Where Does It All Start And Where Will It End?

Chapter 2; rethinking the way we think

It all really starts with Malthus, during the industrial revolution when the events of both extreme economic growth and environmental degradation simultaneously occurred. Through the mediums of resource exploitation from better technology, the epicentre of the revolution became covered in a layer of factory excreted soot. To the point of certain moth species depleting due to the change in habitat (a certain tree that originally was a light colour that became discoloured). His general sentiment to the new found technologies was largely summed up by “Population and growing consumption must eventually run into the wall of finite natural resources,”.

He of course wasn’t wrong since the majority of the consumption through the free market tends to stem from the use of some form of fossil fuel. However in the book, the author aims to argue a point against those views of a gloomy ending through our own mutually assured destruction, since environmental policy isn’t that awful in the long run as long as it’s done right.

Without it, The free market would have a monopoly on the environment and natural resources, however through this system there are no accountable parties. The example given in the chapter here is of a paper mill that disposed it’s waste in the nearby water, where the water became contaminated further downstream hence causing costs for the rest of society. These costs would be incurred on those affected and not on the ones who were the cause, this essentially would be the beginning of the tragedy of the commons. As a result of these large disparities and failures in the market, “Pigou called for taxes or regulations on polluters imposed through a political process”. This is a prime example the state and the market acting as separate entities with entirely different end goals; the market seeks to augment itself and hence maximize in value and utility, whereas the state is acting to curb this at the cost of resource exploitation. This is all done under the notion that the economy will not self regulate. 

The author here proposes another thought, the idea that people are not inherently altruistic and self interest will always prevail taking into account transaction costs and incentives, but ultimately about how this can be “harnessed” to aid in the plight involving an environmental catastrophe. Yet even still there is an assumption that has to be made in order for this theory to operate successfully, and this is that the environment is of only “anthropic” value. That is to say that all the value of the environment is the on that humans perceive. Through 

this, all changes made to the environment through human hands is based on human needs.

He then focuses on the incentives that tend to the rule the bureaucratic class, with the example used of the Yellowstone national park that was built on grizzly bear territory, that set the tone of a higher commercialized political order that overrides the “good intentions” of the so called bureaucrat.

After all this, the tragedy of the commons is bound to occur, as each person will act in their self-interest and all things are of equal ownership; anyone can fish from the sea there is no restriction. 

It will become ultimately destroyed, since conversely there is not incentive to refrain from fishing, since another will simply take it instead. That is the tragedy.

Another issue lies in the place of an action not having preconceived consequences, humans cannot always predict the outcome of something they do, yet organisation of actions involving the environment is expensive and involves a lot of pre planning but ultimately could be the most beneficial. Especially if we knew that digging up some old ammonites would lead to global destruction.

Bibliography 

Anderson, T., Leal, D. and Anderson, T. (2001). Free market environmentalism. 1st ed. New York, N.Y.: Palgrave.

Cliometrics and The Rise of Social Capital

From Economic Imperialism to Freakonomics, Chapter 6: From social capital to freakonomics

The post Second World War period gave rise to cliometrics, which generally involved the direct or indirect consequences of individual optimisation in the context of neoclassical price theory.  Cliometrics gave rise to considerable controversy from the outset. Indeed, “both success and opposition were so strong that history was divided into separate camps of economic and social history. Much of this criticism rose from the neoclassical perfect model that was employed through these practises. The ‘newer economic history’ claims to rectify this by recognising that markets do not work perfectly. “As a result, they are complemented by both economic and non-economic historical forms that have an effect on outcome”. The newer economic history incorporates critical concerns of new economic theory into the ‘new framework’. Firstly, “there may be more than one way of modelling individual behaviour once interdependencies between individuals are recognised”. "Second, there may be more than one equilibrium even for a given model”. Third, “the path to an equilibrium, and which one, may depend upon initial conditions or random shocks along the way. This style of economics accepts the importance of history, institutions, and allows the language of social history to be deployed “even though its concepts remain rooted in the universals of neoclassical theory”.

