Tuesday, September 30, 2008
Growth Commission blog
Monday, September 29, 2008
Fear, not spivs, is the root of financial crisis
The following is my latest comment from Fund Strategy.
An unfortunate feature of the discussion of the financial crisis is the tendency to blame greedy individuals for the problems. This is in contrast to discussions in the past when such difficulties were seen as more systemic.
More than ever before the responsibility for the crisis is pinned on individual "speculators" and "spivs". To the extent that broader factors are blamed it is generally that the regulatory system has allegedly given too much leeway to such people.
This is also the significance of the frenzied debate about short selling. It does not seem to be based on objective analysis of how important that particular technique is in exacerbating volatility. Rather, it represents a moralistic attack on greedy individuals.
This assault on individual speculators spans the political spectrum. It is as much the domain of conservative politicians and commentators as it is of those who see themselves as on the left.
The problem with this view is that it mystifies what is going on. Rather than provide a rational explanation of recent developments it reduces them to a moral fable.
In fact the most striking feature of the contemporary financial markets is how they have been reshaped by risk aversion. As argued in Cowardly Capitalism, my book on global finance, in 2001 the financial markets have changed fundamentally in character. Whereas financial markets used to be primarily about acting as an intermediary for capital they have increasingly become a way of transferring risks. Developments such as the rise of derivatives and securitisation can be understood in this context.
This development has the paradoxical effect of diversifying risk in the short term while at the same time increasing the dangers of risk spreading. It means that individual lenders can, for example, reduce their risk by removing potentially problematic loans from their balance sheets. But if the loans do go bad it can spread a contagion effect far further than it would otherwise have gone.
This climate of risk aversion has also exacerbated problems in the markets more generally. Politicians have reacted in a panicky way and banks have become reluctant to lend to each other.
The contemporary culture of fear rather than individual greed explains the current crisis.
An unfortunate feature of the discussion of the financial crisis is the tendency to blame greedy individuals for the problems. This is in contrast to discussions in the past when such difficulties were seen as more systemic.
More than ever before the responsibility for the crisis is pinned on individual "speculators" and "spivs". To the extent that broader factors are blamed it is generally that the regulatory system has allegedly given too much leeway to such people.
This is also the significance of the frenzied debate about short selling. It does not seem to be based on objective analysis of how important that particular technique is in exacerbating volatility. Rather, it represents a moralistic attack on greedy individuals.
This assault on individual speculators spans the political spectrum. It is as much the domain of conservative politicians and commentators as it is of those who see themselves as on the left.
The problem with this view is that it mystifies what is going on. Rather than provide a rational explanation of recent developments it reduces them to a moral fable.
In fact the most striking feature of the contemporary financial markets is how they have been reshaped by risk aversion. As argued in Cowardly Capitalism, my book on global finance, in 2001 the financial markets have changed fundamentally in character. Whereas financial markets used to be primarily about acting as an intermediary for capital they have increasingly become a way of transferring risks. Developments such as the rise of derivatives and securitisation can be understood in this context.
This development has the paradoxical effect of diversifying risk in the short term while at the same time increasing the dangers of risk spreading. It means that individual lenders can, for example, reduce their risk by removing potentially problematic loans from their balance sheets. But if the loans do go bad it can spread a contagion effect far further than it would otherwise have gone.
This climate of risk aversion has also exacerbated problems in the markets more generally. Politicians have reacted in a panicky way and banks have become reluctant to lend to each other.
The contemporary culture of fear rather than individual greed explains the current crisis.
Labels: economics, finance, Fund Strategy
Mainstream view of world economy
The following Fund Strategy news story by me sums up the current orthodoxy on the global economy.
The world economy is likely to enjoy a gradual recovery in 2009 despite the financial turmoil, according to a senior figure at the International Monetary Fund (IMF).
John Lipsky, the first deputy managing director of the IMF, told a meeting in Washington DC that a severe downturn can be avoided if the policy response is right. "This storm can be weathered without a damaging global recession," he said. "But attaining such an outcome will require clear and coherent policy responses from public authorities and institutions around the world, together with the restoration of private market functionality and an end to investors' spiraling crisis of confidence."
He said the backdrop to the current crisis was that the world economy was becoming "bifurcated" rather than, as many had hoped, decoupled. Both advanced and emerging economies were slowing although they are facing different sorts of problems.
In the developed world the slowdown that started in America has spread to the eurozone and Japan. Such economies seem to be facing a protracted period of slow growth.
Emerging economies are showing resilience but there are signs that capital is starting to flow out of them. Their growth prospects are diminishing and the risk appetite of investors in such countries is declining. As a result the currencies of many emerging countries have weakened.
The outcome of the volatility will depend on the ability of both sets of economies to deal with three simultaneous shocks: rising energy and commodity prices, the housing downturn and the financial turmoil.
Lipsky argued that, despite the scale of these challenges, there are several factors that make a gradual recovery likely. First, oil prices have declined from their summer peak. This should give a particular boost to the American economy.
The IMF says it is also likely that the American housing market will bottom in 2009. Key indicators, such as affordability levels, are improving. In addition, economies are in reasonable shape in many respects. In America, for instance, corporate finances remains relatively healthy. Finally, emerging economy growth remain robust. Such buoyancy should also help American exports.
* "The global economic and financial turmoil: finding our footing". Available at www.imf.org
The world economy is likely to enjoy a gradual recovery in 2009 despite the financial turmoil, according to a senior figure at the International Monetary Fund (IMF).
