C’mon John, think of the children

The festive season is a time for family and reflection. After a few drinks on Christmas Day, this combination got some of my family musing about future generations. First we started talking about New Zealand’s flaccid emissions trading scheme, the lack of progress at Copenhagen, and finally about living in a world of more than 2-degree temperature rises. The impacts on New Zealand may be manageable, but how might we deal with the global fallout, possibly including refugees from a drought stricken Australia?

At the next gap in the conversation my niece Sufia (aged eight), piped up. "I don’t want to die," she said. Sufia is precocious and bright, but usually tends to err in the direction of surreal comedy rather than dead-pan heartfelt pleas. The adults around the table exchanged nervous glances. We had all forgotten she was there, just like our leaders had overlooked the future generations at Copenhagen. We spent the next ten minutes assuring her that everything would all be alright and the future is rosy.  

And who knows, it might well be, but no thanks to us. For over a decade now we have done policy flip-flops on carbon taxes and emissions trading, while our carbon emissions rose by almost a quarter between 1990 and 2007. Yet no policy maker is talking about seriously tackling climate change or any other long term problems, such as NZ Super or climbing health costs. We believe that our kids will take care of us. This has happened until now, as the next generation has always been richer than the last. But it is always possible that things may not be better for our children.

Buy now and pay later. It is natural to us that a dollar now is worth more than a dollar tomorrow. Economists call this preference a “discount rate". How much are you willing to pay to borrow so you can have a dollar now? How much are you willing to receive if you bank your money until tomorrow? Your answers to these questions give some basic idea of your personal discount rate whether you want it all right now (a high discount rate), or are happy to delay gratification until tomorrow (a low discount rate).

The trouble is that most evidence shows we don’t have the nice predictable discount rates that economists would like us to have. We tend to make pretty informed decisions about things that will affect us in the next few years. After that things get hazy, so we just wave our hands and figure "She’ll be right". People also dislike losing something they already have more than they like getting given something new even if the two things are of the same value. So it is really hard to take things off people, because we consider everything we have now as our "right". Witness the current debate on taxing property, for example. Sure, we’ll take the drop in income tax but a new tax? No way.

When you ask people what life they want for their kids, most reply that they want their kids to have the same opportunities as they did. If this is really the case, then we need to hand over to our children at least the same stock of assets we have now. This includes natural assets as well as houses and machines. If we run down one asset (like nature) we need to make very sure we are creating an even better asset in its place. The trouble with our high discount rates is we tend to run down our assets for short term gain. This mentality is at the root of our national debt problem, and applies to climate change policy also.  

So how can we fix this problem? Perhaps we can’t it might be human nature. But surely our short-term political system doesn’t help matters. We need the ability to turf out governments, but a three-year electoral cycle raises the discount rate of politicians, so they rarely act in our long-term interests. How we measure ‘progress’ also doesn’t help we need a way of keeping track of our full stock of national assets in addition to our income.

Maybe we need some independent voices that don’t have to be popular to be heard. There are examples of this overseas. Australia has the Productivity Commission, which can review government policy. Britain has the House of Lords – an anachronism but full of very informed people nonetheless. Not that these countries have all the answers, because both of these institutions struggle to influence the person in the street. What is clear that we need someone to speak out in the interest of Sufia’s generation. Otherwise she may not inherit the land that we want to leave her.

 

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