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Posts Tagged ‘economics

“Crises and deadlocks when they occur have at least this advantage, that they force us to think”*…

 

Capitalism

 

In the spirit of Nehru’s sage injunction…

The COVID19 pandemic has exposed a strange anomaly in the global economy. If it doesn’t keep growing endlessly, it just breaks. Grow, or die.

But there’s a deeper problem. New scientific research confirms that capitalism’s structural obsession with endless growth is destroying the very conditions for human survival on planet Earth.

A landmark study in the journal Nature Communications, “Scientists’ warning on affluence” — by scientists in Australia, Switzerland and the UK — concludes that the most fundamental driver of environmental destruction is the overconsumption of the super-rich.

This factor lies over and above other factors like fossil fuel consumption, industrial agriculture and deforestation: because it is overconsumption by the super-rich which is the chief driver of these other factors breaching key planetary boundaries.

The paper notes that the richest 10 percent of people are responsible for up to 43 percent of destructive global environmental impacts.

In contrast, the poorest 10 percent in the world are responsible just around 5 percent of these environmental impacts…

It confirms that global structural inequalities in the distribution of wealth are intimately related to an escalating environmental crisis threatening the very existence of human societies.

Synthesising knowledge from across the scientific community, the paper identifies capitalism as the main cause behind “alarming trends of environmental degradation” which now pose “existential threats to natural systems, economies and societies.”…

The research provides an important scientific context for how we can understand many earlier scientific studies revealing that industrial expansion has hugely increased the risks of new disease outbreaks.

Just last April, a paper in Landscape Ecology found that deforestation driven by increased demand for consumption of agricultural commodities or beef have increased the probability of ‘zoonotic’ diseases (exotic diseases circulating amongst animals) jumping to humans. This is because industrial expansion, driven by capitalist pressures, has intensified the encroachment of human activities on wildlife and natural ecosystems.

Two years ago, another study in Frontiers of Microbiology concluded presciently that accelerating deforestation due to “demographic growth” and the associated expansion of “farming, logging, and hunting”, is dangerously transforming rural environments. More bat species carrying exotic viruses have ended up next to human dwellings, the study said. This is increasing “the risk of transmission of viruses through direct contact, domestic animal infection, or contamination by urine or faeces.”

It is difficult to avoid the conclusion that the COVID19 pandemic thus emerged directly from these rapidly growing impacts of human activities. As the new paper in Nature Communications confirms, these impacts have accelerated in the context of the fundamental operations of industrial capitalism.

The result is that capitalism is causing human societies to increasingly breach key planetary boundaries, such as land-use change, biosphere integrity and climate change.

Remaining within these boundaries is essential to maintain what scientists describe as a “safe operating space” for human civilization. If those key ecosystems are disrupted, that “safe operating space” will begin to erode. The global impacts of the COVID19 pandemic are yet another clear indication that this process of erosion has already begun…

Humanity’s “own goal”? “Capitalism is destroying ‘safe operating space’ for humanity, warn scientists.”

Pair with “A New Land Contract“…

Weirdly enough, the land system that we have today has its origins in a problem specific to medieval kings, which is ‘how do I fund military campaigns and defence, without paying to keep a standing army?’

And it was William the Conqueror who perfected the answer. It was a piece of paper. And on that piece of paper was basically an agreement between the Crown and a noble, saying ‘if you provide men for military campaigns when I ask, in exchange I will grant you a monopoly over your own private fiefdom, where you can levy as high taxes as people can bear to pay’.

So effectively — rent is the original tax, paid via lords to the King.

In fact the word ‘feudal’ derives from the latin word feudalis — for ‘fee’. In other words, rent. So the whole system of government by which the Normans ruled over the Anglo Saxons was based on rent…

So what you’re left with is a set of power relations in society: an enforced system of servitude and control. As the economist Henry George pointed out, it is essentially a diluted version of slavery.

“Ownership of land always gives ownership of people… Place one hundred people on an island from which there is no escape. Make one of them the absolute owner of the others — or the absolute owner of the soil. It will make no difference — either to owner or to the others — which one you choose. Either way, one individual will be the absolute master of the other ninety-nine.”

