Monday, September 08, 2014

You Know It's Not Working for Us. It's Been Over For a Long Time.

Naomi Klein's new book, This Changes Everything, will be out next week.  The theme of the book is change or be changed.  Klein argues that the only way mankind will survive climate change is to change the economic model that plagues us and potentially dooms us - good old, free market capitalism.

To do that we'll need to change the way we're organized, socially and politically.  Governments have stopped responding to the public interest, yielding instead to neoliberalism.  They have surrendered a good deal of our sovereignty to corporatism and globalization.  Through that they have enabled the transfer of wealth and political power from labour to capital ensuring the rapid growth of inequality of wealth, income and opportunity and the decline of social mobility.  All of this has occurred through the degrading of our democracy and, unless we throw this over, our grandkids could be looking at a future of corporatist feudalism. 

Three years ago I concluded that Karl Marx was right, that capitalism is self-destructive.  At the end of the day it collapses under its own weight.  It self-destructs.  The markets are falling into chaos. This is by no means to say there's not a role for capital.  There is, just not the role it has assumed today.  We need a reformed capitalism, one functioning under a different economic model.  Even Adam Smith, in The Wealth of Nations, realized that growth-based economics of the sort we're enslaved to couldn't function for more than 200-years before transitioning to a stable or steady state.

Smith recognized a limit to economic growth. He predicted that in the long run, population growth would push wages down, natural resources would become increasingly scarce, and division of labor would approach the limits of its effectiveness. He incorrectly predicted 200 years as the longest period of growth, followed by population stability.

I don't think that Smith got it wrong at all.  What he predicted was right but we haven't had the wisdom to abandon our addiction to perpetual exponential growth. 

Klein argues that we're nearing a sink or swim moment and that the very threat posed to our society by climate change is also the opportunity for us to learn to swim. 

It's been written that the 21st will be a century of revolution and we're already seeing that in rebellions, social unrest and the rise of failed states.  18th century economics, 19th century industrialism and 20th century geo-politics are what has brought us to this perilous state.  Overall they worked fairly well for us for a couple of centuries but they also created the conditions in which mankind's population - around a billion at the start - has burgeoned to 7+ billion en route to 9 or more.   Somewhere at around the 3-billion mark these institutions developed a toxicity that has steadily worsened over the past 30-years.  Today their legacy has become over population, over-consumption, environmental degradation, resource depletion, species extinctions - on and on and on.

Unfortunately the broad sweeping reformation of the sort envisioned by Klein will be taken by the powerful defenders of the status quo as revolutionary.  There are many vested interests who do not want to accept change and they're supported by every political party in Canada today.  Somehow these institutions that have driven us to the cliff edge have to be taken down.  Therein lies the struggle.  But it's a struggle in which we don't really have much choice.


Ron Waller said...

Economic growth is not the problem. And there doesn't need to be a limit to it. (The economic crisis we are facing now was caused by a financial meltdown and a poor government response to it. The same thing happened during the 1930s, which we recovered from in the post-war era.)

It is possible (and in fact, necessary,) to have an economy based on 100% renewable energy and recyclable materials that can grow without physical limitations.

Economic growth simply means wealth creation. Being more wealthy is always better. A wealthy country — in fact, a wealthy civilization — can provide its citizens generous public benefits (health care, prescription medication, eye-care, dental care, day care, good pensions, etc.) low-cost or free post-secondary education and worker training, subsidized mass transit, subsidized high speed internet (wired and wireless), etc.

The problems that exist with the growth of wealth are: inequality of income, inequality of capital (ownership of the means of production) and poor regulations.

Neo-liberal free-market ideology aggravates the problems. Centrist Keynesian mixed-market economics provides a tried-and-true solution: a strong regulatory framework, a strong democratic influence over the economy and redistribution of wealth through progressive taxation. So there is no need to reinvent the wheel.

Economic growth is ultimately founded on people getting a return on their savings. People want to borrow money for things like cars and homes. People need money to create and expand businesses. Eliminating economic growth means eliminating incentives to produce goods and services. Real world experience shows us a declining economy means recession and depression which are not beneficial to society.

