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The absurdity of modern economics

2011-09-07T21:02:00.002+01:00

Any rational economics would be about how economic activity plays a part in the wider social system. Modern economics is doubly divorced from that. Firstly, it treats economics as an abstraction from social life, as though it could be judged solely on its own terms. And within that, economic activity is presented as revolving around money, rather than money being kept in its proper place as a means to our real social (or even economic) ends. Even if we accept the former abstraction, within economics itself one would expect the making, distribution, exchange and consumption of goods and services to predominate - that is after all how people actually live - but we have succeeded in making all that secondary to the circulation and augmentation of money itself.

This peculiar displacement and inversion that places money first and last - the perspective of the miser, that most wretched of human beings, who is, as someone-or-other once said, as much in need of what he has as of what he has not - is not the fault of economists, of course. Or at least they are no more than ghost-writers to the real culprit. This is after all a perfectly valid description of an advanced capitalist society, in which finance capital (and its unacknowledged bastard-and-then-master, fictional capital) has deposed real goods and services from the pinnacle of profitability to such as extent that the classic model of capitalist economic activity in which money is augmented through the creation and sale of goods and services - summarised by that nice Dr Marx as M-C-M1 - has started to run an increasingly poor second to the more direct creation of money through speculation, the creation of fictional capital and all the rest - M-M1.

It’s a distasteful state of affairs and creates the impression that economics has fallen into a sort of fantastic black hole, from which the introversion into which it has fallen ensures that it cannot escape. But even from the most radical point of view we can't just switch economics off. The economy is after all where we create all the means to our various ends, our economy is a capitalist economy, and so we must at least try to understand capitalism's view of itself. On the other hand, surely we are capable of constructing an economics that starts and ends with people, and so with goods and services. (Even this ignores the deeper significance of economic activity, of course - the way the very process of participating in economic activity shapes the way we experience existence, and the way we define what is real and what is not, what is normal and natural, what is right, wrong and indifferent. But at least it would wrench us away from this hypnotic fantasy that money must rule.)

An example of what I mean. In economic theory money is rightly assigned many functions. It is a store of value: people can use it to hold their savings. It is a medium of exchange, enabling us to buy and sell without having to wait for someone possessing exactly what we want and wanting exactly what we have. As an instrument for expressing the value (or at least the price) of goods and services, it’s a unit of account. Finally (as the list usually goes), money provides a standard of deferred payment (which is one important reason why we are always so concerned about inflation).

So far so ordinary. But since the creation of money by means of speculation, manipulation and downright fraud has come more to the fore (and nothing in recent economic policy has reversed this), this has made another, perhaps previously too obvious function of money more visible. For money is also a claim on goods and services. In a market that responds only to money, anyone with money has a right (or at least an access that will only be challenged in exceptional circumstances) to the goods and services created by society as a whole. As a result, those who specialise in creating money can corner a correspondingly volume goods and services (i.e., get rich) even though they create none themselves. Of course, financial activity does have its value - not only managing the supply and circulation of money and directing investment (though still conceived of in narrowly financial rather than social terms) but also rationalising and smoothing various aspects of markets themselves. But once financialisation gets out of hand and the generation of money through bubbles, absurd risk and outright crime starts to predominate over real economic activity - the creation of goods and services -then the financial sector starts to achieve stupid levels of wealth (i.e., a huge proportion of the money in circulation) even though it is adding very little of social value. On the other hand, as I have argued elsewhere, once finance capital starts to predominate, bubbles, speculation, crashes and monopolisation are inevitable - yet 'investment' banks, hedge funds and the rest are left in greater control over the real economy than ever.

Hence the significance of money's function as a claim to goods and service. It allows an otherwise parasitical class of financial specialists to distort and undermine the socially valuable part of the economy, not only making them richer and richer even though they produce very little of value themselves, but by this very process strengthening their position in the economy - and so society and politics - as a whole.

The flight of capital from China

2011-08-11T00:04:00.001+01:00

Well, if the Chinese government was under the impression that creating a wealthy capitalist class would serve the future of China, I hope they have noted that 'Close to two-thirds (60%) of wealthy Chinese with assets of RMB 10m ($1.53m) or more are either considering emigration through investment overseas or have already done so (China Merchants Bank/Bain & Co). Further, the tendency to move abroad moves in line with wealth levels meaning the wealthiest group are the most inclined to emigrate. Of those with assets of more than RMB 100m for example, close to half (47%) are considering leaving while almost one-third (27%) have done so already' (Ledbury Research's High Net Worth, July/August 2011). Perhaps that's why, as Reuters reports, they are cutting taxes on luxury items.

Why we should never rely on philanthropy

2011-08-11T00:03:00.001+01:00

Speaking of hedge fund-based donors, the July/August 2011 edition of Ledbury Research's High Net Worth reports that 'Overall philanthropy levels in the US were negatively impacted by the financial crisis and last year the total amount donated by the top 50 donors fell to the lowest levels since 2000'. In other words, just when things are at their worst, philanthropy dries up. But equally absurd, there is a strong correlation between philanthropy and hedge fund bonuses. In other words, the level of generosity is directly tied to one of the most pernicious features of the economic system!

What Happens When The Riots Reach Mayfair?

2011-08-10T23:59:00.001+01:00

That's the headline from Wealth Briefing, an online magazine for bankers to the obscenely rich. Perhaps a more pointed question might be, Why doesn't it happen?

Perhaps we should answer that question with another one? If you had the plague, would you treat it by squeezing the spots?

Spot the connection? Well, maybe it's not that obvious. Perhaps another question will make things a little clearer. What happens when you decide to stop governing society and hand it over to 'the markets', the police and the tabloids? Feed everyone with a constant diet of titillation, exploitation and deceptions? Encourage everyone to jump on every get-rich-quick bandwagon? Has this led to the advertised tidal wave of liberation, creativity and 'wealth-creation'? Well, it's easy to find out - just leave this potent recipe to ferment for three decades, and - suddenly it explodes. Slapping down the rising mass and thinking you are getting at the underlying cause will only make a still bigger mess.

This is something we have spent 30 years preparing. On the one hand, we have created a culture of false promises, fantasy expectations and entitlement, and on the other bred a generation of politicians who have long since abandoned any pretence at managing society in favour of handing every problem over to their business pals, cowering before red-top newspapers and abandoning every serious political concept and programme as 'ideological' in favour of 'common sense'. (But as Gramsci once said - I think - common sense is the practical ideology of the ruling class.)

How about a little history? In 1981, we had the Brixton riot in London, the Handsworth riot in Birmingham, the Chapeltown riot in Leeds and the Toxteth riots in Liverpool. Although initially popularly denounced as race riots or 'mindless' violence' and 'copycat' events, it soon became clear that brutal conditions in the inner city, maintained by heavy-handed policing, were the real cause. But it never went further than riots - the victims of social brutalisation turning on their immediate neighbours. Now, 30 years on, things are perhaps taking a marginally different turn. As Wealth Briefing put it, 'Last night the King’s Road in Chelsea, Notting Hill and the iconic Sloane Square were all targeted of terrifying indiscriminate violence.'

Indiscriminate? I suspect not - and certainly no more so than the occupation of Fortnum and Mason by anti-cut's demonstrators (in which, I am proud to say, my son took part) earlier this year. It's just that today's rioters - unintentional demonstrators - are a lot less politically conscious, but a lot more ready to use violence to express themselves, even though their lack of political consciousness means that they are incapable of expressing themselves through anything else. To quote Wealth Briefing again, 'The events may be characterized by mindless so-called “rioting-meets-shopping”, but the last three days have exposed serious undertones. According to a report on the BBC, two 17-year-olds told police that they were rioting because they were "showing police and rich people they could do whatever they wanted".'

Interesting turn of phrase - apparently rioting isn't serious to the rich - just as long as it's happening to the poor. But as for these 'serious undertones', Wealth Briefing can breathe a sigh of relief: only when the rioters are more politically conscious and organised will they prove a threat to their rich readers. As long as that is the case, it will be possible to denounce them as looters and feral youth - because, in many cases, that's what they are. But how much more would it take to move them a little farther along towards informed political action?

Rossz csillag alatt született

2011-07-26T20:26:00.003+01:00

Finally, I discover that Elgar's Cello Concerto in E minor, Op.85 may have had a reason to exist after all. Listen to Venetian Snares' 'Szamár madár', from his album Rossz csillag alatt született (Born Under A Bad Star).

Apparently 'szamár madár' translates literally as 'donkey bird', but more generally as 'stupid bird'. Which suggests that he understood Elgar better than most.

What makes us free

2011-07-14T19:40:00.003+01:00

In these happy days when one can almost believe that the Murdoch empire is finally in retreat, I come across a splendid quotation, almost two centuries old, that tells us a lot about the way we liberate ourselves from his ilk - and from other over-weaning corporate egos and the under-achieving politicians who play at representing us. It's from the radical journal Black Dwarf in 1817:

States must either proceed, or retrograde. While we contented ourselves with boasting of our advance, we have been silently, but rapidly falling back... The people ought to remember that they are the guardians of the constitution. Instead of that the simpletons expect protection from the constitution; which is in fact nothing but the recorded merits of our ancestors. The country that boasted of being free, because Magna Carta was enacted; when the least share of penetration would have taught us, that Magna Carta was enacted only because our ancestors were determined to be free. Our ancestors, with swords in their hands, and the tyrant John on his knees before them, would have been just as free, whether they had insisted on the signature of Magna Carta, or not. Their freedom was in their power, and in their will.

The author was Thomas Wooler (1786-1853). His words are quoted by Edward Vallance at the very conclusion of his Radical History of Britain.

Tough at the top

2011-06-26T12:44:00.000+01:00

Compared to us mere mortals who are faced with the Consumer Price Index (CPI), an alternative index adjusted for the rich - the SALLI (Stonehage Affluent Luxury Living Index). It's based on a basket of 50 items such as central London rental costs for a family property, private education, a day’s grouse shooting and fine wine and cigars and so on. And a new one is out now, and shows that things are getting tough at the top. The poor dears are facing a mighty 6% rise in the 12 months to April 2011, compared with our measly 4.5%. How will they get by?

This, apparently, “reinforces findings that UHNW [ultra-high net worth - i.e., obscenely rich] inflation is much more volatile than CPI, tending to exceed standard inflation in good times and significantly fall short in times of downturn”. Rents on 'high-end' London property rose by 6.7%. But apparently this trend is driven by higher demand, which is to say, the fact that rich people are actually queuing up even more than usual to rent London property - not exactly a problem of impoverishment, then. Consumables for the rich jumped 18% - fine wines rocketed up 27.6%, but fortunately champagne limited itself to a mere manageable 8%. Culture/entertainment were up an average of 10.3%, including a rise in art prices by 10.5%. But again the problem was high auction prices, so it really only shows that the rich still have plenty of money. They also cover 'investments of passion' - a wonderful phrase, betrayed by the fact that it refers to things like luxury cars, not, for example, the cost of paying their accountants extra to work how much tax they really owe and then paying it - rose a mere 4.7%. Yacht hire is up 5.1% on a year back, and sports and recreation as a whole up by 5.4% overall.

I don't wish to seem ungrateful, but looking at some of the creatures that figure in the world's rich lists (especially the realistic lists that include the dictators - Mubarak was wealthier than Bill Gates - and other corrupt plunderers of their own people), what exactly have most of these people done to deserve this pampering? Conversely, is there really so little understanding of what it means to have an economic system that is ultimately geared to the interests of these groups - does anyone really believe in trickle-down economics any more?

Big fleas have little fleas...

2011-06-19T17:30:00.001+01:00

The FSA is currently sending out a letter (http://www.fsa.gov.uk/pubs/ceo/dear_ceo_wealth_management.pdf) to the CEOs of 'wealth management' firms - organisations whose sole function is to pander to individuals of 'high net worth' (i.e., the rich) and even 'ultra-high net worth' (i.e., the obscenely rich). The letter describes research that suggests that quite a few of these organisations are busily doing their clients a large collective disservice. In fact their review found that 14 out of 16 UK firms pose a substantial threat to their own customers. According to the FSA, two-thirds of the files they reviewed were “not consistent with one or more of the following: the firm’s house models; the client’s documented attitude to risk; and the client’s investment objectives”. As the firms investigated ranged from small independent advisers to global banks, plainly the problem is endemic to the industry. The FSA has concluded that many firms are either ignoring or not properly taking into account their clients' concerns, knowledge or wishes (The Independent, 15 June 2011).

In other words, they are either massively incompetent or pursuing their own agendas.

It is a familiar enough scenario:

Big fleas have little fleas,
Upon their backs to bite 'em,
And little fleas have lesser fleas,
and so, ad infinitum.
(The Siphonaptera, by Augustus De Morgan, 1872, after Jonathan Swift's On Poetry: a Rhapsody, 1733)

At the same time, it exposes yet another dimension of the general corruptness of the financial sector. The fact that this time it is the rich and super-rich who are being bitten also suggests that no one is safe - not even the individuals standing at the pinnacle of the system as a whole. And if even those in whose interests the system ultimately operate are not immune, that in turn suggests that it is the system itself that is the problem. In other words, it is not just that the system is plagued with fleas; the system itself spawns the fleas directly.

The financial sector occupies a doubly powerful position capitalism as a whole. Firstly, given that the point of capitalism is the maximisation of profit, the sector that specialises in the management of money is surely the functional axis of that system. Secondly, as the single greatest source of credit, it sets the terms and makes possible the opportunities for investments. Indeed, the financial sector is the ultimate arbiter of what an investment is, and what priority should be attached to any particular course of action.

And curiously enough the financial sector is also unique to capitalism in that, unlike any other part of the economy, it makes money without producing a good or service that is of any value to anyone.

At its most basic, you can't eat money. But money is the ultimate commodity - in fact the only commodity whose sole use value is to embody exchange value. It is the ultimate means (as Byron remarked, 'Ready money is Aladdin's lamp'), as it can command any product and, owing to the increasingly obsessive commercialisation of capitalist societies), it is rapidly elbowing out every other factor mediating social relationships. So a sector that specialises in creating money out of money cannot lose: it stands at the heart of the system, it controls both the one indispensible means and ultimate end of the system as a whole, and it is the irreducible goal and need of every other sector to feed it.

And, it turns out, it is corrupt.

But it must be understood that this is not a kind of corruption of which the system can be cleansed by the vigorous application of righteous indignation, and that's that. This corruption is built into the system in much more profound ways than that. As capitalism is driven by its own tumbling profitability to absorb larger and larger segments of civil society, living on capitalist terms becomes a greater and greater part of life as a whole. In that respect capitalist relationships increasingly become the very definition of normality. With that, not only does more and more power (direct or indirect) flow to its financial core but the central myth of capitalism - that pursuing self-interest is the Royal Road to the Common Good - comes increasingly to define how we all think about how to live our lives. Given a combination of increasing pressure on profits, an increasing illusion (among our bankers at least) of selfishness and greed as the supreme social virtues and more and more opportunity for a little 'financial engineering', we can only expect this tendency towards corruption to grow.

And who is going to stop them? Not our governments, that's for sure. The economy is by definition the source of the material means to all our ends, so politicians can hardly be immune to the same temptations as their business allies - business controls the economy, so they must be pandered to at all costs. As history makes very plain, governments quickly realise that they have to pursue business's agenda if they are to realise their own, so hospitals, schools and even armies start to be designed, planned and funded in ways that ensure that the businesses involved profit to the maximum possible extent. On the other hand, if business interest and party policy come into conflict, it is not long before the one starts to undermine and overwhelm the other, as the sordid picture of the Labour Party's ideological striptease during the 1990s illustrated only too repulsively.

But all this is looking at the problem as though it were a possibly interesting theoretical problem, but with little relevance to the rest of us. But as De Morgan's ditty adds:

And the great fleas, themselves, in turn
Have greater fleas to go on;
While these again have greater still,
And greater still, and so on.

And where does this all stop? Where is the great beast on which all these tiers and tiers of fleas are finally feeding? It is us. Our governments won't be able to avoid it. To have the tax base to fund their own schemes, business must be provided with every opportunity to profit from the public purse. In other words, we have to bribe them to get them to pay tax. Ironically enough, one of the main ways we do this is by letting them off their tax bills. Not very clever. The only limit to this process - and absolutely the main target of contemporary capitalist expansion - is society as a whole. The systems we have spent so long building - health, education, welfare - are increasingly being set up as the Next Big Thing for exploitation.

And it's not only a matter of Coke machines in our schools and privatising the health service (gruesome though such prospects may be). Our security and military services - police, army and all - will also be handed over as opportunities for profit. That is, following our recent adventures in militarism, absolutely the other main target of contemporary capitalist expansion. So apart from the privatisation of pubic services, right now I fully expect the next big thing in capitalism to be the security state. Oh dear oh dear.

Quote of the week

2011-06-19T17:26:00.003+01:00

A fascinating insight into the world of serious money from one of its architects:

The wealth management business will not run out of business but will be impacted if it starts asking questions about whose money this is. (John Sfakianakis, chief economist at Banque Saudi Fransi, 'Quote of the Week' at www.WealthBriefing.com, on 17 June 2011)

Given the number of dictators, generals, 'entrepreneurs' and assorted hangers-on stashing away their country's money in truly staggering amounts, much of it going straight into the coffers of the 'wealth management business', how different is this from a fence protesting that, if he started asking whose property he was so discretely buying, he'd be out of business in no time?

Of course, as I have argued elsewhere. this is simply the obverse of a world in which powerful people and perfectly serious intellectuals fantasize that the ruthless pursuit of self-interest is for the greater good.

Save the saddest dolphins

2011-06-09T19:42:00.003+01:00

Some creepy hotel chain is trapping dolphins. As Avaaz put it:

The pod was swimming peacefully in Samoa when nets closed in from behind -- trapping 25 wild dolphins for a luxury resort's latest exhibit. They are now locked in tiny pens, starved of food -- but we can free them.

For wild dolphins captivity is torture, their powerful sonar bounces off the walls back at them -- as if they are trapped in an endless house of mirrors. Most die young from stress induced illness, but some even commit suicide. If the wealthy Resorts World Sentosa succeeds in keeping them captive then half the dolphins will die in the first 2 years -- and it will legitimise the widely banned practice of capturing dolphins in the wild. We can’t let that happen -- let's use our voices to set them free.

This is the equivalent of locking up small children to amuse the ghouls. Go to http://www.avaaz.org/en/saddest_dolphins and sign up to their petition, then pass it on.

Electoral reform after AV - What next?

2011-04-16T17:09:00.000+01:00

I don’t know who will win the referendum next week - I hope it’s the Yes campaign - but whoever it is, we will still be a long way from a credibly democratic electoral system. To take only a few of the more grotesque blots on the face of our ‘democracy’, we cannot recall our representatives once they are elected. As the current government is constantly proving, there is no recourse against a regime that introduces major policies for which they have no mandate.

And of course we still have that running sore on the face of democracy, the House of Lords. No, it makes no sense to claim that they have some sort of proven wisdom or experience we cannot do without: any government that really wanted Melvyn Bragg’s opinion of culture or the arts can always just ask him, without conceding him the right to make law in perpetuity.

A slightly more obscure issue, but one that really bothers me, is the fact that our elections permit us to elect constituency representatives, even though it has been perfectly clear for a couple of centuries that most of the really important decisions are made by central government. Hence the persistent conflict between voting for a good MP and voting for the national government we actually want. They are not at all the same thing, and persisting with a constituency-based electoral system means that we half our local MPs are parachuted in by national parties even though they know nothing about the constituency and their primary allegiance is to the national party. Conversely, to the extent that we do vote on local issues, this precludes voting for the national government, which is by far the predominant force in most aspect of all our lives.

It is an absurd state of affairs that could be remedied with a very simple solution: divide general elections into two votes (held simultaneously), with the first remaining a vote for local constituency MP, and the second a vote for a national party. The second vote would then populate a senate (to replace the ridiculous and offensive House of Lords) by allowing national parties to assign senators based on their percentage of the national vote.

The new Commons and Senate could also be allocated different spheres, with foreign policy and defence going to the Senate and all local issues being the preserve of the Commons. Others areas could be shared.

Finally, I would suggest a different approach to how often elections are held. For both houses I would suggest a fixed period of six years, with the provision that a third of each house, chosen at random not more than a month before the election, would be subject to re-election every two years. This is important, as it permits a randomly chosen sample of the electorate to provide a running commentary on their representatives, but also, by being random, prevents the parties from buttering up local constituencies as the election approaches.

Our heroic bankers take on the evil dictators

2011-04-15T20:54:00.007+01:00

According to the March 2011 edition of Private Banker International, 'at least $235 billion of illegal assets are held in offshore accounts opened by the wealthy, including those taking advantage of their government positions in the Middle East and North Africa. That is equivalent to 15 percent of the total $1.5 trillion held offshore by individuals from Arab and African states…', as 'over past decades these regimes have grown an entire ruling class consisting of family, friends, businesses, security forces and secret service that have transferred significant wealth out of their home countries.'

Bizarrely, the same article (aptly entitled 'Private banking’s ticking bomb'), having noted that 'The family of deposed Egyptian president Hosni Mubarak is estimated to have as much as $70 billion of assets. Tunisia’s ex-president Ben Ali is said to have up to $10 billion and Libyan leader Muammar Gadaffi and his family have an estimated $20 billion offshore', suggests that 'One big problem comes from trying to assess which assets originating from the region are legitimate and which are suspect'.

Really? How could any of these groups conceivably have acquired such staggering sums by legal means?

Equally bizarrely, a leading baker is quoted as saying that 'Your private bankers should be close enough to their clients to have alarm bells start to ring if what they are being offered, say £5 million, looks unusual in size and timing”. Well, they scored well on that one too: what 'timing' could possibly explain away wealth on such a gargantuan scale? Gadaffi has been in power for 42 years so, with $20 billion between them, his family must have deposited an average of $500,000,000 each year for decades on end. That’s the £5 million deposit our eager banker suggests might be a tell-tale sign of corrupt dealing every 5 days. But only when the people of Libya say that enough is enough do the Gadaffis' bankers wonder whether there might be something doubtful about this.

So when the previous article in the same journal celebrates how heroically Swiss bankers shut down the tyrants' assets in record time, we are entitled to ask, how did you manage not to notice the staggering scale of looting while it was happening?

Incidentally, the reported figures surely understate the problem. As reported, the amounts stolen by Ben Ali, Mubarak and the Gadaffis come to $100 billion. If the total of illegal assets is only $235 billion, then these three groups account for 40% of the total. Surely that cannot be correct - not with all the other dictators, their families and their cronies, all the corrupt generals and arms dealers, and all the rest. What if this little groups represents only 5% of the whole - which I find quite believable, given the nature of these regimes - then the offshore stolen money comes to $2 trillion - that’s $2,000,000,000,000, or a little under $6,000 for every single Arab man, woman and child.

Perhaps our upright bankers can redeem themselves a little and tell us how much Mugabe and his grubby pals have stashed away? Or exactly how many of the 400,000 millionaires in the Middle East and North Africa did not acquire their riches by raping their countries? Given that 'Banks in Europe, the US, Switzerland and most other developed countries have to do background checks on so-called PEPs (politically exposed persons)', they surely know more than they are telling.

Conversely, what do they plan doing about it? Or do they just smugly assume that the new regimes will be as corrupt as their predecessors and be happy to let bygones be bygones? Perhaps the millions of poor in Arab countries can help them make up their minds, or at the very least make sure they not only get the money back but also demand that these shabby crooks (and no, I don't mean the dictators this time) are made to pay for the part they played in robbing some of the poorest people on earth.

For want of a nail...

2011-04-05T19:03:00.003+01:00

... the shoe was lost; for want of a shoe the horse was lost; and for want of a horse the rider was lost’. Or in the words of Benjamin Franklin’s own synopsis (in his Maxims Prefaced to Poor Richard’s Almanac, 1758), ‘A little neglect breeds mischief’. It is a simple truth, concisely and graphically put; however, one risks plunging wildly overboard as soon as one extends the chain of reasoning to more than a handful of terms. How far can one take it?- to a message, a battle, a kingdom, planet Earth, Milky Way South East, universal heat death?

Isaac Asimov once suggested (I forget where) an interesting analogy for how history really works, as a kind of 'bow wave' in time. At first there is immense tumult as the immediate effects of a cause (an event, a great personality, and so on) spread and proliferate; but then a phase of sublimation supervenes, assimilating those effects to the broader, deeper currents of Universal history. The same applies for Great Men. What if Hitler had won World War II? It would certainly still have mattered in 2000 and even 2100, but what difference would it have made by 20,000 AD? Or 200,000 AD or 2,000,000? Indeed, looking at the history of Europe since the end of the Cold War, it is striking that, at least in terms of international politics, things look remarkably as they might have in 1925, had the First World War not intervened.

The whole logic of 'For want of a nail' rests on two false assumptions: that the world is basically atomistic, and that what changes is more vital than whatever remains the same. They are equally curious opinions, although entirely compatible with a world of fragmentation and distraction we inhabit now. But the universe is not just a concatenation of atoms but is on the contrary deeply and universally structured, local quantitative variations may be rapidly countered and any potential qualitative effects generally suppressed. And although we may not be interested in the same old same old, the universe and its human expression, history, takes it all into account.

Popular (mis)interpretations of chaos theory make a similar error. Contrary to the way in which it is sometimes alluded to, chaos theory does not say that chaos is fundamental. On the contrary, it says that apparent chaos is often actually the expression of profound (if also somewhat obscure) order and simplicity. That is why the old saw about a butterfly in Rio de Janeiro causing a thunderstorm in Peking is so misleading: not because the effects of its wing beats could not trigger a storm on another continent, but because they are only one of a massive number of other more or less profound effective causes. Especially on the global scale, weather consists, by and large, of immense and highly stable systems controlled by forces and laws operating on an incomparably vaster scale than all the life forms on the planet put together. Of course, a single butterfly may tip a system that is either exceptionally sensitive or already in extremis into a new mode or phase, but that is hardly the same thing. Having the trigger does not mean you don’t need the rest of the howitzer.

So what is this really about? My own view is almost equally simple: it is about a popular ideology designed to accept the unintelligibility and uncontrollability of the world, be it through popular wisdom or pseudo-scientific explanation or (in a previous age) the Will of God, or indeed by any other means. The reasons why the world is fragmented and full of distraction are beyond both the understanding and the control of individuals, and there are vast forces ranged against anyone trying to create either a popular understanding of exactly what those forces are or a political organisation capable of combatting them.

Shakespeare on bubbles

2010-12-22T13:49:00.002Z

Banquo
The earth hath bubbles, as the water has,
And these are of them.Whither are they vanish'd?

Macbeth
Into the air; and what seem'd corporal melted
As breath into the wind.
Would they had stay'd!

Banquo
Were such things here as we do speak about?
Or have we eaten on the insane root
That takes the reason prisoner?

Macbeth, Act 1 Sc.3

The witches of investment banking and market ideology provided the insane root with which our masters - and our systems - were poisoned, and the rest is as malevolent and illusory as any witch could devise.

So can the oil companies deliver deep oil?

2010-07-01T12:43:00.000+01:00

Probably not quite as easily as they have suggested:

http://www.energybulletin.net/node/53292

I give up - does anyone read this blog?

