It’s simple. If we can’t change our economic system, our number’s up

George Monbiot writes: Let us imagine that in 3030BC the total possessions of the people of Egypt filled one cubic metre. Let us propose that these possessions grew by 4.5% a year. How big would that stash have been by the Battle of Actium in 30BC? This is the calculation performed by the investment banker Jeremy Grantham.

Go on, take a guess. Ten times the size of the pyramids? All the sand in the Sahara? The Atlantic ocean? The volume of the planet? A little more? It’s 2.5 billion billion solar systems. It does not take you long, pondering this outcome, to reach the paradoxical position that salvation lies in collapse.

To succeed is to destroy ourselves. To fail is to destroy ourselves. That is the bind we have created. Ignore if you must climate change, biodiversity collapse, the depletion of water, soil, minerals, oil; even if all these issues miraculously vanished, the mathematics of compound growth make continuity impossible.

Economic growth is an artefact of the use of fossil fuels. Before large amounts of coal were extracted, every upswing in industrial production would be met with a downswing in agricultural production, as the charcoal or horse power required by industry reduced the land available for growing food. Every prior industrial revolution collapsed, as growth could not be sustained. But coal broke this cycle and enabled – for a few hundred years – the phenomenon we now call sustained growth. [Continue reading...]

facebooktwittermail

The cooperative economy

Orion magazine: In the mid-1960s, when author, historian, and political economist Gar Alperovitz was working as legislative director for Senator Gaylord Nelson, change was in the air. Ink had dried on an early version of the Clean Air Act, the civil rights movement had won major victories, and the first Earth Day was in the works. The U.S. still faced plenty of serious challenges, but many Americans felt their country was capable of dealing with them successfully.

Today, things feel very different. “From climate change to a medieval level of wealth disparity, what we face in this country is no longer a regulatory crisis,” says Alperovitz. “We face a systemic crisis. And if you begin there, you begin to wonder: Is capitalism itself in profound trouble?”

Alperovitz believes it is. The author of several books on the subject, including America Beyond Capitalism, and a professor of political economy at the University of Maryland, he points to capitalism’s increasing dysfunction as the impetus for the rise of another economy, one built from the ground up by democratically owned organizations like cooperatives, community land trusts, and municipal institutions.

Orion editor Scott Gast spoke with Alperovitz after the publication of his most recent book, What Then Must We Do?: Straight Talk about the Next American Revolution, which explores whether the cooperative economy can provide the seeds for a system that isn’t capitalism and isn’t socialism, but something entirely new. [Continue reading...]

facebooktwittermail

Mapping a new economy

Scott Carlson writes: David Harvey would implore you to imagine life without capitalism—that is, if you can. Chances are, even if you’re puzzled by the manipulation of phantom money on Wall Street, troubled by society’s growing inequality, or disgusted with the platinum parachutes of corporate executives, you probably still conceive the world in terms of profits, private property, and free markets, the invisible hand always on the tiller.

To Harvey, a professor of anthropology and geography at the Graduate Center of the City University of New York, that world is coming to an end. In Seventeen Contradictions and the End of Capitalism (Oxford University Press), Harvey examines what he sees as the untenable elements of capital, and he analyzes how they can produce an unequal, destructive, crisis-prone system. The book represents a distillation of Harvey’s 40-year study of Karl Marx, and in its own way a bid to change the conversation about what’s not working and what’s possible—especially when many have consigned Marx to history’s dustbin.

“I was tired of hearing Marx quoted in ways that struck me as completely wrong,” Harvey says in his office at CUNY, around the corner from the Empire State Building. “Who I am writing for is, in a sense, anybody who says, Who is this guy Marx? I wanted to make it simple enough so that people could get into it, without being simplistic.” [Continue reading...]

facebooktwittermail

Capital in the Twenty-First Century: Thomas Piketty’s data-driven magnum opus on inequality

Jacob S. Hacker and Paul Pierson write: When Alexis de Tocqueville visited America in the early 1830s, the aspect of the new republic that most stimulated him was its remarkable social equality. “America, then, exhibits in her social state an extraordinary phenomenon,” Tocqueville marveled. “Men are there seen on a greater equality in point of fortune and intellect … than in any other country of the world, or in any age of which history has preserved the remembrance.”

