Economics - Feb 11
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The Trillion Dollar Coin vs. Limits to Growth
Mike Sandler, The Huffington Post
For those who missed it, the trillion dollar coin rose to public awareness early this year as a novel approach to circumvent the debt ceiling debate. It was interest-free and debt-free, and a few blogs noted the implications for a new, and perhaps better money system. But was the coin sustainable? In other words, what implications does the trillion dollar coin have for sustainability and climate change?
It is tempting to compare the "long term problems" of the national debt with the climate crisis, and New York Times columnist Thomas Friedman did just that the very same week that the trillion dollar coin was making headlines. In Friedman's view, both issues concern impacts on "future generations" that are getting worse and need urgent fixes. Although there are many flaws in Friedman's argument, he correctly noted that, (in the current system) "at some point, the debt will get so large that big tax increases and spending cuts will simply go to pay interest. We also won't be able to bend that curve anymore, and spending on infrastructure, education and the poor will vanish." Paul Krugman responded to Friedman by reminding him that economic systems differ from geophysical systems. Humans can change or invent new economic systems to fit our needs, but humanity's ability to influence Mother Nature's systems is more limited.
The dust up between Friedman and Krugman failed to mention a more important problem: that infinite economic growth requires resources from finite ecological systems. For over 30 years, this argument has been framed by scientists subscribing to the Limits to Growth analysis. Ecological economists such as Herman Daly have pointed out that an economy focusing on true sustainability must strive to reach a steady state...
(5 February 2013)
Michael Shuman… there’s a local business revolution on the horizon, and we can make it happen
Mark Maynard, MarkMaynard.com
Last week, I had the opportunity to spend a day with economist and author Michael Shuman. Shuman, for those of you who aren’t familiar with his work, is probably our nation’s foremost authority on the importance of cultivating, supporting and investing in local businesses. The stated purpose of his visit to Ann Arbor, which was coordinated by the Washtenaw County Office of Community and Economic Development, was to discuss the various mechanisms which are evolving for regular folks, like you and me, to invest in the small, local companies that we love, patronize and would like to have a financial stake in. As much of what Shuman said was material that I’ve written about here in the past, after having heard him speak on other occasions, I’ve decided to limit my coverage to the 16 things which Shuman said that struck me the hardest. Here they are, in no particular order.
1. The economic development policy of Michigan, according to Shuman, has “gone off the rails.” This, he says, is not an indictment of any particular political party, as both the Democrats and the Republicans, according to him, promote a failed “attraction and retention” approach, which has little or nothing to do with nurturing the small, local companies that are the overwhelming creators of jobs and prosperity in this country. Instead, our various economic development organizations focus primarily on luring big businesses to leave the states where they currently reside, by offering tax abatements and other short-sighted incentives, and bribe those big businesses that are already in-state to stay. A more successful strategy, he argues, would be to implement policies that maximize local ownership, increase regional self-reliance, and reward adherence to the so-called triple bottom line (the understanding that environmental and societal costs should be factored in, along with profitability, when assessing a business’s value). In further exploring the triple bottom line concept, Shuman says that it’s already appreciated by most people that decisions aren’t just motivated by price. It’s about value, he says. If it were just about price, Starbucks wouldn’t exist. They, however, attract people for a reason. When thinking about local business, we need to keep that in mind. We need to reframe the value proposition, and demonstrate how other factors need to be taken into consideration. Until not so long ago, he says, people in many companies couldn’t purchase long-life, energy-efficient light bulbs, as they were more expensive. There was no way, according to Shuman, to factor in the life of the bulb when making a purchasing decision. That, however, has changed. And, as we move forward, other things will be factored in as well.
2. The evidence, according to Shuman, shows that “local busineses are more reliable and efficient users of public money.” Shuman, in making this case, references an assessment that was done of the tax abatements given to entities doing business in Lane County, Oregon. 95% of all abatement dollars, during the specific period of time that he studied, were given to six non-local businesses. Three of these companies, after receiving their abatements, promptly moved their facilities to Asia. And, of those remaining, two never delivered the jobs that they promised. (Speaking of which, does anyone remember how many jobs Google said they’d bring to Ann Arbor when they got their abatement half a dozen years ago?) But, while only one of the six investments in businesses headquartered out-of-state actually brought about significant job creation, the 5% of incentives that went to businesses rooted in the community were actually quite successful. And, those jobs which were created cost the tax-payers a great deal less. Whereas it had taken over $60,000 in abatements to create each job with an out-of-state business, a new job was created with every $2,000 invested in a local business. (I plan to ask Michael for a link to the study)...
(3 February 2013)
It's the New Economy, Stupid
John Cavanagh and Robin Broad, The Nation
Most progressives have long embraced a clear alternative to the conservative story that prosperity flows best from a “free market” unfettered by government regulation and taxes. The standard progressive response: government incentives and spending are essential to spur the creation of jobs, and unions and regulations can make them “good jobs.”
President Obama’s re-election by a surprisingly healthy margin (he won by 3.5 million in the popular vote and by 126 in the Electoral College) confirmed substantial support for this overall approach to the economy. Despite deep economic suffering throughout Obama’s first term, the public validated his advocacy for more progressive taxes, his ideas about the positive role that government must play in regulation, and his call for public investment in training, education and research. All of this adds up to a significant defeat for the free-market ideologues who lined up behind Mitt Romney.
But here’s the catch: while Obama’s policies have the short-term potential to improve the lives of many Americans beleaguered by the economic slump, the approach he champions is insufficient to tackle the long-term problems we face. To secure a safe and prosperous future for subsequent generations, efforts to reduce unemployment and curb inequality must be considered alongside urgent threats to the environment and democracy. These crises present a compelling argument for systemic change...
(17 December 2012)
Perfect storm, energy, finance and the end of growth (report)
Dr. Tim Morgan, Alphaville
Through technology, through culture and through economic and political change, society is more short-term in nature now than at any time in recorded history. Financial market participants can carry out transactions in milliseconds. With 24-hour news coverage, the media focus has shifted inexorably from the analytical to the immediate. The basis of politicians’ calculations has shortened to the point where it can seem that all that matters is the next sound-bite, the next headline and the next snapshot of public opinion. The corporate focus has moved all too often from strategic planning to immediate profitability as represented by the next quarter’s earnings.
This report explains that this acceleration towards ever-greater immediacy has blinded society to a series of fundamental economic trends which, if not anticipated and tackled well in advance, could have devastating effects. The relentless shortening of media, social and political horizons has resulted in the establishment of self-destructive economic patterns which now threaten to undermine economic viability.
We date the acceleration in short-termism to the early 1980s. Since then, there has been a relentless shift to immediate consumption as part of something that has been called a “cult of self-worship”. The pursuit of instant gratification has resulted in the accumulation of debt on an unprecedented scale. The financial crisis, which began in 2008 and has since segued into the deepest and most protracted economic slump for at least eighty years, did not result entirely from a short period of malfeasance by a tiny minority, comforting though this illusion may be. Rather, what began in 2008 was the denouement of a broadly-based process which had lasted for thirty years, and is described here as “the great credit super-cycle”.
The credit super-cycle process is exemplified by the relationship between GDP and aggregate credit market debt in the United States (see fig. 1.1). In 1945, and despite the huge costs involved in winning the Second World War, the aggregate indebtedness of American businesses, individuals and government equated to 159% of GDP. More than three decades later, in 1981, this ratio was little changed, at 168%. In real terms, total debt had increased by 214% since 1945, but the economy had grown by 197%, keeping the debt ratio remarkably static over an extended period which, incidentally, was far from shock-free (since it included two major oil crises)...