2010-06-28T21:41:00.002+01:00

If so, just add a comment to this entry saying 'Yes'. No details required (unless you'd like to volunteer them). I'd dearly like to know.

25/7/2010 - Well, in the 30 days since I posed this question, it turns out that there have been 174 views of this page. I guess you're all too shy to speak up! But it would be nice to know - it's quite dispiriting to write and not be read. Blogging is a bit like standing on a high cliff on a foggy night and shoutin ginto the darkness - does anyone hear anything?

National budgets and global economies

2010-06-23T09:31:00.004+01:00

George Osborne delivers his first budget and insists that it is fair. I’m not sure what he means by this, but it is hard to see how it can be. Regardless of what Mr Osborne wants, he simply lacks the political levers needed to control the economy or to decide who bears the burden of the recovery. Of the three key controls, he has access to (and by no means full control over) just one: the UK public sector, including the livelihoods of millions who not only did not cause this recession but also are the main victims.

As for the other two areas - the private sector and the global economy - what can he say? But, being a mainstream politician who therefore cannot confess that the social system he works in is profoundly dysfunctional, he has no power over the UK private sector, especially the banks. I know from my one personal experience that the banks are doing very well at the moment, thank you, and despite a piffling bank tax, will do even better in future. But George cannot do anything about them, because they are his mates in the City – not exactly the Tories’ targets of choice - and because faith in the beneficence of untrammeled markets and big business is in the very the bedrock of Tory thought. Indeed, I suspect that most Tories cannot imagine what taking the City to task would even mean (and I doubt that many Labour or Liberal politicians would do any better).

But even that is a relatively small problem. The real reason why the private sector is free from political action is not that it is sacrosanct but that it invulnerable. Capital will simply go somewhere else. The reason it is free to do this is not that this is some sort of natural phenomenon – the mysterious workings of the market – but because we lack a political system with the span of control, the competence and the willingness to take action on a global scale. There are no true global or inter-governmental political institutions, and such economic institutions as do exist at that level – the WTO, IMF, etc. – have effective power only over the weak (and therefore, like the poor in this country, the very people who require support, not budget cuts), and remain committed to the market ideology that got us into this mess in the first place.

At the moment this gap can be filled only when the politicians of all the major economies can agree on a common policy. But that is extremely unlikely, because the very mobility of capital that allows banks and others to flout local economic controls also creates a bidding war between struggling national economies that forces national politicians to make their own economies as attractive as possible to global capital.

Tough luck, George. But you can do something about it. You can start to admit that the global economy requires direction, not only to escape from the present recession but also avoid future problems with the environment, with global development, and so on. Secondly, you can agree that that direction must be active - not just ‘market forces’ and more than regulation but positive organisation (or at least active alignment) of its basic forces with the world’s basic needs. And finally, you can start to campaign for the truly global political system, without which any aspirations to a coherent economic system are completely forlorn.

You won’t, of course, and neither will your Liberal or Labour counterparts. Because you are, after all, a mainstream politician for whom the present system is so all-encompassing that you cannot even imagine what it is. Asking you to grasp the nature of global society is like asking a fish to point at the sea it is swimming in – obviously everywhere, but so pervasive that it cannot be conceived by any run-of-the-mill fish like you. So we all limp along, with little hope for anything but the weasel words of a well-intentioned bloke who is unable to solve the problem he is confronted with, but too immodest to concede that there is nothing he can - or will - do.

Margaret Thatcher – a re-evaluation

2010-06-16T11:03:00.002+01:00

Driving home this morning I catch Woman’s Hour, the excellent Radio 4 programme, where they are conducting a balloon debate. The question is, ‘Who has done the most to put women on the political map in the UK?’, and the four individuals in the balloon are Mary Wollstonecraft (author in 1792 of the Vindication of the Rights of Women), Emmeline Pankhurst (the great heroine of suffragette activism), Barbara Castle (who gave British women the Equal Pay Act and ensured that the contraceptive pill would be readily available for all – perhaps the two most important changes to women’s position in a century), and finally Margaret Thatcher, Britain’s only woman prime minister.

By an overwhelming majority and to the audience’s obvious delight, Margret Thatcher is the first to be tossed out. And I think, a good thing too – it is just a pity we did not have such simple, practical solutions to her presence when she was PM. She had the unique knack of correctly identifying every important political problem the country faced, and then choosing a solution that actually made things worse. Her period in office began with her quickly becoming the most unpopular PM in British history, and ended with the British middle classes rioting in the streets of London about her wretched poll tax. By the time she was finally ejected from office (by her own party), I could no longer listen to her voice without feeling something between enraged and physically sick. Had it not been for the Falklands War, she would have been out on her ear in one of the shortest premierships ever recorded.

I must admit that the Falklands was the one subject on which I actually agreed with Thatcher. Only the worst charlatan or the greatest fool could imagine that handing over 1400 innocent people to the truly vicious Argentine military dictatorship could possibly be justified by either an 18th-century treaty with Spain or the desire to harm her government by any means possible.

Nowadays, however, I find myself increasingly agreeing with another of her ideas – and in this case, perhaps as central an idea to Thatcherism as there ever was. Am I undergoing a conversion?

The idea in question is Thatcher’s notorious dictum that there is no such thing as society. Or, more fully:

there is no such thing as society. There are individual men and women, and there are families. [Interview 23 September 1987]

At the time I had quite grand ideas about the reality of society, and regarded Thatcher as simply another Tory fool with absolutely no understanding about how society really works – definitely a candidate for a GCSE Sociology course.

Now I am less confident. And again I have Margaret Thatcher (and her associates) to thank for this. For there really is very little left of society - now that, for three decades, the other great social force Thatcher was willing to acknowledge – the market – has had its way. What really is left of society? So well done Margaret, I’m finally persuaded: there is no such thing as society. There’s just the desert you and your kind left behind. Thanks.

Are Boomers to blame?

2010-06-15T12:40:00.002+01:00

An interesting article over at the Burning Platform site - a nicely expressed summary of the widespread sense in the USA that our current crisis is caused by Boomer fecklessness, corporate greed and other cultural and psychological failings. This is the comment I posted:

Nice article but still just a footnote to the culture-wars debate. No real analysis of capitalism as an economic system, so not likely to get to the real nub of the matter. Just as your car is ultimately driven by its underlying engineering and your driving style only affects what it is capable of in relatively small ways, so the basic rules of a capitalist system are clear and simple and all this anger about corporate greed and reckless Boomers is secondary. So are complaints about CEOs offshoring America’s jobs: if you don’t get the basic fact that globalisation is the natural expression of capitalism and completely indifferent to American interests then you are just going to be reduced to another branch of the Tea Party any day now. A capitalist economy pursues the maximum possible ROI – and that is necessarily greater than any sustainable return from the real economy. So this structural requirement for ever-increasing profit will soon cease to be met by any conceivable real economy, especially in peace-time, and the unreal economy, where imaginary values can be made to look real just long enough to cash the cheques, will start to take over. But even the financial sector is only the pure form of capitalism: _all_ sectors of a capitalist economy – including the real economy – will eventually be forced to resort to the same tricks – short-termism, unsustainable debt, insane risks, creative accounting, illusory economics, perpetual motion machines, ridiculous leverage, subsidies to the biggest and richest companies, the constant destruction of (and forced demand for more) goods and services to fight imaginary security threats, and finally just plain dishonesty. Where else are the profits in a mature, free and open economy going to come from? Well, you could try being less mature, free and open, but I don’t think that’s a policy direction any of the subscribers to this site would like much – being cheap labour and having a security-obsessed state isn’t much of a future. None of which has anything to do with Boomers or greed or other cultural or psychological explanations. They are the symptoms – along with environmental devastation, the looting of developing countries, the appalling levels of poverty within America itself, the absurd dishonesty of so much of the media and government, and much else. But they are not the disease.

Not, I suspect, very congenial to most of the readers on that site, nor likely to be responded to, but what the hell.

Gilead, by Marilynne Robinson - a brief review

2010-06-07T10:13:00.004+01:00

Well, I've been reading Marilynne Robinson's universally acclaimed Gilead, and at page 83 I've given up.

I cannot imagine what inspires critics to such paeans. If you believe that piety and quietism are the pre-eminent virtues, then perhaps it has something to recommend it, but I just found it a dull collection of inconsequential thoughts by a very ordinary person whose reminiscences do nothing whatsoever for me. Here the boldness and adventure of the great trek's to the American West collapse into the parochialism and thoughtless faith to which the physical harshness and the cultural smallness of the colonialist’s existence is inevitably prey.

Nothing is allowed to disturb its fearful religiosity. The son returning from Germany, armed with Feuerbach's brilliant, profound and sensitive atheism, is cast out. Every possibility of criticism or change, every attempt to hold their beliefs up to scrutiny, is rejected, and the resulting rigidity – which the author presents as timeless simplicity – creates a society inhabited by individuals (like the book’s protagonist) who are no doubt gentle and humane on the surface, but who, when threatened with anything they do not know, are likely to either be crushed (a tragedy for them) or turn their back (a tragedy for peace and democracy in 1914 and 1939) or lash out in the name of their vengeful Lord (a tragedy for the society about them, or at least for anyone who is not like them).

If I were looking for a simple explanation for why America scares me, this would be it.

Deepwater Horizon

2010-06-02T15:52:00.001+01:00

An interesting (and more than a little unnerving) contribution to the current debate on the Deepwater Horizon spillage at http://www.marketoracle.co.uk/Article19923.html from Dr Stephen A Rinehart - advocating the use of nuclear weapons to plug the hole, raising the prospect of the Gulf of Mexico rapidly degenerating into a carcinogenic benzene pool, and concluding that 'this is a “National Emergency” on the scale of a nuclear weapon attack'. The author's conclusion:

Bottom Line: We are looking at the worse environmental disaster in human
history and it continues to grow and the US Government has failed totally in
responding to this epic crisis because of BP and Big Oil political clout and
money.

Computing a sense of proportion

2010-05-31T11:46:00.002+01:00

The wor;d's single biggest problem is...? Climate change. So, when a list of the world's biggest computers is released, lo and behold, just a handful of the world's top 500 are devoted to weather, let alone climate change.

A proper education

2010-05-28T10:31:00.000+01:00

As all too many parents will be all too aware, it’s exam time again. All around the world, offspring are swotting up obscure facts about Tudor history how a dialysis machine works and the generic formula for making a salt from acid and metal, all ready to regurgitate it all again in sweaty halls all around the planet. And parents recall their own traumas, dredging an unwilling memory for the distribution of opal deposits in Australia and the difference between gerunds and gerundives.

I had it relatively easy: unlike most of my contemporaries (or indeed most reasonable beings) I used to do a lot better at exams than at course work, so the extra stress translated into extra marks I really didn’t deserve. But still, definitely not the best days of my life.

More to the (present) point, not the most useful either. But there the problem lies not so much in examinations as such as in the knowledge I was being examined on. Did I really need to know where opals are mined in Australia? No, more forcefully: under what possible circumstances would I ever want to know where opals are mined in Australia? I suspect that no one but an Australian mining engineer could possibly need that information.

Standard bitching about the education system, of course. And I have to admit that, it’s a little disingenuous. As a typical teenage geek, I rather liked knowing that sort of thing. I loved that sort of obscure information. Indeed, I positively cherished it. But can I really claim that it added to my education? I suspect not. Nor looking at so much of what my children have been examined on over the last few years, can I arouse any greater enthusiasm for the current curriculum.

The fact is – and I emphasise that this is a fact – is that, in far too many cases, what my children are learning is contributing nothing to their education. My daughter spent two years studying Tudor history. Why? Because it was the syllabus. But what did that teach her? Does she have a better understanding of life – her own life and the life of the society she lives in? Especially compared with what she might have been taught?

My impression is that schools teach based on the assumption that they are preparing the student for long-term specialisation in that topic. On that basis it makes sense for the curriculum to consist of so many apparent fragments – because if they study this topic long enough, it will all fall into place. By the time they graduate, they will indeed have a very good knowledge of their specialist subject.

But of course this is completely irrational. We can’t specialise in everything on the curriculum. Andin any case, it is far from obvious that even specialisation is best achieved by specialising from the very start.

So here is an alternative proposition: that at every stage in the education process – every break point at which students are winnowed out by a change of level - departing students finish their studies with is a fully rounded understanding appropriate to that level.

Take biology. What could a child who learns biology up to – but no further than – the age of 16 be taught that would pass this test? Well, what are the relevant topics? Diet, perhaps, or drugs or reproduction or basic environmental processes perhaps? Any of these, and perhaps a few others.

And what exactly would they be taught? I don’t know, but not, I suspect, the technical details of how the body or an ecosystem works so much as the ‘functional’ connections they need to know about – what different lifestyles entail, the real nature of the foods and (legal and illegal) drugs around them, and so on. Only later – at the point at which such things have a greater significance to the student because they can do something about them – would the technical details be taught.

This would plainly be much more of an education. It just wouldn’t involve anything like much modern schooling. On the other hand, precisely because it isn’t abstract technical knowledge, I suspect that this sort of education would be a lot more politically sensitive. What food company is not going to lobby against straightforward teaching of the facts of modern diet – the disastrous health consequences of how industrial food is made, transported around the world, and so on? What pharmaceutical company is not going to lobby against straightforward teaching of the facts of prescription drugs and the modern drug industry?

But that, of course, is very largely the point. A population that was no longer ignorant – not even its least educated member – about the world it inhabits would be better equipped to deal with the modern world – including changing it to suit their needs. Indeed, if I were looking for a recipe for eliminating political apathy, this would certainly be high on my list of innovations.

Likewise for every other topic. Personally I would replace the current obsession history teachers have with the Tudors and the origins of the First World War with a general course on world history – not the Euro-centric nonsense that condemns the vast majority of humanity to the void and ignores the real history of the modern world – and a more detailed political history of post-War Britain. And then between 16 and 18 I would teach the same things again, by with a greater focus on the mechanisms of globalisation and how Britain got to be like it is.

And so on. Even English would be taught quite differently – by looking at the use of language around us, in advertising, in politics, in the media, and so on. Conversely, would 16-year old biology students study dialysis? No, of course not. Nor would anyone else, perhaps, except a specialist in renal medicine. It’s not hard to think of a hundred alternative curricula, sharing only the fact that they lead to education rather than exam certificates.

Dear Lloyd

2010-05-18T10:33:00.003+01:00

Mr L. Blankfein
CEO Suite
Goldman Sachs
Tuesday, 18 May 2010

Dear Lloyd

How are you? Well, I hope. I appreciate that you must be busy these days, what with the SEC investigating you and so on, but I thought I’d write anyway – perhaps, like me, you find that a little personal news can brighten up a dull day.

It’s a lovely day here in England. Spring is well on the way, and I’m spending a lot more time in the garden these days – I can’t say I envy you all the time you must be spending in dreary board rooms!

Not that it’s been exactly a bed of roses here lately. In fact we’ve been having one or two domestic problems. I don’t think I’ve mentioned it before, but I had to stop working last November, and I’m still looking for a new job. As you can imagine, it’s been a strain, but I can’t say there’s anything special about us – several of our friends are in the same boat. I’m not sure it’s a boat any of us want to be in, but at least we are all in it together. Bit short of oars, though!

On the other hand, it helps me to sympathise with your own plight – what a shock it must have been, having your pay cut so savagely last year – from $42.9 million to under $10 million! I hope you aren’t having to make too many difficult choices. Anyway, I’m sure it won’t last - once people really appreciate what you and your colleagues in the financial services sector have done for us all over the last few years, hopefully you’ll get what you truly deserve.

And here at home, I’m sure everything will be OK in the end. My wife is looking a bit stressed these days but assures me that she’s not too worried. I’m not sure how worried ‘too worried’ is – at least she isn’t on pills yet! - but we’re OK for the moment. Our savings run out next month, but we’ve still got the children’s savings. One of her usual brilliant twenty-year plans was to put aside their child benefit each month since they were born, to make sure they wouldn’t start their working lives with huge debts from university. We had hoped to have enough put aside to get them all the way through, but I guess we’ll have to make other plans. It’s a pity – neither of them look like potential investment bankers (I guess we’ve brought them up wrong) so it will be many years before they’re out of debt.

Still, it can’t be helped. I’m only glad my wife had such foresight and we have something to fall back on now, even if it is only by accident. Otherwise we’d have to start thinking about selling the house. Now that can wait for a few months, thank heavens.

Of course, we count our blessings. I saw the other day that millions of your compatriots have lost their homes (all those sub-prime mortgages, I believe), and 31 million are now either out of work or ‘underemployed’ – a very ugly word, don’t you think? Unemployment is up here too, though not so sharply, I believe. You must be relieved that it didn’t hit the financial sector as hard as the rest of the country – it must be hard finding a good investment banker at the best of times.

It’s been a strain in other ways too. You won’t know our niece, but we’ve been trying to support her through school. She’s a lovely girl, and really benefits from being able to continue her education. But I’m afraid that that’s had to stop now, at least until I can get another job. I hope it isn’t too late – perhaps we can find some more cuts to see her through.

But the real pity is that we’ve had to stop pretty much all our regular charity contributions too. I hope you’ve been able to keep up your charity work – it’s the Robin Hood Foundation your work for, isn’t it? But what an irony – all the wonderful work you do for the poor of New York, and then to be accused of leading the rich in robbing the poor. How unfair is that?

Most of our contributions go to charities working in developing countries. They used to send us newsletters and reports from time to time, and it was great seeing how much good they do. They also made us more than grateful that we live in such wealthy countries. You probably recall the UN saying a while back that 100 million more people will be living on less than $2 a day because of this recession, and recently I read somewhere that the World Bank is saying that 50,000 more babies will die in Africa. (Perhaps you could ask your fellow investment bankers to make a small contribution there – I don’t know whether you are a religious man, but it’s doing God’s work, isn’t it?)

It must be especially galling to see the company you have devoted your whole life to being vilified so. If it were me, I’d be wondering what sense it makes to be an investment banker, when people just think you’re a con man. Look how vigorously Goldman Sachs staff are contributing to the recovery – so many of your best people right there at the top, advising your government and the banks and doing so much else.

Yet people are still ungrateful – for example, why would anyone give a book a hurtful title like Chasing Goldman Sachs: How the Masters of the Universe Melted Wall Street Down… And Why They'll Take Us to the Brink Again? There are even people who suggest that you plan to exploit the carbon trading markets to make billions – surely they can’t think you’d be so irresponsible?

By the way, we were all very impressed by the clever way your people arranged to borrow government money at 0.5% and then use it to buy government bonds that pay 3%-4% - a healthy profit for doing nothing at all! How ingenious! As that cheeky Matt Taibbi puts it, it’s ‘no different than attaching an ATM to the side of the Federal Reserve’. You must be so proud.

Well, I’m sure that’s enough from me for one day, but I’ll write again soon. Please feel free to pass my letter around to all your friends on Wall Street – we’re all thinking of them.

Best wishes

Richard

Lovelock speaks. But I wish he wouldn't

2010-03-31T14:39:00.001+01:00

A singularly unhelpful intervention from James Lovelock of Gaia fame (or notoriety). The Guardian reports –

‘I don't think we're yet evolved to the point where we're clever enough to handle a complex a situation as climate change,’ said Lovelock in his first in-depth interview since the theft of the UEA emails last November. ‘The inertia of humans is so huge that you can't really do anything meaningful.’

One of the main obstructions to meaningful action is ‘modern democracy’, he added. ‘Even the best democracies agree that when a major war approaches, democracy must be put on hold for the time being. I have a feeling that climate change may be an issue as severe as a war. It may be necessary to put democracy on hold for a while.’

Oh really. I don’t seem to recall Lovelock’s previous analysis of the larger-scale but little-understood and even less acknowledged structures of human activity – economic systems, global technologies, ideologies – that actually provide the basis for human ‘intelligence’ as it is conventionally understood. In that rather conspicuous absence, what exactly are Lovelock’s qualifications for having such a lovingly quoted opinion? The Gaia theory, which until the environment came back to the forefront of our collective consciousness, was treated by most scientists as a somewhat quaint, if not downright silly, model of planetary processes. And even now that planetary processes are under discussion, it’s still striking how seldom Lovelock’s theories make it into scientific discourse.

Of course, given that almost all other scientists are equally lacking in any convincing understanding of how human social and economic systems work, they are no more qualified than Lovelock to pronounce on either human ‘intelligence’ or the processes and systems that driven environmental change. But at least national newspapers aren’t asking them their opinions.

More that all that, it is about time we stopped treating people as authoritative just because they have the job ‘scientist’. It’s a job that is typically highly specialised, and having read a fair number of our most prominent scientists’ accounts of our present predicament, it does not strike me that their opinions about the situation as a whole are particularly scientific. No matter how brilliant the physicist or biologist, they are no better qualified than me to pronounce on economic systems, the power of ideologies, and especially not any but the most technical aspects of solutions to our problems.

Meanwhile, putting democracy 'on hold' is not only a very bad idea but precisely the opposite of what is needed. If there are any forces that will actively resist takintg the necessary steps to deal with our environmental problems it is the entrenched corporate forces of the economy and politicl system. Closing down democracy would only strengthen, indeed perpetuate their stranglehold over economic, political and so environmental policy.

EPT: An Environment Protection Tax

2010-03-31T12:33:00.001+01:00

Over the weekend I meet Nick, an accountant and consultant. He has an interesting idea about dealing with the environmental externalities markets are currently unable to capture. I would call is an ‘Environment Protection Tax’ – EPT for short – that would operate like the Value-Added Tax (VAT) already familiar in many countries.

After a really interesting conversation, this how I would summarise EPT as I now see it working:

We have some idea of the scale of the environmental externalities caused by our economic activity. We can at least assign an approximate percentage of what is required to address the resulting environmental problems and to update our industries so that the problem goes away.
A great deal of this arises from primary extraction industries – mining, oil, gas, fishing, and so on.
So, why not add an appropriate percentage to the price of primary products, to be passed on (like VAT is now) to each successive buyer in the supply chain.
Also like VAT, each payment is accounted for, netted out in the EPT return, and the surplus reclaimed at each stage…
…until the final consumer, who cannot reclaim the tax, and thus becomes the real payer.
One additional detail: that there should also be a system of tax breaks that allows anyone in the supply chain to avoid EPT if they can demonstrate that they are dealing with the externality directly. They then can reclaim the relevant portion of their EPT and convert the surplus to additional profits, more competitive prices, or anything else they chose.

The benefits of such a system are clear:

It is a very simple system that requires no incessant calculation of precise externalities.
We could reuse the exist VAT system to collect and disperse it.
The inclusion of tax breaks would actively drive environmental improvement at every point in the supply chain.
If primary production were not the best starting point for such as system, it could be readily migrated to other areas of economic activity.

Such a system would not be without its problems:

Who owns the resulting fund? At the moment it could only be collected by national governments, but experience suggests that they could not be trusted to use it for its intended purposes. Most governments are understandably allergic to hypothecating taxes to specific purposes, but surely has to be an exception. After all, if it were used to supplement general taxation, it would soon stop being used for its intended purpose, not least because for the foreseeable future at least, environmental protection is a long-term game, and elected governments don’t generally do long term thinking. International institutions such as the IMF, the WTO and the United Nations are equally suspect.
It’s potentially a bit crude and insensitive to the details of how externalities are really incurred and slightly out of touch with current environmental research. But at the moment this would be a small price compared with the ease and simplicity with which such a system can be understood, implemented and adapted as the level of externalities changes.
The indirectness of the relationship between tax and specific externalities may leave it open to subversion. As Nick himself warned me, a whole school of accountants will spring up to take advantage of any loopholes, and they become a profession that insists on being fed and expanded even though they add nothing of social value. As to what the investment bankers could make of such a system, I shudder to think.

Repo 105 - Symptoms or disease?

2010-03-30T12:58:00.006+01:00

As I asked in the previous entry about the swelling scandal surrounding Lehman's use of the so-called repo 105 accounting dodge, 'Coming to a bank near you soon? Already arrived but no one has told you? Never forget Enron and Arthur Andersen.'

So yesterday the Securities and Exchange Commission, who regulate US markets, initiated their investigation into this scandal by asking 'more than 20 financial groups' whether they used repos for the same purpose. I shall be a bit surprised if they don't use repos in general, given that repos are a perfectly respectable hedging device, but it will be interesting to see how they are used.

The SEC are not planning to get to the real bottom, though. According to the FT, their investigation will only ask 'whether companies booked repos as asset sales for accounting purposes over the past three years, and whether these deals were concentrated with certain counterparties or certain countries'.

The latter part suggests that they are looking for whether other companies or governments were parties to this dubious process, which is essential to understanding how widespread it is. But the former - the limit to three years - suggests a residual timidity about looking at real roots of the crisis - the consistent misleading of the markets and regulators over much longer periods, to build up extremely profitable but highly risky positions that cumulatively led to our collective fall. We know that Lehman's use of repo 105 went back far longer than three years; it is preposterous to believe that this only because a useful accounting tool for staving off crisis immediately before the crisis itself.

Understanding the scale and exact nature of the crisis means looking at much more than the shifting tectonic plates; it is also important to know why - and when - the decision was made to undermine the building' foundations, which made the quake so disastrous.

It will be equally interesting to see how this investigation is report by the SEC. What if it turns out that a significant number of these financial groups not only used this misleading technique in the past but are using it now? Will we hear? And exactly what will we hear. After all, what would be the repercussions of discovering that, yet again, the books are being massively cooked?

I look forward to future reports.

Repo 105 - another Enron in the pipeline?

2010-03-15T11:59:00.008Z

In the arcane terminology of the markets, a 'repo' is a transaction in which I sell you something today but guarantee to buy it back for a stated price at some stated time in future. ‘Repo’ is actually short for ‘repurchase’.

Dull, huh? Well, it may turn out to be a little more exciting than it seems. If you are near the end of the quarter and you’ve got a lot of liabilities and a lot of worthless assets and your accounts are going to look lousy, why not do a deal to repo the rubbish for billions, report these as sales (which they aren't) use the billions to pay off liabilities, and then once you have reported how healthy your books now are, borrow more money you can’t afford to buy back the rubbish you 'sold' a few days previously.

This is what Lehman's called a Repo 105. It makes your books look good, it fools the regulators and everyone is briefly happy, until the time comes when the size and riskiness of the deals is so huge no one will touch them and you fall with a resounding splash down the toilet.

This, it seems is exactly what Lehman’s did - round and round for years on end, until $700 billion of assets and liabilities was being held up by just $25 billion in capital - a ration of 28:1. Their boss, Richard Fuld, claims that he had no idea this was going on. So he is either lying or spectacularly incompetent, because a) this was the only thing keeping Lehman afloat, and b) the scale of the repos – $50 billion in the first and second quarters of 2008, for example – was so huge that even if it weren’t you’d need to be dead from the neck up not to have noticed them. And the banking regulators? This had been going on for years, and no one noticed or thought that it odd?

More importantly, there is now a growing suspicion that repos are a bit more pervasive than was previously realised – if Lehmann had been doing it for years and their accountants (Ernst & Youung) didn't care - they say they were 'comfortable with the policy for purposes of auditing financial statements' - it would make sense for any of the banks and the increasingly many other businesses and government institutions who rely on financial services to generate money have been doing the same. Coming to a bank near you soon? Already arrived but no one has told you? Never forget Enron and Arthur Andersen. As Tracy Alloway, the FT Alphaville blogger puts it, 'Think window-dressing on a massive, and possibly misleading, scale'.