If a society is not market-based it must be controlled by a central bureaucracy. Not only is this highly inefficient in anticipating the needs and wants of society — suppressing talent and creativity — it must crack down on personal freedoms.

People who propose radical solutions outside the framework of established macroeconomic knowledge will lose the economic debate by default. This will only bolster the neoliberal agenda of the plutocrats. The only way to defeat them is on the economic battlefield by exposing their free-market reforms as utter failures in delivering promised prosperity and by providing a good alternative — the centrist mixed-market system which created unprecedented wealth, living standards and economic stability in the past.

The Mound of Sound said...

If only Utopia existed, Ron, some of your arguments would be valid. It doesn't nor does the political will exist to create it. Unfortunately economic growth means a great deal more than simply wealth creation as you contend.

Ron Waller said...

The post-war Keynesian era (1945-1980) actually happened. It was not utopian. Not only that, it's based on sound proven economic principles.

Back then the rich were contained and democracy was at its height. Taxes on the rich were 70% and higher.

In order to have a green economy you need progressive taxation, redistribution of wealth and massive public infrastructure spending (which will create jobs plus economic and productivity growth.)

I don't see any mechanism by which a government could end economic growth. Would it be illegal for banks to loan money and people to get mortgages? Stopping economic growth will likely cause a deflationary spiral (central banks target inflation so it doesn't drop below 1% for fear of deflation.)

Regarding Naomi Klein, her book Disaster Capitalism was very pro-Keynesian. I would be shocked (pun intended) to find her attacking the Keynesian system in her upcoming book.

Neo-liberals are fiercely anti-Keynesian, BTW.

I suggest you see the documentary "Inequality For All" by Robert Reich. (He's the most left-leaning Keynesian.) Joseph Stiglitz's "Freefall" is a must read, explaining the 2008 meltdown and the appalling way Bush and Obama bailed out investment banks. Paul Krugman's books "Return to Depression Economics" and "End this Depression Now" are also very informative.

The Mound of Sound said...

I don't know if you're aware of it, Ron, but Stiglitz, Krugman and others are moving into what's called Steady State or Full Earth economics. It's predicated on balancing production, consumption and waste to the limits of the environment and likewise bringing birth rates and death rates into balance.

Keynes versus Heyak is more an argument of fiscal policy - stimulus versus restraint - than the larger and more pressing reality of bringing the economy into harmony as a subset of the environment.

You might read Herman Daly's "Beyond Growth", Paul Craig Roberts "The Failure of Laissez Faire Capitalism" and the esssays in "Natural Capital and Human Economic Survival" edited by Thomas Prugh.

Here's something you might want to consider. Use the compound interest calculator linked below. Begin in Year 1 with $1. That's your Year 1 GDP, just $1. Then factor in 3% interest compounded annually. Now run it for 50-years, 100-years, 150 and 200. That's just two centuries, a heartbeat in the greater scheme of things. You'll have grown the Year 1 economy 369 times in just two centuries.

One more century of 3% annual growth and the economy will be 7,098 times bigger than in Year 1. At the end of four centuries it would be 136,423 times that of Year 1.

You see, Ron, even modest 3% annual growth in GDP is suicidal over the span of just a few centuries. Now let David Suzuki explain exponential growth.

Hugh said...

The way I see it, we have had great economic growth since 1950. During that time energy has been relatively cheap, esp. oil. Oil production since then grew hugely.

Economic growth needs energy. Now that resources like oil are getting more expensive, there is less economic growth.

There is renewable energy, but I don't think it can ever provide as much energy as 80 million barrels of oil a day, the current production.

We could see growth in renewable energy, but overall less or negative total gdp growth, IMO.

A big problem is that the financial system seems to demand continued gdp growth.

Alison said...

Keep meaning to leave a note to say how very much I appreciate - every day -your interesting links and keen analysis of the Anthropocene. Wondering if you ever had time to read Ronald Wright's powerful fictional account Scientific Romance.

The Mound of Sound said...

