Ferraris for all

This week’s BBC Radio 4 Analysis programme, presented by Frances Cairncross, included the most detailed popular discussion of geo-engineering I have come across so far. In broad terms three possible techniques were identified:

• Removing carbon dioxide from the oceans.
• Removing carbon dioxide from the atmosphere.
• Using lenses or mirrors to divert sunlight from the planet.

However, the discussion is still wracked with anxiety. On the one hand, some are arguing that things are getting so bad that geo-engineering might be necessary despite the possibility of damaging unintended consequences. On the other hand, others are worried that discussing geo-engineering could shift the discussion away from decarbonisation. An added worry seems to be that developing countries such as China and India – those that most need great increases in energy supply - could take a lead in developing the technology.

It is a pity there cannot be a more confident, forward-looking debate.

Labels: climate, environment, geo-engineering, radio, science

Eric Rolston, an American science writer, has written a fascinating sounding book on carbon. Despite its sensationalist sub-title – “how life’s core element has become civilization’s greatest threat” – The Carbon Age rightly makes the point that carbon is the building block of life. Despite the element’s key role in the natural world it is strangely seen as a great threat to humanity nowadays.

Labels: book, energy, environment, science

Barbara Ehrenreich, a prominent American activist and writer, has added her voice to the debate about inequality in America. This Land is Their Land (Metropolitan Books), her book on American extremes, seems to be receiving a lot of publicity. This includes an appearance on Comedy Central’s The Colbert Report.

Labels: America, book, inequality, television

The following comment by me from Fund Strategy argues it is useful to describe this economic downturn as “mental”.

A senior American politician and economics expert got into trouble recently for saying America was in a “mental recession”. Phil Gramm, vice-chairman of UBS and a former senator, was forced to resign from his position as a top economic adviser to John McCain, the Republican presidential candidate. Barack Obama, McCain’s Democrat rival, had already pilloried Gramm saying – in a reference to a prominent TV talk show therapist – “America already has one Dr Phil”. Despite the hostile reaction, the idea of this being a “mental recession” is a useful one. Both in America and Britain this economic downturn is substantially different from the typical recession. This should be clear from an examination of the magnitude of the slowdown and its character.

In terms of the numbers, it would be easy to assume from the gloomy discussion that the economy is already contracting. But, at least so far, that is not the case. For example, the latest British GDP figures show the economy expanded by 0.2% in the second quarter. It is certainly possible that Britain could dip into recession – defined as two consecutive quarters of contracting GDP – next year, but it has not crossed the threshold so far. Nevertheless, the average independent forecast predicts GDP growth of about 1.5% in 2008 and 1.1% in 2009. It may not be as pleasant as more rapid growth, but it is hardly the Great Depression.

The global figures appear even more robust. According to the latest forecasts from the International Monetary Fund, global output should grow by 4.1% in 2008 and 3.9% in 2009. America is forecast to grow by only 1.3% this year and 0.8% next year, while emerging economies will grow far faster.

The figures do not tell the whole story. Not only is the slowdown far more muted than generally assumed, it is also different in character. Traditional recessions have focused on the production side of the economy. Industry has suffered a shakeout and workers have lost their jobs as companies are restructured. This time, the driver of the slowdown seems to be much more on the consumption side. A reining-back on credit and a squeeze on disposable income seem to be key factors.

A more balanced view of the slowdown should help deal with it in a calmer and more rational way. At present, politicians of all shades seem prone to panic.

Labels: consumption, economics, Fund Strategy, growth

There follows a news story by me from today’s Fund Strategy looking at the recent debate on rising oil prices. Three key reports on the subject have been published this month alone.

A key American government report has concluded that fundamental factors rather than speculation have driven up oil prices.* A task force from the Commodity Futures Trading Commission (CFTC) has reached the preliminary conclusion that: "Current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors".

Over that period, it notes, the world economy grew at its fastest pace for two decades while oil supply growth failed to keep up. Global oil consumption grew by 3.9 percent from 2004 to 2007, driven largely by rising demand from emerging markets. Over the same period production growth from outside the Organization of the Petroleum Exporting Countries (Opec) countries was well below its historical average. Indeed, output from America, Mexico and the North Sea fell over the period. This imbalance between supply and demand is enough to explain the price surge.

