Below is the prepared text of a talk I gave to high school students attending the Careers that Shape the World day at the University of Queensland, St Lucia Campus, on Wednesday, 23 April 2014. I varied the talk significantly in its delivery, but the points I made were basically the same as the ones I make below.
Economics: Keeping the World in Business
Good morning and thank you for coming along. Today my topic is how economics keeps the world in business. This is a pretty easy topic in one sense. Economics is what economists do, and economists have been very important in the world economy over the last few decades. Many of you would have heard of Alan Greenspan who was Chairman of the US Federal Reserve, and probably the most influential person for business on the planet for a decade or two. And if you look closely at people’s CVs, you’ll find many important people who were economists or studied economics at one time. For example, Sheryl Sandberg, Chief Operating Officer of Facebook, is an economist by training and worked for former US Treasury Secretary Larry Summers.
In my own experience as an economist, I’ve done what I consider to have been some pretty important things. For example, while at the Commonwealth Treasury, in the aftermath of the 2008 financial crisis, my team more-or-less prevented the Commonwealth Government from running out of money. And we did the policy work to get the cash to fund the massive February 2009 stimulus package that, arguably, averted a recession. (The AOFM actually raised the funds, so much credit goes to them, of course.)
More recently, as a consulting economist, I led a feasibility study looking at the costs and benefits of a new high school co-located with James Cook University in Townsville, which was an election commitment of the Newman Government’s. I’ve also investigated the economic costs and benefits of building a long-distance walking track – the dreaming track – from Cape Tribulation in Far North Queensland to the tip of Cape York.
So economists work across a huge range of issues. These issues range from the big picture of the macro-economy to the smaller picture of individual construction projects, businesses or government programs.
This morning, while explaining how economics keeps the world in business, I also hope to convince you that studying Economics at UQ is worthwhile. I will first explain why economics is important – that is, how it keeps the world in business. Second, I will discuss the important careers and opportunities that economics can lead you into. Third, I will discuss what distinguishes UQ Economics.
Let’s begin with why economics is important.
I suspect most of you would have been born in the mid-to-late nineties, which means that, if you’ve lived your whole life in Australia, you’ve never experienced a recession. This is a good thing. Recessions are awful. Jobs, which can be difficult to get during ordinary times, become almost impossible to get during a recession. During Australia’s last recession in the early nineties, incidentally when I was senior in high school, one million people were unemployed.
My own interest in economics emerged during this awful period, as I struggled to understand why the economy could fall into such a hole. At the time, I was also captivated by the fierce debate between Prime Minister Paul Keating and Opposition Leader John Hewson over the proposed 15% GST and the other elements of the Opposition’s controversial Fightback! package.
A major part of economics is called macroeconomics, and it tries to understand why economies go into recession and to provide advice on how to avoid recessions and to get out of them if you’re unlucky enough to get in one. Macroeconomics helps the Reserve Bank of Australia (the RBA) and the Treasury manage the economy. The RBA manages the economy through monetary policy which affects interest rates and hence borrowing costs for businesses and households. You’ve probably seen the attention that people pay to the monthly RBA Board meeting. Financial market analysts pay attention because of the impact of interest rates on the economy and mums and dads pay attention because it may affect what they have to pay in mortgage repayments.
The Treasury, which runs the Commonwealth Budget, plays a large part in economic management through fiscal policy – i.e. policies relating to taxing and spending. For example, in the aftermath of the 2008 financial crisis, the Rudd Government paid taxpayers almost $1,000 each to help boost spending and confidence in the economy.
Advances in economics have meant that the global economy avoided a depression following the 2008 financial crisis. Central banks and Treasury departments didn’t make the same mistakes they did after the 1929 stockmarket crash which heralded the Great Depression of the 1930s. This meant a lot of people got to keep their jobs and livelihoods. It meant unemployment in Australia only increased to 600,000-700,000, rather than one million as it did during the early nineties recession – which arguably would have been less severe were it not for a policy mistake made by the RBA. (You can learn more about that period if you go on to study economics at UQ.)
Because of advances in economics, and the growing influence of economics, I expect we won’t see disastrous economic policy decisions again such as Winston Churchill’s decision to return Britain to the Gold Standard in the mid-twenties, against the advice of economist John Maynard Keynes, which led to a major recession and the general strike of 1926.