And “Basic income isn’t just a nice idea. It’s a birthright“…

A basic income might defeat the scarcity mindset that has seeped so deep into our culture, freeing us from the imperatives of competition and allowing us to be more open and generous people. If extended universally, across borders, it might help instil a sense of solidarity – that we’re all in this together, and all have an equal right to the planet. It might ease the anxieties that gave us Brexit and Trump, and take the wind out of the fascist tendencies rising elsewhere in nativism that is spreading across much of the world.

We’ll never know until we try. And try we must, or brace ourselves for a 21st century of almost certain misery…

As Paul Romer (and so many others) have observed, a crisis is a terrible thing to waste”…

[TotH to Patrick Tanguay (@inevernu)]

* Jawaharlal Nehru

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As we ruminate on remedies, we might recall that it was on this date in 1864 that President Abraham Lincoln signed the Yosemite Valley Grant Act (Senate Bill 203), giving California the Yosemite Valley and the nearby Mariposa Big Tree Grove “upon the express conditions that the premises shall be held for public use, resort, and recreation.”

Mirror Lake, Yosemite
Carleton E. Watkins, photographer, circa 1860.
source: Library of Congress

 

“Our situation is unique in the annals of life, yet inscribed for all time in the logic of history”*…

 

evolution

 

A scan of the history of gross world product (GWP) at multi-millennium time scale generates fundamental questions about the human past and prospect. What is the probability distribution for negative shocks ranging from mild recessions to the pandemics? Were the agricultural and industrial revolutions one-offs or did they manifest dynamics still ongoing? Is the pattern of growth best seen as exponential, if with occasional step changes in the rate, or as super exponential? If the latter, how do we interpret the typical corollary,that output will become infinite in finite time? In a modest step toward answering such ambitious questions, this paper introduces the first internally consistent statistical model of world economic history…

[Looking back to 10,000 BCE, the author concludes that] the world economic system over the long term tends not to the steady growth seen in industrial countries in the last century or so, but to instability. The credible range of future paths seems wide.

Oh, so very wide… David Roodman (@davidroodman) goes big: “Modeling the Human Trajectory” (pdf).

(Image above: source)

* François Meyer, 1974. La surchauffe de la croissance: Essai sur la dynamique de l’évolution

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As we take the long view, we might recall that it is on this date each year that the roughly 300 residents of a small village participate in a drawing that determines who will be sacrificed to insure a good harvest… in Shirley Jackson’s short story, “The Lottery.”

Originally published in the June 26, 1948, issue of The New Yorker, it evoked strong initial negative response; subscriptions were cancelled; much hate mail received throughout the summer; and the Union of South Africa banned the story.  It is now considered a classic of short fiction (and among the most famous American short stories); it spawned several radio, television, and film adaptations, and inspired voluminous analysis, both literary and sociological.

lottery source

 

 

“Everyday, it’s a-gettin’ closer / Goin’ faster than a roller coaster “*…

 

depression

 

The American economy is reopening. In Alabama, gyms are back in business. In Georgia, restaurants are seating customers again. In Texas, the bars are packed. And in Vermont, the stay-at-home order has been lifted. People are still frightened. Americans are still dying. But the next, queasy phase of the coronavirus pandemic is upon us. And it seems likely that the financial nadir, the point at which the economy stops collapsing and begins growing again, has passed.

What will the recovery look like? At this fraught moment, no one knows enough about consumer sentiment and government ordinances and business failures and stimulus packages and the spread of the disease to make solid predictions about the future. The Trump administration and some bullish financial forecasters are arguing that we will end up with a strong, V-shaped rebound, with economic activity surging right back to where it was in no time. Others are betting on a longer, slower, U-shaped turnaround, with the pain extending for a year or three. Still others are sketching out a kind of flaccid check mark, its long tail sagging torpid into the future.

At least four major factors are terrifying economists and weighing on the recovery: the household fiscal cliff, the great business die-off, the state and local budget shortfall, and the lingering health crisis…

Annie Lowrey (@AnnieLowrey) unpacks a painfully-plausible worst-case scenario featuring the four horsemen of what could be an economic apocalypse– the four major forces at work today that are terrifying economists and weighing on the recovery: “The Second Great Depression.”

