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Archive for August, 2009

Via Mark Thoma, Richard Posner points to another rejoinder to the letter from two LSE economists, which apologized to Her Majesty but essentially kicked the can down the road. I posted a few weeks back about Thomas Palley’s response to the Besley/Hennessey letter.

Now, in the new rejoinder, ten British and Australian economists point out in a similar fashion the complacency reflected by Besley/Hennessey. They first state that the letter is flawed because it, “fails to acknowledge any defiency in the training or culture of economists themselves.”

They point out that although many Nobel laureates have identified the problem of increased mathematization and model fetishism, “too little has been done to rectify this problem.”

In summary,

Models and techniques are important. But given the complexity of the global economy what is needed is a broader range of models and techniques governed by a far greater repsect for substance, and much more attention to historical, institutional, psychological, and other relevant factors.

Maybe I’m just in a good mood, but the chorus is growing louder for real change in economics disciplines. Perhaps a tidal change might save the heterodox department at Notre Dame, or make earning a PhD from UMass Amherst “respectable.” Or maybe not.

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In MRZine, Simon Butler reviews John Bellamy Foster’s new book, The Ecological Revolution: Making Peace with Our Planet. Butler begins,

The ecological crisis is not simply the result of poor planning or bad decisions.  Nor is it an unforeseeable accident.  It’s the inevitable outcome of an unjust economic and social system that puts business profits before all else — even as it undermines the natural basis of life itself.

Any neo-Marxian take on pretty much anything is going to present some (should I say?) inconvenient truths, and by Butler’s account, it seems Foster’s book it no different.

The Ecological Revolution is a call for urgent action and an intervention into the debates about the kind of action needed to win this “race.” […]

The upshot is that two distinct visions of ecological revolution have emerged.

The first tries to paint business as usual economics green.  The second, following Che Guevara’s maxim, holds it must be a genuine eco-social revolution or it’s a make-believe revolution.

“The conflict between these two opposing approaches to ecological revolution,” writes Foster, “can now be considered the central problem facing environmental social science today.”

Probably my favorite parody of the first approach is found in an episode of 3o Rock, in which General Electric attempts to push a corporate-friendly “green” message with the character Greenzo, who turns out to be a more rogue, deep green version of what was expected. Of course, beneath the surface of this first approach is a “green industrial revolution,” in which,

the driving force of sustainable change is not the goal of preserving life, improving society, or allowing for the full development of human potential, but the profit motive…

All assume that economic growth, the expansion of markets, and the unlimited accumulation of capital can continue…

As a way to deal with the planetary emergency, such market-based responses are absurd, irrational, dangerous, self-defeating, and destined to fail.  They have also been warmly welcomed by the world’s capitalist governments and provide much of the basis of false responses to climate change such as carbon trading and “clean coal.”

John Bellamy Foster aptly sums up the capitalist economics of a market-based green industrial revolution as “the economics of exterminism.”  He advances an alternative approach that puts ecological concerns above capital accumulation.  We need “a more radical, eco-social revolution, which draws on alternative technologies where necessary, but emphasizes the need to transform the human relation to nature and the constitution of society at its roots.”

Probing socio-economic relations, Foster writes,

‘At the planetary level, ecological imperialism has resulted in the appropriation of the global commons (i.e. the atmosphere and the oceans) and the carbon absorption capacity of the biosphere, primarily to the benefit of a relatively small number of countries at the center of the capitalist world economy.’

Foster also draws on two concepts from Marx:

The treadmill of production refers to capitalism’s core impulse to expand production without regard to natural limits to growth set by the biosphere.  This impulse makes the process of capital accumulation inherently unsustainable and anti-ecological…

The metabolic rift refers to Marx’s theory that capitalist production necessarily creates a sharp break in the relationship — the metabolism — between nature and human society.  Marx used the concept of metabolism to describe the complex and co-dependent union between humanity and the environment.

So what’s the key Marxian insight for ecology?

Unlike mainstream economic approaches, Marxists hold that private ownership of natural resources is the major barrier to dealing with environmental problems.  In the third volume of Capital, Marx even compared the relationship between nature and humanity under capitalism to slavery.

And the goal?

“The goal,” Foster says, “must be the creation of sustainable communities geared to the development of human needs and powers, removed from the all-consuming drive to accumulate wealth.”

So it’s not surprising that Foster writes that the solution “is now either revolutionary or it is false.”

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If It Ain’t Broke…

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Running the Numbers

Photographer Chris Jordan presents a shocking perspective of consumerism in “Running the Numbers, An American Self-Portrait.” You need to scroll down a bit for the gallery.

