Economic Dreams - Economic Nightmares

Predatory Oligarchy

Hervé Kemph is a French environmental journalist and a student of global capitalism. His book, How the Rich are Destroying the Planet has caused a bit of a stir thus far, and will likely have more impact once translated into English. Some will call Kemph's writing just another extremist environmental rant. Others, like me, will welcome it as an opportunity to examine ourselves and our culture. We will no doubt be hearing more about Kemph as time goes by. In the meantime, we have a couple of Truthout.org articles to draw from. In part:

The Rich Stand Accused, Louis-Rilles Francoeur, Le Devoir, (via Truthout.org, 01/07/07): …"We cannot understand the simultaneity of the ecological and social crises if we do not analyze them as two facets of the same disaster. This disaster derives from a system piloted by a dominant social stratum that today has no drive but greed, no ideal but conservatism, no dream but technology. This predatory oligarchy is the principal agent of the global crisis," writes Kempf. "The present form of capitalism," he adds in an interview, "has lost its former historic ends, that is to say the creation of wealth and innovation, because it has become a financial capitalism, disparaged even by capitalist economists. This capitalism, which destroys jobs by rationalizations, new technologies and globalizations, overall and everywhere increases the disparities between rich and poor within each country and between different countries," the journalist observes.

…This oligarchy he targets is not satisfied with blindly consuming and wasting the planet's material resources with its big cars, its airplane trips, its unbridled consumption of living products, its uselessly vast houses, its unrestrained energy wastage. It has also, adds Hervé Kempf, spawned a model of hyper-consumption that the lower and especially the middle classes now attempt to imitate, just as developing countries try to imitate Western countries - even though, whether instinctively or rationally, everyone clearly knows that "this ideology of waste" and its drain on planetary resources will inevitably come to an abrupt end. …

… Although he does not address the impact of unchecked [human population growth] on the decline of the planet's "biological services" in his essay, Hervé Kempf immediately acknowledges that this factor certainly has an impact that is greater overall than any hyper-consumption by this oligarchy, composed of several hundred thousand millionaires and billionaires who control the bulk of income and of financial capital. However, he explains, it's this oligarchy that creates an unsustainable model for the planet, the indirect impact of which on other social groups exceeds its direct consumption. "And," he says dryly, "not all humans have the same impact on the planet at birth: a Westerner carries more weight in the planet's fate than a baby from Niger or from India."

It's to put an end to this ostentatious consumption that he advocates radical control of wealth through "a ceiling on maximum salaries and on the accumulation of wealth," a sort of matching piece for the minimum wage, but on the upper side.

"Everyone," Kempf comments, "knows that China will never be able to reach a level of consumption per inhabitant comparable to that of the Americans, with two cars per family, three televisions, four computers and cell phones, a house three times too big for its inhabitants, which generates energy consumption that would be sufficient to the needs of ten, even twenty people on other continents." The environmental chronicler proposes that a reduction of its consumption be imposed on this oligarchy that has globalized poverty, so that it no longer feeds this unsustainable dream, which numbs the critical faculties of the entire planet to the point that it closes its eyes to the wall into which it is careening full speed ahead. …

… [K]nown for his rigor and level-headedness, [Kempf] nevertheless concludes: "It is still necessary for ecological concerns to be based on a radical political analysis of present relationships of domination. We will not be able to reduce global material consumption if the powerful are not brought down and if inequality is not combated. To the ecological principle so useful at the dawning of awareness - "Think globally, act locally" - we must add the principle that the present situation imposes: "Consume less, share better."

Ecologists, he adds, have not often conducted an inquiry into the "ecological misery" that parks the poor next to industrial neighborhoods, polluted and at risk, next to highways or noisy activities, in the most insalubrious houses and in sectors generally the least well-served by public services, including public transportation. It is wrong, he says, to act as though the economic system must grow more to bring these people out of poverty or to allow more poor people to attain greater wealth. The economic system works in the other direction, by monopolizing wealth and power at the expense of those who have the least, and of the middle classes that dream - ever more vainly - of hoisting themselves into the cocoon of the present financial oligarchy, Kempf maintains.

That's why, he says, we must "bring down the rich" rather than pull up the poor, in order to begin to respect the thresholds of irreversible deterioration of the planet's resources.

