Diagram 1

We are currently behaving like this is the world we live in – because if you are a finance person it is. The Dasgupta Report on the Economics of Biodiversity does nothing substantive to challenge this, despite a foreword from David Attenborough admitting “We are totally dependent upon the natural world”, other than putting a bigger number on the Sustainability portion (Natural Capital). John Kay mentioned in his talk, as part of the Dr Patrick Poon Presidential Speaker series on Finance in the Public Interest for the Institute and Faculty of Actuaries, the habit of actuaries in particular of often “attaching meaningless numbers to data”. There would seem to be great potential for doing precisely this in putting a number on Natural Capital.

But it is worse than that. As the September 2020 InfluenceMap report on sustainability finance policy engagement makes clear, most financial institutions (bottom-right quadrant, in blue, below) have shown caution and, despite having made some high-level supportive comments, have tended not to engage in a detailed or intensive manner. A small number of financial institutions (top-right quadrant, blue) have been actively engaged in promoting sustainable finance policy. A few financial institutions (centre-left of the diagram, blue) appear to be more cautious about sustainable finance policy.

This chart plots the results of InfluenceMap’s analysis for the financial institutions and industry associations included in the analysis. Engagement Intensity refers to how actively the entity is engaging, while Organization Score measures the degree of support/opposition to policy.

Diagram 2

In the meantime, the IFRS Foundation is proposing to set up a Sustainability Standards Board with its own reporting standards. This is what Richard Murphy (who got me thinking about this in Venn diagram terms originally) is rightly complaining about as it would lead to this:

His sustainability cost accounting idea offers a plausible alternative approach in my view. As the introduction says: 

…accounting has to change because we need a clear, audited, enforced and unambiguous indicator of the process of change that business must go through to support continued human life on this planet. Sustainable cost accounting can do that by indicating who can, and cannot, use capital to best effect in this changed environment. That is precisely why it is needed, however uncomfortable the consequences might be.

What is actually needed therefore is clearly an approach rooted in this:

Diagram 3

This is the long term position most working in sustainability would, I believe, like to see. However there are differences of opinion in how to get there.

Kate Raworth argues that you may need to talk within Diagram 1 to start with in order to engage the finance professionals, which of course includes the central bankers and treasury official who might limit the speed at which we could move to Diagram 3. Others disagree, saying once you start talking to finance professionals in their own language, you are condemned to a solution in Diagram 1.

What seem clear to me is that, if our arguments are between Diagram 1 and Diagram 3, perhaps we can dispense with Diagram 2.

Source: Wikimedia Commons: Shattered right-hand side mirror on a 5-series BMW in Durham, North Carolina by Ildar Sagdejev. Cropped by Nick Foster

It starts in 2025 with a description of a horrific heatwave in India which will stay with me for a very long time. As well it should as, in the book, it kills 20 million people. In response, India send thousands of aircraft up to 60,000 feet to spray aerosol particulates of sulphur dioxide into the stratosphere, in defiance of the international conventions banning such activities, to deflect some of the solar radiation with the aim of reducing the probability of future heatwaves for a period. By how much or for how long or with what other consequences is unknown.

As we build up to COP26 in Glasgow in November this year, in the book we start with the results of COP29 in Bogota, where the organisation which would come to be known as The Ministry for the Future (and the title of the book by Kim Stanley Robinson) was set up “to advocate for the world’s future generations of citizens, whose rights, as defined in the Universal Declaration of Human Rights, are as valid as our own. This new Subsidiary Body is furthermore charged with defending all living creatures present and future who cannot speak for themselves, by promoting their legal standing and physical protection.”

The Indian crisis happens a few months later. The new head of this body, Mary Murphy, is briefly held captive by, Frank, one of the survivors of the heatwave in her own flat in Zurich (the book also feels like a love letter to Zurich) and challenged to do more:

It’s not enough. Your efforts aren’t slowing the damage fast enough. They aren’t creating fixes fast enough. You can see that, because everyone can see it. Things don’t change, we’re still on track for a mass extinction event, we’re in the extinctions already. That’s what I mean by not enough. So why don’t you do something more?

