Archive for Capitalism FAIL

The Promise of Capitalist Globalization, Predictably Unfulfilled

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I swear it’s just coincidence that right after coming down so hard on Nouriel Roubini, I’m going to praise a piece appearing in his EconoMonitor blog, this one by investment executive Walter Molano.

In “The Summer of Discontent“, Molano cuts straight to the nitty gritty, squarely placing blame for the past year’s various grassroots grumblings (China labor tension, Arab Spring, London riots) on the shoulders of market capitalism — namely, its failed promise. And he doesn’t try to sugar coat it or tack on a hackneyed stupefaction proclaiming capitalism will make it all right.

Molano basically illustrates how the global game of musical chairs that was played for the last twenty years as new markets opened up and capital flooded in has, in the end, left much of the world standing, disgruntled. It’s a short piece (with dreadful paragraphing), but let me share some highlights:

The growth spurt driven by globalization expanded the economic pie, as billions of new consumers were incorporated into the marketplace. Rising commodity prices and expanding trade flows delivered huge windfalls to the developed and developing world. However, as the rapid rise of global integration began to plateau, and the effects of the downturn in the U.S. and Europe took hold, the vast aspirations of disparate societies dimmed. Not only is the American dream looking like an empty promise and the European socialist model a distant memory, the hopes for a better way of life by billions of people across the developing world is also in doubt.

It’s hard to argue with this, adding to the account that everyday people in the “developed and developing world” did not accrue benefits equitably from the windfalls, which Molano fully understands. An investment analyst has captured the spirit of the street, and he’s going to tie it into useful, plain-English macroeconomic analysis. Observe…

The mad scramble for productive and physical assets throughout the former communist states, such as Russia, China and Vietnam, created a cadre of super-rich individuals. However, the re-allocation process is over and most of the boundless opportunities are gone. Now, these populations are stratifying into the traditional class segmentations associated with modern capitalist societies, fostering disappointment and frustration for some.

Molano then actually presents a Marxist framework within which to understand the impact these changes on class in countries his colleagues typically refer to as “emerging markets” (Molano spares us this dreadful term). I actually found this to be the weakest aspect of the piece, as Molano is trying to wedge modern concepts into an arcane (if historically useful) model. Nevertheless, it’s interesting.

But Molano’s commentary isn’t done getting better (i.e., franker). I’m going to make you read his piece for the details, though.

I can’t help sharing his conclusion with you just in case you don’t take the hint and read the original:

The blurry images of the violence in London, Hama and Hangzhou are the precursors of similar events that will take place in other parts of the world, such as Istanbul, Jakarta and Bogota, when they realize that the dream of greater prosperity was dashed by the basic principles of market economics.

I’m not familiar with Molano’s prior work, so I don’t know what the rest of his take on capitalism is. His job title suggests he’s okay with taking advantage of it, but unlike many of his contemporaries examining the current hyper-crisis of capitalism, he seems to have some genuine understanding of if not sympathy for the people economics impacts most: workers (and the unemployed). His lens is still familiar to those of us who read economists and analysts speaking to an elite audience of investors, but he focuses it in a way Roubini and Jeremy Grantham don’t seem willing or able to. Not revolutionary, but kind of refreshing. Why can’t this become a trend?

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Is Capitalism Doom?

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I’ve been seeing a lot of commentaries by mainstream, liberal economists and economic observers (that’s my classification) declaring, more or less, “Capitalism is dead; long live capitalism.” These presentations are typically made by people who present detailed, fact-based, rational cases why their economic system of choice is destroying our habitat and our politics, ruining life for many while ending it for many others, or at least devouring itself and spoiling everything even for the people it’s served relatively well thus far. These same people invariably then make a nonrational, largely fact-free case for why only capitalism can save us from capitalism.

The cognitive dissonance is really quit astounding, and I must confess the urge to analyze it largely inspired this blog. I knew the next couple of years would see a rash of these all-but-admissions that capitalism is a fraud and it doesn’t “work”, and I wanted to be well positioned to pounce on them.

I probably could have predicted one of the first pieces of prey to come along once I launched FuturEconomy would be from none other than liberal economist Nouriel Roubini, who over the weekend declared that capitalism was doomed… but could still save itself. Roubini makes quite a case in his commentary that the contemporary practice of capitalism has all but devoured capitalism, but he couldn’t help declaring his hope for capitalism to save itself at the last minute if the US and Europe follow his prescription.

As with other recent examples, Roubini’s case against capitalism is substantial (though missing literally dozens of points), and the case for it pathetic, lacking even a lazy attempt at substantiation or even logic to support assertions. I don’t know Roubini, but I’ve seen this phenomenon enough to suspect a religious belief in the almighty capitalism is all that’s behind his thin veneer of optimism.

