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Archive for February, 2010

Many serious links today, and struggling to find the diversions…

Serious Links

David Westbrook has some real talk on Afghanistan (First Things)

An interview with John Bellamy Foster on “Marx’s Ecology” (MRZine)

A critical reading of Dambisa Moyo’s sensation Dead Aid (MRZine)

Supervisor sympathy: a new kind of civil disobedience? (Boston Globe)

Ta-Nehisi Coates on John Yoo and al-Qaeda (The Atlantic)

Chris Hayes looks at the attempts to revive the public option (The Nation)

Health care- what if McCain had won? (Ezra)

Attack on climate science as OJ moment (HuffPo)

The Chamber of Commerce’s climate obstruction (Yale)

Will the US use contracts to increase middle class wages? (NYT)

Blast from the past: yesterday’s decision seems to confirm the message of my open letter

Diversions

Bill Simmons on how to fix the NBA

“I’d tell you, but I’d have to kill you sooner” -xkcd

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Officially official

The academic council voted to close ECOP. I don’t have details yet, and more editorializing will follow. A quick note, though, that the already student-free process further spat at the notion of student input. Yesterday, the Student Senate passed a resolution:

“[The Senate] votes unanimously to pass…a resolution regarding the dissolution of the Department of Economics and Policy Studies.

Senior Jeff Lakusta, chairman of the Committee on University Affairs, said it was important to note that this resolution was not intended to offer the Student Senate’s view of the dissolution of the department. Rather, the resolution calls for the decision- set for Thursday- to be delayed, and for the student body to have a more active voice in the process.”

Of course, delay would bring light to a situation best kept quiet. One word to leave you with this evening: shameful.

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Catherine Rampell at Economix has a post on Pew Research Report’s study (pdf) of generational divides in views towards government. She pulls out a number of interesting tidbits. The main finding is that,

Based on the 2009 survey data in this report, Millennials appear to be more pro-government, pro-regulation and pro-market-intervention than older generations

However, she rightly cautions that,

Some of this divide may be due to mere youth; perhaps people get more antigovernment, and more conservative, as they age…Disentangling the cohort effects from the life-cycle effects is difficult. Much of the survey data Pew has collected doesn’t go far back enough to determine whether earlier generations were equally pro-government and liberal in their own youth.

Nevertheless, some of the more specific questions have interesting ramifications.

While social “pendulum” theory might predict a swing towards government in this past year’s data, most of the numbers actually trend against government from 2007 to 2009.

Overall, I tend to take these differences with the grain of salt recommended in the “cohort” disclaimer. The gaps aren’t big enough to be explainable by much more than relative youth. It is curious though that numbers like the “safety net” question have trended downwards in the last year; mistrust of government is certainly rampant after the bailout, yet other polls seem to show most Americans believe strongly in unemployment insurance and the like. Perhaps this is a case like health care reform where the question is too general and the components of the entity in question are much more popular than the entity itself. Either way, the survey has a lot to dig into.

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Alan Greenspan, Milton Friedman, and Larry Summers, in that order, have been judged the economists most responsible for causing the Global Financial Crisis. The 7,500 voters at the Real World Economics Review blog have thus bestowed on them the Dynamite Prize in Economics.

I voted for Greenspan, but my other selections of Eugene Fama and Robert Lucas earned the 5th and 7th places.

They are now taking nominations for the Revere Award in Economics, which “will be awarded to the 3 economists who saw the GFC coming, and whose work is most likely to prevent another GFC in the future.”

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Utterly Indefensible

Foreign policy/war crime issues are generally outside the scope of my competency, but sometimes, the facts can speak for themselves. the Department of Justice released its report on John Yoo, the author os the legal torture memos in the Bush administration. Spencer Ackerman points to what (I hope) is the most galling part of the document (on page 70). Here’s the transcript, which is discussing Yoo’s reasoning in overruling torture statutes that limited some executive excesses:

Q: I guess the question I’m raising is, does this particular law really affect the President’s war-making abilities…

A: Yes, certainly.