This has a profound impact on Mary, who keeps in touch with Frank and his troubled suffering life throughout the book. It also leans her towards effectively endorsing the involvement of her No 2 in “black” operations to ensure certain people are “scared away from burning carbon”.

Indeed the book is suffused with eco-terrorism. Technological progress has partly displaced the state monopoly of violence, with drone technology in particular meaning that no aircraft or ship or surface navy is safe from a well-enough organised group by the end of the book. People stop flying when aircraft start being shot down regularly, and those that still do fly use carbon-negative airships, where solar panels generate more power than the ships use. Davos attendees get taken hostage and given a compulsory seminar at one point. Tax havens become obsolete when all money becomes digital and tracked.

Mary’s interactions with central bankers are probably the closest this book ever comes to comedy. In the first, she tries to argue for a “carbon coin”, a digital currency which would be paid out to organisations and people who could prove they had removed carbon from the environment. This would be the incentive to work alongside the carbon taxes. The contemptuous response from the Federal Reserve and others at first is “not our purview”, however by the end they are on board with this and many of the other ideas developed along the way.

There are so many ideas in this book, far too many to cover them all here: some of them familiar to me from economics (carbon quantitative easing, Jevons’ Paradox, Modern Monetary Theory, Gini Coefficient – these each get a short chapter among many other ideas and interspersed with riddles) and others not so. The Indian techno fix is the first of many: some successful, like sucking out the meltwater under glaciers to slow them sliding into the ocean and others not so, like the billionaire wanting to refreeze the oceans. Russia dyes parts of the Arctic yellow to reflect more sunlight back. Huge areas of land are rewilded.

What strikes me most is that the arguments we tend to have here and now about which course to take (Freud’s phrase is quoted here in the book – “the narcissism of small differences”) seem largely moot in this one imagined near-future: all of them are tried there – it’s not techno-fixes or de-carbonisation of transport and heating, it’s both. It’s not carbon QE or re-wilding, it’s both. If something doesn’t work, it’s abandoned. By far the most important determinant of which of the IPCC future scenarios we end up on seems to be how quickly we start. Economists come in for particular ridicule there – whatever course of action is planned, they can find one group who thinks it will have one effect, one who think it will have the opposite effect and one which thinks it will make no difference at all. The difference is that the economists are no longer guiding policy there, but facilitating and post hoc rationalising it.

There is a wartime feel to the book throughout, with people doing what they feel needs to be done in desperate circumstances. The choices are all different levels of bad, but bad is almost incalculably better than worst. And the overall impression is of a world changing rapidly, with one of its herd animals belatedly getting into better balance with the others. Even at 560 odd pages the impressions are inevitably just that – one chapter is just a list of different organisations working on aspects of the climate emergency in different countries, described as about 1% of the total number active. It is like the shards of a smashed wing mirror picking out details from the vanishing world behind. I have never wanted to apply the word polymesmeric (which I first saw on the cover of Catch 22 by Joseph Heller) to a book as much as I have to this one.

The hoped-for outcome of all of this? In one conversation this is described as a “success made of failures” or a “cobbling-together from less-than-satisfactory parts”, which I think sums it up nicely.

And I definitely want to visit Zurich one day. Probably by airship.

 

There are many papers about model risk, and the dangers of blindly relying on algorithms or metrics without allowing for human judgement at any point in any subsequent analysis (in effect “baking in” whatever analysis was done at the time the computer model or algorithm was constructed as the final word), but these can often descend into the same level of technical impenetrability as the programmes they are attempting to critique.

