Tag Archives: economic growth

National Geographic “Greendex”

National Geographic has developed an index that tracks the green-ness of consumer behavior worldwide.

“Greendex 2012: Consumer Choice and the Environment—A Worldwide Tracking Survey” measures consumer behavior in areas relating to housing, transportation, food, and consumer goods. Greendex 2012 ranks average consumers in 17 countries according to the environmental impact of their consumption patterns and is the only survey of its kind.

The top-scoring consumers of 2012 are in the developing economies of India, China, and Brazil, in descending order. Those in emerging economies continue to round out the top tier of the Greendex ranking, while the lowest scores are all earned by consumers in industrialized countries. American consumers’ behavior still ranks as the least sustainable of all countries surveyed since the inception of the study, followed by Canadian, Japanese, and French consumers.

Meanwhile, consumers in developing countries with the highest Greendex scores are the most likely to agree that they “feel guilty about the impact [they] have on the environment,” despite having the lightest footprint as individuals. The research finds a positive relationship between the extent to which people feel guilty about their impact and the Greendex scores of average consumers in the same countries. Consumers with low Greendex scores, i.e., those demonstrating the least sustainable behavior as consumers, are least likely to feel guilty about the implications of their choices for the environment.

I don’t doubt the validity of their conclusion that the average person in China, India, and Brazil has a much lower environmental impact than the average person in Canada, Japan, France, and the United States. I am surprised though by their finding that people in developing countries express more guilt about their own personal ecological footprints. That is not my impression based on some time living and working in Asia. The small, unscientific sample of people I have interacted with are definitely concerned about air and water pollution, for health and safety reasons, and if they belong to a generation that still remembers the land they tend to feel some sadness about urbanization. But concern about health and safety is not the same thing as guilt. People are demanding cleaner air, water, and food for themselves and their families, but that doesn’t mean they are thinking much about their impact on the environment for the environment’s sake. It’s a great story to tell that as these billions of people catch up in wealth and spending to their more industrialized, urbanized neighbors, they will do so without adopting those neighbors much larger ecological footprint. I want to believe it, but I don’t believe that is the path we are on.

 

Herman Daly

Herman Daly has a graph explaining his concept of “uneconomic growth”.

From the graph it is evident that increasing production and consumption is rightly called economic growth only up to the economic limit. Beyond that point it becomes uneconomic growth because it increases costs by more than benefits, making us poorer, not richer. Unfortunately it seems that we perversely continue to call it economic growth! Indeed, you will not find the term “uneconomic growth” in any textbook in macroeconomics. Any increase in real GDP is called “economic growth” even if it increases costs faster than benefits.

 

my favorite non-fiction books

Somebody asked me recently for a list of my favorite non-fiction books. It was tough to come up with a short list, but I came up with one based on two criteria – they had to have a significant effect on my mental model of the world, and more importantly they had to be a thoroughly enjoyable read. So, understanding that not everyone has the same taste in books and would love the books I love, here are some of my all-time favorites in no particular order:

How Much is Enough?: Money and the Good Life

The Song of the Dodo: Island Biogeography in an Age of Extinctions

Guns, Germs, and Steel: The Fates of Human Societies

Collapse: How Societies Choose to Fail or Succeed

Cradle to Cradle: Remaking the Way We Make Things

The Singularity Is Near: When Humans Transcend Biology

Engines of Creation: The Coming Era of Nanotechnology (Anchor Library of Science)

 

the “greater depression”

This article from Project Syndicate is very pessimistic about prospects for the global economy. It focuses mostly on low inflation:

Draghi began by acknowledging that, in Europe, inflation has declined from around 2.5% in mid-2012 to 0.4% today. He then argued that we can no longer assume that the drivers of this trend – such as a drop in food and energy prices, high unemployment, and the crisis in Ukraine – are temporary in nature.

