten years but
but you know what i meant as a limit the happiest period in people's lives
particularly in australia
another co-worker aren't all that interesting become a quicker recovery i
think i hats and have reasons to be happy you're going to hand out there's a
there's like one of the challenges that people also talk about in terms of
future growth that we've had
demographic trend towards an aging population confirming that we're going
to have a fewer people paying taxes in the future and and a lot more people
receiving pensions and health care
and that's going to lead to some major fiscal problems in fact some countries
non-european countries already feeling the pressure now so
is it not something that you think may threaten our future of growth uh... and
future prosperity one of the great things about economics is that
every problem is also an opportunity
so let me turn this around
hides and let me hand sir
you talk about it in entirely different
wexford
one of the local ways you can interpret the notion that they'll be less young
people
a more old people
businesses are going to be more jobs for young people
and particularly in europe
unemployment amongst young people is quite high
so you're now talking about a demographic shift
which will improve their chances in the labor market
and i should be worried about this
why noite
please should not and so whoever for long-term perspective they seen fact is
gonna be a a good thing for the junior generations
and it's not really a problem on the will scale either because they're plenty
of young people being born
but is not necessary being born
in the richest country but that just means that we will buy services
uh... uh... aren't
a direct products
made by young people for old people
from poorer countries and this is already starting to happen but we are
trying
was trying to farm out health services
uh... to india and was trying to buying
or cons of holidays which offered by young people
uh... for older people so it's no longer me wrong i don't worry as a problem why
would i would the demographic change as such within the problem is that the the
setting of fiscal policy this is
in most countries is pushing european countries is is based on the space
because this morning basically take
from the current
currently working and you give it to the people who julia ormond live retirees
basically
and you know if you're going to have
the the group of retired is going to be three times bigger than it is now whose
hand and a group of taxpayers going to be an arrest record of what it is now
and you already struggling auto
then that's a problem and we see what happens in greece wonder when the
country hits that hits the wall of the fiscal wall and said that this is kind
of what worries me and i'm not seeing enough of a change in europe along these
lines you know dealing with a
you know it's all about the banking sector it's all about the short term
problems but seeing the the long-term number officials other i'd agree with
you that there is a transition pop
ride as economies get used to the fact that there are fewer young people
and hence the the systems which were predicated on there'd be many young
people you could tax a little bit stuff on the fuel people has to go because
there now many older people
if you are younger people
but you can see the adjustments within europe taking place right so there are
countries in europe
which don't have a pay-as-you-go system but
a prepaid system this is true for the networks for instance where there are
huge investments
on behalf of the elderly
fire general pools is also true first rate at which was al's west really
doesn't matter
worry so much about this at all
but in all the european countries you see for instance shifts in the pension
eight right so you see a move toward
letting people work for longer
as they age more
and hence you know uh... a larger part
of that whole life will have to be spent working which is logical particularly
for long ago
here work for a a little bit longer as well but these are the kids
but you see tremendous changes within the pension system
in southern europe so initially there's been an enormous pension reform
wish to a certain extent cheats
cheats degeneration so there will be
but generation of people
who grew up in a row now sort of in the
uh... twenty five to forty range
quote royally stuffed
inside in europe
uh... yeah
is a technical test stuff
then they truly will be the losers i'll fix because they will not enjoy the
benefits that their parents
was adored and they know they're not gonna benefit this time
you see tremendous adjustment problems writer really good people leaving sudden
europe because
but i wanna pay for the next generation and then pay for themselves as well
and this is a very very difficult problem on the
the obvious solution is not pretty pit is being taken most of certain europe
which is
to sort of cheap
the elderly right they were promised the renamo hypertension and their pension
has been cut all over the place between grayson
uh... hopping or something on that is happening greece to the pension so
they're being cheated out of what they thought they were going to get
on the youngsters are now also finding they have uh... uh... a much tougher
line from
this is leading a renewal to a real problem to the adjustment so they are
this is a temperate rain within the pension system i agree that you know we
have a good template of how to deal with them in australia's non-infringement for
more on
part of a while ago and it's been working well but
that health care seems to be the bigger picture
and then no one really knows how to transform bad and we will see from the
u_s_ has basically spends and double the amount of g_d_p_ uh...
on health care as in other countries that you know going away private is is
maybe not the right way with but it's a shining example of what not to do hezelf
let's let's maybe this is kind of too too much uh... you have an issue for us
to take a look when i go back to the g_d_p_ n
and how it uh...