Q: What is your authority for that?

A: Because this is an option that the President might use in war.

Q: What about ordering a village of resistants to be massacred? …Is that a power that the President could legally-

A: Yeah. Although let me say this. So, certainly that would fall within the Commander-in-Chief’s power over tactical decisions.

Q: To order a village of civilians to be [exterminated]?

A: Sure.

According to the report, Yoo then defended his decision to include sections giving the President these broad powers.

It’s sickening to imagine that these sorts of folks were running our country for eight years. James Fallows (via Ezra Klein) says that this document is mandatory civil education reading, the Hiroshima of our modern troubled times.

The “torture years” are now an indelible part of our history. The names Bybee and Yoo will always be associated with these policies. Whether you view them as patriots willing to do the dirty work of defending the nation — the Dick Cheney view, the 24 view, which equates the torture memos with Abraham Lincoln’s imposition of martial law — or view them as damaging America’s moral standing in ways that will take years to repair (my view), you owe it to yourself to read these original documents.

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The cap-and-trade scheme under consideration in Waxman-Markey relies heavily on carbon emission offsets, whereby developed countries buy the right to emit more by offsetting emissions elsewhere. Offsets carry a number of issues, which I’ve begun to discuss in the context of cap-and-trade here and here. Three aspects I’d like to talk a little more about are the effects of offsets in the “elsewhere” countries, the uncertainty abou their valuation, and implementation issues

I was first drawn to a recent article published by Ben Block of Worthwatch Institute about the prospects of REDD, which is the mechanism aimed to reduce emissions from deforestation and will play . The Copenhagen Accord offered support for this mechanism, and on the surface, it seems like a good way for less developed countries to be rewarded for their preservation of otherwise endangered lands.

While support for the policy has grown, considerable progress is still necessary before multinational organizations, national governments, and local authorities are ready to administer REDD programs, analysts said. Without proper reforms, the program threatens to increase human rights violations, land conflicts, and forest-sector corruption, and REDD’s ability to reduce emissions would be in doubt.

“If significant payments were to flow today, REDD programs would be challenged to meet the tests of effectiveness in reducing emissions, efficiency in channeling funds, and equity in distribution,” said Frances Seymour, director general of the Indonesia-based Centre for International Forestry Research.

Land is certainly the key issue, as land rights are generally poorly defined in less developed countries, and land reform is often a contentious part of domestic politics. Under REDD, payments flow to the owners of the land. However,

Governments continue to claim ownership of most forestland – some 75 percent worldwide, according to a report released last month by the Rights and Resources Initiative. In many cases, however, farming communities and indigenous groups have resided on much of the land for generations…

In areas where land rights remain unclear, governments or private industry may displace forest communities from their homes to gain access to forest carbon, human rights campaigners warn. Where indigenous groups or communities clearly own the forests, environmental and human rights groups are reporting instances of REDD project developers offering contracts without fully explaining the deals’ consequences.

Land ownership conflicts are not merely hypothetical. Indigenous peoples’ rights have become a large enough issue that the African Commission on Human and Peoples’ Rights recently handed down a landmark ruling on a Kenyan eviction case from 1973. The linked column notes,

By taking into account rights flowing from an indigenous community’s deep cultural and historical connection to the land, the commission’s ruling sets an important precedent for respecting the claims of traditional herders and forest peoples…

However, while Kenya has never been better positioned to rise to the challenge, political will to convert legislation into real change on the ground cannot be taken for granted.  Successful implementation of the ruling on the Endorois will require vital monitoring support from the commission itself.

The stakes on land issues are undoubtedly going to increase with REDD, and it’s unclear if African governance is adequately prepared to handle it. By embracing offsets, and REDD with them, the developed world could be unwittingly open up a destabilizing can of worms.