Devoid of Ethics

The commentary is called “Is Capitalism Doomed?” I love this title. It is kind of a “woe are we” approach to the inevitability of social change. There’s not really a shred of ethical interest in the piece, mind you. Roubini isn’t upset that people are suffering and are going to suffer whether capitalism succeeds or fails. He is apparently just worried for capitalism, the ideology/model, per se.

The first 13 paragraphs are a cogent pre-obituary. The failings, mind you, are not that billions of humans don’t have their needs met. That’s never been something legitimate to hold against capitalism. (Fuck ’em.) It’s off the radar. Roubini is more concerned about the system’s failure to function as it has — which incidentally includes exploitation on a scale never dreamed of by emperors of old. Roubini and his contemporaries are worried that capitalism will even stop serving those it has done well for: the privileged classes. If the technical backbone of capitalism (global finance) grinds to a halt, that’s bad for the capitalists. And Roubini seems aware it comes right on the heels of other privileged groups getting pinched:

Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China – and soon enough in other advanced economies and emerging markets – are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

Note this is the only mention Roubini makes of popular discontent, and he lists the concerns as evidence of a threat to capitalism, which is what he appears to actually care about. The most charitable reading is that Roubini finds this discontent to be further evidence that capitalism is on the wrong track, but I think that’s too generous.

Here’s an example of the crassness so common in these discussions. Roubini also notes that “cutting jobs reduces labor income, increases inequality, and reduces final demand”. The problem with cutting jobs and reducing “labor income”, you see, is that it decreases demand — not that it causes hardship. It’s nice of Roubini to include inequality, but we know inequality is an objective problem of the kind economists can include in their analysis. The subjective aspect of it (exploitation and deprivation) aren’t notable factors.

In a sane economy, decreased demand would be a good thing, per se. If people wanted less stuff, everyone should be able to work less, not to mention saving on natural resources and reducing pollution. But this is an Achilles heel of capitalism (it has several). Decreased demand has a “positive feedback loop” effect on unemployment and wages in a market capitalist economy, and the cure for it (increased demand) means more resource use and more pollution. It is quite simply insane. Taking into account a world in which consumption is already way over sustainable limits, contraction = bad is a very ugly proposition. We need the biggest economies to contract or humanity and its habitat are in trouble (never mind capitalism). So we need contraction = good. But capitalism doesn’t play that way.

“Capitalism is Dead, But…

Stepping away from moral matters (which I’m never going to win economists over on anyway), Roubini’s commentary amounts to a strong case portraying capitalism’s downfall impending, basically illustrating how people and institutions are running out of shipwreckage to cling to.

The conundrums are lined up:

  • an expected third round of “quantitative easing” in the US “will be too little too late”;
  • “Italy and Spain are both too big to fail and too big to be bailed out”;
  • nearly all economies “need a weaker currency and better trade balance to restore growth, but they all cannot have it at the same time”;
  • European governments “are so distressed that bailouts” of European banks are “unaffordable”, and paradoxically sovereign risk is “fueling concern” about those banks’ health, cyclically putting them at greater threat because they “hold most of the increasingly shaky government paper”.

The case goes on and on, and even if you don’t understand the particulars of all these dilemmas, you get the gist. The contradictions of capitalism are on display. It’s a tour de force of arguments why capitalism is functionally on the brink. It falls way short of a complete case, but it’s pretty damning in and of itself.

…There Is No Alternative”

This prompts Roubini to write one of the most interesting conclusion sentences I’ve ever seen. Paragraph Ten begins:

So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong).

What a sentence! It’s hard to tell what Roubini actually means by it. After all, he presents a case that Marx was totally right inasmuch as he said what Roubini demonstrates vis a vis capitalism, but then he declares that Marx was partly right. He never gets around to saying how Marx was not totally right about capitalism’s downfall. Roubini says “globalization, financial intermediation run amok, and redistribution of income and wealth” are killing capitalism, just as he says Marx predicted. So what makes Roubini’s rendition of Marx only partly right?*

One way to read the sentence is that Marx’s entire body of work was “partly right” because socialism isn’t better than capitalism. Marx is best known for two very broad theses. One was that capitalism would make its own demise, the other was that socialism would be better. So maybe Roubini wedges in that parenthetical statement about socialism being no better just to prove that Marx was wrong about something. Or maybe he wedges it in to remind us that we’re stuck with capitalism.

But how can Roubini suggest socialism has been proved not to have been better than capitalism? What kind of self-delusion would be required for a learned economist to write those words?

Here are some statements that could tread the waters of truth:

  1. Marx’s version of socialism, to the extent it is understood, has been largely demonstrated to be inadequate and even inferior to capitalism in some respects.
  2. Socialism as implemented by autocrats has been all but proven inadequate for meeting human needs or safeguarding basic freedoms.

One could argue the above statements either way, but at least there would be a logical case to be made. They’re not absolutist like Roubini’s dismissive socialism is no better). Having set out to implement something like Marx’s version of socialism or an autocratic version, practitioners have yet to come close to a model that could be considered clearly superior to capitalism, and in fact have largely established nightmares. It’s reasonable to believe this; I do in fact believe this. It’s just not the end of the story, except for the nonrational true believer.

