Rethinking Economics

Where do we want to be?

ContentsPage 3Rethinking starts here

Page 4TEF ‘13 keynote speaker profiles

Page 5Ireland’s lost generation?

Page 6Property taxes: Striking the right balance

Page 7Redefining the Welfare State

Page 8Rethinking education: How can we build a fair meritocracy?

Page 9Rethinking sustainable development

Page 10Reflections on the dismal science

TEF Commitee

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Awards 2012

Sector awards accountancy/professional services Sector award: Financial services

Sector awards: Finance and �nancial services

CoordinatorsSeán GillGary Finnerty

CommunicationsOwen BennettMarc MorganHoward Helen

TicketsEmily MeadeBrian StanleySéan Healy

Logistics Chris O’ConnorLorna McGinleyPierce Healy

WorkshopsTony O Connor Debbie Blair

This magazine was produced on behalf of the Trinity Economic Forum by The Uni-versity Times. The University Times is pro-duced with the financial support of Trinity College Students’ Union. It is editorially independent and claims no special rights or privileges.

The University TimesMagazine EditorsOwen BennettMarc Morgan

DesignCaelan RushOwen Bennett

Rethinking Economics | TEF & The University Times2

TEF 2013, due to be held on the 8th & 9th of February, will become Eu-rope’s largest student economics

forum. It will bring together over 400 stu-dents from across the country and further afield, to discuss, debate and participate in shaping the future of Irish economic policy.

The aim is simple: to engage students in the policy making process.

And why is this endeavour important? Because the “science” of economics is in crisis, as is most of the developed world and new thinking is required. It’s as simple as that. If not, the paradigm won’t change and we will be destined to repeat the same mis-takes over and over again.

Rather than discuss what we can do and how we can change, we still revert to talk-ing about what should have been done, what needed to be done, how it simply

shouldn’t have happened. It did happen though and as hard as it is, it’s time to get over it. “Such is life”, as they say.

The conversation in Ireland today seems to be dominated by three different (often competing) voices: the economist who of-fers us the theoretically correct (but of-ten impractical) answer, the business per-son who talks to us about the “bottom line” (but tends to dismiss the academic), and the politician who speaks to us about be-ing in this together (while being somewhat removed from the “real economy”). Sadly there doesn’t seem to be an awful lot of pro-ductive conversation between them.

TEF wants to change this conversation. By bringing together some of the people who could be sitting around the economic policy table in 10 years’ time, the forum will facilitate a constructive and open conver-sation, bridging the ideas gap between the varying perspectives and helping to devel-op a new generation of leaders.

We want TEF to drive change, inspiring students and professionals alike to apply entrepreneurial flair to economic thinking and offer decisive, forward thinking lead-ership on economic policy. This will ensure a more informed Irish policy debate in the future.

Last year, we were delighted to have the inaugural forum officially opened by Uachtarán na hÉireann Michael D. Hig-gins, who forcefully spoke about the need to “challenge the failed assumptions of the past”. His inspiring call-to-action of the 2012 delegates set the tone for the fo-rum and helped us to develop the 2013 pro-gramme.

This year we are addressing three key is-sues: Re-Thinking Economics, Generation Emigration and the proposed EU Banking Union. Attending keynote addresses and panel discussions, delegates will spend time with some of Ireland & the UK’s top Economic, Business and Political leaders.

Some of the highlights include an ad-dress by Lord Adair Turner (Chairman of the Financial Services Authority in the UK) on what lessons have been learnt from the great recession, a discussion with John Moran (Head of the Irish Department of Finance) about how Irish students can rebuild a prosperous Ireland and the inau-gural Global Irish Leadership address by Willie Walsh (CEO of the International Air-line Group).

Two-day delegates will also have time to work on current policy issues: What an op-timal property tax would look like? , How

we can improve the social welfare system? and whether the Irish healthcare insur-ance market should be changed?

And if your mind is on the jobs market, you’ll be glad to know that representatives from our two partnering firms (Citi & PwC) will be there to answer any questions you might have about their graduate and in-ternship programmes (as well as any tips).

We hope this magazine provides readers with an introduction to what TEF 2013 is all about and that you will join us for the two-days in February.

As the oft-quoted saying goes - “we are where we are.” The real question posed by TEF, however, is where we want to be?