Geopolitical unrest in countries with large oil reserves exacerbated the supply shortage still further. These included disruptions in such countries as Nigeria and Iraq and the threat of disruption in Iran and Venezuela. The task force also concluded that futures trading has not pushed up prices. If anything, speculators would have benefited more from price decreases than increases in recent months.

The CFTC's conclusions are broadly in line with those of the International Energy Agency in its recent Medium-Term Oil Market Report (see Fund Strategy, July 7). In contrast, Opec in its World Oil Outlook 2008 argued, as have many prominent American politicians, that speculation is a key factor in pushing up prices (see Fund Strategy, July 14).

* Interim Report on Crude Oil. Available at www.cftc.gov

Labels: America, economics, energy, Fund Strategy

Burn-up, BBC 2’s big budget eco-thriller on the oil companies and runaway climate change, was awful in every way: as a drama, politically and in relation to the science. Rob Johnston on spiked has written an incisive review but it is worth outlining the key misconceptions embodied in the drama as they are common in the green mindset:

* It is assumed that there is no question that runaway warming (not just climate change) is happening. Catastrophe is imminent. A worst case scenario is presented as indisputable fact.

* Corporations are driven by greed in their ruthless pursuit of oil. In this sense attacks on capitalism are moral (it is driven by bad people) rather than linked to the pursuit of profit in itself. Companies and the economy are “addicted” to oil. (Insurance companies are a partial exception as they are suffering big losses as a result of climate change).

* The role of corporate lobbyists is to shed doubt on “the science”. They play the pernicious role of generating uncertainty and may engage in “greenwash” to improve their clients’ images.

* Deep down America knows that climate change is bad but it should help further its drive for global domination.

* Britain is on the right side but ineffectual.

* China is duplicitous – playing America against Europe to further its own interests,

* The only way to deal with climate change is to cut emissions. Adaptation is hardly discussed at all let along geo-engineering.

Sadly such mistaken views are widely held in the climate change debate.

Labels: climate, environment, review, science, spiked, television

The New Economics Foundation is promoting a Green New Deal which it analogous to President Franklin Delano Roosevelt’s response to the Great Depression of the 1930s. Andrew Simms has also written about it on the BBC website.

Just some of the things wrong with it include:

• The assumption that the world is facing an economic crisis comparable to the Great Depression. I will publish a post on this tomorrow.

• The assumption there is only 100 months to act to deal with runaway climate change.

• The idea that the world is facing a problem of “peak oil”. More on this soon but I am coming to the conclusion that the key driver of surging prices is the lack of investment in energy supply.

• The idea that the problem to energy shortages lies in curbing demand rather than bolstering supply.

• The notion that there is any direct link between environmental problems and the financial crisis.

• The argument that financial problems are undermining the economy. This confuses cause and effect.

Labels: climate, consumption, economics, energy, finance

A piece on the happiness debate in the Christian Science Monitor (22 July) is blisteringly one-sided. It quotes many of the most prominent advocates of the view that wealth does not bring happiness but no one to put the alternative perspective. The usual suspects quoted include Bill McKibben (author of Deep Economy) and Nic Marks of the New Economics Foundation among others. There are also the customary references to the World Values Survey, the Happy Planet Index and Bhutan.

The most interesting point is by Martin Seligman of the University of Pennsylvania. He divides the pursuit of happiness into three categories: seeking positive emotion, or feeling good; engagement with others; and meaning, or participating in something larger than oneself.

Labels: consumption, environment, happiness

The cover story of the July-August issue of Harvard Magazine is a piece by Elizabeth Gudrais on American inequality. Compare it to last Friday’s post.

Labels: America, health, inequality

Studies of inequality typically overstate the widening of inequality in America according to a study cited in the Economist. The magazine’s Economics Focus column refers to work which argues that the inflation rate for the poor has generally proved higher than for the rich:

“A challenge to the conventional wisdom is set out in a recent research paper by Christian Broda and John Romalis, both of the University of Chicago’s business school. They argue that standard measures of inequality do not reflect differences in the way that the rich and poor spend their money. A person’s demand for a particular good or service does not rise in exact proportion to his income. As he grows richer, the pattern of his spending changes, as well as the amount. In particular, high-wage households spend a greater share of their income on services and a smaller share on “non-durable” items, such as food, clothing, footwear and toiletries.

“For most of the past three decades, the price of non-durable goods has been falling relative to the price of the services—investment advice, personal care, domestic help and so on—that the rich spend more of their money on. If these differences between the inflation rates faced by the rich and the poor are taken into account, the rise in inequality is reduced and may even vanish.”