Keynes, incidentally, wrote one of the most eloquent passages on the importance of economics in the conclusion of his General Theory of Employment, Interest and Money:
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.
The influence of economists was well demonstrated by the unfortunate success of the ideas of Karl Marx – author of Das Kapital and co-author of the Communist Manifesto – whose economic theory, based on a class struggle between capitalists and proletariat, dominated the lives of hundreds of millions of people in the Soviet Union and China, among other countries, in the twentieth century. Of course Marx’s economic theory has been thoroughly debunked, but his idea that economic relations determine social relations remains very influential.
In addition to macroeconomics, there is the important field of microeconomics, which is what economic consultants like me tend to do most of the time.
Microeconomics involves the study of businesses and investment projects at the micro-level rather than at the macro or whole economy level. You may have heard of one of the major tools of microeconomics, cost-benefit analysis, which attempts to determine whether a project is worthwhile by comparing estimated costs and benefits into the future. Cost-benefit studies by economists have been important in supporting major investments in infrastructure. Also, economists using microeconomics have been important in public policy through the design and evaluation of government policies and programs. A good example was Bruce Chapman’s design of the Higher Education Contribution Scheme (HECS) in the late 1980s.
In summary, economics keeps the world in business, for the benefit of us all.
I will now discuss the careers and opportunities that economics can lead you into.
Economics is a valuable field of study, regardless of what career you ultimately pursue. This is because of the logical framework that economics provides. It helps you think and solve problems. It gives you a proficiency with numbers and helps you tell stories about them. It makes you think about which costs and benefits matter, over what time horizon, and how you should measure them. One of the most helpful lessons of economics relates to sunk costs, and it implores you to ‘let bygones be bygones’ and not to ‘cry over spilled milk.’
For these reasons economic is useful, and I’ve no doubt the framework it provides is helpful to Sheryl Sandberg as she runs social media behemoth Facebook. I think the economic framework has also helped my old Treasury colleague Anthony Goldbloom, who twice made the Forbes 30 under 30 list, and whose data science company Kaggle is doing great things by crowdsourcing data science. Anthony had the great insight of bringing competition, which economists exalt, into the field of data science, crowdsourcing the analysis of the internal data of companies, including companies such as GE and Facebook.
There are many interesting careers that studying economics can prepare you for. Economists find employment among a variety of employers, including:
- Government institutions such as the RBA, Treasury and ACCC, which are large employers of economists and good places to receive training as a graduate,
- Banks such as ANZ, Commonwealth Bank and Westpac, which require economists to interpret international and domestic economic trends,
- Non-Government organisations such as the Australian Chamber of Commerce and Industry, the Australian Industry Group, and the Australian Council of Trade Unions, among others, which employ economists to develop evidence to influence the policy debate, and
- International institutions such as the World Bank, International Monetary Fund (IMF) and the OECD.
Economics can help you get into an important career. Decision makers, such as PMs, Treasurers and Premiers, tend to listen to economists because we can explain the numbers, like GDP, unemployment and interest rates.
One example comes from my experience as a Commonwealth Treasury official, where advice I’ve given has influenced Government decisions. During my time in the Treasury, I’d spent time in Parliament House meeting with the Treasurer and other politicians on important policy issues, particularly during the aftermath of the financial crisis (in late 2008 and early 2009) when I was managing the Treasury unit responsible for debt policy. One vivid memory is of going up to the House with the acting Treasury Secretary David Parker to explain to Greens Leader Senator Bob Brown why the then Government needed to raise the debt ceiling from $75 billion to $200 billion. It’s moments like those I always recall when I start wondering whether I’d chosen the right career path, and I’m pretty convinced I did.
It’s not many careers that get you so close to the people running the country. And, indeed, as an economist, you may well end up being one of the people running the country. My old boss, former Treasury Secretary Ken Henry, was a de facto member of the Cabinet under Kevin Rudd and Julia Gillard. They say knowledge is power, and there is some truth to it. Because Ken had a detailed knowledge of how Commonwealth spending and taxation affected the economy, the PM and Treasurer wanted to talk to him and valued his opinions.