Rethinking starts hereTrinity Economic Forum co-founders Seán Gill and Gary Finnerty explain the vision behind TEF’ 13’ and the neccessity of student-led thinking as we seek to restore economic prosperity to our country.

“The aim of TEF is simple: to engage

students in the poli-cymaking process”

“The real ques-tion posed by TEF is where do we want to

be?”

Rethinking Economics | TEF & The University Times 3

Rethinking Economics | TEF & The University Times4

TEF Keynote Speakers

FSA ChairmanIn September 2008 Lord Turner be-

came Chairman of the FSA, and earlier the same year he was appointed Chairman of the Climate Change Committee, stepping down in spring 2012.

Prior to September 2008 Lord Turner was a non-executive Director at Standard Chartered Bank, United British Media and Siemens; from 2000-2006 he was Vice-Chairman of Merrill Lynch Europe, and from 1995-99, Director General of the Con-federation of British Industry. He was with McKinsey & Co. from 1982 to 1995, build-ing McKinsey’s practice in Eastern Europe and Russia as a Director. He was previous-ly Chair of the Overseas Development In-stitute (2007-10).

Lord Adair Turner

Secretary General, Dept. of Finance

As head of Ireland’s Department of Fi-nance, having previously been head of Banking at the Department, he is respon-sible for economic, budgetary and fiscal, banking and financial service policy mat-ters and the oversight of Ireland’s invest-ments in and support for covered banks.

Prior to his position at the Department of Finance, Moran was head of Whole-sale Bank Supervision at the Central Bank of Ireland from 2010-2011. For eight years from 1997, Moran was CEO and Board member of Zurich Bank.

John Moran

CEO, International Airline Group

Willie Walsh became chief executive of International Airlines Group (IAG) in Jan-uary 2011, joining from British Airways where he was chief executive from Octo-ber 2005. IAG is the holding company of British Airways and Iberia. It is one of the world’s largest airline groups with more than 400 aircraft flying to 200 destinations and carrying more than 55 million passen-gers each year. Walsh has previously held the role of CEO of Aer Lingus.

Executive Director, Bank of England

Andy Haldane has responsibility for de-veloping the Bank of England’s policy on financial stability issues and the manage-ment of the Financial Stability Area. He is a member of the newly established Finan-cial Policy Committee as well as several se-nior management committees of the Bank. He is also a member of the Basel Commit-tee. In previous roles in the Bank, he has led work on risk assessment, market infra-structure and on international finance.

Andy Haldane

Tickets Keynotes & Panel DiscussionsTEF pack incl. TEF bag, pen, notepad & coffee cupsNetworking with Citi and PwCFood, Drink & EntertainmentTwo Day Tickets (Friday & Saturday) - €20Keynotes & Panel DiscussionsWorkshop SessionsTEF pack incl. TEF portfolio, pen, notepad, coffee cups & FT Weekend on SaturdayNetworking with Citi and PwCFood, Drink & EntertainmentTickets can be bought online at......

One Day €10 Two Day €20

One day (Friday-only) tickets include:• Keynote Addresses &

Panel Discussions.• TEF packs (TEF bag,

pen, notepad & coffee cups.)

• Networking with PwC and Citi.

• Complementary food and drinks.

Tickets can be bought online at

trinityeconomicforum.ie

Two day tickets include:

• Keynote Addresses & Panel Discussions.

• Workshop sessions on policy issues.

• TEF pack (TEF portfo-lio, pen, notepad, cof-fee cups & FT Week-end).

• Networking with Citi and PwC.

• Complementary food and drinks.

Willie Walsh

The most recent migration figures published by the Central Statistics Office (CSO) show that 35,800 peo-

ple aged between 15 and 24 moved over-seas in the year to April 2012, an increase of 1,300 on the previous year and more than twice the 2006 amount. With no sign of the outflow abating, there is no doubt that youth emigration has become a defining theme of our times.

Of course, thousands of young people chose to move abroad during the boom when there were plenty of opportunities for them here, and these voluntary emigrants still make up a significant percentage of those who are leaving our shores today. But the doubling of the number of young peo-ple leaving since the height of the boom proves that emigration is not a “lifestyle choice” for everyone, despite what Minis-ter for Finance Michael Noonan may like to think.

Just one in four people between 15 and 24 is now at work in Ireland. Data from the Organisation for Economic Co-operation and Development shows that 34 per cent of those who had a job in 2011 were employed on a temporary rather than permanent ba-sis, a three-fold increase on 2005 figures.