I mean, how bizarre it is to declare that failed attempts to implement peculiar versions of a broad idea constitute proof that no version of that broad idea can ever work? By this logic, pre-Wright Brothers attempts to achieve manned flight would be considered proof that humans will never pilot aircraft.

It’s one thing to hear “there is no alternative” from capitalists making a case that capitalism is doing well — “…besides, there’s no alternative.” But when the capitalist apologist is up against the ropes — even admitting piles of evidence that its contradictions put capitalism three jabs and a right hook away from a self-knockout — it’s strange to see them quoting Margaret Thatcher not just to explain why they refuse to throw in the towel, but actually to somehow provide hope and rally for their cause.

Capitalist, Heal Thyself

Mercifully, Roubini doesn’t leave us hanging. He’s not saying capitalism is dead and socialism can’t work, so we’re doomed. He sort of kind of answers the title question, “Is Capitalism Doomed?” by hinting that if a bunch of changes are made just right, it is not doomed.

Now, I have major objections to this. First, as I mentioned before, Roubini entirely fails to substantiate why he thinks his recommendations will save capitalism from itself. He just says that they will, and sophisticated fanboys worldwide will take comfort in that assertion. Roubini lays out an antidote, in three paragraphs, that will miraculously resurrect his ideology. This is unsatisfying to me, because I’m a critical thinker. People who love capitalism probably find hope in Roubini’s faith.

They should not.

But what if we stipulate that Roubini’s blueprint could save capitalism? Is it a real possibility? Is it what we should hope and maybe work for?

My answer is hell no. It wouldn’t be worth the trouble, and it has profound opportunity costs.

Resurrecting capitalism mostly just means making it functional again, and this isn’t worth lifting a solitary finger for. The problems endemic to it will still mostly be there, if softened. The next crises are not financial as much as they are existential; Earth is running out of resources at an alarming rate, and the planet is cooking. So Roubini’s best case scenario puts us in position to grow economies that should be shrinking. This is not just not great, it is catastrophic. Roubini’s antidote is out of the frying pan into the fire.

Besides this, Roubini’s prescription is nearly impossible to imagine. It will mean major transformations and gargantuan policy reforms that are very hard to fathom. This is not a reason not to try, though. “Demand the impossible” is one of my favorite slogans. It doesn’t mean “act unreasonably”, it means “strive for the things they say you can’t achieve”. But as long as we’re going to try for the impossible, why should we break our backs trying to resurrect a zombie that will try to eat our brains? Why not try for something that is next to impossible but is fundamentally better in nearly every way? Why not a new economic system?

End stipulation. Now let’s review Roubini’s suggested remedies, in case you’re still thinking resuscitating capitalism is desirable.

His first suggestion is that we “return to the right balance between markets and provision of public goods.” No more supply-side economics or free-market silliness, but also do away with the “deficit-driven welfare states.” He says we need infrastructure investment, progressive taxation, “short-term fiscal stimulus with medium- and long-term fiscal discipline”, “reduction of the debt burden for insolvent households”, breaking up too-big-to-fail banks, and tighter regulation of financial markets.

These are the typical liberal solutions to the recession and the threat of increased discontent and further economic turmoil. But do they really address the host of problems Roubini himself listed as potentially dooming capitalism? Not even close! Dr. Roubini has listed numerous symptoms of multiple terminal diseases and then effectively said, “I’m pretty sure I can treat that nasty rash you’ve got.”

But this commentary was widely hailed. Bloggers and aggregators looked up at Dr. Roubini and said, “That’d be swell, Doc. This rash has been bothering me somethin’ awful!”

Then Roubini gets a little more philosophical; he departs from reality a even more.

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalized economy.

Increase productivity in order to enable workers to compete? His solution to the dilemma of international trade being one of the downfalls detailed earlier is to “be flexible”? That’s it?

In order to save itself, capitalism needs to learn to invest more in human capital. In case you didn’t hate capitalists and their rationalizing apologists before, try that statement out for size.

“But Dr. Roubini,” a rational patient complains, “I’d like to hear all the options. There must be something else we can try. I mean, I felt pretty sick before I got the rash. I’ve got cancer and congestive heart failure.”

Roubini’s answer:

The alternative is – like in the 1930s – unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

And that’s it. Hilariously, that’s where the commentary ends. Finito. There is no alternative to his prescription. It’s Roubini’s way or doom.

Roubini’s review of capitalism is like that archetypical television scene where the sheriff sits on the edge of his desk, arms folded, and declares with forlorn: “Boys, I don’t approve of what you’ve done. You’ve been reckless, you’ve endangered lives, you’ve crashed several cars and half the town burned to ashes. That said, it appears I’ve got nothing to hold you on, so you’re free to go. Now scram, and stay out of trouble.”