The story is summarised here and its full grubbiess set out here. Well worth reading.

Human intelligence and the Birth of Reason

2010-03-12T17:12:00.001Z

One of my many unpublished manuscripts is a book-length treatment of the origins, evolution and individual development of intelligence, entitled The Birth of Reason. It treats the concept of 'intelligence' in the same way a biologist might treat 'life' – i.e., as a general term for everything human beings and other natural intelligences are and do, rather than (by analogy with for example, ‘the organism’) a narrowly cognitive process. That is, it is designed to explain the full span of intelligent activity, including not only the usual cognitive powers associated with that term but also the possibility of history, consciousness, global social and economic systems and so on. It includes a comprehensive account of the relationship between human and other natural forms of intelligence, such as primates. I have never tried to have this book published. I don’t really know why not – it is complete, the few people who have read it have spoken very well of it, and there are no other treatments of intelligence in this extremely broad sense of which I am aware. If you would like to know more about it, I have created a new website from which the full text can be accessed.

Herbert Marcuse speaks from the grave!

2010-03-02T11:57:00.001Z

Having recently quoted Huxley's Brave New World on consumerism, here's an equally compelling statement of the situation, from the German philosopher Herbert Marcuse:

Tolerance toward that which is radically evil now appears as good because it serves the cohesion of the whole on the road to affluence or more affluence. The toleration of the systematic moronization of children and adults alike by publicity and propaganda, the release of destructiveness in aggressive driving, the recruitment for and training of special forces, the impotent and benevolent tolerance toward outright deception in merchandizing, waste, and planned obsolescence are not distortions and aberrations, they are the essence of a system which fosters tolerance as a means for perpetuating the struggle for existence and suppressing the alternatives.

From Marcuse's Repressive Tolerance.

Well, for people of my generation it's an interesting quote. Marcuse was one of the intellectual stars of the Left during the Sixties, so for old times' sake...

Was it caused by fractional reserve banking? Not really.

2010-03-01T22:25:00.004Z

Almost a year ago, I wrote an entry in my parallel environmental blog entitled Why capitalism must expand - whatever the environmental consequences. Rather surprisingly, yesterday I received a comment, from Jerry Fox, an American engineer and blogger. His comment ran as follows:

Capitalism supported by fractional reserve banking and the artificial support of governmental bailouts does require constant expansion both to pay off the inherent interest and to delay the inflationary effects of the money supply. I hope that you are not trying to lump the great system of free enterprise which has helped to make America the envy of the world, being linked to a Constitutionally maintained money supply, to this travesty that has come to be called "Capitalism". Under the former, there is no need for constant expansion to support a healthy thriving economy along with proper concern for any environmental issues.

I repeat Jerry’s comment here because it is equally relevant to a point I have recently been considering. There is a striking difference between the diagnoses and remedies offered by American and non-American bloggers and other commentators, which, quite by chance, Jerry’s comments expresses very well.

Here is my reply, which is equally relevant to this blog:

Thanks for your comment, Jerry. I sympathise strongly with the view that fractional reserve banking has played a terrible role in the current crisis, and my impression from tracking a number of American blogs is that this is widely held to blame for the crisis as a whole. However, I remain sceptical of the idea that this is a distinct phenomenon from capitalism proper, for two reasons.

Firstly, fractional reserve banking has been a feature of financial capitalism ever since the first capitalist banks came into existence – far earlier than the fist Europeans arrived in the Americas, let alone anything specific to the US economy or constitution. It is simply a matter of risk management: although I don’t have enough reserves to cover all my commitments, I take a chance that all the chickens won’t come home to roost at the same time. And by and large this has proved a good and familiar bet – to the point where one of Shakespeare’s best known tragedies, The Merchant of Venice, which was first performed around 1596-1597, depends entirely on a situation in which this bet on fractional reserves fails.

And it was essentially the recurring failure of this bet that led to regulations specifying exactly how much reserves were required for various kinds of transaction. In other words, there was no pure capitalist system with non-fractional reserves, which was then polluted by the creation of non-fractional reserve banking. Rather, capitalism always involved a system of non-fractional reserve banking, which governments, sick the regular crises, eventually normalised with formal requirements for banking licenses, specified capital requirements, the 1933 Glass-Steagal Act, and so on.

As I understand it, the issue with the recent collapses was two-fold. When markets have been massively aligned (as they were, for many reasons, over the last few years), a boom that had looked fantastic turned into a bust proved that it was all just a fantasy, because everything went up and down at once. But even more importantly, the problem with many speculations (it’s hard to describe credit default swaps as investments) was that they were not required to be backed by any reserves at all. I have seen of what would have been a large enough reserve to cover most defaults and so forestall this crisis, and none of them were very different from the standard fractional reserve requirements for more conventional loans and obligations.

You can blame a number of technical features for this – the rise of ‘mark to market’ accounting, for example. In my own view, a more profound explanation lies in the process of systematic deregulation. This seems to have been a pretty universal phenomenon – certainly rife in London, where the absence of effective capital requirements made it the most popular financial centre in the world. Other centres tended to be more reserved (as it were) than London and the various US exchanges, but unfortunately they are collectively large enough to push the planet into a financial nosedive.

So fractional reserve banking played a role in the current crisis, but primarily because it did not extend to the specific types of transaction that actually brought the system down. Not much to do with the corruption of free enterprise or Constitutionally-protected monetary system.

Warren Buffett on financial CEOs

2010-03-01T12:32:00.013Z

From Buffett's characteristically frank Chairman's letter in the 2009 Berskshire Hathaway annual report (p.18):

In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control. If he’s incapable of handling that job, he should look for other employment. And if he fails at it – with the government thereupon required to step in with funds or guarantees – the financial consequences for him and his board should be severe.

It has not been shareholders who have botched the operations of some of our country’s largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascoes of the last two years. To say these owners have been “bailed-out” is to make a mockery of the term.

The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.

Pity he was so effusive about what a great manager Lloyd Blankfein is last week.

But of course the powers that be will do very little about this. They are too implicated in this mess, they have too little understanding of what has happened over the last couple of years (other than in the technical sense), and they know that if they just wait it will start to look better.

More generally, we are all implicated in this mess. As I have observed elsewhere, the financial villains and incompetents were not the real cause of the collapse. far from being the enemies of our current economic system, they and their bubble-generating, monopoly-creating strategies, methods and objectives are its apotheosis. This kind of crisis is a perfectly natural conclusion of its routine self-development over a decade or so. And that, of course, places the real solutions even further beyond our present politicians' grasp: not only do they not understand how profound the problems really are, but they are neither willing nor able to exercise the kind of political control that needed to fix the problem for good.

Wall Street looting US Social Security

2010-02-23T13:59:00.004Z

Interesting article entitled 'Wall Street Targets the Elderly: Looting Social Security'.

It's by Paul Craig Roberts, once editor of the Wall Street Journal, not to mention Assistant Secretary of the U.S. Treasury. For an ex-WSJ editor, he has a refreshingly robust attitude to the bad guys:

Hank Paulson, the Gold Sacks bankster/US Treasury Secretary, who deregulated the financial system, caused a world crisis that wrecked the prospects of foreign banks and governments, caused millions of Americans to lose retirement savings, homes, and jobs, and left taxpayers burdened with multi-trillions of dollars of new US debt, is still not in jail.

Surely there is some application of the negligence or conspiracy laws that would allow us to put Hank and one or two (thousand) of his pals in the slammer?

James Hansen and the inexorable slide toward nuclear power.

2010-02-22T20:41:00.001Z

On his Storms of My Grandchildren site, James Hansen talks about how intolerable coal-powered power stations are in any realistic future, and claims that:

in most countries, phase-out of coal emissions requires also a carbon-free source of baseload electric power that is competitive in price with coal. Until we have another way to meet 21st century energy needs while eliminating coal and carbon emissions, nuclear power appears to be the only option.

From this he infers that even nuclear power would be the lesser of these two evils, concluding that

The (“3rd generation”) nuclear technology ready to replace the aging 2nd generation reactors in the United States and other counties is inherently safer than existing nuclear power, which already has an exemplary safety record – however, it still burns less than one percent of the nuclear fuel and leaves a long-lived nuclear waste pile. Hansen recommends initiating urgent development of a fourth-generation nuclear power plant. These “fast” nuclear reactors utilize more than 99 percent of the fuel and can “burn” nuclear waste, thus solving the nuclear waste problem that concerns so many.

This doesn't seem to me to follow. Why is he so confident that these fourth-generation nuclear power plants are any less pie-in-the-sky than carbon capture? It's the first time I have heard anyone suggest that the problems of safety and spent nuclear fuel could be a thing of the past. I would very much like to hear Hansen's reasoning. Not that I would like CCS any more than him, but it doesn't make much sense to be asked to choose between two mirages.

But there's a more important assumption in Hansen's commentary. He argues that, if we are to avoid both fossil fuels and nuclear power, then we need 'a carbon-free source of baseload electric power that is competitive in price with coal'. It is certainly a most attractive option. However, my reading of the technical literature leads me to two conclusions. One, such an option will not exist for many years to come. And two, we can't afford to wait that long.

So how is it Professor Hansen can claim that the solution needs to be 'competitive in price with coal'? Given the magnitude of the potential problem - a series of disasters and creeping destruction that will dwarf any previous human experience short of, perhaps, a re-run of the global plague in the 14th century, surely this is like saying that we should have decided our strategy for the Second World War on the basis of whether it would have been as painless as peace.

Plainly this would be nonsense, and as in the case of WW2, there is little doubt what the consequences of continuing prevarication will be. Add to this the impact of ever-expanding resource depletion, ecosystems collapse and 40% more people by 2050, and waiting for another cheap energy source to come along sounds like madness. It would be nice if we were in a position to choose between cheap, friendly, familiar options, but we aren't. Meanwhile, our social, political and economic system is awash with people and interests for which an effective solution would be anathema, if not fatal.

Of course, we are not at war, and such metaphors are as likely to be misleading as helpful. But to pretend that we can reach Professor Hansen's own goals without paying a price and making preparations comparable to a war strikes me as unwarranted optimism, if not self-deception.

Al Gore, Kurt Vonnegut and the siren voices

2010-02-21T11:25:00.001Z

At the very start of his 2009 book, Our Choice, Al Gore, Nobel Prize winner and darling of so much of the environmental movement, quotes the message Kurt Vonnegut suggested we should leave behind for any passing aliens who may happen upon the wreckage of planet Earth. ‘Carved in great big letters on a Grand Canyon wall’, it would read:

We probably could have saved ourselves, but were too damned lazy to try very hard… and too damned cheap.

When you have stared at our current environmental problems for long enough and marvelled at how little we seem to be willing to do to save ourselves or our children, it is tempting to go along with Vonnegut. But both he and Gore are wrong. We are not too lazy or too cheap and the solutions on offer from Mr Gore will not solve our problems. Neither the problems we face nor the solutions that will deliver us have much to do with technology or making business and governments account for the true cost of energy, manufacturing, agriculture, transport, etc., mass individual action, or any of the other things Gore advocates. Yet it is in many ways a very good book.

The real problem is not our inability to understand or act upon our present problems. It is rather that we are already committed to another way of doing things that prevents us from taking up any of the credible solutions to our environmental problems. Perhaps it’s worth quoting Aldous Huxley again here:

In the nurseries, … the voices were adapting future demand to future industrial supply. ‘I do love flying’, they whispered, ‘I do love flying, I do love having new clothes, I do love…’

The siren voices of growth, consumption, free markets, entrepreneurship and all the rest are busily pointing us in quite the wrong direction. The resources and system needed to fix our problems are under the control of processes, systems and institutions and in the hands iof nterests that would be completely undone by actually carrying the solution.

So the political powers-that-be, who have spent the last three decades abandoning the idea that the world could be a better place only if it were a different place, would have to perpetrate a genuine revolution to get us onto the right track.

Perhaps the single most important thing is to stop thinking of the problem as primarily reflecting personal selfishness (even of investment bankers). Personal actions are certainly part of both the problem and the solution, but it will only have a peripheral effect so long as we fail to also think of both problem and solution in systemic terms. Vonnegut was writing as a novelist and entitled not to be read too literally. But those who fail to understand the nature of our economic system, and the necessities and pressures it places on individuals, institutions and other systems (e.g., the entire social and political systems) are merely standing on the beach trying to bail out the ocean while the tide is coming in faster and faster.

Remember, Odysseus was forced to listen to the Sirens only because there were no other options open to him. Likewise we have few options that will in any way improve our environmental predicament - unless we change our ship and the ocean we sail. Likewise, even our most venal bankers were only following the system. Given a different system, they might not have had the option of running the ship onto the rocks (oops, different part of the Odyssey).

Consumerism, 1932

2010-02-20T01:33:00.001Z

I re-read Aldous Huxley's Brave New World, and what do I find?

In the nurseries, … the voices were adapting future demand to future industrial supply. ‘I do love flying’, they whispered, ‘I do love flying, I do love having new clothes, I do love…’

£10 to the first person who can explain why this isn't true

2010-02-19T16:22:00.001Z

http://www.theonion.com/content/news/u_s_economy_grinds_to_halt_as

Danny Chivers - Poet Laureate for the Environment

2010-02-18T16:25:00.001Z

If you haven't already heard of him, take a listen to Danny Chivers. His poems on the environment and on business are brilliant, enthralling, funny and biting. He also knows his stuff, being (according to azclimatechange.com) a professional carbon footprinting consultant based in Oxford with two environmental Masters degrees.

For more on Danny, go to his blog, at A Daisy Through Concrete or his MySpace page. Or watch him on YouTube. And buy his new CD. We did, and it's excellent.

Get him to your children's school, to your local climate change event, to your front room. And pay him lots - we need more people like him.

Will the Volcker Rule work? No.

2010-02-18T15:23:00.007Z

When the last crisis kicked off, organisations such as Goldman Sachs were not banks, and therefore would not have able to request support from the US government had the proposed Volcker Rule been in force then. In fact they weren't able to ask for government help then either.

So how did the US Government respond to the crises at Goldman, Morgan Stanley and the rest? By making them banks, even though they plainly were not. It was a fig leaf, to bend the rules so that they would not fail.

So if, in order to avoid the Volcker Rule, these same organisations ceased to be banks, and if there were a new crises that threatened them, what would the US Government do? Going by the evidence of 2008, they would allow them to be banks again.

What possible good will the Volcker Rule have done then, other than to create an illusion of safety for the government and allowing the investment banks to engage in dangerous activities until things get too hot, at which point they will be rescued just like they were last time?

Fair value? Can free markets ever value the environment?

2010-02-18T00:33:00.001Z

A basic problem with markets that absolutely must be answered if we are to create an environmentally rational economy is that of deciding how to value things. Valuation failures were a key cause of the recent financial crisis, which stemmed at least in part from the policy of allowing companies to claim that their value was whatever the market would currently bear, including any number of imponderable items that had yet to demonstrate any real value, such as future prices, hypothetical values and debatable projections derived from complex financial models. As part of the general indifference to risk exhibited by regulators and accounting authorities during the last decade or so, this so-called ‘mark-to-market’ or ‘fair value’ approach accounting has been a part of US GAAP since the early 1990s and seems to have all but replaced any notion of intrinsic value. And as if all that were not enough, ‘fair value’ accounting was also central to the Enron scandal.

Mark-to-market is obviously important when it came to buying and selling stocks and shares, but it goes far beyond that. The value of company assets that can be offered as collateral is also the basis for loans, derivatives and other direct and indirect funding. So when a bull market lasts for years on end and prices kept going up regardless of any material value of the companies themselves, smart operators are provided with an environment that favours both massive speculation and spectacular frauds. From the point of view of mark-to-market accounting, a bull market amounts to a universal pyramid scheme: whatever the value of an asset or liability today, we can usually assume that it will be worth more tomorrow, so we can borrow today as though we are more wealthy than we really are.

However, when the dislocations and fantasies this situation naturally engenders go too far, the market will be seized by the bears, and the rapid falls in mark-to-market valuations that follow will mean that previous loans, bonds, asset and liability prices, interest rates and pretty much every other number the markets use will start to go the wrong way for everyone – again regardless of the underlying strengths and weaknesses of individual companies. In a bear market, mark-to-market put the pyramid onto its head, and you would be stupid to lend today, as the collateral that guarantees your loans will almost certainly be worth less – maybe a lot less – tomorrow than it is today. In extremis, markets for many items disappear altogether and the financial sector ground to a halt.

The key problem this presents if markets are to be part of the solution of our environmental problems is that the scope, scale and urgency of those problems mean we cannot allow the kind of fragility and flakiness market economies have exhibited to determine how we invest in the environment. Leaving aside the question of speculators actively manipulating environment-related markets (e.g., greenhouse gas cap-and-trade, offsets, and so on – see the final section of this), we cannot accept the risk of being plunged into years of environmental inactivity or retrenchment simply because markets were unable to value these investments appropriately.

But is there any alternative as far as markets are concerned? Is there any definition of value markets can work with that will always reflect the intrinsic social value of taking action to protect the environment? Are there any accounting principles, valuation methods or other general policies, methods or tools that will ensure that environmental investments are not caught up in speculative frenzies and then dumped as unceremoniously as the global financial system was in 2008-9?

Probably not, or at least not ones that are capable of controlling markets without considerable active intervention and constraint – which is to say, undermines their very nature as markets. After all, how are markets to price things other than in money? How am I to judge a given transaction other than in terms of the profit it offers me (which means strictly in terms of money)? And once all value is reduced to money and the only goal is more money, what other valuation method is there apart from what the market says? In other words, regardless of whether valuing assets and companies in terms of their market price is sensible, it represents what market-based investors wanted to know about a stock, because it predicted what they most wanted to know about their ultimate concern, namely profitability.

In short, the markets know the price of everything and the value of nothing. As this is Oscar Wilde’s definition of a cynic, that seems appropriate enough – the attitude of markets (and perhaps business in general) to the environment is cynical at heart, for the only question they are capable of posing is, How do we make money out of this? Not exactly a responsible attitude.

Actually there is a limit to how far this is true. In a market who basic function is to direct investment in the real economy, prices will still be determined by prices, but these prices will be linked to the material consequences of making real investments - in houses, in MP3 players, in clothes, in a million other goods and services. And that of course is what the economy is for – to ensure that society works. True, the answer is still expressed indirectly, in terms of money, prices and profits, but at least the link to real, non-financial value is there.

Or so it should be, in a socially rational economy. But when the central function of markets is perverted into speculation, and the key question is not how to distribute wealth in society but how to make a quick killing by exploiting changes in price.

But is this a real problem, or merely a theoretical stick with which to beat the markets? Unfortunately it is very, very real. For example, by 2008 the average barrel of oil was being traded 27 times before it was actually delivered for use in the real economy. This certainly contributed to the otherwise inexplicable massive price spike of that year, and is hard to account for in terms of buying oil for use in the real economy. Or again, the Tabb Group consultancy has estimated that mroe than 60% of trades in the US stock markets are controlled by automated systems that are designed to take advantage of tiny price difference within miliseconds of their arising - not really an issue for investors in the real economy. More generally, it has been estimated that perhaps 85% of stock exchange activity is speculative, with only a small minority representing genuine investment.

And so on. All in all, the speculators are clearly in charge, and as a number of scandals and exposés have demonstrated, the manipulation of prices is a fundamental of stock markets.

This is perhaps the fundamental problem of using markets to manage the environment: that markets recognise only prices, and no price generated by a pure market can reflect socially rational value (including environmentally rational values) unless forced to do so – which is the very antithesis of a market price. Markets are like severely autistic children: it’s not hard to get through to them - it’s impossible. You can constrain them with regulations and rules, but once the market has taken over control of prices, it is hard to see why just this sort of bubble should not develop.

So can markets play any part in managing the environment? Perhaps in limited ways. But the tendency to break the link with real environmental goals and consequences seems to be intrinsic to any system that measures success strictly in terms of prices and profits. If it doesn’t do that, is it a market? If it does, how can we ever trust it not to undermine every strategy for managing the environment?

2010-02-17T12:26:00.001Z

Yesterday the Financial Times reported that many wealthy countries have failed to fulfil their aid pledges, given only a few years back at the G8 summit at Gleneagles (‘Wealthy countries fail to hit aid target’, FT 17/02/10).

‘The Organisation for Economic Co-operation and Development … publishes a report on Wednesday predicting that its rich member countries will collectively give a net $107bn in aid this year... But promises made in 2005 … implied a pledge of almost $130bn by this time.’

No one familiar with the sorry history of aid can be much surprised at this outcome: we practically never do do what we promise, we take back most of what we give, and people die as a result. In fact it is more surprising that we got so close to our targets, and that so many countries are likely to fulfil their individual commitments.

More interesting was the reaction of Max Lawson of campaign Oxfam, who is quoted as saying that: ‘This is a damning indictment of rich nations, who can find plenty of money to save banks but precious little to save lives’.

Obvious enough, of course. But in what sense is this really a ‘damning indictment’? Why have governments found it so easy (relatively speaking) to save the bankers and not the poor? Is it because they are so callow that their priorities are utterly wrong-headed? Quite possibly, and we should not doubt the extent to which the largesse to bankers was the product of very deliberate political manipulation (on which, see Matt Taibbi’s excellent articles here and here).

But that does not explain why the response was quite so immediate and unqualified. That takes us to the question of the relative roles played in our own societies of aid and the banks. Aid is still perceived as a matter of charity, whereas the banking system is the very core of the global economy. If we disregard the interests of the global poor and of under-developed countries, the results are likely to be seen as ‘regrettable’; but if our banking system falls, that takes the economy with it, and the economy is the system through which we produce, distribution, exchange and consume pretty much everything we need to do anything at all – from our daily bread to all that aid, of course.

Yet it is by no means obvious that this is the full answer. In particular:

Why is it that the centre of ‘the system’ lies in finance, which produces only money, and not the ‘real’ economy, which produces the goods and services needed to actually do anything for real people?

The phrase ‘the system’ implies a neutral mechanism that somehow serves us all – as does the way I described it above. But is the economy really neutral, even at that level? Or does it in fact serve on be special set of interests, even when apparently just going about its day-to-day operations?

Answer these questions and a completely different picture emerges – a picture that makes it clear not only that we will never address the problems of developing countries with any sincerity but also that that very economic system will worsen the economic and environmental plight not only of the global poor and of under-developed countries but, in quite short order, the rest of us too.

A DIY manifesto

2010-02-08T17:56:00.004Z

Less than 90 days to the General Election, and everything seems a good deal less certain. A year back, a Tory landslide seemed a foregone conclusion and Gordon was indisputably headed for backbench ignominy. How different – and how uncertain – everything seems now.

Well, not quite everything. Mulling over the goods on offer, it’s hard to feel uncertain about one thing: whoever wins, the electorate will be hard pressed to have high expectations of the winner. And in a time of war, economic crisis and unearned wealth for the few and undeserved hardship for millions, that is surely the one thing we cannot afford.

Who should we take to task for this? Our uninspired, uninspiring political masters? The army of unelected, manipulating ‘special advisers’? The abything-but objective and balanced media? No. Democracy is rule of the people, by the people, for the people, so if what We the People are getting isn’t what we want, then We the People have only ourselves to blame.

But there’s the rub. Just how do we change things? The only mechanism on offer is the ballot box, through which ‘we’ supposedly send ‘them’ a ‘signal’ telling them what we think. Only it plainly doesn’t work that way. Maybe they will get the message – and maybe not. And even if they get the signal, they are all too free to interpret it to suit themselves. And while we are limited to the ballot box, it can hardly be otherwise.

So let’s not make the mistake of trying to use the system to fix the system. No, let’s turn the tables completely. Let’s decide that, here in the age of the internet, we can tell them what we want, and decide that the job of politicians is to tell us not what we can have but only how they plan carrying out our orders.

It’s a slightly bonkers idea, of course. To start with, there are plenty of things voters would never agree about in a million years, which leaves plenty of scope for the usual manifesto verbiage. It’s also pretty hard to believe that our media would make it easy for public opinion to be untainted by corporate propaganda and sectional interests.

But that still leaves all those things that plenty of voters agree on – regardless of what the lobbyists persuade politicians to think – but which stay off the political agenda for years and decades together because our political parties can’t – or won’t - fit them in?

So what do voters actually want? I’ve no idea, and it would defeat the whole point to try to decide for them. On the other hand, if anyone would like to set up the website, database and voting system, here is my personal Top 10 (oh, all right, 11) for starters:

Politics

Government ministers and senior civil servants should be forbidden to personally use private health or education. Yes, I know, quite a few ministers sincerely believe in the right to go private, but it’s the public system we pay them to run, and I can’t help feeling that they’d be a little less inclined to treat public services as political footballs if, as their business pals like to say, they had a little more skin in the game. Politicians need to know that, when they cut health budgets, this means them.
The children of all MPs who vote for war are immediately conscripted to the front line. And if, in this age of political babes-in-arms, the MPs themselves if they are 45 or under, off they go too. If a cause is worth having someone else’s kids die for, sacrifice closer to home is surely warranted - and required.
Replace the voting system with one that tells our representatives what we think of them –scores for each candidate – positive or negative - and if the ‘winner’ is the one we think least badly of, so be it. And instant recall if we just don’t think they’re up to it. Enough of ‘respect’ for the ‘authority’ of Parliament: MPs are our employees, and should expect to be fired if they’re not good enough.
And on the voters’ side? Mandatory voting. I haven’t voted in years (who was there to vote for?), but if I were voting for what the people really wanted, what right would I have to keep silent?

The media

Prevent any single individual or company from owning more than one television station or one national newspaper, or both a television station and a national newspaper. Enough of corporate bias and propaganda. (I’d probably extend this to state funding for Private Eye, just to make sure that the mass media also got their fair share of attention, but Ian Hislop would probably rather die than accept.)
Replace the Press Complaints Commission with a truly independent body with real teeth. (And an independent Independent Police Complaints Commission too, while we’re at it.)

Business

Stop business turning schools, hospitals and society’s other key institutions into ‘business opportunities’. There’s little that annoys me more than the commercial prostitution of everything in sight, but when it comes to my children’s education and health, advertising is straightforward pornography. (Banksy has the right idea – if an advertisement is shouting in my face, I have the right of reply – including scribbling all over it if I want. They started it.)
Get serious about corporate crime. Any director of a tobacco company should be tried for manslaughter. Anyone who was still a director after the tobacco companies’ own research showed that tobacco was addictive and poisonous should be tried for murder. As for the advertising agencies, the lobbyists and all the rest who prostituted their talents to help tobacco companies sell their poison, perhaps a little tar and a few feathers? (Could be worse – what I really meant to write there was ‘public stoning’.)
Place much firmer controls on business influence over politics. Business people are people but businesses are not, and are entitled to precisely zero representation in our political system. Put an end to lobbying of political bodies, corporate funding of political parties and all the rest of the sleaze. And if trades unions and other corporate bodies are busy doing this too, include them in the same controls.

The environment
I could go on and on about global warming and climate change, but really, after Copenhagen, does anyone really think any government has any intention of doing what is needed, no matter what the public pressure? Puh-lease…

All the same, how about:

Real public education on climate change. That’s what governments signed up to at Kyoto, but I haven’t seen it yet. Maybe they forgot to read the small print, but meanwhile the nutters and the lobbyists are getting the upper hand.
A serious plan to cut our national carbon footprint. No, we don’t have to wait for the Americans or the Chinese – even if Beijing and Washington won’t help make things right, we can at least minimise just how bad things become.

