Challenging Time for Ag Economists

Economists are famous for their disagreements. As George Bernard Shaw is supposed to have observed, ‘If all the economists in the world were laid end to end, they still wouldn't reach a conclusion.’ Some of those disagreements will be aired at the annual conference of the Australian Agricultural and Resource Economics Society to be held in Melbourne this week (8-11 Feb). Economists, notably including Ross Garnaut, will discuss and debate how best to reduce CO2 emissions and adapt to inevitable climate change, how to manage the problems of the Murray Darling Basin and many other issues affecting both the agricultural sector and the natural ecosystems on which we all depend.

There will, doubtless be plenty of disputes to illustrate Shaw’s point. Some economists favor carbon taxes, others support emissions trading schemes, and yet others support some kind of hybrid. Similarly, there will be vigorous debate over the best way to manage water rights for irrigators, other users and the environment, and over how to measure environmental costs and benefits, among many other issues.

Despite this, the striking fact about economists working on these resource issues is not the fact that they disagree over some things, but the fact that they agree over many more. Taking climate change as an example, there will be no debate over whether global warming is real.

Economists have enough expertise with time series to distinguish a genuine upward trend from a random fluctuation. They recognise talking points like ‘there has been no warming since 1998’ as the kind of silly cherry-picking that goes on when people want to mislead (or be misled) with statistics. To the best of my knowledge there is not a single economist in Australia with any professional credibility who denies the reality of global warming or the need for a global policy response.

While public debate often involves a supposed choice between mitigation and adaptation, economists generally understand that both are needed. Policies for mitigation must be developed at the national and global level, while adaptation is largely local. A large stream of papers at AARES will cover aspects of both mitigation and adaptation.

There is also a surprising amount of consensus regarding the kinds of policy responses we need to reduce carbon emissions. Economists understand the workings of prices and markets. Without an effective price on carbon, whether this is introduced through a tax, an emissions trading scheme, or some kind of hybrid, reductions in emissions will be limited, and the cost of achieving them will be high. That’s not to say that there is no room for other policies, such as the promotion of more efficient technologies, but in the absence of an effective price, such policies will not achieve much.

Turning to the problems of the Murray Darling Basin, again the amount of consensus among economists is striking. Issues that have dominated the headlines, such as the question of whether the environment or the economy should have priority are unlikely to get much discussion. Economists recognise that all policy issues involve trade-offs, though they are always on the alert for policy options that will yield improved outcomes on both environmental and socioeconomic dimensions.

There is similarly broad agreement on the proposal to spend $6 billion on upgrades to irrigation infrastructure. On the basis of past experience showing that such measures are rarely cost-effective, economists are almost uniformly critical of the focus on physical infrastructure. In most cases, the money would be better spent on voluntary buybacks of water rights, or on ‘social’ infrastructure such as schools and hospitals.

As we’ve seen with both the Emissions Trading Scheme and the Draft Basin Plan, it’s one thing to get agreement in principle and quite another to formulate a workable and acceptable plan. A large number of AARES papers will deal with  detailed aspects of policy design.

And, while most policy attention these days is focused on the resource base that underlies agriculture, the core business of agriculture is, as it always has been, food production. Australian agriculture is both a vital export industry and an important part of the global task of feeding the world. The problems of increasing agricultural productivity, both in Australia and in developing countries, and of improving the performance of global markets for food and other agricultural products remain central to the concerns of agricultural economics.

As is shown the continued perception of economists as factious and dispute ridden, the economics profession hasn’t done a great job of communicating the results of its work to the public at large. In particular, the new world of social media, blogs, and instant twitter reaction to policy issues has proved too much for many economists, accustomed to the leisurely pace of academic journal publication. Catching up with these developments will be a central challenge for 2011.