fass talks programme 2013/14 sponsored by aegon thursday 27 th february 2014
TRANSCRIPT
Faculty of ActuariesStudents’ Society
FASS Talks Programme 2013/14
Sponsored by AEGON
Thursday 27th February 2014
Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Conduct Authority
Limits to Growth
Presentation to FASS
Simon Jones
27 February 2014
3
4
Objectives
Take you through some of the interesting graphs and facts presented in the report from January 2013….
…and hopefully encourage you to read more about the subject!
Discuss how actuaries could use this work and get involved.
5
Agenda
Exponential Growth
Opinions on Future Growth
Resource Limits
Actuarial Impact
Resource Limits and Actuaries
6
7
Growth
0200
400600
8001000
12001400
16001800
20000
1
2
3
4
5
6
7
0
1000
2000
3000
4000
5000
6000
7000
8000World Population and Per Capita GDP, 1-2008 AD
World Popu-lation
World per capita GDP
Year, A.D.
Po
pu
lati
on
, bill
ion
s
Pe
r C
ap
ita
GD
P, 1
99
0 $
The industrial revolution
Exponential Growth
The population has been exhibiting
exponential growth.
Likewise the per capital GDP has been growing exponentially.
Source: http://www.albartlett.org There is a great presentation about exponential growth at this web address.
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Growth
1750 1800 1850 1900 1950 20000
10
20
30
40
50
60World GDP, 1750-2008 AD
Year, A.D.
GD
P, 1
99
0 $
trill
ion
s
Exponential Growth
World GDP growth has been exponentially growing.
• In real terms world GDP has grown at average rate of c.3% per year in recent decades = doubling time 23 years.
• 2012 to 2100 is almost 4 doubling periods.
• If 3% growth continues, world economy will be14 times as large in 2100 as it is now.
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Growth
0 200 400 600 800 1000 1200 1400 1600 1800 2000200
220
240
260
280
300
320
340
360
380
400
CO2
Year, A.D.
Atm
os
ph
eri
c C
O2
co
nc
en
tra
tio
n, p
art
s
pe
r m
illio
n
Source: Scripps Institution of Oceanography (SIO) CO2 Program http://scrippsco2.ucsd.edu R. F. Keeling, S. C. Piper, A. F. Bollenbacher and S. J. Walker
Carbon Dioxide
Not everything that grows exponentially is that great.
10
Growth
1800 1850 1900 1950 2000
0
50,000
100,000
150,000
200,000
250,000Utility Patents Granted in United States 1800-2010
Patents Granted per YearIntellectual Property
No. of patents granted illustrates the explosive growth in human knowledge.
Moore’s Law
The number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years.
11
Growth to Service Debt
Since the 1970’s actuaries in the US have warned that given the ageing of the baby boomers, a fiscal crunch would occur in America sometime between 2010 and 2020s. From 1993 to 2001 America’s Debt:GDP ratio went from 49% to 33%. However by 2012 it reached 119% of GDP:”
Institute of Actuaries Evidence Report, January 2013
12
Does Growth Make You Happy?
Source: Jackson, T. (2009) Prosperity without growth? Economics for a finite planet,.
Does growth make you happy?
The graph % of people content versus GDP per person at PPP.
Economic growth remains the dominant concern of politics even in rich countries yet beyond the levels achieved by countries like Ireland, South Korea or New Zealand the positive correlation between GDP / person and happiness breaks down.
Evidence that inequality leads to a less contented society too (The Spirit Level - Wilkinson) – and to less innovative economies!
1313
Limits to Growth – Predictions
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Limits to Growth(30 Year Update)
The green lines represent the
“standard scenario” – which is a business as usual (growth agenda).
The purple observations show the realised observations.
Netherlands Environmental
Assessment Agency / Turner (2008)
14
Agenda
Exponential Growth
Opinions on Future Growth
Resource Limits
Actuarial Impact
Resource Limits and Actuaries
15
Future Growth?
1750 1800 1850 1900 1950 20000
10
20
30
40
50
60 World GDP, 1750-2008 AD
Year, A.D.
GD
P, 1
99
0 $
trill
ion
s
Green Growth
Growth is the Solution
End of Growth
Beyond the Limits
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Opinions: Growth is the Solution
Angus Maddison (Contours of the World Economy, 2007) argues that history is littered with warnings on natural limits from Malthus to Jevons to the Club of Rome
“Technical progress, capital formation and international specialisation have enabled humanity to avoid the calamities portrayed.”
Matt Ridley (The Rational Optimist, 2010) argues that the human race has become a collective problem-solving machine and therefore confronts problems, such as resource and ecological limits, through changing its ways by invention, usually driven by scarcity in the market
17
Opinions: Green Growth
McKinsey Global Institute note that the next 20 years see an increase of 3bn more middle class consumers.