John Lipsky, the first deputy managing director of the IMF, told a meeting in Washington DC that a severe downturn can be avoided if the policy response is right. "This storm can be weathered without a damaging global recession," he said. "But attaining such an outcome will require clear and coherent policy responses from public authorities and institutions around the world, together with the restoration of private market functionality and an end to investors' spiraling crisis of confidence."
He said the backdrop to the current crisis was that the world economy was becoming "bifurcated" rather than, as many had hoped, decoupled. Both advanced and emerging economies were slowing although they are facing different sorts of problems.
In the developed world the slowdown that started in America has spread to the eurozone and Japan. Such economies seem to be facing a protracted period of slow growth.
Emerging economies are showing resilience but there are signs that capital is starting to flow out of them. Their growth prospects are diminishing and the risk appetite of investors in such countries is declining. As a result the currencies of many emerging countries have weakened.
The outcome of the volatility will depend on the ability of both sets of economies to deal with three simultaneous shocks: rising energy and commodity prices, the housing downturn and the financial turmoil.
Lipsky argued that, despite the scale of these challenges, there are several factors that make a gradual recovery likely. First, oil prices have declined from their summer peak. This should give a particular boost to the American economy.
The IMF says it is also likely that the American housing market will bottom in 2009. Key indicators, such as affordability levels, are improving. In addition, economies are in reasonable shape in many respects. In America, for instance, corporate finances remains relatively healthy. Finally, emerging economy growth remain robust. Such buoyancy should also help American exports.
* "The global economic and financial turmoil: finding our footing". Available at www.imf.org
Labels: economics, finance, Fund Strategy
Saturday, September 27, 2008
Dumbing down development
The recent Oxfam International paper on Climate Wrongs and Human Rights is a classic example of how an apparently ambitious approach to development has curtailed ambitions. It looks at climate change as violating basic human rights such as the right to life and security, the right to food, the right to subsistence and the right to health. In effect what it is doing is redefining development as survival. It uses the term “rights” in a promiscuous way to mean basic needs. I suspect that also, by introducing the threat of litigation in relation to climate change, it will increase anxiety about pursuing economic growth.
Labels: climate, development
Great news on development
According to the International Communications Union the number of mobile phone users worldwide should reach about four billion by the end of 2008. That is 61% of the world’s population against only 12% in 2000.
That is a fantastic achievement for global development. The quicker it reaches 100% the better. As I have consistently argued it is vital to have a balanced view on progress towards development. There is a huge amount still to do but we should also recognise what we have already achieved.
That is a fantastic achievement for global development. The quicker it reaches 100% the better. As I have consistently argued it is vital to have a balanced view on progress towards development. There is a huge amount still to do but we should also recognise what we have already achieved.
Labels: development, technology
Friday, September 26, 2008
BBC TV appearances
I am due to appear on BBC television this evening talking about the role of greed in the current financial crisis. Naturally I will be arguing that it is not the driving force behind the market turmoil. I am scheduled to be on BBC World at 7.30pm (London time) and later on the BBC News 24 channel.
Labels: economics, finance, media appearances, television
Thursday, September 25, 2008
Risk aversion exacerbates crisis
Phil Mullan has an excellent article on the current financial crisis on spiked. The thrust of his argument is that the current climate of risk aversion is exacerbating what would otherwise be a more limited crisis. Politicians and the financial authorities have simply reacted in an over-anxious way while financial institutions have ceased lending to each other.
Labels: economics, finance, spiked
Monday, September 22, 2008
Millennium conference in NY
Who has the Financial Times got blogging on this week’s Millennium Development Goals conference at the United Nations in New York? None other than Bono and his sidekick, Professor Jeffrey Sachs.
Bono describes his week ahead as follows: “A sleepless cocktail of rabble-rousing, meetings with politicians, chief executives, faith leaders and NGOs. People such as Nicolas Sarkozy, President Jakaya Kikwete of Tanzania and Gordon Brown.” It seems that not only does he regard himself as extremely important but senior politicians, businesspeople and religious leaders do too.
A few things to note about this week in relation to the conference:
* The Clinton Global Initiative looks like it will play a prominent role. Clinton - Bill rather than Hillary - will be appearing on the Daily Show on Tuesday to promote the campaign. It is billed as: “the almost first husband talks about the Clinton Global Initiative”.
* According to Bono there will be a “historic and innovative announcement on malaria on Thursday”. I would guess it probably has something to do with anti-malarial bednets.
Bono describes his week ahead as follows: “A sleepless cocktail of rabble-rousing, meetings with politicians, chief executives, faith leaders and NGOs. People such as Nicolas Sarkozy, President Jakaya Kikwete of Tanzania and Gordon Brown.” It seems that not only does he regard himself as extremely important but senior politicians, businesspeople and religious leaders do too.
A few things to note about this week in relation to the conference:
* The Clinton Global Initiative looks like it will play a prominent role. Clinton - Bill rather than Hillary - will be appearing on the Daily Show on Tuesday to promote the campaign. It is billed as: “the almost first husband talks about the Clinton Global Initiative”.
* According to Bono there will be a “historic and innovative announcement on malaria on Thursday”. I would guess it probably has something to do with anti-malarial bednets.
