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Economists blackened by coalmine

If one definition of the word prostitute is ''to sell one's talents for an unworthy purpose'', then how should we describe what economic consultants do? These people dream up seemingly economic arguments and model results for whoever can afford to pay for their ''independent'' assessments. Their work is then used to ''prove'' that thousands of jobs will be created if some controversial building or mining project can go ahead.

But the practice relies on dubious ethics. Their work might make them money but it also provides pseudo-scientific ''evidence'' for mining and energy companies to convince governments to ram through unwanted projects against the wishes of locals. How clean must they feel afterwards?

At any rate, one hopes the ranks of these economic experts hear about a decision in the NSW Court of Appeal. It confirms what the judiciary thinks of their profession.

On Monday, the court unanimously dismissed an appeal by the NSW government and Warkworth Mining Ltd (owned by Rio Tinto) against a decision by the NSW Land and Environment Court last year to reject a proposed expansion of Rio's huge Mount Thorley Warkworth open-cut coalmine in the Hunter Valley.

Rio Tinto had been relying on what is known as an ''input-output model'' to show why thousands of jobs would be created if its mine could be expanded. Its model predicted 44,675 full-time jobs would be created, an embarrassingly large and precise figure. It also assumed that a highly skilled ''ghost workforce'' was lying around, unused, and that Rio would be able to draw on this pool of workers whenever its demand for labour increased.

But, in April last year, the Land and Environment Court found that economic modelling was deficient in many ways, including its methodology that overestimated the benefits of the mine, so it overturned the approval.


More specifically, it found the economic benefits of the proposed mine expansion did not outweigh the ''significant impacts'' on local residents and the destruction of rare forests containing endangered plant and animal species.

Rio Tinto complained that the decision created a lack of ''certainty'' for the industry. It also appealed the decision, along with the NSW government. But the government also moved to amend the State Environmental Planning Policy in response - placing economic interests above others - because it didn't want economic concerns to be overrun again by frivolous environmental ones.

Now look what has happened. The NSW courts have decided for the second time that the economic benefits of the mine don't stack up.

That means the government has changed the assessment rules to accommodate a mining project that two courts - the Supreme Court and the NSW Land and Environment Court - have rejected on economic grounds.

The Newcastle Herald wrote a blistering editorial this week: ''The NSW government's bias in favour of approving mining proposals is a joke. And statements by government ministers in response to the latest court decision against Rio Tinto's controversial Warkworth extension project only served to add a pointed punchline.

''No mention of abiding by the umpire's decision. No suggestion of respect for the integrity of the judiciary and its role in adjudicating disputes between the powerful and the not-so-powerful. Not a hint of sympathy for the Hunter Valley residents who are fighting to preserve their way of life against a mine extension that Rio Tinto itself promised, years ago, it would never seek.

''The government had nothing but words of support and encouragement for the powerful two-time court case loser, whose next bid to win approval via another means already has the government's warmest support.''

The editorial was referring to comments made this week by Planning Minister Brad Hazzard, whose department wrote the new assessment rules that promote the economic benefits of mining proposals above all others.

After the government's and Rio's appeal was dismissed, Hazzard said the mining sector had told him that ''recent court decisions, including the Land and Environment Court decision, had created uncertainty''.

The Newcastle Herald's response? ''Certainty? What's wrong with the certainty of court decisions that suffice for every other participant in society?''

Neither the government nor Rio Tinto look good after this. But neither do the economic consultants who were employed by Rio.

The NSW Supreme Court believes their economic models did not take into account the environmental or social costs of Rio's proposed mine expansion. These things are still important, according to the courts.

So why wouldn't the economic models take these things into account? Well, just as there is a battle in the political sphere to get people to think more about energy sources, there is a battle in the economics profession about the need for economic models, and economic theory in general, to take better account of the environment.

Until that happens, one wonders if our economic consultants will continue to sell their ''independent'' assessments without amending them, or whether they will heed the message from our judges.

I guess it's up to them.

The fallout from this episode raises a few other points. The first is the point that Richard Denniss, executive director of the Australia Institute, likes to make.

Denniss knows what he's talking about when it comes to economics and he appeared as an expert witness in the case. He has had some success opposing controversial mining projects using economic arguments rather than legal ones.

So will other environmental groups begin to mimic his tactic? It will be interesting if they do.

The second point is that economists keep forgetting, or failing to mention, the limitations of the models. But they can't keep denying them when some renegade economist points them out.

The third point is that it is worth trying to find the time to look at the economic models our politicians and big business groups like to rely on to support their arguments. Often, even if you haven't studied much economics, you will find that something doesn't look right. If that's the case, keep burrowing.