The article acknowledges that the recent rise in food and commodity prices may have reversed part of this trend.

Labels: America, economics, inequality

This is evidently my 505th post since my first on 16 July 2006. Over the past two years the most popular tags I have used include economics (161), environment (128) and development (125). Inequality manages 88 and happiness 71. In terms of regions I seem most interested in America (58), China (47), Africa (38) and India (27). The generic Asia heading has 29 tags while Europe only manages seven (probably because of my lack of knowledge of the continent).

Any comments on what I have done in the past two years are welcome. Clearly I have developed a particular style of writing for the blog - essentially using it as an extended notepad with links. Do people find this useful? Any ideas about how I can improve things? Whether I know you or not I would value your opinion. It is always useful to have reader feedback. I can be emailed from HERE.

I am acutely conscious that my “temporary” layout has proved fairly permanent. I do hope to create a bespoke website at some point but realistically it will be a while. If only I had more time and resources. There are also various technical glitches (lack of a search facility or RSS feed) that I should get fixed before moving to an improved site.

For those who are interested I am hoping to sign a book contract with a smallish publisher soon. Several high profile publishers have expressed interest in the project but then backed away. I suspect that the controversial nature of the arguments is at least part of the explanation.

An interesting survey on Chinese public opinion from the Pew Global Attitudes Project. The Chinese are evidently extraordinary satisfied with their economy even compared with a similar survey in 2002. Levels of personal satisfaction (on questions such as family, income and jobs) are not particularly high by international standards.

Labels: china, economics

The recent BBC Radio 4 Analysis programme by Martin Wolf, the chief economics commentator at the Financial Times, was particularly interesting. He looked at the significance of the increasing importance of the developing world.

Justin Lin, a contributor to the programme and chief economist of the World Bank, has also recently had an interesting sounding chapter published on Chinese inequality. It is part of China's Dilemma, a collection of papers co-published by the Australian National University and the Asia Pacific Press.

Labels: china, development, economics, inequality

Evidently geo-engineering - using high technology solutions to modify the climate - is gaining interest according to a feature in the Christian Science Monitor (16 July):

“Launch myriad mirrors into space to deflect a fraction of sunlight from reaching Earth. Seed the stratosphere with sulfur or other particles to cut some of the sun’s rays. Bioengineer trees to soak up huge amounts of carbon dioxide from the air. Scatter unmanned self-powered ships to roam the world’s oceans funneling sea spray high in the sky to help form protective clouds.”

Unfortunately the move seems more motivated by pessimism about other solutions than optimism about human ingenuity or the power of technology.

Labels: climate, environment, geo-engineering

The following news story by me from Fund Strategy summarises a recent Goldman Sachs paper on the rising middle class.

Another two billion more people could join the global middle class by 2030 according to a new report by Goldman Sachs*. Such an expansion, which would be unprecedented in world history, is based on a definition of middle class as those with incomes of between $6,000 and $30,000 at purchasing power parity (PPP).

At present the group is growing at an unprecedented rate of 70m people a year. Even if China and India are excluded from the growth statistics the figure would be 20m a year.

Overall, there will be a shift to both middle income economies and middle income people. The largest four emerging economies (Brics) and the next 11 down (N11) will dominate.

By 2050 six of the largest seven economies in the world are likely to be emerging with America as the only exception (see table). However, most of them will remain below average in terms of income per head.

The middle three quintiles in terms of country incomes (that is excluding the top and bottom 20 percent) is likely to account for 57 percent of global GDP in PPP terms compared with 31 percent today. In dollar terms the increase will be from 15 percent to 43 percent.

Overall, this trend looks set to lead to a substantial fall in global inequality.

Although inequalities within countries may increase on a global level the world is likely to become more even.

Goldman Sachs acknowledges that its projections may not all materialise. But it regards them as the most likely outcome on the basis of present trends.

* Dominic Wilson and Raluca Dragusanu "The Expanding Middle: the Exploding Middle Class and Falling Global Inequality". Goldman Sachs Global Economics Paper No: 170.

Labels: economics, Fund Strategy, globalisation, inequality

The following news analysis by me from Fund Strategy identifies the key factors in determining the oil price.

The big debate in relation to surging oil prices is whether speculators are to blame. There is a sharp divide between those who see speculation as a key factor in rising prices and those who point to more fundamental forces.