The rise of social capital both takes place wholly outside of economics, but does not have a history prior to the rise of the new economics imperialism. Despite “casual uses of the notion of social capital prior to the 1990s, these are sporadic and accidental”. “More specifically, social capital theory takes the view that there are social resources that exist interdependent of individuals but upon which they can call. It is summed up by the mantra, ‘it’s not what you know but whom you know that matters’”. The ambiguity of ‘knowing’ has come to cover “most if not all social interactions”, religion, trust, networks and civic participation. Social capital has allowed us to use an economic mentality to assess all interactions in our lives. It is heavily motivated by the idea “that it provides the opportunity for positive-sum outcomes in all spheres of life”. One might attend a party not necessarily because they want to dance the night away, but because successful and highly regarded people would be attending. One then makes a decision to approach and socialise with these people with the intention of increasing their social capital. 

“Social capital offers an entrée for functional efficiency, individualistic methodology, and absence of the systemic, power and conflict”. Social capital theory acknowledges market economy does not work perfectly, and points “to the potential for correction of those imperfections through non-market interactions”. Although classified as non-market interactions, social capital still requires an input of capital to change state. One still had to attend the party to ensure their better relations with the people attending. The intangible nature of social capital has allowed it to become incorporated in non-physical forms, for example the importance of brands and reputation. The sponsoring of popular celebrities with major brands such as Burberry closely link the reputation, the familiarity and likeability of that celebrity to the brand itself. This in turn builds its reputation. Both Burberry, and the celebrity, be it Cara Delevingne, both benefit from this exchange in order to increase social capital.

Ben Fine & Dimitris Milonakis, From Economics Imperialism to Freakonomics, Routledge Publishers, 2009, chapter 6

Can We Afford the Superrich?

The opening chapter of Dorling’s Inequality and the 1% poses the question ‘Can We Afford the Superrich?’. The issue of inequality is as pressing today as it was 2000 years ago. In ancient Greece, Plutarch stated “An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” One can see the manifestation of this in the 21st century in countries at all stages of development. Dorling shows inequality through the divergence between the incomes (earned and unearned) of the wealthiest 1% in society and the remaining 99%. Dorling outlines why this rising inequality is so detrimental to society inline with the views of Nobel Prize winner Robert Shiller that “the renewed greed of the top 1 per cent has had worse effects than even the financial crash of 2008.” But surely things cant be that bad… Can they?    

The first graph (right) shows the spread of earned incomes in the UK from 2014-2015. It shows how the richest 10% have a net income around 10 times that of the poorest tenth. Dorling shows us that the average net income of the top 1 percentile is £160 000. This wealth gap is only getting wider.

The second graph (left) shows how the richest 10%, between 2000 and 2010, experienced the biggest percentage increase on their earned incomes. Also note that, in contrast, when adjustments for inflation are taken into account the poorest ten percent have actually seen a decrease in their incomes.

For modern preachers of laissez-faire economics there is no worry, because wealth ‘trickles down’! An example of where this case might be justified is the introduction of enterprise investment schemes (EISs) in 1994. Over two decades, these investment opportunities have helped set up 24,500 new companies and brought £14bn of investment into the UK. That is a massive proportion of the £110bn that Dorling claims the top 1% own. Of course we cannot suggest that all of this investment comes entirely from the top 1%, or indeed that EISs are the only way the wealthy can redirect their income. However this does show that allowing the top 1% to get richer helps boost the economy. And a growing economy is good for everyone! Or so we are told…

The first question to ask then would be, who are the EISs directing money towards? The answer, any new business starter that requires it (and complies with the ramifications of the scheme). And while this could be anyone in the bottom income percentiles it isn’t necessarily.... But of course! I nearly forgot! The miracle of the invisible hand! If there is economic growth then we will all be happier! Right? Well, no. Here (top) is a graph from Richard Wilkinson’s 2011 TED talk that shows the correlation between Gross National Product - how rich a country is - and its utility (I use the term utility referring to the function used to measure social problems i.e. negative utility). There is no relation! And below it (bottom) is a graph showing the relationship between Income inequality and utility. The wealth of a country, at least in terms of the more economically developed countries, has no effect on the utility of it’s people. It is instead inequality that shows a strong correlation with happiness, or lack thereof. Allow me to demonstrate this with an example for 2016. This year the World happiness report showed us that the Danish are the happiest people in the world; also this year Denmark  is the country with the lowest inequality within the OEDC.  Coincidence? I think not. 