I watched the film Sully: Miracle on the Hudson for the first time this week, on the anniversary of the landing on the Hudson. In the final scenes there is a hearing (spoiler alert!), where the evidence presented up until that point based on computer simulations, with and without pilots involved, was leading to the unanimous conclusion that Sully and Skiles could have turned back to La Guardia or Teterboro airports rather than landing on the Hudson River in January. However Sully had appealed to have the video recordings of the pilot simulations shown to the hearing, and these revealed the pilots responding to the catastrophic bird strikes which had taken out both engines (again something later confirmed when the actual engines were recovered, but which the simulations themselves did not accept because of the instrument readings on one of the engines from the aircraft) by calmly immediately setting course for La Guardia or Teterboro with no decision or response or recovery time needed at all. When a 35 second allowance for this was inserted into the simulations, the results were fatal crashes in both cases.

What struck me was how invisible this deficiency in the programming of the simulation would have been without a cockpit recording of the simulations. In many of the programmes we use to automate judgement-heavy processes, such as recruitment, many of the capital allocation decisions in financial institutions or even A-level grades, we do not have anything equivalent to a cockpit recording available to us. Perhaps we wait until either events prove us wrong (bad) or those on the receiving end of our automated decisions start to complain in sufficient numbers for us to reconsider (worse). What if quite a large proportion of the cost savings from automating these processes is in fact illusory as a result of our not putting enough time and attention into the original programming and/or not setting aside enough budget for maintaining it and challenging its decisions with parallel processes which do allow for human judgement? How much bigger is this problem going to become in the era of machine learning, where the programmes we are running are themselves several steps of abstraction away from those originally written by humans?

Our ability to programme machines to carry out billions of calculations in seconds would have been regarded as miraculous only a few decades ago and is still pretty astonishing to us now. We need to start thinking a lot more about how we can live alongside these ever more capable machines amicably over the long term. And it can’t be only programmers who get to see what the machines are doing – whatever the technical problems of allowing the equivalent of a cockpit recording to be made which can be understood by any of us, they need to be solved with as much urgency as the process automation itself. All of our decision-making processes need to be understandable and challengeable by the society in whose name they are carried out. It’s time to get serious now about our miracles.

I have written about school qualifications once before here in 2014, when I was criticising the move to adding an A* grade at GCSE and the consequent narrowing of the grade boundaries to mimic the A-level ones. We have of course since moved to a numerical grade system for GCSEs which is even narrower. However, if the exam grade system was a bad way to assess students, the algorithm which replaced it in the summer (explained here and critiqued here) was clearly worse still.

So, against a background of steadily less reliable grade information at both GCSE and A-level, it was interesting to look at the Institute and Faculty of Actuaries’ (IFoA’s) employer directory and note that, of the 25 separate adverts for graduate roles, 11 of them have an A-level or UCAS points requirement in addition to the university degree requirement. My question is why?

I understand that employers, particularly this year, are likely to have very large numbers of applicants and need some way of reducing the number they need to review in detail, but there are many much better sieves than A-levels these days. Psychometric tests can assess how rusty students’ numeracy is. Application forms can be digital and given a computerised first pass on any number of criteria and, if the questions are constructed thoughtfully, will give companies a smaller set of applicants much more closely aligned to their goals than the grade given at mathematics A-level.

Even if you accept the grades as representative, there are clearly issues around social mobility and widening participation from relying on them to exclude a large number of candidates initially, which was highlighted when an algorithm attempted to reproduce the results based on subject studied and school attended. The news today that they will not be trying this again this summer is encouraging, but even if mark allocations are fairer, many problems with A-levels remain.

I have felt that this has been a growing issue for some time – it has always seemed to me ridiculous that a student on my programme (the BSc Mathematics and Actuarial Science at the University of Leicester – a qualification accredited by the IFoA), doing well and on track for all 6 of the core principles exemptions available as a result, still feels the need to retake an A level taken before they had discovered the motivation for actuarial work that they now have, in order to have a chance with many of the top employers. Are those employers so lacking in confidence in the integrity of their own profession’s qualification system that they need the security backstop of an A-level pass?

It is likely to be a tough environment for young people attempting to start their careers this year, whatever their skill set. I hope employers will review their current approach to recruitment and check they are not inadvertently pulling up the ladder before seeing all of the talent available.

