Doing a number on the numbers

Richard Denniss takes issue with 'expert advice', says Gareth Hutchens.

Richard Denniss remembers the conversation well. He was a teenager, and his father was telling him about an auditor who had ticked off some books without checking them properly.

His dad felt something wasn't right, so he'd decided to check them. That's when he found a mistake.

"It was a real insight," Denniss says. "I was 16 or 17, and it seemed to me that if an auditor said something was right then it must be right, it must be the objective truth.

"But I was wrong. The people who'd looked at this transaction had only looked at the top of the line, but dad had dug a bit deeper and realised that while the headline numbers made sense, some of the smaller numbers were inconsistent with each other."

It was a lesson he's never forgotten.

Denniss, 43, is now at the helm of the Australia Institute, a not-for-profit think tank that devotes its time to exposing how "expert" economic advice is taken for granted in public policy debates.

It is the only think tank in Australia to do so in a systematic way. And for an office with 10 or so staff and with $1 million annual funding, it's been having a decent go of it.

In April this year, the NSW Land and Environment Court overturned government approval for Rio Tinto to expand its huge Mount Thorley Warkworth open-cut coal mine in the Hunter Valley.

Denniss appeared as a witness on a behalf of a local community group.

Rio had been relying on what is known as an input-output model - which it had commissioned from the Hunter Valley Research Foundation - to show why thousands of extra jobs would be created if its project went ahead.

Its model was actually predicting that 44,675 full-time jobs would be created, which was 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.

Denniss explained to the judge why this "economic modelling" couldn't be taken seriously. The judge agreed with him, overturning the approval.

The decision sent shock waves through the ranks of Australia's economic consultants - the people who are paid to design these models for big business groups.

A few weeks ago, Denniss appeared on behalf of the NSW Environmental Defender's Office to give evidence against Yancoal Australia, a large coal miner in the Hunter Valley that wants to expand its Ashton mine.

The proponents of the expansion had originally been relying on input-output modelling to justify the project.

But after the Warkworth case, in which the model was found to be too rudimentary and unrealistic, they withdrew it from their evidence and commissioned ACIL Tasman, an economic consulting firm, to calculate the benefits based on a model known as computable general equilibrium, or CGE.

This type of modelling is far more sophisticated, but usually results in generating much smaller benefits.

Denniss says that was enough for him. "When I heard they'd done that, I was particularly keen to highlight the problems with CGE modelling as well," he says.

And one of the biggest problems is that CGE models can be unbelievably complicated, and therefore opaque. They can rely on hundreds of thousands of separate calculations in any one model, all of which have the potential to have a significant impact on the final result.

"Even the proponents of CGE models would concede that they're like a black box, where you pull a handle and some results come out ... and where the only people who are allowed to look inside the black box are the customers," he says.

It is this type of energy - and obvious confidence - that led the then-leader of the Australian Democrats, Natasha Stott Despoja, to ask Denniss to become one of her economic advisers in 2001.

At the time, Stott Despoja had just taken charge of the party and a priority for her was to try to disprove the stereotype that Democrats or progressive politicians were less economically literate than those in the major parties.

"Richard had been in a deputy capacity at the Australia Institute before that and he was recommended by a number of people," Stott Despoja says.

"The first time that I met with him I was instantly excited at the prospect of having someone who knew their craft ... but who also understood the broader policy to which I was committed."

Denniss grew up near Newcastle where he spent his time playing soccer or squash at his parents' squash centre.

He wasn't interested in economics, or even education.

"I tried to leave school in year 10 and get a job in the coalmines but they wouldn't have me," he says.

"A lot of my good friends left school in year 10 and got a job in the mines. But it was a closed shop in those days. One of the questions on the application form was 'Who is your nearest relative currently working in the mine?' "

So he continued with school and then went to Newcastle University, where he studied economics.

Before Denniss became executive director at the Australia Institute in 2008, he told the board he wanted to focus on the way that economics was being abused in public policy arguments. They liked the idea. Since then, his organisation has been publishing research papers and running a fact-checking website focusing on contemporary economic debates.

So what can be found there? "Well, Mitch Hooke [from the Minerals Council] said on the ABC's Q&A that the mining industry was the biggest employer of indigenous people in Australia," Denniss says.

"Now, 1 million people heard that, but what they'll never hear is that it's not, it's the 10th biggest, and does Mitch Hooke either not know anything about his own industry or does he just make stuff up live on air, knowing he'll never be challenged on it?'

The Minerals Council said Mr Hooke was not trying to mislead: he was talking about the proportion of indigenous employees working in the private mining sector, not the number of indigenous employees. As a proportion of its total workforce, the mining sector is one of the highest employers of indigenous people, the council says.

Denniss says the most regrettable thing about working for the institute is that its limited resources mean it has to pick its fights carefully.

"The frustrating part is that it takes us time and money to unpack their misinformation," he says.