To Tocqueville, who largely ignored the grim exception of the South, America’s progress toward greater equality was inevitable, the expansion of its democratic spirit unstoppable. Europe, he believed, would soon follow America’s lead. He was right—sort of. Democracy was on the rise, but so too was inequality. Only with the 20th century’s Great Depression, two terrible wars, and the creation of the modern welfare state did concentrations of economic advantage in rich democracies start to dissipate and the fruits of rapid growth begin to accrue generously to ordinary workers.

Now another Frenchman with a panoramic vista — and far more precise evidence — wants us to think anew about the progress of equality and democracy. Though an heir to Tocqueville’s tradition of analytic history, Thomas Piketty has a message that could not be more different: Unless we act, inequality will grow much worse, eventually making a mockery of our democratic institutions. With wealth more and more concentrated, countries racing to cut taxes on capital, and inheritance coming to rival entrepreneurship as a source of riches, a new patrimonial elite may prove as inevitable as Tocqueville once believed democratic equality was.

This forecast is based not on speculation but on facts assembled through prodigious research. Piketty’s startling numbers show that the share of national income coming from capital — once comfortingly believed to be stable — is on the rise. Private wealth has reached new highs relative to national income and is approaching levels of concentration not seen since before 1929. [Continue reading...]

John Cassidy writes: Piketty believes that the rise in inequality can’t be understood independently of politics. For his new book, he chose a title evoking Marx, but he doesn’t think that capitalism is doomed, or that ever-rising inequality is inevitable. There are circumstances, he concedes, in which incomes can converge and the living standards of the masses can increase steadily — as happened in the so-called Golden Age, from 1945 to 1973. But Piketty argues that this state of affairs, which many of us regard as normal, may well have been a historical exception. The “forces of divergence can at any point regain the upper hand, as seems to be happening now, at the beginning of the twenty-first century,” he writes. And, if current trends continue, “the consequences for the long-term dynamics of the wealth distribution are potentially terrifying.”

In the nineteen-fifties, the average American chief executive was paid about twenty times as much as the typical employee of his firm. These days, at Fortune 500 companies, the pay ratio between the corner office and the shop floor is more than two hundred to one, and many C.E.O.s do even better. In 2011, Apple’s Tim Cook received three hundred and seventy-eight million dollars in salary, stock, and other benefits, which was sixty-two hundred and fifty-eight times the wage of an average Apple employee. A typical worker at Walmart earns less than twenty-five thousand dollars a year; Michael Duke, the retailer’s former chief executive, was paid more than twenty-three million dollars in 2012. The trend is evident everywhere. According to a recent report by Oxfam, the richest eighty-five people in the world — the likes of Bill Gates, Warren Buffett, and Carlos Slim — own more wealth than the roughly 3.5 billion people who make up the poorest half of the world’s population.

Eventually, Piketty says, we could see the reëmergence of a world familiar to nineteenth-century Europeans; he cites the novels of Austen and Balzac. In this “patrimonial society,” a small group of wealthy rentiers lives lavishly on the fruits of its inherited wealth, and the rest struggle to keep up. For the United States, in particular, this would be a cruel and ironic fate. “The egalitarian pioneer ideal has faded into oblivion,” Piketty writes, “and the New World may be on the verge of becoming the Old Europe of the twenty-first century’s globalized economy.”

What are the “forces of divergence” that produce enormous riches for some and leave the majority scrabbling to make a decent living? Piketty is clear that there are different factors behind stagnation in the middle and riches at the top. But, during periods of modest economic growth, such as the one that many advanced economies have experienced in recent decades, income tends to shift from labor to capital. Because of enmeshed economic, social, and political pressures, Piketty fears “levels of inequality never before seen.”

To back up his arguments, he provides a trove of data. He and Saez pioneered the construction of simple charts showing the shares of over-all income received by the richest ten per cent, the richest one per cent, and, even, the richest 0.1 per cent. When the data are presented in this way, Piketty notes, it is easy for people to “grasp their position in the contemporary hierarchy (always a useful exercise, particularly when one belongs to the upper centiles of the distribution and tends to forget it, as is often the case with economists).” Anybody who reads the newspaper will be aware that, in the United States, the “one per cent” is taking an ever-larger slice of the economic pie. But did you know that the share of the top income percentile is bigger than it was in South Africa in the nineteen-sixties and about the same as it is in Colombia, another deeply divided society, today? In terms of income generated by work, the level of inequality in the United States is “probably higher than in any other society at any time in the past, anywhere in the world,” Piketty writes. [Continue reading...]

facebooktwittermail

Revelations of NSA spying cost U.S. tech companies

a13-iconThe New York Times reports: Microsoft has lost customers, including the government of Brazil.