The other issue I want to raise is environmental valuation. I think this valuation can be a good thing. For instance, an eye-popping report was just released that said the world’s largest corporations caused $2.2 trillion of environmental damage in 2008, half of which was from CO2 emissions, in total equivalent to 1/3 of these company’s profits. Making the public aware of these huge damages is critical. However, the tricky thing with environmental valuation is that even if high totals like this one are reached, they may still be underestimates.

Ed Fullbrook at RWER points to two Guardian articles, one that favors valuing the environment, and one that raises valid concerns. In the first article, Pavan Sukhdev says that,

We cannot manage what we do not measure and we are not measuring either the value of nature’s benefits or the costs of their loss. We seem to be navigating the new and unfamiliar waters of ecological scarcities and climate risks with faulty instruments…

Holistic economics – or economics that recognise the value of nature’s services and the costs of their loss – is needed to set the stage for a new “green economy”.

Contra Sukhdev, Andrew Simms writes,

 there is a point when it becomes meaningless to treat the ecosystems upon which we depend as mere commodities with a price for trading. For example, what price would you put on the additional tonne of carbon which, when burned, triggers irreversible, catastrophic climate change? Who would have the right to even consider selling off the climate upon which civilisation depends? The avoidance of such damage is literally priceless.

Fullbrook notes that,

Simms sees this new enthusiasm as an economist’s fool’s-gold, but one that potentially is infinitely more damaging…

This dilemma between wanting to make polluters pay and avoiding the ultimate category mistake urgently needs to be discussed. We must also learn not to tie ourselves in nonsensical knots when using side-by-side the terms “value”, “price” and “measurement”.

The concern of underestimation, perhaps even exaggerated by Simms, is a valid one. However, economists feel the need to place a value on everything. Offsets essentially are founded on the ability to value certain environmental activities and abstentions. If they miss the mark (and my guess is they will skew to underestimation), the environment and our economy’s future capability will suffer.

Finally, even if offsets can be correctly valued and land issues reconciled, will they actually, err, offset any emissions? Stacy Feldman at SolveClimate has an investigative piece on some of the issues with offset schemes.

“It’s essentially the wild, wild west,” said Andrea Johnson, the forest campaigns director for the non-governmental Environmental Investigation Agency. “Everybody is kind of auditing themselves to a large extent. There is no one system.”

Because these projects can be in far off lands that are tough to track, it can be hard to know what’s real and what’s hype, other than trusting what the company says, said Jutta Kill, head of the climate and forests campaign for UK-based FERN.

Further, projects are being outsourced to the private sector, and companies involved may not be able to follow through. Eco2, which is running a tree-planting in Sumatra, is one example:

In an updated financial disclosure document filed in December, the company said its operations are dependent upon its ability to raise “significant amounts of capital,” but “there is no assurance that such capital can be raised…” [...]

In its quarterly report to the SEC in September, Eco2 was more direct: “The company’s cash and available credit are not sufficient to support its operations for the next year.” [...]

The Eco2 advantage, says the firm, is its fast-growing strain of Kiri tree.

“Seven years is incredibly quick,” said FERN’s Jutta Kill, who said she had never heard of the Kiri tree.

If Eco2 claims to generate carbon credits that quickly, it means one thing: They’re growing tree plantations of non-native trees “rather than a forest,” said Kill…

Fred Stolle, a program manager for WRI’s Forest Landscape Objective, said a fast-growing species is not a strong selling point for carbon reduction.

“Every pulp and paper company in the world has fast-growing timber species,” Stolle said. Even if “it might be some super-duper tree that has more carbon in it, if you cut it down and use it for paper and pulping, then you still get some emissions of carbon.”

“And if you use it for firewood, of course you burn the whole thing. I don’t see any reason why that form of business should get carbon credits,” he said….

The other major key to Eco2’s model is selling carbon credits before the trees exist, a common practice…But according to Kill, forward selling is risky for investors and local communities.