Perhaps it can’t work – a political nirvana, in which the government of people can be replaced by the administration of things, because, to quote the famous Zapatero slogan, ‘Here the people give the orders and the government obeys’. Well, perhaps it’s all a bit too un-British. But surely we can give them a few polite hints?

How do we pay for micro-generation?

2010-02-01T17:56:00.001Z

I just wrote a letter to The Guardian. It said:

With the government's new electricity feed-in schemes, surely mortgage lenders could now realistically finance the installation of a nation-wide micro-generation capacity? With a pay-back period of, say, a decade, could they not receive the income from generation until the installation is paid for (at a reasonable ROI), with ownership then reverting to the homeowner? Large financial institutions would be far better at pressing the government for better returns, the homeowner would pay nothing but gain a more valuable property, and the chances of our reaching our current renewables target would be much improved.

I hope they print it. Even more, I hope someone gives the idea some thought.

The problem isn't Peak Oil. It's just plain OIL

2010-01-29T15:56:00.001Z

It seems to be very hard for some people to 'get' what the problem with fossil fuels really is. Daniel Yergin, Mr Peak-Oil-What-Peak-Oil? in person, is apparently in Davos for the annual jamboree in which all those clever people who got us in the current mess celebrate how clever they are.

Mr Yergin thinks Peak Oil is a long way off. A lot of other people in Davos would agree, I suspect, though whether this is a matter of superior knowledge, judgement or self-interest I would not like to say.

But what does it matter how far away Peak Oil is? Assume that it is close, or has even arrived. The contradiction between falling supply and massively accelerating growth (courtesy of China, India, etc.) will create an equally massive economic crisis. But what if we assume that Peak Oil is far off, as Yergin argues. What then? We syphon billions of barrels of the stuff up the surface and burn it into CO2? Yes, that's exactly what we do.

As various people have now noted, we cannot afford to burn more than a small fraction of even the fossil fuels at our disposal now, let alone any additional future supplies - not because of its economic price but because of its environmental consequences.

So, Peak Oil is a huge problem. But so is the oil continuing to flow.

To put the matter in a nutshell, the problem is not Peak Oil. It's just plain Oil. A uniquely valuable and important commodity, but one for which we haven't even begun to really pay.

Those who cannot remember the past...

2010-01-29T15:29:00.001Z

Three decades ago, the Carter Administration tried to pass legislation to establish an energy policy for the USA. Writing in Wednesday's FT Energy Source, Philip K. Verleger - then Carter's Director of the Office of Energy Policy at the U.S. Treasury - claims that the current Obama administration hasn't a hope of getting his global warming legislation through. The reasons: arrogance, ignorance of the substantive issues, and failure to recognise the power of pork.

For Verleger the implications are clear, and in the light of recent events in Congress (and Copenhagen, because, whatever the scorn within which Europeans treat US politics, this is by no means a uniquely American problem) I find it hard to disagree. Here are Verleger's closing words:

"Many of the veterans of the Carter battle have quietly exchanged emails and
phone calls as the Obama legislation awaits its fate. The consensus opinions are
these:
None of the people putting the Obama energy policy forward understood the
problems they would face in Congress.
The bill’s supporters (”greens”) are less aware of history than we were in
the 1970s, if that is possible.
The legislation’s passage is unlikely absent an outside precipitating
event.
It will be difficult to take effective action on emissions even when every
American accepts global warming as fact. Concerns regarding economic security
are far greater than those over climate impacts 10 or 20 years in the future.
Tragically, individuals pushing such actions - the representatives of various
NGOs covered in this blog, for example - do not understand history, the concerns
of voters, or the workings of Congress.

The battle is lost."

For those of us for whom the problem of global warming is, as energy was for Carter, the Moral Equivalent of War (MEOW!), it's a depressing insight.

Tax breaks for accelerating Peak Oil

2010-01-29T15:00:00.001Z

Yesterday's Financial Times includes an article by their Energy Editor, Ed Crooks entitled 'Tax breaks to lure oil and gas sector'. It reported that tax allowances of up to £160m per field will be made for developing an area west of the Shetland Islands that probably includes more than 2 billion barrels of oil.

Tax breaks on oil wells? What sense does this make? Oil companies are some of the richest on the planet, and subsidising them to drill is doubly stupid - in a world fast approaching (passing?) Peak Oil, this is foolish short-termism, and in a world that cannot afford to burn more than a small fraction of its remaining fossil fuels before it trips us into irreversible global warming, paying them extra to make sure it happens is simply bonkers.

So why are they doing it? It's a hard region to develop, so if the UK government wants oil money to continue flowing into the economy, they have to bribe oil companies to bring it here. Hence the tax breaks.

It's a characteristic environmental/resource problem that follows from a) the mass nature of many decision-marking processes (e.g., multiple nations and companies making related decisions in parallel) and b) the absence of effective overarching (e.g., global political or regulatory) systems capable of ensuring that the whole - the net impact of a mass of individually intelligible decisions - does not undermine the interests of us all.

And in this case, that is exactly what is happening: a hundred countries trying to attract investment for the sake of the employment, the tax revenues and the boost to GDP are collectively abandoning the responsibility for handing over a sustainable resource base to future generations and accelerating global warming. A thousand companies, all hungry for investment and struggling to maximise their returns, ravish the planet and resist even the most superficial controls.

But there's nothing unique about the oil industry: we subsidise a huge range of damaging and short-term practices (e.g., airline flights through tax breaks and indifference to 'externalities'). In fact governments and business have been 'managing' the economy between themselves for perhaps as long as there has been an 'economy' to manage. Monopolies, politically inspired subsidies, corruption are the normal practices of all major economies - all delivering short-term gains for state and business that destroy the long term interests of society. All that is new today is that these mechanisms are so powerful and so far of the leash that we are simultaneously creating an unprecedented threat to society's very survival and abandoning every tool we once had to manage such a problem.

The bad guys and the worse guys

2010-01-28T16:46:00.001Z

I’m looking for a new job. Yesterday evening, sitting in a local café, I shocked my wife by suggesting that I would consider working for an investment bank (in IT, not their signature skullduggery). If you have been reading this blog for any length of time, you may will be as astonished as she was – after all this ranting and raving about the causes of the recent crisis and recession, how could I possibly be thinking of working for such dreadful people! What a hypocrite!

Maybe. But the answer is, the investment banks are indisputably the bad guys, but where are the good guys? Haven’t you ever worked for someone who was doing some good, my wife replied? Someone who treated their staff well and was doing something socially useful (as opposed to the irredeemable social parasitism of the contemporary investment bank)?

Not really, I answered. Well, it’s not that they are all relentlessly evil, but rather that all their benevolence seems to stem from the single-minded desire to maximise profits. And if you had to be nice to people to achieve that, then you were damned well nice to them. And when it becomes more profitable to treat them like dirt, that too will come to pass.

Nor are personnel policies the only issue.

Some years ago I was working for a major testing consultancy. It collapsed as a result of the .dotcom debacle. And then the fun began. Within a few months we were hearing fascinating tales about the board being investigated by the FBI and our own ex-CEO being highly sought by some quite undesirable company that wanted a word about their relationship.
More recently, I spent some time with a major UK supermarket. Their employees told me that they were pretty good to work for – but as soon as you found out anything about how they exploited their suppliers, you’d realise that this was not out of unqualified benevolence. And so on. It’s the norm – companies are indeed becoming more benevolent, but only a) where they have to, and b) it’s the price they pay for extracting more and more high-level value from the employees – you only give potted plants to the ones who need a comfortable environment in which to work effectively.
Or going right back into ancient history, when the creative accounting practices used by Arthur Andersen at Enron came to light, I seem to recall that the reaction of many people in the City was ‘Why couldn’t you do that for us?’

So in a sense they are all the bad guys – that’s what it means to be in business. True, some are truly beyond the pale – the tobacco companies, for example, or arms dealers. But investment bankers? Given how the average company uses its ‘treasury’ operations (i.e., lending cash, buying and selling derivatives, etc.) to boost its profits, they were colluding with Morgan Stanley, Lehman and a rest. They weren’t very clever about it – most of them were caught out – but that doesn’t make them less culpable.

Conversely, the investment bankers aren't breaking the system - on the contrary, they represent its apotheosis.

So perhaps I’m making the wrong distinction – there are bad guys, and there are worse guys. The worse guys seem only to be a little smarter and little more determined than the not-quite-so-bad guys, but fundamentally? I’m not sure I can really tell the difference anymore. I’d love a job with the good guys, but I have no idea who they are.

Economy versus environment (Part 94)

2010-01-27T22:43:00.001Z

Q: What would actually happen if any significant proportion of the population suddenly took it into their head to reduce their environmental impact? A: The economy would collapse.

If you look at the recent recession, it is striking how much damage was done by relatively small changes in GDP. Of the highly developed nations, the UK (among the OECD countries, a middling performer) was so badly hit that it has experienced a loss of a little over 2.5% since the end of 2007. What? 2.5% in two years? A bit over 1% a year? What’s the big deal? Yes, I know, losing 1/80th of my income would not be a good thing in a year, but how can this be enough to do so much damage to an economy?

So what would happen if, say, 20% of the population managed to knock 50% off their environmental impact? Surely that would be an excellent start. Well, from an environmental point of view, perhaps. But if that translated into a 10% fall in consumer spending, where would that leave the economy? Consumer spending represents about 56% of German GDP, 58% of Japan’s GDP, 64% of the UK’s and 72% of the US’s (here). So a 50% fall in spending by 20% of all individuals would cut these economies by somewhere between 5.6% and 7.2% of GDP. In other words, even such a small change by a small minority would reek more economic havoc than the current recession!

So, we all get the environmental bug, and the economy folds. And with it go (as the current recession has also shown) investment in green technology and solutions of all kinds. Not everything, but far too much to support the real greening of industry. On the contrary, investors would be heading for the safe, short-term returns. And governments everywhere would be trying to compensate for the shortfall with new spending – and so shoring up the very economic activity those who had cut their impact had hoped to eliminate.

This isn’t a criticism of taking action, of course. But it is the old revision-versus-revolution problem. If you want only that the system work a bit more benignly, you need only revise the system so that it loses its more unpleasant foibles. But if the problem you are worried about is inherent in the system itself, revision isn’t the answer. The only way to fix systematic problems is to change the system in systematic ways.

That in turn is a political issue. Our politicians are of course firmly committed to growth, but that is not an irreversible condition. But two things are fundamental.

We must develop a credible explanation of this most fatal link between economy and environment, and make it as central a plank of future political discourse and policy-making as growth and consumerism have been since the 1970s.
We must define a programme for migrating our existing economy to a sustainable form. This cannot wait for 'the market' or the actions of private corporations, whose interests will never be to change themselves while there is still money to be made. Governments and local organisations must start to plan the elimination of environmentally destructive economic activity, undo the vicious circle of capital expansion that drives consumerism, obsession economic growth and the disregard of the poor and weak.

A momentary lapse into defeatism

2010-01-27T22:09:00.001Z

I have always felt very ambivalent about the 10/10 campaign. It seems so very unambitious. Most people can reduce their carbon footprint and general environmental impact by 10% by little more than scrutinising their current lifestyle and cutting out the worst excesses. Turn the thermostat down a couple of degrees too high, stop wearing flimsy clothes on cold days, fix poor insulation for a small outlay, stop buying gadgets, fashion, trinkets, food from the other side of the planet, drive more thoughtfully (and if possible stop driving altogether), turn off unused lights (and stop squandering electricity for pointless lighting in the first place), remember to turn the PC off, and so on. 10%? A piece of cake.

What is more, I have probably managed 10% with disproportionately little sacrifice. It took me seconds to reset the thermostat and turn off the radiators in areas I barely use. It took about a week to get used to rooms a couple of degrees cooler. It took not time at all to remember to turn off lights and shut doors. It will take a lot longer to step back from impulse buying and toys, but it’s not impossible – I’m not so addicted to consumerism that I have to go along with the entire glitzy, grubby farrago. Nothing too it, if you really want to make a difference. 10%? Why so little?

But that isn’t the problem I have with 10/10, or any of the many other exhortations to us (as individuals) to use less. 10% is a nice idea, but the correct answer is something like 85%. So if we achieve 10% in 2010, will we achieve another 10% in 2011, and then another in 2012? It’s not inconceivable, given a truly impressive level of sign-up (which has not, as far as I can see, happened so far).

But even 30% is long way from 50%, let alone 85%. Read George Monbiot’s Heat or David McKay’s Sustainable Energy – Without the Hot Air for a sense of just how far we really have to go. At that level, the only sensible answer is to look seriously at our core social, political and economic systems to see how they need to be changed to deliver the goods. Or rather, stop delivering them.

But especially since Copenhagen I feel like we not only still have a very long way to go but that we have taken completely the wrong road. Down this road, no matter what a few individuals do, things do not get better – no, they get only worse.

I’m not too worried by the flagging public confidence in the reality of global warming or the tiny holes knocked in the credibility of individual environmental researchers - not even the IPCC. Such upsets will be transient and have a marginal impact. Much more serious is the decision by so many national governments to do what can only be summarised as - nothing. For how else can we understand Copenhagen (which left the world’s environmental strategy even weaker than after Kyoto), or the news that the UK government plans to take its expenditure on environmental projects in the developing world from existing budgets, or Obama’s evident fear of doing anything whatsoever about his environmental promises for the foreseeable future, or the Chinese government’s unwillingness to make any significant contribution to climate change (other than to make it much worse, of course)?

But why is this so much more important than persuading individuals to make a start on their personal environmental impact? Because the number of individuals who were ever likely to take that road was never more than a small – perhaps tiny – minority whose collective actions would have no significant effect on our fate. To have a wider impact, they had to serve as a catalyst, as a demonstration to governments that the environment was a vote-winner. Only when they had learned that would governments start to take the action needed to transform not just the footprint of individual households or even a Transition Town but the collective footprint of (in the UK’s case) 60 million people or more.

And not just 60 million individuals. Unlike you and me, governments can directly transform the country’s physical infrastructure on a national scale, coordinate similar actions on an international scale, force big business to mend its ways, and all in all make the systematic changes that no assembly of individual persons can ever bring about. Even 60 millions individuals could not change the public transport system without government action, nor how we generate electricity, nor how developing countries go about achieving a civilised level of development, nor any of the rest.

But after Copenhagen? Nothing can expected from governments any more. Or at least, far too little even to deflect the crisis by more than a smidgen. Even worse, not only have they decided against going beyond Kyoto but they have plainly decided that the only solution to the world’s economic woes is to restore the economic system that got us into our current mess – economic and environmental alike. The only adjustments they plan to make are trivial, serving only to make the economic system a little less dangerous in narrowly economic terms, without any thought for the environmental consequences of a capitalist ‘business as usual’.

In such a situation, what is the point of an individual making a personal commitment to reducing their environmental impact? Does it make sense for individuals to take action off their own bat if the great majority are not only not doing practically nothing (a situation I can live with for a decade or two) but major organisations (political and economic) are never going to be moved in an environmental direction, and have in fact decided to head straight back down the road we all know leads only to global warming, ecosystems collapse and resource wars? What can we claim that individual environmental self-control can achieve after that – that we will succeed in putting off the evil day by 10 minutes?

So even if I do manage a 10% - or 25% or 100% - reduction, exactly what have I accomplished? On a personal level, perhaps it is still a lot. At the very least, if I can get my footprint down to a sustainable level (not a very meaningful proposition while I remain a member of such a destructive society), I can say that at least it wasn’t me, guv. But on a higher level? What have ‘we’ accomplished? In the absence of a broader, systematic impact on the whole way we (at worst) conceive of the environment and (at best) the way we manage our economy, a lot less than we might imagine.

Where does obsessive growth come from? Well, not consumerism, that's for sure

2010-01-18T18:55:00.001Z

Contemporary society is widely described as consumerist, and when politicians and pundits are asked how we can control the endless expansion of the economy, their first hand-wringing response is that what ‘the consumer’ (a group that seems to have superseded ‘the voter’ as the arbiters of political policy) want is simply ‘more and more’. So growth is the only game in town.

The environmental implication of this frozen staring into the contemporary economy is simple: nothing can be done. Nothing can be done to prevent us driving right over the CO2/ resource/ ecosystem cliff, because ‘the consumer’ is king and ‘the consumer’ would not stand for not having more stuff, more holidays abroad, more everything.

This is mythology at its most deceitful – and, given its environmental implications, most disastrous.

Look at how the economic process that links consumers to the economy really works. Somewhere out there is someone – some billionaire, some bank – with a lot of money to invest. They build/buy a factory that makes some consumer goody – iPods, perhaps, or ‘designer’ jeans’, or the latest ‘taste sensation’. The new owner invests millions, maybe billions. They’ve invested millions in creating the product, millions more in setting up production, millions more paying managers and production line workers, millions more for natural resources and energy, millions more to create the supply chain that gets it into the shops.

The sole reason all this investment takes place is to make money – lots of money, and certainly more than the millions invested. Otherwise there is no profit. So they need people to buy their product. You and me. Hence the endless orgy of marginally differentiated goods and services, the interminable and increasingly in-your-face advertising, marketing, the lobbying, the focus groups, the viral messages.

Consumerism exists not because consumers want to buy but because companies need to sell. If they don’t invest more and more in manufacturing, services, energy, transport, and so on, there will be no returns on their capital. They go bankrupt. But if they do invest, then there must be sales. It is not consumerism that drives growth but capital’s need for a return - endlessly.

But why does this lead to growth rather than simply a ‘steady state’ economy in which we can continue to have what we have now? Or if we must expand, why can we not expand in directions that contribute to the sustainability and equity so many commentators – Nicholas Stern, Jonathan Porritt, George Monbiot, and many more - insist must be the goals of the 21st-century economy? The answer is quite simple: there are plenty of mechanisms built into the contemporary economy that enforce growth - whether or not we want it - but none of then involve doing anything for developing countries – unless, that is, they can pay as well as developed countries can.

Ironically, one of the key mechanisms for ensuring that growth will happen is the very efficiency improvements that so many pundits are relying on to reduce future growth. From society’s point of view it makes sense that, if we can produce the same goods and services by using less energy, less resources, with less damage to the atmosphere and the environment, then surely this is the way we should be going.

But from a capitalist perspective, there reverse is true. If I – just me, rather than my rivals – can use the same resources to produce more, then I will. I will not – could not – simply produce the same in a more environmentally benign way - the assumption of the pundits – because the goals of investment is to maximise profits, not minimise total costs. Given that I have already invested hugely in plant, resources, supply chains, marketing, and so on, many of my costs are already fixed, regardless of how much I actually produce. As a result, if I want to maximise my profits the only rational thing to way to exploit improved efficiency is to use the same investments still more intensively.

After all, I will still be paying fixed rent on my factory and offices, still paying the same fixed interest on my loans, and so on. The main variable costs come from the inputs (labour, materials, energy, transport, and so on) that I use to create actual goods and services. So if I want to maximise the profit I make from this enterprise, simple arithmetic dictates that I should increase the amount of stuff I make (i.e., increase my investment in resources, labour, energy, etc.), because the same fixed costs will now be spread over more units. That will minimise my unit costs, and so (other things being equal) increase my profits. Hurrah!

This logic becomes more compelling the more capitalism matures. History as a whole can be seen as humanity building and rebuilding society with more and more fixed capital – roads, education systems, hospitals, technology, and so on – so that each generation is blessed with a greater stock of means to its ends. In a rational universe this would lead to societies in which, having satisfied its ‘basic’ wants, humanity might not ever quite lose its appetite for progress, but it would at least be able to decide exactly what progress meant.

In our present position, this would surely mean the very commitment to sustainability and equity referred to above. But again, capitalism bucks the trend. As the level of fixed investment needed even to join the game grows – the size of a new car plant, the cost of R+D, and so on – the more fixed costs dominate, the more units that must be sold to cover them, and the more compelling the need to grow becomes.

There are whole countries devoted to this model. China, for example, has put overwhelming emphasis on manufacturing for export – feeding the West’s addictions before developing its own. But there is little reason to believe that even China’s authoritarian government will be able to resist the logic of capitalist investment. And no doubt the boys from Goldman Sachs – or whatever their Chinese incarnation turns out to be – will, for a handsome fee, show them how to lock the handcuffs on themselves.

So growth won’t be ending any time soon. On the contrary, there is only acceleration ahead. Our despoliation of the planet won’t be quite as rapid – those efficiency gains are real (because they are profitable) and neither public nor governments are quite helpless. But until we recognise exactly what the link between capitalism, growth and our all too unpleasant environmental fate is, there is no turning back.

Welcome to the machine.

Is Asian capitalism different?

2010-01-15T22:40:00.001Z

[A cross-posting from my Quote Unquote blog.]

Last March, an FT journalist called K. Mahbubani wrote a piece claiming - quite rightly for the moment, perhaps - that there are various distinctively Asian versions of capitalism, all of which are a good deal more conservative than the ‘western’ model. Asian societies have much higher levels of savings, since the Asian financial crisis of 1997-98 have restored a degree of government regulation, they have largely ignored the IMF’s market fantasies, and so on.

Which is very sensible indeed. But how sustainable is it? As Mahbubani notes, the high savings level is the product of centuries of economic and social uncertainty. But the same might be said of westerners, whose personal prudence in these matters was once legendary. Indeed, some economic historians have claimed that our high ‘propensity to save’ was one of the foundation stones for capitalism itself. Likewise for regulation: it is not so very long ago that no one in the West would have dreamed of deregulating our economies to anything like the extent that we have.

But things change. Once consumerism – rapidly emerging in the east as in the west – takes command, the vast marketing machines will make sure that savings are quickly eroded. There will come a time when Asian economists will recommend the deregulation of markets, and there will come a time when Asian governments will be so exposed to global economic pressures that they will be unable to resist. That’s how capitalism works – not western capitalism or Asian capitalism - just capitalism. After all, what we have in the west is not a specifically western model at all – it is simply capitalism completely let off the leash. When it is let off the leash in Asia too, they can fully expect the same tribulations.

And plainly Asian capitalism can be fooled into playing along with the western model, because for a long while they did. In 1997-8 they learned better – but to what extent did even that happen because there are at least two major global players in Asia – India and China – neither of which has really been absorbed not the global capitalist network at every level of society? They are both heading – indeed, sprinting – that way, so why should we expect them not to succumb to the 'western' model?

There is an answer. It's a combination of peak oil, global warming and the ecological devastation that is already making itself felt all across Asia. But Asian capitalism? No, I doubt very much that that can resist effectively on its own. Why should it? 'Western' capitalism didn't, even though philosophers and historians and politicians and pundits of every stripe claimed the same virtues for the west as Mahbubani does for Asia.

[1] Mahbubani, K. (2009). Lessons for the west from Asian capitalism. Financial Times, March 19 2009.

Funding clean development in developing countries

2010-01-15T22:36:00.001Z

Anyone with a sense of decency and proportion about humanity’s current environmental predicament understands and sympathises with the claim by developing countries that the developed countries should actively support developing countries’ contribution to controlling global warming by technology transfers, improved terms of trade and direct funding. Conversely, as India and China’s own governments have pointed out, the attitude of the governments of developed countries to their position is hypocritical at best and shameless at worst.

But at the same time, is it really clear exactly what would be accomplished by such support? Just as the justice of their cause is clear to anyone with half an eye, so the dubiousness of their chosen route to development is obvious to anyone with half an ear for the brilliant but discordant disharmonies of their emerging industries and agricultures. For both India and China (and most other developing countries) have certainly set themselves on a strictly capitalist road to industrialisation, and it is exactly this that undermines their claims to the sympathy and assistance of developed countries. That way lies not socially intelligent development but endless, inexorable growth of all kinds, guided not by whether it is of social value but solely by whether it is profitable – a completely different motive, and largely contradictory criterion to social responsibility.

Not that developed countries are any less culpable – after all, we invented capitalism, we made sure that most developing countries (with the notable exception of China itself) would adopt a capitalist strategy for economic development, and we have wilfully turned a blind eye the environmental (not to mention social, cultural, political and psychological) consequences of our own road to wealth. But to support the industrialisation of any country on the same basis would only be more of the same problem we already have. Indeed, capitalism’s incessant demand for growth and more growth, coupled with the lower ‘carbon efficiency’ of less developed countries’ industries, would actually make the problem disproportionately worse. So even if the environment at large could countenance the rapid doubling and trebling of the global economy, the environmental impact is likely to be much worse than that.

So what is the answer? Beats me. But it isn’t capitalist development, because that can only lock us – and in this case it really is us all – into a worse and constantly worsening problem. Nor will it solve developing countries’ developmental problems, given that they are far more likely to suffer from the resulting climate chaos, resource depletion and ecosystems damage than their more developed neighbours.

From ‘Made in China’ to ‘Owned by China’

2010-01-15T22:27:00.001Z

Between 2007 and 2008, Chinese overseas investment almost doubled to $52.2bn. In May 2009 the Chinese government announced that Chinese companies would soon find it easier to invest overseas. Just as scary is the fact is that, at the start of May 2009, the IMF reported that China held $1.8 trillion in foreign reserves - which is to say, in convertible foreign currencies, with perhaps 70% of that in US dollars.[1]

This is more than the GDP of Russia – the world’s 8th largest economy - or the total GDPs of all the 140 smallest countries put together. It is also enough to buy the 11 largest non-Chinese corporations outright, including the four largest oil companies, Wal-Mart, GE, Proctor and Gamble, Johnson and Johnson, IBM, and Microsoft. Given that the other four out of the world’s fifteen largest corporations are already Chinese, this suggests that a great deal of attention needs to be paid by anyone expecting a future capitalist global economy to respond to democratically expressed environmental concerns. It is exceedingly unlikely that either China’s own corporations or the non-Chinese companies with whom they compete will be either inclined or in a position to address popular environmental concerns – or needs - in the coming decades.

How many of the world’s hundred to so dominant corporations and conglomerates will end up in with owners from non-democratic countries in the future is difficult to gauge. Probably all of them will have major shareholders from such dubious polities. For governments, resistance to foreign ownership seems to be largely cosmetic, while companies are likely to be equivocal at best. Indeed, at least one of the major banks – Barclays – preferred to raise capital from such sources (in their case a Gulf sovereign wealth fund) rather than accept support from the British government. As a Financial Times commentator put it, ‘As a bank with an increasingly global business, freedom from government meddling was essential’.[2]

One is inclined to ask, how long will such businesses be able to resist meddling from their new friends – and towards what goals will that meddling be directed? In 2009 Chinalco (a Chinese aluminium company) initiated a move to buy a sizeable stake in Rio Tinto (the world’s third-largest mining company, with largely Anglo-Australian ownership), which the Chinese government repeatedly asserted was purely a commercial investment. Yet shortly after the (ultimately unsuccessful) deal was announced, Chinalco’s president was appointed to the State Council - China’s counterpart of the Cabinet. Nor was even the commercial element of this enormous deal at all apolitical. On the contrary:

Four of the biggest state-owned Chinese banks lined up to lend the company
more than it required for its planned second investment. They charged interest
close to zero and did not set a time for Chinalco to pay its debts. Such lending
activity is possible only in China, where state-owned banks and businesses are
treated as the left and right arms of the state, working together to achieve
national long-term development objectives.[3]

Based on this highly politicised strategy, China’s total direct foreign investment has gone from almost nothing at the turn of the millennium to topping $52 billion in 2008. With only a little more expansion, over a ten year period that would equate to buying a half-share in all of the world’s ten largest companies China does not already own.