But capitalism is not the moral equivalent of Bo and Luke Duke; it’s not a good-natured country bumpkin just trying to get by in a confusing world. It is the confusion.

What we’re really seeing from Roubini and others is self-interested terror combined with a dearth of ethical concern finally infused with a profound lack of imagination. It’s typically presented in a fashion that is practically self-conscious; the critic will make a strong case using facts and reason to explain why capitalism is to blame for our current condition… and then he or she will make what amounts to a religious case, lacking facts and reasoning, to argue that capitalism can or will turn everything around, if we’ll just tinker here and there.

This is remarkable, if you think about it. It requires a dual failure of imagination that is close to pristine in its self-delusion. The critic must fail to carry market capitalism’s structural implications to their logical conclusion, usually by ignoring all but a subset of problems that are in and of themselves pretty damn damning. It’s like showing how a plastic bag will rise and fall on the wind but then claiming it will never finally hit the ground or get stuck in a tree. This requires nonrational faith.

Roubini starts off with the wrong question: Is capitalism doomed? Who cares? There’s just one question worth asking: Is humanity doomed? My answer is, If we stick with capitalism, humanity is in deep trouble.

Roubini and the unimaginative see these questions as one and the same. They want to stay on the ship with the massively compromised hull on the off chance that some Sisyphus will come along and bail out the bilge indefinitely, despite a lack of apparent interest in the endeavor. They cling either because the ship is the only place they’ve ever called home and they can’t bear leaving it, or because on this ship they’re in first class, and on the lifeboats or the rescue vessel, class disappears.

Just imagine the near certainty of a figurative death by drowning frightening you less than the idea of having to live in a society that offers everyone roughly equal dignity. That’s the only impetus I can figure is behind these ridiculous declarations that there is no alternative to a system pretty much everyone from center leftward knows is a pile of garbage.

 

* I actually disagree that capitalism eating itself in the ways that it is now demonstrates that Marx was totally or even largely right, but in presenting a limited, carefully distilled sample of Marx’s claims, Roubini makes Marx seem positively ingenious in his forethought! (For people with religious beliefs in the predictive capacities of markets, the bar on predictive capacities is so low even 19th Century meteorology must seem positively prescient).

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Will the New York Times Profit Off an Elitist Profile?

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It never ceases to amaze me how disconnected, or just plain unconcerned, the privileged can be when it comes to worrying about the future of the world. Believing they’re safe from the worst pains of anthropogenic climate change and contrived resource scarcity, their main concern tends to be how they are going to continue to grow their personal wealth when the shit hits the fan…

Long-term business analyst Jeremy Grantham has been noticed recently for what some see as economistic doomsday predictions, usually in the form of open “letters” to the investor class. In these communiques, Grantham says the same thing progressive economists and scientists have been saying for decades, citing roughly the same evidence (if far less of it!) and drawing essentially the same mid-term conclusions, with updated numbers. But Grantham has credibility because he’s not remotely radical, or really even progressive — he’s a late-to-the-game mainstream financial analyst… and more importantly, he’s got the interests of elites in mind, which means the New York Times will perk its ears up and give unconventional observations the kind of attention only a Magazine feature profile can provide.

Grantham and some fanboys drive the conversation of an August 11 NYTM piece titled “Can Jeremy Grantham Profit From Ecological Mayhem?” In a way only the extraordinarily privileged could swallow with a straight face, source after source lavishes Grantham with praise for looking out for the vulnerable, neglected investor class. Unless you’re made of money, it would be hard not to get outraged by the cavalier attitude of this whole story. But if you are a big investor, how “objective” and “unbiased” the feature must seem.

Let’s start with writer Carlo Rotella’s gushing treatment of Grantham:

Doomsayers are always plentiful, and the economic and environmental news has encouraged even more doomsaying than usual of late, but Grantham compels attention, in part because he’s not simply prophesying doom. […] And, crucially, the consequences will be unevenly distributed, creating angles for you to make money and look out for your interests, however you define them.

[emphasis added]

The New York Times is saying a man deserves attention not because he is pointing out how much trouble lies ahead (however inadequately); it’s because he inspires us to call our stockbrokers rather than run to the woods. In other words, it’s newsworthy because he can help people with capital exploit volatility, the rest of us be damned.

Bailout Nation author and prolific business blogger Barry Ritholtz, whose work I have followed for a couple of years now, appreciates Grantham as a fellow straight shooter. But with praise like the following in the NYTM story, it’s easy to see which side these guys are shooting for:

He’s not telling people to stockpile water and dehydrated food. He’s saying this asset class will underperform or not.

And what about those of us who can’t invest in assets of any class? (The ugly irony, of course, is that if a major collapse happens, it’s unlikely all the asset holdings in the world are going to keep these guys and their families fed and protected, but on the way to “doomsday” they can get filthier rich on paper!)