Three scenarios offered to cope with this expansionProductivity static (supply expansion)
Productivity response (most demand met by productivity)
“Climate response case” – move to low carbon energy, reforestation, land restoration, carbon capture
First two scenarios don’t avoid two degree warming.
18
Opinions: End of Growth
Limits-to-Growth stressed (reiterated) that humanity is on course to overshoot. Profound change needed soon to avoid collapse.
Richard Heinberg (End of Growth) states that the global economy is playing a zero sum game with an ever shrinking pot divided among the winners.
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Opinion: Beyond Limits
WWF 2010 Living Planet Report tells us tropical diversity has reduced by 60%. They find five threats to biodiversity which underpin human ecosystems (freshwater, carbon storage, agriculture):
Habitat loss, fragmentation, alteration
Over-exploitation of wild species (food, materials, medicine)
Pollution (excessive fertiliser, pesticides)
Climate change
Invasive species
Carbon Tracker Initiative (Unburnable Carbon) tell us we have used one third of our budget for carbon to 2050 in order to remain within 2 degrees of global warming
Only 20% of global carbon reserves are burnable to stay within 2 degrees. What we use this budget for is a key question
20
Agenda
Exponential Growth
Opinions on Future Growth
Resource Limits
Actuarial Impact
Resource Limits and Actuaries
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Global challenges: Fuel, Metals, Minerals
0
50
100
150Oil
Gas
Coal
Uranium
SilverIndium
Zinc
Copper
Tin
[1] Current global reserves divided by current annual consumption (assuming no growth in demand).[2] Data taken from BP Statistical Review 2012, http://bp.com/statisticalreview and David Cohen, 'Earth's natural wealth: an audit', New Scientist, Issue 2605 (23 May 2007) pp. 34-41
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Oil
This graph from the IEA (International Energy Agency) 2008 World Energy Outlook – shows significant dependence on fields yet to be developed.
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Oil
Data on reserves is disputed – this graph from University of Uppsala revised the contributions on non-conventional and yet to be found fields.
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Local challenges: Degradation of soils
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Local challenges: Water availability
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Global challenges: Anthropogenic emissions
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Global challenges: Environmental Loading
Rockstrom et al, Nature 461, Sept 2009, Stockholm University Resilience Centre
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Doughnut Economics
Source:Oxfam, Kate Raworth
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Agenda
Exponential Growth
Opinions on Future Growth
Resource Limits
Actuarial Impact
Resource Limits and Actuaries
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Actuarial Assumptions – Real Rates
The paper provides historical evidence for the correlation / co-integration of real interest rates and GDP.
Population / wealth changes impacts need consideration too.
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Actuarial Assumptions – Inflation
The paper makes a case for price inflation being linked to GDP growth – but highlights the disconnect with wage inflation that is possible - which is important for the DB schemes that there the focus of the actuarial analysis in the paper.
Also to consider is the extent to which resource constraints on many fronts could remove the ability for substitutes to dampen cost-push inflation.
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Actuarial Assumptions – Mortality
The paper provides some historical evidence for the link between GDP and Mortality – using data from Russia post-communism and the US over 150 years.
We need to bear in mind that the linkages may be more subtle in future and mortality / morbidity may be selective with insured populations in wealthy countries perhaps less affected. However increased connectivity with the globe could increase transmission of disease – for example.
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Actuarial – Scenarios in the Paper
Government sensitive to long term projections.
Markets sensitive to long term
projections.
Government sensitive to long term projections.
Markets NOT sensitive to long term projections.
Government NOT sensitive to long term projections.
Markets NOT sensitive to long term projections.
Government NOT sensitive to long term projections.
Markets sensitive to long term
projections.
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Agenda
Exponential Growth
Opinions on Future Growth
Resource Limits
Actuarial Impact
Resource Limits and Actuaries
35
Why Can Actuaries Help?
Global problems made worse by:Lack of understanding of risk and uncertainty
Lack of understanding of exponential growth
Disregard for science and data
Actuaries’ core skills are in the following areas:Risk and uncertainty
Exponential growth
Actuarial science and data based decisions
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Activity - Institute & Faculty
Resource & Environment Board (REB) formed at end 2013 from Member Interest Group
Past ActivityLiterature review in 2010 focusing on climate change
Literature review in 2011 focusing on energy
Research into the limits to growth published January 2013
Networking evenings during last three years
2012 thought leadership lecture on climate change by Professor Sir Brian Hoskins
Current ActivityDeveloping Board agenda
3rd Literature review due later in 2014, working with Professor Richard Werner, focusing on sustainability of the financial system
Volunteers for the 3rd literature review are very welcome!
Any questions?