Here are some examples:

Depicts two million plastic beverage bottles, the number used in the US every five minutes.

Depicts two million plastic beverage bottles, the number used in the US every five minutes.

Depicts 426,000 cell phones, equal to the number of cell phones retired in the US every day.

Zoomed section of photo that depicts 426,000 cell phones, equal to the number of cell phones retired in the US every day.

Zoomed segment of photo that depicts 166,000 packing peanuts, equal to the number of overnight packages shipped by air in the U.S. every hour.

Zoomed section of photo that depicts 166,000 packing peanuts, equal to the number of overnight packages shipped by air in the U.S. every hour.

Also check out Running the Numbers II.

http://chrisjordan.com/

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In an NYT Op-Ed today, Eric Zencey argues that GDP should be subjected to “creative destruction.” He writes,

Creative destruction can apply to economic concepts as well. And this downturn offers an excellent opportunity to get rid of one that has long outlived its usefulness: gross domestic product. G.D.P. is one measure of national income, of how much wealth Americans make, and it’s a deeply foolish indicator of how the economy is doing…

To begin with, gross domestic product excludes a great deal of production that has economic value. Neither volunteer work nor unpaid domestic services (housework, child rearing, do-it-yourself home improvement) make it into the accounts, and our standard of living, our general level of economic well-being, benefits mightily from both. Nor does it include the huge economic benefit that we get directly, outside of any market, from nature…

In general, the replacement of natural-capital services (like sun-drying clothes, or the propagation of fish, or flood control and water purification) with built-capital services (like those from a clothes dryer, or an industrial fish farm, or from levees, dams and treatment plants) is a bad trade — built capital is costly, doesn’t maintain itself, and in many cases provides an inferior, less-certain service. But in gross domestic product, every instance of replacement of a natural-capital service with a built-capital service shows up as a good thing, an increase in national economic activity. Is it any wonder that we now face a global crisis in the form of a pressing scarcity of natural-capital services of all kinds?

This points to the larger, deeper flaw in using a measurement of national income as an indicator of economic well-being. In summing all economic activity in the economy, gross domestic product makes no distinction between items that are costs and items that are benefits. If you get into a fender-bender and have your car fixed, G.D.P. goes up…

The basic problem is that gross domestic product measures activity, not benefit…

BECAUSE we use such a flawed measure of economic well-being, it’s foolish to pursue policies whose primary purpose is to raise it. Doing so is an instance of the fallacy of misplaced concreteness — mistaking the map for the terrain, or treating an instrument reading as though it were the reality rather than a representation…

Several alternatives to gross domestic product have been proposed, and each tackles the central problem of placing a value on goods and services that never had a dollar price. The alternatives are controversial, because that kind of valuation creates room for subjectivity — for the expression of personal values, of ideology and political belief…

Common sense tells us that if we want an accurate accounting of change in our level of economic well-being we need to subtract costs from benefits and count all costs, including those of ecosystem services when they are lost to development…

Given the fundamental problems with G.D.P. as a leading economic indicator, and our habit of taking it as a measurement of economic welfare, we should drop it altogether. We could keep the actual number, but rename it to make clearer what it represents; let’s call it gross domestic transactions. Few people would mistake a measurement of gross transactions for a measurement of general welfare…

We’re in an economic hole, and as we climb out, what we need is not simply a measurement of how much money passes through our hands each quarter, but an indicator that will tell us if we are really and truly gaining ground in the perennial struggle to improve the material conditions of our lives.

The “recession” will officially end sometime around Q3 2009, primarily because GDP is the arbiter of recessions. Meanwhile, headline unemployment will continue rising until December, and U6 could well past that. Metrics are not neutral; they have consequences. When I posted about the Happy Planet Index a month back, I soon realized that it had been much ballyhooed in the blogosphere. But, at least they are thinking of alternatives. GDP, on the other hand, is taken as a given.

For some previous discussion here of the inadequacy of GDP, read these posts.

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3 years ago, I was a sophomore in college and taking part in a one-credit seminar on community organizing. With a group of 6 or 7 other (somewhat radical) progressives, we were pretty thrilled when November came around and the Dems took Congress back. The next evening, we arrived at our prep class, still talking about the midterm elections. Jay, the former community organizer who now works for ND and runs a community center affiliated with the University, simply stopped our conversation and said, “What about the poor people?”

And he was right. Pundits on the left and in the center were saying that the elections were a victory for the middle class. Of course, few saw the recession coming at that point, but everyone knew the middle class had been whittled in the six years preceding.