whether it actually uh... is a good measure of diabetes and as a we can go
past advance their famous at quoted from nineteen sixty eight viable
kennedy who is in
who ordered who said that you know the g_d_p_ doesn't measured in strength of
our marriages in their beauty or a paltry including and uh... you know our
courage
by the way you have to have a lot of courage to be wearing had i been some
this is actually i need to say this is a present uh... from our side to pull for
coming to this interview so it's my bride a hazard says baghdad we'll need
incentives
but uh... he achieved this goal he was also talking about
a kind of depleting the environment he has something to look at that
along rivers and
and how natural wonder and you know many people think that
uh... that bold is economic growth has actually been fueled by just abusing the
environment and so is it is a necessary condition do we really flow for growth
to happen do we need to
kind of just abuse uh... the natural resources up and we have growth without
without that the views
uh... wilder two distinct points uh... one of your questions is
uh... is g_d_p_ a great measure of how countries doing and i would say no it's
not the basement item on
definitely one of the people who think that happiness is a more important now
come from the money
a money just going to happen streit writing a book arafat along these lines
yes yes yes has some fun with
can
hes title edited it covers many years doesn't actually cover this area much
but if you want me to plug my book it's on a an economic theory of greed love
groups and networks
and so i thought they would not diminish it
buddy eight it does have the notion of the g_d_p_ is not the only measure of
how well we've been doing
uh... but i want is an economist say the the the pursuit of more g_d_p_ has been
good for the world as a whole i did has helped us
overcome many of the the previous problems recog with violence
people dying young of starvation
it helped us um...
we've overcoming illiteracy rate dire poverty
so i would be one of the people who sings the praises of g_d_p_ in previous
heroes
but amongst economist has been recognized for a long time that g_d_p_
does measure everything
it differences never measured the hugs that
parents give each other or the smiles that they get from their children for
the sunshine but
shines a laid-back and nevertheless these are things that which are with
something twice we're willing to pay for them if we wouldn't get them for free
and has there been long debates about what else to measure and i'm one of the
people who would say well we should have a kind of a gross national happiness
typing to aim for writers of the things that are national policy should be about
i think would be difficult because i think that our societies are used to
thinking in terms of
up more goods as the thing to have but
there is a constituency for at least also measuring how well we're doing it
happened so that's the measurement thing
then the of the second question of whether we as humans are sort of using
the environment
but definitely we are others
there's no denying that more more of the world's natural resources
are being used for us isn't that a sustainable way out
well some things are clearly not sustainable we're gonna run out of of
colin gas and auto eventually now
so was a bit of an empirical question as to when but
the pico oil in the peak as people tell me that
we might have reached the peak already in from now on its all downhill sort
it's clear that there are not turn off now and then i got tired and i came here
would central questions the how quickly this'll happen but it
it is clear that we have been living after this resources and will continue
to do so because it's just the the role of
lease resistance
but it's important to recognize that our interaction with the environment and
grow your comments and vomit
has not been all bad
in many ways the environment
in terms of whether sustainable has actually benefited last week if it is so
local rivers have been cleaned up almost throughout the western an asian wilton
under
someone has been really introduce in many european rivers worse
they were to do anything for two years ago
smog is an unheard-of phenomenon
matic type things are no longer brought on so much
by the uh... the dirt in the air which used to be a lot
more normal
and so the local level with conservation nature parks
we now have a sort of uh... fisheries parks
we are getting better and better preserving the things that nature which
we think we need and we think of valuable on that we want to enjoy
and has the capacity of nature t
tours would provide finishers that we want
doesn't really seem to have been effect without much so they wanna
i don't approval measure biomass
which is sort of the total production and you've stopped
in fact not declined so
yes it's true that we are raping the rift in the sense that
it's sold out for us right i mean we've now got cows instead of
endangered species
it still animal not the still nature in some degree so so glad you mentioned
that there are micro level and i would agree with that but
that i had the global level and that there are some challenges and who's
there is not only global warming that gets all the attention but neither you
know have most economists are actually read much uh... kind of much physics but
one striking fact that i think i should
to be mentioned here is that
you know if uh... basically is a mango and they've been increasing the energy
consumption
you know kind of very lean you're right almost three percent per year and
and uh... the thing is that this obviously cannot continue using if if
you had that
trend continuing then
you know the the walls of thermodynamics imply bending you know something like
four hundred years spending less uh...