More generally, the present economic downturn has seen huge acquisitions by funds based in non-democratic countries in companies that Japan, the West and their immediate allies have previously regarded as ‘theirs’. Of course, any notion of national control over transnational corporations has increasingly strained credulity, but I suspect that ceding so much economic power to non-democratic countries will introduce huge new obstacle to those who seek to save the environment for human beings rather than for governments or business.

Of course, the conventions of capitalist economics would regard this is as quite normal. If China has the money to buy then China should be welcomed as the new owner. But capitalism is also only acceptable to most of those who live under it in the west because its enthusiasts claim that it has at least a nominal commitment to a certain style of non-political governance (and conversely a commitment to corporate non-interference in politics), and plainly this would be violated by allowing such politically committed buyers to take such a strong position.

This may seem to contradict one of the general thrusts of this blog: that what is wrong with capitalism, from an environmental perspective, is precisely its lack of political direction. But not all political directions are equal, and China’s track record hardly suggests a wholesome commitment to the interests even of its own people, let alone a sustainable global environment.

[1] http://www.imf.org/external/np/sta/ir/hkg/eng/curhkg.htm#I.
[2] Financial Times, May 7 2009.
[3] Yao (2009).

The lovely Pat Robertson

2010-01-15T12:45:00.012Z

Pat Robertson, reports today's Guardian, blames the Haiti earthquake on the people of Haiti themselves for making a pact with the devil to gain independence from France in 1804. You can see him saying so on Youtube.

From this we can infer that:

Both Pat Robertson and God are opposed to countries freeing themselves from tyranny. Apparently it takes a pact with the devil to get you free. So who did the American Revolutionaries do a deal with, Pat? And does that mean that you (and God) believe that we Brits should have our American colonies back? Or perhaps that we Brits should hand ourselves (and the USA) back to the Romans? Or ...? (Opened a bit of a can of worms here, Pat.)
Mr Robertson's God is a bit slow on the uptake. The Haitians sign a pact with the devil in 1804 and God punishes them in 2010? Oh all right, they've been ahveing two centuries of hard time, but that only makes the matter worse - not content with punishing the first Haitian revolutionaries, he punishes their children adn their children's children. I assume that Pat would welcome the imprisonment not only of criminals but also their children and their children's children, for century after century. Why do so few Christians seem to have any grasp of morality and responsibility?
President Obama would be wrong to close Guantanamo - this is exactly where vicious lunatics like Pat Robertson belong. But perhaps the base itself could be moved across the strait to Haiti itself, so that this Man of God can be more directly in touch with the suffering people of Haiti - and vice versa, perhaps with a sign around his neck explaining his interesting theological position.

Act Now - Change the Future

2010-01-05T21:53:00.001Z

How big is the current recession - really?

2010-01-04T00:57:00.001Z

I've just read Bruce Watson's article 'The Great Recession: A Hidden Depression?' in the Daily Finance. To quote its opening paragraph in full:

The story of the Great Depression is often told in pictures: while few people recognize the names "Smoot-Hawley" or "Schechter Poultry," photographs of bank runs and bread lines continue to pack a punch, almost 80 years after they were first snapped. But the Great Depression's position as our absolute standard for economic disaster carries an unintended consequence: The power of its images seem to overwhelm -- and minimize -- the economic troubles of our own time. After all, if it doesn't look like a Depression, how tough could things be?

As Watson documents in some detail (for the USA), the correct answer is 'very tough indeed'. By the end of 2009, foreclosures had topped 4 million, and 14% of homeowners with mortgages were either in foreclosure or behind on payments. Much the same percentage of the population is homeless, of which about 40% are children. There seems to be little reason to think that the worst is past.

Which is odd. The news programmes I hear are constantly citing how much the stock market has risen by, and by implication, that everything is getting better. Most of the big indices have done pretty well. No news that I am aware of about the real economy, though - you know the economy that produces the goods and services and employs all those people who didn't actually cause this crash but are certainly on the sharp end now. Why the complete lack of interest?

I suspect that the answer is that they're not newsworthy. Not exciting bond traders or investment bankers. No need to worry about them.

On cap and trade

2010-01-04T00:45:00.002Z

Click on the title of this post for some interesting observations on cap and trade. It can't work unless we force the price of carbon so high that it is uneconomic to burn fossil fuels, and that will never be allowed to happen so long as everyone thinks a) economic benefit can be created while disregarding the environmental consequences, and b) this is a zero sum game in which we have to make someone else pay.

What makes an economy healthy?

2010-01-03T10:36:00.001Z

A persistent theme in economic reasoning is to fail to define what is meant by 'the economy', and in particular its conception of economic health. Here are four possible definitions of economic health, of which only the first (and until the recent boom, the second) seems to be taken at all seriously by politicians:

Monetary measures of economic activity such as GDP or profitability. This is essentially a financial view of the economy.
Then there is the definition of economic health based on the so-called real economy. This involves measuring how well we are achieving the creation of the right mix of goods and services to maintain the economic system itself - as measured by growth, profitability, government income from taxation, employment levels, international competitive position, and so on.
Then there are measures of how well the economy contributes to creating a healthy society. This would include measures of human well-being, social solidarity, and so on.
Finally (so far), there are measures of how well the economy contributes to creating a sustainable society. This takes into account society's position in the natural world.

Note that, in Definitions 3 and 4, I say that these measures 'would' be used. It's not that such measures don't exist - on the contrary, we seem to be awash with studies of human happiness these days (a great deal of it summarised in The Spirit Level, by Richard Wilkinson and Kate Pickett 2009). However, such measures have no impact on actual economic management, so they hardly count (yet).

Definitions 1 and 2 - the 'financial' and 'real' economy definitions - look very similar, in that the definition of health itself remains much the same, with only the diagnostic differing much. Yet the differences are fundamental, for when economic health is measured and managed exclusively in terms of money (GDP, profit, and so on), booms will always turn pathological. And that is exactly what we got, of course, as soon as the momentum was dominated by those with no other grasp of the economy than as a device for making money - the investment bankers, the corporations whose profits come primarily from treasury operations, and so on. And of course, our economically naive politicians followed suit - endlessly grovelling to these alleged Masters of the Universe -and so, of course, ensuring that they would indeed be the true masters of our economy.

All the same, measuring economic health in terms of the second, 'real' economy definition of economic health means limiting ourselves to another strictly economic definition. This one is taken from a previous age when the link between the economy and society was not taken for granted and even economists did no believe quite so slavishly in markets, or even profitability, as a measure of economic health. This post-War era was was killed by globalisation, though the final coup de grâce was administered by Thatcher, Reagan, the Chicago School of economics and the Washington Consensus adopted by the IMF, World Trade Organization, World Bank and many national governments.

The strength of the 'real economy' definition of economic health is that it does at least tether the economy to society. Of course, business itself was constantly bucking against it, but fortunately the post-War social consensus was that society needed to be actively managed and the economy was not the same as business. When that ceased to be true - when national economies suddenly found themselves confronted with global competition and national businesses were allowed to shift capital and operations offshore - and big business discovered that it held all the important cards, the post-War social consensus promptly collapsed. The financialisation of the economy followed all but automatically, and the rest is history.

Hence also the weakness of the second, 'real economy' definition of economic health - that it ties the economy to society but does not define it in terms of what it does for society. So although politicians and economists regularly insist on the social connection, this is seldom more than verbal reassurance. Conversely, little attention was paid to what would happen if national economies were internationalised while there was no global consensus, let alone global political apparatus, for managing an increasingly global economy. As usual, the economists (a body of intellectuals blessed with 20:20 hindsight) completely failed to predict what happened next.

So as soon as the circulation of capital and resources starts to enter new circuits, the entire political class was thrown into disarray, excepting only those for whom it was axiomatic that markets should be allowed to determine everything (Thatcher and Reagan) and those for whom capitalism had always been suspect (socialists, etc.). The immediate effects were that everything was sacrificed in the name of an extremely narrow definition of economic health (implicitly Definition 1, of course) - the privatisation and marketisation of the public sector, tax breaks and subsidies for fabulously wealthy corporations and individuals and, far from the economy serving society, coming to see society as being reduced to an appendage to the economy. Happy days indeed.

It was twenty years before the new market/Washington consensus was able to dominate the entire political spectrum (at least as far as parliamentary politics was concerned), but there was never much doubt that it would.

So the second definition of political health was always unstable. As for the third - the creation and maintenance of a healthy society - it never really got a grip on economics. At a rhetorical level, of course, it was always argued, even by the most extreme market enthusiasts, that the full marketisation of the economy would benefit us all. But that merely meant that connection was assumed - the same as definition number two. On the other hand, the actual method chosen to hand it over - handing over society's key assets to big business, deregulating markets, and so on - not only assumed that Definition 3 could be achieved by equating it with Definition 2 but all but made it inevitable that the economy itself would quickly lapse into Definition 1 - the source of our current woes.

But even if Definition 3 could have been enforced by political control over the economy - a doubtful proposition, given the lack of clear understanding by mainstream politicians and economists of how capitalism really works - it is now clear that this would not have been enough. For centuries we have paid little attention to society's impact on nature, even though it has sometimes reached the point where a civilisation has effectively committed environmental suicide.

Nor was this simply a matter of ignorance. We have had the materials for a true environmental science for as long as there has been a science of any kind. Liebig and others were already explaining how we were constantly undermining the natural basis for society in the middle of the nineteenth century. It was not hard to see or understand: you measure some basic facts, such as how much (literal) crap is being poured into the sea instead of being pumped back into the land, that told you how quickly you were depleting the soil, and that told you how long we could go on like this.In economic terms, the problem was that no strictly economic measure of well-being was going to capture society's ultimate sustainability if if did not measure the long-term, inter-generational impact of economic activity.

Basically, economic metrics look equally benignly on social 'bads' and goods, just so long as someone was paid to create them, and ignore both when no one is paid either to create them or clear them up. Nor do they generally take into account how we squander resources, not only using up what should be our children's heritage but even turning what one would have thought were inherently renewable resources such as fresh water and fertile soil and seed into non-renewable resources.

The reason we didn't pay attention to this kind of insight was simple but not obvious. Even while we were creating the science needed to understand just how unsustainable our economic system was, the economic system itself was throwing up both theoretical and practical barriers to understanding this fact. On the one hand, economic theory was claiming that a combination of market-driven efficiency and resource substitution meant that the economy would take care of all these problems automatically, so they did not need to be managed by anyone else, and society could blithely look the other way. On the other, by the time the size of this mistake was clear, we were too committed to an economy that was driven by constant growth to be able to see or admit that we were indeed in deep trouble.

So major studies of the (un)sustainability of the economy start to be published in the nineteen sixties and seventies - Only One Earth, The Limits to Growth, and so on - and here we are, four decades later, still unable to take them in. Rather, the dissonance between any realistic solution to the problems of environmental sustainability and capitalist economic viability have rendered the problem too complex, the forces aligned with the wrong answer too powerful and those charged with solving the problem have been rendered too scared, too confused and too weakly equipped to deal with it.

The Coming Shortage Of All The World's Most Important Industrial Metals

2009-12-21T10:47:00.001Z

To read André Diederen's deeply scary presentation, 'Metal minerals scarcity and the Elements of Hope' (presented at the ‘Peak’ Summit, Alcatraz, Italy, June 27, 2009 and republished by Business Insider), click on the title of this post.

In essence: all the major metals on which western economies rely will peak within the next few decades. And then... To quote verbatim the conclusion:

Less affordable mass electronic products
Forget large-scale conversion towards alternative energy sources
Forget large-scale electrification of land-based transport
Chemical compounds will become more expensive
Construction and machining will become more expensive
Metals scarcity will aggravate energy scarcity

I think 2, 3 and 6 are quite enough. But there will be no Copenhagen for resource depletion until it is far too late, because all the key resources are owned by corporations or national governments. The USA and EU are especially exposed, and especially exposed to China - an almost equally scary idea.

As for Diederen's proposed solution:

Use less or “managed austerity”
Longer product lifetime
Recycling and reuse of materials
Substitution of materials
Develop adapted new products
Stockpiles

Hard to see how any of this can be achieved under the current economic regime:

Use less or 'managed austerity' - In a production/consumption-driven capitalist economy?
Longer product lifetime - As above.
Recycling and reuse of materials - Possibly, but the maths of exponential growth means this will only put of the peak by a few years. Has no one learned from the Limits to Growth?
Substitution of materials - With what? How often can metallic materials be replaced with non-metallic materials? Sometimes...
Develop adapted new products - OK if these can be made profitable - and do not themselves involve any of the key materials. Hard to imagine.
Stockpiles - Given the above, what will there be left to stockpile?

Finally, the effect of materials shortages and the domination all this hands to undemocratic governments and global corporations will be to undermine the possibility this very solution ever being carried out.

Very few 'elements of hope', I think.

http://www.businessinsider.com/energy-and-mineral-production-on-a-permanent-downward-spiral-2009-12#economies-are-growing-exponentially-which-is-the-root-cause-of-resource-strain-1

Undertanding stocks and flows: The bathtub metaphor

2009-12-13T02:18:00.001Z

I’m currently studying for a master's degree in Business Strategy and the Environment at Birkbeck College in London University, and have been very struck by how basic concepts of environmental science are relatively poorly understood – even by our lecturers. A god example is the question of ‘stocks and flows’, which is fundamental to understanding carbon emissions. Nigel Lawson also illustrated his ignorance of this relationship in his recent sceptical tract, so here is a useful metaphor. I did not invent it (in fact it’s a basic model for all sorts of ‘stock and flow’ processes), but here goes.

Imagine that you are lying in the bath. You are up to your nose in water and more is still pouring in through the taps. But don’t worry – your nose is level with the overflow pipe, and as much water is flowing out again as the taps are letting in. But only just – the overflow can handle what is coming in right now but no more. So you are, for the moment, perfectly safe.

But what if the taps are opened just a little more? Leaving aside the very little room for manoeuvre further ‘adaptation’ of your bathtub ‘environment’ allows you, the fact is, an increase in inflow will not be met by an increase in outflow. No matter how small the increase is, you are now in great danger, to the point where you must eventually drown.

Notice that this result does not depend on how much extra water flows in – even the smallest increment will get you in the end. It does not matter how much water was in the bath already or how large or small the maximum inflow and outflow are. As soon as the former starts to exceed the latter, by no matter how little, you will drown.

Likewise for humanity’s collective carbon emissions. Regardless of how much more carbon is emitted from other sources, if the environment is adapted to reabsorb only pre-industrial levels of emissions, then adding more will quickly (in nature’s geological timescale) start to swamp the system. The sizes of both nature's emissions and our own are irrelevant: even if the rest of nature emitted a hundred times as much carbon as humanity as a whole, the natural environment would still be drowning in carbon as soon as we started to increase the flow beyond what nature's carbon 'overflow pipe' is able to remove again.

The same would happen with increased natural eruptions of carbon from natural sources, of course, and we would still have to deal with the consequences. In fact there is good evidence that massive natural changes in carbon levels have profoundly affected the survival of many species. But most such natural intrusions into the natural carbon cycle are erratic and average out over time to quite small net changes.

Industry in by no means such a slight or incidental factor. Indeed, everything we know about our actions to date point to industry being the single most important factor in the emergence of quality complete new era – what Paul Crutzen has called the Anthropocene.

This era will certainly prove to be the most fatal in a quarter of a billion years for most species on this planet. And right at the centre of its effects will be the ‘bathtub’ effect of stocks and flows.

Stop Climate Change March, London, 5 December 2009

2009-12-09T00:34:00.001Z

I went on the Stop Climate Change March last Saturday. Depending on who you believe, so did somewhere between 20,000 and 60,000 other people.

Some interesting events straightaway. As we stand about in from Grosvenor Square, waiting for the off, I reminisce wistfully about the good old days of anti-Vietnam protests. Hoping he will share my nostalgia, I ask a middle-aged policeman whether we might not be allowed to sack the American Embassy. To my pleasant surprise, I am not arrested or (as far as I am aware) photographed. He replies simply, ‘Is it worth it?’ I am tempted to explain in some detail exactly what part the government and people of the United States currently play in our climate problems, but life is too short and the demonstration has started to roll down towards Piccadilly.

Almost immediately, we pass the Canadian High Commission and huge choruses of boos erupt – a mark of our enthusiasm for the Alberta tar sand projects. Yes, as George Monbiot noted the other day in The Guardian, the Canadians are finally the bad guys. Unimaginable in real life, of course, but then the Canadians no longer inhabit real life. Instead, their government has been hijacked by oil interests, while the great majority of real Canadians reject tar sands development as indignantly as they would slaughtering kittens. (I would say 'baby seals', but that would be a bit ironic with the Canadians.)

We pass by some of the most salubrious of London’s many salubrious properties, not to mention showrooms full of the fanciest of cars. I wonder what the average carbon footprint is around here. A bit more than the average American or Canadian, I suspect, and wonder exactly why popular protests do not focus on individuals and classes with environmentally obscene lifestyles as well as our cousins across the sea.

On down Piccadilly, skirting Trafalgar Square, and into Whitehall. As we pass Downing Street, I ask a policeman to ask Gordon Brown, our beloved Prime Minster, to come out, as his employers are here and want a word with him. The policeman is polite and at least a little amused, but feels unable to take my request forward. Apparently a delegation of representatives of the 100 or so organisations participating in the march got into No.10 to see Gordon, and no doubt reassuring platitudes were exchanged by all sides.

Which is a pity. Normally I have little confidence in our political class – not least because they still seem to be under the impression that climate change can be dealt with by the usual political wrangling. Nature, alas, does not negotiate, is unbeguiled by even the slickest of slogans and remains unimpressed by style and voter preferences. Yet I have the impression that climate change is just the sort of issue our beleaguered premier might be able to do something with, what with his apparently quite sincere (if recently wholly misplaced) moral enthusiasms.

Or maybe I should not be so easily fooled: for all his recent rhetoric, pretending to be a leader when you know full well no one is following you looks forthright and upstanding but risks little. It’s convenient for an unpopular politician facing the polls to be able to occupy the moral high ground (scarcely a position I expect the Tories to be able to occupy any time soon). I just hope he takes the problem seriously enough that millions will not have to move to a more literal high ground while he and his friends play games with the future of billions.

Prompted by a policeman remarking that if he weren’t on duty he’d join the march himself, I ask a couple of police officers whether they would join in if they weren’t on duty. Both reply that they’d be at home, looking after their children. I haven’t the presence of mind to suggest that that’s exactly what the march is all about, and I would like to know how they would have replied.

Do marches work? No. Or at least, no one could believe that they have much impact on their own, given how little was accomplished by at least twenty times as many people protesting about the war in Iraq. Will Blair ever be put on trial? No, of course not. But if he is, how many of the current crop would be up there with him? And what does that tell us about the likelihood that they will do anything substantial about climate change?

At 3 pm exactly we have the Great Blue Wave. Soon we are in Parliament Square. And straight past Parliament itself! Hang on, what’s the point of marching from one end of London to the other and then doing nothing? No great visible, audible protest? Why on earth not? Is it perhaps that the organisers couldn't get permission? Yes, that’s right, we need permission to express our opinion to our lords and masters about the way they are neglecting the planet. Which is, I suppose, as conclusive proof as you could want that they are indeed our lords and masters. And we go along with it, of course. Because, no doubt, we are British and middle class and jolly polite.

What do we want?
Modest and reasonable improvement!
When do we want it?
In due course!

Oh well. At least it’s quite interesting, having a ring side seat at the end of the world. I wonder what the average Roman senator felt like in about 450 AD?

Staring down the pipeline

2009-12-01T16:23:00.001Z

A telltale sign of our various governments’ inability to grasp what the environmental problem actually is is the enthusiasm with which they embrace the possibility of a business-led solution. That it is specifically business-led view of the world is indicated by the specifics. For example, it is perfectly clear that a huge campaign of insulation would be a powerful, low-tech method of substantially reducing our collective carbon footprint at minimal cost and with a huge impact on key economic problem such as issues as employment.

But although this is an economic solution, it isn’t a business solution, so it won’t do. Well, not for central government anyway. Local government (such as Kirklees) is busy insulating, distributing energy-efficient light bulbs, updating boilers and otherwise making millions of one-off improvements in the countries’ carbon consumption. But that’s the problem: from business’s point of view, one-off is only one step better than ‘no step’. What business needs is a continuing stream of buyers who will need to come back over and over again.

But pandering to a growth-obsessed economy – which is to say, a capitalist economy – is precisely how we got into this mess in the first place: by creating an economic system that not only busily generated an endless pipeline of new demand (through marketing, built-in obsolescence, consumerism, and so on) but also is unable to survive if that pipeline is ever turned off. The current finance-driven crisis is only a taste of what would happen if demand for industrial products as a whole collapsed, or even stood still. That really would be a global crisis, and no amount of Asian savings would get us out of it, not least because the manufacturing-based Asian economies would be as badly affected as everyone else.

So the business necessity for an endless pipeline explains why it is that central governments (who, unlike local government, have both the power and the obligation to drive the capitalist economy as a whole) all but ignores one-off, ‘passive’ measures such as insulation. The scale of the effort that would need to be mounted is vast, but being a single shot, is not what business needs. So business programmes and journals, having finally got over their initial queasiness about green ventures, are looking at alternative energy, nuclear power, and so on – because they mean continuing streams of high-value sales that can be safely predicted to go on mounting and mounting for decades to come!

How much more ironic could it get? The solution to an environmental problem caused by uncontrolled growth is to give the people who got us here a whole new area into which to grow! Clever us. Likewise for the obsession with toys like electric cars: what purpose do they serve from an environmental point of view, given that the electricity they will run on will reduce the electricity available for genuinely social purposes such as heat and light. It isn’t very likely at the moment that we will be able to safely generate enough clean energy for those purposes in time to deflect our environmental problems, but we are talking about electric cars anyway. The odd allusion aside, we are not talking about public transport, reducing travelling for work and the many opportunities they would offer to clean up our planet ant, but rather methods for keeping an inherently unsustainable economic system in its present image. And why? Because that is what business needs. And what society needs? What the environmental needs? Who cares.

Of course, we need alternative energy and many other things for which the only solution is mass production by industrial methods. But what we don’t need is another turn of the very wheel that got us where we are today. There will be no solution to our environmental problems until we take a good clear look at the economic system we are relying on to deliver it.

The Limits to Growth

2009-11-27T14:50:00.001Z

Just about the most convincing – and scary - book I ever read about the environment was The Limits to Growth. I would guess that everyone has heard of this book but my impression is that relatively few people have ever read it, or the two follow-up volumes. I read it when it first came out – almost four decades ago – and then again a few months back.

The book was written by a group of MIT researchers - Donella and Dennis Meadows, Jorgen Randers and William Behrens – and published in 1972 by the Club of Rome. The timing is interesting, as the first edition of The Limits to Growth is roughly contemporary with a number of other foundation texts in the overall environmental movement. 1971 saw the publication of Paul Ehrlich’s Population Bomb, which gave the growing concern with population growth a kick start. Then in 1972 Barbara Ward and the well-known anthropologists René Dubos published Only One Earth – a sort of semi-official UN report that attracted a lot of attention. And then in 1974, M. King Hubbard gave what was perhaps his most important summary of the position on oil and energy production, namely his testimony to Congress on the peaking of US oil production.

The reason I found The Limits to Growth so compelling – even more than Only One Earth or Silent Spring - was the simplicity and centrality of the question it posed and the directness of the method its authors used to answer it. Instead of endless facts and figures and yet another multi-faceted discussion of our environmental predicament, they simply asked what would happen if humanity at large continued with a small number of key trends:

World population.
Industrialization.
Pollution.
Food production.
Resource depletion.

Their method was equally straightforward – so much so that, had I felt very doubtful about its validity when I first heard about it. They started with a very generalised model of these factors - the ‘World3’ model developed by Professor Jay Forrester (also from MIT). This is described in Forrester’s World Dynamics (published the previous year), which used a ‘system dynamics’ approach. This was really a very simple model - basically a suite of functional interactions (circular, interlocking, sometimes time-delayed relationships, etc.) between what the modellers regarded as the key social and natural phenomena. World3 was based on large, long-term factors, which it defined in self-consciously simple and gross terms, without much detail. It made little attempt to explain why these interactions were as they were.

When tracking what happened when the trends they were interested in unfolded, the Limits to Growth team were not looking for trouble. They made strongly optimistic assumptions when in doubt, and took into account most of the qualifications critics usually offer about predictions of environmental doom and gloom – resource substitution, the power of innovation, and so on. On the other hand, they did assume that all these factors tend towards compound growth - which is to say, that they grow by a constant percentage, and constantly accelerate, not by a constant amount, which would lead only to regular increments of the same size. They also interact with one another, which has the effect of overshoots and disruptions in one undermining the others.

A typical outcome of the model went like this:

Population cannot grow without food.
Food production can only be increased by growth of capital.
Creating more capital requires extracting and processing more resources.
Discarded waste from resource extraction, refining and usage become pollution.
Pollution interferes with the growth of both population and food.
So the system tends towards eventual collapse of both population and food production.

It’s crucial to understand that this collapse happens not only because a specific input is damaged or reduced (which might be ameliorated by resource substitution, innovation, etc.) but because the system undermines itself. That is, the initial success of the system destroys the conditions for its continuing success. This is, I think, why it makes relatively little difference to assume that we will eventually find far more resources than are currently expected, or that we can continue to have cheap energy.

The authors made multiple runs of the model based on different assumptions. Although, like most futurologists, they avoided claiming to be making strict predictions, the consistency of the outcomes is quite frightening enough.

The book analyses quite a few scenarios (though only a fraction of those actually run, apparently). The starting point was ‘business as usual’, which led to the following outcomes:

Massive industrial growth depletes resources.
Resource prices then rise and stocks are depleted.
So more capital used for obtaining resources, leaving less for growth.
Eventually investment cannot keep up with depreciation.
With that, the industrial base collapses, taking with it the service and agricultural systems, the tax base for government, and so on.
However, population keeps rising, so the death rate is driven upward by lack of food and health services.

Radical collapse comes ‘well before the year 2100’.

As I say, the authors presented other scenarios in which:

Nuclear power is cheap and safe.
We manage to discover vastly increased resources.
Innovation and technology allow much reduced pollution.
Agricultural yields are greatly improved.

And so on. By and large, these optimistic assumptions mean that the eventual collapse is delayed by a decade or two – never more.

Here’s another typical example: the Green Revolution. This has indisputably increased food production, but at a price. The specialised seeds require a great deal of fertiliser and water. The former accelerates fossil fuel use and depletion, while the latter extracts more water than natural systems can sustain. In addition, the need for extensive capital also leads to peasant farmers being evicted from the land by their landlords, and hundreds of thousands of landless peasants end up in Mumbai, Kolkata, Sao Paulo or Mexico City, where they have no resources and no relevant skills from what they might earn a living. This increases pressure on urban systems and causes fertile land to be built over by slums.

