Tuesday 21 November 2017

Getting things right now is best way of coping with needs in the long run

John Maynard Keynes believed we'd be working 15 hours a week - and was hopelessly wrong. So planning for the far-off is a tricky deal for the likes of the ESRI
John Maynard Keynes believed we'd be working 15 hours a week - and was hopelessly wrong. So planning for the far-off is a tricky deal for the likes of the ESRI
Brendan Keenan

Brendan Keenan

Poor old John Maynard Keynes. Not only do his successors still argue about what he meant, and whether he was right, the rest of us remember him, if at all, for two things: in the long run we are all dead, and in the 2000s work will have been all but abolished.

The first remark was jocular; the second was serious but proved seriously wrong. Yet almost 100 years later, the two are acquiring a new relevance which the great man could not have anticipated.

It was quite a month for the long run. The ESRI published research on the costs of ageing, the Taoiseach talked about planning for a country with over 5 million people - and there was all that business about electric cars.

All of them illustrated Keynes's difficulty. Should one plan for the short term - say five or 10 years - on the basis that a series of successful short-terms will mean success in the long run? Or try to figure what society will need in 30 years' time and start preparing now?

There is the conundrum of Keynes's second observation. This was more carefully calculated, and based on what turned out to be a pretty accurate estimate of Britain's economic growth over the past 70 years.

Given those figures, the intellectual, cultivated Keynes thought that, by now, people would earn enough to keep them happy with just 15 hours of work a week, and could spend the rest of the time on things of the mind and spirit. So don't laugh too much at Eamon de Valera's very similar vision.

They both misjudged human nature - something economists and politicians have to build into their conclusions and policies, and regularly get wrong. Now a new factor which even Keynes did not have to consider has arrived: the widespread belief that in the long run, or even the medium term, the world is going to be a very different place.

The long run is always unpredictable. There used to be a magnificent stand of oak trees on the outskirts of Belfast, planted by an 18th century landlord who feared the Royal Navy would run out of wood for its ships in the 20th century. I hope his descendants did not cut them down too soon; the navy may not need them but they are worth a fortune for billionaires' furniture.

In the long run we don't know, might be a better aphorism today. It took a couple of professors, John Kelly, Emeritus at UCD, and John FitzGerald, formerly of the ESRI, to point out that electric cars, of themselves, make little difference to carbon emissions.

Electric cars help the climate only if the electricity is generated carbon free. There was much talk about those clever Norwegians but Norway can generate most of its electricity, plus some for its neighbours, from its hydro electric stations, which adds nothing to global warming. It is a lot more difficult for the rest of us.

Dr FitzGerald is chairman of the Climate Change Advisory Council which published its most recent report last month as well. Their transport strategy is based on the assumption that, by 2050, most if not all electricity will be generated from carbon-neutral renewables.

That is something we do not know for sure. The German experience suggests that the technology for this does not yet exist. The oldest, most polluting power stations are the only ones which can compete with wind power - which in itself requires a network of power lines across the country from the Baltic Sea in the north to the big power users in the south.

Assuming, that is, that the network does not collapse from the sporadic spikes in supply and reduction in demand for the big generators. The Germans are working on it, and there is great optimism about solar power, but we are not there yet. Dr FitzGerald warned the Government about the dangers of replacing gas heating with electricity before power generation is more climate- friendly.

Then there is the law of unintended consequences. In his wide-ranging acceptance speech at the NUI honorary degree ceremony, former Taoiseach Brian Cowen said a "temporary" application of less stringent UK building standards would see the cement mixers turning here.

It looked like a throwaway paragraph, but Mr Cowen was at the centre of things when Irish housebuilding standards were carbon-proofed and there seems to be a clash between present needs and future risks here.

With the Central Bank fixing both income and loan limits for buyers, it is easy to calculate how much a couple of average earners can afford. If it costs more than that to build the average house under existing tax and regulations, we have a problem.

If it doesn't, the builders and developers should be presented with problems which give them no choice but to start building. It looks, though, that the sums come out on the builders' side.

The realities of the short term may have to take precedence over the possibilities of the long. At least we know that generating more electricity from renewable and carbon-free sources is a good idea. We don't know to what use people will put that electricity, or what role cars, electric or otherwise, will play.

Commuting might be a thing of the past, because work as we know it is a thing of the past. But it is not really feasible to make major investments now on that basis and dangerous not to make any at all.

In 2004 it was thought that the population of the Republic would be 5 million by this year. It was out by just a quarter of a million, which was pretty good, but in the depths of the recession it looked like this figure would not be reached until 2030.

Now, Taoiseach Leo Varadkar says we must plan for a population of 5.5 million by then. Indeed we must, but better perhaps on the basis of a spatial strategy which will bring economic and social benefits even if the population grows more slowly - or faster - than predicted.

That is the trick with these known unknowns. There are no easy answers when it comes to more fundamental changes. The ESRI was also looking into the far future with its recent paper on the fiscal costs of an ageing population.

Its forecasts of a hit to the public finances amounting to one per cent of national GDP is not insignificant, but it is a long way from the national bankruptcy occasionally predicted. One reason for the more modest conclusion is that wages will rise faster as workers become older, better qualified and more productive. Even though there are fewer of them, they can afford to spend more on their retired fellow citizens.

It seems a big assumption in the midst of this talk that half of all jobs could eventually be done by machines. Keynes may eventually be proved right about the amount of free time people will have in the future but, without radical changes to the way society is organised, they may be queuing for handouts rather than reading poetry.

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