The whole piece is such a fawn fest, the Times even quotes sources with financial conflicts of interest. We’re treated to praise of Grantham from the head of the Environmental Defense Fund, a group backed by the Grantham Foundation for the Protection of the Environment. We also hear from the executive director of that same Foundation, whose job no doubt depends on Grantham’s good graces. On what planet is that legitimate journalism?

The article includes no critics of Grantham or his attitude. In fact, the only bit that could be conceivably construed as criticism is mixed praise of the quarterly letters, coming from another employee of Grantham, who notes some investors complain that Grantham’s advice isn’t immediately applicable enough for them to exploit!

No source points out how bizarre it is that someone notes potential suffering only to dismiss or distract from it, making no real mention of current suffering. No one offers alternative analysis. No one even challenges Grantham’s numbers from any perspective, Left, Right, or Martian.

Enough views about Grantham. What about Grantham’s views? Let’s start with a zinger. In Rotella’s words from the Times piece:

The world’s population could reach 10 billion within half a century — perhaps twice as many human beings as the planet’s overtaxed resources can sustainably support, perhaps six times too many.

We aren’t told that this is only true if we assume the planetary elite — that tiny percentage of the global population that consumes a massive share of resources that could otherwise be used to feed, clothe, heal, shelter, and educate the 60 percent or so that live on less than $2 a day — is permitted to maintain its sickening dominance of global wealth and resources. This status quo is a given for the Times and people who look at Grantham as a prophet of profit angles.

Rotella quotes Grantham’s open letter from July:

We humans have the brains and the means to reach real planetary sustainability. The problem is with us and our focus on short-term growth and profits, which is likely to cause suffering on a vast scale. With foresight and thoughtful planning, this suffering is completely avoidable.

The above statement is just plain wrong. First, it ignores the “suffering on a vast scale” that is already underway! On Day Zero, we’ve got suffering on a vast scale. Who can look around and consider that the horrors already caused by “scarcity” that is in turn caused by market capitalism’s wicked misallocation of goods and resources is anything other than “vast” — I’d rate it as “epic”, even.

Worse, it’s absurd to suggest by implication that the suffering of the world’s poorest can be averted. Some of it can be curbed — perhaps much, even — but the trajectory we are on offers no option for sparing a great many, no matter what radical changes are made. (See, for instance, the recent work of fellow market optimist Paul Gilding, who at least has the integrity to admit widespread suffering caused by climate change and scarcity will be hellish and is inevitable and underway.) And make no mistake, Grantham is not advocating radical changes anyway, least of all those with the most vulnerable in mind.

It isn’t actually clear what “suffering” Grantham is referring to. But even if he’s talking about the “suffering” of wealthy investor class that risks losing its $300 shirts if they don’t play their dollars right, that hardship can be but delayed as Grantham and his friends trample to the aft rim of the Titanic.

Grantham does give some indication of who he’s looking out for, noting that a drastic change in economic priorities will likely come “too late in the sense of failing to protect much of what we enjoy and value today.” By we, he probably doesn’t mean the world’s poorest.

Grantham wisely wants to tie the issue of climate change to that of resource depletion, which he thinks will have a greater impact on the American conscience than that abstract bogey man of global warming. “Global warming is bad news,” Grantham tells the Times. “Finite resources is investment advice.” Again we’re back to those real interests. You’re not going to ride out Grantham’s storm on your 401k.

Cynics like me will have to agree with Grantham to an extent: it’s true that Americans are more interested in their short-term concerns than looking down the road. But Grantham goes a step further; he considers this unfortunate attribute a strength, saying Americans “respond to a market signal better than almost anyone.” How great that we don’t care about those who will be first and most severely affected by climate change — by gosh, we’ll respond when it puts the economic pinch on us… after all, we’re Americans. Meanwhile, the Global South is collectively begging us to respond for their sake (and our own), but the virtuous Americans are awaiting the proper signal.

The Times feature ends unsurprisingly on a note of praise for Grantham.

But I’m not done with him yet.

Grantham’s most-recent letter — the one that has garnered him cult-like attention (that I contributed to because his numbers are very interesting) — is a moral disgrace.

Grantham is extremely smart and insightful. He has a keen eye for some of the limitations of the system he lives by.

Capitalism does not address these very long-term issues easily or well.  It seems to me that capitalism’s effectiveness moves along the spectrum of time horizons, brilliant at the short end but lost, irrelevant, and even plain dangerous at the very long end.

Again, how capitalism can be considered brilliant in the short term when billions of humans are food-insecure or at risk of dying from curable diseases is kind of hard for us non-elites to understand. But it’s important for business analysts to comprehend, as Grantham does, that capitalism isn’t even good at keeping their interests steadily shaping up, because markets have extremely limited predictive capabilities.

Grantham tentatively advocates reducing the human population of Earth in such a way that “might leave us with a world population of anywhere from 1.5 billion to 5 billion.” Well, we certainly could go a long way toward solving our resource problem by eliminating the wealthiest billion humans, but something tells me that isn’t who Grantham is thinking about. (I don’t advocate it either, for the record.)