IBM is spending more than a billion dollars to build data centers overseas to reassure foreign customers that their information is safe from prying eyes in the United States government.

And tech companies abroad, from Europe to South America, say they are gaining customers that are shunning United States providers, suspicious because of the revelations by Edward J. Snowden that tied these providers to the National Security Agency’s vast surveillance program.

Even as Washington grapples with the diplomatic and political fallout of Mr. Snowden’s leaks, the more urgent issue, companies and analysts say, is economic. Technology executives, including Mark Zuckerberg of Facebook, raised the issue when they went to the White House on Friday for a meeting with President Obama.

It is impossible to see now the full economic ramifications of the spying disclosures — in part because most companies are locked in multiyear contracts — but the pieces are beginning to add up as businesses question the trustworthiness of American technology products. [Continue reading...]

facebooktwittermail

Ukraine crisis: Why it matters to the world economy

a13-iconCNN reports: While the world watches the escalating crisis in Ukraine, investors and world leaders are considering how the instability could roil the global economy.

The political turmoil is rooted in the country’s strategic economic position. It is an important conduit between Russia and major European markets, as well as a significant exporter of grain.

But in the post-Soviet era, it’s a weakened economy. Now, the government is in need of an economic rescue — and torn between whether Russia or the Western economies (including the European Union) is the savior it needs.

Here are five reasons the world’s largest economies are watching what happens in Ukraine. [Continue reading...]

facebooktwittermail

Video: An economic reality check

facebooktwittermail

The ignorance of economists

The Economist: “Sovereign in tastes, steely-eyed and point-on in perception of risk, and relentless in maximisation of happiness.” This was Daniel McFadden’s memorable summation, in 2006, of the idea of Everyman held by economists. That this description is unlike any real person was Mr McFadden’s point. The Nobel prizewinning economist at the University of California, Berkeley, wryly termed homo economicus “a rare species”. In his latest paper he outlines a “new science of pleasure”, in which he argues that economics should draw much more heavily on fields such as psychology, neuroscience and anthropology. He wants economists to accept that evidence from other disciplines does not just explain those bits of behaviour that do not fit the standard models. Rather, what economists consider anomalous is the norm. Homo economicus, not his fallible counterpart, is the oddity.

To take one example, the “people” in economic models have fixed preferences, which are taken as given. Yet a large body of research from cognitive psychology shows that preferences are in fact rather fluid. People value mundane things much more highly when they think of them as somehow “their own”: they insist on a much higher price for a coffee cup they think of as theirs, for instance, than for an identical one that isn’t. This “endowment effect” means that people hold on to shares well past the point where it makes sense to sell them. Cognitive scientists have also found that people dislike losing something much more than they like gaining the same amount. Such “loss aversion” can explain why people often pick insurance policies with lower deductible charges even when they are more expensive. At the moment of an accident a deductible feels like a loss, whereas all those premium payments are part of the status quo.

Another area where orthodox economics finds itself at sea is the role of memory and experience in determining choices. Recollection of a painful or pleasurable experience is dominated by how people felt at the peak and the end of the episode. In a 1996 experiment Donald Redelmeier and Daniel Kahneman, two psychologists, showed that deliberately adding a burst of pain at the end of a colonoscopy that was of lower intensity than the peak made patients think back on the experience more favourably. Unlike homo economicus, real people are strongly influenced by such things as the order in which they see options and what happened right before they made a choice. Incorporating these findings into models of consumer behaviour should improve their power to predict everything from which loans people choose to which colleges they apply for. [Continue reading...]

facebooktwittermail

The next money: As the big economies falter, micro-currencies rise

Eric Garland writes: People everywhere are fed up with the status quo of the economy. With the passion our official institutions show for this tepid “recovery,” many are concluding that progress will come not from the current system, which is after all what got us here in the first place, but from their own ingenuity and inventiveness. In pockets around the world, folks are declaring economic independence by starting small, local, but potentially revolutionary alternative currencies that could change not only how we buy goods and services — but how we relate to one other in society. If these micro-currencies catch on, we could be witnessing the replacement of our monocultural monetary system, which emphasizes a certain sort of free market capitalism above all else, with a variety of currencies that will represent more diverse sets of values belonging to the groups that hold them.

