Both last year’s Productivity Commission’s figures and Treasury’s in the Intergenerational Report this week promise enough benefits from AI to roughly maintain the status quo, but not so profound an improvement that you might start to worry life will be completely different in 2046 than it is today.
In their appearance before the House Economics Committee on Friday, the executive of the Reserve Bank made it quite clear that we can expect more interest rate rises to come, but made little suggestion that real wages will be improving any time soon.
The cost of Fuel Tax Credits is controversial because Australians have been told that the government can’t afford the NDIS, but can afford billions in subsidies to BHP, Rio Tinto, Gina Rinehart and friends. Aside from the cost, there is the climate impact. Making diesel cheaper for coal miners and other major users encourages increased greenhouse gas emissions and discourages miners from switching to cleaner equipment.
Every disaster season, Australia pays another bill for an economy that isn’t built to work for people, places or the planet. And the bill keeps growing.
This month, the Insurance Council of Australia (ICA) added another figure to the growing financial cost of pushing the planet beyond what she can handle. The ICA have been tallying up the costs of climate-related disasters for several years, and this year highlighted the growing cost of ‘rebuilding and repairing homes damaged by extreme weather [that’s also] diverting the materials, trades, and construction capacity needed to increase housing supply’.
Such spending is an example of the massive fiscal price tag associated with an economy that is not designed to serve people, place, or planet, but instead is wreaking damage on communities, ecosystems, and, as the ICA explain, infrastructure.
There are certain terms folks studying these patterns use to describe the price tag of what are largely Band-Aid solutions. Once you know them, you will see examples everywhere.
The first, as the ICA’s statistics show, is ‘defensive expenditure’. This refers to the money spent repairing, rebuilding, and recovering after events such as extreme weather or other harm to the environment.
For example:
‘Failure demand’ describes the demand placed on governments when people aren’t properly supported to create the lives they want to lead. In responding to these demands, governments spend on what are essentially avoidable costs: a reflection of not meeting people’s needs properly the first time.
Failure demand was first coined by John Seddon in the context of company call centres and councils, but it has much wider applicability when you think of all the government budget lines that exist because of poverty and inequality: debt, stress, illness, stigma, and so on. They all risk generating downstream demand on schools, courts, emergency departments, homeless shelters, food banks, and child protection. Here are some examples of that spending:
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Finally, there’s even a term that describes the spending undertaken by those of us fortunate enough to be able to treat ourselves after a heavy week or stressful day at work: consolation goods. These are peddled by advertisers, who tell us that retail therapy or a fancy spa week is an antidote to the rat race of modern life.
Today’s economic system is one that rewards those at the top and kicks too many environmental costs onto everyone else: a lot of things are artificially cheap because they don’t pay for much of the harm they cause. It’s an economy that treats people as ‘just in time inventory’ and assumes that producing more and more is the solution to all our problems. It creates divisions and ecological breakdown.
Governments are compelled to spend financial resources (often on inadequate responses), instead of addressing the root causes. In fact, while the human and ecological cost is all too clear, the potential benefit to government budgets in building an economy that serves people and planet underscores the economic inefficiency of today’s economic system, even in its own terms.
The extent of spending on defensive expenditure, failure demand and even consolation goods means that when people talk about the cost of changing our economic system – usually in a tone that implies it is too high and things should simply stay as they are – we can point to these numbers as the possibility of a substantial fiscal benefit of upstream economic change.
Fiscal savings might be the possibility, but they aren’t the point.
The point is, of course, to work upstream, creating an economy designed and delivered to meet the needs of people, place and planet, the first time around. The point is to attend to the social determinants of health such as income security, housing, work, connection, which far outstrip the contribution of hospitals and clinics.
That means investing in the sort of lives people deserve by building an economy which creates good jobs, where ownership is shared, where people can afford the basics, and where the environment is regenerated and protected, rather than treated simply as a costless input and a fee-free waste dump.
In that way, an economy that works better for people and planet can inoculate against the harm that drives failure demand and defensive expenditure. That’s the goal of the wellbeing economy agenda: to do better than just paying the bill for the damage caused by the current system and instead redesign the economy that keeps creating it.
Dr Katherine Trebeck is the Economic Change Lead at non-profit The Next Economy.