The diminishing prospect of permanent work and lower salary expectations are breeding deep uncertainty among young people about their long-term prospects in Ireland. A survey carried out by the Nation-al Youth Council of Ireland in 2011 found

young people could cope with having no money in the short term, but not knowing whether they would have a secure income next year or the year after made it impos-sible to plan for the future.

It is no wonder that so many young peo-ple are looking to places like Canada, Aus-tralia and New Zealand where their skills and qualifications will be better remuner-ated. For the majority, the opportunity to live and work abroad, even if it is thrust upon them through a lack of prospects in Ireland, is a welcome opportunity for ad-venture and new experiences.

Most young people who have contribut-ed to Generation Emigration, the ongoing Irish Times forum for the Irish abroad, are happy to be away from Ireland at the mo-ment. While some express anger at being “forced” out of the country because of un-employment or poor prospects, most are at least glad that the option is there to travel or work elsewhere.

The majority of emigrants in the un-der-25 age group surveyed by Ipsos/MRBI for The Irish Times last March reported being happier than they were in Ireland, with better jobs, a healthier lifestyle and an ability to save money every month. One in three were unemployed before they left, but nine out of ten were working abroad when the survey was conducted. Some 86 per cent of those who had found a job said it was on par or better than the one they had in Ireland.

While nothing can replace seeing and touching the ones they love most in per-son, modern technology keeps them better connected to Ireland than any other gen-eration of emigrants before them. They can Skype their mammies, monitor Irish news online, and share momentous events and frivolous thoughts on Facebook and Twit-ter. Through webcams and news feeds, they comment on nights out they miss, watch friends getting married and nieces or nephews take first steps. Ireland goes on without them, but they are kept well in-formed of everything they are missing.

The big question most of them have now is whether they will be able to come back. While some contributors to the Generation Emigration series have said they are disil-lusioned with Ireland and can’t see them-selves ever returning to live here, the vast majority are hopeful that their emigration

is only temporary, with seven out of 10 peo-ple surveyed by the Irish Times saying they hope to be back permanently in the future. Being close to friends and family, want-ing to raise their children in Ireland, the Irish way of life, the culture, the GAA and the craic are commonly cited factors which many recent leavers expect will lure them home when circumstances permit.

Research carried out in University Col-lege Cork has shown that about half of the 500,000 people who emigrated during the 1980s and early 1990s came back to live in Ireland during the Celtic Tiger years. Sig-nificant “life stage” events such as buying a home and having children had a signifi-cant impact on their decision to move back, which was facilitated by good job prospects here when the economy was booming.

But the UCC research also found that the longer people stayed away from the coun-try they grew up in, the less likely they were to return to live permanently. Only time will tell whether or not Ireland will be able to rebuild its economy in time to offer this generation of young emigrants attractive enough opportunities to return perma-nently before they have rooted themselves elsewhere.

Ireland’s lost generation?

Ciara Kenny, Editor of the Irish Times’ Generation Emigration se-ries, outlines the dilemmas facing young Irish graduates.

“The big question this generation have now is whether they will be able to come

back”

“The vast major-ity are hopeful their emigration is only

temporary”

Rethinking Economics | TEF & The University Times 5

In June 1977, the Irish electorate handed Fianna Fáil a resounding, yet unex-pected victory in the election of the 21st

Dáil. The expectation of a Fine Gael-La-bour government was to prove important, prompting Jack Lynch’s opposition party to insert multiple sweeteners into its cam-paign manifesto, among them the prom-ise of “rates abolished on all dwellings from next January”. The return of the property tax has been inevitable ever since, not least with government finances becoming in-creasingly precarious in recent years.

There are multiple reasons for the reintroduction of a property tax in Ire-land. Irrespective of the recent crisis, many have argued that it is inherently unsustain-able to provide local government services without an explicit way of funding them. A property tax (like water charges, similarly abolished and soon to return) is a way of lo-cally funding local expenditure on services such as fire brigades, sewerage, parks and public libraries. Without local taxes, local authorities rely on central funding, which is highly procyclical: we saw this during the boom years of the 2000s, when a sig-nificant part of government revenue came from stamp duty and property-related in-come taxes.