Hi, Hugh. Two things to consider - renewable energy beyond wind and solar - and the subsidies and social cost of the fossil fuelers. It's telling that we keep leaving them off our balance sheet yet we keep paying their price. It's both a current and future cost that we simply dismiss as an "externality."

Ron Waller said...

I'm well aware of compound interest and exponential growth.

What some environmentalists don't understand is economics and politics.

I imagine anti-growth environmentalists believe we need stronger green regulations. As I have already established, if we have an economy based on renewable energy and recyclable materials we won't use up all our resources like bacteria growing in a petri dish.

The solution to the problem is economics, which boils down to accounting and incentives.

The reason dirty energy is wrong, economically, is because of accounting: i.e., externalities. There are costs not factored into the price that are passed onto society. Good economic policy factors in the price via regulation.

Dirty energy is also wrong because of incentives: people will choose the dirty form of energy because it's apparently cheaper. But if government costs in the externalities, renewable energy becomes more affordable. (Technological advancements fueled by demand for green energy will also bring down the price.)

In order to transform into a green energy economy, we need progressive taxation, government infrastructure spending and subsidies for the costs of the upgrades (and economic growth to pay for them.) This will make green energy affordable. If it is not, people will vote for dirty energy.

Free trade is also the enemy of environmental sustainability. Developed countries are presently exporting their GHG emissions to developing ones by exporting manufacturing. Free trade causes a regulatory race to the bottom.

The solution is managed trade (fair trade) which enforces global regulations through incentives: i.e., tariffs. Countries that run high trade surpluses, abuse the environment, exploit workers, etc. are punished with tariffs.

Another factor is population growth. Developed countries (excluding America) have negative growth rates. The population growth problem occurs in poor countries. So the solution is fair trade that raises living standards plus increased immigration to richer countries (that doesn't poach skilled workers causing a brain drain.)

In short, the anti-growth camp is barking up the wrong tree and doesn't offer any solutions. In my opinion, by spreading misinformation, they are helping the oligarchs destroy the world.

The Mound of Sound said...

I find your solution incredibly simplistic. Do you know how much of our consumption actually produces waste capable of recycling and, of that, what percentage can actually be efficiently recycled? Your solution is akin to saying we merely need to overcome gravity and then we can all fly to work. It's just not that simple and, unless you can show it is, I think I'll just move on now.

The Mound of Sound said...

Hi, Alison. Thank you for your encouraging words. Coming from Creekside, that is high praise. Very welcome if perhaps not entirely deserved.

Very pleased to know you stop by.


The Mound of Sound said...

Thanks for the link, Sam. This is a topic raised in two courses I took recently, one dealing with global food security, the other war studies. It's interesting how this undermining of sovereign power you mention is quite often linked to the rise of illiberal democracy as the state's accountability and responsiveness to its citizens is diluted.

Ron Waller said...

"I find your solution incredibly simplistic."

The economic principles I reference are pretty much the same ones the Green party is running on.

Perhaps you find Justin Trudeau's neo-Liberal policies more to your liking, which are predicated on turning Canada into a nation of tar scrapers. When the carbon bubble bursts that will certainly put an end to economic growth! (At least in our little backwater aristocracy.)

The Mound of Sound said...

No, Ron, I've written extensively setting out my objections to neoliberalism in all three main parties in our Parliament. I see it as being inherently undemocratic and the pathway to a descent into illiberal democracy.

Being a coastal British Columbian I can't wait for the high carbon bubble to burst. We may need that to save our coast from ecological catastrophe. They're all Tar Sanders, Ron, Mulcair included even if he's going all gushy now that Andrea got her ass handed to her.

Ron Waller said...

Actually Andrea increased the vote and the number of NDP seats. If Canada was a democracy, the Liberals wouldn't have got absolute corrupt power on 39% of the vote (of course partisan neo-Liberals think it's only wrong when someone like Harper wins a "majority" on 39%...)

Can't wait until the Big Nope becomes PM. Like Obama he'll be a big change from the previous government, keeping in place all the neo-con policies that were so terrible in opposition...

The Mound of Sound said...

I share your apprehension on that last score.

Hugh said...

Gdp growth of 2% per year means gdp would double in 35 years. I just did a spreadsheet.

