Friday, September 30, 2011

Contradictory Beliefs

How do we reconcile the need for more jobs, and the need for reducing environmental impacts?  Chris Bertram started a great thread on this at Crooked Timber, though many of the commenters seem not quite able to grasp the difficulty of it all.

Here's a great post by Bruce Wilder, though i might change a few things:

The weakness of the Keynesian program is its non-specific, open-endedness. People naturally want to ask, spend on what? and when does the deficit-spending end? (and then what?) These are reasonable questions. There’s a sense, within the abstract insights of Keynes’ analysis, in which it doesn’t matter what the money is spent on, as the objective is reflating the economy’s circular flow to a level of full-employment. But, in actual politics, those details cannot be abstracted away; they must be met.
The tragedy of era is that the answers to the question of what do we focus Keynesian spending on, is not difficult or mysterious. The U.S. economy, and the leading European economies, and the Japanese economy for a long time, are severely handicapped by structural problems and dysfunctional financial systems, and face looming challenges from global warming, peak oil and ecological collapse. Our political systems stand around paralyzed by their devotion to rentier interests, and the Left remains largely silent, barely able to rise above a faint endorsement of neo-liberal pablum.
With all due respect to those gentlemen (seriously), if Reagan Administration veteran Paul Krugman and self-proclaimed Eisenhower Republican Brad DeLong are your idea of “left-leaning”, your “left” is seriously palsied. They are preservationists, at a time, when preservation is simply not a viable option. We cannot preserve our dysfunctional financial system side-by-side with a prosperous economy. We cannot preserve our fossil fuel economy. We cannot preserve the global ecology, without radical change.
U.S. politics is dominated by the rentiers of finance and oil. We need to end that. They are the enemy. Bring them low, make them poor. That will be a good beginning.
I wouldn’t worry too much about “job growth”. The abstraction is confusing, in any case. There’s a lot of work to do, if we are to change the energy basis of the developed world’s economy, and to head off a smoky sojurn thru fossil fuels for the developing world. In the U.S. we need to completely replace the systems for powering transportation and structural heating by 2050. Completely. We need to invest in systems that use considerably less energy as well. We need a rail transporation system that reaches 80% of the population, passengers and goods. That means building a lot of rail, and relocating a lot of residential and business structures.
We might, indeed, seriously consider the welfare-enhancing effects of reducing wasted effort in a Red Queen’s race. More than half of Americans are employed in organizations of more than 100 employees, and most of those are engaged in various forms—not of “production”—but of salesmanship. Maybe, we could tax advertising, and dial down on the salesmanship, without reducing actually needed material consumption much at all. Watch less television. Spend more time on caring for our own, over-programmed children.
None of this is going to happen, as long as the U.S. and, by extension, the world, is ruled by greedy, corrupt, near-sighted oilmen and financiers. The economy and institutional system put in place in the American New Deal and the international order of post-WWII have played out to the endpoint of entropic collapse. It’s over. Gone. Post-post-post. Politically, we need a revolution and a vision for the future.
Sandwichman made another great hit:

 The difference between a recession and a steady state, or even “de-growth”, economy is that one is an accident and the other is a design. It’s the difference between skating and slipping on the ice. When I had a car and depended on it to get to work and shop, my life would be disrupted if the car broke down. I haven’t owned a car for two decades now and my life revolves smoothly around walking, biking and transit [plug: my daughter, Amy Walker’s new book On Bicycles has just been published by New World Library].
I have the very odd opinion that what we need is a spurt of a very specific kind of growthfor maybe a decade or two before easing off into a steady state or low growth scenario. This would be transition-to-a-new-economy growth and couldn’t be accomplished by traditional (Krugman, de Long, et. al.) fiscal stimulus or quantitative monetary easing. Since the late 1970s, the rich countries have been “enjoying” what Stefano Bartolini has termed “Negative Externality Growth,” which means that we’ve been spending more fixing the social and environmental messes we’ve been making and making even more messes in the process.
What we haven’t been doing is promoting the arts, culture and education at anything near the level we could afford to. Education has increasingly been yoked to “marketable job skills” training, whatever that means with narrower and narrower career opportunities for graduates.
The reasons for this huge misallocation are what I see as a deficient understanding of things that are commonly known as “market failure” and its complement “government failure”. In Economics of Welfare (1920), Cecil Pigou identified what have come to be known as “externalities” and argued that the resulting market failures constituted aprima facie case for government intervention. Probably due to a lack of comprehension of Latin among subsequent economists, the Pigovian tradition overlooked the fact that the adjective prima facie may have been meant by Pigou as an equivocation not an intensifier.
Forty years later, Ronald Coase presented a counter-argument that, in the absence of transaction costs and with full assignment of property rights, an efficient allocation of resources would be worked out through negotiation. That is to say “there is no market failure”. Of course, the fine print was in the transaction costs. There’s no such thing as “in the absence of transaction costs.” That’s like saying commodities would be free in the absence of labor costs. Whoop de doo!
Coase’s insight, though, brings to light something more important, though: market failure s all about transaction costs. And the term externality is a misnomer. Transaction costs are the very heart and soul of economic production and exchange.
You can’t escape transaction costs. BUT you can reduce them OR you can increase them. Wait a minute! Why would anyone want to increase transaction costs? The short answer is because that’s where the scope for claiming profit and rent resides. The long answer has to engage the political opportunities for shifting transaction costs, so that they are apportioned as “social costs”.
War, for example, is a tremendously effective way to inflate transaction costs and profit opportunities exponentially while fobbing them off as social and environmental costs.

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