So Dorling was right, we cannot afford the superrich. However it is not necessarily that we cannot afford the superrich in monetary terms. The question is no longer a matter of whether the superrich benefit our economy, but instead how do we stop their rising wealth? Because we pay for the superrich not with our money, but with our happiness. 

Hot Money- 'How Free Market Fundamentalism Helped Heat The Planet'

'Hot Money: How Free Market Fundamentalism Helped Overheat The Planet' by Naomi Klein

For my extended reading I chose to read the second chapter of Naomi Klein's book 'This Changes Everything- Capitalism vs Climate'. The chapter is called 'Hot Money' and explores themes of world trade, the over consumption of western countries, and a world economic system based on exporting goods. The chapter is gripping and extremely critical of countries who prioritise trade over the protection of the climate, especially western countries. Klein essentially highlights how this is happening and provides a solution to our problems at the end of the chapter. How realistic the solution is to put in place is questionable, as quite frankly a lot of the measures she calls for are easier said than done.

Throughout the chapter Klein shows different ways in which western governments choose the evolution and expansion of trade over the protection of our environment. Over the years this has caused exponential rises in air pollution and temperature levels, all for the sake of higher levels of trade and global inter-connection. Often strong green energy programmes are challenged by world trade agreements which require certain levels of trade which green energy cannot keep up with. Green programmes are also attacked due to the fact that they promote local industry rather than global, so countries exports are reduced. Klein gives the example of a solar panel company in Toronto which has been shut down due to these reasons, but because it promotes local industry, it has been doing poorly in business due to WTO rules. Klein asks the question whether positive institutions like this should be shut down, purely so trade can trump the climate, and the planet itself. It is clear that they shouldn't be, but we often face adversity in keeping green institutions like this successful due to the fact that the world is dominated by free-market ideologies which promote capitalism and free trade. This is often linked to austerity, which stops governments from investing in low-carbon infrastructure and energy sources, as they are so overpriced compared to non-green alternatives.

Klein also raises other problems with WTO policy protecting trade, as 'developing' countries are unable to follow low-carbon 'production paths'. Like China throughout the 2000's, countries like India are facing the same problems. Considering China have contributed two thirds towards the pollution of the last 10 years, newly developing countries are likely to cause the same problems, which means we must find an alliterative solution. This is often blamed on China, but is truly down to an export-heavy trade system which is promoted by western countries. It is the result of global deregulated capitalism, which is finally taking a toll. Klein proposes that we stop consuming as much instantly, as the problems we face are not solvable in the short term. She also insists that new trade agreements must be made which promote green energy, and not isolate it with complete disregard for the planet. With both of these things in place, we will be able to slowly make our way towards a better planet for everyone. I believe Klein has the right intentions, but installing radical changes in world trade agreements will be extremely tough, as these agreements will involve private companies. These companies will be ready to sue organisations, as these new implementations will directly affect profit levels and put certain companies at an advantage. For long term changes to be made, governments from all over the world will need to be ruthless and work together to make sure that corporations and institutions all over the world are using as much renewable energy as possible, to make sure that we are treating our planet with respect, and providing a safe and healthy environment for the future.