Labels: America, celebrities, development, economics, health
Sunday, September 21, 2008
Economist on globalisation
This week’s Economist (20 September) includes a survey on globalisation. Its focus is the growing importance of multinational companies from emerging economy countries.
Labels: development, economics, globalisation
Saturday, September 20, 2008
Debating capitalism’s future
Recent financial market volatility has prompted a debate about the future of capitalism. The BBC has even done a vox pop on it. But there is less to the discussion than first appears. No one is arguing for a replacement of the market system with something else. Instead the discussion is really about new forms of regulation for markets and the economy.
Development Redefined
Development Redefined, a new book by Robin Broad and John Cavanagh, promises to provide a critique of the Washington Consensus or “market fundamentalism”. Unfortunately, judging by its endorsements – including Walden Bello, Naomi Klein and Vandana Shiva – it is likely to prove even more conservative than the ideas it criticises.
Labels: book, development, economics
Oxfam development blog
Duncan Green of Oxfam GB has started a blog on development issues. Given the substantial (and often pernicious) influence of non-governmental organisations (NGOs) in development it will probably prove worth monitoring. Oxfam is one of the most influential of such organisations.
On Green’s recent book on development see my 22 June 2008 post.
On Green’s recent book on development see my 22 June 2008 post.
Labels: book, development, economics
Thursday, September 18, 2008
Real Clear Markets picks up myths article
Real Clear Markets has picked up my Spiked myths article in its “off the street” section today.
Labels: America, economics, finance, media appearances, spiked
Wednesday, September 17, 2008
Myths article published on spiked
Spiked has published an expanded version by me of yesterday’s post on myths about the Wall Street crisis.
Labels: economics, finance, spiked
Tuesday, September 16, 2008
Myths about the Wall Street crisis
Since the troubles on Wall Street at the weekend many key notions have been repeated as the accepted wisdom. However, on closer examination they are both old and inaccurate.
* Myth one: recent developments prove that Wall Street is nothing but a giant casino. This notion was stated explicitly by John McCain, the Republican candidate in the American presidential race, when he argued that the American worker has “been betrayed by a casino on Wall Street”. He was, probably unknowingly, echoing the ideas of Susan Strange, a leftist thinker, who in 1986 had an influential book published entitled Casino Capitalism.
In fact as I argued in my book Cowardly Capitalism (Wiley 2001) the contemporary financial markets are characterised by risk aversion rather than a hunger for big bets. This is much more than saying the markets are simply fearful. Rather I argue that the main reason for existence of financial markets has changed from raising capital to transferring risks. Financial markets used to provide a mechanism for businesses to raise funds or for individuals to obtain funds if they needed them. Today the purpose of many financial instruments is to transfer risk from one party to another.
This “cowardly” nature of the financial markets explains why the financial crisis has spread in the way that it has. Repackaging or “securitising” mortgages initially provided a way for lenders to sell on the risk to other parties such as investment banks. In the short term this had what was seen as the desirable effect of diversifying risk. But the risk was simply transferred rather than disappearing. Once problems emerged it could spread more easily from one institution to another. This explains what is sometimes misleading referred to as a “contagion” effect or virus in the market.
* Myth two: the markets were driven by greed. It would be more accurate to say that the developments are driven by fear rather than greed. However, it is not fear in the sense of a timeless human emotion. Rather it is a general climate of anxiety in contemporary society that affects the financial markets as everyone else.
* Myth three: it is all about confidence. It is true that confidence plays more of a role in the financial markets than in the economy as a whole. But it is a mistake of exaggerate the importance of confidence in the resolution of the crisis. The strength of the underlying real economy is a key factor to consider when trying to determine the likely outcome. The contemporary economy has a weak growth dynamic but it is not facing any fundamental crisis. It is characterised by sluggish growth but there are no signs of collapse.
* Myth four: it all started with irresponsible American subprime mortgage lending. The crisis is routinely blamed on irresponsible lenders and reckless borrowers whose debts have now gone bad. According to this caricature a combination of greedy bankers and “trailer trash” are to blame for the crisis. In reality the American housing bubble was simply a response to the low interest rates maintained by the Federal Reserve earlier this decade. This loose monetary policy was in turn a way of keeping an otherwise sluggish economy going by means of promoting a consumer boom. The fundamental problem was therefore a weak economy rather than subprime borrowers or lenders.
* Myth five: The recent actions of the American authorities, particularly last week’s bail-out of Fannie Mae and Freddie Mac, represent an end to the free market on Wall Street. Several commentators have bemoaned the fact that the American authorities have taken a strongly interventionist stance on dealing with the financial crisis (see recent posts). However, even on Wall Street, despite its reputation as a bastion for free markets, state intervention has long been pervasive. The American authorities intervene in the economy in numerous different ways and tightly regulate the financial markets. Indeed, as argued above, the roots of the current crisis can partly be attributed to the earlier actions of the Fed.
* Myth one: recent developments prove that Wall Street is nothing but a giant casino. This notion was stated explicitly by John McCain, the Republican candidate in the American presidential race, when he argued that the American worker has “been betrayed by a casino on Wall Street”. He was, probably unknowingly, echoing the ideas of Susan Strange, a leftist thinker, who in 1986 had an influential book published entitled Casino Capitalism.