In fact, inflation has been declining for so long that it is now threatening price stability – and inflation expectations continue to fall. The five-year swap rate – an indicator of medium-term inflation expectations – has fallen by 15 basis points since mid-2012, to less than 2%. Moreover, as Draghi noted, real short- and medium-term rates have increased; long-term rates have not, owing to a decline in long-term nominal rates that extends far beyond the eurozone…

A year and a half ago, those who expected a return by 2017 to the path of potential output – whatever that would be – estimated that the Great Recession would ultimately cost the North Atlantic economy about 80% of one year’s GDP, or $13 trillion, in lost production. If such a five-year recovery began now – a highly optimistic scenario – it would mean losses of about $20 trillion. If, as seems more likely, the economy performs over the next five years as it has for the last two, then takes another five years to recover, a massive $35 trillion worth of wealth would be lost.

When do we admit that it is time to call what is happening by its true name?

This discussion doesn’t really get at potential root causes (a valid criticism of most economic and financial reporting, I think) – is it just a lack of confidence feeding on itself? Is it lack of innovation causing productivity to fall? Is it automation causing productivity to rise but lining too few pockets? Is it climate change or some other manifestation of environmental degradation?

The reference to falling food and energy prices wouldn’t seem to support that last hypothesis. But I don’t quite get it – Brent crude is at $102 a barrel compared to its historic inflation-adjusted level of $20-40 for most of the last century. Meat and grain prices in the U.S. are definitely up due to one of the worst droughts ever in some key farming states. And that’s the U.S., not the tropics where the bulk of humanity now lives and the bulk of food needs to be grown in the future. So if I am right and there are serious pressures on water, energy, and food, we better hope that we are innovating at the same time to do something about it.

12 “sustainable” countries

This post from Alternet says we should admire the following 12 countries for their sustainable policies:

  1. Iceland
  2. Switzerland
  3. Costa Rica
  4. Sweden
  5. Luxembourg
  6. Germany
  7. Cuba
  8. Colombia
  9. Singapore
  10. France
  11. Norway
  12. Finland

Now all these countries definitely have progressive policies that other countries can learn from. But with the possible exceptions of Costa Rica, Cuba, and Colombia, all these countries have a lot of heavy industry and finance. They have large carbon emissions. They have replaced a lot of their original natural habitat with ecologically sterile urban development and factory farming. They house corporate headquarters and investors that exploit natural resources and export urbanization and heavy industry abroad. It simply won’t work to take these best-of-business-as-usual, relatively-low-footprint models and copy them in developing countries on a much larger scale. The resulting footprint will still be much too large, and lead to collapse. So what we need to do is take bits and pieces of what they do well, but come up with a completely new, truly sustainable model.

genuine progress indicator

Vermont is going to have a go at the Genuine Progress Indicator, a GDP alternative:

Estimating the GPI begins with household consumption, the major component of Gross Domestic (or State) Product (GDP), followed by twenty-four separate adjustments including:

  • Additions for benefits not included in GDP, for example the values of volunteer and household work, and non-market benefits from the services of forests (e.g. water purification) and wetlands (e.g. buffer storm events);
  • Deductions for depletion of our environmental assets, harm to human health, costs of underemployment, and loss of leisure time; and
  • Adjustment for the distribution of income received by citizens, more accurately measuring the ability of the economy to provide for all.

The website explains in detail how the calculations are done.

the gospel of shareholder value

This article from the Boston Globe talks about the idea that maximizing profits and shareholder value (which hypothetically is the present value of all future profits) is the sole function of a corporation.

Experts on the history of business say the Market Basket saga is a window onto something deeper than a power struggle among the Demoulas clan that owns it. They see it as emblematic of a war over the future of the American corporation—what its purpose is, how it should be run, and whom it should be engineered to benefit. They argue that maximizing profit and shareholder value—an approach to running companies that drives investment on Wall Street and serves as the closest thing to modern management gospel—is only one way of defining corporate success, and a fairly new one at that…

Post and others argue that a well-run company can—and should—be managed in a way that benefits not just the investors who own its stock, but a wide range of constituents. As opposed to “shareholders,” they call these people “stakeholders”: a group that includes employees, customers, suppliers, and creditors, as well as the broader community in which the company operates, and even the country that it calls home. According to that view, Market Basket’s employees and customers are essential to the firm’s success and, thus, rightful beneficiaries of its prosperity.