NASA, ESA, and the Hubble Heritage Team (STScI/AURA), Public domain, via Wikimedia Commons

Fiscal space is defined as the difference between a nation’s sovereign debt-to-GDP ratio and the limit beyond which the nation will default unless policymakers take fiscal steps that are outside of anything they have done historically. That limit is sometimes referred to as the fiscal cliff, just to ram home the imagery of fixed physical limits beyond which disaster beckons.

How much fiscal space does the UK have? Moody’s have an answer, which depends most heavily on when you ask the question. In September 2019 it was as follows:

This shows the UK with a fiscal space (the “dynamic” means they assume interest rates increase as borrowing does, due to “crowding out” arguments – ie government borrowing pushing up the price of borrowing for everyone – so beloved of most economists) of around 175% of GDP, with this then projected to fall over the following 5 years as rates “normalized”. While the cost of borrowing seems to be dynamic, the actual borrowing itself is not allowed to be in these calculations – it is assumed that they just add to debt without increasing the revenue components of the primary balance.

Well of course then we had 2020, at which point (June 2020) Moody’s appear to have stopped talking about fiscal space and instead are now focusing on something called “debt affordability”. What happened to dynamism and crowding out? Not explained:

However despite this triumph of debt affordability, they then produce another graph to indicate that governments still need to be bearing down on debt to GDP ratios:

As they say in the document “rating implications will depend on governments’ ability to reverse debt trajectories ahead of potential future shocks”. Remember this was in June 2020. Let’s also remind ourselves of another graph:

Requiring governments to reverse debt trajectories in this environment is insane and likely to result in more deaths if not ignored. However as recently as last month in their issuer comment for the UK they said:

However, compared to the government’s March budget (that was quickly overtaken by events), there are some initial signs that fiscal policy outside of investment is likely to be less expansive than previously announced. What remains unclear is whether this ambition will be able to withstand the political pressures that seem to be inevitable given the government’s previous commitments. Even before the Spending Review, longer-term spending commitments for health, education, and defence had already been announced. Together, these three areas account for around 60% of total expenditure.

I have been hard on Moody’s in this piece, they are most certainly not alone. But this attempt to divorce sovereign debt levels from what is actually going on in countries needs to stop as does the constant discounting of the value of any government spending at all. Political pressures to spend more on health and education are not always things that governments need to “withstand” in order to look good in a Moody’s graph. There are far more important things at stake.

 

Blaise Pascal, mathematician and philosopher, once said:

All of humanity’s problems stem from man’s inability to sit quietly in a room alone.

This seems to have a particular relevance at the moment, when many of us are being asked to do precisely that. I also agree that this is definitely a problem we have. However I prefer to think of it as just one consequence of our inability to think about change in any rational way. We fear change, which is why we yearn so much to go back to “normal” at the moment, even if normal life was pretty unsatisfactory for many of us before the pandemic struck. We fight against change if we think what we have is threatened from outside the room we might otherwise sit quietly in, whether that is the loss of our income or that of our influence in the world or our “sovereignty”.

The only way in which we can contemplate change is in the context of some utopian ideal of improved productivity making one aspect of our lives much better while not requiring us to change any other part of them. Hence so much resistance to any idea of redistributing what we already have in favour of “Pareto improvements” to the economy, ie those which benefit some people without making anyone else worse off, and the obsession amongst economists with the “productivity puzzle” in the UK in particular:

So we look for ways to achieve this miraculous productivity improvement while leaving everything else essentially unchanged and the magic word which promises this more than anything else is innovation. Innovation will enable us to do more with less (or, more usually, make us do a lot more much cheaper, therefore encouraging us to use even more in the process). Innovation will have spin offs in lots of other areas we have not even imagined yet, but they will all be good ones! Innovation will solve the productivity puzzle.