The increase in capital requirements – tractors, petrol, fertiliser, shipping etc. – needed to operate the Green Revolution hugely depletes resources, including oil and natural gas. What is worse, the intensive treatment of the soil under a monoculture régime means that it becomes less able to support any other sort of agriculture, so the system becomes even more locked into an inherently unsustainable ‘solution’, and by this remarkable ‘advance’ we have managed to convert what one would have thought was an inherently renewable resource – fertile soil – into a non-renewable resource. Aren’t we clever? Meanwhile, the planet’s carbon footprint is made that little bit bigger, global warming is given that small extra shove upwards, and the glaciers that feed the irrigation systems that feed the crops melt that little bit faster. More jam today, but not only less jam tomorrow but also a lot less ability to manage having less jam tomorrow.

More generally, the consistent result reported by The Limits to Growth was overshoot and collapse. If the present trends in world population, industrialization, pollution, food production, and resource depletion continue, the limits to growth will be reached by 2070. The alternative scenarios only delay collapse: all end by 2100. The most probable direct outcome will be sudden, uncontrollable falls in population and industry – in other words, the ‘hundreds of millions’ of deaths predicted by the Stern Report. Only The Limits to Growth predicted it all three and a half decades earlier.

The authors conclusions about the ‘business as usual’ scenario are stark:

The unspoken assumption behind all of the model runs we have presented in this chapter is that population and capital growth should be allowed to continue until they reach some ‘natural’ limit. This assumption also appears to be a basic part of the human value system currently operational in the real world. Given that first assumption, that population and capital growth should not be deliberately limited but should be left to ‘seek their own levels’, we have not been able to find a set of policies that avoids the collapse mode of behavior.

As so often, the reactions to the original publication illuminating not only for the welcome offered to this absolutely vital book but also by the disdain expressed by those who could see no further than the status quo. It was described as ‘the most fascinating and the most disturbing book’, and it was said that ‘if this doesn't blow everybody's mind who can read without moving his lips, then the earth is kaput’. But it was also described as ‘a piece of irresponsible nonsense’ and ‘an empty and misleading work’.

The authors reviewed their findings in updates published in 1992 and 2004. These books are worth reading in their own right, as they both go far beyond updating the original methods and finding. Their original conclusions, they find, were sound. They needed some qualifications, but by comparison with the critics who greeted the original publication with such scorn and the deniers by whom they are still surrounded, they seem to have been pretty much spot-on.

Nor is this merely their own opinion. In 2008 Graham Turner published a comprehensive re-evaluation of the data, and concluded that:

The analysis shows that 30 years of historical data compares favorably with key features of a business-as-usual scenario…, which results in the collapse of the global system midway through the 21^st century.

In other words, we have done nothing significant to deflect our fate.

So are there no scenarios that lead to a happy ending? Maybe - it depends on what makes you happy. If you want interminable consumerism, then no, there aren’t. If you ever wanted a ringside seat at the end of the world, consumerism represents the front row. But if you are willing to settle for mere sufficiency, to imagine that there might actually be an ‘enough’, then yes, a somewhat reduced standard of living – something like the 1940s or 1950s, it is said – is available for all. Not bad, given the alternative, and hardly desperate poverty by any standard. It’s not as though we are any happier than we were then, though it might take a bit of getting used to. Nor need it look quite like that slightly dismal era – we start from here, not there, and a great deal can be done with a 1950s carbon footprint, give the science and technology of the 21^st century.

But there is a lot to be done – population control, the end of ‘the American Way of Life’ (which surely represents the biggest threat to the planet since the last ice age), serious support for developing countries, and so on. But it’s hardly worth thinking about – we never have done anything about these things, we show no signs of doing anything about it, and we are led by politicians, media and business people with as much grasp of our situation and as much interest in dealing with it as a bucketful of molluscs.

But not to worry – it will soon be too late to deflect the worst effects of our own actions, so we won’t have to worry about it any more. Just die in our millions. If you have ever wondered what the fall of the Roman Empire looked like, stay tuned.

Read this book.

References

Ehrlich, P. (1971). The Population Bomb. Cutchogue, N.Y.: Buccaneer Books.

Forrester, J.W. (1971) World Dynamics. Cambridge, Mass.: Wright-Allen Press.

Hubbert, M.K. (1974). Testimony to Hearing on the National Energy Conservation Policy Act of 1974, hearings before the Subcommittee on the Environment of the committee on Interior and Insular Affairs House of Representatives. June 6, 1974. Published as The Nature Of Growth by Technocracy.org.

Meadows, D.H., Meadows, D.L., Randers, J. and Behrens III, W.W. (1972). The Limits to Growth. A Report for the Club of Rome’s Project on the Predicament of Mankind. New York: Universe Books.

Meadows, D.H., Meadows, D.L., Randers, and J. (1992). Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future. Earthscan.

Meadows, D.H., Randers, J., and Meadows, D.L. (2004). The Limits to Growth: The 30-year Update. Earthscan.

Turner, G. (2008). A comparison of the Limits of Growth with thirty years of reality. CSIRO Working Paper Series 2008-2009.

Ward, B., and Dubos, R. (1972). Only One Earth. Harmondsworth: Penguin Books.

Negotiating - a numbers game the poor must lose

2009-11-11T12:31:00.001Z

John Vidal had a very good piece on the pre-Copenhagen talks in the Guardian last Friday. Reading this article reminded me of something I have often read elsewhere - that one of the real reasons why developing countries will always lose out at the climate change talks is that they haven't enough negotiators or expertise - a stupidly simple, practical reason that western governments take ruthless advantage of.

Vidal reports that the whole of Africa - 55 countries - has only 145 negotiators - to cover every area, to be present at all the meetings. 'At least 50 countries have only one or two, but the WWF… has a team of 50'. What is more, 'the G77 has no offices, no permanent staff and no budget to meet in advance of conferences'. Even the language - invariably English - is against many of them. Meanwhile, the UK, USA and Denmark have 142 participants between them, plus innumerable lawyers, interpreters and consultants on tap, all armed with huge budgets, etc. The conferences are organised and run and the agenda and processes are comprehensively dominated by white diplomats from industrial countries. It's quite impossible for developing countries, and the real decisions are made when they are not present, in closed meetings.

But this is exactly the model on which the WTO operates - effective exclusion by lack of representation and expertise, the manipulation of meetings and a constant and quite deliberate war of attrition and divide and conquer against the poor and weak.

And why are they poor and weak in the first place? Because of the last couple of centuries of colonial and post-colonial exploitation.

So well done all you clever western negotiators! Who knows how many people will die because you exercised your talent for bullying and deceit so expertly in the name of the glorious western way of life! And how soon do you plan to start blaming the poor for their plight, or congratulating yourselves on your wonderful humanity? But I forgot -you started on that one the moment you set foot in their countries and heroically took up the White Man's Burden.

Words fail me. (Well, obviously not, Richard...)

Economic myth no.1: Who are the wealth creators?

2009-10-03T16:14:00.000+01:00

One of the necessary consequences of governments failing to measure up to the current economic crisis – and as yet there is no evidence whatsoever that they plan to do anything the change or manage the system that put us where we are today – is that the old self-congratulatory myths start to resurface. Perhaps the most important of these myths is the fantasy that it is bankers and investors who are the true wealth creators.

Why does this myth matter? Because it is this myth ensures that the rich are also the powerful, through their unchallenged control the commanding heights of the economy. Because it is the myth that they are doing something unique and almost magical that we must not importune them for taxes or justifications of their prestidigitations, lest these magicians, these golden geese, fly away, casting us into helpless penury. It is also this myth that allows them to escape the sort of scrutiny to which every other strategic area of society is rightly subject, such as the social services, manufacturing, the education and health systems, the military and so on. It is this myth that allowed them to reward themselves with a disproportionate share of society’s wealth. It is even more important than the myth of the market because, above all else, the myth of the wealth creators allows those it mythologises to disempower everyone else.

But in reality is quite preposterous to identify wealth creation with a single sector of society. It is a simple tautology that wealth is created every time anyone takes a resource and turns it into something it solves a human problem (from hunger to vanity), that makes the real world materially more efficient or effective, or otherwise makes the world a better place.

A small part of this wealth is economic. But even if one focuses exclusively on goods and services that can be bought and sold, even there it would be preposterous to claim that wealth is created at the top. Every bolt screwed onto a machine, every machine operated to make a useful product, every product used to perform a valuable service, every service performed – they all add value. Nor is simply a question of the direct production of wealth. Every manager with a discretionary budget has the opportunity to create more wealth or less, depending on how they chose to use it.

One feature of modern economies that especially militates against the idea that wealth is created at the top is the progressive professionalization of roles in the economy. An employee is someone you pay so that you can tell them what to do; but a professional is someone you pay so that they will tell you what to do. This is clear enough with doctors, lawyers and so on, but it is equally true of professional staff. And their role in the organisation is specifically to know how to create wealth in their area better than their superiors. So the more the modern economic organisation is staffed by professionals, the less claim those a the top have to be exclusively the wealth creators. On the contrary, they are increasingly only coordinators of those who create the wealth.

Hence the difficulty of maintaining a hierarchical structure in strongly professional organisations – because it is increasingly difficult to maintain the myth that those a the top know best. This leaves senior executives in the contradictory position of wielding the power to hire and fire, to invest and disinvest and generally control the organisation, yet lacking any realistic claim to unique insight, awareness or pre-eminent skill. Rather like the absolute monarchs who created to modern state in the seventeenth and eighteenth centuries, the business hierarchs of modern world have created a massively powerful system – the modern capitalist business – that has less and less time or place for those who were its progenitors.

So what is it that distinguishes the bankers and the financial sector in general? In these terms, not very much. To the extent that they are merely managing budgets, nothing at all. The leverage and reach they exercise may seem vast, but to claim that this means that they create more wealth than others makes no more sense than saying that only the top person in a human pyramid gives it height. It’s rather like a previous era when it was salespeople who were idolised rather than the analysts, the superstar executives, the ‘quants’ and other financial monsters: they too were disproportionately rewarded for selling things other people actually made. Of course, an exceptional individual can make an exceptional difference, but that is true of wealth creation at every level. And it is not as though the evidence actually support the claim that bankers, let alone the financial sector as a whole, actually do create disproportionate wealth.

So what have they been doing for the last couple of decades that explains their fabulous rewards? Haven’t our economies grown exceptionally quickly? Isn’t that to the credit of the financial sector? In the illusory terms of global figures and monetary values, yes to both. But did anyone but themselves enjoy the wealth? No. When in 2008 the banks finally realised how unsure their financial footing was and started to pull the rug from under one another, it turned out that most of the monetary increase in wealth was an illusion. The bubbles had inflated the money but not increased the material wealth society enjoyed. In fact most people are no better off now than before the financial sector was let off the leash. The geese, it turned out, produced eggs of gilded lead, not true gold.

But even that is not the bottom of the barrel. Even if they had been creating exceptional wealth, those at the top of the tree are also the ones who decided on whose behalf wealth is created. This is not after all a completely neutral activity. You can decide how to divide up the surplus. The choice is quite simple: they can allocate the wealth to the shareholders, to the workers, to society (through taxation and true corporate social responsibility) – or to themselves. As ever, those at the top favoured their shareholders. But not as much, it turned out, as they favoured themselves. Despite the longer hours, the heightened insecurity and lower happiness, the average American is no better off than in the 1970s, and much the same is probably true in Britain too. There were no more goods and services, especially not for ordinary people – which is to say, for the vast majority of the real economic wealth creators. So even if they had created great wealth, don’t hold your breath waiting for your share. What you get is a insecurity and relentless pressure.

Finally, the bankers turned out to have produced something that is now busily reducing the total wealth in society. By dislocating the structure of ownership and credit in the economy as a whole, a great deal of its material wealth, its homes and security and comforts, has been debased from wealth to debt, as people of honest working people who thought they had the money to pay for it suddenly don’t. Through no fault of their own, millions are losing their livelihood. Among the very poorest in developing countries, tens of millions have been shoved into absolute poverty. Many will simply die.

But the mythology of wealth creation has already started to revive itself. And why not? For nothing has really changed, except that we now despise the bankers we once admired, and politicians (who have been offered a truly golden opportunity to become popular heroes without a hint of crass populism) are confirming the electorate’s worst suspicions about them.

Capitalist myth no.1: Who are the wealth creators?

2009-10-03T16:12:00.001+01:00

One of the necessary consequences of governments failing to measure up to the current economic crisis – and as yet there is no evidence whatsoever that they plan to do anything the change or manage the system that put us where we are today – is that the old self-congratulatory myths start to resurface. Perhaps the most important of these myths is the fantasy that it is bankers and investors who are the true wealth creators.

Why does this myth matter? Because it is this myth ensures that the rich are also the powerful, through their unchallenged control the commanding heights of the economy. Because it is the myth that they are doing something unique and almost magical that we must not importune them for taxes or justifications of their prestidigitations, lest these magicians, these golden geese, fly away, casting us into helpless penury. It is also this myth that allows them to carry on without the sort of scrutiny to which every other strategic area of society, such as the social services, manufacturing, the education and health systems, the military and so on, is subject. It is this myth that allowed them to reward themselves with a disproportionate share of society’s wealth. It is even more important than the myth of the market because, above all else, the myth of the wealth creators allows those it mythologises to effectively disempower everyone else.

But in reality is quite preposterous to identify wealth creation with a single sector of society. It is a simple tautology that wealth is created every time anyone takes a resource and turns it into something it solves a human problem (from hunger to vanity), that makes the real world materially more efficient or effective, or otherwise makes the world a better place.

A small part of this wealth is economic. But even if one focuses exclusively on goods and services that can be bought and sold, even there it would be preposterous to claim that wealth is created at the top. Every bolt screwed onto a machine, every machine operated to make a useful product, every product used to perform a valuable service, every service performed – they all add value. Nor is simply a question of the direct production of wealth. Every manager with a discretionary budget has the opportunity to create more wealth or less, depending on how they chose to use it.

One feature of modern economies that especially militates against the idea that wealth is created at the top is the progressive professionalization of roles in the economy. An employee is someone you pay to do as you tell them; but a professional is someone you pay to tell you what to do. This is clear enough with doctors, lawyers and so on, but it is equally true of professional staff. And their role in the organisation is specifically to know how to create wealth in their area better than their superiors. So the more the modern economic organisation is staffed by professionals, the less claim those at the top have to be exclusively the wealth creators. On the contrary, they are increasingly only coordinators of the people who really create the wealth.

Hence the difficulty of maintaining a hierarchical structure in strongly professional organisations – because it is increasingly difficult to maintain the myth that those a the top know best. This leaves senior executives in the contradictory position of wielding the power to hire and fire, to invest and disinvest and generally control the organisation, yet lacking any realistic claim to unique insight, awareness or pre-eminent skill. Rather like the absolute monarchs who created to modern state in the seventeenth and eighteenth centuries, the business hierarchs of modern world have created a massively powerful system – the modern capitalist business – that has less and less time or place for those who were its progenitors.

So what is it that distinguishes the bankers and the financial sector in general? In these terms, not very much. To the extent that they are merely managing budgets, nothing at all. The leverage and reach they exercise may seem vast, but to claim that this means that they create more wealth than others makes no more sense than saying that only the top person in a human pyramid gives it height. It’s rather like a previous era when it was salespeople who were idolised rather than the analysts, the superstar executives, the ‘quants’ and other financial monsters: they too were disproportionately rewarded for selling things other people actually made. Of course, an exceptional individual can make an exceptional difference, but that is true of wealth creation at every level. And it is not as though the evidence actually support the claim that bankers, let alone the financial sector as a whole, actually do create disproportionate wealth.

So what have they been doing for the last couple of decades that explains their fabulous rewards? Haven’t our economies grown exceptionally quickly? Isn’t that to the credit of the financial sector? In the illusory terms of global figures and monetary values, yes to both. But did anyone but themselves enjoy the wealth? No. When in 2008 the banks finally realised how unsure their financial footing was and started to pull the rug from under one another, it turned out that most of the monetary increase in wealth was an illusion. The bubbles had inflated the money but not increased the material wealth society enjoyed. In fact most people are no better off now than before the financial sector was let off the leash. The geese, it turned out, produced eggs of gilded lead, not true gold.

But even that is not the bottom of the barrel. Even if they had been creating exceptional wealth, those at the top of the tree are also the ones who decided on whose behalf wealth is created. This is not after all a completely neutral activity. You can decide how to divide up the surplus. The choice is quite simple: they can allocate the wealth to the shareholders, to the workers, to society (through taxation and true corporate social responsibility) – or to themselves. As ever, those at the top favoured their shareholders. But not as much, it turned out, as they favoured themselves. Despite the longer hours, the heightened insecurity and lower happiness, the average American is no better off than in the 1970s, and much the same is probably true in Britain too. There were no more goods and services, especially not for ordinary people – which is to say, for the vast majority of the real economic wealth creators. So even if they had created great wealth, don’t hold your breath waiting for your share. What you get is a insecurity and relentless pressure.

Finally, the bankers turned out to have produced new, fully financialised layer to the economy that is now busily reducing the total wealth in society. By dislocating the structure of ownership and credit in the economy as a whole, a great deal of its material wealth, its homes and security and comforts, has been debased from wealth to debt, as people of honest working people who thought they had the money to pay for it suddenly don’t. Through no fault of their own, millions are losing their livelihood. Among the very poorest in developing countries, tens of millions have been shoved into absolute poverty. Many will simply die.

But the mythology of wealth creation has already started to revive itself. And why not? For nothing has really changed, except that we now despise the bankers we once admired, and politicians (who have been offered a truly golden opportunity to become popular heroes without a hint of crass populism) are confirming the electorate’s worst suspicions about them.

China's non-promise

2009-09-23T11:40:00.001+01:00

Today China promised that it will seek to reduce the 'carbon intensity' of its economy - the carbon emissions per unit of economic output - starting from 2020.

Hooray, I hear the world shout. And endless editorials have already hit the newstands, proclaiming this a great day for humanity and an important step towards a successful climate conference in Copenhagen.

But this is a complete non-promise. Any economy undergoing development will start to eventually reduce the carbon intensity of its economic activity through basic processes of technological advance and cost reduction. So China's carbon intensity would fall even if it had no environmental targets at all. All more developed countries have already done this. China has not in fact promised to anything other than what they were going to do anyway, which is pursue economic growth. Nor do they have much choice: having embraced capitalism, there is no option, especially for an industrially backward country.

Nor is it likely that this will do much towards solving the world's environmental problems. Although it obviously makes a difference, its net effect will only be positive if China's rate of economic growth (i.e., the total number of economics produced) is not so great that it completely negates the reduction in intensity per unit. But China's growth rate has hovered at the 8-10% mark for decades now, and there is no realistic chance that it will reduce its carbon intensity at anything alike this rate. Also, the reduction is only relative to 2005 - a very high baseline. So even after 2020, it is highly probable that China's carbon emissions will still be growing.

And up until 2020? Again, present growth rates - which do not seem to have been dented much by the current global recession - mean that China's economy will have more than doubled in size. Given present carbon intensity levels, that means 12 billion tons of carbon. And after 2020, it will keep on growing. Given that the estimated sustainable level for the whole planet is about 20 billion tons, what satisfaction are we to get from China's non-promise?

A very handy resource - Apocadocs

2009-09-15T17:24:00.001+01:00

Click above for some very handy stuff.

The worst threat to the environment on Earth

2009-09-15T17:01:00.001+01:00

By far the single best demonstration that business is about profit, not any sort of social or environmental responsibility, is the Alberta Tar Sands. Billed by Greenpeace and others as the largest industrial and energy project, the biggest capital investment and the worst environmental crime on earth, it really does have to be seen to be believed.

For a first-hand view, click here. Right now.

The real point? That tar sands make no environmental or social sense at all. Imagine someone replacing Florida with a slag heap - that's the new Alberta.

But for business? Lots and lots and lots of money. A no brainer, really. Say goodbye to Alberta now, children - and don't worry about the mess. No, I don't ahve any plans to clear up after me, but always remember - Daddy Business knows best.

Economic myth no.2: Trickle-down economics

2009-09-11T11:51:00.000+01:00

One of the mainstays of market economics is the idea of trickle-down – that it does not matter that the rich corner the money, because eventually they will spend it only lesser mortals, who will then benefit from it.

This is not a very convincing idea, yet it stays on the lips of conservative politicians and economists everywhere. And it’s not true, of course – not even about the money, let alone the real economic consequences. Starting with the real economy, what happens when a rich person acquires money and spends it as a private individual? They spend it on, say, a house. Eventually everyone who works on the house is paid of course – hence the trickle-down. But what happens to the real human effort and the resources that go into that house? They are the real value in the economy, and what happens to them? They remain in the hands of the owner. They enter the economy through the paid work, but promptly leave society in the form of a private dwelling that absorbs a disproportionate amount of social activity and resources. That time, effort and resource can never be used by society again.

Contrast this to what would have happened if the same amount of money had been spent on, say, new classrooms and facilities for the local school. The same effort and resources would have been expended, but this time all those who built it would still benefit from the product of their work – the school itself. This remains in circulation in society, as it were, in complete contrast to the private home. So trickle-down economics is aptly named – only a trickle of the great flood of real social value benefits society as a whole, while much the greater part remains in the hands of the wealthy in the form of the real goods and services they enjoy.

What about the money, then? Surely that has to circulate? Some of it, such as the payment for work and materials, yes, but not all. A good deal will be set aside for investment. And what is investment for, if not to buy further property that both generates further income to be used for socially exploitative purposes and places more of the real economy into private hands? Of course, the money is eventually released, but only under conditions that not only repeat the same cycle but also reinforce the control of the propertied over the rest.

Zeno’s paradoxes

2009-09-11T10:20:00.000+01:00

Zeno’s paradoxes are amongst the most venerable and to many impenetrable of all philosophical puzzles. There have been many attempts to explain Achilles and the tortoise, the arrow paradox and the so-called dichotomy paradox, often illustrated by 'proving' the impossibility of a frog ever managing to hop its way out of a pond. Apparently there were about 40 in all, and were originally created by Zeno of Elea to illustrate Parmenides’ conception of the world as logically changeless by showing that much of what we believed we witnessed in the world simply could not be happening.

This view has undergone a lot of humorous parody and satire, from Zeno’s contemporaries to Terry Pratchett’s occasional sketches of ‘Ephebian’ (i.e., Greek) philosophers deducing all sorts of wonderful things. All in all it tends to remind one of the wonderful line in Monty Python and the Holy Grail, ‘and that, my lord, is how we know that the earth is banana-shaped’.

There have been plenty of attempts to refute Zeno too, involving ideas like infinitesimals (roughly speaking Aristotle’s answer), which works quite well. For we have known since Archimedes that the sum of an infinite number of progressively smaller amounts will add up to a finite total. Or rather, it will tend towards a finite result, which is a problem, since it is not obvious that this is not actually simply a mathematical way of simply restating the original paradox, because this reasoning does not, in itself, conclude that the frog ever actually reaches the side of the pond.

Another use of the infinitesimals inherent in Zeno’s original paradoxes is to reject them. If it simply isn’t true that there is always a point lying between two other points, no matter how close together, to which the frog/ arrow/ Achilles/ whatever can move next, then it must make definite progress and eventually Achilles will be the winner. You can also reject the idea that things are anywhere definite or finite at any given point in time, but I think it’s a bit much to have to rely on relativity or the uncertainty principle to beat up classical philosophers!

I have never quite understood why these paradoxes seem to attract solutions like this. Perhaps I am missing something, but hasn’t Zeno actually defined the problem in such as way that it cannot be solved? He describes all these events in terms of them never being concluded. For example, if Achilles’ movements are defined in terms of reaching where the tortoise was last – a place from which it must have moved on – then plainly he can never overtake it in this framework. But that is only to day you can define a problem in terms of failure, which is what Zeno has done. If at each step Achilles' motion is defined as reaching only to where the tortoise last was, he cannot have reached where it is now. So the problem is actually stated in terms that permit only failure. In other words, failure is not a paradoxical result of this overall situation but a simple deduction from its definition.

There is no need to appeal to any fancy mathematics. All you have to do is to realise that this is not a paradox at all, but rather the description of an activity in negative terms that cannot be shaken off without seeming to disregard the original problem. Zeno’s paradoxes strike me as valid but uninteresting – except for what they tell us about how philosophers and mathematicians reason.

Quaking in their Gucci boots

2009-09-09T11:35:00.009+01:00

... as George Monbiot described the bankers the other day[1], writing about the British government's utterly supine response to the banking crisis and those who caused it. Apparently Brown and Darling have declined to learn the lesson Nassim Nicholas Taleb suggested last April - that 'People who were driving a school bus blindfolded (and crashed it) should never be given a new bus'. In fact it's pretty hard to identify even one of Taleb's 'ten principles for a Black Swan-proof world' [2] that has found its way into public policy.

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail.
2. No socialisation of losses and privatisation of gains.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
5. Counter-balance complexity with simplicity.
6. Do not give children sticks of dynamite, even if they come with a warning.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
8. Do not give an addict more drugs if he has withdrawal pains.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
10. Make an omelette with the broken eggs.

No, as far as I can see it, not one of these lessons has been learned. Well done, chaps. Apparently, say Brown and Darling, it is 'impractical' to change the system so that we can exercise any control over it. Which can only mean that that system is out of control, but we are not worried enough about its unintended effects to do anything about it.

But is Taleb's own prescription enough?

Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

But even if we did all this (personally I love the one about abolishing the Nobel prize for economics), would Capitalism 2.0 really be the answer? We got into the present crisis by allowing capitalism's basic rules - the structures and interests that underpin all forms of capitalism, which Taleb and other critics from within show no inclination to criticise, even in the name of Capitalism 2.0 - to play themselves out with unprecedented freedom. This particular 'black swan' was no improbable mutant but the entirely predictable (and predicted on both right and left) effect of capitalsm's most basic causes, that was only inconceivable to those of the Thatcher/Reagan generation of politicians and the idealists of economic theory for whom, no matter what the question, unbridled capitalism was the right - no, the righteous - answer.

Meanwhile, George Monbiot's own diagnosis - that no one bears more responsibility for the current mess than Gordon Brown and Alan Greenspan - essentially that this was a crisis induced by political irresponsibility and weak regulation - has some merit, but by focusing on the individuals or even on rather secondary functions of the economy rather than the structure of the economy itself - distracts attention from the real problem. The crisis was not created by poor management of our economic system; no, it was created by the very nature of that system.

So what are we looking at here? Both capitalism's intellectual critics and its would-be political masters are unable to see what got us into this, or that there is no version of capitalism that will not, eventually, pull the same trick.

Not that capitalism is an unqualified disaster. Far from it - it is after all only through capitalism that the modern world, with all its fabulous wealth and freedom, took shape at all. But it must be understood that capitalism is rather like adolescence: a huge improvement on its predecessors, but not something to be hung on to for its own sake. There is life after the teens, and there is history after capitalism.

[1] 'The Great Cop-Out,' Monbiot.com, 8 September 2009.
[2] 'Ten principles for a Black Swan-proof world', FT, April 7 2009.

Market irrationality and the environment

2009-09-01T15:07:00.001+01:00

There are in fact at least five ways in which the rationality of markets can be challenged, and all of them have implications – not all negative - for the environment.