For more on the fourth and most terrifying force Lowrey cites, see here (and the research that underlies it).

* Buddy Holly

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As we take necessary steps, we might recall that it was on this date in 1867 that Lucien B. Smith patented barbed wire (U.S. No. 66,182).  Eventually competitors produced more than 1,500 different types of barbed wire; but Smith’s patent gave him pride of invention. His simple idea that was an artificial “thorn hedge” consisting of wire with short metal spikes twisted on by hand at regular intervals. For prairie farmers and cattlemen natural fencing materials were scarce, so the invention gave them an accessible way keep their cattle safely away from crops.  It also created tensions between farmers and ranchers: inexpensive barbed wire allowed farmers to fence in their fields, preventing ranchers’ livestock from feeding off of the farmers’ fields, and making it more difficult for cattle drives to cross farmers’ lands.   Ultimately ranchers too recognized the benefits of fencing their herds… and the days of the open range came to an end.

Copy of Lucien B. Smith’s wire fence improvement (barbed wire) Patent, 66,182, dated June 25, 1867 (source)

 

“We forced our opponents to change their minds”*…

 

Change

 

There are those who say this pandemic shouldn’t be politicised. That doing so is tantamount to basking in self-righteousness. Like the religious hardliner shouting it’s the wrath of God, or the populist scaremongering about the “Chinese virus”, or the trend-watcher predicting we’re finally entering a new era of love, mindfulness, and free money for all.

There are also those who say now is precisely the time to speak out. That the decisions being made at this moment will have ramifications far into the future. Or, as Obama’s chief of staff put it after Lehman Brothers fell in 2008: “You never want a serious crisis to go to waste.”

In the first few weeks, I tended to side with the naysayers. I’ve written before about the opportunities crises present, but now it seemed tactless, even offensive. Then more days passed. Little by little, it started to dawn that this crisis might last months, a year, even longer. And that anti-crisis measures imposed temporarily one day could well become permanent the next.

No one knows what awaits us this time. But it’s precisely because we don’t know because the future is so uncertain, that we need to talk about it…

In a crisis, what was once unthinkable can suddenly become inevitable. We’re in the middle of the biggest societal shakeup since the second world war…

In a fundamentally optimistic essay, historian Rutger Bregman peers through the Overton Window to explain the seemingly-sudden ripening of ideas that seemed impossible just months ago: “The neoliberal era is ending. What comes next?

See also: “Bruno Latour: ‘This is a global catastrophe that has come from within’.”

And for some (more) historical context, in the form of a scientist’s computer model that tracks “cycles” he has detected in the U.S. since 1780– culminating (so far) in his prediction in Nature in 2010 that 2020 would see huge unrest– see “This Researcher Predicted 2020 Would Be Mayhem. Here’s What He Says May Come Next.”

* Margaret Thatcher in 2002, alluding to Tony Blair and New Labour when asked what she saw as her great achievement.  (N.B., as the piece excerpted above explains, in 2020, Bernie Sanders’s “moderate” rival Joe Biden is proposing tax increases

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As we buckle up, we might recall that it was on this date in 1633 that Galileo delivered his Fourth (and final) Deposition to the court of the Inquisition, which had raised theological objections to his heliocentric view of the solar system (for the second time, he had been tried in 1616 for the same offense, and both censured and censored– his books were banned).  This second trial, occasioned by his publication of Dialogue Concerning the Two Chief World Systems, which resurfaced his heliocentric view, ended the following day, when the Inquisitor issued these rulings:

 

  • Galileo was found “vehemently suspect of heresy”, namely of having held the opinions that the Sun lies motionless at the center of the universe, that the Earth is not at its center and moves, and that one may hold and defend an opinion as probable after it has been declared contrary to Holy Scripture.  He was required to “abjure, curse, and detest” those opinions.
  • He was sentenced to formal imprisonment at the pleasure of the Inquisition.  (On the following day this was commuted to house arrest, under which he remained for the rest of his life.)
  • His offending Dialogue was banned; and in an action not announced at the trial, publication of any of his works was forbidden, including any he might write in the future
300px-Galileo_before_the_Holy_Office

Galileo before the Holy Office, a 19th-century painting by Joseph-Nicolas Robert-Fleury

source

 

Written by LW

June 18, 2020 at 1:01 am

“Neoliberalization has meant, in short, the financialization of everything”*…

 

Succession

 

Investing and deal-making occupy an outsized role in popular depictions of “business” like HBO’s Succession and Showtime’s Billions. They also occupy an outsized share of our elite: Over the last five years, the nation’s top business schools have sent nearly thirty percent of their graduating classes into finance.