A further argument in favour of property tax is that it broadens the tax base, allowing taxation to be spread more even-ly across multiple sources. The need for a broader base can be seen in the elevated level of rates paid by businesses, who have not been exempt since 1977. Elimination of property tax, motor tax and water charg-es in the past has contributed to higher in-come taxes, which have the effect of dis-couraging people from working.

Nonetheless, the decision to reimpose the property tax in Ireland has been mo-tivated primarily by the need to arrest the rapid expansion in sovereign debt (great-ly exacerbated by the banking crisis) seen since 2008. Regardless of differing views on austerity and fiscal stimulus, it seems imperative that the Irish government re-turn to a structural surplus, i.e. a situa-tion where the government’s revenues ex-

ceed its spending. For the moment, the gap in government finances has been filled by financial assistance from the EU and IMF, but this is conditional on reforms such as the property tax that bring government revenues into line with spending.

In designing an optimal property tax, as with any taxation system, it is important to consider efficiency, equity and ease of im-plementation and collection.

The system proposed by the Irish gov-ernment would levy a tax based on the as-sessed market value of a house: a house is placed into a price band (e.g. €150,000-200,000), valued at the midpoint of that band (in this case €175,000) and taxed at 0.18% of that value (in this example €315).

There are several problems with a sys-tem based on market value such as this one. In terms of efficiency, many economists

would take issue with the incentives of-fered by the system: the more you improve your house, the more valuable it becomes, and the more you are ‘punished’ on your tax returns. This could discourage devel-opment of sites for commercial purposes or for home improvement.

There is also an argument to be made that such a tax can be inequitable, not over-all, but for certain vulnerable individuals. Although the system takes into account the value of the property, it fails to account for individuals with both low incomes and highly valued property. There are likely many cases of this, including farmers and elderly people in rural areas whose hous-es are valued far above their original cost of construction. Some commentators have suggested this issue be solved by deferring property tax payments until the properties are sold.

An alternative to the proposed system is one based on the value of the site, rath-er than the buildings therein. This would deal with the perverse incentives offered by a market-value-based system: in fact, holding a derelict site without developing it would be costly, as you would not be earn-ing enough revenue to offset your prop-erty tax bill. In this way, a site-value sys-tem encourages property owners to get the maximum possible return from their land, which should result in economically bene-ficial outcomes.

One frequently cited problem with a site-value system is the lack of a database of site values. Although an official site database has not yet been compiled, Ronan Lyons of Daft.ie argues that there are fewer factors that influence the value of a site (mostly the site’s area and the proximity of amenities) than those that determine house prices (including factors that are difficult to val-ue precisely, such as double glazing or a converted attic). Finally, the implementa-tion and collection of the property tax may prove problematic in coming months. The introduction of a household charge (albe-it a much more regressive tax than the in-cipient property tax) was met with anger around the country, even culminating in opposition politicians telling their con-stituents not to pay the tax. It is possible that Irish taxpayers are nearing the limits of their ability to pay: for example, there is the generation of householders in negative equity who see their disposable income shrink as they are once again punished for buying at the wrong time.

Striking the right balance

The introduction of property taxes has become a political nightmare for the coalition government. Here, Emmet Kiberd focuses on the is-sues at stake.

“Without local taxes, local au-

thorities rely on cen-tral funding, which is

highly procyclical”

Rethinking Economics | TEF & The University Times6

In light of the ongoing crisis, and the rise of emerging economies, certain commentators have seen fit to ques-

tion the sustainability of the European wel-fare state. The implicit assumption in these suppositions is that a welfare state saps economic growth. This isn’t strictly true.

Indeed, a casual look at history shows that the welfare state might have helped contribute to growth, by preserving so-cial stability. For example, in late nine-teenth century Imperial Germany, Chan-cellor von Bismarck introduced accident and social insurance, as well as a form of socialised medicine. However, his motiva-tion for doing so was not out of endearment for socialistic ideals, which he detested; rather, he wanted to bolster support for the conservative status-quo, and to sway work-ers away from political radicalism.

Thus, one could say that Bismarck’s ac-tions were growth-enhancing in conse-quence if not in intention, for by combating the socially corrosive effects of real poverty and perceived unfairness, they helped pre-serve the set of arrangements that permit-ted Germany to industrialise rapidly.

A similar utilitarian outlook was prev-alent around the time of the publishing of the Beveridge Report, in 1942. Here, the intention was to help individuals manage their affairs better; benefits in return for contributions, and a subsistence income, as opposed to concerns over equalising in-come.

