30 March 2009

When is an economist not an economist?

I had a rather unpleasant experience last week at the Welsh Economics Colloquium, a gathering of research-active economists in Wales. I was only able to attend for the final day but had quite forgotten how detached from the real world many economic researchers are.

In fact, economists in Wales are fairly empirical (for which read that they do take the workings of the world itself into account), but the keynote address was by a Manchester-based economist who spent an hour of our time outlining a mathematical theory about optimal currency areas without mentioning the present financial crisis at all and with barely any relationship to the euro.

Having spent several years on the national steering group of the anti-euro campaign there were a wealth of questions I could have asked but the paper was so enclosed in its own theoretical bubble that there was simply no way in. This economist publishes in the highest-level journals, which only confirms my suspicion that they deliberately exclude any work that has any thing to do with reality because that reality proves the inapplicability of the theories of conventional economics.

As Mark Blaug put it: 'Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing.'

The level of response to my own presentation - about the excellent potential of Wales as a green economy - was much lower than I would encounter in a political setting, or from those involved in the Transition Town movement. It barely rose above the level of guilt-tripping - 'Why do you live in Stroud and work in Cardiff?' being an example question. The arch-theoretician asked a question so abstract that my mind failed to comprehend it. I do remember that it began 'If you had been alive a million years ago, when the temperature was 10 degrees hotter than it is now . . .'

Over the years I have moved from claiming venehmently that I am not an economist, to feeling comfortable using the title 'green economist' to actually thinking that maybe I might be an economist. After this experience I feel sympathy with Hazel Henderson's revulsion from the economics profession. Too many economists are happy to draw large salaries, paid for by people shovelling chips in McDonalds, for creating work that has no value and no relevance.

23 March 2009

Who Pays the Piper?

The public debate has moved seamlessly from outrage at the handing of vast sums of debt-based money to reckless financial institutions to wise words about the need to tighten our belts, pay more taxes and cut the public sector.

Even from a conventional economics perspective reducing government spending into the real economy in a Depression is a disaster. It is the normal pattern in recessionary times for the public sector to increase relative to the private sector; the fact that the government has already sent unimaginable sums in the direction of bankrupt banks does not alter this fact. The bailout was referred to as 'Keynsian' but in reality was nothing of the sort. Keynesian policies involve investment in public goods, not private losses.

Let's just consider again the size of the sums involved. The cost of the bailouts plus potential liabilities is around £617bn. This is the same amount of money as the whole of public spending last year. There is absolutely no way it can be recouped from tax increases or spending cuts. The arguments for them are rhetorical and political rather than prudent.

If we add together the size of the public debt and the cost of the bailouts we arrive at a figure of £1,527bn. The British GDP is only £1,473bn. RBS’s liabilities are £1,800bn. so if we add that to the public debt it rises to £3,327bn. which is more than double the size of our GDP. The only way out of this mess is to negotiate our way out of these debts on an international basis. Attempting to pay them back will lead to a decade of Depression and several lifetimes of wage slavery.

What can we do about these misguided and unjust policies? For those who can get there, demonstrations in London around the time of the G20 should be fun and should help to vent some frustration. More important is to refuse to go down the road of the inevitability of public spending cuts: challenge every person who argues the case to you. There simply is no reason why an asset bubble and a transfer of value to the rich should mean that the rest of us have to suffer a savage cut in the standard of our public services.

17 March 2009


It's two months now since I launched Green Economics in Oxford and I've finally got round to posting James's kind words at the launch:

I'm delighted to have been asked to say a few words at this launch of Molly's book. I'll start by thanking her for the appreciative references in it to my own work. I don't find it easy to ignore them in order to make an objective assessment of the book!

Let me just say briefly that I very much agree with what Caroline Lucas and Richard Douthwaite say about it on the back cover: it 'explains in clear terms the economic paradigm for the 21st century' ... it gives 'a vision of a just, sustainable and fulfilling economic life' ... it's 'an excellent introduction to a rapidly developing branch of political economics' ... 'the scope for debate is one of the things that makes this pioneering book so exciting'.

It organises clearly a very wide range of subject matter. The three Parts are on: Theory; Vision for the Future; and Policies. Chapter headings include: Work; Money; Green Business; Globalisation and Trade; Relocalising Economic Relationships; Green Taxation; Green Welfare; and Land and the Built Environment.

Chapter 5 on Money is particularly topical. It's an excellent 16-page summary of the background to the present financial shambles, and what should come after it. The final Chapter 13 - "Summary and Further Resources" - helpfully pulls the whole book together.

The book suggests very clearly the "cognitive dissonance" to which societies like ours are now exposed. That's the term used by social psychologists to describe being compelled by circumstances to believe, and act on, two contradictory beliefs at the same time. On the one hand our governments say they must take emergency action to induce us to live more lightly on the planet. On the other hand they are doing what they can to stampede us into returning to high consumption lifestyles in order to save the economy - at the cost of billions of money borrowed from ourselves as future taxpayers. This book will, I am sure, help to accelerate the inevitable and necessary resolution of this contradiction within the next 10 years or so.

I will end these few remarks, as I began, on a personal note. Molly has dedicated the book to me as 'the Grandfather of Green Economics'. Not being a grandfather myself, I decided to consult Google on the grandfather's role. I learned that:

"Grandfathers have lots of wisdom and life experience to draw from. They have seen events and changes come and go. .... As grandchildren grow, they make attempts to learn about their world, their family, relationships, and society. A grandfather's perspective, formed from years of experience, can help guide, inform, and influence the growth and development of his grandchildren."

Straightforward enough, though quite a challenge in this context. However, I have settled for being a less conventional grandfather than most - if only because I have no idea how many grandchildren there are in this case. The practical answer to that has to be, of course: 'the more the merrier'. So I hope we can help their numbers to grow unstoppably.