He takes aim, moreover, at the concept of sustainable development and the alibi it now constitutes for governments and companies that use it to justify other drains on resources in the name of this new rationale that is supposedly harmless for the planet. Sustainable development, he writes, has become "a semantic weapon to remove the dirty word, 'ecology.' Moreover, is there any need to still develop France, Germany, or the United States? The concept has meaning, he concluded in an interview yesterday, but only in developing countries, because it can help them to avoid a development as brutal and lawless as the one we have effected in the West. But in the West, he says, the first of our environmental responsibilities "consists of reducing our consumption of material goods" to attain a level of well-being based rather on values, knowledge, in sum on immaterial, but nonetheless very real, riches.

See also: How the Rich Are Destroying the Planet: A Review by Leslie Thatcher, Truthout.org, 03/15/07

Herman Daly on Immigration, Population, Migration, Globalization

Blogs and more traditional news are full of immigration-related stuff these days. But I've seen little discussion interrelating globalization, population dynamics, and the environment. In Population, migration, globalization, Ecological Economics (2006: forthcoming) , Herman Daly attempts it, arguing that we rightfully ought to be as concerned over unfettered capital flight, and outsourcing, as we right now seem to be over immigration here in the US. Daly contrasts globalization ("global economic integration of many formerly national economies into one global economy, mainly by free trade and free capital mobility, but also by somewhat easier or uncontrolled migration) to internationalization (which retains a substantive nation-state presence while highlighting "increasing importance of international trade, international relations, treaties, alliances, etc.").

Was NAFTA supposed to help with the US/Mexico problem? Did it fail in this regard? In other regards? If so, will CAFTA fail too? And if we are to get serious here in the US about limiting immigration, how are we to do so with the 1000 mile long US/Mexico border separating the two countries? Machine-gun turrets (or 9000 new border guards) don't seem prudent political choices. Or maybe they are. Are there really any "rising tides to lift all boats" out there? Or are we just whistling past the graveyard, hoping to ride out the impending storm and somehow then being able to bootstrap the global economy and polis toward a better world. Or maybe there is no storm, just massively enhanced productivity and trickle-down profits that allow the poor to get rich, while the rich get richer.

Daly's thoughts, highlighting links to immigration:

Economics and Politics of Global Warming

On today's ABC News "This Week" George Stephanopoulos interviewed Gov. Brian Schweitzer, D-Mont. about global warming, after they touredGlacier National Park via helicopter. Then Stephanopoulos put together a panel including Katrina vanden Heuvel (The Nation), George Will ( ABC News), and Fareed Zakaria (Newsweek) to discuss the issue. The discussion follows on the heels of, Time spotlighting global warming on the cover of their April 3, 2006 issue with the catchy title: Be Worried. Be Very Worried.

Montana's Gov. Schweitzer is a "global warming" believer and advocates a massive effort to develop coal liquefaction as a means to both wean us from what George W Bush elsewhere referred to as our addiction to foreign oil, and to help in the battle against global warming. Schweitzer stressed that CO₂ released in the liquefaction process could be effectively sequestered underground so as to negate one frequently noted drawback to coal liquefaction. Schweitzer too stressed the need to help the China and India to avoid adding the number of currently planned power generation plants using conventional technology, warning that we just can't afford, environmentally, to add that amount of carbon to already stressed planetary systems.

As usual, George Will was steadfast in his opposition to global warming, saying that even if we were experiencing human caused warming, we couldn't afford to do anything about it.

The other two panelists considered global warming a high-priority policy issue, and didn't allow Will the upper hand in the discussion. Katrina vanden Heuvel thought that a carbon tax might help in the weaning process. Fareed Zakaria noted that he believes scientists have declared the debate to be over, that only the "loonly" are found among those scientists still debating whether or not we humans are causing a major problem with our continued carbon loading.

Wal-Martization of the World

Wal-Mart has reversed 100 years of history where manufacturers were calling the shots relative to retailers. Now it is Wal-Mart calling many, many of the shots, and manufacturing companies are scared. Is Wal-Martization a good thing? Is it all good? Is it sustainable?

My answers are that in some ways Wal-Mart has been good – in particular in fine-tuning just-in-time manufacturing and inventory control. In some ways it has been bad, since Wal-Mart wields undue Monopsonistic (single-buyer of an industry's products) power and, in conjunction with unbalanced currency regimes in the world drive jobs to wherever hot money flow quickest. Most recently this is China, and claims that it will all balance out in the end are far from being realized, indeed may never be realized as the system may be staging for a very hard landing. Below find snips from a recent PBS Frontline special titled "Is Wal-Mart Good for America?"