Continuous gdp growth is impossible on a finite planet.

So why strive to achieve it?

Hugh said...

year 1
100.0 x 1.02 = 102.0
102.0 1.02 104.0
104.0 1.02 106.1
106.1 1.02 108.2
108.2 1.02 110.4
110.4 1.02 112.6
112.6 1.02 114.9
114.9 1.02 117.2
117.2 1.02 119.5
119.5 1.02 121.9
121.9 1.02 124.3
124.3 1.02 126.8
126.8 1.02 129.4
129.4 1.02 131.9
131.9 1.02 134.6
134.6 1.02 137.3
137.3 1.02 140.0
140.0 1.02 142.8
142.8 1.02 145.7
145.7 1.02 148.6
148.6 1.02 151.6
151.6 1.02 154.6
154.6 1.02 157.7
157.7 1.02 160.8
160.8 1.02 164.1
164.1 1.02 167.3
167.3 1.02 170.7
170.7 1.02 174.1
174.1 1.02 177.6
177.6 1.02 181.1
181.1 1.02 184.8
184.8 1.02 188.5
188.5 1.02 192.2
192.2 1.02 196.1
196.1 1.02 200.0 = year 35

The Mound of Sound said...

That's the point, Hugh. Perpetual, exponential growth of even 2% is suicidal to a finite ecosystem. It produces a curve that begins slowly but quickly takes off. So why do we pursue it? Because we have become accepting of the idea that we grow ourselves out of our problems. Aging population? Immigration to swell our numbers should take care of that. Raise our standard of living? Productivity increases reflected in GDP growth will solve everything. Corporations constantly quest for growth. Anything less is evidence of failure and mismanagement.

Ron Waller said...

The problem with anti-growth true believers is the same with 9/11 "Truthers": they make big assumptions that turn out to be wrong and no amount of evidence will make them change their position. Just like educated people can be Christians when the whole belief system is absurd. People are genetically designed to be cultural automatons. They tend to stick to a belief system after having been programmed with it.

As I pointed out there is no relationship between GDP (wealth) growth and population growth. The fastest growing populations have the lowest GDP per capita and the lowest productivity rates. The wealthiest countries have a negative growth rate.

If a country retooled its economy to be run on renewable energy this would create strong GDP growth that would obviously eliminate its energy-related effects on the environment. That's the very opposite of the anti-growth assumption.

Information-based goods and services also tend to use little energy and physical materials in their creation, production and transportation. They are high value-added and very green.

A green country would have to build new electric cars to replace the old ones. Make it affordable for homeowners to generate electricity with solar panels. Build bigger, better mass transit systems. Build wind and solar farms. Build high-speed internet systems so more work and education could be accomplished without high-energy-consuming travel.

As technology progressed, they would rebuild mass transit systems, wind and solar farms, etc. with updated equipment that is more energy efficient which would create more GDP growth and jobs. (The old equipment would be recycled.)

No doubt the anti-growth truthers would see this evolution of industrial society towards responsibility insane. But at the same time their belief-system implies we should give up our smart phones, computers, cars, houses and cities and return to a pre-industrial subsidence-level agricultural society. Odds are they don't use that as a selling point.

Hugh said...

A country could retool to run on renewable energy, and stop using fossil fuels.

But wouldn't that mean using less overall energy?

I'm assuming there wouldn't be enough renewables to replace all fossil fuel energy.

The Mound of Sound said...

Actually, Hugh, it would take only a small fraction of our renewable resources to replace the energy of all fossil fuels. My province (BC), for example, has enough renewable energy to meet the electricity needs of the entire country several times over even if we went to electric transport (cars, trains, etc.)_

British Columbia already provides about 95% of its electricity for domestic use and export from hydro-electric. That's the blessing of a continental west coast combined with mountains.

We also have considerable, as yet untapped, geo-thermal resources from our tectonic plate areas. Other countries are reaping a windfall from that.

Then we have tidal and current energy plus, of course, solar. There are bags of alternatives, Hugh. What would shift the balance overnight is either to end fossil fuel subsidies or reward the renewable competition with the same subsidies.