However, as John Kay highlighted in a recent Financial Times article, discourse around welfare came to be heavily influ-enced by ideas of human rights. For exam-ple, Article 25 of the UN Declaration on Hu-man Rights states that “everyone has the right to a standard of living adequate for the health and well-being of himself and of his family.”

Over time, rights have become some-thing of a heuristic in policy-making; in-stead of justifying why a particular benefit contributes to the common good, it is not

rare for one to simply claim a right to the benefit, as if that should end the question. More formally, it is best to analyse the issue welfare through the concepts of equality of opportunity and equality of outcome.

The distinction is not concrete. Recent academic research, such as by Miles Cor-ak at the University of Ottowa, finds strong empirical evidence for the ‘Great Gatsby Curve’, which posits that greater inequality is associated with less generational mobil-ity over time. Implicit here is a sort of di-abolic loop, where high inequality today may reinforce higher inequality tomorrow, if wealth accumulates over time. Thus, wishing to equalise equality of opportuni-ty, insofar as it is possible, warrants a cer-

tain degree of equality of outcome. Of course, choosing between the two

warrants choosing between genera-tions. For example, should we focus on providing pre-primary school education

and childcare support, which would re-quire lower pensions and higher retire-ment ages? As research by Novel Laureate James Heckman finds, the former provides

much higher social returns than the latter, though the benefits accrue distantly in the future, when such children enter the work-force. Thus, there may be a conflict be-tween the elderly, who claim a right to a de-cent retirement, and the young, who would claim a right to a decent education. How-ever, the young don’t vote, so there will be a skew in electoral preferences towards pro-viding for the old.

Such issues of social justice relate not only to what kind of welfare is bestowed, but also how. For example, those in fa-vour of equality of outcome would argue for mean-testing of benefits such as child benefit. However, as Chicago economist Casey Mulligan explains in a recent book, such benefits may disincentivise individu-als from seeking a higher wage, as obtain-ing one would result in such benefits be-ing withdrawn. In this manner, a welfare system that uses means-testing may be be perceived as fairer, but at the expense of growth.

Policymakers in the future face two cer-tain difficulties. Firstly, how to design wel-fare in such a way that we move toward the twin aims of equality of opportunity and outcome, while not putting the interests of one generation over another. However, a complicating factor is to maintain the cur-rent harmonious state of society. Bismarck had an easy task in comparison.

Redefining the Welfare State

“Issues of social justice relate not only to what kind of wel-

fare is bestowed, but also how”

Tony O ConnorTEF Workshop Co-ordinator

Rethinking Economics | TEF & The University Times 7

In a hypothetical meritocracy, a per-son’s success is dependent on his own actions. By working hard, a person

shall be rewarded for his or her perfor-mance, usually in the form of financial re-muneration.

If he is smart too, however, he will simi-larly be able to rise higher than his less in-telligent peers, while expending less effort than them. That seems to pose a funda-mental problem about the fairness of mer-itocracy, by suggesting the platform does not need to be balanced to begin with. Conceiving of merit as merely the deploy-ment of one’s ‘abilities’ seems to render hard work to be of secondary importance; the laid-back genius may be more likely to succeed than the hyperactive fool. If effort does not correspond with rewards, how-ever, then the idea of meritocracy appears neither very illuminating, nor fair.

Fairness is often – mistakenly – dis-missed as a vague concept. John Rawls built a theory of justice upon it. Humans seem to have an innate sense of fairness, as they do about what is ‘good’. They may dis-agree at the margin, but the idea is ground-ed in a belief in desert – that one should be rewarded according to one’s efforts, and that this should hold true for everyone. Note that people have a natural dislike of

free riders, who benefit from others’ work, because of the instinctive belief that they act unfairly.

Can we then conceive of a fair merito-cratic society? Crucial to its creation ap-pears to be the achievement of substantive equality of opportunity. This means more than everyone possessing political rights, but that arbitrary, ‘lucky’ factors about someone (such as gender, race, or even ac-cent) are tempered as determinants of that person’s fate. Where there is equal oppor-tunity, a person’s actions are the main de-terminant of his outcomes, regardless of who he (or she) is.