I'm biased (who isn't?). But I agree with the conclusion drawn by Larry Mishel, Pres., Economic Policy Institute:

Well, if people were only consumers buying things, lower prices would be just good. But people also are workers who need to earn a decent standard of living. And the dynamics that create lower prices at Wal-Mart and other places are also undercutting the ability of many, many workers to earn decent wages and benefits and have a stable life.

And I disagree strongly with Brink Lindsey, Economist, Cato Institute, who says:

I think it's impossible to say that we've lost a million jobs to China. Trade policy, or trade flows, one way or another, don't have an effect on overall employment numbers. They affect the kinds of jobs we have. And so some number of jobs have definitely been eliminated because of Chinese competition. Another– elsewhere in the economy, other jobs have been created because of Chinese competition. Because American consumers have saved at Wal-Mart buying Chinese goods, they've got more money in their pocket to buy something else, which creates business opportunities for those other business, which means they hire workers they would not have hired otherwise. The net effect, most economists think, is a wash.

My response: Hogwash! It is not at all clear where all the jobs are to come from. It takes a leap of faith to agree with Lindsey. And yes, I've heard all the various arguments that say, based on recent history, that jobs always follow the creative destruction of older capitalistic structures. I simply remain doubtful this time around. I think we've set ourselves up for a Humpty-Dumpty type fall that will hit our middle and lower classes hard here in the USA and may usher-in a world wide depression.

This is not to say that I think those who have been propping up our American Empire (mainly from what some call "less developed countries") have not suffered mightily and unfairly. It is simply to say that we needed to approach Globalization with some care in terms of policy formulation that simply didn't happen due to lack of foresight, political infighting, individual greed (personal and/or corporate), or whatever. Another great opportunity squandered! Or maybe I'll be proven wrong. Time will tell!

Exploring Roots and Dangers of Global Economic Balancing

The Wall Street Journal Online reported today thoughts from economists Michael Dooley of Deutsche Bank and Brad Setser of RGE Monitor exploring the roots and potential dangers of this global economic balancing act.

Dooley lays out the case for a soft landing, adhering to his longstanding position. Setser holds serve on his case too, slightly modified from a year ago, that there is a "meaningful risk" of a hard landing sometime soon. In Setser’s words,

Nouriel [Roubini] and I never said that the system would collapse by the end of 2006, only that there was a meaningful risk. But 'tis true that the probability I attach to that outcome has fallen somewhat, largely because China has been more able than I expected to absorb a massive reserve increase without excessive credit growth or domestic inflation. ….

Both Dooley and Setser make a good case. Faith-based complex systems are the stuff to keep the best minds debating, and the best of speculators (and investors) monies tied up betting on what may happen next.

The rest of us continue to watch this battle of world powers in this most recent foray into globalization. We see a world changing as rapidly as the wildest of science fiction writers have imagined. See also Setser’s post on this matter.

Caroline Baum on Malthus, supply-side shortage, demand-side collapse

I recently got Caroline Baum’s new book Just What I Said. Not since Paul Krugman’s The Great Unraveling have I found a bus-book so enticing. Like Krugman’s book, Baum packages together some of her best Bloomberg Columns as subchapters in a book on "bonds, banks, budgets, and bubbles." Often I agree with Baum's reasoning. Sometimes I disagree. But always I’m challenged to think.

This morning's fare was built from a base of Malthusian theory, casting economists as chronic worriers, "worrying about man’s ability to provide food and other necessities for a growing population." The theme of the essay, titled, "Field of Gloom is Never Too Crowded for New Blood," May 13, 2004, is focused not so much on Thomas Malthus' fear of catastrophic supply shortage, but rather on demand shortage due to productivity gains and excess capacity.

Baum concludes:

    Any discussion about the death of demand without reference to price is essentially meaningless. The demand curve … is downward sloping. For most items, lowering the price increases the quantity demanded.
    It’s always worked that way. I suspect it always will. Both consumers and producers understand it.
    I've never worried about a lack of human ingenuity. If I'm going to spend time worrying, it’ll be about the sun doing dark in 5 billion years, not the death of demand.

I can’t argue with the Baum’s conclusions as far as they go. But what is left out tells an entirely different story. This is one of those disagreement moments. My disagreement is not on the surface, but in looking deeper. Martin Zweig, for example, in his Winning on Wall Street tells us that there are times when we need to be wary of conventional wisdom. Zweig says,

As the bull market continues to move higher, more and more people turn bullish. The flash point is really hit when the crowd has gotten so optimistic that it has used up the bulk of its cash. Cash represents firepower in the stock market. When it’s depleted, the ammunition to blast stocks higher is gone.

