Ferraris for all

On my return from Switzerland I find an example of what sadly seems to pass for investigative reporting in Britain nowadays. Without any fear for its own safety the Independent has been to its local sweetshop (or perhaps it was an evil supermarket) to buy 10 popular types of Easter egg. It then weighed the eggs to discover that the wrapping can sometimes weigh almost as much as the chocolate. This is all part of the newspaper’s “campaign against waste”. It does not seem to realise that significant amounts of waste are an integral part of affluent society. And in any case packaging is necessary to keep produce in good condition.

Labels: consumption, economics, environment

I am currently in St Moritz, Switzerland, where I am chairing the main sessions of the Fund Strategy Investment Summit as part of my job. It does not directly relate to my "Ferraris for All" project but some of the economic sessions provide useful background.

Labels: economics, Fund Strategy, speeches

Nicholas Kristof, a New York Times columnist, demonstrates tragically low horizons in relation to fighting poverty. He advocates using websites such as kiva.org and globalgiving.com which allow Westerners to lend small amounts of money to third world entrepreneurs:

“From my laptop in New York, I lent $25 each to the owner of a TV repair shop in Afghanistan, a baker in Afghanistan, and a single mother running a clothing shop in the Dominican Republic. I did this through www.kiva.org, a website that provides information about entrepreneurs in poor countries - their photos, loan proposals and credit history - and allows people to make direct loans to them.”

A PDF version of his article, from the kiva.org website, can be read here.

Labels: debt, development, finance

Judging by an article in yesterday’s Wall Street Journal the American president has started to acknowledge the widening inequality gap in the US. However, he does not see such inequality as inherently bad. In his view the most skilled and productive members of society are getting what they deserve:

“Until January, President Bush seldom acknowledged the widening gap between the rich and the middle class. Then, in a speech, he declared: "I know some of our citizens worry about the fact that our dynamic economy is leaving working people behind. ...Income inequality is real." He has raised the subject several times since.

“This isn't a sudden change in Mr. Bush's economic philosophy, but rather a change in tactics forced by the changing political environment, say current and former administration officials and outsiders in touch with the White House.

“Top White House economic officials still don't consider today's inequality -- the growing share of income going to those at the top -- an inherently bad thing; they believe it simply reflects the rising rewards accruing to society's most skilled and productive members. Nor do they see merit in various Democratic proposals to reduce inequality, such as ending Mr. Bush's tax cuts on the highest-earners, raising the minimum wage, making it easier to form unions and including labor standards in trade agreements.”

So it seems that Bush administration views inequality as positive while I suspect the Democratic critics are anxious about substantially raising the incomes of the mass of society. Just think of Al Gore’s austerity drive disguised as a campaign against global warming. Both sides, in their own way, help perpetuate relatively low growth and wide inequalities.

Labels: America, economics, inequality

The lead story of the current (March-April 2007) issue of the Boston Review is a piece by Nancy Birdsall, the founding president of the Center for Global Development in Washington DC, on why inequality matters. Birdsall distinguishes between constructive and destructive inequality. In her view the former creates positive incentives at a micro level while the latter reflects the privileges of the rich and can block development. Her solution is essentially institutional reform to complement the impact of the global market. More of her writings on the topic can be read here.

Labels: economics, globalisation, inequality

I am increasingly finding that a select few economics blogs, although often
eclectic, provide useful references and ideas. These include:

* Chris Dillow, a financial journalist, although he denies it, blogs at stumblingandmumbling.

* Greg Mankiw, professor of economic at Harvard, has random observations for economics students.

* J Bradford DeLong, professor of economics at the University of California
at Berkeley and former Clinton administration official, has a semi-daily journal.

* Martin Wolf's economists' forum at the Financial Times (FT). Annoyingly you need a subscription to the FT to read the original articles in full.

* Will Wilkinson's Happiness & Public Policy blog. Strictly speaking not about economics but a great source on the happiness debate.