Firstly, sometimes people just aren’t rational by any standard. However, this is not all innocent folly or individual caprice. Not only are individuals open to irrational behaviour on their own account, but they can often be manipulated, stampeded and panicked into actions that are, from their own point of view, profoundly irrational, but that are very much in the economic interests of others.

This possibility is routinely exploited through (and often by) the mass media, of course. In the absence of a systemic account of the ways in which individuals in the economy are behaving irrationally, it is hard to say just what that means, or what it does to conventional economic theory apart from render it more or less fuzzy. But whatever the answer is, it is unlikely to figure in conventional economic theory, as it my suggest that the power to exploit and control is fundamental to our economic system, yet decidedly not the benign (or at least neutral) thing markets are supposed to be.

Secondly, if by ‘rational’ we mean, ‘pursuing economic self-interest’, it is obvious that a great deal of human behaviour can’t be forced into this particular (indeed, peculiar) mould. That does not mean that we are irrational – only that the rationality according to which we operate is not narrowly economic. I doubt that a committed church-goer tithes a significant fraction of their income out of reasons of economic self-interest, and the idea that people contribute to charities out of a very indirect calculation that they may need that charity’s services one day is surreal, to say the least. It would be doubtful to propose that a person on the streets of Manchester or San Francisco contributes to Oxfam because they expect to need Oxfam’s support any time soon. People have values, goals, interests, relationships, and any number of other motives that affect their behaviour, all of which can be pursued rationality without ever reflecting economic rationality.

This can be extremely fortunate for the environment, because it means that people are willing to pay for environmental management even when it ‘harms’ their economic self-interest. Unfortunately there are quite a few ways in which the same ability to rise above economic self-interest is likely to harm the environment – as when a certain kind of fundamentalist is persuaded that environmental problems are signs of Last Days, or that any kind of collective action is ‘communism’.

Thirdly, when we hand over the direct management of our economic interests to others (typically investment professionals, the senior management of the firms by which we are employed, our government’s treasury department, and quite a few others), this creates a dilemma for the theory of economic rationality. Either they pursue our interests on our behalf, and not their own, in which case they are not being rational from their own perspective, or they do the reverse – in which case they aren’t being rational from our perspective.

This is the problem of ‘agency’, as economists like to call it, and it had a major impact on creating the recent global economic crisis. Investment banks hotly pursuing their own interests netted themselves billions in fees for investment advice and dubious sales, not to mention outright fraud, but added little value as far as the rest of us – including their immediate customers – were concerned.

From an environmental point of view this could prove to be a serious issue, as it is crucial that environmental problems are seen as affecting all of us equally, and, conversely, that one group cannot evade the consequences by exploiting another. Unfortunately, although this may be true in the long run, especially if the problems turn out to be still more severe than most people expect, it is unlikely that such a long-term perspective will be the rule. Indeed, we can certainly expect some groups – from privileged individuals up to corporations and national governments – to do their utmost to exploit the weaknesses of others.

Fourthly, there is the more profound kind of irrationality that follows from the fact that what is rational for an individual can be counterproductive, or even outright destructive, when replicated all across a market.

From an environmental perspective this is all too common, as can be seen from the ratchet effect of many investments. To take a very parochial example, right now the London underground train system (the Tube) is being blighted with hundreds of screens that show dynamic advertisements in place of the old posters. This raises the impact of these advertisements, but they probably also represent only the thin end of the wedge, and we can certainly expect these deeply annoying devices to become the norm. But with that, all advertisements will be restored to an equal footing, so no advantage will be gained by using electronic screens. But no one will be able to go backwards either, to old fashioned paper posters. From an environmental point of view, these necessarily lead to more material resources – electronics, energy, and so on - being invested to achieve absolutely no net material benefit (as opposed to monetary) value.

Finally, there are situations – some extremely widespread – in which the economically ‘rational’ option simply isn’t available. In any market that is dominated by large-scale capital (which is to say, any area of heavy industry, any long-term commitment, and so on), rapid movements to reflect a sudden change of circumstance are simply not options.

For example, if a lower-cost operator suddenly enters the market – as often as not taking advantage of the most recent methods, processes, technologies, etc. – they can price their goods and services below more established operators, who are still committed to the old approach. The latter may have the option of moving to a lower-cost operation too – but the long-term nature of many financial commitments may mean that the old investments still have to be paid off, and the arrival of a radically new operating model may mean that the systems and resources by which they currently operate simply cannot be sold off, because no one want them.

From an environmental perspective, this is almost invariably disastrous, as it obliges the owners of that capital to carry on using it, regardless of the environmental consequences. A power station or car plant built today must be operated for decades to come if it is to be paid for, and its proprietors will lobby for the continuation of dirty energy and transport for the same period.

And all that is leaving aside the conscious exploitation of other complexities such as 'informational asymmetry' (i.e., they're lyng to you). All in all, the case for the ‘rationality’ of markets, or for the so-called ‘efficient markets hypothesis’, is not strong. As far as the environment is concerned, it is pretty disastrously flawed.

Paying India and China to do what, exactly?

2009-08-25T10:12:00.001+01:00

Anyone with a sense of decency and proportion about humanity’s current environmental predicament understands and sympathises with the claim by developing countries that the developed countries should actively support their contribution to controlling global warming by technology transfers, improved terms of trade and direct funding. Conversely, as India and China’s own governments have pointed out, the attitude of the governments of developed countries to their position is hypocritical at best and shameless at worst.

But at the same time, is it really clear exactly what would be accomplished by such support? Just as the justice of their cause is clear to anyone with half an eye, so the doubtfulness of their chosen route to development is clear to anyone with half an ear for the brilliant but discordant disharmonies of emerging capitalism. For both India and China (and most other developing countries) have certainly set themselves on a strictly capitalist road to industrialisation, and it is exactly this that undermines their claims to the sympathy and assistance of developed countries.

Not that the latter are any less culpable – after all, we invented capitalism, we made sure that most developing countries (with the notable exception of China itself) would adopt a capitalist strategy for economic development, and we have wilfully turned a blind eye to the environmental (not to mention social, cultural, political and psychological) consequences of our own road to wealth. But to support the industrialisation of any country on the same basis would only be more of the same problem we already have. Indeed, capitalism’s incessant demand for growth and more growth, coupled with the lower ‘carbon efficiency’ of less developed countries’ industries, would actually make the problem disproportionately worse. So even if the global environment could countenance the rapid doubling and trebling of the global economy, the environmental impact is actually likely to be much worse than that.

So what is the answer? Beats me. But it isn’t capitalist development, because that can only lock us – and in this case it really is us all – into a worse problem. Nor will it solve developing countries’ developmental problems, given that they are far more likely to suffer from the resulting climate chaos, resource depletion and ecosystems damage than their more developed neighbours.

Should We Seek to Save Industrial Civilisation?

2009-08-19T10:52:00.001+01:00

Yeasterday George Monbiot's website published a debate between George and Paul Kingsnorth on the question Should We Seek to Save Industrial Civilisation?

I commented on this rather abstract discussion, and here is what I said:

I find myself bemused by this debate. On the other hand, after reading
George’s Captive State, I would have expected a more specific focus on exactly
what it is about our economic system that drives its relentless growth, and on
the other I am sure I can’t be alone in finding any dispute that lays the blame
for environmental disaster at the door or either ‘founding myths’ or ‘humanity’
a bit abstract, to say the least.

Industry does not lead to environmental collapse. Firstly, any machine or
factory or oil well or fishing fleet can be shut down or made more
environmentally friendly any time its controllers want to do so, and secondly I
see no reason to believe that those who control these things are inherently
blind to the facts of climate chaos, peak oil and all the rest. Rather, the
issues are what it is that motivates whether or not we turn down industry and
who realistically exercises enough control to do so. These are matters of
society’s political and economic structure, not abstract speculation.

As far as motivation is concerned, our economic system is driven by profit,
and practically every sector of our global economy is committed to investments
that demand a return for decades to come. So although there is no technical
reason why the factories and power stations cannot be switched off, the economic
consequences would be disastrous. So cars keep roaring off the production lines
and the oil keeps gushing not because of Judaeo-Christian foundation myths about
control over nature or because we are too weak to give up foreign holidays, but
because if stopped buying, there would be no revenues to repay the bank loans
that fund all those hotels, aircraft, oil wells, and all the rest.

The same can be said of industry as a whole – the issue is not one of
industry as such but of the economic motivation that determines how industry is
used and developed. There the answer is simple: it is run and developed for
profit, and unless the state intervenes to impose specific environmental and
social obligations, nothing else. Nor, while those who control this whole cycle
limit their perspective to profitability, can things be otherwise. But at the
same time, they could not change this perspective to something more socially and
environmentally responsible even if they wanted too without markets and
investors simply demolishing them. That is only likely to change if there is a
truly vast realignment of our economic system, such that social and
environmental sustainability became our ultimate criterion for economic success
and profitability, if it remained at all, would become a secondary accounting
issue, not the be-all and end-all of industrial civilisation.

In short, it is capitalism that is the ‘fifth horseman’ who drives the four
horsemen of our impending environmental apocalypse – global warming, ecosystems
collapse, resource depletion and (the disastrously adverse effects of)
population growth. Conversely, it is wholly implausible that the motivation for
and control over our industrial civilisation will shift away from profitability
and radical unsustainability without equally radical political
intervention.

All in all, I don’t know how far capitalism can be adapted to social and
environmental sustainability – given its inherent drive for economic growth,
either it or civilisation itself will have to give – but I am quite certain that
capitalism is a much more realistic answer than Paul and George’s rather
speculative abstractions.

Return on investments: it doesn't add up

2009-07-20T10:21:00.001+01:00

The fundamental problem with relying on markets to solve our environmental problems is extremely straightforward. No investment will be made unless market conditions – prices, profits and prospects – justify it. If there is no profit to be made – and a profit that beats the alternatives – then no investment will be made. The environmental consequences are obvious, and easily illustrated with a simple practical example.

T. Boone Pickens, the Texas oil billionaire, has been planning to spend $10-20 billion on a vast wind farm in the American Midwest. But like all business investments, this was really a gamble, in this case based on the assumptions that oil prices would stay high and subsidies would be on hand. Neither assumptions has proved correct, and the projected 25 percent return on investment he had predicted now looks highly implausible. So – few investors, and little prospect of his wind farms seeing the light of the Texas Panhandle for the foreseeable future. In other words, a planned four gigawatts of environmentally friendly electricity will not now come on stream by 2014.

Now it is essential that we invest in alternative energy and other solutions to our environmental problems absolutely as soon as possible. The vicissitudes of the market, however, which are driven by many factors apart from environmental impact, can never be relied on the deliver substantive solutions to serious problems.

Pickens’ dilemma is only one example of a very general problem of capitalist economics that will make it extremely hard to make a rapid transition to a low-carbon economy. A second, even bigger problem refers to the simple question all attempts to move to a different ‘installed base’ for any major sector such as energy generation, food production or manufacturing must answer. If we are going to move to a different technology, who will pay for the technology I already have installed? After all, most currently installed systems – coal-fired power stations, fossil-fuel powered cars, fertiliser and plastic plants, and all the rest – has been paid for by loans from banks and other investors who will still want their money back, regardless of what new systems we plan to install in future. In many cases, the financial commitments go on for decades into the future, and cannot be significantly changed without a massive dislocation to our economy.

Hence the problem with Robert F. Kennedy’s otherwise sensible suggestion that the United States could quickly cut its greenhouse gas emissions by a simple change in the way it manages its existing power generation systems. Apparently US generator capacity is managed to ensure that coal-powered stations are used in preference to gas-powered stations, but if this situation were reversed and gas-powered plant was given preference, then

Mothballing or throttling back these plants would mean huge savings to the
public and eliminate the need for more than 350m tons of coal, including all 30m
tons harvested through mountain-top removal. Their closure would reduce US
mercury emissions by 20-25 per cent, dramatically cut deadly particulate matter
and the pollutants that cause acid rain, and slash America’s CO2 from power
plants by 20 per cent – an amount greater than the entire reduction envisaged in
the first years of the pending climate change legislation at a fraction of the
cost. (Financial Times, 19/7/09)

It seems simple, and from both an environmental and an engineering point of view, perhaps it is. But from an economic perspective, the problem is obvious: who will pay for the existing capacity then? Largely unused but still indebted, these other, high-carbon power plants still need to be paid for. If the income from their electricity will be moved to other, more environmentally friendly gas generation plans, one can only ask, from where? And this is only one instance of a problem that pervades any capitalist economy: investments demand returns, and if returns are not forthcoming, then either economic activity stops or undesirable indirect methods, from lobbying to subversion, start.

Nor could we expect investors to simply accept the losses caused by a sudden technological change – and in this case, sudden means ‘in less than the several decades we need to recoup our investment on existing power stations’ – as their contribution to society’s battle with global warming. These are after all not a minor factories and power plants out on the edge of the economy; to a very large extent, these vast investments are the economy. To stop paying for them would be economically catastrophic in about the same proportion that it was environmentally beneficial. Conversely, we can scarcely turn to these same investors to ask them to pay for the new, environmentally friendly investments we need for a low-carbon environment: in the absence of continuing, reliable returns on their existing investments, where will they get the money from? We could of course subsidise them, but where are we going to get the money from? Money is after all the lifeblood of the capitalist economy, and if the owners of existing ‘investments’ find that what they really own is a vast collection of liabilities rather than assets, then making this environmentally essential switch will lead to a near-instant collapse in returns on investment, profits, employment, tax revenues, industrial capacity, credit (for everyone) and a viable economy.

Or at least, so it is while we carry on playing to capitalism’s rules.

One of nature's little jokes

2009-06-13T15:30:00.001+01:00

One of the great hopes for environmentally clean energy to reduce the impact of climate change is of course wind power. One of the places where, through as combination of geography, technology and economy, you would have thought wind power had a good chance of proving itself is the American Midwest. Where, according to a paper just published in the Journal of Geophysical Research, wind speeds are have been falling for decades. Because of climate change.

Never let it be said that Mother Nature doesn't have a sense of humour.

Source: Pryor, S.C., R.J. Barthelmie, D.T. Young, E. S. Takle, R. W. Arritt, D. Flory, W. J. Gutowski, A. Nunes, and J. Roads (2009), Wind speed trends over the contiguous USA, J. Geophys. Res., doi:10.1029/2008JD011416, in press.

The train now arriving in Fantasy Gulch...

2009-06-12T11:19:00.006+01:00

My God, it's only two days since I wondered how long it would be before market enthusiasts started trumpeting how wonderful market economies were after all, and already the Financial Times has responded with one of those I-wouldn't-believe-it-if-I-hadn't-seen-it-with-my-own-eyes pieces they are so very good at.

In today's edition, Philip Stephens has penned a piece entitled 'Crisis? What crisis? The market confounds the left'. Leaving aside the drivel he talks about 'the left' (of which, pace Mr Stephens, the Labour and Democratic parties are decidedly not members), he manages to boast that the return to profitability of various banks proves that liberal market capitalism really is the bee's knees.

Pace the doomsayers who predicted imminent Armageddon, liberal market capitalism has survived: somewhat humbled and, in the case of the financial services
industry under much tighter official supervision, but recognisably much as it was.

Indeed it is - and we will pay for it again, the next time it goes wrong. But the idea that this proves that the system is basically OK? Oh really? And that little detail of the trillion dollars we gave them? The millions of unemplyed? The wrecked businesses? The tens of millions around the world these bankers have thrust into an absolute poverty smug Mr Stephens cannot imagine? I could go on about this at enormous length (again), but if there is one thing that doesn't prove that a system is healthy, it is when it recovers from a completely self-induced disaster by being fixed by someone else.

But what can we expect from a paper that is so utterly incapable of rational thought about market economics?

Booking a trip to Fantasy Gulch

2009-06-10T10:30:00.001+01:00

Now that we have bailed them out to the tune of a trillion-odd pounds/euros/dollars, surprise surprise, the banks are returning to profit. Meanwhile, the various government institutions who are supposed to be deciding how to avoid another train wreck are stumbling around trying to grasp what really needs to be done, but are so thoroughly tarred with the same brush as the financial sector that they cannot even conceive of what is required.

And every time governments make a move, another little patronising missive comes from entirely non-credible banking body bemoaning how any new regulation on capitalisation or bonuses will only hamstring the system – as though the last couple of years were not warning enough that what ‘the system’ needs is not just hamstringing but evolution into a completely new kind of animal.

How long can it be before the banks start issuing press releases claiming that the current crisis is just a flash in the pan and that everything is really all right? I give it until the end of June at the latest.

China shakes the road

2009-06-03T10:17:00.001+01:00

China has certainly bought into consumerism in a big and perhaps irreversible way. General Motors has sold off now its Hummer division to a Chinese buyer, the Sichuan Tengzhong Heavy Industrial Machinery Company. Tengzhong’s CEO is quoted int eh New York Times as saying that:

‘The Hummer brand is synonymous with adventure, freedom and exhilaration,
and we plan to continue that heritage’.

Plainly he hasn't heard of peak oil.

One might take issue with this interpretation of such ‘a symbol of gas-guzzling, road-hogging American excess’ (as the FT's correspondents put it), but it is hard to avoid also seeing it as yet another symptom of China’s growing environmental impact still farther. And contrary to China’s stated defence of its unwillingness to impose carbon emission limits on itself, this is hardly the kind of development that a poor country needs to create a decent standard of living for its people.

Some market failures cannot be corrected

2009-05-15T10:58:00.001+01:00

Currently reading Nicholas Stern’s Blueprint for a Safer Planet, and I find – as I usually do when reading authors for whom the market is some kind of shibboleth – that he really doesn’t understand how secondary the market is to strictly political decisions – or the absence of decisions – about how we want our economy to work.

Markets are rather like games: how well they work and what their consequences are depend very much on how you set up the rules and referee individual games. Without that there is no game, so to appeal to ‘the game’ as a solution to problems with the game itself makes very little sense. In the case of markets, to imagine that ‘the market’ can solve social, environmental or even economic problems on its own is irrational, to say the least.

In the present context, we know that markets will not, in their current incarnations, solve environmental problems of the size and kind we now face. Stern himself lists a very large number of market failures and rightly insists that markets need to be regulated in very deliberate ways if they are to contribute to environmental solutions. But what he does not seem to recognise three fundamental problems with the entire model.

Firstly, many of these problems – asymmetric information, externalities, imbalances of economic power – are direct products of the market economy.
Secondly, especially in markets with relatively few major producers (which is currently most markets of any global significance), these same ‘market failures’ are quite consciously wielded by all major players in the markets to ensure that markets do not in fact operate as their apologies imagine.
Finally, markets have failure built into them in a more important and enduring sense. Whatever ‘correction’ they may be subjected to, unless that correction is perfect the market will continue blindly on, unable to envision or anticipate the next disastrous shortcoming. The only signal markets respond to, once all the regulations are in place, is price. Since price is inherently indifferent to anything but the current rules of the market, it cannot ‘see’ that there is something else wrong. So another round of intervention becomes necessary, which disrupts the markets again, and in fact will probably only be introduced because a new crisis is upon us. Which is exactly what, in a warming, degrading and ever more crowded world, we cannot afford to wait for.

In summary, ‘market failure’ is actively created by markets, is deliberately perpetuated by participants in that market, and is in fact an inescapable fact until markets can no longer operate solely in terms of prices – which is an unlikely state of affairs without very substantial political intervention.

Duck!

2009-05-15T10:18:00.005+01:00

My love affair with the Financial Times continues unabated, and this time I find that their scientific reporting is as spot-on as their analysis of business and capitalism. In today’s on-line edition, Clive Cookson’s report on the huge new European telescopes launched yesterday from Guyana (‘Huge telescopes aim to solve mysteries’) tells us that the telescopes ‘will operate in close proximity at a point in space called L2, 1.5km from earth’.

I hope they chose their orbit carefully. 1.5 km means that they will miss Ben Nevis pretty comfortably, but as Everest is rather over 5 times that height, it might be a bit of a white-knuckle ride elsewhere. The authoritative SatNews.com suggests that 1.5 million kilometres may be nearer the mark.

Of course, the FT is not a science paper, but you’d hope journalists and editors could manage to spot such a blindingly wrong number. It also raises the question of whether the current economy downturn is in fact a very reasonable reaction to the FT misreporting economic data by six orders of magnitude?

Global solutions: effective, efficient, equitable?

2009-04-15T09:54:00.001+01:00

A persistent theme in much writing about the coming decades is the need for global agreements that go a good deal further than the technical questions of environment management. Nicholas Stern (the author of the authoritative Stern Review on the economics of climate change) is typical of this line of thought:

But we have to act together, to create a global deal – this is a problem that is global in both its origins and its impacts.

That global deal must be effective, in that it cuts back emissions on the scale required; it must be efficient, in keeping costs down; and it must be equitable in relation to abilities and responsibilities, taking into account both the origins and impact of climate change. (From Stern's A Blueprint for Safer Planet, p.4)

Everyone seems to say as much, and as a statement of how we should approach the coming decades, it is impossible to contradict.

I just don’t believe it will happen. In fact I suspect that the most we can realistically expect is that the actions we take will be moderately effective. Civilisation will probably not collapse. But as for efficiency and equity, what is it in our performance to date that would lead anyone to expect either? I doubt that, whatever the deals we collectively agree too, our collective response will be anything of the kind. There are far too many countervailing forces for that to happen.

The efficiency of any future global strategy is almost certainly out of the question. As everyone admits, we are faced with global problems. But we do not have global systems in place to deal with them. On the contrary, our systems are not only fragmented but also full of conflict and antipathy between individual nations. There is also a profound conflict of interest between the owners and senior management of global corporations - the other most powerful economic players on the planet - and the rest of us.

Of course, in some profound sense we are all in this together, and completely failure will be fatal for all of us. But between here and complete failure there are many decisions to be made, each of which will benefit some and burden others. Reluctant though I am to say it of my fellow human beings, those who control the decision-making at each of these branching points will, more often than not, make sure that the decision is made in their own favour. That is to say, they will be decisions which are efficient for them. In Stern’s very appropriate words, they will be ‘keeping costs down’. This may mean keeping down the costs for humanity at large, but it will almost certainly involve minimising the costs of those who control the decisions. If this means increasing the ‘costs’ – the poverty, the danger, the hunger, the misery, the disease, the fear, the agony – of everyone else, then that will be presented as the best – or at least the least bad – alternative. Those who do not control these decisions will take the consequences. Which, in many cases, will be fatal.

As for equity, we have never taken this seriously in the past and I believe it will be a lot harder to take seriously in future. In the current (relatively) stable and affluent industrial world, only a handful of the most wealthy nations ever fulfils its public commitments on aid. We announce and re-announce help for long term development and short-term disaster, and then fail to live up to either. Given that the sums involved – currently just 0.7% of GDP – are so small that we would not miss them if we paid them in full, what can we expect of decisions about disasters that are not yet even visible. And in a future world of successive environmental crises, mass migrations, resource wars and much else, there will be far less concern for, let alone commitment to, equity. On the contrary, most of humanity will not even show up on the radar screens of the key decision-makers.

Why then should we expect equity from any future arrangements to curb climate change, resource depletion, ecosystems degradation, population growth and other environmental threats? I suspect that the real fount of future ‘equity’ is likely to be what it has always been - the economic power that countries like China, India, Brazil and Russia are already starting to wield. In a world of declining fossil fuels, the European Union will not be allowed to forget that Gazprom alone controls a sixth of the world’s natural gas reserves. The United States Treasury has long since started to eye nervously China’s enormous dollar holdings - they currently hold nearly $2 trillion in US Treasury bonds, whose manipulation could easily hole the entire western economy. These are people we will treat ‘equitably’ – because they come to the negotiating table as equals, not to mention rivals. But the hundred-plus countries that are each smaller than all of the world’s hundred largest companies? If GlaxoSmithKline, Cisco Systems and Wells Fargo are unlikely to be granted a seat at the top table, what can lesser economic entities like Estonia, Ethiopia, Cameroon, Trinidad and Tobago, Ivory Coast, Panama, El Salvador, Tanzania, Bahrain, Jordan, Iceland, Bolivia, Ghana, Paraguay, Zambia, Uganda, Botswana, Honduras and the many other yet smaller countries expect?

But not even the effectiveness of any future ‘global deal’ can be taken for granted. There are after all degrees of effectiveness. I previously suggested three levels of outcome for our current position: a setback comparable to a world war; an impact on our civilisation as a whole comparable to the fall of the Roman empire; and a threat to civilisation as such, comparable to a new ice age. As I have previously said, I do not know which we are really facing, but for all the reasons that we should expect neither efficiency nor equity, we should expect the effectiveness of our actions to be limited too - perhaps to the point where the twenty-first century goes down as the worst in history.

More precisely, we should expect rich and powerful countries that are situated in relatively cool regions to do as little as possible until they have no choice but to act in their own interests. That is after all what they have always done about global problems and what they have done so far about our current environmental threats. Even if they have the foresight to recognise that disaster in developing countries now will mean disaster for them later, they will almost certainly do only what is needed to forestall the later disaster to themselves. This will almost certainly be much less than preventing or remedying the original disaster to developing countries, no doubt accompanied by a great deal of hand-wringing, protestations of good intentions and dishonest claims to be taking ‘appropriate’ action. The real focus being on deflecting the negative consequences for the rich and powerful. Again going by our experience of aid, we will even find opportunities to benefit from the suffering of developing countries. Again, we always have. And then millions and millions of people will die.

The upshot of all this is simple. Simply continually asserting that our approach must be efficient or equitable will result in neither. If we want our response to the many environmental threats we face in the twenty-first century to be efficient or equitable, we must take a very firm and explicit decision that it should be so. More than that, we must create global institutions that represent humanity at large – which is to say, people rather the most powerful corporations and nation states.

It is hard to imagine what such an institution would look like. After all, none of our existing systems operate at that level. But in any case, I can still think of no compelling reason to expect any such institutions to be created even if they could be easily described, and the chances of their coming into existence will recede faster and faster as the real problems caused by 3° and 4° temperature increases start to hit us, as the global economy starts to unravel in the face of accelerating oil and gas prices and whole populations start to move in the face of poverty, hunger, disease and war.

There's no money in saving the world

2009-04-09T10:06:00.001+01:00

We continue to see the repercussions of relying on business to deliver our response to climate chaos, global warming and resource depletion. The last few days have thrown up these stories in the media:

Canadian environmental groups on Wednesday accused Royal Dutch Shell, Europe’s biggest energy group, of reneging on its promise to reduce greenhouse gas emissions at its oil sands project in Alberta. (FT, 8/4/09)
At least five big wind energy projects are in danger of being delayed or shelved owing to higher costs and a shortage of credit, the British Wind Energy Association said on Wednesday. (FT, 9/4/09)
Japan is expected to restart the world’s biggest nuclear power plant shortly – nearly two years after it was damaged by an earthquake. The prolonged shutdown of the Kashiwazaki-Kariwa plant’s seven reactors knocked Tokyo Electric Power into the red and threatened Tokyo with electricity shortages during the hot summer months, when air-conditioner use pushes up demand. The facility accounts for 13 per cent of Tepco’s generating capacity and without it the company has been forced to rely on more expensive coal, oil and gas plants. (FT, 9/4/09)
Several prominent energy companies have scaled back their commitment to renewables, including BP, Shell and Iberdrola. (FT, 9/4/09)

And so on. On the other hand, Mars and Cadbury have promised to move to sustainable, Fairtrade supplies of cocoa (FT, 9/4/09). So we don't need to worry about Peak Chocolate just yet. On the otehr hand, I would not be very confident that they would ahve done anything about this were it not for ethically motivated public and staff pressure - as Fiona Dawson, managing director of Mars UK, has said, consumers and employees expected Mars to “do the right thing” because “nobody has to buy confectionery”.