In The Innovation Delusion, Lee Vinsel and Andrew Russell challenge this. As we have become more and more desperate for all change to look like innovation, we have made actual innovation harder to achieve, while saddling ourselves with higher and higher maintenance costs of new “innovative” infrastructure which is increasingly unsustainable to finance, rather than maintaining what we already have better.

I therefore prefer the quote that they use, from Kurt Vonnegut:

Another flaw in the human character is that everybody wants to build and nobody wants to do maintenance.

Innovation-speak, as they call it, is not innovation at all, but presenting ideas as innovative when they are not. As they say:

It plays on our worry that we will be left behind: our nation will not be able to compete in the global economy; our businesses will be disrupted; our children will fail to find good jobs because they don’t know how to code…Innovation-speak is a dialect of perpetual worry.

No wonder we are unable to sit quietly in a room alone.

And in the coming years when we will need to make substantial changes that work well enough for all of us to be able to continue living on this planet together, this approach will not work. We need for our thinking not to be magical, but grounded in realism. We need to make new things that we can afford to maintain sustainably. Innovation-speak will not get us there.

I previously wrote a blog in 2013 based around the Office for National Statistics (ONS) statistical bulletin entitled Estimates of the Very Old (including Centenarians), 2002-2011, England and Wales, which summarises how the proportions living to 90 years old and above have changed since 1981. It showed us a population living within a population: Nonagenarian (ie the over 90s) England and Wales (NEW) within the full population of England and Wales. I thought it might be time for an update, based on the latest ONS bulletin from September 2020, which now covers the period 2002-2019.

There have been quite a few changes. There are still more women than men in NEW, although the overall ratio has reduced from 2.7:1 in 2011 to around 2:1 in 2019 (see below). The NEW population, which was somewhere between the sizes of Malta’s and Cape Verde’s full population in 2011, has now just passed that of Western Sahara and has its sights firmly set on passing Luxembourg’s population next.

The population of NEW is still growing far more quickly than that of England and Wales, or indeed the UK, with a 25% increase between 2011 and 2019. However, with the NEW population you need to look beyond just improvements in public health and medical advances to the time at which they were being born. For instance, the number of people alive at almost every age from 90 years and above was higher in 2019 than in 2018, but with by far the largest increase at age 99 years (62.2%). This was caused by a big increase in births from the second half of 1919, compared to the previous year, as a result of the end of World War 1!

The bulletin ends with a sombre reminder that, although we would normally expect the large increase in those aged 99 years in 2019 to translate into a record number of centenarians in 2020, other factors, particularly the COVID-19 pandemic, are likely to have had a significant impact. COVID-19 deaths are highest for the 85 years and over age group. Public Health England have calculated excess deaths in the over 85 population at 11,656 between 21 March and 18 December 2020 (with 13,844 categorised as COVID deaths, suggesting a drop in excess deaths from other causes). This compares with the 2019 NEW population of 605,181, an increase of 21,157 on 2018.

I am just at the start of exploring the Green New Deal (GND), how it might work in the UK and its implications for the economy more generally. I have decided to start in an area I know a little bit about, namely education and skills, but three charts have stood out for me already in suggesting that a number of seemingly unrelated current problems may have very related solutions.

The first comes from the Augar Review into post 18 education and funding. The discussion around this when it came out in May 2019 was predominantly on the recommendations concerning increased funding for FE colleges and changes to the funding arrangements for universities. However there was a lot more to the Review than this and this chart was the most striking for me.

As you can see we hardly have any Level 4/5 as the highest level of qualification in England. What is Level 4/5? Well Level 3 means A levels, a BTEC Diploma or a craft qualification. Level 6 means a degree. In between are Levels 4 and 5. Level 5 is Foundation degrees, Higher National Diplomas (HNDs), Diplomas of Higher Education (DipHEs) and Level 4 is Higher National Certificates (HNCs), full Accounting Technician qualifications, etc.