We could more palatably solve many of our resource concerns by knocking out excess consumption by the wealthiest 15 percent of the global population, even while raising the standard of living for the lowest 60 percent or so. But of course that’s not a serious option for the Paper of Record or anyone they’d herald in a praise piece.

Grantham’s letter is devoid of the following words: hunger, poverty, refugee, famine, disease. These are hazards that even the most cynical of elite analysts doesn’t take seriously. Malnutrition and starvation are both mentioned, but one is a historical reference. One use of the terms is in a bullet point glancing over the fact that there will be “increases” in Africa and Asia, and nothing will be done about it. Another mention is used to crassly bolster Grantham’s case against US ethanol subsidies.

Grantham’s letter focuses heavily on agricultural issues, lending some very good analysis of soil and water problems that are worth reading. But it conspicuously ignores the root causes of the soil and water problems he notes: factory farming, livestock dependence, and monocropping. He’s either just learning about the cornucopia of deep-seeded oh-shit crises already facing humanity, or he’s burying most of them for whatever reason. Either way, his agricultural analysis is embarrassingly amateurish.

Perhaps worst of all, Grantham naively exhibits symptoms of a very typical chronic optimism disorder that is virtually religious in nature. This is not uncommon among elites trying earnestly to look down the road. After lamenting (while the Fukushima crisis is still at a high simmer in Japan) that humanity probably won’t make a revolutionary switch to nuclear fission energy, Grantham brightens up:

I believe that in 50 or so years – after many and severe economic and, possibly, social problems – we will emerge with sufficient, reasonably priced energy for everyone to live a decent life (if we assume other non-energy problems away for a moment) even if we don’t radically improve our behavior and make true sustainability our number one goal. In other words, current capitalist responses to higher prices should get the job done.

I’ll stick to the worst of this quotation’s many offenses: the belief, based on nothing but faith, that markets and humanity will somehow, magically, make everything peachy again mid-century. No need to switch economic systems or do anything too radical; after some undisclosed “social problems” that we can assume away, we don’t even need to “radically improve our behavior” in the meantime — everything will fix itself.

Substantiation of such a bizarre claim is unnecessary, because Grantham is telling the financial elite what they want to hear. Worst case scenario: everything will sort itself out after some problems. No worrying about that whole screwing-over-future-generations conundrum. Even the chief doomsayer says they’ll be fine.

That must be comforting for the kind of people the Times finds relevant.

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‘Financial Terrorism’ in America

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Wow. This powerful, data-heavy paper comes off pretty bombastic, and I admit I’ve only given it a cursory read, but I’ve spot-checked the sourcing, and it holds up better than a lot of this kind of stuff that I come across. I’ve never seen the source before — Amped Status — but I’ll be taking a deeper look at that, too. It has a kind of Alex Jones (crazy) vibe, but I think it may actually be rooted in sanity.

I wish I had time to do a more thorough analysis, but I do not, so I wanted to make sure I shared this. You should just go read it. But in case you need some inducement, here are a few zingers from the report.

  • According to most recent Census Bureau data, from 2005 – 2009, average US household wealth declined by 28%. This represents a loss of $27,000 per household. Currently, at least 62 million Americans, 20% of US households, have zero or negative net worth.
  • In 2005, 25.7 million Americans needed food stamps, currently 45.8 million people rely on them.
  • While 68.3 million Americans struggle to get enough food to eat and wages are declining for 90% of the population, US millionaire household wealth has reached an unprecedented level.

Via Nomi Prins on Twitter.

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E-Trade Whines over ‘E-Trade Baby Loses Everything’ Vid

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I’m posting this partly because it’s hilarious and partly because I just found out that E-Trade abused YouTube’s copyright complaint policy to try to get and got this parody taken down. (See below.) So now I feel it’s my obligation as a free thinker to highlight how particularly awful E-Trade is (that is, above and beyond the fact of their normal business that made them deserving of this spoof in the first place).

Via Political Remix Video via Jonathan McIntosh on Google+.

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The Political Economy of Famine

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It’s that time again, when market apologists rush to wax insightful by noting that politics, not weather, causes famine. With the current uber-crisis in crisis-bound Somalia making small-print headlines, the marketiers will start tripping over themselves to seem smarter than people who superficially believe climate-based bad luck is the cause of hunger in Eastern Africa. They’ll do this by ignoring economics and focusing on government actions. And they’ll be partly right, of course, which is all that’s required to get a good pat on the back from anyone desperate not to acknowledge that “the market” has failed the destitute at least as much as their own and world political leaders have.

Case in point, a recent commentary by Richard Dowden called “Famine in Somalia: It’s the Politics… Stupid“. (One can’t help but think Dowden’s title is overstepping in its heavy-of-hand attempt to distract the reader from that other, less-palatable culprit.) Check out how insightful this sounds:

Drought can cause food shortages and price rises. But drought does not automatically mean famine. Famine is cause by politics – when war or governments prevent people moving or trading.