These problems exist with offsets as a relatively small sector. However,

If the U.S. adopts a cap-and-trade system, it “would then retroactively let a lot of those voluntary offsets into the new system, and the price would just skyrocket — triple or quadruple overnight,” he said. “That’s why there are so many carbon cowboys trying to get in early. They are not really concerned with the quality of their product; they are more concerned that they get in.”

Global carbon trading has become the classic speculative market, said Kill, where people trade only for the purpose of profiting…

The system is helped by the fact that there is little time and money for quality control.

I apologize for the length of this post, but I think the issues associated with offsets are critical for understanding the shape of climate legislation. This fight may be in vain, as REDD seems even more firmly seated in conventional wisdom than cap-and-trade itself. Nevertheless, policy makers need to think long and hard about the human and environmental consequences of adopting this flawed mechanism.

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Friday Links

Here are some links for your Friday enjoyment. I have a post in the pipeline about carbon offsets, so keep an eye out for it if this topic interests you.

Serious Links

Self-referential/promotional PM Update: Aforementioned post on offsets

There are renewed calls for a tax on livestock emissions from FAO – Financial Times

Is Google commodifying our privacy? – Newsweek

Political rhetoric in graph formAndrew Sullivan

Has SCOTUS become corporate, and how should we fight back? – Common Dreams

A study examining the role of rainful in Africa’s economic growth – MIT

Arnold Kling thinks models suck – Econolog

(An oldie but goodie on my mind today): The Cult of Statistical Significance – McCloskey & Ziliak

Matias Vernengo reminds us that Argentina once fired its central banker – MRZine

 

Diversions

An excellent profile of Roger Ebert’s battle with cancer- Esquire

Money is nothing more than a shared illusion (although MMT says we need it to pay taxes) - The Onion

Nate Silver provides running medal count projections for the Olympics – Fivethirtyeight

Why Jeff Ely blogs.

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When Matt Taibbi published his Rolling Stone piece about Goldman Sachs, a number of people accused him of being sensationalist and even misleading about Goldman’s influence and malfeasance. The enduring image from that story was the Vampire Squid, a giant and blood-sucking creature that will seek (and succeed at) profitting off of pretty much anything. The continuous flow of news stories about outsized profits from a range of activities have seemed to vindicate Taibbi. Of course, there is some value in more measured academics taking on Goldman and Wall Street in general, so here’s Randy Wray:

Forget the bonuses…And, yes, they are blowing the black hole of financial insolvency bigger day by day even as they thumb their noses at Washington…But what is even more disturbing is that Wall Street is still maniacally creating risk, inventing new ways to bet on the death of “peasants”, economies, and nations…

A Wall Streeter buys the life insurance policies of individuals with terminal illnesses, packages them into securities, and profits when the underlying collateral dies…Now we learn that firms continue to carry life insurance on former employees, hoping they will die untimely deaths so that the firm can collect…Death is the new profit center, packaged and sold by Wall Street insurers…

Second, there is of course Greece. Goldman Sachs sold them financial products to disguise their budget deficits. Of course, Goldman argues that it was doing nothing unusual—it has been creating complex products to hide risk for decades…Goldman gets huge fees, but of course the risks always come back to bite its suckers…We don’t know whether Goldman has placed its own bets on the death of Greece—nor is it clear what role Goldman has played in whipping up hysteria about the likelihood of default, but the bank is almost certainly benefiting by the booming business in default “insurance”…it looks like the European Union, which is launching a major audit, just might banish the bank from dealing in government debt…

Finally, according to a report, Citi is going to launch a new derivative that will allow gamblers to bet directly on financial crises…The CLX products are supposed to hedge the liquidity risk of a spike of funding costs. The problem, of course, is exactly the one faced by those who had bought CDS “insurance” from AIG: counterparty risk…Only the government can cover unlimited losses. Hence, only the chosen few “too big to fail” sellers of this kind of insurance will be able to play the game. That is, folks like Goldman, J.P. Morgan, Citi, and Bank of America. And guess who will get stuck with the bill when the whole scheme crashes? You betcha, it will be the Treasury…

And that is what this whole Wall Street house of cards boils down to: risky bets, private profits, socialized losses. Worse, yet, it misaligns interests so that Wall Street profits are higher if there is economic and social instability…Until Wall Street is constrained and downsized, it will continue on its path of death and destruction.