As the Review says (my highlights in bold):

In England, only 4 per cent of 25 year-olds hold a Level 4 or Level 5 qualification as their highest level, compared to nearly 30 per cent for both Level 3 and Level 6. In contrast, in Germany, Level 4 and 5 makes up 20 per cent of all higher education enrolments.

Those few who do obtain a Level 4 or 5 award – often by a rather circuitous route – move into well-paid skilled jobs; the median annual income of someone with a Level 4 or 5 is around £2,000 higher than someone with a Level 3 by the age of 26 and comparable to the earnings of some graduates. Similarly…Level 3 apprenticeships in the skilled trades and engineering are very highly valued by employers – indeed in the latter case, for men at age 28, more than some Level 6 degrees. However…apprenticeship in England has in recent years been concentrated at lower levels (typically Level 2) than is common in the rest of Europe. Skill shortages in contrast are most evident at Levels 3 and above.

Employers have dealt with some skills shortages (for example in construction) by hiring recent immigrants with the relevant skills. They have also responded to the lack of Level 4 or 5 qualified applicants by taking on graduates as technicians, although without the relevant practical training graduates are often actually under-skilled for such roles and tend to leave quickly.

England’s education and training system currently stands in the way of taking on technician apprentices in emerging and small sectors. With no central mechanism for ensuring coverage, some employers have told us that it is often hard to identify colleges or other training providers willing to provide the necessary education and training. Providers will only do so if they are assured of a critical mass of apprentices, since otherwise the training is financially non-viable – especially if it requires expensive equipment.

The second chart or diagram comes from the paper called A net-zero emissions economic recovery from COVID-19 from the Oxford Smith School. This looks at the potential impact on reducing carbon emissions on the vertical axis and the long run multiplier (ie the increase in national income as a result of a stimulus to the economy). The obvious things to concentrate on in such a chart are those in the top right quadrant, ie high impact both environmentally and economically. The five areas unambiguously in this quadrant are Y (Clean research and development (R&D) spending), T (Clean energy infrastructure investment – ie alternatives to fossil fuels), S (Connectivity infrastructure, particularly broadband), X (General R&D spending) and L (Education investment).

And the final chart comes from the employer skills survey 2017 from the Department for Education in August 2018 (the latest one to emerge so far). This shows the vacancies due to there being insufficient people with the appropriate skills to fill them.

This should perhaps be considered in conjunction with the following very interesting comparison between the sectors where jobs are available and those where 17-18 year old typically would prefer to work (from Disconnected: Career aspirations and jobs in the UK by Chambers et al):

And this is before the big increases in skilled technicians in skilled trades, and in both scientific and technical areas and professional and managerial areas that a GND will require, coupled with the transformation of our economy as a result of the fourth industrial revolution that appears to be anticipated, at least in part, by the 17-18 year olds answering the survey. As the 2020 Progress Report to Parliament from the Committee on Climate Change on Reducing UK Emissions from last month says:

There are clear economic, social, and environmental benefits from immediate expansion of the following measures (again, my highlights in bold):

  • Investments in low-carbon and climate-resilient infrastructure.
  • Support for reskilling, retraining and research for a net-zero, climate-resilient economy.
  • Upgrades to our homes and other buildings ensuring they are fit for the future.
  • Action to make it easy for people to walk, cycle, and work remotely.
  • Tree planting, peatland restoration, green spaces and other green infrastructure.

Three different problems, all with a major part of their solution in the reconfiguration of our further and higher education systems to skill and reskill, train and retrain, the generations we are relying on to secure all our futures. It looks like a good place to start!

Burt Kwouk and Peter Sellers in 1975’s The Return of the Pink Panther. Photograph: Allstar/ITC

Stephen Fry at the Hay Festival a few nights ago regaled us with many tales from his new book Troy. They were full of people making The Tough Decisions based on The Science or, as they tended to call it then, Prophecy. The seer Aesacus interpreted a dream about a flaming torch meaning Priam and Hecuba needed to kill the son Hecuba was carrying to stop him from bringing the destruction of Troy. Noone could bring themselves to kill the baby, who grew up to be Paris, and Troy was indeed destroyed. However rather than ignore The Science, they outsourced the deed, ultimately to the random wildlife roaming Mount Ida and so it never got done. Now my question would not be why they ignored The Science, but why they felt that The Science was something to be consulted with in secret with no second opinion and then enacted in a half-hearted way because they didn’t really believe it anyway. It’s almost as if there was no actual science in existence to give them an alternative.