In fact as I argued in my book Cowardly Capitalism (Wiley 2001) the contemporary financial markets are characterised by risk aversion rather than a hunger for big bets. This is much more than saying the markets are simply fearful. Rather I argue that the main reason for existence of financial markets has changed from raising capital to transferring risks. Financial markets used to provide a mechanism for businesses to raise funds or for individuals to obtain funds if they needed them. Today the purpose of many financial instruments is to transfer risk from one party to another.
This “cowardly” nature of the financial markets explains why the financial crisis has spread in the way that it has. Repackaging or “securitising” mortgages initially provided a way for lenders to sell on the risk to other parties such as investment banks. In the short term this had what was seen as the desirable effect of diversifying risk. But the risk was simply transferred rather than disappearing. Once problems emerged it could spread more easily from one institution to another. This explains what is sometimes misleading referred to as a “contagion” effect or virus in the market.
* Myth two: the markets were driven by greed. It would be more accurate to say that the developments are driven by fear rather than greed. However, it is not fear in the sense of a timeless human emotion. Rather it is a general climate of anxiety in contemporary society that affects the financial markets as everyone else.
* Myth three: it is all about confidence. It is true that confidence plays more of a role in the financial markets than in the economy as a whole. But it is a mistake of exaggerate the importance of confidence in the resolution of the crisis. The strength of the underlying real economy is a key factor to consider when trying to determine the likely outcome. The contemporary economy has a weak growth dynamic but it is not facing any fundamental crisis. It is characterised by sluggish growth but there are no signs of collapse.
* Myth four: it all started with irresponsible American subprime mortgage lending. The crisis is routinely blamed on irresponsible lenders and reckless borrowers whose debts have now gone bad. According to this caricature a combination of greedy bankers and “trailer trash” are to blame for the crisis. In reality the American housing bubble was simply a response to the low interest rates maintained by the Federal Reserve earlier this decade. This loose monetary policy was in turn a way of keeping an otherwise sluggish economy going by means of promoting a consumer boom. The fundamental problem was therefore a weak economy rather than subprime borrowers or lenders.
* Myth five: The recent actions of the American authorities, particularly last week’s bail-out of Fannie Mae and Freddie Mac, represent an end to the free market on Wall Street. Several commentators have bemoaned the fact that the American authorities have taken a strongly interventionist stance on dealing with the financial crisis (see recent posts). However, even on Wall Street, despite its reputation as a bastion for free markets, state intervention has long been pervasive. The American authorities intervene in the economy in numerous different ways and tightly regulate the financial markets. Indeed, as argued above, the roots of the current crisis can partly be attributed to the earlier actions of the Fed.
Labels: America, economics, finance
Monday, September 15, 2008
Pragmatism chokes principled policies
The following comment by me appeared in this week’s Fund Strategy Although I think the argument is more valid than ever it has been over-taken by events over the weekend including the bankruptcy of Lehman Brothers and the takeover of Merrill Lynch. To me all of these developments reinforce the argument that “neo-liberalism” is a myth.
Last week marked another tightening of the noose around the neck of the free market. The American government felt obliged to nationalise two institutions, Fannie Mae and Freddie Mac, at the heart of free market capitalism: Wall Street.
Of course it does not follow that capitalism itself is about to collapse. Rather it means that virtually no one believes in the ideal of the free market. Even ardent free marketeers quickly ditch their beliefs at the first hint of serious trouble.
The trend has been clear for a while. Back in March the chief economic commentator of the Financial Times, Martin Wolf, started an article on the bail-out of Bear Stearns, a Wall Street investment bank, with the line: "Remember Friday March 14 2008: it was the day the dream of global free market capitalism died". He also quoted Joseph Ackermann, the chief executive of Deutsche Bank, saying "I no longer believe in the market's self-healing power".
The nationalisation of Fannie and Freddie takes the trend a step further. It is worth pondering just how big a deal it is. America is seen as the bastion of free market capitalism. Wall Street its staunchest supporter of all. The scale of the bail-out - with up to $200 billion (£113 billion) pumped into the two institutions - is huge.
However much free marketeers play down the significance of the deal it is hard to take them seriously. It has illustrated in the most stark way possible that the market remains heavily dependent on state intervention. Such intervention may be driven by pragmatism, rather than by ideology, but it is just as real as in the past.
It is true that in earlier times the supporters of the free market have become advocates of intervention when their favourite institutions get into trouble. The difference with the past is the pervasive disaffection with the free market idea.
In fact hardly anyone expresses a strong principled stand on economics any more. Both right and left have more-or-less ceased to exist. Pragmatism rules.
While this development is welcome to some it brings many problems. In particular it means that policy-makers simply react to developments after they happen. The idea of shaping the world for the better seems to have been forgotten by all sides.
Last week marked another tightening of the noose around the neck of the free market. The American government felt obliged to nationalise two institutions, Fannie Mae and Freddie Mac, at the heart of free market capitalism: Wall Street.
Of course it does not follow that capitalism itself is about to collapse. Rather it means that virtually no one believes in the ideal of the free market. Even ardent free marketeers quickly ditch their beliefs at the first hint of serious trouble.
The trend has been clear for a while. Back in March the chief economic commentator of the Financial Times, Martin Wolf, started an article on the bail-out of Bear Stearns, a Wall Street investment bank, with the line: "Remember Friday March 14 2008: it was the day the dream of global free market capitalism died". He also quoted Joseph Ackermann, the chief executive of Deutsche Bank, saying "I no longer believe in the market's self-healing power".