Zweig is talking about budget constraints that play into demand as much as prices do. If people run out of cash faster than prices adjust downward there are demand-side problems to accompany attendant supply-side problems of industries running out of cash. When Zweig worries about impending bear markets, he worries about three things, mainly: extreme deflation, too high price/earnings ratios, and inverted yield curves. In the first, "extreme deflation" we see the shadow-side of the "lowering the price" argument.

My disagreement also goes for the supply-side. Baum quotes Greg Mankiw's Principles of Economics. saying that "Growth in mankind’s ingenuity has offset the effects of a larger population." Then Baum dredges up the well-known Julian Simon v. Paul Ehrlich bet, letting us all see the folly of Ehrlich's relatively near-term prediction of massive shortages of natural resource, famine and death on an unprecedented scale.

Clearly Ehrlich lost the bet. But there are many, including me, who believe that we are not yet out of the woods. It is not clear that "mankind's ingenuity" will always get us out of the ever-tightening Gordian knots that we too easily tie for ourselves. For a glimpse of this reasoning I recommend T.F.H. Allen, Joseph A. Tainter, and Thomas W. Hoekstra's Supply Side Sustainability, Donella H. Meadows et al Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future, and Garrett Hardin's Living Within Limits: Ecology, Economics, and Population Taboos as representative of the many books that look at the other side of this debate. My ideological biases are beginning to show.

Baum too recognizes that there are many perspectives on matters economic, and concludes a different chapter with,

…. Economists continue to debate [the viability of arguments for and against cost-push inflation and] the causality between wages and prices. Neither side will convince the other of the superiority of the argument. It's merely a question of preaching to the converted or being ignored by the faithful.

I'll expand that reasoning to say that no ideological camp will convince others of the superiority of any economic argument. Mostly no one from any camp will even listen to arguments from other camps. To get a better feel for this surf over to The History of Economic Thought’s Schools of Thought (60 or so, lumped into four main blocks). And for historically inclined, adventurous types, read through The Walrasaid to get a glimpse as to the confusion, consternation among economic ideological camps today and how it came to be.

Genuine Progress Indicator v. GDP

In sorting out how to measures progress toward sustainability, I grapple with the relevance (or none) of Gross Domestic Product (GDP) accounting relative to more recently developed accounting as embodied in, say, a Genuine Progress Indicator (GPI). GPI is used by some alongside both community-level indicators and ecological footprint metrics. The GPI/Ecological Footprint scheme interrelate the twin goals of encouraging qualitative human development and minimizing human ecological footprint.

Let’s review the case against maximizing GDP and then offer some pointers toward newer metrics used by those who have rejected GDP as a useful metric in seeking sustainability. This is not to say, however, that many of the accounting subcomponents of GDP accounting prove useless. On the contrary, they are used as footings on which to build foundations in both GPI and Ecological Footprint accounting. Finally, we will introduce GPI and Ecological Footprint accounting.

Economic Policy for Sustainabilty

The other day I wandered into an Environmental Economics discussion of steady state economics. At first I bristled as John Whitehead stated in introductory paragraphs that he is opposed to “a steady-state economy.” As a student of the Ecological Economics of Sustainability I have come to admire Herman Daly’s rendition of “steady state economy.” As it turned out, as we worked deeper into the controversy, served up as a policy proposal before the American Fisheries Society, in the end I came to agree with John that that the policy proposal didn’t make sense to me either. But that didn’t dissuade me from recasting the policy proposal in a light that did make sense and better adhered to the principles of Ecological Economics.

Here is what I came up with, with a bit of introduction:

I guess this is the definition you find offensive [John], from http://www.steadystate.org/Positions_on_EG_Compiled.doc with a date 31 Aug 2004:

The AFS recognizes the steady state economy as a sustainable alternative to economic growth. A steady state economy is generally indicated by stabilized (or mildly fluctuating) real gross domestic product (GDP) or real gross national product (GNP). A steady state economy has a stabilized (or mildly fluctuating) product of population multiplied by per capita consumption, with stabilized (or mildly fluctuating) production and consumption of goods and services.

I guess I too would want to better align said position with the concepts put forward by Daly and collaborators. I don’t think there is a good fit between the two.