odd uh... the surface temperature of the earth is going to reach new hundred
decrease and this has nothing to do with c_ o_ two this is not
noble warning this is just the fact that this could use a lot of temperature is
cooler no kind of
arab through radiation is going to be released
and in fact if you if you go about a thousand years with with this trend we
would reach the energy of the entire summer that that we would be consuming
here on earth so
you know a future growth
will have to be different you know it cannot be as energy couldn't you know
consuming s as we've seen so far would you agree with that
i would say than in the next coming hundred years a cell
the world was a whole on this is another statement of how things should be but
how they will be
people that too much but it's something
and the reason for that is isri symbol of most of the
decisions
that are taken towards greater economic growth in greater wealth
are not taken of the world level
they're not even taken by national politicians there
they're taken by
household small regents regional politicians
people who want a second card or who want their first car
people who want to to build large for their kids
uh... but is such a tremendous force i thought
wish to amass more goods particularly so i think we are rostered that's the great
pride in your broker is that it is it is a large part in the book is that that
there is
there is no real way in which we can coordinate of the world level
to undo this this is such a powerful force for more
and also uh... an understandable for try poor people want to get richer rich
people want to stay here each
and every election in the last hundred years and i can remembers almost in fort
on a platform of
uh... more economic growth so when push comes to shove i'm sure all of us in
this this room still want economic growth
i'm against that reality i i don't think that there is truly a constituency at
the world level
to to counter avail this i'm sort of
from some
ground physicist level
house less energy
but there's a lot to say about the trenches samrat so
let me give you some some sort of counter uh...
of the moment we we only use about as much energy is
one seven thousand
the sun hits
uswitch reverie
not every year
and hence there also clear alternatives on the table we we already know that
for a mole uh... from my from sardar
is cheap enough
but we can in fact switch
from fossil fuels to sort of we don't want a bill is more expensive and read
more jobs involved in in generating it
but we will ones
we've run out of cheap fossil fields right there is a and natural progression
the cheaper fuels to more expensive fuels i'm his we've got alternatives
already in line which will uh... cuba's going for a long long time that we can
keep going for
uh... at least a hundred years
injures building more more solar panels
wishful
get us to maybe one seven hundred try ten times the amount of energy when you
that we know now
without any problems
so there's no real initially artists that this is the supplied to do a good
thing is that the key is the energy it's gonna
you know it's it's the lenses for selling one of the week on nowhere the
energy comes along and i agree that there might be good for sins and chill
but i i i i what i want a kill the following prediction which is that
the politics of organizing
account for movement
to all these michael people
and all the politicians who want this all the leaders who want this for the
group or elected on the basis of getting more growth for them
are sold part
so intractable and so easy to circumvent if the would be a general world ruled in
place
i would only place my hope indigenous and i would so i would tend to place my
hope
in austin a physicist well
if i give you a budget
of a thousand billion dollars
could you undo this world warming somehow right could you fro something in
the air which would do working to put something uh...
up in the skies do you make a more clouds can u that give me a filter can u
bury the charcoal mail is that there are millions and there is a major then jagan
and i would say there is more chance of that'll work
then this kind of
magical revolution of uh...
approved it's a call
solution of the world level in
were all storm forwards and
forget about the fact that we too are going to vote for growth next election
again
and will pretend that we're gonna do this now
so far the last twenty years we pretend that that we're gonna do septic but on
the ground none of us are doing stand-up always done herself
the the pretends to be so far from the reality that
if you are an intellectual and care about what actually happens as opposed
to not just the the fuel good let's move forward
you gotta put your hope in something really stick
uh... these international treaties i'm afraid there this is a dead duck said
he's a circus is there
they're made for her amusement
but they're not serious attempts to do something at the serious attempt to do
something are on the way there are now large research units trying to look at
how we can jio engineer our way out of this and
people laugh at them
who don't know you know that this is our only chance but they're also hold
government departments now who see this is our as our only chance and i'm with
them
road grier with your skipton is skepticism about uh...