Green Economics will be an invaluable aid for that purpose, as well as for our own understanding. We must try to make sure it gets the attention it deserves in places of education, in the press and communications media, among environmental, social and economic NGOs, and among the politicians, officials, and other mainstream professionals who will be responsible for helping us to shape a greener future.

15 March 2009

From Denial to Cognitive Dissonance

Two significant meetings are taking place this week. The conference in Copenhagen to address the science of climate change is receiving world-wide publicity. Our correspondents report that normally sober scientists are looking frightened in public: they have seen the evidence of environmental breakdown and their hair is turning white. That in Horsham, Sussex - a preparatory meeting for next month’s G20 —less so.

The meetings have different participants and different agendas because at present world leaders are seeing the environmental and financial crises as two separate issues. But they are not. We are facing a single economic crisis which can be summed up by the phrase ‘living beyond our means’. In financial terms, living beyond our means has resulted in a grossly inflated debt bubble whose explosion is decimating the world economy. In environmental terms, this same over-expansionist logic has resulted in over-exploitation of planetary resources and the atmosphere.

What we need to achieve at next month’s G20 is an economy that is stable and balanced. This cannot be achieved while we have a privatized financial system which relies on debt as the motor of the global economy. While Gordon Brown is focusing attention on bankers’ pay, re-regulation, and using the IMF to create yet more debt, the real issue is the need for a restructuring of the international financial architecture.

The financial system devised at Bretton Woods in 1944 guaranteed a lengthy period of peace and prosperity — at least for Western nations, but it did not respect planetary limits. The G20 should return us to a system of political management of the global economy but one which ties in an agreement on climate change. The evidence presented by scientists makes it clear that we can no longer wait for an agreement on climate change: radical cuts in CO2 emissions are needed now. Since it is economic growth that drives the increase in CO2 emissions we cannot achieve that outside the framework of a significant readjustment of the world’s economic system.

7 March 2009

The Hollow Men

We are the hollow men
We are the stuffed men
Leaning together
Headpiece filled with straw. Alas!
Our dried voices, when
We whisper together
Are quiet and meaningless
As wind in dry grass
Or rats' feet over broken glass
In our dry cellar
Between the idea
And the reality
Between the motion
And the act
Falls the Shadow

Extract from The Hollow Men by T. S. Eliot

6 March 2009

Something for Nothing

Yesterday was QE day: the day that the government and the Bank of England proved the justice of the argument for which monetary reformers have been pilloried for decades. It is possible simply to create money as credit when the economy needs it. There is no need to create it as debt whether public (enforcing citizens to work to pay it back) or private (ensuring an automatic transfer of economic value to the banks and the rich who profit from them).

I spent the day in Merthyr Tydfil - the day that was also the 25th anniversary of the Miners' Strike. That strike, and the economic devastation that followed the politically motivated closure of the South Wales coalfield, led to massive levels of indebtedness and I was attending a conference of good people who run credit unions trying to help the victims of Thatcherite capitalism manage their paltry incomes with the help of credit unions.

The £75 billion that was generated yesterday could have been used to wipe out all the debts in the South Wales Valleys - some sort of political amnesty for the local people's refusal to sign up to free-market capitalism. Instead it was used to buy up worthless assets that have been generated by a corrupt financial system.

When the asset bubble was being inflated, the banksters and their mates could price an asset at whatever they could persuade somebody to pay for it. So long as they could sell it on, it was possible to then translate this artificial value into real value, by buying land or gold, for example. Once the bubble bursts these assets have no value and those left holding them are bound to lose out massively. The government is using its ability to produce money to prevent this from happening.

Rich people's debt is repaid by government; poor people's debt remains with them, forcing them into lives of grinding despair. Sending the money to banks is a hopeless strategy in terms of reviving the economy, since it will be sucked into the black-debt hole that has swallowed up all the rest of our money thrown at the problem.

But ideologically it is crucially important that this money isn't given to citizens or spent on the health service. If it were the capitalist mantra that you cannot have something for nothing would be seen to be false. Of course this mantra has only ever applied to poor people and working people. If you are a member of the Bullingdon Club working out smart ways to conceal the fact that you live from something for nothing is your congenital life strategy.

2 March 2009

A Dance to the Music of Home

Continuing my theme of carbon-free culture I have arrived at the importance of music in a bioregional economy. With this in mind, I recently dusted off my ancient violin and am taking lessons. The sounds is appalling but I feel thoroughly virtuous and well-prepared to entertain myself - if not others - once we run out of oil.

Shared music-making will be a staple of the convivial community as it already is in so many communities across the world. Gary Snyder writes that 'When men drink together in Japan, at a certain point in the evening they begin to take turns singing folksongs of their home provinces. When the American in the group is called on, he has a hard time knowing what to sing.'

Having Welsh relatives and living a large part of my life in Wales - renowned as "the land of song" - this has never been a problem for me. In Wales songs are used for identification, for affirmation and for raising your spirits or those of your rugby team. Tough men are quite happy to shed drunken tears. Emotions are unleashed.

In classical music the foremost example of nationalistic music-making was surely Smetana, whose tone poem Ma Vlast (my home country) portrays in music six aspects of the natural world of the Czech Republic, most famously the musical portrait of the river Vltava. Such music was instrumental in supporting the establishment of the nation-states of central Europe in the 19th century.

As we lose the ability to import goods from across the globe the sense of local pride and identification will have to act as a substitute. But the emotional power created by a strong identification with your local soil has a dark side too, a potential for exclusiveness and parochiality that we have to beware in our economic as well as our cultural relationships.