If I were framing the AFS policy statement I would likely steer-clear of steady state jargon even though I have no quibbles with Herman Daly and others work in this area. Instead I’d build from a frame of Ecological Economics that embeds the same perspectives. But if I were using the steady-state framing, I think I’d say something more like:

"The AFS recognizes a goal to help move our culture toward a steady state economy as a sustainable alternative to current focus on economic growth. A steady-state economy is generally one in which the numbers of people and their ecological footprint is stabilized. Rather than focusing on gross national or domestic product, new indicators of qualitative development help us determine progress toward the goal."

Ecological Footprint might need to be defined.

Whether or not embedded in the goal statement, a footnote might highlight good works in progress on the "indicators" front, including work on Genuine Progress Indicators from Redefining Progress. For a quick overview, see Genuine Progress Indicators (and how GDP doesn’t cut it).

Below find how I framed the Steady State Economy debate leading to my policy proposal:

Grappling with Economic Dilemmas

Today I ran across an interesting blog. It’s called Catallaxis: An Integral Economics Weblog

I found refreshing stuff about organizational learning applied to the framing of markets and market functioning embedded in social and political structures. I learned a bit about Daniel O’Connor’s struggle to better understand both the crisis and possibilities of economics in our emergent world, including insight into economic dilemmas: freedom vs. fairness, efficiency vs. effectiveness, and growth vs. sustainability.

I found much that compliments my own journey of understanding. And I found some interesting application of double- and triple-loop learning in an economics and market framework, particularly in his most recent post, “Asset Price Bubbles: Monetary Inflation and Leveraged Speculation” and in his background paper “Stable Instability”

Below find a few snippets from O’Connor’s site and his book: "A Crisis of Vision" (an introduction to Market Learning: Toward a more Integral Economics)

Supply-Side Sustainability

I should have added Supply-Side Sustainability (T.F.H. Allen, Joseph A.Tainter, and Thomas W. Hoekstra) to my list of books on Globalization.

Allen, Tainter, and Hoekstra's supply-side sustainability bears no resemblance to the trickle-down, supply-side economics of the Reagan era (seemingly in vogue once-again today, although wrapped up in “free market” rhetoric). Instead the book helps us better understand how far we need to go to begin to embrace sustainability as an ordering principle for civilization. And it helps us to get a feel for what we might do to slow our progress away from what we might call a path to sustainability, as well as what we might do to approach such.

When developing principles for ecosystem management in public lands management, we learned that we must work across various spatial and temporal scales in order to begin to get a better grasp on the wicked problems we face. Confucius knew this well and said something like, “Those who give no thought to that which is distant will find trouble close at hand.” We seem to be living in a whole society that has forgotten ancient wisdom.

In public lands ecosystem management, we used to talk of looking up a scale to address context and down a scale to address contribution of various ecosystem or social systems components in complex adaptive systems. In Supply-Side Sustainability, the authors admonish us to look up a scale for both context AND management.

In particular the authors focus on roles of hierarchy and complexity in sustaining ecological systems, human societies, and problem solving. They argue that being sustainable consists, in part, of using approaches that:

• Manage for productive systems rather than for their outputs.
  
• Manage systems by managing their contexts.
  
• Identify what dysfunctional systems lack and supply only that.
  
• Deploy ecological processes to subsidize management efforts, rather than conversely.
  
• Understand the problem of diminishing returns to problem solving.

Allen, Tainter, and Hoekstra say that,

We will achieve sustainability when it becomes a transparent outcome of managing the contexts of production and consumption rather than consumption itself. If we shift our management emphasis to managing from the context for whole ecosystem functions, rather than for resources, the cost of problem solving will diminish and the effectiveness of management greatly increase. When a manager gets the context right, the ecosystem does the rest. Because the material ecosystem supplies renewable resources and makes them renewable, we call our approach supply-side sustainability. (p. 14)

At the first international conference on Ecological Economics, educator Mary Clark suggested that our culture needed to undergo what she termed a Gestalt Shift. Specifically, Clark suggested that we need to reorient our cultural focus away from growth and development and toward sustainability. And we needed new economic and new ecological thinking to help us get there. Allen, Tainter, and Hoekstra’s Supply-Side Sustainability is a beginning.

Back in 1990, when I attended the first Ecological Economics conference I believed we had a better short-term chance than I do now of that cultural reorientation. But the world works in mysterious ways and we may be closer now than then, with but a generation-long crisis needed to trigger a cultural reawakening—the subject matter of a book already on my list, The Fourth Turning.