The next time you’re in the southside of London, you might find yourself standing next to a man purchasing his chicken tikka with pounds sterling that feature, rather than the Queen of England, David Bowie in his Ziggy Stardust era. The man isn’t a counterfeiter with a love of 70s glam rock, but a resident of Brixton proudly using the Brixton Pound, a “complementary currency” meant to revitalize the famously tough London borough by encouraging people to spend their money as close to home as possible. Started in September 2009, the Brixton pound can now be used at 200 local businesses, some of which offer special deals to those who use the currency instead of plain-old pounds sterling. Not that normal British currency is useless: the Brixton pound is pegged directly to its national cousin, and all the notes in circulation are backed by sterling located at a local bank. The scheme is small in scope and totally transparent. And while the paper money is gorgeous and meaningful, it will soon be expanded to allow people to spend their Brixton pounds by text message.

Brixton is one of four “Transition Towns” in the United Kingdom — the others are Totnes, Lewes, and Stroud — currently using local currencies. The effort to energize local merchants and inspire local consumers to incorporate their values into their commerce may also be inspiring others. [Continue reading...]

facebooktwittermail

Video: Beat the Press with Dean Baker

facebooktwittermail

Video: Jeremy Rifkin — The Third Industrial Revolution

facebooktwittermail

How austerity is killing Europe

Jeff Madrick writes: On the last day of 2011, a headline in The Wall Street Journal read: “Spain Misses Deficit Target, Sets Cuts.” The cruel forces of poor economic logic were at work to welcome in the new year. The European Union has become a vicious circle of burgeoning debt leading to radical austerity measures, which in turn further weaken economic conditions and result in calls for still more damaging cuts in government spending and higher taxes. The European debt crisis began with Greece, and that nation remains the European Union’s most stricken economy. But it has spread inexorably to Ireland, Portugal, Italy, and Spain, and even threatens France and possibly the U.K. It need not have done so. Rarely do we get so stark an example of bad—arguably even perverse—economic thinking in action.

Over the past two years, the severe 2009 recession, which started in the U.S. but spread across Europe, have imperiled the finances of one European country after another. As a result, Portugal, Ireland, Spain and Italy are coming under pressure from the EU to cut government spending and raise taxes to reduce their deficits if they wanted to qualify for a bailout. All have done so. Ireland and Portugal sharply cut spending and still had to take tens of billions of euros to help meet financial obligations as of course did Greece. The European Central Bank bought the bonds of Italy and Spain. Britain’s Conservative government led the way in ruthless government cutbacks in 2010. France has adopted its own austerity package, and even Germany, the supposed economic leader of Europe, has planned to cut its deficit by a record 80 billion euros in 2014.

Proponents of austerity claim that as nations take control of their finances businesses become more convinced that interest rates will not rise and that growth will resume. Their reasoning has been abetted by the financial markets, which drove up rates on Greek debt and soon enough on the debt of nations like Portugal, Spain and Italy. Should these nations not be able to pay their debts, bond buyers wanted a high enough interest rate to compensate for the risk.

But this is pre-Great Depression economics. How could the EU so misread history and treat with contempt the teachings of John Maynard Keynes, who argued that during recessions governments must expand economies through spending and tax cuts, not the opposite? In practice, making large-scale budget cuts or raising taxes, as Keynes showed, will reduce demand for goods and services just when an increase is needed. Faltering sales will undermine the confidence of businesses far more than fiscal consolidation will embolden them. By ignoring this, European policy makers will deepen, not solve, the financial crisis and millions of people will suffer needlessly.

facebooktwittermail

Rethinking the growth imperative

Kenneth Rogoff writes: Modern macroeconomics often seems to treat rapid and stable economic growth as the be-all and end-all of policy. That message is echoed in political debates, central-bank boardrooms and front-page headlines. But does it really make sense to take growth as the main social objective in perpetuity, as economics textbooks implicitly assume?

Certainly, many critiques of standard economic statistics have argued for broader measures of national welfare, such as life expectancy at birth, literacy, etc. Such appraisals include the United Nations Human Development Report, and, more recently, the French-sponsored Commission on the Measurement of Economic Performance and Social Progress, led by the economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi.

But there might be a problem even deeper than statistical narrowness: the failure of modern growth theory to emphasise adequately that people are fundamentally social creatures. They evaluate their welfare based on what they see around them, not just on some absolute standard.

Riz Khan – Europe’s Welfare State

The economist Richard Easterlin famously observed that surveys of “happiness” show surprisingly little evolution in the decades after World War II, despite significant trend income growth. Needless to say, Easterlin’s result seems less plausible for very poor countries, where rapidly rising incomes often allow societies to enjoy large life improvements, which presumably strongly correlate with any reasonable measure of overall well-being.