It also links back to a 1970 Milton Friedman article in which he argued that it is unethical for a person employed by a corporation to try to be ethical on the company dime:

In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.

The main problem I have with this is that the ownership of corporations is so diffuse these days that it is almost impossible for shareholders to exercise any sort of ethical control. Many shareholders are large institutions that collectively have no motives beyond the profit motive, even if individuals among them are ethical. No, the only way for society as a whole to behave ethically is for the vast majority of individuals to consciously act ethically every day – be they shareholders, employees, or customers. I don’t see that happening today.

Lords of Finance

Lords of Finance: The Bankers Who Broke the World

This book was kind of a hard read, but I’m glad I read it. My favorite part of the book was the last five pages, particularly these quotes explaining just how bad the Depression really was.

Anyone who writes or thinks about the Great Depression cannot avoid the question: Could it happen again? First it is important to remember the scale of the economic meltdown that occurred in 1929 to 1933. During a three-year period, real GDP in the major economies fell by over 25 percent, a quarter of the adult male population was thrown out of work, commodity prices fell in half, consumer prices declined by 30 percent, wages were cut by a third. Bank credit in the United States shrank by 40 percent and in many countries the whole banking system collapsed. Almost every major sovereign debtor among developing countries and in Central and Eastern Europe defaulted, including Germany, the third largest economy in the world. The economic turmoil created hardships in every corner of the globe, from the prairies of Canada to the teeming cities of Asia, from the industrial heartland of America to the smallest village in India. No other period of peace time economic turmoil since has even come close to approaching the depth and breadth of that cataclysm…

[The Great Depression was] a crisis equivalent in scope to the combined effects and more of the 1994 Mexican peso crises, the 1997-98 Asian and Russian crises, the 2000 collapse in the stock market bubble, and the 2007/8 world financial crisis, all cascading upon one and other in a single concentrated two-year period. The world has been saved in part from anything approaching the Great Depression because the crises that have buffeted the world economy over the past decade [writing in 2009] have conveniently struck one by one, with decent intervals in between.

informal economies

I’m somewhat interested in the idea of informal economies. According to this paper from the National Bureau of Economic Research, economists tend to think they’re bad – either a cause of poverty and slow development, or a symptom of it:

We establish five facts about the informal economy in developing countries. First, it is huge, reaching about half of the total in the poorest countries. Second, it has extremely low productivity compared to the formal economy: informal firms are typically small, inefficient, and run by poorly educated entrepreneurs. Third, although avoidance of taxes and regulations is an important reason for informality, the productivity of informal firms is too low for them to thrive in the formal sector. Lowering registration costs neither brings many informal firms into the formal sector, nor unleashes economic growth. Fourth, the informal economy is largely disconnected from the formal economy. Informal firms rarely transition to formality, and continue their existence, often for years or even decades, without much growth or improvement. Fifth, as countries grow and develop, the informal economy eventually shrinks, and the formal economy comes to dominate economic life. These five facts are most consistent with dual models of informality and economic development.

I’ve never bought into the idea that informal economies are 100% bad. I’ve been very lucky to spend some time in central Thailand, right on the edge between a rural and urban area, and to experience a mix of the informal and formal economies. It makes perfect sense that higher-tech sectors like mining, manufacturing, banking, and so forth are run by efficient, formal, corporations. But lower-tech service sectors provide a chance for “poorly educated entrepreneurs” (a pretty condescending term, actually) to provide everyday goods and services to each other at low cost and practically no overhead. Why is it “efficient” to pay $10 for a tasteless corporate meal at the mall, with most of that money going to pay rent to a real estate corporation and its army of lawyers, accountants, human resourcers, and insurance agents, plus the gas and wasted time to get there, vs. $2 for a tastier meal from a neighborhood entrepreneur? When you stop and chat with your neighbor, that’s culture and social capital, not “inefficiency”. And when something bad happens, you and the neighbor are going to lean on each other for help, not the lawyers and accountants working for the faceless corporation that runs the mall.