Admittedly, we can never fully eliminate luck; we are neither genetically identical, nor rational homo economici. But assum-ing that fair meritocracy is desirable, which policies might help achieve it? There is in-sufficient space to consider all such meth-ods, but here are a few basic, practical sug-gestions.

First, taxation could be deployed to mit-igate luck, combat the fundamentally un-fair phenomenon of negative externali-ties (where a third party pays for the harm caused by someone else), and incentivise actions and behaviour that are good for both the individual and society overall.

The most obvious way is by raising the inheritance tax to reduce social stratifica-tion: having the good fortune of being born into a rich family should not mean losing

all incentive to work hard for success. Soci-ety too should benefit from this good luck. Chance dictates whether a child is born into a rich family, or to a single mother in an urban slum. In order to mitigate such arbitrariness, some inherited good fortune can be taxed when passed between genera-tions and used to fund universally benefi-cial public services.

A carbon tax should also be levied, to in-centivise innovation in cleaner technolo-gies, and correct the obvious market failure of pollution – a blatant negative externali-ty. A land or site value tax too, to prevent wealthy land owners from idling, could be raised.

These increases could then be balanced with a comparable decrease in income tax. Though it should remain progressive, this tax is on work, which is something that we want to ensure is rewarding.

Education policy is another crucial tool. Schools should provide the teaching and mentoring that allows pupils to fulfil their capabilities. Good schools need good teachers: high-achieving graduates could be incentivised to teach in low-achieving, state-run schools through higher starting salaries, which may also elevate the pro-fession’s prestige, as in Finland – a leader in international education standards.

But improved schooling is not suffi-cient. For example, Will Hutton points out in Them and Us, a British child born into an affluent, well-educated family hears an average of 2153 words per hour, where-as a child in a welfare home hears just 616. The effect on cognitive development is as-tounding; tackling child poverty is there-fore also necessary. There is obviously no easy policy lever here: the state cannot simply enter a family’s (or single parent’s) home to give a child a ‘proper’ upbringing. Perhaps state funding for childcare would be wise though, as judged from the Scandi-navian experience.

Thirdly, the principles behind the wel-fare state must be rearticulated and reaf-firmed. This is not about ‘scroungers’ and ‘strivers’. The foundations that William Beveridge believed should underpin a de-cent society were based on the view that a person who falls upon hard times, through little fault of his own, should be lent a help-ing hand to get back up. Only then can he aspire to greater heights. Only then can his merit be fairly rewarded.

Rethinking education: Howcan we build a fair meritocracy?

Babak MoussaviEditor, Social Justice First

Rethinking Economics | TEF & The University Times8

Environmental issues have become more salient in recent decades due to greater awareness of ecologi-

cal degradation and growing scientific re-search on climate change. A recent World Bank publication observed a 4°C degree rise in global temperatures by the end of the century would push some countries or regions “to the brink of collapse”.

In 1972, The United Nations Conference on the Human Environment took place in Stockholm and is often considered as the first example of international coopera-tion on environmental matters. Howev-er, the link between environment and de-velopment was largely ignored until the late 1980s. Industrialisation and moderni-sation had severe environmental conse-quences in emerging economies, as the most rapidly growing industrial sectors were also the most polluting ones.

A few years ago, China even surpassed the United States as the world’s largest emitter of carbon dioxide. However, under the principle of “common but differentiat-ed responsibility”, rapidly industrialising countries like China and India have often refused to commit to strict emission tar-gets. They rightly argue that Western states are historically responsible for CO2 emis-sions as greenhouse gasses are believed to stay in the atmosphere for more than 100

years.A solution had to be found to break the

development-environment deadlock. In 1983, Norwegian politician Gro Harlem Brundtland was appointed by the UN to chair a commission on development and environmental challenges. Their report was published under the title Our Common Future and officially adopted by the UN shortly thereafter. Its main contribution was the sustainable development concept – defined as “development that meets the

needs of the present without compromis-ing the ability of future generations to meet their own needs”. The report highlights three main pillars: economic growth, envi-ronmental protection and social equality.

While sustainable development has de-veloped into a very mainstream concept, it has also been subject to growing criti-cism, for a number of reasons. Its focus on economic growth is highly questionable: if growth has no positive impact on environ-mental protection - but quite the opposite - it should not be an operational objective of sustainable development. De-growth scholars such as Serge Latouche argue that

the very term “sustainable development” is an oxymoron since growth economics re-lies heavily on high output and thus envi-ronmental degradation.