what can be done and uh... the global level and you know which should be said
that there are major risks associated with your engineering what
let's move on which we are running out of time we've always great to see if
there's a macroeconomics which means that you might have to come back i
frequent thing to do right
to do pop to bid uh... the the the thing that also people have in my new and
things like another growth is that you you need
prices at increasingly this inflation continued to fuel economic growth what
would you prickly ash to say to those people
for me this is an entirely too critical question so
theoretically speaking economists have great difficulty working out why you
would need infliction writing in most of the ways in which we few an economy
is in fact not so hard for some prices to go up and some prices to go down
and so it's more a question of looking at reality is it possible to have grow
for no inflation
and i would say that the empirical reality is being that it is hard to have
grow for if you don't have a bit of inflation
and the real usefulness of inflation is that it makes it easier to change
relative prices tried it makes it easier for some people depend less
without them noticing too much that they were nice
on if you don't have inflation is pricing leverage remain the same
than people notice much quicker
whether or not they go down in the wages because they're nominal way too strong
but they see their take-home pay for all talking about branch of judaism wage
rigidity is sort of nominal wage rigidity and some money allusion are
associated with this but you can see this phenomenon inside enterprises so
one of the stylized facts which goes along with this is that
virtually no one unless concern about one percent of people
taken hourly pay cut
fall uh... from one year to next in an organizational related to which is the
fire them
visa gets all upset if they've realized that their wages are going to go but if
inflation is ten percent
and they have the same nominal wage don't look so much don't complain so
much so
the same wage cut is organiza bovine inflation level
which akan organized by having their actual
you know take-home headline wages go down
so the coordination problem of prices just seems to be too hard for us to get
growth
and relative price changes are necessary to
adult changing realities on the ground
without inflation so i would say that inflation
he's a good thing you you do want bouts of inflation but
hyperinflation
is also improved we noticed doable to be very freaked out
two-year-old inflation in the hundreds of percent
but if you've got a couple of years of of higher inflation minal just below the
two digits a
dot is not generally a problem that i can in fact be healthy and
particularly in europe now they're also forces and i would be amongst them had
set up
we need a bit of inflation not to be good to get rid of all these debts
so these i mean these are called sometimes good decrease effects uh...
al's for that
the you know you kind of
greasing the wheels of the economy by along the seine
these adjustments that's what most central banks i have have inflation
target around the two two-person mark rather than ah...
zero percent mock let's just i think we're in the cold rapidly running out of
time
um... then we've got lots of issues to discuss uh... so unfortunately i may
have to pass it on to be
orders of forty next year
even questions
are there any questions that you would like to
on scare
all on described what he said about
unlike the global warming situation
yeah i feel that like
house one day if we would have to have
aka bureaucracy world or up
that that would be possible politically
and what do you predict
the future that says situations as they
body you've read more of my first books on the fact that that uh...
or or or your and kindly aware of what is in this new book of life you know
uh...
and economic theory of
breedlove
groups and networks
so that in the first part of your question is do i see a bureaucracy
luddite emerging and could it work if i would say yes
in a world empire if you like
the ability to
toys that were reduced economic growth and to portion of all levels
is a lot easier
because one of the reasons that economic growth associate grandma societies
because we are status secrets we want our country to do well relative to other
countries
right we don't want to be the schmuck who have or losing economy and other
places doing well
if we find bugs land
we move abroad as young ambitious people so
which is not possible to organize it uh... up a decentralized level so-called
a bureaucracy succeed where you know coordination between countries uh...
account yes he quote
can i see it happen or not easily i couldn't
i've tried for many years to think of a scenario in which we would get they will
be government
but i can't realistically see anybody giving up
their own sovereign power
for this world government because in order to implement something as big
as as climate change regulation
you have to have an international police you have to have people actually going
into factories everywhere on putting heavy fines and other countries now nice
pure sovereignty value you need this
always kind of a
uh... a mobile army going into countries now
i can see countries giving dot office just don't care enough about global
warming flip-flops and i dont see something else in which they care either
so
i think local question
do you think we're gonna get the air
no
what will the world look like we did this global bureaucracy i would say it's
an empire
rocketed it naturally leads to centralization
uh... i'm one of the
one of the great niece
that you see within the global warming debate and and you see as a as a fantasy
if scientists is that
you can have a global bureaucracy which controls everything which control the
economy's controls all factors of production environment
all that big brother
uh... but it would be benevolent idea it would be run by
super smart scientist like themselves
and they would only be concerned for saving the environment like this would
be a that this is the fact that i can see there's a way that they are bosses
and becoming his anyways for for centuries has been
philosophers trying to work out the
you know how-to effectively run the government notices about us being killed
by shouldn't is professor and it would lead to fascism against a big lead to
the worst part of government
marlin does there are sensible suggestions like plato's republic but
but again comes
it's not but i was in fact as you can run in the republic right away
that that they have a plate of republicans about our we should give
people a people in charge who lightly uh... you know accidentally in the
office have been learning for forty years they should basically be the ones
who tell everybody else what to do
values awak relevance in other technical term elaine
there really is a space fantasy which some people have that they would be nice
if you let them in charge of everybody was not the power corrupts
i'm a corrupt later in the air carriers
uh... so uh... it's we were on there is a little utilisation report of a written
the republics what i'm concerned is so muddy from
night but it is a fantasy that you know
there are these great people out there who knew contrast to the right thing and
only report
all the world's
resources in their hands things will be fine
this is a terrible frenzy is very dangerous
in the fifteen
hopelessly without classes
michael okwu competes with the move forward
creating money u_p_s_ disciplines
it's completely america can do it that market is not office on the student
suffering from the clinton
because daytime entitlements
alone
any also
fakhri money
or
the instill
uh... malice that they don't know i know very little about pakistan uh...