Economics is difficult for many people to understand, and if you can explain it and talk about it clearly, you will be in demand. Indeed, my own experience is that my knowledge of economics has helped me not only get consultancy contracts, but to become involved with NGOs such as a Northside homeless shelter, the Board of which I advise from time-to-time, and it’s also given me the opportunity to comment in the media. For example, just last week I was interviewed on Channel 10 news and ABC radio regarding the Queensland Government’s Strong Choices campaign on asset sales. Having built a career in economics, I’m able to comment and participate in many more debates than I think I would have if I’d pursued the legal career I’d originally intended.
I’ve been very happy with the way my career has evolved, and I’ve travelled widely and have worked all across Australia, including on projects on Thursday Island and in Cape York. Economics also provides opportunities internationally, and it can get you jobs in places such as the Competition and Markets Authority in London, the World Bank and IMF in Washington, DC and the OECD in Paris.
And these organisations can be launching pads for more exotic destinations. I’m constantly amazed by the Facebook posts of my former Treasury colleagues who I see working in places all over the world, such as Seychelles, Tanzania, and Gambia, among others.
So as well as doing important work deciding the fate of economies or advising on billion dollar projects, as an economist, you might get to see the world as well. Of course, you need to study and work hard to get the most out of economics, as it’s a very competitive field.
Also, economics can be a great degree to combine with another degree such as business or law. The skills you learn, particularly how to understand economic trends, analyse supply and demand and interpret data, are relevant to many careers and businesses.
Now I turn to why you should study Economics at UQ.
Well, mostly, I think studying economics at UQ is a great idea because it gives you a good chance of having an exciting career as an economist. And even if you don’t become an economist, I think an economics degree gives you a great framework and tools which will be advantageous in many different careers.
Obviously I’m biased because I studied economics at UQ and also because I’ve worked for the School of Economics as a tutor and occasional lecturer. But I feel comfortable pointing out a number of advantages UQ Economics has over other schools.
UQ has the longest established economics school in Queensland and has been teaching economics since the late 1940s. And, in my view, it is Queensland’s leading school in terms of its contribution to public debate on economic issues. It has a very impressive faculty including the prominent economist John Quiggin, who I’ve noticed is in the news again today talking about one of his favourite topics, privatisation.
UQ has an excellent reputation domestically and internationally. This is important in helping graduates get jobs or to gain entry to further study. UQ has done very well in recent years in helping its top graduates get into further study at leading schools such as Harvard and UCLA, among others.
And more than any other university, UQ works hard to find opportunities for its students and graduates. Indeed, UQ has persistently reached out to the firm I work for, Marsden Jacob, to seek internship opportunities for students. And it’s sent us some fantastic interns, so thank you, UQ.
Also, UQ’s Business, Economics and Law faculty is excellent in organising alumni events and ensuring people stay connected with the faculty and other graduates. You will discover this networking is very important in your future careers and businesses.
Finally I’d like to suggest one other advantage of UQ Economics, which may appear a bit inconsequential at first but is nonetheless important in my view. UQ Economics is very good at creating a sense of tradition. You feel the place has made an important contribution domestically and internationally in the past and will continue to do so in the future. You can feel that you’re part of this tradition and equally will do important work.
UQ Economics sees a wide mission in educating people in economics and also promoting economics in the public debate – that is, in promoting economics as a way communities can make better decisions about how they manage their economies.
It does this in a number of ways, through its staff participating in public debates and also through the annual Colin Clark lecture, named after one of the most famous economists to have lived and worked in Queensland.
The building that houses the UQ School of Economics is also named after Colin Clark, who was a research fellow at the school in the 1970s and 1980s, up until he died in 1989.
Colin Clark connects UQ Economics with the greatest achievements of economics. He has always been a hero of mine. He once ran the Queensland Government Department I obtained my first full-time job in, though decades before I was there of course, and I remember walking past a photo portrait of him every morning in the corridor outside the Director-General’s office suite in the Neville Bonner Building on William St (in Brisbane CBD).
Incidentally, I also am a friend of Colin Clark’s grandson, also named Colin, who I worked with in Commonwealth Treasury.
Colin Clark was a major figure in economics last century. Among many impressive achievements, his estimates of the size of Britain’s economy were used by John Maynard Keynes in his 1936 General Theory of Employment, Interest and Money, one of the most influential books of the twentieth century in any field, and a book I quoted from earlier.
I’ve always felt honoured to have studied economics at a school with a connection to Colin Clark, and I hope you will, too.