Furthermore, the concept may appear too simplistic and overly consensual. The relationship between development and the environment is a complex one and sus-tainable development often ignores major tradeoffs experienced by developing coun-tries. For example, the Ugandan govern-ment had to make difficult policy choic-es regarding fish stocks in Lake Victoria: a large number of species have been fished to extinction by the local population whose income depends on it. Other developing countries – especially in Sub-Saharan Af-rica – face similar dilemmas with forest-re-lated resources.

Despite its flaws, the Brundtland Report introduced an interesting concept which acknowledged both the development im-perative and the need for environmen-tal protection. Unfortunately, sustainable development has lost most of its origi-nal meaning. Like democracy or human rights, it has become a principle which no one would dare question; everyone loves it, including some of the worst polluters on

earth. The trend towards sustainability has re-

cently encouraged cosmetic environmen-talism on the part of both governments and business. British Petroleum’s homep-age has a “sustainability” subsection, de-spite the firm’s poor record in environ-mental preservation. The company also changed its name to Beyond Petroleum, even though fossil fuels make up 95% of their energy mix. This PR gimmick, known as green-washing, has been used exten-sively by oil corporations and other busi-ness sectors.

In Greek mythology, Panacea was the

goddess of Universal Remedy. With con-ceptual flaws and green hypocrisy, sus-tainable development has become just that – a trendy but rather void analytical con-cept which fails to capture the complexi-ty of economic and environmental issues. Pompous concepts will not solve the prob-lems at hand. Instead, citizens and policy-makers could – and should – rethink global environmental policy in a number of ways: by questioning ever-increasing trade and the ecological cost of transporting great-er volumes of goods across large distanc-es; by finding viable alternatives to fossil fuels; and by changing consumerist be-haviours in the West (the average Ameri-can consumes approximately as much as 32 Kenyans annually). In many ways, sus-tainable development as it is currently con-ceived perpetuates the disease by treating only the symptoms.

This article first appeared on socialjus-ticefirst.com

Antoine Cerisier is a graduate of Univer-sity College London, currently studying In-ternational Relations at the University of St. Gallen, Switzerland.

Rethinking sustainable development

“Like democracy or human rights, it has become a principle which no one would

dare question”

Antoine Cerisier, opens the debate on how best to reconcile sustainability with economic development.

Rethinking Economics | TEF & The University Times 9

From student walkouts and boycotts, to ‘Occupy Wall Street’ camps and Buckingham Palace, and even to the

very home of the economics ‘Nobel Prize’, signs abound to suggest that the global fi-nancial crisis had thrown economics into the spotlight for failing to predict the larg-est singular event in economic history this side of the Great Depression. In a follow up to the 2012 Nobel Memorial Prize in Eco-nomics, Peter Nobel publicly denounced the award as ‘trademark infringement-un-acceptably robbing the real Nobel Prizes’ of their value.

After the Great Recession, the view from the Main Street is that economics is closer in nature to quackery than to science. This view, although reflective of some real er-rors that we economists have allowed to ac-cumulate, is deeply incorrect.

As a practitioner of the subject, I would not argue that economics is a science in the strict sense. The subject permits no strict-ly controlled and/or fully replicable experi-ments. Even in behavioural economics, the degree to which the experiments are con-trolled is bounded by the reality of infinite-ly varied and autonomous decision-mak-ing.

Within economics itself, and especial-ly within macroeconomics, too little atten-tion is given to the peculiar nature of un-certainty. For example, one recent paper using a standard DSGE (Dynamic Stochas-tic General Equilibrium) model, augment-

ed to allow the volatility of cross-sec-tional uncertainty to be time-dependent, shows that roughly 60% of US business-cycle output fluctuations, since the mid-1980s, can be explained by shocks to idio-syncratic risks. However, such extensions to the model, which explicitly account for idiosyncratic uncertainty and volatility, are relatively new and are yet to gain the prominence that is accorded to their more

deterministic or stable equilibrium-driven counterparts.

Even with more advances in mathemat-ical modelling tools, economics – a study of social and individual decision-making in the presence of scarcity - is too rich, too dynamic, too deeply vested in uncertainty and behavioural biases to allow the pur-suit of deterministic forecasts and conjec-tures. As a discipline, therefore, economics trades predictability for a quasi-philosoph-ical interpretation of evidence. This evi-dence includes observations underwritten by variation and diversity, by dynamism and by multi-dimensional dependencies between many individuals, from which ul-timately the observations are made.