In spite of all the happy talk about the end of the recession and the successful resolution of the financial crisis, things are much worse today than they were two years ago…Be prepared for another global crisis by summer. And also get ready for another Washington bail-out…

So here’s the best policy. Unwind the $23 trillion committed by the Treasury and the Fed. Let the market operate. It wants to close down all the “too big to fail” institutions. The market is right—these institutions are not necessary, indeed, they represent the biggest problem facing the financial sector…it makes far more sense to allow default to wipe out the bets, and then work to save the productive activity, jobs, and income.

I know that Wall Street’s protectorate, led by Geithner, Rubin, and Summers, will claim that failure of the behemoths will create an economic disaster. But that is not true. All real economic fall-out can be contained and the economy will emerge much healthier. Replace Wall Street’s life support with support for mainstreet…True recovery would begin immediately, and we’d be out of the mess by summer.

Wray’s plan sounds great, but it’s obviously pie-in-the-sky politically. If Wray is right about an impending double-dip, though, then perhaps a second window for real financial reform will be opened. The problem is that with Geithner calling the shots, it seems inevitable that “risk management” will continue to carry the day on Wall Street, while unbounded uncertainty, systemic risk, and overleverage lurk in the shadows. 

Wray’s article is a reminder of the lengths to which banks will go to seek profit, the destruction they will leave in their wake, and how far we are from reining this process in. Capital has gone wild, and unless reform addresses the inner workings and profit motives of the vampire squid, and aligns them with the whole country’s economic interests, we will find ourselves back here not only in six months, but also in six years.

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Gar Alperovitz, Ted Howard, and Thad Williamson, who study and work towards alternative economic models, have an article in The Nation today  a rise of worker-owned cooperatives in Cleveland.

Something important is happening in Cleveland: a new model of large-scale worker- and community-benefiting enterprises is beginning to build serious momentum in one of the cities most dramatically impacted by the nation’s decaying economy. The Evergreen Cooperative Laundry (ECL)–a worker-owned, industrial-size, thoroughly “green” operation–opened its doors late last fall in Glenville, a neighborhood with a median income hovering around $18,000. It’s the first of ten major enterprises in the works in Cleveland, where the poverty rate is more than 30 percent and the population has declined from 900,000 to less than 450,000 since 1950…

These are not your traditional small-scale co-ops. The Evergreen model draws heavily on the experience of the Mondragon Cooperative Corporation in the Basque Country of Spain…

The Evergreen Cooperative Laundry, the flagship of the Cleveland effort, aims to take advantage of the expanding demand for laundry services from the healthcare industry…After a six-month initial “probationary” period, employees begin to buy into the company through payroll deductions of 50 cents an hour over three years…

Thoroughly green in all its operations, ECL will have the smallest carbon footprint of any industrial-scale laundry in northeast Ohio…A second green employee-owned enterprise also opened this fall as part of the Evergreen effort. Ohio Cooperative Solar (OCS) is undertaking large-scale installations of solar panels on the roofs of the city’s largest nonprofit health, education and municipal buildings…Another cooperative in development ($10 million in federal loans and grants already in hand) is Green City Growers, which will build and operate a year-round hydroponic food production greenhouse in the midst of urban Cleveland…