Before getting to the core of the argument it is worth dealing with the more lurid versions of the debate. This is necessary to avoid arguing at cross purposes.

The first problem is that the term "speculation" has different meanings. For some it conjures up conspiratorial images of evil oil sheikhs and rapacious hedge fund managers playing in a giant casino. But it is not necessary to indulge in such stereotypes to believe that speculation in some senses is going on. In the more sober sense "speculation" means that financial factors other than those related to supply and demand are affecting prices.

Another misconception is that speculation and fundamental factors are mutually exclusive. The key question is which ones, if either, are playing the dominant role.

There are also some factors on which there is a widespread consensus. For example, the weakness of the dollar has played some part in rising oil prices. Since crude is typically priced in dollars, if the American currency falls that alone makes oil more expensive.

Having disposed of some of the key misconceptions it is possible to get to the core of the argument. This involves looking at each of the key factors in turn - demand, supply and speculation - to try to work out the relative importance of each.

Demand: There is an almost instinctive sense among many pundits that rising demand must be the key factor in pushing up prices. Surging economic growth in emerging market economies is seen by some as self-evidently the main cause of rising prices. But it is wrong to make such an assumption before examining the evidence. On the contrary, it is conceivable that rising supply could outstrip rising demand so prices could fall even if more oil is being consumed. Nor can financial factors be ruled out before looking at the facts.

When it comes to examining oil demand it is easier to identify past trends than to predict the future. Peter Davies, until recently the chief economist at BP, said there was no evidence of significant shifts in medium-term growth trends in either supply or demand. In June he told a Lombard Street Research seminar on oil prices that: "The growth rate in demand is not out of the ordinary. There is a steady long-term trend overall."

What seems to be worrying the markets is not past demand but the prospect of a surge. Predictions are always fraught with difficulties, as they depend on assumptions about such things as economic growth rates and energy efficiency, but it looks likely that demand will continue to rise strongly. Although demand from the developed countries could dip in the short term, that from the developing world will continue to rise. The annual report from the Organization of the Petroleum Exporting Countries (Opec) estimates that 90 percent of the increase in global oil demand between 2006 and 2030 will come from developing countries.

Supply: If demand is often the focus of the discussion of the oil price the supply side is often neglected. Yet one should not be considered in isolation from the other.

Few industry experts argue that there is a shortage of oil in an absolute sense (although many environmentalists do). If there is a problem it is not to do with crude in the ground but with the investment needed to harness it.

Much concern is focused on non-Opec production. For example, the growth of Russian oil supplies peaked in 2003 and Mexican oil production is declining. Overall oil exploration rates are declining and fields are running out of oil.
In addition to the exploration and production side of the business it is necessary for oil to be refined before it can be used by consumers. In this respect capacity is not rising as fast as previously expected.

Over time the higher price of oil is likely to stimulate more investment in exploration, production and refining of oil. But such investment takes commitment and can have a long lead time. There could be a significant investment but long time lags are likely.

Speculation: Different sets of experts do their sums on supply and demand in different ways and come up with different conclusions. For the International Energy Agency (IEA) the supply-demand imbalance is enough to account for surging oil prices but for Opec it is not. The key missing element in the discussion is speculation.

Advocates of the importance of speculation point to the huge increase in oil futures trading. This is taken to indicate a rise in speculative activity. But others argue that there is no necessary reason why surging futures trading should affect oil's spot price.

The critics of the speculation thesis also point to other markets, such as iron ore, where prices have surged but there is no speculative market. Another argument is that speculation would be expected to push up inventory levels as those betting on higher oil prices hoarded physical oil. Yet there is no evidence in the available figures that inventories are at unusual levels.

Opec, in contrast, conceded that speculation should push up inventories in theory but points to limitations in the data. It says that lack of data could be hiding such increases. Others have even argued that keeping oil in the ground, rather than pumping it, could be seen as a form that inventories take.

It is not possible at this stage to give a definitive answer on the relative importance of different factors pushing up oil prices. More work on the demand-supply imbalance is necessary before reaching firmer conclusions. But it does look likely that the difficulties in bolstering supply are a relatively underdeveloped part of the discussion.

Labels: economics, energy, Fund Strategy

The following comment by me from Fund Strategy looks at how ideas from behavioural finance are being used to influence individual behaviour. It is written for a financial readership.