The nationalisation of Fannie and Freddie takes the trend a step further. It is worth pondering just how big a deal it is. America is seen as the bastion of free market capitalism. Wall Street its staunchest supporter of all. The scale of the bail-out - with up to $200 billion (£113 billion) pumped into the two institutions - is huge.
However much free marketeers play down the significance of the deal it is hard to take them seriously. It has illustrated in the most stark way possible that the market remains heavily dependent on state intervention. Such intervention may be driven by pragmatism, rather than by ideology, but it is just as real as in the past.
It is true that in earlier times the supporters of the free market have become advocates of intervention when their favourite institutions get into trouble. The difference with the past is the pervasive disaffection with the free market idea.
In fact hardly anyone expresses a strong principled stand on economics any more. Both right and left have more-or-less ceased to exist. Pragmatism rules.
While this development is welcome to some it brings many problems. In particular it means that policy-makers simply react to developments after they happen. The idea of shaping the world for the better seems to have been forgotten by all sides.
Labels: economics, finance, Fund Strategy
Whatever happened to “neo-liberalism”?
Charles Dumas of Lombard Street Research joins those who bemoan the lack of a free market reaction to Wall Street’s problems. In an article in the Telegraph he argues that: “Free markets have been abandoned in America at the crucial hour by their chief exemplars, the financial masters of the universe.”
Dumas also says that: “It seems that: President Bush and the Republicans are not just well to the left of Grover Norquist. They leave clear blue water on the left of Gordon Brown, much to the envy of Euro-lefties no doubt, who would love to ditch what they call "neo-liberalism", and what we call free markets, as easily as the American right wing.”
In a related argument Dumas also points to the surging level of public sector debt in America as a result of the recent bail-outs. As a proportion of GDP it is now not far behind highly indebted countries such as Italy and Japan.
Dumas also says that: “It seems that: President Bush and the Republicans are not just well to the left of Grover Norquist. They leave clear blue water on the left of Gordon Brown, much to the envy of Euro-lefties no doubt, who would love to ditch what they call "neo-liberalism", and what we call free markets, as easily as the American right wing.”
In a related argument Dumas also points to the surging level of public sector debt in America as a result of the recent bail-outs. As a proportion of GDP it is now not far behind highly indebted countries such as Italy and Japan.
Labels: America, economics, finance
Sunday, September 14, 2008
Environmentalist shift on climate change
The Economist (11 September) notes a significant shift in the environmentalist attitude towards climate change. Rather than just pushing mitigation they are also promoting adaptation as a complement to it. To quote the opening paragraph of the article:
“‘I used to think adaptation subtracted from our efforts on prevention. But I’ve changed my mind,’ says Al Gore, a former American vice-president and Nobel prize-winner. ‘Poor countries are vulnerable and need our help.’ His words reflect a shift in the priorities of environmentalists and economists.”
The magazine attributes this shift to two factors: evidence that climate change is happening more quickly than previously expected and that the more marginal groups in the world will be hit harder by the trend.
As this blog has already noted it is also clear that many environmentalists are increasingly looking to geo-engineering (see posts of 22 July 2008, 31 July 2008 and 5 September 2008).
Unfortunately all these shifts seem to be driven by a panic reaction to climate change. Few are challenging the implicit assumption that we need to curb consumption growth to deal with the problem.
Even the concept of “mitigation” is problematic. It lumps together measures which are essentially about rationing (such as striving to use less energy in the home) with the development of new or less carbon generating technology (such as atomic power, hydroelectric power, nuclear fusion and more fuel efficient technologies).
“‘I used to think adaptation subtracted from our efforts on prevention. But I’ve changed my mind,’ says Al Gore, a former American vice-president and Nobel prize-winner. ‘Poor countries are vulnerable and need our help.’ His words reflect a shift in the priorities of environmentalists and economists.”
The magazine attributes this shift to two factors: evidence that climate change is happening more quickly than previously expected and that the more marginal groups in the world will be hit harder by the trend.
As this blog has already noted it is also clear that many environmentalists are increasingly looking to geo-engineering (see posts of 22 July 2008, 31 July 2008 and 5 September 2008).
Unfortunately all these shifts seem to be driven by a panic reaction to climate change. Few are challenging the implicit assumption that we need to curb consumption growth to deal with the problem.
Even the concept of “mitigation” is problematic. It lumps together measures which are essentially about rationing (such as striving to use less energy in the home) with the development of new or less carbon generating technology (such as atomic power, hydroelectric power, nuclear fusion and more fuel efficient technologies).
Labels: climate, environment, geo-engineering
Friday, September 12, 2008
More market misery
Anatole Kaletsky, an associate editor of the Times (London), argues in an article today that the nationalisation of Fannie Mae and Freddie Mac in America represents a ditching of faith in the free market: “just as the triumph appeared to be complete the innermost sanctum of the global capitalist system suddenly collapsed.”
He goes on:
“The nationalisation last weekend of Fannie Mae and Freddie Mac, the two largest financial institutions the world has ever known, signalled the complete failure of the biggest, most dynamic, most innovative and competitive markets that have existed in the history of capitalism - the Wall Street stockmarket and the market for US bonds.
“Their failure has been so obvious, that even the most capitalist administration ever, in the world's most capitalist country, had decided to wipe out the private owners of its biggest and most important financial companies and replace them with state-appointed bureaucrats.”