Labels: economics, happiness

Al Gore is stepping up his campaign to be recognised as the high priest of the anti climate change religion. In testimony to congress this week he reportedly said global warming was a “planetary emergency” and “the greatest crisis we’ve ever faced”. His proposed solutions included energy taxes and a total ban on the incandescent light bulb.

However, the criticism of him for hypocrisy is counter-productive. The personal electric bill for his Nashville mansion may be 20 times the national average but such arguments generally lead for a demand for consistency. That is the conclusion that is easily drawn is that everyone, including Gore, should cut back. A far better approach would be to accept that society as a whole could do with substantially more energy.

The Goracle’s testimony’s to congress can be viewed on Youtube here.

Labels: America, climate, environment

If an article in today’s Wall Street Journal is to be believed the Chinese are finding it easier than expected to shift to more sophisticated production. To quote the start of a piece by Andrew Batson in Beijing:

“China is demonstrating a surprising ability to parlay its dominance in low-end manufacturing into a new strength in producing sophisticated high-tech goods.

“Already the place where many of the world's computers and mobile phones are put together, it is expected to become home to a multibillion-dollar integrated-circuit plant run by Intel Corp, the world's biggest maker of computer chips.

“The speed at which China is moving into more-complex manufacturing is a sign that its transition from a low-wage economy making cheap goods to a high-wage economy producing valuable ones may not be as difficult as once thought.”

Labels: china, development, economics, technology

Good news in the fight against malaria. Scientists have shown, at least in principle, that genetically modified (GM) mosquitoes could help quell the disease. Scientists in the lab have created a malaria-resistant mosquito that can better survive than those carrying the disease. According to a BBC online article:

“GM mosquitoes that interfered with development of the malaria parasite would make it more difficult for the organism to become re-established after it had been eradicated from a target area, they said.”

Labels: development, health, technology

This week’s episode of The Trap, part two of the three part documentary by Adam Curtis, failed to convincingly link paranoid man with rising inequality (see posts of 11 and 12 March). The first 45 minutes of the hour-long programme elaborated on the last week’s theme of how the idea of rational selfish individuals arose during the Cold War (including John Nash, James Buchanan and Tom Peters). It also showed how institutions such as the National Health Service were reformed to incorporate these ideas in the 1990s. Only then, three quarters of the way through the programme, did it make a tenuous link with inequality through the mechanism of school league tables. Rich individuals, it pointed out, could afford to buy houses in areas with top-performing schools. As soon as it made this point it quickly moved on to inequality in America and then onto the idea of corruption. It ended by questioning the science of the “selfish gene” and describing how behavioural economics is gaining in popularity. So literally only a few minutes of an hour-long programme even attempted to demonstrate the link between “rational economic man” and inequality.

Labels: corruption, economics, inequality, television

Just read F Scott Fitzgerald’s The Great Gatsby (1926). I am no literary critic but the novel clearly shows a profound disenchantment with the American dream. Jay Gatsby, who it turns out comes from a poor family, tries desperately to become accepted as part of wealthy society. He lives in a giant house and throws lavish parties which he generously throws open to all comers. Yet – without giving away the whole plot – he ultimately finds himself rejected by those with established wealth. Virtually no one attends his funeral despite his generosity during his lifetime.

The novel is set in the “Jazz Age” of the 1920s. Disillusionment of the generation who had the misfortune to fight in the First World War is palpable.

Labels: America, book, inequality

Yesterday I spoke at the worldwide premiere of Think Big, a new documentary by Worldwrite, at an event organised by the Great Debate in Newcastle (see 4 January post). The film shows how Ghanaians have the same ambitions and needs as Westerners. Like those in the developed world they want comfortable homes, access to modern technology and fulfilling worse. Only in a relatively poor country like Ghana it is harder to achieve such goals.