One of the other interesting things Stephen said was in response to the question of whether there was value in students studying the classics at school. His very strongly argued case rested on two main points:

  • The value of learning stories made up not by a single writer but by a people; and
  • The greater level of understanding of much other art if you know “the second language” of the classics.

It is of course a highly elitist argument, but as a way of understanding an Elite which are currently following The Science in a direction they don’t really believe in, perhaps more relevant than it has ever been. Because if we are ruled by a group speaking in a second language and resistant to evidence-based policy perhaps we need to start acting accordingly.

Currently we are reading a lot in the media about how terrifyingly quickly Government debt is growing and how urgently we will need to cut Government spending once the pandemic is over, even on those key workers we have realised our (by any historical standards) fantastically rich economy cannot do without. I am thinking of the Institute of Fiscal Studies of course, the Adam Smith Institute and ultimately all arguments of this sort end up including the Cato Institute too. Now I could start to rebut these claims, pointing out that Government debt is not particularly big, that it is currently very cheap and that the last thing we will need for an economic recovery from it is austerity or whatever the Johnson Government decide to rebrand such a policy to make it politically acceptable.

But I am not going to waste my ink, particularly not now. One reason would be that there is an element of Jonathan Swift’s dictum at play here, ie:

Reasoning will never make a Man correct an ill Opinion, which by Reasoning he never acquired.

But another, in my view much more powerful, reason is that we are pretty universally experiencing a trauma which has triggered fight, flight or freeze responses that have impaired our thought processes quite significantly. As Joanne Stubley from the Tavistock and Portman NHS Foundation Trust puts it so well:

Whilst the wish to be involved and to contribute clearly may have altruistic, reparative aims inherent in it, there is also a growing sense of competition that is emerging – competition for who is the expert, who will lead the research, the clinical pathways mapping or write the best paper on Covid 19. This jostling for position may be fuelled by survival anxieties both in relation to the threat of the virus (life and death anxieties that propel us to action) but perhaps also anxiety for what will occur when the threat has passed. We have lived with the reality of austerity in the NHS for many years, and services have become accustomed to the competition inherent in the marketplace economy. With the threat of serious economic downturn and recession looming, this causes further anxiety in relation to the long-term viability of services. Holding in mind a compassionate, thoughtful position that allows for cooperation becomes so much more difficult when this part of the brain is turned down when under threat – survival in the immediate threat does not make use of this more sophisticated mode of thought and behaviour.

Put simply, we don’t know what we are experiencing yet. It is too soon to say on almost any level. If someone is giving you a prognosis on what will happen economically under different exit strategies from Lockdown then they do not yet have the data to know what they are talking about. Noone does. The best thing that science (as opposed to The Science) can tell us currently is that we don’t know.

So we don’t know and we can’t think. We therefore need to be very cautious about what we do next.

 

“We won’t go back to normal, because ‘the normal’ was the problem.”

For me the turning point came on 12 March, when the FTSE 100 fell by 639 points or around 11% of its value in one day. What were the newspaper headlines that day?

Only the Times and the Financial Times had the stock market fall on their front page at all. Everyone else led with some variant on the Prime Minister saying that many families would lose loved ones. The attention switch was so complete that when KPMG published their UK Economic Outlook for March 2020 the following week – forecasting a main scenario for Gross Domestic Product (GDP) in the UK to fall by 2.6% in 2020 then grow by 1.7% in 2021, and a downside scenario for GDP to contract by 5.4% in 2020 and by another 1.4% in 2021, representing a slightly more severe recession than the downturn experienced in 2008-09 – nobody noticed that either (19 March and 20 March headlines here and here respectively), sandwiched as it was between the announcement that schools were to close and the Prime Minister saying that we had 12 weeks to turn the tide.