Meanwhile, Samuel Brittan, a veteran Financial Times columnist, sounded glum writing yesterday in response to the same events:
“Even if in the end we suffer no more than an average post-second- world-war recession it will still look like a narrow escape owing to the readiness of leaders such as Hank Paulson, the US Treasury secretary, not merely to jettison free-market principles but to take risks with prudence to bail out US corporate bodies. There will be no “glad confident morning” for free-market principles for a long time to come.”
Both writers have a point but they are behind the times. Disillusion with the free market has been pervasive for a while; even among its supporters. For example, see my recent spiked article on the subject (link available on the bar on the left).
He goes on:
“The nationalisation last weekend of Fannie Mae and Freddie Mac, the two largest financial institutions the world has ever known, signalled the complete failure of the biggest, most dynamic, most innovative and competitive markets that have existed in the history of capitalism - the Wall Street stockmarket and the market for US bonds.
“Their failure has been so obvious, that even the most capitalist administration ever, in the world's most capitalist country, had decided to wipe out the private owners of its biggest and most important financial companies and replace them with state-appointed bureaucrats.”
Meanwhile, Samuel Brittan, a veteran Financial Times columnist, sounded glum writing yesterday in response to the same events:
“Even if in the end we suffer no more than an average post-second- world-war recession it will still look like a narrow escape owing to the readiness of leaders such as Hank Paulson, the US Treasury secretary, not merely to jettison free-market principles but to take risks with prudence to bail out US corporate bodies. There will be no “glad confident morning” for free-market principles for a long time to come.”
Both writers have a point but they are behind the times. Disillusion with the free market has been pervasive for a while; even among its supporters. For example, see my recent spiked article on the subject (link available on the bar on the left).
Labels: economics, finance, spiked
Tuesday, September 09, 2008
Apocalyptic visions
An interesting article by Sameer Panya in Miller McCune on apocalyptic visions in movies, popular books and TV. Examples he points to include the Dark Knight (the latest Batman movie - evidently shows the Joker trying to destroy the world for sheer pleasure), Wall-E (see my post of 21 July 2008), Battlestar Gallactica (the recent TV version) and Cormac McCarthy’s The Road ( a novel which comes out as a film later this year). Two recent books examine this phenomenon: In Apocalyptic Dread by Kirsten Moana Thompson and Shocking Representation by Adam Lowenstein.
I wrote about apocalpytic visions in non-fiction in my post of 24 April 2008. I also used the introduction from Mad Max II to introduce my recent Fund Strategy feature on oil (see 26 August 2008 post).
Such visions seem to represent, in an extreme form, the fear of the future that is so prevalent at present.
I wrote about apocalpytic visions in non-fiction in my post of 24 April 2008. I also used the introduction from Mad Max II to introduce my recent Fund Strategy feature on oil (see 26 August 2008 post).
Such visions seem to represent, in an extreme form, the fear of the future that is so prevalent at present.
Labels: apocalyptic, book, film
Monday, September 08, 2008
Fossil fuels vital to future development
The following comment by me appeared in this week’s Fund Strategy.
It seems virtually all politicians want to present themselves as enemies of "big oil". It is a pity they have forgotten the huge benefits of fossil fuels.
One of the less noticed passages of Gordon Brown's speech to the Confederation of British Industry in Scotland last week was his desire to "set a new ambition to free Britain from the dictatorship of oil".
Exactly how a physical substance can impose a dictatorship over people he did not explain. Rights are normally curtailed by governments, such as his own, rather than by chemicals. But he is far from alone in his hostility to oil.
Al Gore, the former American vice-president turned environmental campaigner, told the Democratic National Convention in Denver on August 28 that America needed presidential leadership to solve the climate crisis. He is also supporting a campaign demanding "electricity 100% clean within 10 years" (www.wecansolveit.org). Obviously, the term "clean" is open to interpretation but Gore made no secret of his distaste for "big oil and coal" in his speech.
Nor is criticism of oil interests restricted to those who might vaguely be defined as on the left. On the Republican side the new vice-presidential candidate, Sarah Palin, is portrayed by her opponents as a supporter of big oil. But she presents herself as a populist critic of corporate interests.
Few seem willing to put the case that fossil fuel has brought enormous benefits to humanity and, if allowed, is likely to continue to do so. It is a relatively cheap and highly flexible form of energy. That is why the International Energy Agency estimates it is likely to account for 84% of the overall increase in energy demand from 2005-2030. Without oil the world economy would not have grown nearly as fast over the past century.
Although Brown and others offer alternatives, their claims to be able to replace fossil fuel bear little relationship to reality. Brown supports more investment in renewables and atomic power - which is fine in principle - but on nowhere near the scale needed to meet future energy needs. And, contrary to the common misconception, greater energy efficiency is likely to lead to more energy consumption rather than less.
One-sided attacks on oil do not help promote a considered debate on the future of energy.
It seems virtually all politicians want to present themselves as enemies of "big oil". It is a pity they have forgotten the huge benefits of fossil fuels.
One of the less noticed passages of Gordon Brown's speech to the Confederation of British Industry in Scotland last week was his desire to "set a new ambition to free Britain from the dictatorship of oil".
Exactly how a physical substance can impose a dictatorship over people he did not explain. Rights are normally curtailed by governments, such as his own, rather than by chemicals. But he is far from alone in his hostility to oil.