But the buying and selling of companies, the mergers and divestments, the hedging and leveraging, are not themselves valuable activity. They invent, create, build, and provide nothing. Their claim to value is purely derivative—by improving the allocation of capital and configuration of assets, they are supposed to make everyone operating in the real economy more productive. The practitioners are rewarded richly for their effort.

Does this work, or are the efforts largely wasted? One might default to the assumption that an industry attracting so much talent and generating so much profit must be creating enormous value. But the elaborate financial engineering of the 2000s, which attempted an alchemy-like conversion of high-risk loans into rock-solid assets, and then placed highly leveraged bets against their performance, led to the collapse of some established Wall Street institutions, massive bailouts for others, and a global economic meltdown. Mergers and acquisitions, meanwhile, appear largely to be exercises in wheel-spinning: “M&A is a mug’s game,” explains Roger Martin in the Harvard Business Review, “in which typically 70%–90% of acquisitions are abysmal failures.”…

Hedge funds and venture capital funds appear to badly underperform simple public market indexes, while buyout funds have performed roughly at par over the past decade. Of course, some funds deliver outsized returns in a given timeframe; even a random distribution has a right tail. And there are managers whose strong and consistent track records suggest the creation of real value.

In other words, most fund managers are generating the results that one might expect from an elaborate game of chance—placing bets in the market with odds similar to a coin flip. With enough people playing, some will always find themselves on winning streaks and claim the Midas touch, at least until the coin’s next flip. Except under these rules of “heads I win, tails you lose,” they collect their fees regardless…

In the U.S., finance, insurance and real estate (FIRE) sector now accounts for 20 percent of GDP– compared with only 10 percent in 1947.  The thorough and thoughtful analysis– and critique–  of the frothier components of that sector excerpted above is noteworthy, beyond its quality, for it’s origin; it is an early product of a new conservative think tank, American Compass.

Read it in full: “Coin-Flip Capitalism: A Primer.”

Pair with “What Kind of Country Do We Want?“, a resonant essay from the amazing Marilynne Robinson.

(image above: source)

* “Neoliberalization has meant, in short, the financialization of everything. There was unquestionably a power shift away from production to the world of finance… Neoliberalization has not been very effective in revitalizing global capital accumulation, but it has succeeded remarkably well in restoring, or in some instances (as in Russia and China) creating, the power of an economic elite. The theoretical utopianism of neoliberal argument has, I conclude, primarily worked as a system of justification and legitimation for whatever needed to be done to achieve this goal.”  — David Harvey, A Brief History of Neoliberalism

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As we look beyond price to value, we might recall that it was on this date in 1936 that Alan Turing submitted his paper, “On Computable Numbers” for publication; its full title was “On Computable Numbers, with an Application to the Entscheidungsproblem.”  In answer to Hibert’s and Ackermann’s 1928 challenge, Turing demonstrated that some purely mathematical yes-no questions can never be answered by computation; more technically, that some decision problems are “undecidable” in the sense that there is no single algorithm that infallibly gives a correct “yes” or “no” answer to each instance of the problem.  In Turing’s own words: “…what I shall prove is quite different from the well-known results of Gödel … I shall now show that there is no general method which tells whether a given formula U is provable in K.”

Turing followed this proof with two others, both of which rely on the first. And all rely on his development of type-writer-like “computing machines” that obey a simple set of rules and his subsequent development of a “universal computing machine”– the “Turing Machine,” a key inspiration (to von Neumann and others) for the development of the digital computer.

220px-Alan_Turing_Aged_16 source

 

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