Like most Western audiences those in Newcastle said they were all in favour of development. Yet, also in a typical way, they then raised concerns about corruption, the environment, inequality and indigenous culture. I countered by arguing that the debate about development nowadays does not typically take the form of a clash between those who are in favour and those who are consciously against. Instead the mainstream view redefines development in a narrower way in response to the kinds of concerns outlined above. So what today passes for “development” is in fact hostile to the genuine modernisation, urbanisation and industrialisation of poorer societies.

Labels: Africa, development, film, speeches, Worldwrite

Advance leaks of the International Monetary Fund (IMF) forecasts for global economic growth in 2007 and 2007 look positive. A report from Reuters says growth looks set to be 4.9% in both years after a 5.3% rise last year. A slight dip but it still leaves the world economy enjoying its strongest run since the early 1970s. The official forecasts, along with many more details, should be published next week.

Labels: development, economics, growth, progress

A different take on American leisure time to that discussed on 9 March. An article in Slate quotes a study (PDF) by two professors which shows that leisure time has exploded since 1965. Only this study argues that less educated adults have enjoyed larger gains in leisure time than the better off. In other words this inequality favours the relatively poor against the rich. Deserves closer examination.

Labels: America, economics, inequality, work

The new edition of the Economist (17 March) points out that America’s anti-climate change policy has led to riots over the rising price of tortillas in Mexico. As it explains: “Green energy is fat with subsidies. America's ethanol subsidy, (which) has led to a huge rise in production, rocketing maize prices and consequent rioting in Mexico.” In other words George W Bush’s policy of subsidising ethanol production to supplement fossil fuels has in turn pushed up corn prices on the world market and Mexicans have suffered as a result. I would not share the Economist’s conclusion that the market always knows best. But it does show how apparently well meaning policies on climate change can have disastrous results.

Labels: America, climate, development, economics, environment, Latin America

A seminar held by the Organization of American States (OAS) yesterday showed how global inequality has been redefined. Rather than seeing economic development as positive in itself the emphasis is on poverty reduction as a way of maintaining social cohesion. It becomes recast as more to do with crime than economics.

Quoting José Miguel Insulza, the OAS secretary general, the official press release said:

“The governments must promote greater participation and aim toward establishing more inclusive public policies, in order to promote greater social cohesion and stability of the political system. When high levels of inequality and exclusion converge, democratic governance faces certain risks."

He added that “it is truly imperative to break the vicious cycle of inequality, crime and discrimination,” and “a more balanced distribution of resources and prosperity is an essential requirement to raise the levels of security for all in the region.”

Labels: economics, inequality, Latin America

Stephen Roach, the chief economist of Morgan Stanley, has written on the difficulties of China making the transition to being an environmentally cleaner economy. Given that the Chinese economy is heavily skewed towards manufacturing it is pollution and energy intensive. But Roach is optimistic it can find the right balance.

Labels: china, climate, economics

Chris Dillow, author of the stumblingandmumbling blog, has written an entry questioning the intellectual history in last night’s Adam Curtis documentary (see yesterday’s dispatch). Dillow points out that the theory of people as selfish and paranoid dates back to Leviathan (1651) by Thomas Hobbes rather than the Cold War. The notion of self-interest generating social order is to be found in Berenard Mandeville's Fable of the Bees (1714). Another flaw, Dillow argues, is that:

“Economists' scepticism about the possibility of a common interest doesn't just arise from a cynical view of human nature. It stems also from the problem of aggregating preferences - as Kenneth Arrow showed in his impossibility theorem. But then, Arrow was no rightist cold warrior, so he doesn't fit Curtis's template.”

Labels: economics, television

The first episode of The Trap: What Happened to Our Dreams of Freedom?, a BBC2 documentary by Adam Curtis, was characteristically wide-ranging and thought provoking. It showed how a particular notion of freedom evolved during the Cold War which emphasised the importance of the rational individual against ideas of the public interest or altruism. Curtis linked this idea of rational individuals to the free market economics of Friedrich Hayek, game theory (eg John Nash), public choice theory (eg James Buchanan) and the anti-psychiatry movement of RD Laing. Other manifestations of this idea include privatisation and the “internal market” within the National Health Service. TV programmes such as Yes Minister and Yes Prime Minister, written by an adviser to Margaret Thatcher, also embody the idea that a unified public interest is a myth. Instead institutions have to be devised to ensure that individuals respond to rational incentives. Next week Curtis will evidently go on to show how the popularisation of such ideas led to a widening of inequality.