Al Gore, the former American vice-president turned environmental campaigner, told the Democratic National Convention in Denver on August 28 that America needed presidential leadership to solve the climate crisis. He is also supporting a campaign demanding "electricity 100% clean within 10 years" (www.wecansolveit.org). Obviously, the term "clean" is open to interpretation but Gore made no secret of his distaste for "big oil and coal" in his speech.
Nor is criticism of oil interests restricted to those who might vaguely be defined as on the left. On the Republican side the new vice-presidential candidate, Sarah Palin, is portrayed by her opponents as a supporter of big oil. But she presents herself as a populist critic of corporate interests.
Few seem willing to put the case that fossil fuel has brought enormous benefits to humanity and, if allowed, is likely to continue to do so. It is a relatively cheap and highly flexible form of energy. That is why the International Energy Agency estimates it is likely to account for 84% of the overall increase in energy demand from 2005-2030. Without oil the world economy would not have grown nearly as fast over the past century.
Although Brown and others offer alternatives, their claims to be able to replace fossil fuel bear little relationship to reality. Brown supports more investment in renewables and atomic power - which is fine in principle - but on nowhere near the scale needed to meet future energy needs. And, contrary to the common misconception, greater energy efficiency is likely to lead to more energy consumption rather than less.
One-sided attacks on oil do not help promote a considered debate on the future of energy.
Labels: America, climate, development, economics, energy, Fund Strategy
Sunday, September 07, 2008
Brookings initiative on development
The Brookings Institution, a think tank based in Washington DC, is organising interesting-sounding events and publications on development. These include an event on how the world’s poor can deal with climate change and a book on Global Development 2.0 including a look at the new philanthropists. The latter looks at how: “The fight against global poverty has quickly become one of the hottest tickets on the global agenda—with rock stars, world leaders, and multibillionaires calling attention to the plight of the poor at international confabs such as the World Economic Forum and the Clinton Global Initiative.”
Labels: celebrities, climate, development
Climate leader attacks meat consumption
The lead story in today’s Observer quotes Dr Rajendra Pachauri, the chair of the United Nations Intergovernmental Panel on Climate Change, argues that people should reduce their meat consumption to help quell global warming. There are several obvious things wrong with this demand. In no particular order:
• It is an intrusion into individuals’ personal freedom. It should not be up to the authorities to tell people what to eat.
• It is an attack on Western living standards. It helps set a precedent that people should be prepared to do with less.
• It is an attack on development. Everyone should have access to the best the world has to offer – including meat.
• It is a meaningless gesture. The idea that such token gestures can do anything about climate change is ridiculous. On the contrary, by focusing on our individual behaviour it encourages a climate of narcissism rather than the broad thinking need to tackle the problems facing humanity.
• It is an intrusion into individuals’ personal freedom. It should not be up to the authorities to tell people what to eat.
• It is an attack on Western living standards. It helps set a precedent that people should be prepared to do with less.
• It is an attack on development. Everyone should have access to the best the world has to offer – including meat.
• It is a meaningless gesture. The idea that such token gestures can do anything about climate change is ridiculous. On the contrary, by focusing on our individual behaviour it encourages a climate of narcissism rather than the broad thinking need to tackle the problems facing humanity.
Labels: climate, consumption, environment, food
Origins of the congestion charge
Those of you who attended the Bookshop Barnie at the London School of Economics last Thursday may be interested in a side argument we had on the intellectual origins of London’s traffic congestion charge. Some described it as “state socialist” while I said I thought I remember that Milton Friedman, a free market economics guru, had come up with the idea. It turns out that it is true that some articles attribute to Friedman although according to a journal article (PDF) dug up by Austin Williams on road pricing the origin of the discussion is more complex. In any case it should be clear it is not accurate to describe it as a “socialist” measure.
Labels: cities, economics, transport
Saturday, September 06, 2008
Worldwrite launches news channel
Worldwrite has launched its Worldbytes television channel (see 28 August post). The first programme includes an item with me talking about poverty in London.
Labels: inequality, media appearances, television, Worldwrite
Friday, September 05, 2008
Quick catch-up
There have been several interesting articles and discussions this week but until now I have been too busy to blog them all. Here is a quick round-up:
* Debate on geo-engineering. The Royal Society (Britain’s premier science organisation) has published a series of papers in its Philosophical Transactions on geo-engineering. That in turn prompted a substantial article in the Economist (6 September edition) and a piece by Oliver Tickell (an environmental campaigner) on the Guardian comment is free site supporting geo-engineering but only if it is linked to a reduction in emissions.
* Book on Nazi’s green credentials. I came across this when I heard radio presenters making fun of the title How Green were the Nazis?. To me it is a perfectly reasonable question and the book looks interesting. There is no doubt that many Nazis supported what are today classified as environmental ideas - which does not mean that all environmentalists are Nazis. The most serious critique I could find of the book was in Haaretz (Israel’s leading newspaper).
* Critique of Garrett Hardin’s classic article on “The tragedy of the commons” from a leftist viewpoint. Available here.
* Article on conservative assumptions of organic food movement. Conservative in a literal Burkean sense. Available here.
* Poll on hostility to local development in America, Britain and Canada. Available here.
* James Heartfield on Enron as a pioneer of environmentalism. Based on extracts from his latest book. Available here.
* Debate on geo-engineering. The Royal Society (Britain’s premier science organisation) has published a series of papers in its Philosophical Transactions on geo-engineering. That in turn prompted a substantial article in the Economist (6 September edition) and a piece by Oliver Tickell (an environmental campaigner) on the Guardian comment is free site supporting geo-engineering but only if it is linked to a reduction in emissions.