Nothing wrong with that statement, except failure to note the elephant in the room. Hmmm, what else could cause famine? Maybe extreme poverty, high food and general commodity prices globally, combined with the world’s reliance on markets to move goods even where movement and trade are not blocked by political forces. If political openness and local security do not guarantee a population the very basics for sustaining life, what is the failing force then? Dowden doesn’t answer this. Few ever do. Markets are treated as a fact of life, a given, not unlike the weather. So thoughtful observers hunt for causes that aren’t inevitabilities, as if we humans do not determine our economic models much the way we determine our politics (i.e., we let power elites decide).

Affluence and wealth are like magnets in terms of allocating necessities — regions and classes with greater demand power will see their excess wants prioritized over the bare basics needed in impoverished regions or by the destitute class. It isn’t really famine but the core impacts of famine we need to be concerned with; if we do, we see that famine is more a class phenomenon than a regional one. Politics somehow haven’t kept the wealthiest in famine-stricken regions from getting food. If you have the purchasing power, famine’s effects on you are very different than if you lack it. That being the case, how can we not note that the rules of the global market are the driving force of famine’s worst impacts?

Furthermore, where we see politics having the greatest impact on food insecurity in developing nations, it’s often if not usually due to economic policy that favors free markets. Where markets are freed up and stabilizing regulations or safety nets are removed, we see spikes in local food scarcity and human despair. Liberalized markets often even lead to countries exporting food during acute and chronic domestic shortages; international demand has that much perverse power! These policies are typically at the political behest of international bodies that operate under market ideologies for the benefit of international private interests.

This all applies to Somalia, which has spent 20 years in chaos following IMF intervention.

Non-fundamentalist market apologists will say this is all still the fault of government. If only governments would behave appropriately to control market forces, we wouldn’t see such perverse outcomes. It’s always the fault of politicians, and politicians are seemingly never able to curb markets appropriately in the developing world. What a coincidence. It can’t be the positive feedback loop of concentrated wealth has on politics, can it? This is inherent to market capitalist societies at all levels, which makes it the fault of capitalism, whether you like to admit it or not.

But it’s more in vogue to blame local governments, and of course Somalia’s excuse for a polity is an easy target here, what with the UN/AU-backed provisional government all but dead and the Al-Shabaab sideshow ineffectively running most of the South.

Why am I blogging about this on FuturEconomy? Because these same forces are at play here in North America. Austerity measures and deregulation are the watchword of Washington, and wealth disparities are a fact of life. Don’t think famine can’t happen here; it can, and it will, as long as we rely on an economic model that allocates necessities on a priority basis to those who don’t need them.

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The Genius of the Market

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It's pretty amazing that our society has reached a point where [the effort necessary to manufacture a plastic spoon] is considered easier than just washing a spoon when we're done with it.

Not to mention the externalities (air pollution, ground water pollution, ocean pollution, greenhouse gas emissions, etc.).

Or, consider the opportunity costs. What could we be making instead? Perhaps a product that does not have a superior substitute that is already in abundance if not massive surplus (you know, metal silverware).

Or, what would be the net leisure impact of not making disposable plasticware and freeing up all those work hours and resources? I know, you say you don’t work in the disposable utensils industry, so how would there be a net gain for you? And if you did work at a plastic spoon factory, you wouldn’t want the kind of leisure time associated with being laid off. And what about waste reduction — don’t I care about sanitation workers losing their jobs if we dispose of less shit?

And therein lies a key problem with capitalism: instead of socializing the opportunities of decreased consumption, it turns them into liabilities and institutionalizes excess and waste.

Graphic by Max Temkin. Print available here. Via Geoffrey Grabowsky Google+.

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The Truer Threat of a ‘Carbon Bubble’

carbon bubble pricked by needle
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You aren’t an idiot, so you’ve long known many of the impacts of climate change are inevitable at this point. Some are already occurring. You get that. The trajectory is in place, and unless we change it sharply, we’re going to see worse and worse conditions.

But what if financial markets have embedded the trajectory to a great extent by all but guaranteeing dependence on fossil fuels? A new report (PDF) raising fear of a bubble in the fossil fuels market inadvertently suggests this trajectory is precisely what’s underway, although its authors don’t seem particularly concerned about the threat to our habitat. The deck has been stacked; there’s a carbon commitment in place, if you will.

I found the report through a blog entry by Lydia Prieg over at NEF. She summarizes some key points for those of us more interested in humanity and the planet than investors:

This research offered a fresh perspective on investment and tackling climate change, by noting that more fossil fuel reserves are currently listed on stock exchanges than can be burnt if we are to avoid breaching the 2 °C global temperature rise (above pre-industrial levels), beyond which it is believed that climate change will be irreversible. For example, the CTI notes that:

  • “global markets are currently treating as assets [carbon] reserves equivalent to nearly 5 times the carbon budget for the next 40 years.”
  • “the CO2 potential of the reserves listed in London alone account for 18.7% of the remaining global carbon budget.”
  • “If the 2 °C target is rigorously applied, then up to 80% of declared reserves owned by the world’s largest listed coal, oil and gas companies and their investors would be subject to impairment”

Note that the +2°C point is way too high. We want to aim for +1° beyond pre-industrial levels by Century’s end, fully conceding we’ll spend most of the next hundred years cooking well above +1°. (And the prospects for even +2° are more than a little grim.)