This is often viewed as economics’ main weakness. In modern society, we abhor un-

certainty and strive for stability and deter-minism – be it at micro level, in the capac-ity of social welfare nets to absorb cyclical household income shocks or at a macro level, in pursuing policies to lower volatil-ity within the business cycles.

As Nassim Taleb remarked, human be-ings are not ‘wired’ for living in uncertain-ty. Yet, uncertainty is the core fabric of our world, and as such, uncertainty is the ‘dark matter’ of economics.

If economics is an inquiry, subject to ev-idence, and not a science, subject to con-clusive proof, then economics cannot be responsible for delivering anything more than a systemic dictionary for narrating the space of potential outcomes or environ-ments. Accepting this, however, requires real change in the way decision makers and society at large use economics.

A system’s ability to withstand shocks and learn from adverse events relies on its

adaptive capacity. Over-reliance on pre-scribed responses and deterministic fore-casts only increases the inherent fragility of social systems. We have witnessed these processes unfold in front of our eyes, when consensus-based decision making in Eu-rope was tested by the crisis.

Economists have solutions to deal with this. It is the political and social systems that exhibit inherent inability to cope with shocks or to learn from them in their after-math. Indeed, as a growing literature relat-ing to financial crises suggests, the shocks themselves were, at least in part, the out-come of consensus-determined analysis and regulatory prescriptions, which char-acterised the economic system prior to 2008.

So the structural challenge for econom-ics today (beyond the normal course of in-quiry) does not rest with the need for de-velopment of new economic models or new econometric tools for forecasting. In fact, the sheer range of current research in eco-nomics – as exemplified by the range of de-bates at the latest American Economic As-sociation meeting in San Diego, or by the award of the 2013 Fischer Black Prize to a researcher like Ulrike Malmendier, or even

by the work recognized last year, and in-deed in recent decades, by the Nobel Me-morial Prize committee – shows that eco-nomics has plenty of tools and theories to handle a much wider scope of topics and phenomena than all physical sciences combined.

Instead, the challenge for modern eco-nomics is to encourage among society and among our own academic and policy work-practices, a philosophically-driven approach to debate and discourse. Such a debate should start by recognizing, as our experience of the events prior to and dur-ing the Great Recession have clearly dem-onstrated, the value of dissent, debate, and the value of challenging the established consensus. In economics, more than in any other field of inquiry, saying ‘I disagree’ will always hold more value than ‘I con-sent’.

Reflections on the dismal scienceTrinity-based economist Constantin Gurdgiev muses on the state of modern economics

“Too little attention is given to the

peculiar nature of uncertainty”

Rethinking Economics | TEF & The University Times10

16:00 -16:10

Welcome Address Patrick Prendergast (Provost, TCD) Eamon Gilmore TD (An Tanáiste)

SCHEDULEFriday 8th February 2013 Saturday 9th February 2013

16:15 -17:15

After The Great Recession, what have we learned? Lord Adair Turner (FSA) Andy Haldane (Bank of England)

18:00 -18:50

Generation Emigration Panel Claire Byrne (RTÉ) Carmel O’Connor (PwC) Terry Neill (UBM) / Alan Barrett (ESRI) James Doorley (NYCI)

18:55 -19.15

The IMF Overview Peter Breuer (IMF)

19:40 -20.10

The Troika Bailout Stephen Kinsella (UL) Seamus Coffey (UCC)

20:15 -21.05

21.05 -23.00

Drinks Reception & Entertainment

EU Banking Union Panel Arthur Beesley (Irish Times) Brian Hayes (Citi) Brian Lucey (TCD) Fiona Muldoon (Irish Central Bank)

15:00 -15.45

12:55 -14:15

12:00 -12:50

10:15 -11:25

The Future of Ireland’s Young People John Moran (Dept. Finance)

Policy Workshops

Teaching Economics Differently? Alan Kirman (Aix-Marseille 111) Steve Keen (Western Sydney) Eleanor Denny (TCD) Wendy Carlin (UCL)

Rethinking Economics Rory Sutherland (Ogilvy UK) Liam Delaney (Sterling) Cameron Hepburn (LSE)

15:50 -16.30

Global Irish Leadership Willie Walsh (IAG)

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