apart from you know i'm a little bit about some of its history but i i don't
know well how it's don on without the global financial crisis
but i i think it's fair to say that
the worries of
pakistan
won't count for much in the corridors of power and either
the e_u_
the u_s_
foreign the world bank aren't at the i_m_f_ right so
uh...
it's sort of a a political non-entity but
uh... abouts
world economic level
uh... so their interests are not really represented i think that that will be
fair thing to say
uh...
now as to whether there is uh... something to be said for money printing
definitely
but money printing will have
many unexpected affects for different countries
so if america would print more money it's actually
putting money at the moment
by not means more inflation in america and it means that everybody who holds
american debt
uh... american bombs
suddenly finds that those dollars are worth less what they can buy less with
it
uh... and who loses out will everybody loses out
who have those american bombs
uh... i'm a great example of that is china which holds uh... a large
proportion of these american bombs serve america prints money it isn't
in effect stealing from china
and of course is great for american they shouldn't worry about this and they
don't
uh... of the chinese should be worried about their spots one of the
geopolitical factors that they don't seem to
to be too worried about that so i think they still buying your best airlines
that so that's a geopolitical reasons why they they sort of don't want to
uh... america to collapse and answer not
selling off their bone since then
uh... at the rate that they should perhaps recoveries and so this is an
addition to your reasons why
it doesn't happen
uh... but yes uh... a little bit of inflation is probably on the cards the
fed is
clearly gearing towards uh... a battering me you too
there are more more voices
to uh... to to urged
the european central bank onto pretty more money
uh... i'm one of the latest pumsie is something that i would say is is close
to
printing more money which is heads
buying in
fairly with response from
some european countries which you know one of the paper i could just sending
them a good life that's also form of money printing
annette is demerit we recognize one of the few ways in which europe can get
more quickly out of the debt crisis just
pre more money get more inflation some movies debt so worthless so that they
are
less uh... a burden palmer on future developments
personal scranton
askew remarkably
while chinese economy wanted involved
on the same possible obstacles
uses installing adding living in a collection like a
or email at yeah uh... environmental problems that have been created by that
precinct setting part
what i've been to trying out a couple of times on the thing that struck me is
but just how real their growth tried for a long time
that would development economist pertinent didn't happen that somehow the
chinese were inventing a growing economy in the books but that happen
but it it really is happening you can see the buildings going up you can see
the bullet trains being made
you can see
the the new schools in effect you can see the the the degree to which the
whole populations learning more about english
you can see the grow from the cd she can see the intent of the countryside
the production boom you can just look out the imports and exports
so it's really happening
uh... there are no major obstacles that you can see for at least the next ten
years
because everything which you would want to port in their growth
are still areas where they can improve a lot
so their education
improve leaps and bounds that hardly any
university educated people right
but they've just in the last ten years or so started building a lots more
universities
now who still have to fill up them but gotta build more of them the same way as
the coast cities that are coming over the groceries she is there a lots and
lots of regional cdc yet to to go there's only a fifty percent of an
isolation in china resp
the country like australia fitting
percent more of the matter about eighty percent of the hustlers
all that growth to come from all the
people from the countryside who are yet to go into the cities so that that there
is the man power there
then the the electricity clearly can be generated by their their buildings i
want to call past uh... five power stations awake which tells you how she
was they opt go on
already if you just look at our actions rather than their worst they're just
like outside lately hope for growth to
but they'll be more negatively affected them than most of the contrast not clear
marching some food projections would say that they in fact we will see their
article to production go up
there's not clear at all the time or lose up to it
it's more the uh... the the cvs on the coast side which may have to help put up
more dot
uh... that's that's a bit the discussion for another day
but in terms of the the electricity barriers the energy barriers they don't
seem to be their population lives
technologically also a lot of their manufacturing
is
sort of sixty seventy to eighty type manufacturing uh... i'm not conceal
improve bilbaoans where they they have not yet
decom as uh... as archie dense as the u_s_ is
there's not really started yet with the innovations sector i think that the
chinese connection
people to go to that once they get their minds to it
politically to with its very stable politically there's no real problems on
the horizon yet uh...