Labels: economics, inequality, television

This week’s Economist has an interesting piece on geo-engineering in its technology quarterly (subscription required). Rather than curb emissions such techniques rely on large-scale planetary engineering to counteract climate change. Although the Economist says it was discussed in a report to the American president as far back as 1965 it is generally disliked by environmentalists. However, schemes being currently discussed by top scientists include building a giant sunshade in space, spreading tiny particles in the atmosphere to deflect the sun’s rays and blasting tiny droplets of salt water into the air.

Such ideas have previously already been discussed recently in a New York Times article and a piece on spiked. George Monbiot has also attacked geo-engineering in his Guardian column (and see my 30 August 2006 dispatch).

Labels: climate, environment, geo-engineering, spiked, technology

Just managed to catch up on the BBC Panorama programme “Go green or else!” on a year in the life of “ethical man” (currently available to view on the internet). The programme is itself a recycling of the regular items by Justin Rowlatt on the BBC Newsnight programme over the past year. Rowlatt and his family cut back on consumption over the year including ditching their car, forsaking air travel, eating fewer animal products, recycling and even urinating on their compost heap. The aim, which they achieved, was to cut the family’s carbon footprint by 20% over the year. They also made significant financial savings along the way.

The problems with this approach are straightforward. It is obviously possible to save money if you are prepared to accept austerity. But why should people have to do without cars, air travel or meat? Even cutting back on such consumption is not desirable.

More fundamentally the programme looked at the question entirely from the perspective of personal consumption. Tackling climate change meant individuals and families consuming less. The possibility of producing more energy, for example through nuclear energy or hydroelectric power, was ruled out of the discussion by the framework of the programme itself.

The programme’s “carbon guru” was Professor Tim Jackson of Surrey University. His website includes several papers putting sustainable consumption and sustainability more generally into a more theoretical context.

Labels: climate, consumption, economics, environment, sustainability, television

Another attack on GDP as a measure of social welfare, this time in a paper (PDF) by Jeroen van den Bergh of the Tinbergen Institute in Rotterdam. He acknowledges that such attacks have a long tradition with previous critics including Simon Kuznets, John Kenneth Galbraith, Paul Samuelson, EJ Mishan, James Tobin and William Nordhaus, Fred Hirsch, Amartya Sen, Tibor Scitovsky, Herman Daly, Kenneth Arrow and Partha Dasgupta. However, as van den Bergh also recognises, GDP was never meant as a measure of welfare. It was designed as a measure of the output of goods and services in the economy.

The problem is that the attack on GDP is not simply a technical one. There may well be better ways to measure economic output and human welfare. However, most of the attacks are, at least implicitly, assaults on the benefits on economic growth. In fact, if anything, GDP underestimates the human welfare benefits that result from rising economic output.

Meanwhile, the prolific Andrew Oswald, professor of economics at the University of Warwick, continues his promotion of happiness at the expense of growth. He has co-authored a paper (PDF) linking hypertension and happiness – showing the two are correlated but neither is linked to economic growth. And he was also involved in another study (PDF) showing that people tend to become most miserable in middle age and then become happier again.

Labels: economics, happiness

Spiked has covered extensively two items in this week’s news I would have liked to have written about if I had more time. Brendan O’Neill, spiked’s editor, wrote an article on Channel 4’s the Great Global Warming Swindle. The documentary evidently includes claims that global warming is caused by solar activity while also questioning the relationship between higher temperatures and carbon dioxide concentrations. Whether or not such claims are right is besides the point. Rather than being accepted as a contribution to the debate anything outside the narrow orthodoxy on the subject is increasingly subject to hysterical witch hunts.