Like Prieg’s, my take on this is different from that of the report’s authors. They seem concerned for fossil fuel investors, which is probably their mission. But I’m more worried about the rest of us. If the world’s governments get serious about curbing carbon emissions, it’s unlikely they’ll leave speculators holding the bag. Whoever is holding a hot potato (oil field) if and when steep regulations kick in could get bailed out.

Even if the influence of those invested in dirty energy were to fail in some way, they’d almost certainly succeed in protecting their existing investments in the trade-off. Which in turn means burning that fuel or transferring the burden onto the consumer/citizen, who is of course relatively unprotected by government.

Anyway, as Prieg notes, the industry isn’t particularly worried about the prospect of harsh emissions limits being imposed on fossil fuel reserves already on the market, wagering either that curbs are not impending or that the price spike they’d cause would benefit contract holders.

But Prieg’s personal insights are most important:

Both these arguments, however, demonstrate the lack of interest investment managers have about the role that they themselves may be playing in bringing about irreversible climate change. Apparently, when one is focused on optimizing an investment portfolio’s performance, concerns regarding the state of the planet just don’t feature on the agenda.

Indeed.

Image credit: Carbon Tracker Initiative

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How Outsiders Will View Our Demise

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I made this movie to express my frustration with where we’re headed. It’s not particularly informative, but I hope it’s a funny way to make people think about how untenable our economic system is.

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Bring on the Robots; Death to the Robots

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The subject of automation and innovation — especially their effects on labor and productivity — is one I’ve spent a lot of time pondering and researching. The issue is gaining renewed, much-deserved traction lately.

The matter boils down to productivity increases, and why in a sane economy they would be good for workers writ large, but in market capitalism they are not. As economist Tim Jackson (Prosperity Without Growth) put it recently:

We are caught in a productivity trap. While it generates wealth, productivity also generates unemployment.

We’ll hear more of Jackson’s critical ideas in the future, but for now I want to implore you to check out a piece called “Debtmaggedon vs. the Robot Utopia” from Caleb Crain’s blog Steamboats Are Ruining Everything. A taste of the brilliance:

You remember the robot utopia. You imagined it when you were in fifth grade, and your juvenile mind first seized with rapture upon the idea of intelligent machines that would perform dull, repetitive tasks yet demand nothing for themselves. In the future, you foresaw, robots would do more and more, and humans less and less. There would be no need for humans to endanger themselves in coal mines or bore themselves on assembly lines. A few people would always be needed to repair and build the robots, and this drudgery of robot supervision would have to be rewarded somehow, but someday robots would surely make wealth so abundant that most people wouldn’t need to work and would be free merely to enjoy and cultivate themselves—by, say, hunting in the morning, fishing in the afternoon, and doing literary criticism after dinner.

Your fifth-grade self was wrong, of course. Robots aren’t altruistic beings; they’re capital investments; and though robots may not ask to be paid, their owners demand a return on their investment. We now live in the robot utopia, which isn’t one.

Thanks in large part to computerized mechanization, manufacturing productivity in the past century has increased many times over. Standards of living are higher than they ever were, but we no longer need as many humans to work as we once did. Perhaps not coincidentally, human wages, in America at least, have stagnated since the 1970s. If humans made no more money in the past four decades, where did the wealth created by the higher productivity go? Toward robot wages, as it were. The owners of the robots took the money—that is, the capitalists.

Any fifth-grader can see where this leads. At some point society has to choose. Either society accepts the robots’ gift as a general one, and redistributes the wealth that the robots inadvertently concentrate, or society allows the robots to become the exclusive tools of an ever-shrinking elite, increasingly resented, in confused fashion, by the people whom the robots have displaced.

[paragraphing added]

The idea of “robot wages” collected by capitalists is brilliant, and I’m disappointed I’d never thought of it quite that way.

This is all similar to something I went around saying for a couple of years. “You know what’s wrong with capitalism? Robots, that’s what.” Why aren’t robots making our lives easier? The typical pro-capitalist response would be something about productivity increases — we’re getting more stuff. Much more. It’s everywhere. Between cheap labor and automated labor, those in privileged societies/classes are veritably are piled with crap. But “more stuff” isn’t making our lives significantly better in the short term, and it’s killing our habitat.

A sane economy would take benefits accrued from productivity increases of all kinds and parlay them into generalized gains.

I don’t know why we’d expect capitalism not to disappoint in this regard. After all, we were also promised jet packs.

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