Much of the discussion during this recession on the left and the center focuses on the middle class, how manufacturing jobs are disappearing perhaps forever (even though job losses are occuring in all sectors). Very little focuses on the already poor. It makes sense; why talk about them, when nothing is changing? Poor in a boom, poor in a recession. Well, things do get worse, as those teetering on the edge fall into abject poverty, and those already there face states cutting their social services budget (my own state, Illinois, has been forced to implement a tax increase to save these social services from overall budgetary cuts).

All that said, this makes me particularly glad that the NYT is featuring a series of columns by Barbara Ehrenreich, who has a lengthy track record of excellent reporting and writing on the poor. In fact, her first column in the series, which Sean blogged, offered a more eloquent and detailed argument of what I just outlined above. The second in the series focused on those who have been pushed into poverty by the recession and shows how they cope. Today’s third article focuses on the increased criminality of poverty, and I’ve excerpted some of it below the fold. (more…)

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Via Mark Thoma, a post over at Twenty-Cent Paradigms has saved me some time, rounding up some discussion at The Economist and FT about the state of macroeconomics. Go read it. I want to bump up one specific point that was discussed there, which Mark Thoma made in his contribution at The Economist. Thoma wrote,

But we have to ask the right questions before we can build the right models. The problem wasn’t the tools that macroeconomists use, it was the questions that we asked.

I assume by tools he is referring to empirical regression analysis, etc., as opposed to assumptions like utility maximization (or representative agents), in which case this point is right on. Speaking of representative agents, Thoma also posted a speech given by Robert Solow in 2003 (who I am coming to realize is much more prescient than Robert Lucas). Solow said, in part,

What is needed for a better macroeconomics? My crude caricature of the Ramsey-based model suggests some of the gross implausibilities that need to be eliminated. The clearest candidate is the representative agent. Heterogeneity is the essence of a modern economy.

Indeed. The problem, of course, is that makes it much harder to model.

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Rick Wolff in MRZine on the vapidity of government intervention in capitalist crises:

Government economic policies targeted at crises are mostly secondary, weak sideshows.  The main event is the intrinsic relationship between capitalism and its crises.  Public attention is directed to the sideshows; we are distracted from the main event…

The capitalist system’s method of self-healing is crisis. When one of its recurring bubbles bursts, wealth is destroyed, people are fired, and production facilities are closed in a downward spiral of contraction.  Eventually, the increasingly desperate unemployed, underemployed, and the still employed who fear job loss accept lower wages and fewer benefits…

Government policies over the last two centuries of capitalism’s ascendancy have neither ended nor replaced crises as the system’s method for correcting capitalist excesses.  Nor have government policies prevented such excesses from recurring…

Government activities during crises typically serve three major purposes.  Social welfare policies ease or at least make a show of easing mass suffering while the crisis proceeds to correct the previous excesses.  Second, financial policies stimulate and regulate private enterprises and also bail out those firms whose imminent failure could jeopardize the system; such policies may lessen the extremes of the crisis as it proceeds to correct the previous excesses. Third, government statements blame the excesses, the crisis, and the suffering on “causes” other than the internal, routine workings of the capitalist system.  Conservative officials stress that (1) mass suffering is the price “we must pay” to correct past excesses that they blame on workers or government or both and (2) “we should rely” on private business (freed of government- or worker-imposed constraints) to overcome those excesses.  Liberal officials press to alleviate mass suffering associated with the crisis while insisting that (1) past excesses were caused by “greedy bad apples” and “unregulated” markets and (2) government interventions will overcome the current crisis and prevent future crises.  Criticism of capitalism as a system is impossible — literally unthinkable — for either side…

That problem is the capitalist system with its profound, built-in tensions…

One obvious response to crises would be to question the capitalist system that produces and reproduces them.  That leads logically to evaluating alternative economic systems.  Might reorganizing enterprises so workers became their own collective employers help to overcome the instability imposed by capitalism?…

Far from answering these key questions, most crisis discussions ignore them…

Yet capitalism’s own crisis undermines its taboos.  The numbers and social influence of capitalism’s critics are again growing.  The system’s injustices, material wastes, and immense human costs provoke the questioning and the criticism that can identify changes needed finally to break the cycle of excess and crisis.  The dialectic of contradiction, that old mole, besets capitalism anew.

Didn’t think I would ever say this, but I’m a little more pessimistic than Rick Wolff, when it comes to the growing influence of capitalism’s critics.

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From the NYTimes:

Newly unveiled court documents show that ghostwriters paid by a pharmaceutical company played a major role in producing 26 scientific papers backing the use of hormone replacement therapy in women, suggesting that the level of hidden industry influence on medical literature is broader than previously known.

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