The fact is, a monkey will type Hamlet before profit-driven companies will create a credible and effective answer to our many, many environmental problems in the middle of a slump. (I was going to say that Hell will freeze over, but at least that is one outcome global warming protects us from.)

President Obama, the Climate President

2009-04-01T11:01:00.001+01:00

So Barack Obama has flown over to the G20 Summit in London with 500 people and several identical helicopters, most of which are flying solely as decoys to potential assassins. To talk about climate change as a small (and probably completely perfunctory) part of the agenda of a conference that will involve just 4 and a bit hours of talks.

May be a clue there about a) exactly how much difference this will make, and b) what the cause of climate change is. Thank God the protestors are there: otherwise it would seem like a complete waste of time.

The tragedy of the commons: tosh

2009-03-31T22:34:00.001+01:00

One of the most famous essays in the history of economic thought was not, at first glance, an economic essay at all. Garrett Hardin’s 1962 paper in Science, ‘The tragedy of the commons’, bestowed a name on the whole class of social phenomena in which many people are vying for a given resource (e.g., the common land on which they can all graze their cattle and sheep), but because there is no control over how much each one can use it, they all try to use it more and more, until eventually the resource collapses through overuse.

The standard interpretation of this paper is that, had someone owned the common land, those would not have happened. They would have husbanded their resources more thriftily, nurturing it so that it was not exhausted. In this way, converting the common land to private property would save the say. This is supposed to be a lesson for our various environmental conundrums: if only someone owned stuff, they'd take care of it properly and all our climate/resource/ecosystem problems would go away. Hurrah!

It is hard to say why this idea should have caught on. Certainly from an economic point of view it is not very plausible – especially in cases that impact our current environmental problems. Take the case of non-renewable resources such as oil or gas or mineral wealth. A country such as Saudi Arabia may wish to conserve its fields so that future generations may also benefit from them, but that is only a factor because the Saudi régime has responsibility for future generations. The same cannot be said for ExxonMobil, BP or Total. Their paramount interest is quite clear and usually (by environmental and social standards) very short term: profit-maximisation. If they leave the oil in the ground they will incur continuing costs (rent, interest, maintenance and operating costs) while being unable to extract a single penny from their investments. They also run the risk that their resources will be taken from them by future governments. It is even possible that future fears of carbon emissions could lead to oil being banned from vehicles, power stations and other uses for which emission control is difficult.

By and large, oil wells are costly and precarious investments. So what should be done about them? Unless there is a realistic expectation that future price spirals will raise prices high enough to justify the risks and the costs, the answer is surely to pump it out of the ground and sell it right now. From a capitalist perspective, there is after all no other point in conserving such resources. In the ground they are worth nothing, and no matter how carefully I husband them, oil will not grow again. The only question is when the right balance of risk, cost and price tells me to start pumping. Given that time is a factor in all three of these, the chances are that the correct answer will be ‘soon’. Or if not ‘soon’, then ‘right now’.

So there is little incentive for a capitalist corporation to conserve non-renewable resources, and if the ‘tragedy of the commons’ argument is deployed to ensure that such resources are properly managed from society’s point of view, it will almost certainly fail.

But renewable resources aren’t likely to fare much better, and for very similar reasons. It is true that a forest or a field of ripening wheat is a valuable resource made all the more valuable by the fact that, carefully conserved, it will generate a return indefinitely. If I over-exploit it – by clear-cutting jungle or exhausting soil by intensive monoculture cropping and massive inputs of artificial fertilisers – then I will eventually shrivel it up to the point where it ceases to be a valuable property. In that respect at least, privatising is seems to be at least a possible solution to the potential tragedy of the commons.

Unfortunately the situation is not quite so simple. As before it comes down to a balance of prices, costs and risks. What if the cost of the resource is extremely low? If, for example, it can be acquired from a friendly government for a very low price? For instance, until his government was understandably overthrown in March 2009, President Ravalomanana of Madagascar had an arrangement with the South Korean conglomerate Daewoo to lease 1.3 million hectares of farmland – an area a little less than half the size of Belgium - for nothing more than a somewhat nebulous promise concerning local employment. Rent? Nope. Guaranteed return? Nope. Or what if – as is often the case in developing countries - the local population is simply ousted from the land?

In such conditions, costs do not include a significant price for the land itself. In other circumstances, other combinations will lead to the same conclusion: that it does pay (commercially, if not for society as a whole) for a private owner to exploit a renewable resource to the point where its vitality is destroyed and it is left worthless. At that point the company moves on, to new land and rapid returns. And the people they leave behind, whose land they have destroyed? Who cares.

So again, if I hand over a non-renewable resource to private interests, will this help society avoid the tragedy of the commons? Probably not. Indeed, so great is the disparity in resources between agribusiness and individual commercial farmers that even if both took an equally predatory attitude to the land (which, in the history of farming, farmers have not always been reluctant to do ), the damage would be done far faster by the corporations.

Note also the one option this approach does not allow for: that all the people who share this common resource will simply get together and agree how it will be used. Which is odd, because that is exactly how the land – the very ‘commons’ from which Hardin starts out – was managed before the triumph of capitalism. Medieval and early modern rural communities used to agree on who could use the land and how much. They also used to rotate who farmed which land, so that everyone had a fair turn at the best land. This method for avoiding the tragedy of the commons continued in use until the local landlord decided they could make more for themselves if they threw the peasants and the small farmers off the land and replaced them with sheep or cash crops. This process, know to European history as ‘the Enclosures’ is notorious as one of the most brutal in our history.

In short, the tragedy of the commons was not solved by the introduction of private property rights to the common land – rather, it was caused by converting socially managed resources into private property.

Social alternatives to privatisation have been shown to work over and over again all around the world. Over and over again local populations have demonstrated that they are capable of managing local resources is highly productive yet sustainable ways, given only access to modern knowledge and small amounts of specialised support. And yet over and over again they have been ousted by local landlords and international businesses intent on seizing their land for their own selfish purposes. This pleases international economic bodies like the IMF, the World Trade Organisation and the many other bodies that cannot imagine a solution to the world’s problems that does not start from global markets. It also pleases national governments, whose all-important economic indicators are nicely bolstered by the increase in GDP and other pleasingly visible data. After all, non-market economic activity, however fundamental it may be to the real lives of real people, is not visible in the economic data, and so is obviously not real. The only people it does not please, in fact, are the families who are expelled from the land and end up in the slums of a Sao Paulo or a Mumbai, hundreds of miles form home and with zero prospect of sharing in any benefits from their land being stolen from them.

There have been many cases where local people have organised themselves to share resources in ways that are both economically and ecologically sound. They owe little to market rationality and less to the idea that the only solution to the ‘tragedy of the commons’ is for someone to own everything and for the rest of us to work for them.

So why does enthusiasm for Hardin’s paper – historically false and logically unconvincing even when it was written – persist to this day, to the point where it is routinely cited by environmental economists and enthusiasts for markets alike? Because, I suspect, it creates a pseudo-historical, pseudo-scientific justification for the status quo. Despite the fact that capitalism is so destructive to the environment, the correct answer, say both Hardin and economic orthodoxy, is more of the same. You cannot have too much property, too much competition, too much exploitation – otherwise people might start to ask not whether we should have more but whether we should have quite as much as we have now. And that would never do.

Markets and the Return of the Economic Zombie!

2009-03-31T14:44:00.007+01:00

As someone or other once said, generals always plan to fight the next war with the weapons of the last. Much the same seems to be true of economists. In the light (if that is the word) of the last year or two, the idea that market economics is still a contender for the basic model for the economy is quaint to say the least. Even if you take capitalism for granted (which, for the time being, I think we can), markets and market theory are hardly contenders for tools for managing it. The reason I say this is because a) markets don’t really exist, and b) even if they did, standard market theory is at best half-baked and at worst simply false.

Perhaps I should restate the claim that markets don't exist. Markets don't exist as market economists imagine them. The assumptions market economics is based simply do not apply to current economic conditions, and have not been relevant for at least half a century. Market theory has always assumed a number of things (the various perfections of 'perfect competition'), most of which only really exist in minimal, distorted and illusory forms.

For example, 'perfect information' was always nonsense and we have a whole raft of industries - marketing, advertising and lobbying - on hand to keep things that way. The recent history of financial engineering also demonstrates amply how easy it was for markets to be dominated by mechanism that many players plainly did not understand, so that they had little idea what they were doing from day to day. Even George Soros said he had kept clear of derivatives because he did not understand them. Recent developments such as ‘deep pools’ can only worsen this situation by deliberately concealing market information. There are some areas where markets are still quite real, but I doubt that plumbers and fish markets command much of anyone’s GNP.

As for another key condition for markets to be efficient, ease of entry, this ceased to make any sense when economies reached the scale where only major corporations and governments could summon up enough capital to enter any major industry. Conversely, ease of exit was rendered irrelevant with the arrival of large-scale fixed capital as the sine qua non of most industries. Fixed capital is notoriously difficult to dispose of at a decent price even when it is still usable, and if you are keen to exit a market it is probably because it is shrinking, so you won’t find anyone to buy it.

Likewise for all the other key assumptions of market economics. They make a neat, if narrow, theory, but none of them actually applies under modern economic conditions.

As for the idea that market theory is at best half-baked and at worst simply false, market economics claims that markets will always tend towards equilibrium. This is hardly what history would suggest, and it ignores at least two intrinsic features of market economies.

Firstly, the various kinds of market imperfection I have just mentioned all serve to push markets into disequilibrium, because they create special interests (often very widespread or of involving very large players) who are keen to seek, create and exploit disequilibrium.

Secondly, the real tendency of markets is not towards equilibrium but towards bubbles and monopoly. Bubbles arise when it is not the intrinsic value of goods and services that are being invested in but movements in the market itself (i.e., when, as Keynes put it, the speculative froth on the surface of the stream of solid investments is inverted into a maelstrom of speculation that drowns out real investment). This inversion became inevitable as soon markets become a forum for making money by speculation rather than for allocating scarce resources. When this orgy of money-making has reached the point where market players start to notice just how far this process has diverted the formal ownership of resources from any economically plausible use, collapse ensues as inevitably as the original bubble.

Given how market economists like to define the market as an efficient mechanism for distributing scarce resources, inveterate leftists like me find it grimly ironic to note that it capitalism itself, whose sole rationale is to make money, that ensures that markets lead inevitably to bubbles, the misallocation of resources and collapse.

As Oscar Wilde said, a cynic is a man who knows the price or everything and the value of nothing, so it’s nice to see that even in the impersonal world of the market, the inherent cynicism of market theory gets its comeuppance. Pity about the millions of ordinary people whose lives it destroys.

As for monopolies, as we all know, productivity is generally much improved by economies of scale. That in turn generally demands large-scale investment, typically in machinery and rationalisations that are closed to small players. But this reduces the number of businesses that can afford to operate in this market, or for which the size of the market leaves elbow room. And so the spiral starts and continues until only a handful of players is left. Not technically a monopoly, so there is still some limited competition, but even an oligopoly consists of a small number of players whose interests vis à vis their customer are identical – and identically predatory. And certainly any notion of a free market has long since disappeared.

Another nice irony of market capitalism then: as with bubbles, monopolies show how it is the very workings of historic markets that rendered modern market theory irrelevant. Not in this case because they create bubbles that destroy the value even as they generate lots of money, but because they create an economic universe in which, far from a large number of small players buying and selling, a small number of truly vast players distort the entire economy to suit themselves.

Basically, Adam Smith’s enthusiasm for the market was based on an economy of small players with small, easily liquidated investments in a large market. A nice dream of a cosy middle class world. Market theory persists with this dream. But we don’t live there any more.

Leadership, Mr President? No thanks!

2009-03-26T09:00:00.001Z

The United States is ready to lead. Barack Obama says so – in an article in yesterday’s Times. Oh good.

Actually, Mr President, I don’t think we need any leadership right now. The world has been its usual bickering and politically incoherent self while the USA was away, but actually I can’t think of anything that would have been better had it been around to offer its ‘leadership’ since 2000.

After all, what have the US government and its eager allies been up to all that time on the global stage? Iraq. Afghanistan. Radical disregard for climate change. Creating the sub-prime housing disaster. Deregulating finance to the point where the entire global economy was dislocated, millions thrown out of work and tens of millions of the already poor in developing countries were pushed down even further. The Washington Consensus thrust down everyone’s throats by the IMF, World Bank and WTO. I can’t say that American leadership is likely to lead us anywhere I would want to go.

Or perhaps it is American example closer to home we should admire. Gun crime. Banal culture. Corporate greed on a staggering scale. Untrammelled capitalism that, left to its own, would do it all all over again.

Meanwhile, who do they think they will be leading? The toadies in London, maybe. But France? China? Russia? India? Anyone at all in the developing world? No, not only do they not want American leadership but they would be deeply – and rightly – suspicious of anything the US government thinks is a good thing. With Russia as a neighbour and our energy supplies at Putin’s mercy, we Europeans have every reason to look for allies wherever we can find them. But leadership from the USA? No thanks. You may have the power - or at least, lots of guns and a proven enthusiasm for using them - but the authority leadership presupposes? What on earth makes Obama think American presidents have any of that left?

I like President Obama. He seems like a decent guy. But I still have problems with three things. Firstly, apart from his immediate reaction to the current economic disaster (largely created by allowing the American interpretation of capitalism – with which, as far as I can tell, Obama agrees - to have its reckless head), I have no real idea where he would lead us. Yes We Can? - Yes We Can What, exactly?. Secondly, until I see different, I will assume that American leadership will, as ever, assume that what is good for America is good for the world. This has not proved to be a very helpful policy in the past. And finally, I just don’t want his or anyone else’s ‘leadership’. I would be more than happy if the USA would just join in for once. Climate change in particular is far bigger than World Wars One + Two, so it would be nice if you could just show up on time for this one. If it isn't already too late.

Meanwhile, I really think it’s time Americans stated thinking seriously about the whole End of Empire thing. As we Brits know, it’s a long, slow, painful process that makes you do and say all sorts of dumb things. Ah, Suez… I have no idea how the Americans will handle a multi-polar world over the next few decades – no better than we did, I suspect. But as a word of advice, can I suggest that, every time an American president is tempted to say something especially fine and resonant, they stop and have a long think about it? It will probably turn out to be a lot of pretentious tosh that will just bore or exasperate the rest of us.

Source: We are ready to lead. Are you ready to join us? The Times. March 25, 2009.

What about asking us, Sir Nicholas?

2009-03-25T09:14:00.001Z

In today's FT, Sir Nicholas Stern, who is currently Professor of Economics & Government at the London School of Economics and has served as Chief Economist at the EBRD and World Bank, argues for an independent authority to evaluate economic risk on behalf of the world.

Good idea. But his idea of independence is a bit limited - too independent, in fact. He rightly argues that it should, unlike the International Monetary Fund, the World Bank, the Financial Stability Forum or the Bank for International Settlements, be beyond the influence of big countries and should have no lending or policy responsibilities that would bias its perspective.

Yet his idea of independence seems to revert to a now-antiquated notion that 'the economy' should be treated as just this system that rolls on, with no need for anything much more than the occasional warning and adjustment to keep it on the rails.

For the lead author of the UK Government's 2006 Review of the Economics of Climate Change, this is a little odd. Any such body certainly should have policy goals. Stopping the planet boiling might be a good one, and one that Sir Nicholas is more aware of than most. He is also singularly well equipped to say what that means, at least among conventional economists.

But focusing on climate chaos - and ecological collapse and resource depletion and the population explosion - are all themselves only sensible economic goals because they represent (in a still very abstract way) what society needs out of the economy.

So one final question: if this risk assessment body should be independent of governments, does it then have to be 'independent' of the people whose interests these governments that are so singularly failing to represent? That is the real risk: that all the institutions - political as well as economic - are tainted with the same economistic obsessions, and will not see the wood until all the trees have been burned down.

Source: 'The world needs an unbiased risk assessor', Nicholas Stern, Financial Times, March 24 2009.

Fossil Fools Day protests

2009-03-24T16:32:00.001Z

In case you're inclined to join in, here is a summary (kindly provided by the security people in a neighbouring City institution) of the protests planned for the end of the month.

G20 Meltdown - April 1st and 2nd
Anarchists and anti-capitalists intend to hold a 24 hr 'Reclaim the Streets' style event in the City, starting at 12:00 hrs at the Bank of England, Bank Junction. Intelligence also suggests climate related protests) and actions (this is also 'Fossil Fools Day) at RBS, 250 Bishopsgate and the European Carbon Exchange and Carbon Exchange Plc at 62 Bishopsgate. Attendance can be expected to be between 1,000-2,000, although this cannot be confirmed.

At 11:00 hrs, several gatherings will take place at the tube / train stations of Liverpool Street, London Bridge, Cannon Street and Moorgate. Each group will then snake their way to the Bank of England at 12:00 hrs, headed by the four horsemen of the apocalypse.

Representing:

Climate Chaos - Green Horse - Liverpool Street Station
Anti-war - Red Horse - Moorgate Station
Job / savings / pensions losses - Silver Horse - London Bridge Station
Home repossessions - Black Horse - Cannon Street Station

Intelligence suggests that:

The Liverpool Street convergence will be in the form of a FlashMob to raise public awareness, stretch police resources and avoid police 'corralling' action.
Some anarchists may attempt an incursion into the Bank of England, using force if necessary.
An overnight vigil in the City with attendees bringing tents to sleep in.
Early morning attendance at the LSE on 2nd April (07:00 hrs) with a view to disrupt trading.

Other autonomous actions against banks, financial institutions and those linked to the climate industry, in particular those that have recently benefited from the government bailout and mergers (Lloyds, RBS etc).

Historically, this type of action usually takes the form of a party-type atmosphere with sound systems playing. This sometimes turns confrontational and can result in a mass rush towards the entrances of locations that they are seeking to occupy or a break out of police lines. Anarchists in the past have committed acts of criminal damage by causing graffiti or smashing windows and, therefore, encouraging looting. This should be considered due to the proximity of the Royal Exchange. Popular targets are those with a particularly capitalist image, e.g. McDonalds, Starbucks, banks, or those with Israeli links due to the recent events in Gaza.

As many will remember, the G18 actions of 10 years ago resulted in mass disorder and conflict with police. Actions included climbs, banner drops, barricades, storming of several buildings and the setting alight the Mercedes garage. Although there is no intelligence to suggest a repeat of these events, the planned days of action do bear some resemblance to those of G18.

Other related events:

28th March : The TUC will be holding a march & rally from Embankment to Hyde Park from 11:00- 17:00 hours. It is anticipated that up to 30,000 people will attend this event.

2nd April : G20 Conference, ExCEL Centre - It is possible that activists will attempt some kind of blockade or incursion at the event. There will be a robust policing plan in place.

Why capitalism must expand - whatever the environmental consequences

2009-03-22T18:39:00.001Z

I have suggested several times that capitalism’s destructive relationship with the environment is not a matter of greed. Nor is it natural to industrial systems. Rather, it inheres in the basic economic structure of capitalism itself – in the things that make it capitalism rather than any other kind of economy. But how is this so? One would never have drawn any such conclusions from economic theory as it is taught in our universities or the way most professional economists talk about their subject.

The key question is how investment works under the rules of a capitalist economy. These rules have evolved along with capitalism itself, but the basic cycle as it now operates is very simple. Imagine that you have a good deal of money available to invest, and choose a sector where a lot of ‘fixed’ capital is needed. That is, your business will need to pay for a lot of materials and facilities before it can even start doing business. This might mean almost anything – expensive tools, specialised equipment, vehicles, energy generation, storage, offices, changes to the terrain, and so on – all of which must be paid for before production can start and none of which will be paid off until you have been in business for a long time – certainly years, and quite possibly decades.

For example, a car or a cement factory can cost several hundred million dollars, almost all of which must be paid for before the first car or bag of cement comes off the production line. A nuclear power station can costs several billion dollars, yet will not generate one iota of revenue until long after its owners have had to start paying out to build it. To fund these enormous outlays, even the biggest company has to borrow equally enormous sums, all of which must be paid back, typically over a very long period.

The upshot of this is that there is a constant pressure on the owners to keep selling the product. That makes it extremely difficult to reduce sales of even the most environmentally destructive product, once the capital has been raised and the factories, roads and power plants are in place. On the contrary, there is bound to be a pressure to deal with any such problem far more economically, such as be simply denying its reality. Other stakeholders in this process – including the workers whose jobs are at risk and the governments whose loans and tax revenues are equally on the line – will frequently back them up, sometimes (as in the case of global warming and other environmental problems) beyond all reason. So it is no wonder that every successive environmental problem, from industrial accidents to global resource depletion to climate change, are routinely denied by big business: they know who will be expected to pay for the damage.

In fact, far from showing restraint, there is ample reason to believe that having a lot of fixed capital to pay off will not only encourage owners to look the other way when problems loom but actively encourage them to expand production as much as possible. The more any given piece of equipment or building or other facility can be used while the debt is outstanding, the more income it will generate to pay off the debt. For example, if a car production line is used for three shifts each day rather than one or two, then the part of the costs that goes towards paying for the factory building (or approach roads or office space or any number of other items) can be spread out over more cars. As a result, both the costs and the value of the output will go up, but because nothing extra is being paid to use the factory 24 hours each day, the cost per car goes down and the revenue available to pay off the debt goes up. So it always makes sense to look for new ways to intensify production, so that more revenue can be had for the same costs.

On the other hand, the value of your investment is constantly being eroded by competitors. If you plan for your investments to pay for themselves over many years, you can assume that three things will happen. Firstly, your equipment will wear out, while more recent entrants to your market will be using more up-to-date machinery that does the same job at lower costs. Secondly, notwithstanding all the laws of patents and intellectual property, you can expect any innovations you have made to be copied by others without them having to bear the research and development costs you had to pay for. And finally, the longer the term of your investment, the more likely it is that you will find the whole way your investment works radically undermined by a truly ‘destructive’ innovation that simply changes the way things are done in your industry. Thus, the car destroyed the horse and cart, the valve was all but eliminated by the transistor, the European and American car and electronics industries wilted before the Japanese quality revolution, supermarkets are destroying small retail businesses everywhere, and right now downloading is destroying CD and DVD businesses all around the world.

All these forces means the same thing: you need to exploit your capital as much and as quickly as you can, which ultimately means one thing: make and sell more. The environmental effect of this imperative may be mitigated by improvements in efficiency, but the likelihood is that any given business will also find easier but less desirable techniques for solving their economic problems, such as to manipulating customers, markets and suppliers. Obsolescence can be built into products in all sorts of ways. They may also be eased by protective governments (many of which have not hesitated to put the interests of business before those of their own people), by buying out competitors and by flagrant abuse and dishonesty of one kind or another.

A good deal needs to be added to the basic production process to make sure that all these extra goods and services are sold, of course, and it is no coincidence that mass production and mass marketing came into existence hand in hand, or that encouraging debt and consumerism has long since been a matter of government policy. The stability of our society relies on industrial systems that operate on a larger and larger scale, and under a capitalist economic system that means the ability of big businesses to repay the loans and bonds that have been used to finance all this. That in turn means profit, without which not only these investments would collapse but the entire system of employment and the entire tax system that underpins government would simply disappear.

Yet there is no economic necessity for our economy to work like this. Society is perfectly capable of identifying its own needs. We are perfectly capable of building factories and offices and communications and energy generation systems and all the rest without all the paraphernalia of big business. To claim that we need the profit motive to make people behave in an economically rational manner is not so much doubtful as absurd, given how irrational every bubble and collapse proves profit to be. Likewise the severely deceptive ‘price signals’ from mostly imagined ‘markets’ – they serve the purposes of a small elite that does so well out of these fictions, but the continual assertion that we are capable of nothing more intelligent surely requires more than the routine abstractions of discredited politicians, ivory-tower economists and toadies to big business itself.

And as the above argument I hope shows, any idea that capitalism can be the centrepiece of any attempt to deal with serious environmental problems is not so much absurd as grossly irresponsible, not to say terrifying. Capitalism is incapable of weaning itself off growth, because that is what the basic rules of investment demand. So where it has invested in selling physical goods, it must grow its output and so increase its physical impact; and where it is a non-physical service, it must intensify its use of the many physical resources even the most ‘dematerialised’ service employs. It is incapable of shutting down the most filthy factories or deliberately choosing a more expensive but environmentally more rational way of delivering our economic needs, unless this can also be proved to be the most profitable way of proceeding. That may sometimes be the case, but to rely on such a foolish assumption in the face of the worst threat to the planet in human history must surely be regarded as verging on insane.

Is Asian capitalism different?

2009-03-19T09:13:00.006Z

What I hope is a last word on derivatives. Apparently in 2000 Gao Xiqing, an adviser to the then Chinese premier, said that:

if you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullshit. They are crap. They serve to cheat people.

[Quoted in an article by Kishore Mahbubani in today's FT.]

On a somewhat wider stage, however, Mahbubani's piece claims - quite rightly for the moment, perhaps - that there are various distinctively Asian versions of capitalism, all of which are a good deal more conservative than the ‘western’ model. For example, Asian societies have much higher levels of savings, since the Asian financial crisis of 1997-98 have restored a degree of government regulation, they have learned to ignore the IMF’s market fantasies, and so on.

Which is very sensible indeed. But how sustainable is it? As Mahbubani notes, the high savings level is the product of centuries of economic and social uncertainty. But the same might be said of westerners, whose personal prudence in these matters was once legendary. Indeed, some economic historians have claimed that our high ‘propensity to save’ was one of the foundation stones for capitalism itself. Likewise for regulation: it is not so very long ago that no one in the West would have dreamed of deregulating our economies to anything like the extent that we have.

But things change. Once consumerism – rapidly emerging in the east as in the west – takes command, the vast marketing machines will make sure that savings are quickly eroded. There will come a time when Asian economists will recommend the deregulation of markets, and there will come a time when Asian governments will be so exposed to global economic pressures that they will be unable to resist. That’s how capitalismworks – not western capitalism or Asian capitalism - just capitalism. After all, what we have in the west is not a specifically western model at all – it is simply capitalism completely let off the leash. When it is let off the leash in Asia too, they can fully expect the same tribulations.

And plainly Asian capitalism can be fooled into playing along with the western model, because for a long while they did. In 1997-8 they learned better – but to what extent did even that happen because there are at least two major global players in Asia – India and China – neither of which has really been absorbed not the global capitalist network at every level of society? They are both heading – indeed, sprinting – that way, so why should we expect them not to succumb to the 'western' model?

There is an answer. It's a combination of peak oil, climate change and the ecological devastation that is already making itself felt all across Asia. But Asian capitalism? No, I doubt very much that that can resist effectively on its own. Why should it? 'Western' capitalism didn't, even though philosophers and historians and politicians and pundits of every stripe claimed the same virtues for the west as Mahbubani does for Asia.