* Book on Nazi’s green credentials. I came across this when I heard radio presenters making fun of the title How Green were the Nazis?. To me it is a perfectly reasonable question and the book looks interesting. There is no doubt that many Nazis supported what are today classified as environmental ideas - which does not mean that all environmentalists are Nazis. The most serious critique I could find of the book was in Haaretz (Israel’s leading newspaper).
* Critique of Garrett Hardin’s classic article on “The tragedy of the commons” from a leftist viewpoint. Available here.
* Article on conservative assumptions of organic food movement. Conservative in a literal Burkean sense. Available here.
* Poll on hostility to local development in America, Britain and Canada. Available here.
* James Heartfield on Enron as a pioneer of environmentalism. Based on extracts from his latest book. Available here.
Labels: book, development, economics, environment, finance, food, geo-engineering
Thursday, September 04, 2008
Me on recession debate and on oil
Spiked has published an article by me on the row over Alistair Darling, the chancellor of the Exchequer, saying Britain is facing its toughest economic times for 60 years.
Also Real Clear Markets included a link to my Fund Strategy cover story on oil on Tuesday.
Also Real Clear Markets included a link to my Fund Strategy cover story on oil on Tuesday.
Labels: economics, energy, Fund Strategy, media appearances, spiked
Monday, September 01, 2008
Change of heading
I have changed the term “mass affluence” in the sub-title of my blog to “economic progress” as I think this better reflects what I am trying to do. I am not equivocating in my support for mass affluence but on reflection it is probably best seen as one aspect of economic progress.
Fed critic deserves a decent debate
The following comment by me appeared in this week’s Fund Strategy.
Central bankers are not generally known for having blazing public rows. But the recent annual shindig organised by the Federal Reserve at the mountain resort of Jackson Hole, Wyoming, was an exception. Once the debate is translated into straightforward English it can be seen to have important implications for economic policy.
The row was precipitated by Willem Buiter, a professor at the London School of Economics and former Bank of England monetary policy committee member, in a paper to the conference.*
Shorn of the usual caveats, maths and technical language it seemed to be arguing that the Fed has been too timid in dealing with the credit crunch. It should have been prepared to tolerate greater economic pain in the short term to pave the way for a stronger recovery. This weakness was presented as a result of being too sensitive to political pressure and the needs of Wall Street.
Alan Blinder, a professor at Princeton and former vice-chairman of the Fed, led a vigorous response. In a reference to the fact that Buiter was born in the Netherlands he said that: "One day a little Dutch boy was walking home when he noticed a small leak in a dike that protected the people in the surrounding town. He started to stick his finger in the hole, but then he remembered his moral hazard lesson. 'The companies that built this dike did a terrible job,' the boy said. 'They don't deserve a bailout. And doing that would just encourage more shoddy construction. Besides, the dumb people who live here should never have built their homes on a floodplain.' The boy continued on his way home. Before he arrived, the dike burst and everyone for miles around drowned, including the little Dutch boy."
But Blinder's response, while amusing, was based on a caricature of Buiter's argument. Buiter specifically said in his paper that the Fed was not facing the possibility of a catastrophe. In Buiter's view it had a choice between a short, painful but not fatal shock and a prolonged period of slow growth.
Buiter over-estimates the stomach of the Fed, or any of the other main central banks for decisive action. But the debate is certainly worth having rather than dismissing with a caricature.
* Papers available at: www.kc.frb.org
Central bankers are not generally known for having blazing public rows. But the recent annual shindig organised by the Federal Reserve at the mountain resort of Jackson Hole, Wyoming, was an exception. Once the debate is translated into straightforward English it can be seen to have important implications for economic policy.
The row was precipitated by Willem Buiter, a professor at the London School of Economics and former Bank of England monetary policy committee member, in a paper to the conference.*
Shorn of the usual caveats, maths and technical language it seemed to be arguing that the Fed has been too timid in dealing with the credit crunch. It should have been prepared to tolerate greater economic pain in the short term to pave the way for a stronger recovery. This weakness was presented as a result of being too sensitive to political pressure and the needs of Wall Street.
Alan Blinder, a professor at Princeton and former vice-chairman of the Fed, led a vigorous response. In a reference to the fact that Buiter was born in the Netherlands he said that: "One day a little Dutch boy was walking home when he noticed a small leak in a dike that protected the people in the surrounding town. He started to stick his finger in the hole, but then he remembered his moral hazard lesson. 'The companies that built this dike did a terrible job,' the boy said. 'They don't deserve a bailout. And doing that would just encourage more shoddy construction. Besides, the dumb people who live here should never have built their homes on a floodplain.' The boy continued on his way home. Before he arrived, the dike burst and everyone for miles around drowned, including the little Dutch boy."
But Blinder's response, while amusing, was based on a caricature of Buiter's argument. Buiter specifically said in his paper that the Fed was not facing the possibility of a catastrophe. In Buiter's view it had a choice between a short, painful but not fatal shock and a prolonged period of slow growth.
Buiter over-estimates the stomach of the Fed, or any of the other main central banks for decisive action. But the debate is certainly worth having rather than dismissing with a caricature.
* Papers available at: www.kc.frb.org
Labels: economics, finance, Fund Strategy