Last week's oddest spectacle was probably Richard Thaler, a professor of economics at the University of Chicago, talking about knife crime on the BBC Newsnight programme. Thaler probably knows as much about knives as the average street fighter knows about Sharpe ratios. Yet the venerable professor was expected to speak with authority on the recent spate of teenage stabbings in Britain.

To anyone familiar with Thaler's work, this is a strange development. He was until recently well known within the economics profession as an expert in behavioural finance - writing technical papers on the relationship of human psychology to the financial markets. But recently he has metamorphosed into a policy guru.

This has come about because Thaler has applied what he has learned about individual decision making - what he calls "choice architecture" - to areas outside finance. Nudge, his book on the subject, co-written with Cass Sunstein of the University of Chicago Law School, has caught the imagination of policy-makers. David Cameron has embraced him as a guru in Britain, while in America he has influenced Barack Obama.

There are many serious examples in Nudge but Thaler's favourite involves public urinals. Evidently, putting a picture of a fly in the urinal reduces spillage as it gives men something to aim at. For Thaler this is a fine example of how small measures can influence individual behaviour for the good.

Unfortunately, few have drawn attention to the problems with this approach. Most clearly, it reduces politics to a debate about how to control individual behaviour. Politics used to be about competing visions of how to organise society. Nowadays, it seems to be about such things as discouraging smoking and encouraging us to urinate in the right way.

It also means that bigger problems are seen in an exceedingly narrow way. For instance, climate change is viewed as a problem of behaviour that can ultimately only be dealt with by discouraging consumption. Discussions of developing new forms of technology or the need to increase the supply of energy are marginalised.

Ultimately, it suggests that the trendy area of behavioural economics is itself flawed. It views economics as primarily to do with individual behaviour and neglects the complex web of social relationships that make up the contemporary economy.

Labels: economics, finance, Fund Strategy

Spiked has run my review of Wall-E, Disney Pixar’s new anti-consumerist movie featuring a recycling robot as its central character and humans as little more than fat blobs.

Labels: apocalyptic, consumption, ethics, film, spiked

James Woudhuysen, in a programme on BBC Radio 4 and an accompanying article on spiked, contrasts nineteenth century greens with those of today. For Woudhuysen nineteenth-century romantic poets such as John Clare, Samuel Coleridge and William Wordsworth at least had an idea of human transcendence:

“Altogether, we can forgive much in the nineteenth-century greens. At least they were confronting industrialisation in its infancy and adolescence: though their reactions were often impulsive, they retained a basic faith in humanity. By contrast, today’s environmentalists are so weary and ignorant about industrialisation, they seem only able to condemn it, and all the human beings they deem perpetrators of the process.”

Labels: environment, spiked

The vast literature on happiness continues to expand rapidly:

* An article in the June issue of the Economic Journal on hedonic adaptation – how we adapt emotionally to both positive and negative events. A summary (PDF) is available here.

* A reference to a study led by Michael Marmot of University College London on the relative happiness of the sexes.

Labels: happiness

Rocketing food prices have propelled agriculture into the news. Recent coverage includes James Heartfield’s contribution to a debate in east London. This was unexpectedly complemented by an episode of Jimmy Doherty’s Farming Heroes on BBC2 in which a small-scale farmer found himself impressed by large scale agriculture (also discussed on spiked). The contrary view is put by the likes of Felicity Lawrence of the Guardian.

You can see me talking about China and the environment at the recent Battle for China conference by clicking the link.

Labels: china, development, environment, media appearances, television

The green message is so pervasive nowadays that it extends from children’s cartoons (see 13 July 2008 post) to god. Speaking at an event in Sydney, Australia, this week the pope recycled the predictable message of self-restraint and anti-consumption:

“Religions have a special role in this regard, for they teach people that authentic service requires sacrifice and self-discipline, which in turn must be cultivated through self-denial, temperance and a moderate use of the world’s goods. In this way, men and women are led to regard the environment as a marvel to be pondered and respected rather than a commodity for mere consumption. It is incumbent upon religious people to demonstrate that it is possible to find joy in living simply and modestly, generously sharing one’s surplus with those suffering from want.”

Evidently for god’s representative on earth “living simply and modestly” - what most people call poverty - should be treated as a joy. Let us pray that he is not taken seriously.