A fourth co-op, the community-based newspaper Neighborhood Voice, is also slated to begin operations this year. Organizers project that an initial complex of ten companies will generate roughly 500 jobs over the next five years. The co-op businesses are focusing on the local market in general and the specific procurement needs of “anchor institutions,” the large hospitals and universities that are well established in the area and provide a partially guaranteed market. Discussions are under way with the “anchors” to identify additional opportunities for the next generation of community-based businesses…

Significant resources are being committed to this effort by the Cleveland Foundation and other local foundations, banks and the municipal government. The Evergreen Cooperative Development Fund, currently capitalized by $5 million in grants, expects to raise another $10-$12 million–which in turn will leverage up to an additional $40 million in investment funds. Indeed, this may well be a conservative estimate…

Strikingly, the project has substantial backing, not only from progressives but from a number of important members of the local business community as well. Co-ops in general, and those in which people work hard for what they get in particular, cut across ideological lines–especially at the local level…

What’s especially promising about the Cleveland model is that it could be applied in hard-hit industries and working-class communities around the nation. The model takes us beyond both traditional capitalism and traditional socialism. The key link is between national sectors of expanding public activity and procurement, on the one hand, and a new local economic entity, on the other, that “democratizes” ownership and is deeply anchored in the community…

Whereas the Cleveland effort is targeted at very low-income, largely minority communities, the same principles could easily be applied in cities like Detroit and aimed at black and white workers displaced by the economic crisis and the massive planning failures of the nation’s main auto companies. Late in October, in fact, the Mondragon Corporation and the million-plus-member United Steelworkers union announced an alliance to develop Mondragon-type manufacturing cooperatives in the United States and Canada…

Since mass transit is a sector that is certain to expand, there is every reason to plan its taxpayer-financed growth and integrate it with new community-stabilizing ownership strategies…

President Obama has endorsed a strategy for making high-speed rail a priority in the United States…

Providing infrastructure and transportation for this expanding population will generate a long list of required equipment and materials that a restructured group of vehicle production companies could help produce–and, at the same time, help create new forms of ownership that anchor the economies of the local communities involved…

the principles implicit in the nascent Cleveland effort point to the possibility of an important new strategic approach. It is one in which economic policy related to activities heavily financed by the public is used to create, and give stability to, enterprises that are more democratically owned, and to target jobs to communities in distress…

The Cleveland experiment is in its infancy, with many miles to go and undoubtedly many mistakes to make, learn from and correct. On the other hand, as New Deal scholars regularly point out, historically the development of models and experiments at the local and state levels provided many of the principles upon which national policy drew when the moment of decision arrived. It is not too early to get serious about the Clevelands of the world and the possible implications they may have for one day moving an economically decaying nation toward a new economic vision.

I’ve been drawn to cooperatives as an economic alternative since I first learned about Mondragon in a Catholic Social Teaching course. Worker-owned enterprises are a fruitful third way in the traditional public-private dichotomy. Promisingly, the Cleveland model shows that they do not require national political support to arise. However, to increase their scale and scope, it’s imperative to get the word out and show how these efforts cut across the spectrum. In the current political morass, it is certainly possible that even these cooperatives could become a political football, especially if they are integrated into mass transit plans. However, I’m hoping that their local success and the current populist outcry for jobs allows cooperatives to become a key part of future job proposals.

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Have a great long weekend!

Serious Links

Daniel Little posts on work councils and on the inexact science of economics.

Larry Becker’s review of Bert Westbrook’s Between Citizen and State.

Annie Lowrey on the sad reality of Haiti, one month later.

Sebastian Jones’ must-read on the lobbying-media complex.

Chris Hayes breaks down the stimulus with Josh Bivens.

The top 10% are experiencing full employment.

In case you were wondering, the snow does not disprove global warming.

Andrew Fischer: “The Perils of Paradigm Maintenance in the Face of Crisis” (pdf)

Diversions

If Wes Anderson directed Spiderman.

The valentine you probably shouldn’t give (xkcd):

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