Austerity: 

The pain after the party

“If European policy makers, like medical doctors, had to swear “to do no harm,” they would all be banned from ‘practicing' economics”

Reading ‘Austerity’ from Mark Blyth makes for an uncomfortable sitting, he eloquently picks apart the fallacies of austerity and presents the reader with a disturbing history.  Blyth sets about depicting its limited success and cataloguing attempts of “growth friendly fiscal consolidation”, a term used by the G20 that Blyth sees akin to ‘a unicorn with a magic bag of salt’. Demystifying certain assumptions of austerity and its common sense appeal that “…austerity intuitively makes sense, right?… Austerity is intuitive, appealing and handily summed up in the phrase you cannot cure debt with more debt”. Examining the causal factors, Blyth highlights (somewhat obviously) that the 2008 financial crisis and bail-out of multinational banks shifted the mountains of private debt (owned by banks) onto the state and consequentially the tax payers. Speaking of the US banking system he states that “The price of not allowing it to fail was to turn the Federal Reserve into a “bad bank” while the federal government blew a hole in its finances”. This same thing took place in other central banks such as the BofE and the ECB. This new hole in state balance sheets demanded drastic fiscal policy, hence we come to austerity. “Having already bailed out the banks, we have to make sure that there is room on the public balance sheet to backstop them. That’s why we have austerity. It’s all about saving the banks.”.

Austerity can be done right, and as Blyth demonstrates, it has been put to good use in the past. However, with the phenomenon that was the credit crunch and subsequent financial crisis effecting such a large portion of the global finance game, most of those effected opted for austerity at the same time. Here we come to the “‘fallacy of composition’”, or as John Maynard Keynes referred to as “the paradox of thrift”. Austerity, though only in very specific cases, is a viable option. The problem with austerity arrises when everyone is tightening their belts at the same time. “We cannot all be austere at once. All that does is shrink the economy for everyone”. If both the private and public sector are paying back debt, the only way to grow is to export preferably with a lower exchange rate, but if everyone is trying the same strategy of not spending, as is happening in Europe today, it is self-defeating.

Blyth asserts that debt is the core issue. That there is far too much of it around the world, and a leveraged world is susceptible to a small shock turning into a second financial crisis. “US debt is indeed a threat, but what really matters is the international debt and foreign borrowing the that lies behind it”. Blyth shows that the interconnectedness of the international debt market poses a real threat. He goes on to argue that most misunderstand and misrepresent cause and effect, taking on a morality play between “good austerity” and “bad spending” and that this could potentially lead us into a series of self-defeating budget cuts. 

Blyth shows the practical implications and material benefits of austerity to be null and void while a ‘fallacy of composition’ is present. However, he then outlines that within austere budget cuts, the ‘cost’ is not spread evenly throughout. First to be cut is pubic services, something the higher earners are not likely to make use of anyhow. “…those who lie in the bottom 40 percent of the income distribution who haven’t had a real wage increase since 1979. These are the folks who actually rely upon government services”. This unequal distribution of cost serves to antagonise the bottom 40%, “populism, nationalism, and call for the return of ‘God and gold’ in equal doses are what unequal austerity generates”, as we have seen recently in the Brexit referendum and Donald Trump’s presidential election win. Austerity's most expensive cost been political stability and as Blyth argues, austerity’s main goal is to keep liquidity in the banks, for the time being.

The conclusion is bleak. Austerity as an idea has had a long history but a seldom positive one. “The few positive cases we can find are easily explained by currency devaluations and accommodative pacts with trade unions”. Austerity has brought class politics, riots, political instability and more rather than less debt (though the deficit has been cut, on a happier note).

The difference between Iceland and Ireland is more than one letter and provides a good case study to the alternative of austerity. Iceland had a debt-to-GDP ratio of nearly 1000% and let its banks fail. Now it is a poster child for post-crisis growth at nearly 3.5% (as of 2013), while Ireland endures yet crippling austerity with no end in sight. Yes, Icelands unemployment peaked at around 10% in 2010 but there is now real growth in the economy. Ireland’s economy is nominally inflated by the likes of Google, Facebook and Apple, doing little for the Irish people.

In closing, Blyth states the only real alternative to Austerity is taxation on those who can afford it, and rather than labelling these events as a sovereign debt crisis (in Europe), and to call it what it is; a banking crisis. Tax the banks, tax the highest earners (surprisingly likely to be in finance) and take the cost of this crisis off the shoulders of those who had nothing to do with it: The poorest 40%.