Labels: consumption, ethics, film

Frank Furedi has a piece on spiked today looking at how perceptions of China are distorted by the West’s own anxiety about modernity. He argues that hostility to China is one of the few issues that binds the contemporary right and left. One is fearful of a sinister new enemy while another treats Chinese business as uniquely malign. Furedi goes on:

“China has become a kind of environmentalists’ vision of Sodom and Gomorrah. Its population growth, brash materialism and indifference to the dogma of sustainability go directly against the precautionary attitudes that dominate public life on both sides of the Atlantic. It appears that the cartoon Chinese villain Fu Manchu is alive and well in the Middle Kingdom – only this time he is using his fantastic powers to pursue a variety of eco-crimes. Of course China’s real ‘crime’ is that, unlike some its liberal critics, it is still unambiguously wedded to modernity. It has not yet adopted the risk-averse and precautionary culture that prevails in Europe and America.”

Labels: china, development, spiked

The following comment by me appeared in today’s issue of Fund Strategy:

On the face of it, the dispute about climate change at last week's G8 summit in Hokkaido seems childish. The world's richest countries put pressure on large developing countries to cut greenhouse gas emissions. In response, the emerging economies argued that the richer nations, with their far higher emissions per head and greater affluence, should bear most of the burden.

Although the two sides agreed on a declaration on energy security and climate change, it was limited to the vaguest and most long-term goals. Greenhouse emissions will be halved by mid-century. By the time 2050 is reached the present summit leaders are likely to be long gone. Gordon Brown will be 101.

Environmentalists - who admittedly are prone to panic - view such prevarication as madness. For them the world's leaders are squabbling while the planet is on the brink of catastrophe.
But there is a better way to understand the dispute between the developed and developing world in relation to climate change. That is to see it as a reflection of the tension between the practical need for economic growth and the elevation of climate change as a moral obsession.

In practical terms the developed world and, particularly, the developing world need economic growth. Such growth provides the basis for raising living standards, which in turn help to provide legitimacy to the governments which succeed in promoting growth.

But at the same time climate change has come to be viewed as a moral absolute. Anyone who questions the idea that the world is facing climate change catastrophe - not just that the climate is changing - risks being branded a "denier". The echoes of the derogatory term "holocaust denial" are unmistakable.

Yet it is far from settled that the world is on the brink of a catastrophe. The term "tipping point", often the basis for such discussions, is rooted in sociology rather than natural science (in 1950s studies of American race relations). Popular discussion often seems more concerned with proclaiming faith than examining the problem and suggesting solutions.

The difficulty is that the common notion that economic restraint is needed to tackle climate change clashes with the need for growth. When the debate is posed in this way it is always likely to be polarised.

The way the relationship between economic growth and climate change is understood needs to be reconsidered.

Labels: climate, economics, environment, Fund Strategy

Evidently Wall-E, a new animated movie from Pixar, argues if we do not curb our consumption we will destroy the world. According to an article in Slate critics have widely welcomed the outlook it expresses:

“So what is this powerful and profound message? Wall-E tells us that if we don't change the way we live, we'll all get really fat and destroy the world. The plot begins with the idea that a megacorporation called Buy N Large has essentially taken over the planet and induced so much consumption and waste that humans must escape their dying planet on an enormous, space-faring cruise ship. Once onboard, their self-destructive tendencies only get worse: After 700 years adrift, humans have grown too bloated to walk and too lazy to think.”

Labels: apocalyptic, consumption, environment, film

There is nothing inherently radical about the current obsession with eating right. In American Conservative (30 June 2008) a right winger reclaims it for his tradition. “Crunchy Cons” are a well established phenomenon (see post of 15 August 2006).

Labels: consumption, environment, food

Dani Rodrik of Harvard University has written a summary of the new pragmatic development consensus in the Guardian (10 July). He focuses it on the Spence Commission on Growth and Development (on Spence see posts of 24 April 2007, 13 April 2008, 23 May 2008 and 15 June 2008).

Labels: development, economics, growth

Some last minute preparation for my Battle for China session on China as a “green peril”. An article by Elizabeth Economy and Adam Segal in Foreign Affairs (July / August 2008) argues that China’s inability to provide safe food and clean air for the Beijing Olympics shows its political weakness. And a Newsweek cover story on measuring global environmental progress includes a piece arguing that China lags behind other countries with similar income levels.

Labels: china, development, environment, speeches

The following comment by me appeared in yesterday’s issue of Fund Strategy:

It may be that many journalists wear Marks & Spencer underwear - Jeremy Paxman famously wrote to the company's chief executive complaining about its quality - but that does not excuse the media's obsession with the retailer's fortunes.