In advanced economies, however, benchmarking behaviour is almost surely an important factor in how people assess their own well-being. If so, generalised income growth might well raise such assessments at a much slower pace than one might expect from looking at how a rise in an individual’s income relative to others affects their welfare.

And, on a related note, benchmarking behaviour may well imply a different calculus of the tradeoffs between growth and other economic challenges, such as environmental degradation, than conventional growth models suggest.

facebooktwittermail

America builds wealth without common wealth

Umair Haque suggests that to measure the welfare of America, it’s time to focus less on GDP — a measure of the national income — and consider instead an equation that says “real human welfare equals natural capital, plus financial capital, plus intellectual capital, plus human capital, plus social, emotional, and organizational capital.” If one was to assess these different kinds of capital:

You might see social capital — the wealth of relationships — crashing. According to Ohio State University’s Pamela Paxton, declines in trust among individuals of half a percent per year from 1975 to 1994. A life rich in relationships and connections seems to be a more and more elusive goal.

You might notice human capital — the wealth in people — splintering. Perhaps the most essential component of human capital is education. Yet, the Brookings Institution found that, for the first time, older generations have attained more higher education than younger ones. That points to an inflection point in human capital, marking a peak in American educational attainment.

Human capital is also composed of mental and physical health. Both mental illness and obesity rates have risen steadily for the last century in America. And rates of happiness in the United States, United Kingdom, and Japan have flatlined — and by some measures, fallen — over recent decades.

You might see intellectual capital — the wealth of ideas — struggling to develop. Intellectual capital is often assessed simply by looking at the sheer number of patents, but I’d choose a higher bar: the creation not merely of patents, but of new industries, sectors, and markets. Fewer industries were created in the noughties than in any decade since 1930: just two, by my count — search and nanotech. Though patent applications have skyrocketed, patent quality has dropped. They are now less expressions of true intellectual wealth than tools for strategic control.

You might see organizational capital — the wealth that harmonizes and synchronizes the other kinds of wealth — cratering. Organizational capital is the toughest kind of capital to measure and observe. I’d roughly gauge it by looking at the creation rate of new jobs, because new jobs often represent new roles, gains in the division of labor, the raw stuff of organizational capital. America is often said to be the most dynamic economy in the world, but the net creation rate of new jobs has dropped steadily since 1970. I’d also look at an alternative measure of organizational capital: political decision-making. Here, we find more “gridlock”: filibusters in the Senate have risen exponentially over the last three decades to an unprecedented high.

Here’s what the glimpse I’ve given suggests: the state of the Common Wealth is in crisis. In terms of an authentically good life, we’re going nowhere fast.

facebooktwittermail

The shadow superpower

Robert Neuwirth writes: With only a mobile phone and a promise of money from his uncle, David Obi did something the Nigerian government has been trying to do for decades: He figured out how to bring electricity to the masses in Africa’s most populous country.

It wasn’t a matter of technology. David is not an inventor or an engineer, and his insights into his country’s electrical problems had nothing to do with fancy photovoltaics or turbines to harness the harmattan or any other alternative sources of energy. Instead, 7,000 miles from home, using a language he could hardly speak, he did what traders have always done: made a deal. He contracted with a Chinese firm near Guangzhou to produce small diesel-powered generators under his uncle’s brand name, Aakoo, and shipped them home to Nigeria, where power is often scarce. David’s deal, struck four years ago, was not massive — but it made a solid profit and put him on a strong footing for success as a transnational merchant. Like almost all the transactions between Nigerian traders and Chinese manufacturers, it was also sub rosa: under the radar, outside of the view or control of government, part of the unheralded alternative economic universe of System D.

You probably have never heard of System D. Neither had I until I started visiting street markets and unlicensed bazaars around the globe.

System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of “l’economie de la débrouillardise.” Or, sweetened for street use, “Systeme D.” This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy. A number of well-known chefs have also appropriated the term to describe the skill and sheer joy necessary to improvise a gourmet meal using only the mismatched ingredients that happen to be at hand in a kitchen.

I like the phrase. It has a carefree lilt and some friendly resonances. At the same time, it asserts an important truth: What happens in all the unregistered markets and roadside kiosks of the world is not simply haphazard. It is a product of intelligence, resilience, self-organization, and group solidarity, and it follows a number of well-worn though unwritten rules. It is, in that sense, a system.

facebooktwittermail

Pavan Sukhdev: Put a value on nature!

facebooktwittermail