KPMG’s report was an example of damage function modelling of course: trying to model changes in economic activity due to some phenomenon and summarising that change in terms of a change in GDP. I have recently been quite exercised by similar considerations with regard to climate change damage functions and the inconsistencies of the ones in most current use with climate science. However it has become increasingly clear to me that I may have been missing the point. I realise I was focusing on damage functions because I felt they were leading to extreme optimism in the modelling of the impact of climate change on our economies and that it was this link which was most likely to get the attention of policymakers (and other actuaries!).

But of course GDP is only ever a proxy for some of the things we regard as important, rather than something that is important in itself, and a flawed one too. As Diane Coyle’s excellent book, GDP: A Brief But Affectionate History, makes clear. Its problems include:

  • It under-records growth by failing to capture fully the increase in the range of products in the economy;
  • It becomes a worse measure as the world economy consists less and less of material items, eg online activities; and
  • It can show positive growth caused by clearly unsustainable practices and those which deplete natural resources.

When KMPG released their economic outlook, it was as if they were trying to drag a weary world population away from the windows and balconies from which they are still trying to connect with each other and what is still real in the world back to the Monopoly game that they have set up in the front room.

It took a lot to get our behaviour to follow this change in attention. When Wuhan went into lockdown on 23 January, I was talking to Stuart McDonald, now a member of the COVID-19 Actuaries Response Group, about the talk he was planning to do at the University of Leicester on 18 March and deciding he would probably need to add a few slides about coronavirus. Italy went into lockdown on 9 March and yet on 12 March we had a second call where we still felt on balance that it might go ahead as long as we took sensible precautions, but by this time it was almost entirely about getting accurate messaging out about COVID-19. We called it off the following day. The UK finally went into lockdown on 23 March.

So perhaps it is no wonder that we have so far been unable to change human behaviour to anything like the same extent in response to climate change, which is a bit like COVID-19 in slow motion, progressing unseen with each stage of its development effectively locking us into the next steps in its relentless escalation. In the same way that movement restrictions may not slow down the increase in new cases for perhaps around a week, stopping carbon emissions now would still see us locked into further warming for 40 years. And even with the greater immediacy of coronavirus, it has only been when we have decided we care more about saving each other than maintaining our GDP that real progress has become possible.

My view is that some things that must be different post COVID are already clear. I think as a society we are going to demand more resilience, for example:

  • Resilience of our health service – this means much higher levels of spending, building deliberate over-capacity into the system in normal times;
  • Resilience of our food supplies, for example strengthening domestic supply chains;
  • Resilience of our population, so that we do not have 1.6 million food parcels needing to be given out in a year by the Trussell Trust, in the absence of a pandemic, for instance; and
  • Resilience of our infrastructure – to everything from floods to banking crises to pandemics to storms and heatwaves.

The Institute and Faculty of Actuaries (IFoA) has therefore shown great timing in its launch of its 2020 thought leadership campaign The Great Risk Transfer. The campaign aims to examine the trend of the transfer of risk from institutions to individuals, and how people can be better equipped to manage the financial risks they now face. I think the campaign rightly highlights the fact that risk transfer is all one way, but it clearly also goes way beyond the finance sector. Rail franchises never took on any real risk, it appears, even before the pandemic. Nor have PFI contracts, despite the price tag. By contrast the incremental removal of risk pooling by corporations for their employees and/or government for their citizens over the last 40 years has been relentless and in one direction only.

As Andrew Simms, one of the Green New Deal Group, said on Twitter yesterday about taking lessons for the climate emergency from the pandemic crisis:

Those roads with a fraction of the traffic, the drop in aviation, the economic shift to put public health & well-being first, the speed with which the brain adapts to the new normal: as someone said, these things are a postcard from the future we need to get to. Let’s take notes.