Last week's profit warning from the middle class's favourite retailer led to a 25% fall in the share price and widespread gloom about recession. But while M&S investors may have reason to worry about its share price it is wrong to draw sweeping economic conclusions from its troubles.

There are three reasons why it is wrong to see M&S's plight as an indicator of economic problems. First, M&S accounts for only a small part of the economy. Chris Dillow, an economist who runs the Stumbling and Mumbling blog, estimates that M&S's value added is less than 0.2% of Britain's GDP. It therefore represents only a tiny proportion of economic activity.

He also points out that the Game group reported spectacularly good results last week. But it does not follow from these results that the economy is booming. Some companies do badly and others do well in difficult economic circumstances.

Second, the economy is more than a collection of firms. That is why John Maynard Keynes wrote of the "General Theory". He was concerned about the behaviour of the economy in general rather than that of individual companies. Many economists have realised that the economy consists not just of companies but also of the relations between them as well as other factors such as consumers, workers and governments.

Finally, contemporary economic discussion focuses far too much on consumption. It obsesses over such issues as branding, shopping and consumer confidence. News items on the economy are virtually guaranteed to feature a shop. At the same time the production side attracts relatively little attention. Factors such as return on investment, productivity and profitability are hardly mentioned, despite their central role in economic activity.

Marks & Spencer's recent stockmarket troubles say a fair amount about the company but little about the wider economy. To really understand Britain's economic troubles we must look deeper and wider than just M&S. No single company, even one with as high a profile as M&S, tells the story of the whole economy.

Labels: consumption, economics, finance, Fund Strategy

The government is having yet another go at people for wasting food (see 8 May 2008 post). A key problem with the argument - leaving aside its snobbery and paternalism - is the poor maths involved. According to a BBC news story on the Cabinet Office report:

“A government study says the UK wastes 4m tonnes of food every year, adding £420 to a family's shopping bills.”

Yet if you do the sums this works out as very little. Assuming the average household size is about 2.4 people I estimate it means about 48p per person per day. Or in terms of weight it is about 183g.

Considering how busy people are this is a remarkably low wastage rate. It is even more striking considering that the food is often fresh and free of preservatives - making waste even greater.

The news story also make a completely illegitimate comparison:

“The Cabinet Office report claims that up to 40% of food harvested in developing countries can be lost before it is consumed, due to the inadequacies of processing, storage and transport.”

Such waste is the result of factors such as a poor road network and lack of electricity. It is linked to low levels of development rather than some kind of moral failure by individuals or families.

Labels: consumption, food

I have no doubt that the Guardian - and reportedly the World Bank - is wrong in attributing 75% of global food price rises to biofuels. I am sure that that drive towards biofuels is contributing to higher prices but the increases are not caused by the technology itself. The American government is giving huge subsidies to the production of a particularly inefficient form of biofuels (corn ethanol) as a result of its obsession with energy security. More efficient ways of producing biofuels already exist, for example from Brazilian sugar cane, and no doubt better forms will emerge in the future.

Labels: energy, food

The annual World Values Survey by the United States National Science Foundation once again finds that Denmark is the world’s happiest nation. Puerto Rico and Colombia completed the top three while Zimbabwe was the least happy. The study was directed by Ronald Inglehart of the University of Michigan.

Meanwhile, Alan Wolfe has reviewed books on happiness economics (by Bruno Frey) and behavioural economics (by Dan Ariely) for the New Republic. Wolfe sees the new economics as a revival of utilitarianism. He also cites a paper by Norbert Schwart and Fritz Stark which he says leave the validity of subjective reports of happiness “in tatters” (in a book called Well-Being published by the Russell Sage Foundation in 1999).

Labels: economics, happiness

Following Sunday’s post the Guardian has launched a comment series on “the green squeeze”. In motivating the series it asks: “Will the credit crunch usher in a green backlash, as people abandon environmentalism in favour of what they consider more pressing economic concerns, and how should the green movement respond? Throughout the week, leading thinkers assess the lessons of history and the changing tactics necessary to deliver their agenda during a recession.”

My answers are (a) no, people will not abandon environmentalism (b) it is a pity. Environmentalism represents an outlook that favours austerity so is well suited to a period of economic restraint.

Labels: consumption, economics, environment