Meanwhile, James Woudhuysen did a demolition job on the Royal Commission on Environmental Pollution’s report on The Urban Environment. The report apparently argued that, in the most literal sense, cities make people sick.

Labels: cities, climate, environment, spiked

An interesting article in yesterday’s New York Times by Hal Varian, a professor of business at the University of California, Berkeley, argues against the view that leisure time has increased over the years: “When you account for the much longer time in school, the more or less constant amount of time spent on housework, and make a few other adjustments, hours spent on purely enjoyable activities haven’t changed that much in the last century.”

Even if he is right he paints a picture of a much improved society. The fact that children and teenagers are spending longer in school, rather than working from a young age, is surely to be welcomed. And the quality of housework has improved enormously too: “One hundred years ago, it was a luxury to have clean clothes, a tidy house and a cooked meal. Today these things are viewed as necessities of life.”

One of the references Varian points to on long-term trends in leisure is a paper (PDF) by Valerie Ramey of the University of California, San Diego and Neville Francis of the University of North Carolina.

Labels: America, economics, work

David Miliband, Britain’s environment minister, gave a characteristic mix of apparently bold rhetoric and timid content in his recent speech on the post-oil economy:

“In the 19th century, Britain pioneered the transition to an industrial economy. The industrial revolution brought together invention and science, a culture of enterprise, and political leadership from our great cities and national government.

“In the 21st century, we are again a transition economy. We need the same combination if we to make a new transition: from a high carbon to low-carbon society. We need to transform the productivity with which we use natural resources in the same way as mechanisation and mass production transformed the productivity of human resources.”

In reality the transition he is suggesting, to a low carbon economy, is fundamentally different from the Industrial Revolution. The nineteenth century transition involved making labour vastly more productive (more output per person) in the context of a rapidly expanding economy. Miliband’s transition involves increasing resource productivity in the context of a static or a least slow-growing economy.

He makes the fundamental error of counter-posing labour productivity and resource productivity. As a general rule, resources are used more efficiently as labour productivity rises. In addition, more energy efficiency generally means more energy use rather than less. As energy becomes more plentiful and cheaper then people, understandably, demand more of it.

Labels: economics, environment

The latest issue of the International Monetary Fund’s Finance & Development includes a primer on different measures of GDP. Using market exchange rates can yield substantially different results from using purchasing power parity. The same issue of the quarterly journal includes an article on how capital is flowing from the poor world to the rich at present.

Labels: economics

Decisive evidence that the arch-capitalists of Wall Street have gone green. Private investors who are paying almost $45bn to take over TXU, a Texas utility, have accepted stringent environmental conditions. Instead of building the 11 coal-fired power stations that TXU had originally planned it will only build three. Articles in the Christian Science Monitor and the Economist put this into the context of Wall Street increasingly accepting the environmentalists’ case on global warming. The fact that humanity needs substantially more energy production rather than less does not seem to have entered the discussion.

Labels: climate, economics, energy, environment, technology

Ben Goldacre, who writes the Guardian’s Bad Science column, has written an article criticising scare headlines linking cancer to genetically modified (GM) potatoes. He gives as an example a high profile story in 1998 making such a link and a similar more recent one in the Independent. On closer examination neither story was justified by the evidence yet they help to create the misleading impression that GM foods are unsafe. Goldacre argues that any research on GM should be published in full, so that it can be properly scrutinised, rather than being reported on the basis of leaks.

Meanwhile, the Times has run a preview of a forthcoming Channel 4 series on GM. In Animal Farm Dr Olivia Judson, a biological scientist, will put the case for GM while Giles Coren, a food writer will take a more critical view. In the course of working on the programme Coren evidently realised that GM food has many advantages. However, like Ben Goldacre of the Guardian, he expresses fears of the control of GM technology by multinational corporations.

Labels: food, science, technology