Bibliography: 

Blyth, M., 2013. Austerity: The history of a dangerous idea. Oxford University Press.

Capitalism vs. The Climate. How is Neoliberalism to blame for Global Warming?

“What is wrong with us?” Klein asks, in the introduction to her book "This changes everything”. Why are we letting our planet, its nature and inhabitants be at risk from a destructive changing environment? Why are we looking away?

Destructive changes to the climate are scientifically-proven to be happening, and global carbon dioxide emissions are 61% higher than they were in 1990. It has been stated that a 4 degree rise in global temperature would see the drowning of nations, wide-raging droughts, flooding, pest outbreaks, hurricanes, wild fires, the collapse of fisheries, extinctions and globetrotting diseases - all at the detriment of our species. One would think this would push global warming to the forefront of society’s mind, but this isn’t the case.

We are witnessing a catastrophic mass-obfuscation and procrastination from issues of climate change, and for Klein it is our current economic system that is to blame.

This current corporate culture, birthed at the end of the 1980’s with the introduction of neoliberal policies has re-made our world to benefit a minority of individuals. Focus on global trade and consumption is causing emissions to rise at a rapid rate, and a radical change must come if we want to do something about it.

The ‘three pillars’ of the neoliberal age – “the privatisation of the public sphere, deregulation of the corporate sector [and] the lowering of income and corporate taxes” have formed an “ideological wall”, shadowing us away from the problems of climate change, blinding us from recognising that it is a result of these economic policies that our climate has been destabilised. Our lifestyles have adapted to a consumer-driven economy focused on trade and consumption, resulting in our species existing with greed as our guide; proving fatal to the future of this planet that has given us life.

Neoliberal ideology is at the root of the problems of global warming, with an export-led globalised market economy focused on the consumption of fossil fuels, catapulting our species towards a 'dystopic future'. Its forerunners are at the forefront of movements against positive climate change - these mostly white, male, privileged, conservatives with ‘higher than average incomes’ are very confidently denying the research of 97% scientists and their “peer-reviewed articles”. Rejecting “every national academy of science, institutions like the World Bank and the International Energy” and their claims that we are heading towards catastrophic levels of global warming; all in the name of money.

“It is difficult to get a man to understand something, when his salary depends on his not understanding it” stated Upton Sinclair. Accepting the truth of global warming would be costly for the global capitalists, because their focus on economic growth does not coincide with efforts to save us from a destructive changing climate.  The idea that climate change is a conspiracy against capitalism stems from corporate neoliberals who recognise efforts towards saving the planet as a threat to their global economic system, and they are not wrong on this assumption. These “elite masterminds” are paying attention, they know that climate change action would mean changing the very system to which they “owe their very life", but they blanket this paranoia in claiming climate change is a left-wing fantasy.

Tackling climate change cannot be separated from tackling economic growth, and an entire re-working of capitalism would be required to save us from the devastating effects of global warming. We would need to reformat the economy because the way that capitalism is currently constructed is detrimental to our ecology and the environment. The earth is being destroyed, “all at the ‘name of feeding the god of economic growth' (via the altar of hyper-consumption) in every country in the world”.

Despite this, Klein remains hopeful. She describes climate change as ‘the people’s shock’.  Klein believes that if enough of us decide that it is an important issue, the political class will be forced to respond. Climate change could become a “catalysing force” and a positive move towards the reclaiming of democracy. We, the people, if we mobilise, could protect humanity from an “unjust economic system” and from a “destabilised climate system” at the same time.

All we need to do is speak out to the governments, confirm for them that climate change is a problem, for it is they who have the power to halt neoliberal policy and change the profit-seeking orders of capitalism away from the destruction of the planet. 

We must localise our economies, giving jobs back to those unemployed workers and farmers who are “unable to compete with cheap imports” and reestablish communities who have seen their manufacturers move off shore, all replaced by multi-national corporations as a result of neoliberal policies.

Bibliogrpahy

Klein, N. (2014) This Changes Everything
https://thischangeseverything.org/

Thank you for reading

Ciara Baxendale