i'm so i can see the battery i'm i'm very optimistic about chinese growth the
next uh...
twenty years
after twenty years of putting its debts over right now they're sort of a level
it's returning the flattening out
but i can see them
mhm
uh... maybe just one quick question
extensive
scratch causing festive macroeconomics
one of the final seeks main threshold closer to take me to be in a macro
economics course for students
fresh oled concept of what do you mean by for short consulates that
if they uh... kind of grass then they can't really get across poland
the favorable complicated concepts of economics the status quo in the cities
okay
uh...
so i would say
but the refrig main thinks that they would have to
get their head round to relieve
be able to cross macro
i would say you have
to get your head on the notion of a creep in
which is the central european uh... geetha the central economic concepts by
which commonness look at the home afrikaner which is this is no snow we
are forever going towards a place in which all opportunities are taken
will never tell their
but it's a place where moving towards because it's such a powerful concept in
terms of saying where are we going to provide watch what is going to happen
and also what should legislation and be about as much easy to understand
legislation
uh... if you on the stand at group
i'm sorry career in music is a very important concept is not so easy to get
your head ram sounds easy but it
is not because it
requires you to think through us to look at what would greedy people do if they
got more opportunities for for change the laws and that would happen ok
you've actually got a faint quite a few steps so that the whole calls of their
commitment is one of mikey free once a macro
i would say creative destruction is also up a very important concepts of the
the concept of of
creative destruction all that
mule things come along all the time which require you to adopt to change and
to find more information to find new trading pockets
about notion that at every level
there are as it will shock so the system which traders were newark liberty which
create a new place towards
the the uh... towards we are moving
uh... is very important to get your head rounds because
that is what explains everything to do with information it's which explains
everything to do was well why are the entrepreneurs
explains everything to do with unemployment unemployed people basically
people who are not matched who've who sort of of uh... had a productive match
before but who still need to be connected to other people who who might
have had just in a new technology is only just came around the corner so it
it helps you know the whole world of search the whole world of information
and a lot of our economic institutions are about creative destruction zip if
you think about her about allowing dot don anderson
on the third thing a probably the hardest thing you got to get your head
round is money
that money is an invention
and money is is these weird piece of paper
or a bank account we give each other and we
we trust that somehow
this'll be worth something of legal to another person
unassuming as there is money there is abuse of money because someone can print
that piece of paper and
they can print lots more of it in henceforth
cheating us
but also if you are a bank and was lots of money flowing fruit that's not yours
you can vary is wasting no format beats
of money
on the whole global financial crisis can best be on the stored
as people abusing their position of power inside financial institutions as
well
they've got these hundreds of billions
of dollars flowing for they should choose and they're not bears
but they can use them they can borrow against them making down bowl with them
if they
you know big on the stock market
they get part of the benefits if they lose spell their money someone else
loses
so there
the the the whole financial system
hands on an understanding of money
and that is the toughest one to get your head around as to how money actually
works answer how you can steal from money if it goes for your institution
and i would say if i a had to
be self-critical about economics
money is the one we on the stump released well
it's too hard to model we don't have micro models of money which make any
sense or useful
and so it's it really is the toughest one of the free up to the other to been
debated for a long time we we feel we've got a heads around a bit of money is
just so tough to get him
well ad from from the a_n_c_ pc that uh...
appalls take on economics is quite different from the the standard uh...
kennel line and you're older first-year textbook as well it's a it's it's here
is called an introductory economics for decisionmakers solar
yahoo won explore more polls idea sounds good to be welcome to to have to check
it out now thinking thank you very much for your i would say interested to find
out on your website when you discussing your research interest you you you talk
about the trying to understand the unanswerable economic mysteries in life
and i would very much like to thank you for sharing some of your insights into
this economic have begun economic mysteries with us and and and and your
time is also please side joining thinking uh... pulled for three ghost
passion ought to send a very difficult to see you back soon for profit
we clearly need to many more upheld